Saturday, January 2, 2010

FW: Jan 2.2010 commentary..first commentary of the New Year


Good morning Ladies and Gentlemen:
Happy New Year to everyone!
Gold closed the year on a positive note, climbing $3.70 to 1095.20.  It rose in the access market to 1096.00 where the world marked gold's final close.
It started the year at 8 65 .00 ,  so gold rose by  $ 2 31 . usa dollars in the year or 27 %.
In terms of Japanese Yen gold, the final 2009 price is 8120 yen per oz near its record high of 8170 yen per oz.  The Aussie Gold price closed at 1249.00 Aussie dollars per oz.
The record high is 1551 A/oz set in Jan 2009.
In terms of British pounds:  the final closing price is 680 British pounds/oz not far from the record high of 733. pounds per oz set a month ago. Gold in British pounds rose 14.6% for the year.
The Canadian dollar gold price finished the year at 1150.00 cdn/oz not far from the record high of 1250.00 set twice during the year, the first in January 2009 and the second in Oct.
Euro gold finished at 760 euros/oz not far from its high of 808. set last month. In Euro terms, the price of gold rose 23%
Thus the fall in gold in usa terms from 1224 to 1096.00  fared worse than  other currencies.
Silver closed the day at 16.84 up 4 cents as the cartel members continue to pound away at silver.
The open interest on the gold comex reported on Thursday morning for basis Wednesday was 494149 for a rise of 2437.  The pundits reported on massive long liquidation.
I just did not see it and the numbers speak for themselves.
It is becoming very difficult to interpret the data as we are getting compromised data.
As has been the case for the past two weeks, the silver OI went on a different path to gold falling by 366 contracts to 123,968.
You will note that silver's OI has remained tightly range bound between 122500 and 124000 for over a month. The silver longs are just not liquidating their positions.
The only guys who are lightening up on their positions are the silver short intermediate bankers.  As far as the big banker  commercial shorts  JPMorgan and HSBC is concerned, you will have to
mourn for them before they give up any of their short silver contracts as the regulators are in bed with them.
The big news of GATA's law suit against the Fed is spreading.  In case you missed it on Wednesday, here is the official version as sent to Ambrose Pritchard Evans of the
UK Telegraph:

Hi, Ambrose:

FYI, GATA today sued the Federal Reserve in U.S.District Court for the District of Columbia to force disclosure of the Fed's gold market intervention documents:

We distributed an international press release about the suit:

Zero Hedge quickly commented favorably and at length about it:

In September the Fed admitted that it indeed has such records and is determined to keep them secret:

I'd be delighted to provide more information about
Ok lets go for economic news of the day (Thursday Dec 31.09)
The usa released the jobless number and the initial filings for unemployment insurance fell by 22000 to a seasonally adjusted 432000.
However continuing claims remained stubbornly high at 4.98 million, down from 5.07 million claims.
First, the official report from the BLS:

08:30 Jobless claims for w/e 26-Dec 432K vs. consensus 460K
prior week revised to 454K from 452K
Continuing claims for w/e 19-Dec 4.981M vs. consensus 5.1M 
prior week revised to 5.038M from 5.076M 
* * * * *

U.S. jobless claims fall in latest week

WASHINGTON, Dec 31 (Reuters) - The number of workers filing new applications for jobless benefits fell last week to the lowest level in about 17 months, according to U.S. government data on Thursday.

Initial claims for state unemployment benefits fell by 22,000 to a seasonally adjusted 432,000 in the week ended Dec. 26, from 454,000 in the prior week, initially reported as 452,000, the Labor Department said.

Economists polled by Reuters expected 460,000 new claims in the latest week.

The new claims tally was the lowest since the week of July 19, 2008.

The U.S. labor market has shown some signs of healing after two years of heavy job losses as the economy pulls out of a deep recession. Some economists think December marked the first month in two years that there were more jobs created than destroyed.

The market at first liked the results and the Dow started higher but after initial thought, it turned negative.  At around 3:30 pm, it really when negative falling off a cliff  with the Dow closing down by 120 points.
The market perceived that the economy was improving which sent the bond yields tumbling.  At one point, the 30 year bond registered its low of 114.50 before turning north on the big Dow plummet to close at
115.33.  It is still in dangerous territory below the 116.00 level.  Remember that JPMorgan has huge interest rate swaps and they start to lose at 116.00.  At a yield of 5.6% their losses will be immense. (price of 110.00) 
As for the jobless number, I would like to point out that initial claims of  432000  in which  new unfortunate souls  lose     their jobs is still pretty high.
If one looks at the fine print, there is a category called EUC applications or Extented Unemployment Claims.  Obama by an act of Congress allowed the jobless to continue to receive benefits even though their
benefit time period expired.   The number on the EUC rose to a high of 191000.  These people are not on the regular jobless number.
The reporting by these guys is simply atrocious.
I would also like to report that they have finally given us the B/D plug figure for the last job number reported in early December.  Hold onto your hat:  834000.
And they revised the prior two months by over 150,000 so they added a ficticious 1 million jobs and everybody believes these doorknobs.
Dave Kransler wrote a scathing attack on the reporting of the jobless number on Thursday:

Dave from Denver…

Thursday, December 31, 2009

Uncle Sam/Chicago ISM Play "Hide The Sausage" With The Markets

Once again the media promotes more Government-released garbage as an indication of economic recovery. The weekly jobless claims statistic dropped "to the lowest level since 2008." The dopes on CNBC were beside themselves with glee. Two comments there: 1) 432,000 new jobless benefit claims is still one helluva lot of folks losing their jobs and 2) At some point, the rate of jobs lost will begin to slow down just because our economy won't grind down to zero and some average level employment will be maintained until the next financial disaster (coming this year, in my view).

Now let's look at The Golden Truth behind the numbers. Kudos to for making an issue of this. While the number of jobless claims declined a bit, the number Extended Unemployment Claims is shooting higher every week. These are the people who can't find jobs and for whom initial jobless benefits have expired. Obama recently signed a bill which contained legislation enabling someone to receive jobless benefits for up to two and a half years. Here's the data from Zerohedge - you'll notice that EUC applications soared to a new record high this past week, climbing by over 191,000: 
The Golden Truth. It's great that the "front-end" of jobless claims might be declining (at least for now) BUT the "back end" is swelling up just like number of Obama's lies.

Even more disgusting was the Chicago Purchasing Manager's Index revision, which was revised significantly downward, just ONE DAY after it was initially released and celebrated by the dopes on CNBC/Bloomberg:

U.S. stocks added to losses in late morning trade Thursday, after the Chicago Institute for Supply Management revised lower its December business activity index to take into account seasonal factors, only a day after issuing its initial assessment. The December index was revised to 58.7 from Wednesday's reported 60.0. Readings from September to November were also revised lower. Here's the news link: (Chicago ISM Lies)

The tragedy here is that the initial number released yesterday gave the stock market a boost, but the initial number turns out to be a fraud. Of course, very few will be around today to take notice of this and those who celebrated the number yesterday still have the impression that the economy is doing better than it really is. Please note that the readings from September to November were also revised lower. So, to the extent that investors plowed into stocks based on this data, they invested based on data that was, best case incorrect and, most likely case, intentionally fraudulent (you can not convince me that the highly educated people who publish the Chicago PMI accidentally released an incorrect number that the whole world watches - I can buy into Government employees like Janet Napolitano making stupid mistakes, but not a private organization of well-educated professionals).

Our whole system is now predicated on the Orwellian Doctrine which was successfully propagated by Joseph Goebbels, Hitler's Minister of Propaganda: 
"If you tell a lie big enough and keep repeating it, people will eventually come to believe it."


You will note that the BLS has now updated the release of the Midwest purchasing managers index and revised the index lower from 60.00 to 58.7 in one day as they found that their data was faulty.
Imagine that..faulty data.The midwest is still doing OK but not as thought.
Here is the official release of the new updated ISM MidWest report:

US Midwest business growth less than earlier thought

NEW YORK, Dec 31 (Reuters) - Business activity in the U.S. Midwest expanded less robustly than originally thought this month, an industry association reported on Thursday, and the sector's employment recovery failed to reach expansionary territory.

The Institute for Supply Management-Chicago said in revisions to its business barometer index readings that December's result was 58.7, instead of the reading of 60.0 it reported on Wednesday. Any reading above 50 indicates expansion.

Detailing revisions based on seasonal factors, the ISM-Chicago said its employment index was 47.6 in December, below the expansionary result of 51.2 reported on Wednesday for this month. 


As I pointed out to you earlier, the bonds were hit hard.  Here is the report on the 10 yr bond price faltering:
(the final yield was 3.83% for a gain of 5 percentage points in yield and a drop in price of 10/32.
As I pointed out to you, the long bond fell in price from 115.80 to close at 115.33

Treasury yields push bonds toward big annual loss



NEW YORK (MarketWatch) -- Treasury prices fell on the last day of 2009, pushing 10-year yields toward the biggest annual increase in 10 years, as weekly jobless-claims data boosted optimism that the U.S. economy is slowly stepping away from the deepest recession in decades.

Treasuries are headed for a 2.5% loss this month -- and the biggest annual loss since "Superman" and "Grease" hit movie theaters more than three decades ago.

"We will see higher long-term rates, limited inflation, improving economic conditions, a slowly improving dollar and a slow crawl upward in confidence" during 2010, said Kevin Giddis, managing director of fixed income for Morgan Keegan & Co


Adrian Douglas commented on the bond situation and I would like to share this with you.  It is identical to what I have been telling you:

The spin is that the cratering bond market is due to economic recovery and the market "anticipating" higher interest rates from the FED. My interpretation is that it is due to a massive oversupply of more debt in a world that already fell apart due to too much debt. If bonds dropped the most in thirty years we just need to ask a simple question: Did the economy make the biggest improvement in 30 years or did the Government make the biggest borrow and spend operation in thirty years? The answer to that question tells you why the bond market is falling over a cliff.

I think Keven Giddis will be dead wrong on ALL of his predictions except the first "We will see higher long-term rates"!


Last week the USA government announced the removing of the debt limits to Fanny and Freddie. The debt limit before the announcement was 400 billion dollars.  The amount that both of these entities
utilized was 110 billion  dollars .  Why then the removal of the debt limit?  Why did the Government give these two entities an unlimited credit card?
Jim Willie, in his latest article revealed the answer.
I will download the entire article for you to read.
First of all, Willie reports that the non perfoming loans of all usa banks has now reached 5%.  The total commercial loans by all bankers is 7 trillion dollars, so we now
have a probable default of 350 billion dollars  and this number is climbing.  The banks do not have anywhere close to this cushion to write off losses.
On top of this we have credit default swaps.
I was unaware that Fannie Mae and Freddie Mac have huge interest rate swaps on their books.  JPMorgan has over 100 trillion dollars, but these guys it is believed to have over 10 trillion dollars of swaps on their books.  They were told to put these trades on in the same manner as JPM.  The purpose of these derivatives was to keep the regular bond yield low and to keep housing finance low to give housing affordability.
These derivatives will explode in the same manner at JPMorgan's.  With the rise in bond yields, the Feds are scared and thus they had to remove the debt limit.
Also  defaults are escalating and the Government needs to take many of these foreclosures off the books of the banks.
Get ready for Fannie and Freddie to absorb over 1 million homes.
Here is Jim Willie's paper.  If the graphs do not show go to
to view them:

Jim Willie CB                        December 30, 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 background noise has been considerable. The USCongress, the august body, evaluates a new initiative to reinstitute the Glass Steagall Act. Great idea! In the wisdom from post-Depression seven decades ago, the same Congress imposed firewall separation among the commercial banks, the brokerage houses, and the insurance firms in order to prevent systemic financial sector failure. That is precisely what happened in the last two years, without proper recognition or diagnosis, except by this and some analysts. Insolvent systems do not spring back to life with grandiose infusions of phony money. They remain insolvent. The bank woes will suffer massive relapse this year, from fresh commercial mortgage losses, from prime Option ARMortgage foreclosures, and from continuing overload of toxic losses from massive residential property held on their books that they stubbornly refuse to put up for sale. If the US housing market shows any remote signs of price stability, it is due to a few hundred thousand foreclosed homes held by banks, floating on their ruined balance sheets, held back from dispatch to real estate brokers in auction. Keep price stable by erecting a banker dam on properties. It must release, but it might head straight into the Fannie Mae inventory.

Another popular bizarre balance sheet item is the bank reserves held for interest yield within the safe confines of the US Federal Reserve. The USFed itself might desperately need such funds to ward off its own deep insolvency in the hundreds of billion$. They did after all, ramp up toward 50% their ratio of USAgency Mortgage Bonds, most of which are worth far less than the stated value on their cratered books. The ugly truth on this matter is that US big banks face additional huge losses, so the reserves held at the USFed should be regarded as Loan Loss Reserves, hardly robust assets.They are still insolvent. Non-performing loans have soared to a record 5%, shown below. Now factor in that US banks carry over $7000 billion in commercial loans. The resultant $350 billion of non-performing loans on the books of banks is disclosed, but what is not disclosed is their additional toxic assets off balance sheet and other various credit derivatives like Interest Rate Swaps. These huge supposed bank reserves are not going anywhere, surely not the USEconomy. The big banks are still damaged.

Quietly the USCongress has been working on new legislation to reform the financial system regulatory structure. It reads like a TARP to the sixth power. The House of Representatives has passed its version, the House Resolution 4173. The US Senate must next tackle the issue. The House version calls for up to $4 trillion in big bank aid if and when another banking system breakdown occurs. Despite all calls to reverse rescue for financial firms too big to fail, this bill does exactly the opposite. My pattern of analysis, successful for five years, has been to hear the words, to expect precisely the opposite in the action taken, and to regard the words as pure deception to calm the opposition and lull it. Hear the words, anticipate the opposite. That tactical approach was honed in my work by observing Greenspan.

Turn to the Eye-Popper this past week, an event that should have caused incredibly deep alarm, dismay, and consternation. Instead, the US financial markets have been so numbed by nationalizations, big bank welfare, major fraud cases, outsized executive bonuses for failed bankers, prattle about recovery, and inane federal programs. So the news of an unlimited line of funds, not at all a credit line, met with little response. This is a BLACK HOLE of unlimited diameter. One should be immediately suspicious, before reading any details. Fannie Mae & Freddie Mac (F&F) have been the source of at least $2000 billion in missing funds from previous administrations. Politicians love the Fannie Freddie Duo. This is all well documented, and not in dispute any longer. My theory from September 2008 onward has been that Fannie & Freddie were put under conservatorship within the USGovt in order to prevent investigations.

So next, the blank check is written for Fannie & Freddie, and one should suspect that the funds will flow freely. Any expectation of major home loan balance reduction for the benefit of the people might be misplaced. The USDept Treasury announced last Thursday the removal of the $400 billion financial cap on the money line provided to keep the companies afloat. To date, US taxpayers have parted with $110 billion to the dynamic duo. All estimates submitted by the USGovt about loss magnitude have been laughable. My forecast over a year ago was for at least $2 trillion and possibly $3 trillion in losses ultimately, over 10 times what officials stated. My figure is looking closer to reality. Denials persist that the original $400 billion limit was nowhere approached. So why extend the line of funding to unlimited? The reasons are two-fold in my view. First, grand losses are coming, since liquidation of bad home loans has been halted. A huge dam of toxic loans is on the Fannie & Freddie books. As Rich Santelli of CNBC said on Tuesday, "This move permits Fannie Mae to load on all kinds of additional pigslop onto their balance sheet, and to do so without end."Second, the blank check will permit continued papering over of their mortgage portfolio, along with rafts of broken credit derivative contracts. The size of the Interest Rate Swap book on the F&F books must be greater than the global economy.

Next is large scale mortgage portfolio liquidations, mortgage portfolio writedowns, and possibly some actual loan balance reductions finally. Massive losses will be revealed by Fannie & Freddie, but the public and financial sector will applaud the cleansing process. An astonishing volume of backlog home loans might be relieved by means of this official unlimited funding in the planning stage. Housing prices are certain to drop if F&F refuse to permit their managed home portfolio to grow without limit. If F&F dump homes on the housing market, the prices will drop another 15% to 20% easily. The alternative is more what my forecast has in store, a truly staggering shocking alarming home rental business by the USGovt as landlord. The Dynamic F&F Duo can mitigate the negative political reaction by reducing home loan balances in a substantial way and to a meaningful degree, which would help to stop the foreclosure parade and the reversal of the Ownership Society nightmare.

Fannie Mae and Freddie Mac provide vital liquidity to the mortgage industry by purchasing home loans from lenders and selling them to investors. Most investors lose heavily, but the bond brokers make out very well indeed. Together, F&F own or guarantee almost 31 million home loans worth about $5.5 trillion, almost half of all mortgages. Without USGovt aid, the firms would have gone bust long ago, leaving millions of people unable to obtain a mortgage. The biggest headwind facing the housing recovery has been the rise in foreclosures as unemployment remains high and the hidden bank inventory of foreclosed properties swells each month. The ultimate long-term plans for the two agencies under conservatorship might be less savory than headlines paint.

One should not take seriously the name 'conservatorship' since nationalization was under a thin veil all along. The formal steps were missing, but no longer. The Toxic F&F Duo will never return to their former power and influence, not to mention integrity. The plans of federal residential property ownership smack tragically like out of chapters from the Soviet Union governance. In summer 2005, my forecast for Fannie Home Rentals has come true, with nary a peep of objection. Rentals are seen as a great solution. The F&F shareholders should face ruin with share price at zero since it is an insolvent entity. Instead, Fannie Home Rentals should provide a massive revenue stream useful in justifying a stock share price. At the same time, the financial sector will likely applaud all initiatives that result in removing home supply from selling inventories. The federal landlord plan actually will permit some home price stability. Let's not even touch on executive bonuses and compensation packages for the current managers of these financial sewage warehouses.

My personal conjecture is that Fannie Mae is burning through money 5 times faster than the topline figures show. One might even conclude that the blank check is not price inflationary, since it goes right into oblivion. This is Weimar in Reverse. It will affect the USDollar and USTreasury global integrity. Worse, we are at the forefront of a blossoming of the USGovt emerging as a significant national landlord. What we have is the onset of precisely the opposite of the Ownership Society put forth in recent years. What a tragedy! One should harbor great suspicion that the USGovt has been collecting mortgages on a grand basis, as has been the USFed. My full expectation is that the USFed will dump their entire mortgage bond assets on the USGovt at the appropriate timely moment, despite any lack of value, and receive nearly full book value. The taxpayers inherit the blotched landscape. Furthermore, gigantic tranches of home loans from the residential sector are likely to come from the commercial banks, heading directly to the Fannie & Freddie balance sheets. This flood will accelerate the disenfranchisement of the citizenry, as home foreclosures continue unabated, and the USGovt entrenches its property ownership. The path contains elements that seem more like communism than capitalism.

Numerous theories have been floating in the media and in internet journals, where the most responsible journalism exists, by far, bar none. Former HUD auditor Catherine A Fitts shared her opinion that the banks are going to take huge writedowns on the commercial side. To make room on their balance sheets to handle the commercial mess, the residential portfolios are going to be shifted to Fannie & Freddie in a manner that will protect the major banks. The F&F balance sheets are where residential mortgages will go to die, she expects. The market cannot handle the home sale flow from liquidations. And besides, the Federal Housing Admin and Ginnie Mae are too small and too logistically strained to move such volume so quickly. The sewage treatment plant is well equipped. All roads lead to F&F Processing Plant. The USGovt auditors will proclaim profits from Fannie Home Rentals, but minimize the losses.

Dan Amoss of the Strategic Short Report shares his opinion on a trend. He said, "The market will eventually adopt the view that Fannie Mae and Freddie Mac have been nationalized. Last week's elimination of limits on Treasury's capital infusion into Fannie and Freddie is a defacto nationalization. In other words, there is no longer much chance of a re-privatization, but instead we will see a gradual transformation of these Frankensteins into new branches of government. They will implement the official government agenda for housing, without much regard for prudent lending. This will have huge consequences for the Treasury market. While the federal government will stick to its Enron-style accounting, and not officially consolidate Fannie/Freddie assets and liabilities onto the government balance sheet, the smarter foreign creditors will. These creditors will start viewing Fannie/Freddie liabilities as equal to Treasuries in terms of default risk. But this does not mean that spreads on Fannie/Freddie liabilities will tighten down to Treasuries. Rather, it will substantially increase the long-term default risk of Treasuries, and Treasury buyers will demand higher rates to compensate for this risk." Amoss anticipates the principal mortgage provider in the future is indirectly going to be the USGovt. Amoss also states that the USTreasury debt is to be mixed with the USAgency Mortgage debt in perception, no longer distinguishable since the former funds the latter. THE RISK OF USTREASURY DEFAULT HAS LEAPED HIGHER!! Since Fannie & Freddie are deeply insolvent, the new USGovt debt ratio also leaped higher.

On the entire motive theme, ponder the following. The USTreasury Bonds are at risk of higher bond yields. They will likely not shoot up rapidly, since the JPMorgan defends the system with Interest Rate Swaps. The situation is long past a return to normalcy. The IRSwap contracts are firmly in place, ramped up, heavily fortified by Printing Pre$$ activity. While we all decry the rise of credit derivatives, few complain about low interest rates in today's age of speculation. Artificially low cost of money has fueled two decades of asset bubbles and the ruin of the US industrial base. My view is that the USFed is desperate to end their 0% rate, since they realize it caused the housing & mortgage bubbles in 2003-2007. But the USFed has returned to the same faulty landscape with entrenched 0% rates, stuck for over a year. The USFed definitely does NOT want long rates to rise. They are worried about rising mortgage rates, since they would kill the housing market altogether, or at least put it under a massive wet blanket for an indefinite time. The IRSwap detonation could happen at either end, on the short rate or long rate, much like a stick of dynamite with a fuse at each end. Risk is acute if the USFed were to hike the FedFunds rate, since they would directly set off IRSwap explosions. The USGovt borrowing costs would triple also.

Harken back just a few weeks, when the USDept Treasury and USFed announced on a repeated basis the end of Quantitative Easing. Their words were not genuine. INSTEAD, THEY DID THE EXACT OPPOSITE, AND MADE THE FORMAL ANNOUNCEMENT BETWEEN THE CHRISTMAS AND NEW YEAR HOLDIDAYS. The move to permit unlimited Fannie & Freddie funding is an end-around maneuver to prevent long-term interest rates from rising, or at least to insulate the mortgage finance arena from higher long-term interest rates. IT COMES AT A COST, OF SYSTEMIC RISK, OF PERCEIVED DEFAULT RISK, OF USGOVT DEBT FOUNDATION RISK. The year 2010 might be characterized by a rise in the entire USTreasury bond yield spectrum, from short-term to mid-term to long-term. It is not just a bad thing, a risk filled development. It reeks of systemic risk, after deep embrace of moral hazard! The monetization threat and deep monetary inflation to fund USTreasurys (indirectly Fannie & Freddie debt) are important parts of the vicious cycle displayed in the December 16th article entitled "Full Circle of Govt Debt Default" (CLICK HERE). The full circle (see the chart) starts and ends with the USDollar and the USTreasurys, from debts, monetization, and monetary inflation gone haywire.

The credit markets must prepare for one of two undesirable outcomes. Either interest rates rise markedly in order to fund the USGovt federal deficits or else Printing Pre$$ output of phony money must escalate without bounds. Next comes debt explosion or Weimar inflation. The federal deficits must be securitized, in other words, converted into bonds and funded. The process so far has involved an incredible amount of hidden monetization. It is slowly being discovered, but not reported by the financial press. My articles have detailed some of the primary bond dealer monetization in Permanent Open Market actions, and some of the foreign central bank monetization of mortgage bonds to fund USTreasury bids. The year 2010 will feature monetization of USGovt debt and of mortgage losses out in the open to a much greater degree. The effect will be to place the USGovt debt viability at greater risk. It will be interesting to watch the debt ratings agencies (Standard & Poors, Moodys, Fitch) in action. They are under tremendous pressure not to repeat their behavior in the past. They are downgrading European nation sovereign debt. The USGovt short-term funding requirements are almost as great as their active monetization, the clear expedient. The USEconomy tolerates huge Ponzi Schemes from the inside, like Madoff, like Fannie & Freddie, like AIG, like Wall Street itself. Rather the USEconomy has become one huge Ponzi. Its expansion on the margin is uncontrollable, just like its appetite for new funds is uncontrollable. The blank check to Fannie & Freddie raises the risk of official funding of the Ponzi Scheme behind housing and mortgage finance.

Last autumn 2008, one year ago, the USDollar embarked on what my analysis called a Dollar Death Dance. The bounce from the November depths last month at 74.5 to the hardly rarified air near 79 has been sudden. The rise in rebound has been built upon several factors. The Dubai debt mess has exposed European and London banks for further losses, leading to an exit from both the Euro and British Pound currencies. The US banks are more adept at hiding their losses, extended their toxic loans, pretending they will find eventual value. The Dubai shock has made vividly clear the heightened risk of a European Union fracture, a threat to the Euro currency, and a need for Germany to cut off some Southern Europe debtors from the young union. The Dubai debt default short-circuited the strong gold season. Seasonality issues have been widely destroyed in recent years in numerous asset classes. The late winter and spring for gold should be strong again, as the USDollar will expose its toxic fundamentals. The only thing making the US$-based instruments look good is the unfavorable comparison to broken European national debt structures, which do not have the benefit of the Printing Pre$$ Privilege or the support systems from Wall Street.

The Competing Currency Wars have heated up again from comparisons rather than open hostility to protect exports. Money departs the Euro harbors and enters the USDollar arenas, still filled with risk and insolvency. This sudden US$ rebound has left the G-20 Meeting declarations a recent bad memory. The emerging nations had shown steady disrespect for the so-called developed nations, the deep debtors who long ago lost their industrial base. They transformed industry to debt, an accomplishment by modern central banking!! There is nothing like some debt liquidation to show how the USDollar still has remnants of a safe haven. Its security has only remnants. Let's not even touch the endless wars and their outsized costs.

Just what is the force to sustain the USDollar rebound? More European member nation debt woes. More credit derivative liquidation and payouts. The US$ rebound runs low on valid fuel. This is the Dollar Death Dance, part II. The long-term trend will remain down. The immediate activity could feature more of the same. The short covering of the Dollar Carry Trade has been clear. It will have to muster enough funds, courage, and wisdom to put that carry trade into second gear. It is inevitable. It is justified. It will be profitable. It certainly will be dangerous, since the USDollar is still the global reserve currency. That status is threatened though. Clearly, the USDollar rebound, a move of a mere 6% in the last few weeks, is the only factor pushing down the gold price. One can see that the gold price decline has run its course. The overbought condition has worked itself off. The risk of a move to 1060-1080 is apparent. However, the moving averages are rising. The stochastix are ready to cross over in a positive way. Last but not least, the fundamentals for the USGovt finances and the USDollar in particular could not be more acutely horrible, miserable, outrageously negative, and represent a palpable threat of a sovereign debt default down the road. At least we will see a monetary crisis centered upon the USDollar.

The USDollar rebound and the reflexive gold correction have been rapid and thus are unstable. They are both nurtured by European and London weakness, rather than US strength. The long-term trend is solid and up for gold. With all the hubbub and gnashing of teeth, the gold price is still above its October highest level. My favorite question of US$ Bulls is "What has been fixed?" The answer is nothing. Much money has been spent, and huge deficits have been racked up, but to what end? No remedy, no reform, no structural imbalances corrected, no deficit reduction, no high priority to stimulus toward household relief, no successful modification to home loans, no end to home foreclosures, no end to job cuts, no end to supply chain disruption, no end to the USGovt and USFed acting as primary lenders, not just lenders of last resort. The USDollar is running on fumes, and the end to its bounce is near. The gold bull will run again. Three to four steps up, one step back.

James Willie.
Jim Sinclair has given two important commentaries that I would like you to read.  You will hear on many occasions this month, the Fed will try and remove the trillions of dollars of liquidity they provided to save the economy.  They have tested reverse repos.  They are now discussing issuing certificates of deposits for all of the banking reserves.  This is shear nonsense.
If they withdraw all of their liquidity the world's financial structure will implode in a heartbeat.
Here is the first story:

 J im Sinclair’s Commentary

The Chairman met with more than 20 Senators in private meetings as part of his nomination confirmation process.

This silly MOPE is certainly part of that.

Fed Discusses Limited Bond Sales to Withdraw Stimulus (Update1) 
By Craig Torres

Dec. 31 (Bloomberg) — Federal Reserve officials are considering a proposal to schedule limited sales of bonds from the central bank’s $2.2 trillion balance sheet as part of a range of tools for withdrawing record monetary stimulus.

The Federal Open Market Committee discussed asset sales at its November meeting, with some members in favor and others warning that it would cause “sharp increases” in longer-term interest rates, according to minutes of the meeting released Nov. 24. A middle route now being studied would allow small amounts of bonds to be unloaded at announced times.

“The attitude toward asset sales is changing in terms of more in favor and more open minded, and doing it very gradually,” said former Fed Governor Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington. Devising a plan for pulling back stimulus “is under way intensively on the Federal Open Market Committee,” he said.

Chairman Ben S. Bernanke is trying to wind down emergency stimulus programs that helped avert a second Great Depression, while alleviating concerns that inflation will accelerate as the economy picks up. U.S. Treasury securities posted their worst performance since the 1970s after the Obama administration borrowed record sums to help drive the rebound from recession. Yields on 10-year notes are close to their highest level since June, rising to 3.84 percent at 4:45 p.m. in New York.


 The second story is Jim Sinclairs version of the Freddie and fannie story.  Here he agrees with Jim Willie, that the removal of the cap will cost the treasury 250-300 billion of taxpayer dollars
in order to keep interest rates from escalating. 

 j im Sinclair’s Commentary

The December long pep rally by the MOPErs on F-TV for the economic boom of 2010 will have to be a pep rally for "QE to infinity."

Fanny and Freddie seem to be the calendar stars for that process.

Fannie, Freddie proving too big to shrink 
Taxpayer tab for Fannie Mae, Freddie Mac likely to rise after Treasury’s Christmas Eve pledge 
By Alan Zibel, AP Real Estate Writer , On Wednesday December 30, 2009, 8:08 pm EST

WASHINGTON (AP) — The government’s Christmas Eve pledge of unlimited financial aid to mortgage giants Fannie Mae and Freddie Mac is aimed at making sure the housing market doesn’t take another turn for the worse and cause the economic recovery to unravel.

This insurance policy taken out by the Treasury Department will help keep mortgage rates low, and may wind up being a gift of sorts to struggling homeowners and banks. But there’s a catch: the housing crisis is now likely to cost taxpayers much more.

The Obama administration’s latest lifeline to Fannie and Freddie will cover unlimited losses through 2012, lifting an earlier cap of $400 billion. It also eases restrictions on the size of the companies’ investment portfolios. That’s a reversal of the Bush administration’s September 2008 plan to shrink the size of the companies’ holdings of mortgage-backed securities.

The action, which didn’t need the approval of Congress, could position Fannie and Freddie to get more aggressive in dealing with the housing crisis, perhaps taking troubled mortgage investments off banks’ books.

"They’ve cleared the decks to use Fannie and Freddie as a vessel for whatever they want," says Edward Pinto, a housing consultant who served as Fannie’s chief credit officer in the late 1980s.



Could you believe this..on one side of their mouths they are talking about removing liquidity.  Now they gave GMAC 3.8 billion dollars for housing losses:

Jim Sinclair’s Commentary

No problem getting the funds. The USA will simply issue more treasuries.

The Fed, while "testing repos" and "thinking about Fed CDs," will purchase the largest single amount of US debt, taking QE to infinity.

Government to give GMAC another $3.8 billion 
Financial services firm has already received $12.5 billion in taxpayer money 
updated 4:51 p.m. MT, Wed., Dec . 30, 2009

NEW YORK – The government gave GMAC Financial Services another $3.8 billion in cash and took a majority stake in the auto lender, aiming to stabilize the company as it struggles with big losses in its home mortgage unit.

The fresh infusion is on top of $12.5 billion in taxpayer money Detroit-based GMAC has already received from the government. The new aid will boost the federal government’s ownership in GMAC to 56 percent, from 35 percent, and means the U.S. now holds a majority stake in three companies that it bailed out with taxpayer funds ― GMAC, General Motors and insurer American International Group Inc. The government also has taken control of mortgage giants Fannie Mae and Freddie Mac.

Shoring up GMAC has been a major component of the Obama administration’s massive effort to rescue ailing automakers General Motors and Chrysler. The lender provides critical wholesale financing to thousands of GM and Chrysler auto dealers, allowing them to stock their showroom floors with vehicles.

GMAC needs much of the aid to prop up its mortgage division ― Residential Capital LLC, dubbed ResCap, which struggled with big losses on mortgages gone bad as the housing market collapsed. The company said it would take $3.3 billion in mortgage-related write-downs, part of a $3.8 billion expected charge in the fourth quarter. GMAC is also preparing to sell off mortgage assets in an effort to reduce volatility.

Even with the government upping its stake, Treasury officials said the government intends to stick to its policy of leaving day-to-day business decisions about financing to GMAC management. Still, with the additional stake, the government will have the right to appoint two additional directors to the company’s board, bringing the total to four of nine, Treasury officials said.


During the weekend, we got these figures on state revenues.  They are declining rapidly.  Thus the consumer is not spending and the economy is not booming as government officials
proclaim.  From Jim Sinclair:

Revenues are going to tank, as expenses go wildly higher into 2012. MOPE of course denies this by claiming a diametrically opposed forecast.

"Through the first three quarters of 2009 state and local tax revenues totaled $875 billion, nearly 8% below the $951 billion collected in the first three quarters of 2008. In the same period, federal receipts were down nearly 19%."

State, Local Tax Revenues Decline 7% 

State and local tax revenues fell 7% in the third quarter of 2009 from a year ago, the Census Bureau said in a report underscoring how the economic downturn is stressing government collections.

Sales taxes declined 9% to $70 billion in the third quarter compared with the year-ago period, the Census Bureau said. Income taxes plunged 12% to about $58 billion. Together, sales and income taxes make up roughly half of state and local tax revenue.

"We expect continued weakness well into 2010 if not further," said Lucy Dadayan, an analyst at the Rockefeller Institute of Government at the State University of New York.

Property taxes increased 3.6% in the third quarter compared with a year ago. But as property assessments catch up with falling residential and commercial real-estate values, property-tax revenues are expected to be weak. That will have a particularly severe impact on local governments, which fund much of their operations from property taxes.

"At minimum, cities will be working through the catastrophic drops in revenue for the next 18 months to two years," said Mark Muro of the Brookings Institution’s Metropolitan Policy Program.



The first 5 days trading on the new year is always very volatile.
Watch the bond trading especially the 10 yr and 30 yr bond price.  If we see deterioration in that field with a drop in the usa dollar, that will be explosive to the markets
I wish you all a very happy New year

Wednesday, December 30, 2009

Dec 30.09 commentary.

Tonight will be the last commentary for me for the year.
I will report as usual on Saturday.
Gold closed down by $5.50 to 1091.50.  Silver closed down by 31 cents to 16.78.
The gold comex OI makes very little sense.  It closed down by 6300 contracts to 491712.
Even though gold was hit by 9.00 dollars yesterday, there is no real rush to liquidation.
It is my bet that the number is fabricated and that the real OI rose signifying huge short selling.
In silver, the comex OI rose by 33 contracts to 124334.  It seems that the silver long's did not liquidate any of their
positions.  I am confident that the longs in gold also remained resolute.
The big news of the day, is GATA suing the Fed  for release of all documents showing gold trading by the Fed/Treasury
and their trading arm, the ESF:
GATA sues Fed to disclose gold market intervention records

Submitted by cpowell on Wed, 2009-12-30 18:33. Section: Daily Dispatches

1:30p ET Wednesday, December 30, 2009

Dear Friend of GATA and Gold:

GATA today brought suit against the U.S. Federal Reserve Board, seeking a court order against the central bank to disclose records of its surreptitious intervention in the gold market to suppress the monetary metal's price.

The suit was filed in U.S. District Court for the District of Columbia and targets Fed records involving gold swaps, exchanges of gold with foreign financial institutions. In a letter dated September 17 this year to GATA's law firm, William J. Olson P.C. of Vienna, Virginia, ( Fed Board of Governors member Kevin M. Warsh acknowledged that the Fed has gold swap agreements with foreign banks but insisted that such documents remain secret:

The lawsuit follows two years of GATA's efforts to obtain from the Federal Reserve and the U.S. Treasury Department a candid accounting of the U.S. government's involvement in the gold market. These efforts parallel those of U.S. Rep. Ron Paul, R-Texas, who long has been proposing legislation to audit the Fed. The Fed has wrapped in secrecy much of its massive intervention in the markets over the last year, and Paul's legislation recently was approved by the U.S. House of Representatives.

The Fed has claimed that its gold swap records involve "trade secrets" exempt from disclosure under the U.S. Freedom of Information Act.

While GATA has produced many U.S. government records showing both open and surreptitious intervention in the gold market in recent decades (see, Fed Governor Warsh's letter is confirmation that the government is surreptitiously operating in the gold market in the present. That intervention constitutes a huge deception of financial markets as well as expropriation of precious metals miners and investors particularly. This deception and expropriation are what GATA was established in 1999 to expose and oppose.

Of course GATA's lawsuit against the Fed will take months if not years to resolve. We think we have a good chance of winning it in court. But we can win it outside court, and much sooner, if the suit can gain enough publicity from the financial news media and market analysts and prompt enough inquiry from them and from the public, the mining industry, and members of Congress.

So GATA urges its friends to publicize the suit and to urge journalists, market analysts, mining companies, and members of Congress to join us in seeking disclosure of the Fed's gold market intervention records. If enough clamor is directed at the Fed about these records, the gold price suppression scheme will lose its surreptitiousness and fail.

Unfortunately the World Gold Council, which each year collects tens of millions of dollars in membership fees from mining companies in the name of representing them and gold investors, refuses to question governments about their surreptitious interventions in the gold market. These interventions powerfully influence not only gold's price but the prices of government bonds and currencies, as well as interest rates generally and the value of all capital and labor in the world. There is no more important issue in the world financial system than gold price suppression.

So what should have been the World Gold Council's work has fallen to GATA, a non-profit educational and civil rights organization that operates from month to month on donations from people who share its objective -- free and transparent markets in the precious metals and fair dealing among nations generally. As we prosecute our lawsuit against the Fed, we'll be grateful for your support. We promise to do something with it.

For information about supporting GATA, please visit:

GATA's lawsuit against the Fed is listed in federal court records as civil case No. 09-2436 ESH, the letters being the initials of the district court judge assigned to it, Ellen S. Huvelle.

You can find the lawsuit here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

I know that many of you will state that it will take years to get on the docket.  You are probably correct.  However, the discovery phase of this case will be the price of admission.
Please note that they have already assigned a district court judge Ellen Huvelle, to handle the problem.
The Fed has a dilemma.  All the gold obtained by the usa until now is suppose to be in 4 facilities totalling 8133.4 tonnes of gold:
The 4 facilities are:
1. Fort Knox
2.West Point
3.Norad  (Colorado)
4. Federal Bank of NY.
Most of the gold is supposedly held at Fort Knox where the majority of its gold is coin-melt.
The usa did not refine its gold when they first melted all of the 1933 gold coinage and then confiscated gold
from its citizenry.
The usa from documentation we got, seems to have recorded a total weight of 6,900 tonnes of  coin melt gold.
The real weight of gold is correct.  The total weight of each bar is  110% to account for the non gold portion of the bars.
The dilemma facing the Fed is simple.  If there are no transactions they should have no trouble in handing over the documents showing zero trades.
We know that the vault is empty and it is for this reason that the Fed is actively resisting handing over any documents
purporting to show gold trades.
The Fed has a real problem on its hands as the Fed did not seek congressional approval before leasing or selling any of the usa gold. They would face criminal penalties.
The lawsuit is filed as follows:

You can find the lawsuit here:

In essence, we are stating to the court that we have tried the Freedom of Information route and we have been denied.
We are seeking clarification on all gold swaps and basically what happened to all the usa gold and who is responsible.
We seek explanation of the gold swap with Germany i.e. the 1700 tonnes that the Germans swapped with the usa in 2000.
It looks like many in the House and some in the Senate who will be very interested in this case.
OK lets go to some of the economic news of the day:
First: business in the midwest picked up nicely as Obama's stimulation money seems to be percolating throughout the economy:

US Midwest business jumps in December-Chicago PMI

NEW YORK, Dec 30 (Reuters) - Business activity in the U.S. Midwest expanded far more than expected in December, according to a report released on Wednesday that is likely to boost optimism in the economic recovery.

The Institute for Supply Management-Chicago business barometer rose to 60.0 from 56.1 in November.

That was much better than economists' forecast of 55.0, which was the median in a Reuters poll that ranged from 52.0 to 58.0.

A reading above 50 in the report, also known as the Chicago PMI, indicates expansion in the regional economy.

Today was the final auction day for the bonds.  We got 32 billion dollars of 7 yr paper auctioned off.  Here are the results on that auction:

13:06 7-yr note auction yields 3.35%, with 55.69% allotted at the high
•Bid/cover 2.72 vs. prior 2.76
•Indirect participation 44.7% vs. prior 62.5%
•In reaction: 
2-yr flat at 0.99% 
10-yr flat at 3.76% 
Dow 10540.65, (4.76) 
* * * * *






Please note: the bid/cover ratio was low at 2.72.

The indirect participation at 44.7% suggests the entire auction was bought by the Fed again.

What a farce!!


If you have time over the weekend, please read this 16 page commentary on Quantitative Easing

in England.


It gives a history on QE and it details the destruction of their economy eventually, from QE.


Here is the commentary:  (to get the passage press on the blue:  quantitative Easing.pdf)


The 16 page attachment, including charts, is an ever so English position paper on how the BOE is running QE currently, largely off balance sheet, and its historic antecedants. In typically English understatement, it downplays what happens next February when the BOE must either end the program or seek to continue it. Since, as in America, it's the only thing preventing the UK economy from collapsing, my money's on extending it, but that will advance the UK far down the road to Iceland status, with the market starting to fear that QE can never be ended. My guess is that UK smart money will start to flee the UK even more so than it already is. (I don't see the BOE blowing up the UK economy 3 months before a general election.) Along the way the differences in the QE programs of the UK and USA are covered, and although it's far too polite to mention it, my guess is that QE will end badly the same way in both countries. I will post the link tomorrow on the website, but doubt that many readers will plod through it over the New Year. 

In ever so polite, somewhat old fashioned now terms, the writer manages to convey disapproval of QE, without being alarmist. It reminds me very much of the 1960s approach to City research reports that suggested all might not be well in such and such company, even as the roof was falling in, and their capital disipated. I doubt that QE in either country can be reigned back anytime soon and take this as a rather old fashioned, elegant PDF paper supporting ownership of gold and silver and the better companies that produce them.

Quantitative Easing.pdf (370 KB)


Rob Kirby picked up on the huge derivative shortfall in silver by JPMorgan.  His commentaries are always very colorful:

His commentary is inline with everything I have stated to you and what I emailed to the CFTC:


Rob Kirby...

Legitimate Price Discovery vs. Fradulent Price Determination

by Rob Kirby
December 28, 2009

Year’s end is a time when folks customarily take stock of things and analyze or review what has transpired over the past 12 months. With that in mind, let us stop and consider what has transpired in the global silver market for the ‘front half’ of the preceding 12 months:

source: Bank for International Settlements [BIS]

This data was highlighted in Silver Market Updates by Jason Hommel. Everyone should understand that THE VAST MAJORITY of the 100 billion increase in silver derivatives [futures and options] depicted above was principally done by TWO financial institutions. From the data set above, we can clearly see how silver derivatives were employed – ramping up from 103 billion at Dec. 2007 to 190 billion at June 2008 to produce the water-fall price effect in price illustrated below:

We can see how silver futures were subsequently used to “blunt” the price rise in silver which began in late 2008. The reason why the latest round of “futures selling” of silver is not having the same demonstrable effect: PHYSICAL SHORTAGES OF METAL are becoming commonplace, trumping the manipulative effect of futures selling. Folks are paying-up for physical silver bars:

chart compliments of Michael Zielinski

We have seen this manifest itself through the de-coupling of the price of physical metal and the futures price and regular suspensions of silver coin production:

US Mint Suspends Sales of Gold and Silver Eagle Coins
By Michael Zielinski on November 25th, 2009

The United States Mint has suspended sales of their popular one ounce American Gold Eagle and one ounce American Silver Eagle bullion coins. The suspension was announced in a memo sent to the US Mint's authorized bullion purchasers….

Remember folks, futures markets were originally conceived as means to aid in efficient Price Discovery:

Price discovery is the general process used in determining spot prices. These prices are dependent upon market condition affecting supply and demand. For example, if the demand for a particular commodity is higher than its supply, the price will typically increase (and vice versa).

Clearly, in the case of silver, futures [derivatives] are no longer being used to “discover” price – they are being used to fraudulently DETERMINE or MANDATE PRICE.


Rob Kirby.


I would also like to point out that the GLD   (the ETF which trades on the NYSE) has added gold to its inventory.  The gold inventory is now within a whisker of record levels. (the record level of gold in the GLD is purported to be 1134 tonnes)

The GLD is suppose to register gold demand.  Then how does it explain gold's drop from 1224 to 1094.?

The GLD ETF, curiously, reported adding 0.91439 tonnes to 1,133.62195 tonnes. (The CEF bullion vehicle saw its premium to NAV drop 200 basis points to 7.2%). MarketVane’s Bullish Consensus shed 2 points to 75%.

This next piece is from JIM Sinclair:


jim Sinclair’s Commentary

Hey, start with the bonuses for failure in the business sense.

Lawmakers Want Probe Into Treasury Aid for Fannie, Freddie 

WASHINGTON — The Treasury Department’s surprise Christmas Eve move to uncap the potential aid to Fannie Mae and Freddie Mac should be investigated, lawmakers from both political parties said Wednesday.

Rep. Dennis Kucinich (D., Ohio) said his congressional subcommittee plans to investigate Treasury’s decision to lift the existing $400 billion cap on government cash available to the two firms. Separately, Reps. Scott Garrett (R., N.J.) and Spencer Bachus (R., Ala.) called for the House Financial Services Committee to hold a hearing on the matter.

Mr. Kucinich, who chairs the domestic policy subcommittee on the House Oversight and Government Reform panel, said he is concerned about how the two government-controlled firms will use their new flexibility.

"This cannot be used simply to purchase toxic assets at inflated prices, thus transferring the losses to the U.S. taxpayers and acting as a back door [Troubled Asset Relief Program]," Mr. Kucinich said in a statement released by his office.

Messrs. Garrett and Bachus raised similar concerns in a letter to Rep. Barney Frank (D., Mass.), who chairs the Financial Services panel. The two GOP panel members decried what they called a "transparent attempt to hide the news from the American people" by announcing the news the day before a major holiday.





Then we are witnessing these developments from the Middle East: from Jim Sinclair)


1) Israel’s ambassadors and consuls generals from all over the world have been summoned to attend a conference to be held over global challenges facing Israel. "This is the first time a conference for all of Israel’s heads of missions has been held." (not even done in the six-day war/1967)

2) Iran is de-stabilizing internally by the day.

3) Ayatollah Khamenei preparing to fly out of country? (sounds like Khomenei’s trip to Paris in 1978/9)

And gold just sits there.
I will see you all on Saturday.
I wish everyone a very happy and healthy New Year.

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