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:
http://www.gata.org/node/8192
http://www.gata.org/node/8193 Zero Hedge quickly commented favorably and at length about it:
http://www.zerohedge.com/article/gata-sues-fed-demands-d
isclosure-gold-market-intervention-records In September the Fed admitted that it indeed has such records and is determined to keep them secret:
http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf I'd be delighted to provide more information about
this.
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.
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 Zerohedge.com 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."
***
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.
-END-
Treasury yields push bonds toward big annual loss
Bill
http://www.marketwatch.com/story/treasurys-yields-head-t
o-biggest-jump-in-a-decade-2009-12-31
QUOTE
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
END
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"!
Cheers
Adrian
FANNIE DEBT MERGER MONETIZATION
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.
BLANK CHECK TO FANNIE & FREDDIE
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.
MOTIVE FOR THE USGOVT HOME OWNERSHIP
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.
RISK RISK RISK, MONETIZATION & INTEGRITY
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.
USDOLLAR BOUNCE
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 TorresDec. 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.
end.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 dollarsin 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 ESTWASHINGTON (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.
end.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, 2009NEW 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.
ENDDuring 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 officialsproclaim. 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%
By CONOR DOUGHERTYState 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.
end
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 marketsI wish you all a very happy New yearHarvey.
