Saturday, December 5, 2009

Re: Dec 5.09 commentary

Excellent report, Harvey.
Do you think that the Dubai financial troubles will precipitate gold sales by debtors, in the Middle East in particular, or do you think it more likely that they'll dump Treasuries and other US financial instruments instead?
Certainly something will have to be sold, and in very large volume, in order to deal with the current Persian Gulf debt crisis, unless of course Dubai chooses to have no deal with its bankers, which seems unlikely, if not suicidal.
Interestingly, JP Morgan Chase, which is vastly short gold, seems to be one of the major Dubai creditors.
Does this mean that Morgan will force payment, in whole or in part, in gold, or are they going to feel lucky just to get paid anything at all and settle for whatever is offered?
Certainly, there are a lot of US financial instruments accumulated among the Emirates, and I would have thought that the debtors, or those bailing them out, would prefer to pay with such instruments and to keep the gold for themselves.
Also, is the relative buoyancy of silver over gold, at least in Friday's raid, due to the fact that there are no public stocks of silver to speak of, and hence no ready sources for physical delivery?
In addition, would not a blow-up in silver bring about an explosion in gold the day after, thereby making the silver market the one which gold enthusiasts should be monitoring the most closely?
Your views, please.

Dec 5.09 commentary

Good morning Ladies and Gentlemen:
As I warned you on Thursday night to fasten your seat belt, it is regretable that I was right.
Gold closed down by 48.40 to 1169. Silver fared much better on a percentage basis falling by 61 cents to 18,49.
I will include the comex gold and silver trading at the conclusion of my commentary.
In gold comex, the volume of trading set a record in the extreme.  The estimated volume recorded is 398800.
Probably it will turn out to be 420,000 contracts.
There were no switches but there was some spreading.  So in all probability the real true volume was 350,000
The open interest basis Wednesday rose by 10,000 to 530,000
To give you an idea of the volume, 400,000 contracts represents 40 million oz of gold.  The world produces around 72 million oz.
So in one day almost 55% of the yearly world's production traded on the comex gold.
And, this bourse is not the world's largest in gold and silver.  That honour belongs to LBMA over in London.
The volume on LBMA gold is roughly 69-75 million oz per day in gold.
In silver comex, the volume recorded was 51000 contracts or  about 255 million oz of silver.
The world produces around 680 million oz, so 38% of worldly production traded on comex silver.
The comex also is second to the LBMA in silver trading.
The open interest on silver comex basis Wednesday rose 1036 to 130,000.
In yesterday's trading in gold, the estimated volume of 398000 represents  75% of total open interest, totally unheard of, with total OI at 530,000
In silver, the 51000 volume represents 39% of total open interest.
With respect to gold, I believe that many of the weaker speculators left the arena.

There are 3 possible scenarios from Friday's raid that may result:
1. Lets say that for every 100 volume contracts, 15 poor souls had stop losses and thus had their positions liquidated.
Or they thought that the usa economy was improving such that the authorities will raise interest rates which will raise the usa dollar
and thus cause gold to fall.
In that scenario, on Monday, the OI will fall 15% on yesterdays volume of 400,000 so 60,000 contracts will leave.
If 10% left then the OI will fall by 40,000
2. Scenario No 2 has it that only 1% left ( or any tiny amt).  If that would occur, the OI would drop by 4000 contracts which would be tiny
compared to the volume and total OI.
However the cartel would be miffed as the price is lower and thus more gold players will enter the arena with a smaller gold price.
3. Scenario NO 3 has it that the OI increased by 1% or better despite the whacking of gold.  Here some weak players left but more buyers showed up than
those that left.  Thus the OI would rise by 4000 contracts with a falling gold price.
This would be discouraging to me as I know another raid will be upon us.  If that event occurred, the cartel boys already know the result as they know results
at days end.  We get it one day later. They will be burning the midnight oil this weekend to plan how they are to get the huge monkey shortfall off their backs.
I favour, scenario NO 1, but it could be 2 or 3.
The RSI which is a statistic used to cover whether the general trading over the period is in a bullish manner or neutral or bearish.
In one day, the RSI went from 95% bullish to neutral.
I view that as very encouraging.  Gold loves to climb a wall of worry.  You do not like to see the entire trading world parked in one corner and nobody at the other end.
I kind of like it when we are in neutral  and that is where we are today.
Ted Butler was on KingWorld Radio and he discussed the short position of JPMorgan.
This bank is short 12 million oz of gold and 200 million oz of silver. They have lost 3 billion dollars last month with the huge rise in gold and silver.
Probably, this is one of the reasons for the raid yesterday trying to alleviate their shortfall.
However, we saw throughout the day yesterday, silver fall less in percentage terms than gold.  Butler believes that it will be silver that will rise exponentially out of the box
ahead of gold.
you can listen to Ted Butler on
In related news, the SLV and gold have been adding inventory.  In gold, the GLD inventory has now surpassed 1131 tonnes of gold, placing it ahead of most countries central banks.
In silver, they added another 15 million oz this week and their new total is now over 306 million oz.
Our bet is that most of this silver and gold is leased back to satisfy the demand from countries wishing physical.
Here is Market Vane's account on gold rising in inventory at GLD:
MarketVane’s Bullish Consensus and the HGNSI were unchanged at 89% and 68% respectively. The GLD ETF added 0.27659 tonnes (8,892 ozs) to 1,131.49013 tonnes.
OK lets go to the big news of the day, the jobs report:
The BLS released news yesterday showing the usa lost only 11000 jobs.  The market had expected 130,000 lost jobs.
The gold market initially jumped up by 4 or 5 dollars, but then quickly plummeted and you know the rest of the story.
First, the official release by the BLS

08:30 Nov nonfarm payrolls reported (11K) vs. consensus (125K); unemployment rate 10.0% vs. consensus 10.2% 
Oct nonfarm payrolls revised to (111K) from (190K). 
* * * * *

08:30 Nov average hourly earnings 0.1% vs. consensus 0.2%; average weekly hours 33.2 vs. consensus 33.1 
Oct average hourly earnings unrevised from 0.3%; average weekly hours unrevised from 33.0. 
* * * * *

8:36 Follow-up: nonfarm payrolls fall just 11K with net upward revisions of 159K to Sep/Oct
In addition to the better than expected November decline, both September and October saw significant upward revisions. October is now (111K) from (190K), and September is (139K) from (219K). Some other notable developments in the report: 
•The workweek rose two tenths to 33.2 hours
•Service payrolls rose 58K for a second straight monthly gain, after +2K in October.
•Leading the service sector's improvement has been the temporary help category, which is often seen as a leading indicator of payrolls given that many business will turn first to temp help as conditions improve. This category saw its fourth straight monthly increase, +52K after +44K in Oct and +17K in Sep 
* * * * *

U.S. non-farm payrolls fall a shock 11,000 in Nov

WASHINGTON, Dec 4 (Reuters) - U.S. employers cut a far fewer-than-expected 11,000 jobs in November, the smallest decline since the start of the recession in December 2007, government data showed on Friday, strongly suggesting the deterioration in the labor market was in its final stages.

The Labor Department said the unemployment rate fell to 10 percent from a 26-1/2 year high of 10.2 percent in October. The government revised job losses for September and October to show 159,000 fewer jobs lost than previously reported.

Analysts polled by Reuters had expected non-farm payrolls to drop 130,000 last month and the unemployment rate to hold steady at 10.2 percent.

The data will take some pressure off President Barack Obama, a day after he appealed to the corporate sector, at a jobs summit he hosted, to join in the administration's employment creation efforts.

While the economy has resumed growth after four straight quarters of decline, there are concerns that labor market weakness will prevent the recovery from becoming self-sustaining. Government spending is largely driving the economy's recovery from the worst recession in 70 years.

Since December 2007, when the economy slipped into recession, 7.2 million jobs have been lost, the Labor Department said. But the pace of layoffs has slowed sharply from early this year. Analysts believe the bruised job market may be close to turning the corner, with jobs growth likely early next year.

November's data was the strongest since December 2007, when jobs increased by 120,000. Payrolls have fallen every month since then.

The improvement in the labor market last month was broad based, with four sectors, including the government, adding jobs. Manufacturing payrolls fell 41,000 after dropping 51,000 in October. The construction sector shed 27,000 jobs, while the service-providing sector added 58,000 workers.

Professional and business services added 86,000, while education and health services increased payrolls by 40,000. Temporary help employment rose by 52,400.


And then at 10 oclock we got factory inventories and orders were up:

10:00 Oct Factory Orders 0.6% vs. consensus 0.0%
Sep Factory Orders revised to 1.6% from 0.9%. 
* * * * *

U.S. factory orders, inventories rise in Oct

WASHINGTON, Dec 4 (Reuters) - Inventories at U.S. factories increased for the first time in more than a year in October, while factory orders also rose an unexpected 0.6 percent, the Commerce Department said on Friday, in signs the manufacturing sector is returning to health.

Analysts polled by Reuters had expected orders to remain unchanged in October. September's rise in orders was also revised up to1.6 percent from the 0.9 percent originally reported.

Factory stocks grew 0.4 percent in October, after shrinking for 13 straight months, the department said. The inventories-to-shipment ratio, a measure of how long it would take to deplete current stocks, declined to 1.34 months' worth from 1.35 months' as shipments rose.

The growth in supply shows that factories are ramping up the longest and deepest recession in decades.

Inventories, though, of durable goods dropped 0.1 percent, led by a decrease in machinery. It was the 10th month in a row that stocks of big ticket items dropped. Orders for durable goods also dropped, by 0.6 percent, in the second decrease in three months.


As in other BLS releases, this one was also fraught with dubious data.
The month of November has the highest plug factor. They estimate that over 100,000 jobs were  created in November due to the Christmas hiring.  These are part timers and they will be
gone after Christmas.  These are not long term hirings.
However, the market took it that the economy has stopped the bleeding and is on the road to recovery.
Here is Jim Sinclair's version of this from the John Williams shadow stats forum:
 the John Williams shadow government stats:
Here is this report:

jim Sinclair’s Commentary


- Employment and Unemployment Not Improving,  
  Despite Distortions from Seasonal Factors and Revisions  
- Unemployment Rate U.3 at 10.0% (SGS 21.8%)  
- Fed Boosts Monetary Base Anew

"No. 264:  November Employment, Monetary Base"

, when you press on the site:

you will note that M3 is now at zero growth.

You cannot have a growing economy with zero M3 growth.

Please study his labour graphs:


Definition:  U3 is the government version of unemployment. That number is 10%

U6 is the government number of true unemployment if you add in short term discouraged workers. It is a true government number and the U6 is 17%

Williams does his calculation of true unemployment and instead of using only short term discouraged workers, he includes long term discouraged workers

who cannot find a job.  This number declined last month slightly to 21.6%.  This website is very important and useful to everyone.

I urge you to have it in your favourites.



In other news, bankruptcies dipped a bit last month but still at record levels:

US bankruptcies dip in Nov, may hit 1.5 mln in '09

* Daily filings second-most for a month since 2005 
* Bankruptcies likely to rise in 2010

NEW YORK, Dec 4 (Reuters) - Fewer Americans filed for bankruptcy protection in November than a month earlier, but the rate of filings stayed near a four-year high and total filings appeared headed toward nearly 1.5 million for the year.

There were 115,502 U.S. bankruptcy petitions in November, down 13 percent from October but up 26 percent from a year earlier, according to data compiled from court filings by Automated Access to Court Electronic Records, which is part of Jupiter eSources LLC in Oklahoma City.

For the first 11 months of 2009, bankruptcy filings totaled about 1.33 million, 21 percent more than the 1.1 million recorded for all of 2008.

"It has certainly been a robust year, and we expect 1.5 million filings this year," AACER President Mike Bickford said in an interview. "In the most likely case, we would expect filings to rise another 15 to 20 percent in 2010."…



Dave Kranzler has given us another commentary on the continue plight over in Dubai.  In essence the London bankers are in serious trouble as Abu Dhabi bankers have not offered any dollars to rescue its fellow emirate:

Dave from Denver,

Friday, December 4, 2009

The Dubai Debt Crisis Is Not Over

by a stretch of anyone's imagination. This hit Bloomberg today:

Bonds of Nakheel PJSC, the property unit of Dubai World that’s seeking to delay payments due this month, dropped to the lowest in four days before a call between creditors scheduled for today. Nakheel’s securities fell to 54.88 cents on the dollar from 58 yesterday, the lowest price since Dec. 1 (here's the link: Dubai Debt Crisis)

There are still a lot of unknowns surrounding this situation, not the least of which is to what extent foreign banks (U.S./UK) face billions in losses connected to plunging Dubai real estate values and failed investments. And the loans which are stated on these bank balance sheets can be quantified. What can't be quantified is the notional amount of credit default swaps that are connected to the Dubai bank loans (ask AIG and Goldman Sachs how this works). Furthermore, JPM and Citi, the two banks which appear to have the largest exposure, have been somewhat less than transparent with reporting the full extent of their liabilities - on and off balance sheet - and the Dubai crisis has all but disappeared from mainstream financial media.

The moral of the story is that the crisis in Dubai should be seen as a very bright warning flare to all that the global credit crisis is far from over. Quite frankly, our leaders on Capitol Hill and at the Fed have done absolutely 
nothing to fix any of the financial or economic problems plaguing our collapsed system. They have done a marvelous job printing paper to pay themselves and issue even more Treasury debt to pay for ridiculously ineffective "stimulus" programs. One massive simultaneous transfer of banking system debt onto the public (Govt) balance sheet and of public tax revenues into the bank accounts of Wall Street.

I have said all along that a second, more severe crisis is ahead of us and - now that the U.S. media has everyone "dumbed down" again - will originate from a source that very few will anticipate. Given how the daisy chain of credit default swap counterparty defaults can be triggered, and given that monetizing such defaults globally are outside of Bernanke/Geither's ability to throw U.S. tax dollars at them, we won't know what kind of fuse has been lit by the Dubai default until it's too late to react to it.

Foretold is forewarned. Get what you can out of the system and convert it into gold and silver bullion, especially on price corrections.



James Willie over at has commented on the huge problems facing London bankers on the Dubai mess.
He also talked about the growing inventory of gold by china.

Jim Willie CB                        December 3, 2009

home: Golden Jackass website
subscribe: Hat Trick Letter
Jim Willie CB is the editor of the "HAT TRICK LETTER"

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

The gold market has become, despite little recognition by the financial press, the battlefield for global control of the financial world. To the winner go the spoils and access to the helm. To the winner goes control of global banking, dominance in commerce, and the advantage in some degree of printing money on a credit card that all nations must finance indirectly. In the Untied States, the custodial control of the USDollar as global reserve currency enabled it to spawn numerous independently run organizations that operate outside all legal authority, since under the USGovt aegis. Some call them syndicates. The gold market is the site of the most ominous dangerous life changing battle in recent history. My work has frequently mentioned a Paradigm Shift in progress. The shift is of power, influence, dominance, control, privilege, and direction. It also permits the writing of history itself. Since the end of World War II, the Untied States and Great Britain created an empire based primarily upon economic and financial prowess, but certainly reinforced by military strength. With the fall of Wall Street, the ruin of US banks, the insolvency of American households, and the quagmire of US foreign wars, the shift has accelerated. The parallel debacles with pushes into insolvency for Great Britain has caused a short circuit in the Anglo power grid. The transition will not be smooth, since weapons of an extreme nature are at their disposal.

Notice the slow fade of the Japanese, a nation having served as US monetary squires for more than a few decades. They must next join forces with the Chinese, and perhaps bow but not too much since they bring tremendous technological prowess to the table. Thousand year old enmity must yield to cooperative alliance and ventures. Regional unity will become of paramount importance in the next chapter of economic development. The Tokyo mavens are suffering from the shock of the Yen Carry Trade unwinding process. Weeks ago, my articles pointed out how the rise in the Japanese Yen would keep the pressure firmly on their economy, clearly still export driven. The USDollar crisis has its own core troubles. But they are amplified by a stronger yen currency, which is undergoing a handoff to the Dollar Carry Trade. The Yen currency continues to push higher, causing the Japanese Govt to assemble and hammer out emergency policy. Never in history has a carry trade fed off and exploited a decline in the global reserve currency. These are historic times.


The shift in power is most evident in the rapid rise in accumulated gold by the Chinese Govt. In my view this is the actual crux of the global desafio. In the Spanish language, desafio means a great struggle and battle, much akin to jihad in the Arabic language, but without the other connotations toward violence. My first exposure was the Discovery Channel. A show focused upon the Alaskan Desafio as some brave group weathered the wintry storms, traveled with sled dogs, and struggled to eat and sleep. This gold desafio is for global control. Those who control the gold control the global banking with all its trappings. The COMEX and London Bullion Market Assn are the clear battlegrounds for the gold battle, the metals exchanges tied to major currencies. In a manner obscured less from view, the COMEX might be settling gold long futures contracts with Street Tracks GLD shares, as part of the delivery process. Investors in GLD shares should be worried at shareholder integration. Questions are raised as to whether the COMEX has adequate gold bullion in inventory. Some analysts go out on a limb and call this new redemption mechanism a silent COMEX default. It would not be necessary if adequate gold supply was available. My view on the GLD itself is well stated. The GLD appears to be a device to attract gold demand from the public and to supply it to Wall Street firms to use as they see fit. Investors are thus not demanding direct ownership of physical gold in a clear visible manner, but instead entrust the custodial management to third parties.

Jesse's Cafe Americain provided some intriguing information on COMEX details. They wrote "Some months ago a chap described changes in the COMEX rules for futures contract deliveries. Therein it was described that the EFP, exchange for physical, rules were amended to allow for delivery of GLD shares in lieu of bullion. We will take a look at something new, at least for me, in Monday's COMEX preliminary volume and open interest report. On page 3 of the attachment, notice that in addition to futures contracts listed under the EFP category, a new category is listed: Delivery Cash Settled = 2866 December gold contracts. Just so happens 2866 was exactly the number of delivery notices issued on FND as reported in the Nov 27 volume and open interest report. Conclusion: guess you can no longer get bullion via using COMEX contracts. This apparently is the next step in the evolution of gold trading."Refer to Formal Notices of Delivery. See the Jesse Crossroads Cafe article (CLICKHERE).

On October 8th, the Jackass gave you a "TOLD YA SO" on the announced previewed end of the Petro-Dollar. The Saudis, with Chinese and Russians on their left and right arms, heralded the end of the sale of crude oil in US$ terms, with French and Japanese in tow. The Germans secretly were in charge of counseling toward the forged deal, but preferred the shadows. The new crude oil transaction settlement system will take time, but surely not to require eight years until 2018 as announced. That stated target was given perhaps to minimize harmful reactions. The mere announcement should be regarded as a schematic diagram for architects and investors alike to follow. New systems must be constructed. Investors ahead of the curve will be the primary beneficiaries. The changes that result from the announcement itself will assure the completion date to be just 2 or 3 years, not 8 years.

In just two short months, it is time to say "TOLD YA SO" again, this time on the story that came out of the United Arab Emirates. The emirates are full of significant squabbles and inner conflicts. The Dubai World debt default and restructure has caused shock waves the world over. IT WAS FORECASTED IN AUGUST BY THE HAT TRICK LETTER. The vast construction bust has caused anticipated ripples. The threat to London banks is acute. Time will tell whether its ripples will cause sufficient damage to London and New York bankers to topple them and to force lost control in other banking functions like gold management, as my forecast indicated. It seems that worsened big London bank solvency from underwritten Dubai losses, rather than Arab USTreasury Bond dumping, will be the principal cause of any imminent breakdown, if it occurs. See the article entitled "US Bank Enemies at the Gates"from late August (CLICK HERE).

For the record, here is what was written over three months ago by the Jackass pen."The regional construction boom in the Arab world has an epicenter in Dubai. Unfortunately, it has gone bust, and loudly so. If not for the prompt aid by Abu Dhabi bankers, a vast liquidation of Dubai would have embarrassed them in front of the world. Instead, a new threat comes. The Abu Dhabi rescue next must contend with an indigestion problem, as USTreasurys and likely other US$-based bonds are flooding their banking system. They might own a considerable batch of US bank stocks, soon to be dumped. Ambition led to a whiff of hubris, as fantastic architectural design led to large scope, seen in the skyscrapers and bridges. Not shown are the spectacular communities designed as trees with branches and leaf petals, many empty, busted, and without investment income. But they overdid it, and now must deal with corporate failures and liquidation challenges. The Persian Gulf bank failures represent the clear and present threat. The outsized projects have yielded to outsized rescues and next outsized indigestion to handle the funds in ways so as to avoid a string of national bank failures. Vast liquidations come, word comes from contacts.

A bank panic in the Persian Gulf could ensue very soon, a back door threat. It would clearly have origins in the United Arab Emirates, spread to the entire Persian Gulf like to Saudi Arabia, Kuwait, and elsewhere. From this global toehold, the bank panic could then spread to London, New York, and points in Europe. The UAE bankers must manage their situation. They are loaded to the gills with USTreasurys, the main currency used in the liquidations and rescues local to the UAE. They also have pet stock accounts in big US banks. As further liquidations occur, avoidance of bank failures seems a remote prospect. Watch the enemies at the gates, outside looking in, in urgent need of dumping USTreasury Bonds and other US$-denominated securities."

Much can be told about hidden developments, like family squabbles between the UAE emirate rulers, bitterness over shame brought to the region, anger from unheeded counsel, sudden departures of people in key posts, and a desire to punish (even exploit) the decline in fortunes. The biggest question in my book is how much Abu Dhabi bankers wish to permit London bankers to absorb losses, before Abu Dhabi enters the room to acquire liquidated properties in Dubai at deeply distressed prices? Negotiations are underway, heated, and of vital importance in London between all the bankers involved. What can London offer Abu Dhabi? That is the question. The Arab world takes a dim view of debt to begin with. They abhor home and property mortgages generally, and thus never invest in mortgage bonds. To prove the point, hundreds of Dubai Prisoners languish in their hotels and apartments. They are British, American, and European engineers, financial managers, analysts, and other workers whose employers from the parent Western firms defaulted on very large loans. These people will likely become pawns in the game during negotiations. Conditions grew so desperate that hundreds of cars lie abandoned at airports, from workers who fled the region before trapped in homes.

Expert analysts warn of continued shock waves, as almost nothing has been resolved, very little asset or corporate liquidation has occurred, fallout has not yet been permitted, bank losses have not been declared, and resolution prices have not been posted. The internal battle between UAE city states, one rich in oil and a banking center, the other recovering from a construction bust amidst great hubris and displayed magnificent follies, will play itself out in the coming several months or years. The internal families are locked in a power struggle. In Dubai, 30% of their economy is derived from real estate, construction, and other property development. They have some truly bizarre concepts at work, like indoor snow skiing, like cooled beaches with underground pipes, and golf courses that require much output from the desalinization plants to water the green landscape against sandy backgrounds. These are like plebeian versions of marble palaces in the desert. To be sure, a great awakening comes as a load of debt is dumped on the big bankers, just when they might have thought the worst was over.


One friend calls the Dubai construction array the greatest property folly in a century. Maybe so! Next come shock waves to London banks. The follies must be liquidated, with great losses dumped upon balance sheets. The banks must take much more lumps and losses. The original $10 billion in debt loss is more like $80 billion. Details on the story appear in the upcoming December Hat Trick Letter reports, which are streaming in on a daily basis. European banks have some exposure too, but not as much as London. The Abu Dhabi rulers must complete bargains with London bankers. The UAE leaders hold a huge amount of gold, and have demanded its return from London custodial accounts. The fallout will affect Royal Bank of Scotland severely, and maybe HSBC too.

In the process, watch power shift to Abu Dhabi as concessions are made by London under extreme pressures. Parts of Dubai are ghost towns, almost totally unoccupied vast projects. The biggest question in my book is whether RBS can go bust and its assets liquidated to a greater degree while still operating under the British Govt aegis? Lloyds will take large blows as well. The shock waves have not yet fully reverberated. They will continue for months. The Dubai property prices have not yet bottomed, and might settle at 20 cents per dollar on original basis. The legion of Western analysts in the financial sector unwisely expected Abu Dhabi to rescue all Dubai loans, without benefit of much knowledge of resentment, family conflicts, banker ambitions, and ramifications that extend to the new Gulf Dinar currency that shifted planning rooms (Saudi to Russian). My August article implied the Dubai bust would result since Abu Dhabi would not step in and bail out their UAE brethren. The inner conflicts and agendas were well known all along here.

The next shoe for the banker crowd in Central Europe is mortgage losses from Eastern Europe. For several years, the Swiss provided the funds as a result of their 1.5% steady official rate. At the time, it was 3% below the rest of the continent. The combination of home loan default, and sharply lower Eastern Europe currency basis has resulted in near total losses to Swiss banks on such mortgage portfolios. Also, watch Greece, which could be the next Dubai crush zone. It is a construction bust center also, like Spain. The socialist roots in Southern Europe have enabled a denial of property price declines from Spain to Italy to Greece. Instead of vast arrays of homes being sold at distressed lower prices, they sit in inventory at elevated absurd high prices. The bust impact comes soon, as these assets cannot be carried much longer on the books.

This is just the beginning. We are still in a very early stage of this gold explosion. Gold continues to rise because the system is breaking, because almost zero remedy has been completed, because pressures are brought to bear using the same broken tools to fix the problems, because mountains of new money are wasted and paid to failed bankers, because the crisis is ongoing, because the economies are not responding to stimulus, because home foreclosures and job losses continue unabated. Much more government rescue and stimulus comes, MUCH MORE. The Chinese appear firmly in control of the gold price. They might inch up the gold price systematically in order to release more supply from both those desperate for cash and the investment novices. A big story has hit the press, that HSBC is backing out of the gold storage business. My instinct tells me that HSBC might be clearing major bank vault space to hold Chinese deliveries from metals exchanges. The gold price does not merely rise from a weakening USDollar and major currencies. Nations intentionally try to undercut themselves in order to preserve their export economies. The gold price also rises from the gradual removal of unorthodox pressures. In the last couple weeks, extraordinary scrutiny has come to the gold delivery system. The process reveals a possible global shortage of gold bullion. The gold price is attempting to adjust to a proper higher price based upon the older traditional concepts like supply matching demand. The gold price will rise further from continued debasement of the major currencies by governments and their central banks. Even now, with the COMEX and LBMA in London, the gold market seems unable to clear at the current price. Evidence points to growing shortages of gold bullion in physical supply, after years of admitted USGovt interventions (by Greenspan) and the mechanisms of gold price discovery using paper contracts. Apart from weak or destroyed currencies, the gold price should seek a higher price from a renewed search toward an equilibrium.

Some argue that gold must rise to match the supply of newly created money, bound in the fiat currencies. Gold should rise in parallel with money creation, but not in lockstep. A currency can always be fixed according to a cover clause that dictates 1% of money can be redeemed in gold. Later, a move to 1.5% in the gold cover clause would fortify one currency in much the same way that official national interest rates lift currencies upon changed policy. Personally my wish is for the gold price to continue its powerful bull run without the Euro currency breakout toward 160. That would expose all the currencies together as horribly weak if not invalid. If the Euro rushes toward 160, the gold market in Europe must then adapt to an interruption in the bull roaming on the continent. Stand back! The explosive upward thrust in the gold price is still a threat, much like Mount St Helens.


No search for safe haven in the USDollar took place after the Dubai world shock. That was a very false description of events. Rather it was a retreat from the British Pound and Euro currencies, which bore the risk of loans underwritten. In one short week, the effect has dissipated, as the USDollar is weaker than BEFORE the Dubai incident broke to make news. All currencies are weak relative to the stable powerful reliable gold. The USDollar is showing a steady relentless weakness, unable to snap into any recovery. Meanwhile, leadership seems increasingly defiant of foreign creditors, as additional costly federal programs create even more headwinds against recovery. The stimulus programs seemed more like state revenue plugs than any serious encouragement toward recovery like in past cycles. This cycle is much different, not the garden variety business cycle or credit cycle, something not acknowledged. The Untied States is fast becoming a sequestered state, where isolation would be the fate won.

Consider Richard Bernstein, the respected economist from Merrill Lynch. This week he said gold has no driving fundamentals that justify its rising price. On its face, that sounded something between astonishing and absurd. Clearly Bernstein endorses a high derived price on all things from the paper world, indicative of a professional compromise. Never forget that Wall Street earns almost zero investment banker fees from gold or the mining firms. It is like dogs selling cat food; they don't do it! What mining firms do solicit in funds for stock issuance is largely conducted in Toronto and Vancouver.

One must suppose that fast rising gold investment demand and a rush to diversify out of a threatened USDollar do not qualify as fundamental. And the unusual methods of metals exchange gold delivery also do not qualify as fundamental. And the Chinese pledge to lift their gold reserves 10-fold to 10 thousand metric tonnes in eight to ten years, that is not fundamental either. And the G-20 pledges to formally move toward an IMF basket of currencies, known as the Special Drawing Rights, and away from the USDollar, that is not fundamental either. And the Saudi announcement of a phase-out of sales for crude oil in US$ terms over the next few years, neither is that a fundamental. And the banks teetering on insolvency in the Untied States, England, and Europe, challenged to extend loans, suckling from government teats, that is not fundamental either. Bernstein plainly fails to recognize that the entire world is grasping for something tangible within the global monetary system replete with toxic paper, and that anchor reached for is gold.

Then consider Enrico Orlandini. His work is actually quite good. Occasionally, like yesterday, he said something that struck the Jackass as lacking deeper insight. He said, "I think currencies are devaluing more than gold is rising, and that is why I contend that overbought is a relative term. Gold is rising, but not as fast as the world currencies are falling." The initial reaction here was that he misses the more urgent global banking condition, as this is a much bigger phenomenon than just currencies falling. We are in the midst of a fitful remedy from systemic breakdown during an ongoing major financial upheaval, a remedy that seems not to be on a triumphant course. We have a broken monetary system, a threatened global reserve currency, discredited central banks, insolvent major banking systems, and an important Paradigm Shift away from the USDollar as power shifts also to the East. Orlandini is watching too much the branches, leaves, and ferns within the forest, and seems to be missing the bigger forest. When he attempts to forecast the gold price today and the US$ DX index today, identifying resistance and support levels, one might wonder if he is missing the biggest story of the last few decades. It is the transition from the US$-based global monetary system and the urgent initiative to replace it and to salvage wealth accumulated. Furthermore, and more precisely, the gold price is pushed by not only a weakening USDollar and weakening major global currencies. They are simultaneously being destroyed, debauched, and debased, not just weakened. The additional force that Orlandini overlooks is that the gold price is attempting to free itself from the heavy influence of Wall Street and London City. The gold price (silver too) is attempting to find its correct price, even besides the continued weakening of currencies.

Lastly, consider US Federal Reserve Chairman Ben Bernanke. He was clearly chosen to continue support of Wall Street firms, to run the USDollar printing press in a manner never witnessed before, and to preach about how deflation will not happen here. He misses the hyper-inflation risk that lies directly ahead, just like he missed the asset bust that has occurred in the last two years. The USFed fights yesterday's battle and backs into the next meat grinder, time after time, in a well established cycle. He has not uttered one correct forecast in his entire tenure. He missed every single major banking turn of events, every single breakdown, misjudged the size of bank losses every step of the way, and has missed the economic relapse. The battle for the Bernanke re-appointment will reveal the titanic struggle for wresting control of the USDollar, the US banking system, and the disclosure of deeply engrained hidden practices. The management of TARP Funds is but one of several items being scrutinized.

end :
Bill Holter's commentary tonday talked about the BLS plug figure and what it might mean to the usa dollar:
Bill H:

Rising rates

To all; we got unemployment numbers this morning showing a drop of only 11,000 jobs. I have not delved into these numbers yet but one must wonder how many jobs were fictitiously created by the "birth/death" model. Rates on the 10 year Treasury have risen .20% since yesterday and I think this will eventually be a pin that pricks the global asset bubble.

As I see it, the Fed will be forced by the market to raise rates sometime next year. Rates have nowhere to go from here but up. Even if the Fed refuses to raise rates, the market will do this for them. This will have many far reaching effects on the global economy and markets. The Dollar carry trade will get blown up, the government bonds that banks are currently buying with their "free money" will discount and the economy will suffer. The global economy seems to be stabilizing but it must be remembered that everywhere you look there are "life support" systems providing help and stimulus.

What will happen to real estate and other asset values that are currently hanging on by their fingernails when rates begin to rise? What about the stock markets? Bond portfolios at banks and insurance companies? What about the pension plans that are now underfunded because the stock market crash of last year? When the bond markets begin to discount how will these pension plans perform their obligations? The current yield curve is a mess, but worse no one is asking the question "what if interest rates rise?". Rates "can't" rise but they will!

Just as the global economy is beginning a recovery phase, higher interest rates will act to short circuit the event. What I am describing here has been called the "double dip". I believe we will see a "double crash" scenario because governments worldwide have already shot their big guns and have little to no more ammo left after battling the first crash. On their own, economies would have already died without fiscal and monetary ease and insanity, as interest rates rise these economies will basically shut down. It is important to note that in the U.S. commercial paper outstanding is again beginning to contract. This is a very ominous sign as we live in a credit economy and any so called recovery will run out of gas (credit) and end up stranded on the side of the highway.

Higher rates will also affect the ultimate deficits later next year and into 2011. For the last 2-3 (actually my entire lifetime) years the West has piled up more and more debt at lower and lower rates, eventually as rates rise this debt will need to be serviced at something higher than the current rate structure. The U.S., Japan, Britain and Europe will have their budgets blow up in their faces just as their economies begin to turn down again as rates rise, stimulus abates and credit gets even tighter. Enjoy the current "Alice in Wonderland" recovery while it lasts because the next phase will no longer be just about the financial system, it will be about the solvency and future of various governments.

Speaking of governments, North Korea devalued their Won by a whopping 99% yesterday. Can you imagine going to bed one night with say $100,000 in the bank and waking up to find that your currency was devalued in a 10 for 1 "reverse split"? And what if your government told you they would only "honor" (no such thing anymore) accounts up to $20,000 pre devaluation? Your $100,000 just became $2,000 overnight while you slept and there was and is nothing you could do. Well, there IS something you can do now while you still have the chance, after the devaluation you will be powerless. Got Gold? It's on sale today but if you buy it make sure it's real and under YOUR control. Regards, Bill H….


In case you missed this on Thursday:

China denounces U.S. banks for ‘evil intent’ with derivatives 
By Jamil Anderlini 
Financial Times, London 
Thursday, December 3, 2009

BEIJING — A senior Chinese official who oversees the country’s largest state-owned enterprises has publicly slammed Western investment banks for "maliciously" peddling complicated derivative products that caused huge losses for Chinese companies over the last year.

In Beijing’s strongest criticism on the matter to date, Li Wei, vice director of the state-owned Assets Supervision and Administration Commission, singled out Goldman Sachs, Morgan Stanley, Merrill Lynch, and Citigroup in a long and highly critical article in the latest issue of an official Communist party newspaper.

The large losses suffered by Chinese state companies were "closely associated with the intentionally complex and highly leveraged products that were fraudulently peddled by international investment banks with evil intentions," Mr Li asserted. "To a certain extent some international investment banks were the chief criminals and the root of ruin for the Chinese enterprises who encountered this financial derivatives Waterloo."

In his article, Mr Li said 68 of the 130-odd state companies controlled directly by Sasac had been buying derivatives to speculate or hedge against rising commodity prices and fluctuating currencies and interest rates, even though some of them were not authorised to do so.

These 68 companies had booked total combined net losses of Rmb11.4 billion on the Rmb125 billion worth of financial derivatives products they had bought by the end of October 2008, Mr Li said.

The government has not previously revealed the full extent of losses suffered by Chinese companies that made ill-fated bets on over-the-counter, mostly offshore derivatives.


Last night, the regulators closed 6 banks, one of them a biggy bank in Cleveland:

Regulators shut AmTrust Bank in Ohio, 5 others 
By MARCY GORDON (AP) – 2 hours ago

WASHINGTON — Regulators on Friday shut down Ohio’s AmTrust Bank, the fourth-largest bank to fail this year. They also closed five others, bringing to 130 the number of U.S. banks to be brought down so far in 2009 by recession and mountains of bad debt.

The Federal Deposit Insurance Corp. took over AmTrust Bank, based in Cleveland, with about $12 billion in assets and $8 billion in deposits. Its failure is expected to cost the federal deposit insurance fund an estimated $2 billion.

About a year ago, the federal Office of Thrift Supervision put restrictions on AmTrust because of concern that its reserves against losses were dangerously low. The regulators told the bank to limit new loans for land acquisition, development or speculative residential construction.

In addition to its branches in Ohio, AmTrust — formerly Ohio Savings — had branches in Florida and the Phoenix area.


The debt celiling  has now been reached at 12.1 trillion dollars.
Next week 131 billion dollars will be auctioned off.  From JIm Sinclair:

One has to marvel at the good fortune in the employment number and dollar reaction thereto coming at just the right time to meet next week’s $131 billion sale of US treasuries coming to market.

The street has proclaimed that there is a god and its name is GS.

All hail Mammon.

As Andrew Carnegie had masterfully carved into his desk, "The public be damned."

On another note, you have to love F-TV. It is more entertaining than CNN news.

Now they are bashing the "Tesla" electric car that has a range of several hundred miles, does 0 to 60mph in 3.2 seconds, and has a top speed of slightly over 150mph. These are same guys that a giddy over the GM volt.

They are not car people. That is certain.

All eyes will be on the open interest numbers on Monday for basis Friday.
I will report to you on those figures.
I will now include the graphs for comex silver and gold trading and an email I sent to the CFTC:
To: Mr Gensler/Mr Chilton
Today the CME has given us its preliminary estimates for volume and OI on gold and silver.
Here is the gold volume, a stunning 398873 which represents a phenominal  75% of OI.
Trade Date
Daily Settlements for Gold Futures (PRELIMINARY)Trade Date: 12/04/2009
Month Open High Low Last Change Settle Volume Open Interest
DEC 09 1207.8 1211.2 1147.0 1172.2 -48.6 1168.8 4,288 8,983
JAN 10 1210.8 1212.0 1147.2 - -48.8 1169.0 6,644 2,788
FEB 10 1208.7 1213.9 1147.4 1169.0 -48.8 1169.5 365,497 365,116
APR 10 1209.3 1213.1 1150.0 - -48.9 1170.8 8,317 48,222
JUN 10 1211.0 1214.3 1152.0 - -49.0 1171.9 5,485 21,748
AUG 10 1210.3 1211.3 1152.3 - -49.0 1173.2 1,736 11,650
OCT 10 1217.0 1217.0 1167.5 - -48.9 1174.8 1,168 5,108
DEC 10 1215.0 1220.0 1155.0 1181.2 -48.8 1176.8 3,298 22,708
FEB 11 1186.0 1186.0 1185.9 - -48.6 1179.4 157 2,842
APR 11 1188.3 1188.3 1184.0 - -48.4 1182.3 89 1,091
JUN 11 1219.9 1219.9 1172.7 - -48.2 1185.7 716 9,089
AUG 11 1197.0 1197.0 1188.4 - -48.0 1189.6 58 333
OCT 11 1201.0 1201.0 1189.0 - -47.7 1194.1 69 66
DEC 11 1217.0 1222.2 1189.0 - -47.4 1198.7 1,339 11,537
JUN 12 - - - - -47.0 1214.3 - 5,653
DEC 12 - - 1273.4A - -46.6 1233.0 - 9,301
JUN 13 - - - - -46.3 1254.8 - 727
DEC 13 - - - - -46.1 1278.1 12 2,669
JUN 14 - - - - -46.1 1302.5 - 736
Total 398873 530367

Last Updated 12/04/2009 04:30 PM
Here is silver with an estimated volume of 51597 or 39% of open interest

Trade Date
Daily Settlements for Silver Futures (PRELIMINARY)Trade Date: 12/04/2009
Month Open High Low Last Change Settle Volume Open Interest
DEC 09 18.750 18.840B 18.300 - -.606 18.496 392 1,559
JAN 10 18.800 18.955 18.315 - -.605 18.505 730 330
FEB 10 18.730 18.740B 18.465 - -.606 18.513 30 22
MAR 10 18.910 18.990 18.300 18.520 -.608 18.520 48,420 91,414
MAY 10 18.835 18.945B 18.385 - -.608 18.542 1,255 9,035
JLY 10 18.885 18.890 18.500 - -.608 18.561 199 7,196
SEP 10 18.930 18.930 18.530 - -.605 18.581 30 2,723
DEC 10 19.000 19.000 18.400 18.660 -.602 18.610 465 9,143
JAN 11 - - - - -.600 18.623 - 2
MAR 11 18.615 18.615 18.610 - -.595 18.649 6 50
MAY 11 - - - - -.589 18.677 - -
JLY 11 - - - - -.584 18.704 - 2,886
SEP 11 - - - - -.579 18.731 - -
DEC 11 - - - - -.570 18.773 50 4,998
JLY 12 - - - - -.560 18.868 - 856
DEC 12 - - - - -.535 18.936 - 169
JLY 13 - - - - -.526 19.018 - 103
DEC 13 19.200 19.200 19.100 - -.512 19.089 20 362
JLY 14 - - - - -.512 19.218 - -
Total 51597 130848

Last Updated 12/04/2009 04:30 PM
The huge shorting of contracts by JPMorgan, HSBC and others without the corresponding backing of metal is illegal,
manipulative and flagrantly distorting all semblance of normality in the precious metals markets.
I am having a great deal of difficulty in understanding what the regulators are doing in this matter.
You have called for an investigation into the huge silver short and do nothing.
You announce that there is going to be position limits in the precious metals in December and yet these banks continue to short with reckless abandon right under your
nose and increase their total short positions week after week.
You report in the Banking Participation Report, month after month of continued and increasing short positions by one or two banks, and then continue to give them your blessing
to their shorting activity!!
It looks to me that you have given these banks authority to continue with their criminal activity.  I thought that you have sworn to uphold the law and protect citizenry from
this blatant unlawful activity. Maybe I am mistaken in your fiduciary duty.
In time, the truth will always prevail.  It will be interesting how you tell congress what happened and how the usa lost all of its gold and silver to other nations
Harvey Organ

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