Saturday, February 27, 2010

FW: Feb 25.10...very important.





Good morning to you all:
First of all, I would like to report on two bank failures:
Rainier Pacific Bank of Tacoma Washington
and Carson River Community Bank
Total assets in the failure are around 800 million dollars.

Bank Name

City

State

CERT #

Closing Date

Updated Date

Rainier Pacific Bank Tacoma WA 38129 February 26, 2010 February 26, 2010
Carson River Community Bank Carson City NV
While we are on the subject of the FDIC, Darryl Montgomery, from Seeking Alpha, has written a great paper on the FDIC and on the illusion of a USA
economic recovery. I urge you to read the entire passage and I will comment on the highlights:
Recent Stats Indicate U.S. Economic Recovery Was an Illusion

by: Daryl Montgomery February 25, 2010

A number of economic reports in the last few days indicate that the U.S. economy has not only not failed to recover from the recession, but continues to fall deeper into a hole.

Banking, consumer confidence, employment numbers, durable goods and the housing industry - each representing a different aspect of the economy - are all sending out troubling signs. Despite the onslaught of negative data, mainstream economists continue to echo the official U.S. government view that "the recovery is still on track."

Updated statistics from the FDIC indicate that there were 702 banks on the troubled list at the end of 2009. This is an increase of 27% from the third quarter. FDIC numbers also show that U.S. banks cut lending by 7.5% in the fourth quarter of last year. Since lending is the lifeblood of the economy this doesn't bode well for the future. The FDIC also had to put aside an additional $17.8 billion for future bank failures. Its deposit insurance fund is now at a negative $20.9 billion. Despite statements that it has enough cash to keep operating (Bear Stearns and Lehman Brothers made similar claims), it is only a matter of time before the FDIC is bailed out. This will take place before the end of the year and will be done by tapping a line of credit from the Treasury department. Expect this event to be downplayed by mainstream media reports with claims that it is not really a bailout.

While the U.S. banking system continues to dissolve, consumers are losing confidence in the economy. The Conference Board numbers for February fell a whopping 10.5 points to 46 (around 100 is a good number). The present situation subindex fell to 19.4, the lowest level since February 1983 when the U.S. was trying to recover from a severe double dip recession. Before the Credit Crisis, consumer spending represented 72% of the U.S. economy. Without their participation, a sustainable recovery is not possible. Other reports indicate there is no way in the near future that consumers can resume their vital economic role. Consumers not only don't have credit - credit card debt was dropping at close to a 20% annual rate at the end of last year - but they are worried about the job market as well.

The weekly jobless claims indicate why the job picture is still troubling. Initial claims were up 22,000 last week to 496,000 (a number around 400,000 indicates recession and 300,000 indicates a healthy economy). These numbers are highly volatile because they come from state unemployment offices that are notorious for backlogs in processing claims. This problem occurred during the holiday season and the claim numbers were consequently lower. The mainstream media then fell all over itself to report the tremendous improvement in the employment picture, instead of the real story of bureaucratic incompetence that was preventing accurate numbers from being produced. Market watchers usually only pay attention to the four-week moving average to get around this problem. This number has risen by 30,000 to 473,750 in the last four-weeks.

The just released Durable Goods report got major headlines about how bullish the number was. This is only the case as long as you don't look at the details of the report. Responsible for the good headline number was a 126% increase in civilian aircraft orders (these orders can be cancelled, by the way). Outside of transportation, orders fell 0.6%. Core capital equipment and machinery ordersdropped 2.9% and 9.7%, respectively. These two numbers are the important ones that determine the direction of the economy. For all of 2009, durable goods fell a record 20%.

Finally, housing doesn't look like it is in recovery mode either. Housing was the epicenter of the Credit Crisis and it will be years before all the damage wrought by the bubble is worked out. According to the Mortgage Bankers Association, mortgage applications for home purchases have just fallen to a 13-year low. New home sales in the U.S. fell to the lowest level on record in January (records go back almost 50 years). Government nationalized Freddie Mac (FRE) reported it lost another $7.8 billion in the fourth quarter. That brings its total loss to $25.7 billion for all of 2009. Freddie Mac purchased or guaranteed one in four U.S. home loans in 2009. The Obama administration has promised a blank check to Freddie along with its companion housing entity Fannie Mae (FNM), also nationalized and bleeding money, to cover losses up until 2012.

There is little evidence that the U.S. economy has recovered from the recession or is going to recover from the recession anytime soon. The support for the recovery viewpoint comes from government statistics that have been highly manipulated. All governments, of course, want to present a rosy picture of their handling of the economy for political reasons and it is much easier to make the numbers better than it is to actually make the economy better. Eventually the public catches on to this game, however. The recent consumer confidence numbers indicate that the American public is no longer buying the public relations story, but is starting to pay more attention to the realities they have to face on a day to day basis.

http://seekingalpha.com/article/190665-recent-stats-indicate-u-s-economic-recovery-was-an-illusion

end.
Please note that the FDIC has a negative 20.9 billion deficit as of Dec 31.09, which was an increase of 27% from the 3rd quarter. As I pointed out to you earlier the increase in troubled banks increased
to 702 banks from around 550, the quarter prior.
To boot, the FDIC has allocated another 17.8 billlion dollars for future bank losses.
Thus, not only has the FDIC lost all of its new allocations from banks, it has now gone into a big deficit and thus the taxpayer is funding all of its losses from now on.
The author has commented on the troubling jobless claims. He explains the volatility in the numbers from state unemployment offices that are notorious for backlogs in the processing process.
There never was any improvement on the jobs front . He comments on the durable goods that got headlines on the bullish number. He alerts all readers to look at the details:
most of the gain was in civilian aircraft orders (and these can be cancelled). Outside of transportation, orders fell .6% Core capital equipment and machinery orders dropped 2.7% and 9.7% respectively.
The latter two numbers are critical for the economy to improve.
He has emphasized trouble in the housing sector. He states that mortgage applications for home purchases have fallen to a 13 year low. New home sales are at their lowest level on record.
Freddie Mac has lost another 7.8 billi o n dollars in the 4th quarter and over 25 billion for the year. These guys have purchased or guaranteed one in 4 ho mes in the usa. How can the economy be recovering with these stats?
His final paragraph is essential to all to read: all government stats are highly manipulated..they want to present a rosy picture for political reasons.
The private consumer confidence numbers indicate that the American public is no longer buying the public relations story.
end.
Lets go to the physical side of gold and silver:
Gold closed up by 10.00 to 1117.80. Silver had a stellar day up by 39 cents to 16.50.
I would like to emphasize that gold with respect to the British pound closed at a record high 731 Br. Pounds/oz. The Euro price per oz continues to shatter new record
rising ever so close to the magical 800 euros per oz.
Here is Dan Norcini on the trading of gold and silver yesterday:
Posted: Feb 26 2010 By: Dan Norcini Post Edited: February 26, 2010 at 1:43 pm

Filed under: Trader Dan Norcini

Dear CIGAs,

Today was "Let's buy commodities day" as fund money came back into the sector sending a large majority of the individual commodity futures higher. Copper was well bid all day as was crude oil with even natural gas getting a decent bid. The grains were all stronger as well. The culprit behind the influx of fund money – yep, you guessed it – the Dollar was sharply lower today.

Gold of course pushed higher on the session as it moved away from the lower end of the recent trading range and is currently sitting in the middle of its upper and lower range boundaries. It did manage to climb back above the major moving averages with the 10 day now making a bullish upside crossover of both the 40 and 50 day moving averages. That is friendly although it still needs to take out overhead resistance centered near $1,130 (the upper side of the trading range) before the bulls can regain control over the gold market. It will probably take a Dollar break of 79.60 (last week's low) on the USDX before it can muster sufficient strength to do so but with the currency markets continuing to look shaky and especially with gold priced in terms of the European currencies continuing to perform so well, it could very well do this independently of the Dollar.

Incidentally, gold priced in terms of the British Pound scored a brand new all time high at today's London PM Fix, coming in at £731.18, as it eclipsed the previous high set back on December 3, 2009. It is evident that the British Pound is disintegrating at a faster clip than the US Dollar as Great Britain's economic and fiscal woes continue unabated. Both the weekly and the monthly charts of the British Pound look atrocious. There does not appear to be a whole lot of chart support until you get closer to the 1.45 level. If Sterling were to take out the 1.35 level, "Katie bar the door" because the currency could implode. If that were to occur, Sterling Gold would be trading above the £800 mark.

Euro Gold continues to cling tenaciously above the €800 mark.

It would appear that yesterday's story in the English version of Pravda's web site about China announcing they intended to buy the remainder of the IMF gold is being denied by the author.

Click here to view the article…

As I said yesterday it would be strangely out of character for the secretive Chinese to announced before hand their specific intentions as such a thing would undoubtedly cause the price of gold to run up higher, something which they or any other buyer for that matter, would desire.

We do not need a newspaper story telling us however what we already know and that is Asian Central Banks are looking for ways to diversify their reserve holdings and gold is going to be in that mix. They will buy gold when the speculative funds are knocking the price lower and for all that we know, they may have been the buyers of size earlier this month when gold dropped to $1,040 – $1,050. These banks will be buyers whenever prices fall and will provide a long term floor of support beneath the gold market.

On the same front there is another story circulating around out there today that it is India which is looking to buy this same IMF gold. Guess what – they probably are; just like China is except neither Central Bank is going to come out and tell us ahead of time when or how much. They will just do it and then the news will filter out into the market and every one will go ga-ga and run the price sharply higher, where it will then lose some upside momentum after a while, come back down and these same Central Banks will look to buy some more and the process will repeat itself once more.

The HUI, while higher today, is having trouble getting above this Tuesday's high near 406. You might recall that was the day we saw a sharp sell off in the mining sector. If it can close above this level, it will give the bulls a definite advantage going into next week. The next level of upside resistance, and that which must be bettered to give this sector a shot at a trending move, is the 420 level, which also happens to correspond to the 50 day moving average. Initial support is at yesterday's low. As I write this commentary, the ratio spreads from the hedge funds are appearing once again and knocking out the props from beneath the mining shares.

Crude oil is attempting to get above $80. It has not broken down but if it cannot get over this hurdle within the next couple of trading sessions, some of the bulls will get impatient and it will drop back down into the trading range between $80 – $81 and $70. For now it appears that bull and bear forces are in a relative state of balance with the bulls having the very near term advantage.

Dollar bulls continue to prop this market up and thwarted bears from breaching critical downside support levels. Bears were gunning for the 80.14 level and managed to push price down to 80.19 before the bulls came back and shoved price back up. Even though the bearish divergences and loss of upside momentum continues to make itself evident in the USDX chart, the funds are managing to stave off the sellers as they work to defend their large long positions.

Bonds continue their charge higher and once again bond bears get obliterated thanks to the ongoing machinations that occur in that market.

end

I would also like to point out that the first day notice was Thursday and not Wednesday as was first reported. On Thursday, all money must be placed at the brokers for those wishing to take
delivery on a silver contract.
The total OI for both gold and silver are very intriguing and I will try and give you my two cents worth on the matter:
The total gold comex OI rose an astonishing 12,201 to 472,205.
For some strange reason, the comex OI for silver fell by a huge 5900 contracts to 108,564,
I will now give you the inventory figures for silver and gold comex with a commentary from Adrian Douglas:
COMEX Warehouse Stocks Feb 26, 2010

SILVER

592,604 ozs withdrawn from the dealer's (registered) inventory
617,695 ozs deposited in the customer (eligible) inventory
Total dealer inventory 48.77 Mozs
Total customer inventory 60.14 Mozs
Combined Total 108.91 Mozs

GOLD

ZERO ozs deposited in the dealers (registered) category
ZERO ozs deposited in the customer (eligible) category
Total dealer inventory 1.62 Mozs
Total customer inventory 8.35 Mozs
Combined Total 9.97 Mozs

There was no movement of gold into or out of the dealer or customer inventory. There were 0.6 Mozs of silver withdrawn from the dealer inventory and 0.61 Mozs deposited in the customer inventory…the fact that those are almost the same it looks like delivery being made from dealers to long investors. The real doozy though is that 3 Million ounces were transferred by way of "adjustment" from the eligible (customers) to the registered (dealers) inventory. I wonder if that is silver they are leasing from the customers to meet the massive delivery demand this month.

There were 85 delivery notices issued in the MAR gold contract. The MAR gold contract total for the month is 85 notices or 8,500 ozs. Goldman Sachs issued none and stopped 4, BNS issued 0 and stopped 35 while JPM issued none and stopped 44.

There were 1737 delivery notices issued in the MAR silver contract. The total delivery notices for the month in silver stand at 1,737 or 8.7 Mozs. JPM issued 1712 and stopped 442, BNS issued 0 and stopped 723 while Deutche Bank issued none and stopped 191. JPM issued 98.5% of the notices. Despite the CFTC instigating a cover-up of which banks hold the manipulative short positions through changes in their Bank Participation report it is very easy to deduce it. Here is JPM being obliged to deliver all the silver to the many longs standing for delivery because JPM has a monopoly on selling silver short. The problem JPM faces is that it doesn't possess anywhere close to the silver it has sold short. It could be a very interesting month!

Contango in both gold and silver contracted from yesterday. There is $0.6 of contango in gold MAR/APR and $1.8 of contango for MAR/JUN. The contango MAR/APR in silver is 1.1 cents while for MAR/MAY contracts it is 2.1 cents.

In yesterday's report I was one day ahead of myself saying that first notice day for the March contract was Wednesday when in fact it was Thursday. The Open Interest in MAR gold is 491 contracts. The open interest in MAR silver is 3752 contracts. This represents 18.8Mozs of silver and the dealers only have 46 Mozs. I recommend reading my latest article "COMEX INVENTORY DATA REVEAL AN ALARMING TREND" which analyzes the COMEX warehouse data

http://www.gata.org/node/8373 and concludes that the drawdown rate of the dealer inventory is shockingly high and portends a coming shortage or default.
Cheers
Adrian

end:
Here is what is going on with respect to silver:
1. Please note that 592000 oz silver were removed from the dealer inventory and
2. 617695 oz of silver was deposited to the customer inventory.
These are close in numbers as it indicates that an investor took delivery contracts from a dealer and placed it in a recognized comex bulllion warehouse
to his/her credit. The movement of real metal was transferred. Probably the same warehouse is involved so they only need to change the metal to the new owner.
3. This next part is extremely important. There is an adjustment of 3.0 million oz of silver from the customer inventory to the banker-dealer silver inventory.
This means that there is a real transfer of metal out of customer inventory to the dealer inventory. This inventory will surely be placed to new owners.
Once the inventory is placed to new owners, the dealer inventory will decline by 3.0 million oz and then customer inventory will rise by 3.0 million oz.
Why would an owner of silver, paying storage fees and the like, decide to transfer silver to the dealers?
Answer, he leased it for quite a fee. Our bet greater than 2 and 3% of the metal involved. Thus his fee will be 60,000 oz of silver to be returned in a few months along with the 3.0 million oz leased.
Good luck to him!
What if the bank fails to deliver the silver back once the owner requests it back? It is a default on the bank!
4. There were 3752 contracts that are standing for March or 18.8 million oz. You must add the 4.6 million oz of Feb options to get a total of 23.4 million oz standing for silver.
5. The immediate leasing of silver indicates that the cartel bankers are out of silver as they need 3.0 million of silver to feed the hungry mouths of the new OI STANDING!!
6. Note: that gold OI rose by a huge amount (12200) and the silver OI contracted in the opposite way (5900 contracts) with a rising price of gold and silver/
7. The COT report which is basis Tuesday, showed in both gold and silver the commercials adding to their shorts. They have not vacated their massive shorts on either metal.
8. Thus, the following happened on the first day of silver delivery:
a. 3.0 million oz of silver was leased from an owners inventory into the commercial bankers inventory to provide physical inventory to new longs taking delivery.
b. 23.4 million oz of silver are waiting to be served.
c. in all probability approx. 3.0 million oz of silver OI received a premium of 25% to take cash instead of a physical contract.This will explain the drop in total OI
as this silver disappears from site. Normally these guys roll to the May contract.
d/ i) in summary: 5900 contracts on the silver OI contracted in volume.
II) 18.8 million oz of silver are standing whereby 8,7 million oz were stopped upon immediately (no doubt the 3.0 million leased came from there)
iii) there is another 4.6 million oz of options waiting to be served with metal.
iv. approximately 3000 contracts disappeared as they never rolled (approx 15 million oz). Since the price of silver rose and the bankers did not reduce their shorts,
there can only be the explanation that the new longs got a premium or so to receive cash instead of silver. They would then immediately purchase with the cash a new May
contract and repeat the process.
It does not make sense to have a huge increase in OI in gold coupled with a huge decrease in OI in silver with both metals rise in great volume on Wednesday and Thursday.
That is my two cents worth as to what I believe happened.
As promised, here is the COT report which is basis Tuesday.
For gold comex:
The gold COT report revealed the following:

*The large specs increased longs by 8,391 contracts and reduced shorts by 3,373.

*The commercials reduced longs by 7,798 contracts and increased shorts by 10,368.

*The small specs increased longs by 921 contracts and reduced shorts by 5,481.

In silver:
the large speculators increased their longs by 880 contracts,
the large speculators decreased their shorts by 1558 contracts.
the commercials increased their shorts by 2519
The small specs were non existent in the matter.
OK lets go to the big economic stories of the day:
I am following this story quite closely:

"According to the CFTC, for the 4th straight week, net shorts in the euro rose to a record high dating back to its introduction in Jan '99. For the week ended Tuesday, net shorts rose to 72k contracts vs 59k last week and has almost tripled over the past 5 weeks. The ever growing trade has seen the euro move from 1.395ish when shorts broke to a record high on Tuesday Feb 2nd, down to 1.35ish on Tuesday and 1.362ish today."

end.
It seems that too many are loading the boat against the Euro. Just like we saw the same result last year when too many when short on the usa dollar.
I will watch this development closely!
The following were the news items of the day:

US economic news:

08:30 Q4 GDP (1st revision) 5.9% vs. consensus 5.7%
•Personal Consumption 1.7% vs. consensus 2.0%
•Price Index 0.4% vs. consensus 0.6%
•Core PCE 1.6% vs. consensus 1.4%
* * * *

09:45 Feb Chicago Purchasing Manager's Index 62.6 vs. consensus 59.7
Jan reading was 61.5.
* * * * *

09:55 Feb final Univ. of Michigan Sentiment 73.6 vs. consensus 73.9
The preliminary Feb reading was 73.7.
* * * *

10:00 Jan Existing Home Sales 5.05M vs. consensus 5.50M
Dec figure revised to 5.44M from 5.45M
* * * * *

US January existing home sales unexpectedly plunge

WASHINGTON, Feb 26 (Reuters) - Sales of previously owned homes in the United States unexpectedly plunged in January, an industry survey showed on Friday, fresh evidence the housing market has yet to find stable ground.

The National Association of Realtors said that sales fell 7.2 percent to an annual rate of 5.05 million units, sharply below market expectations for a 5.50 million unit pace.

December sales were revised slightly lower to 5.44 million pace from 5.45 million units. Compared to January last year, sales of existing homes were up 11.5 percent.

"Today's figure is certainly not good news in terms of sales," said Lawrence Yun, chief economist for the NAR.

I have a hard time figuring that the GDP went up by 5.9% with lousy housing, lousy consumer credit etc, (see the Montgomery commentary on ficticious data)
Please note the huge drop in existing home sales from 5.5 million annual units to 5.05 million homes.
The consumer is dormant.
The following is the big story of the day: the huge loss recorded by AIG:

AIG posts $8.9 billion loss

NEW YORK (Reuters) - American International Group Inc (NYSE:AIG - News) reported a quarterly loss of $8.9 billion on Friday and warned that it may need additional U.S. government support, even as it tries to pay back taxpayers after a $182.3 billion bailout.

AIG shares fell 14 percent in premarket trading.

The insurer said in a filing with the Securities and Exchange Commission that without additional government support, "in the future there could exist substantial doubt about AIG's ability to continue as a going concern."…

http://finance.yahoo.com/news/AIG-posts-89-billion-rb-4019897031.html?x=0&sec=topStories&pos=1&asset=&ccode

-END-

AIG has zero chance to repay the taxpayers the 182 billion dollars it was lent.
We know that AIG has underwritten massive amounts of credit default swaps on Greece, Italy, Portugal, Ireland etc and the receipients to these derivatives
number many enterprises, but the major holder of these would be Goldman Sachs who wishes to cash in.
They would not be able to receive any cash if their counterparty AIG fails. Goldman Sachs would count on the taxpayer (the government) to bail out AIG again and cause the dollars to flow through the back door
again.
The ECB and others are not concerned per se on the default of Greece. However they are concerned if the bond defaults cause a derivative meltdown..(credit default swap blow up)
an event that would be a kin to a 100 x Lehman default.
Here is Dave Kranzler on this subject:

Friday, February 26, 2010

Why Are the Taxpayers Keeping AIG Alive?

AIG posts $8.9 billion loss...NEW YORK (Reuters) - American International Group Inc (NYSE:AIG - News) reported a quarterly loss of $8.9 billion on Friday and warned that it may need additional U.S. government support, even as it tries to pay back taxpayers after a $182.3 billion bailout.

Here's the news release:
LET AIG FAIL

The degree of corruption here involving Henry Paulson, Ben Bernanke, Tim Geithner, Larry Summers, Lloyd Blankfein and others smells worse than a broken sewage holding tank in New York City in the heat and humidity of August.

And here's an AIG spokesman spewing forth massive lies: "We think the combination of strategic asset sales and reviving businesses will generate sufficient funds to repay the taxpayer, mooting the need to pursue the previously contemplated life insurance securitization," AIG spokesman Mark Herr said.

Let me be clear about this: nearly every significant asset sale tee'd up by AIG has either failed or has fallen far short of the originally estimated sales value. AIG has NO HOPE of EVER repaying Taxpayer money used to keep AIG and Goldman Sachs, et al alive.

It's clear to me, and probably most people, that the decision to save AIG was based on the decision to indirectly bailout Goldman Sachs, and other Wall Street banks. Recall that the ex-CEO of GS was the Secretary of Treasury and the then-head of the NY Fed, Tim Geithner, is Robert Rubin's robot - Rubin being the former Co-Chairman of GS several years ago. Anyone doubt the motive?

It's also clear to me that AIG has NO hope whatsoever to pay back any of the $182 billion owed to the Government. The Government - aka Taxpayer - owns just under 80% of AIG. Please be aware that the % of ownership is not arbitrary. One reason for this is it allows the Government to not include AIG's liabilities as part of the Government's balance sheet, even though the Government is giving billions to AIG ever quarter.

And what to do we get in return? We get to watch AIG pay its employees billions in total compensation; we get to watch AIG funnel billions to Goldman Sachs and other big banks. Now it looks like AIG will be on the hook for billions in Greek debt-related Credit Default Swaps, with Goldman used as the underwriting conduit for this garbage. The media has done a great job of covering this up, but it's there.

When you open the paper tomorrow and read about the growing civil unrest in California over State education budget cuts, and you start reading about the massive teacher layoffs in your own State from budget cutbacks, keep in mind how much money Obama/Geithner/Bernanke is funneling to Wall Street, in order to keep the big banks solvent and keep the fat bonus checks flowing.

***

end.
From the financial times last night:

"Separately, Phil Angelides, chairman of the US Financial Crisis Inquiry Commission, told the Financial Times that he was concerned about the practice of creating securities and "fully betting against them" – and about Goldman's role in particular."

end.
ames Turk has written another commentary on the contraction of loans to the
business community. The loans are declining as the banks have ony one real
customer
the Federal government:

Here is his commentary in full:



What Are Banks Doing with Their Depositors' Money?


_____


February 26, 2010 – There have been numerous reports about the sharp decline
in bank lending since the beginning of the financial crisis. The Wall
Street Journal, for example, on Wednesday reported in an article entitled
“Lending Falls at Epic Pace
tml> ” that last year’s decline in lending is the biggest since 1942. It
also provided the following chart to clearly make its point.

2010.JPG>

So if the banks are not making loans, what are they doing with depositor
money?

Well, they are still lending, but not to businesses and consumers. They are
lending to the federal government.

Banks don’t lend directly to the federal government of course, but buying US
government paper accomplishes the same thing in the end. Depositor money is
sent to the federal government, ether directly when banks purchase newly
issued government paper or indirectly when they purchase US government paper
from others, who in turn have used their dollars to purchase this paper.

If we mark the beginning of the financial crisis with the collapse of Bear
Stearns in March 2008, data from the Federal Reserve show that since then
bank lending has declined by $220 billion
. During this same
period, banks increased the amount of US government paper they hold
by $337 billion.

The change is even more dramatic when viewed from the peak of bank lending
that occurred in the aftermath of the Lehman Brothers collapse. Companies
cut off from the commercial paper market in the financial turmoil then
prevailing turned to the banks for liquidity. By drawing down their credit
lines, they caused bank loans to surge. Bank loans have now declined $646
billion from their October 2008 peak, as illustrated in the following chart.

2010.GIF>

This significant shift in bank assets has implications for the economy and
the US dollar.

Instead of depositor money being used to stimulate economic activity in the
private sector by lending to businesses and consumers, the banks are helping
to fund the growing federal deficits. This re-allocation of resources has a
negative long-term impact on the economy. Depositor money is not being used
for productive purposes like building manufacturing plants and making other
investments that will create jobs and grow the economy. It is being spent
by the government, which consumes in the present and does not invest for the
future.

This shift in bank assets also has negative implications for the dollar. As
the realization grows that the financial condition of the federal government
is not much different from Greece and the dozens of other over-indebted
countries, the value of US government paper declines as a consequence of the
US government’s deteriorating creditworthiness
. Given
that the quality of bank assets perforce determines the quality
of
the dollar, deterioration, i.e., debasement, of the dollar is inevitable as
banks funnel depositor money into US government paper instead of making
loans.

Lastly, the reduction in bank loans does not mean the money supply is
shrinking. Rather, it is simply changing. More and more dollars (i.e., the
liabilities on bank balance sheets) are being backed (i.e., the assets on
bank balance sheets) by US government debt instead of loans to the private
sector.

end.



Gillian Tett has provided more input on the Greek bond problems.She has
correctly commented that there

is a huge amount of bonds that are sitting on the ECB shelves. When the ECB
announced its rescue pkg along with the usa,

it engaged in swaps. The ECB is gorged with this debt. The data is too
sensitive for the ECB to release the amount of bonds held.

Suffice it to day, the yield rise in Greek bonds and the warning that Moodys
and Standard and Poors have given to this ancient country speaks

mountains on his huge problems.



Here is this important paper:





ECB keeps lid on Greek bond data
By Gillian Tett
Published: February 25 2010 20:33 | Last updated: February 25 2010 20:33

Somewhere in the bowels of the mighty European Central Bank, there is a
number that many investors would give a lot of euros to see.

It refers to the volume of Greek government bonds that are now sitting in
the ECB’s coffers, after being lodged there by European banks through
central bank repo operations.

Sadly, the ECB considers this number far too “sensitive” to release, even
after a delay. Nevertheless, as fears about sovereign risk rise, those
hidden data are assuming ever-greater importance.

On Thursday, yields on Greek bonds rose sharply higher, after Moody’s warned
that it – like Standard & Poor’s – might soon downgrade Greek debt. The
yield on Greek two-year notes, for example, rose 74 basis points on Thursday
to 6.4 per cent.

But while that price swing was striking, what was equally notable was that
it occurred in secondary markets that have been surprisingly thin in recent
days. For notwithstanding all the recent attention on sovereign debt,
traders say the liquidity of secondary Greek bond markets – together with
other countries such as Portugal – has recently been very thin. And that, in
turn, has exacerbated the price volatility, such as the swing that occurred
on Thursday after the Moody’s news.

More…

end.

Here is an article from the famed James Rickerts as to how the contagion
will commence:

James Rickards was the lawyer for the central banks in bailing out Long Term
Capital in 1998






How markets attacked the Greek piñata


By James Rickards

Published: February 11 2010 19:48 | Last updated: February 11 2010 19:48

Wall Street loves a piñata party – singling out a company or country, making
it the piñata, grabbing their sticks and banging it until it breaks. As in
the child’s game, the piñata is left in shreds. Unlike the child’s game, in
the Wall Street version the piñata is stuffed with money for the bankers to
scoop up with both hands, instead of sweets. We see this game being played
today, with Greece as the
piñata.

Investors trying to understand why their portfolios have begun to melt down
for the second time in five years are becoming experts in the fiscal policy
of Greece. A look at the piñata party might make things clearer.

Greece’s travails are often measured by reference to the market in credit
default swaps

(CDS), a kind of insurance against default by Greece. As with any insurance,
greater risks entail higher prices to buy the protection. But what happens
if the price of insurance is no longer anchored to the underlying risk?

When we look behind CDS prices, we don’t see an objective measure of the
public finances of Greece, but something very different. Sellers are
typically pension funds looking to earn an “insurance” premium and buyers
are often hedge funds looking to make a quick turn. In the middle you have
Goldman Sachs or
another large bank booking a fat spread.

Now the piñata party begins. Banks grab their sticks and start pounding
thinly traded Greek bonds and pushing out the spread between Greek and the
benchmark German CDS price. Step two is a call on the pension funds to put
up more margin, or security, as the price has moved in favour of the buyer.
The margin money is shovelled to the hedge funds, which enjoy the cash and
paper profits and the 20 per cent performance fees that follow. How
convenient when this happens in December in time for the annual accounts, as
was recently the case. This dynamic of pushing out spreads and calling in
margin is the same one that played out at Long-Term Capital Management in
1998 and AIG in 2008 and it is happening again, this time in Europe.

Eventually the money flow will be reversed, when a bail-out is announced,
but in the meantime pension funds earn premium, banks earn spreads, hedge
funds earn fees and everyone’s a winner – except the hapless hedge fund
investors, who suffer the fees on fleeting performance, and the unfortunate
inhabitants of the piñata. What does any of this have to do with Greece?
Very little. It is not much more than a floating craps game in an alley off
Wall Street.

This is where the idea of CDS as insurance breaks down. For over 250 years,
insurance markets have required buyers to have an insurable interest;
another name for skin in the game. Your neighbour cannot buy insurance on
your house because they have no insurable interest in it. Such insurance is
considered unhealthy because it would cause the neighbour to want your house
to burn down – and maybe even light the match.

When the CDS market started in the 1990s the whiz-kid inventors neglected
the concept of insurable interest. Anyone could bet on anything, creating a
perverse wish for the failure of companies and countries by those holding
side bets but having no interest in the underlying bonds or enterprises. We
have given Wall Street huge incentives to burn down your house.

Let’s be clear, public finance
in
Greece is a mess. Statistics have been fudged, government pensions have been
inflated and reckless borrowing has been the norm. Drastic remedies are
required. But the crisis is manageable, and Europe has sent clear signals
that they will take care of their own house without help from China, America
or the International Monetary Fund. Unfortunately, a measured response does
no good to the dealers in CDS, who require volatility and even panic to make
their game a profitable one. If contagion spreads in uncontrollable ways, so
much the better for the traders in volatility, never mind the collateral
damage.

Until the CDS market is confined to buyers who have an underlying interest
in the risk being covered, and sellers who are regulated as insurance
companies with adequate reserves, this market will remain a reckless
enterprise bent on arson. Serious issues of sovereignty and stability are at
stake. Regulators have to stop ignoring the piñata party and start providing
adult supervision.

The writer is a director of Omnis and former general counsel of Long-Term
Capital Management

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Times Limited 2010. You may share using our article tools. Please don't cut
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end.

And this from Monty Guild: the crisis continues: (from Jim Sinclair
commentary)



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Market Commentary From Monty Guild

Posted: Feb 26 2010 By: Monty Guild Post Edited: February 26, 2010
at 5:36 pm


Filed under: Guild
Investment

THE GLOBAL BANKING CRISIS CONTINUES…

STAGE 2: EUROPEAN SOVEREIGN DEBT UNDER ATTACK

Taken together, the Icelandic and Greek financial crises can be seen as the
second stage of the larger global banking crisis. The first stage of the
global banking crisis, which began in late 2007, was centered in the
European and U.S. mortgage and mortgage derivative market. The second stage
began with Iceland’s monetary and fiscal crisis in 2009 and continues with
the current Greek crisis, and is centered in European sovereign debt.

The global crisis banking crisis is a multi-phase global economic crisis
caused by years of over-borrowing followed by the current deleveraging.
This deleveraging was, of course, set in place by all those who gambled with
their own and other people’s money. As time passes, more and more of these
gamblers will be unmasked and there will be more countries, companies,
industries, and individuals who will lose face and capital in coming months
and years. We anticipate that these problems will continue as various
sectors delever over the next six to eight years.

Many believe that the other European nations will act to bail out Greece,
and then perhaps Spain or other over-levered nations in Europe who
experience debt problems. We disagree. In our opinion, the International
Monetary Fund (IMF) is the lender who will bail out the damaged European
nations. In our opinion, it is too hard for European nations to go to their
taxpayers and tell them that they are directly or indirectly guaranteeing
the debt of a foreign country.

As is their custom, the IMF will extract a high price in terms of the deep
cuts in expenditures and increases in taxes demanded of the borrower. In
our opinion, the period of easy borrowing is over for the Greeks, and
probably for several other European nations whose debt will come under
attack in coming months and years.

The current chaos is creating substantial demand for gold and other precious
metals. Holders of Euros are seeking to acquire more gold, and holders of
other currencies such as the Japanese Yen and U.S. dollar are undoubtedly
thinking of following suit. Buying gold to hedge against the probability
that the Yen and U.S. Dollar will be under attack in the not too distant
future is not unwise.

THE FUTURE OF THE DELEVERAGING CRISIS

The coming phases of the deleveraging crisis will simply be different
flavors of one major phenomenon with one major cause. We are saying this
because we do not believe that most investors realize how long and pervasive
this deleveraging crisis will be. If this were a baseball game, we would
only be in the 2nd inning (for non baseball fans among you, that means we
are only 20-25 percent through the crisis).

Furthermore, crises are still brewing with respect to the solvency of U.S.
states, and the legal subdivisions within the countries in the European
Union. These crises have yet to become globally recognized. In order to
bail out the states and other governmental entities below the national
level, a huge quantitative easing (money printing) process will eventually
be instituted in many countries. The effect will be to keep the developed
nations economies (and their currencies) under pressure for years.

Governments are not alone. Many industries, such as banking, financial
services, and insurance remain under pressure to decrease their leverage and
raise capital.

Monty Guild and Tony Danaher
www.GuildInvestment.com

I hope you all have a grand weekend and I hope I did not load you up with a
lot of

reading.



see you on Monday

Harvey.

FW: Feb 25.10...very important.

 




Good morning to you all:
 
 
First of all, I would like to report on two bank failures:
 
Rainier Pacific Bank of Tacoma Washington
and Carson River Community Bank
 
Total assets in the failure are around 800 million dollars. 
 


Bank Name

City

State

CERT #

Closing Date

Updated Date

Rainier Pacific Bank Tacoma WA 38129 February 26, 2010 February 26, 2010
Carson River Community Bank Carson City NV
While we are on the subject of the FDIC, Darryl Montgomery, from Seeking Alpha, has written a great paper on the FDIC and on the illusion of a USA
economic recovery.  I  urge you to read the entire passage and I will comment on the highlights:
 
 
Recent Stats Indicate U.S. Economic Recovery Was an Illusion

by: Daryl Montgomery February 25, 2010

A number of economic reports in the last few days indicate that the U.S. economy has not only not failed to recover from the recession, but continues to fall deeper into a hole.

Banking, consumer confidence, employment numbers, durable goods and the housing industry - each representing a different aspect of the economy - are all sending out troubling signs. Despite the onslaught of negative data, mainstream economists continue to echo the official U.S. government view that "the recovery is still on track."

Updated statistics from the FDIC indicate that there were 702 banks on the troubled list at the end of 2009. This is an increase of 27% from the third quarter. FDIC numbers also show that U.S. banks cut lending by 7.5% in the fourth quarter of last year. Since lending is the lifeblood of the economy this doesn't bode well for the future. The FDIC also had to put aside an additional $17.8 billion for future bank failures. Its deposit insurance fund is now at a negative $20.9 billion. Despite statements that it has enough cash to keep operating (Bear Stearns and Lehman Brothers made similar claims), it is only a matter of time before the FDIC is bailed out. This will take place before the end of the year and will be done by tapping a line of credit from the Treasury department. Expect this event to be downplayed by mainstream media reports with claims that it is not really a bailout.

While the U.S. banking system continues to dissolve, consumers are losing confidence in the economy. The Conference Board numbers for February fell a whopping 10.5 points to 46 (around 100 is a good number). The present situation subindex fell to 19.4, the lowest level since February 1983 when the U.S. was trying to recover from a severe double dip recession. Before the Credit Crisis, consumer spending represented 72% of the U.S. economy. Without their participation, a sustainable recovery is not possible. Other reports indicate there is no way in the near future that consumers can resume their vital economic role. Consumers not only don't have credit - credit card debt was dropping at close to a 20% annual rate at the end of last year - but they are worried about the job market as well.

The weekly jobless claims indicate why the job picture is still troubling. Initial claims were up 22,000 last week to 496,000 (a number around 400,000 indicates recession and 300,000 indicates a healthy economy). These numbers are highly volatile because they come from state unemployment offices that are notorious for backlogs in processing claims. This problem occurred during the holiday season and the claim numbers were consequently lower. The mainstream media then fell all over itself to report the tremendous improvement in the employment picture, instead of the real story of bureaucratic incompetence that was preventing accurate numbers from being produced. Market watchers usually only pay attention to the four-week moving average to get around this problem. This number has risen by 30,000 to 473,750 in the last four-weeks.

The just released Durable Goods report got major headlines about how bullish the number was. This is only the case as long as you don't look at the details of the report. Responsible for the good headline number was a 126% increase in civilian aircraft orders (these orders can be cancelled, by the way). Outside of transportation, orders fell 0.6%. Core capital equipment and machinery ordersdropped 2.9% and 9.7%, respectively. These two numbers are the important ones that determine the direction of the economy. For all of 2009, durable goods fell a record 20%.

Finally, housing doesn't look like it is in recovery mode either. Housing was the epicenter of the Credit Crisis and it will be years before all the damage wrought by the bubble is worked out. According to the Mortgage Bankers Association, mortgage applications for home purchases have just fallen to a 13-year low. New home sales in the U.S. fell to the lowest level on record in January (records go back almost 50 years). Government nationalized Freddie Mac (FRE) reported it lost another $7.8 billion in the fourth quarter. That brings its total loss to $25.7 billion for all of 2009. Freddie Mac purchased or guaranteed one in four U.S. home loans in 2009. The Obama administration has promised a blank check to Freddie along with its companion housing entity Fannie Mae (FNM), also nationalized and bleeding money, to cover losses up until 2012.

There is little evidence that the U.S. economy has recovered from the recession or is going to recover from the recession anytime soon. The support for the recovery viewpoint comes from government statistics that have been highly manipulated. All governments, of course, want to present a rosy picture of their handling of the economy for political reasons and it is much easier to make the numbers better than it is to actually make the economy better. Eventually the public catches on to this game, however. The recent consumer confidence numbers indicate that the American public is no longer buying the public relations story, but is starting to pay more attention to the realities they have to face on a day to day basis.

http://seekingalpha.com/article/190665-recent-stats-indicate-u-s-economic-recovery-was-an-illusion

end.
 
 
Please note that the FDIC has a negative 20.9 billion deficit as of Dec 31.09, which was an increase of 27% from the 3rd quarter.  As I pointed out to you earlier the increase in troubled banks increased
to 702  banks from around 550, the quarter prior.
 
To boot, the FDIC has allocated another 17.8 billlion dollars for future bank losses.
 
Thus, not only has the FDIC lost all of its new allocations from banks, it has now gone into a big deficit and thus the taxpayer is funding all of its losses from now on.
 
The author has commented on the troubling jobless claims.  He explains the volatility in the numbers from state unemployment offices that are notorious for backlogs in the processing process.
 
There never was any improvement  on the jobs front .  He comments on the durable goods that got headlines on the bullish number.  He alerts all readers to look at the details:
 
most of the gain was in civilian aircraft orders (and these can be cancelled).  Outside of transportation, orders fell .6%  Core capital equipment and machinery orders dropped 2.7% and 9.7% respectively.
The latter two numbers are critical for the economy to improve.
 
He has emphasized trouble in the housing sector.  He states that mortgage applications for home purchases have fallen to a 13 year low.  New home sales are at their lowest level on record.
Freddie Mac has lost another 7.8 billi o n dollars in the 4th quarter and over 25 billion for the year.  These guys have purchased or guaranteed one in 4 ho mes  in the usa. How can the economy be recovering with these stats?
 
His final paragraph is essential to all to read:  all government stats are highly manipulated..they want to present a rosy picture for political reasons.
The private consumer confidence numbers indicate that the American public is no longer buying the public relations story.
 
 
end.
 
 
Lets go to the physical side of gold and silver:
 
Gold closed up by 10.00 to 1117.80.  Silver had a stellar day up by 39 cents to 16.50.
 
I would like to emphasize that gold with respect to the British pound closed at a record high 731 Br. Pounds/oz. The Euro price per oz continues to shatter new record
rising ever so close to the magical 800 euros  per oz.
 
Here is Dan Norcini on the trading of gold and silver yesterday:
 
 
Posted: Feb 26 2010     By: Dan Norcini      Post Edited: February 26, 2010 at 1:43 pm

Filed under: Trader Dan Norcini

Dear CIGAs,

Today was "Let's buy commodities day" as fund money came back into the sector sending a large majority of the individual commodity futures higher. Copper was well bid all day as was crude oil with even natural gas getting a decent bid. The grains were all stronger as well. The culprit behind the influx of fund money – yep, you guessed it – the Dollar was sharply lower today.

Gold of course pushed higher on the session as it moved away from the lower end of the recent trading range and is currently sitting in the middle of its upper and lower range boundaries. It did manage to climb back above the major moving averages with the 10 day now making a bullish upside crossover of both the 40 and 50 day moving averages. That is friendly although it still needs to take out overhead resistance centered near $1,130 (the upper side of the trading range) before the bulls can regain control over the gold market. It will probably take a Dollar break of 79.60 (last week's low) on the USDX before it can muster sufficient strength to do so but with the currency markets continuing to look shaky and especially with gold priced in terms of the European currencies continuing to perform so well, it could very well do this independently of the Dollar.

Incidentally, gold priced in terms of the British Pound scored a brand new all time high at today's London PM Fix, coming in at £731.18, as it eclipsed the previous high set back on December 3, 2009. It is evident that the British Pound is disintegrating at a faster clip than the US Dollar as Great Britain's economic and fiscal woes continue unabated. Both the weekly and the monthly charts of the British Pound look atrocious. There does not appear to be a whole lot of chart support until you get closer to the 1.45 level. If Sterling were to take out the 1.35 level, "Katie bar the door" because the currency could implode. If that were to occur, Sterling Gold would be trading above the £800 mark.

Euro Gold continues to cling tenaciously above the €800 mark.

It would appear that yesterday's story in the English version of Pravda's web site about China announcing they intended to buy the remainder of the IMF gold is being denied by the author.

Click here to view the article…

As I said yesterday it would be strangely out of character for the secretive Chinese to announced before hand their specific intentions as such a thing would undoubtedly cause the price of gold to run up higher, something which they or any other buyer for that matter, would desire.

We do not need a newspaper story telling us however what we already know and that is Asian Central Banks are looking for ways to diversify their reserve holdings and gold is going to be in that mix. They will buy gold when the speculative funds are knocking the price lower and for all that we know, they may have been the buyers of size earlier this month when gold dropped to $1,040 – $1,050. These banks will be buyers whenever prices fall and will provide a long term floor of support beneath the gold market.

On the same front there is another story circulating around out there today that it is India which is looking to buy this same IMF gold. Guess what – they probably are; just like China is except neither Central Bank is going to come out and tell us ahead of time when or how much. They will just do it and then the news will filter out into the market and every one will go ga-ga and run the price sharply higher, where it will then lose some upside momentum after a while, come back down and these same Central Banks will look to buy some more and the process will repeat itself once more.

The HUI, while higher today, is having trouble getting above this Tuesday's high near 406. You might recall that was the day we saw a sharp sell off in the mining sector. If it can close above this level, it will give the bulls a definite advantage going into next week. The next level of upside resistance, and that which must be bettered to give this sector a shot at a trending move, is the 420 level, which also happens to correspond to the 50 day moving average. Initial support is at yesterday's low. As I write this commentary, the ratio spreads from the hedge funds are appearing once again and knocking out the props from beneath the mining shares.

Crude oil is attempting to get above $80. It has not broken down but if it cannot get over this hurdle within the next couple of trading sessions, some of the bulls will get impatient and it will drop back down into the trading range between $80 – $81 and $70. For now it appears that bull and bear forces are in a relative state of balance with the bulls having the very near term advantage.

Dollar bulls continue to prop this market up and thwarted bears from breaching critical downside support levels. Bears were gunning for the 80.14 level and managed to push price down to 80.19 before the bulls came back and shoved price back up. Even though the bearish divergences and loss of upside momentum continues to make itself evident in the USDX chart, the funds are managing to stave off the sellers as they work to defend their large long positions.

Bonds continue their charge higher and once again bond bears get obliterated thanks to the ongoing machinations that occur in that market.

end

 
 
 
I would also like to point out that the first day notice was Thursday and not Wednesday as was first reported. On Thursday, all money must be placed at the brokers for those wishing to take
delivery on a silver contract.
 
 
The total OI for both gold and silver are very intriguing and I will try and give you my two cents worth on the matter:
 
The total gold comex OI rose an astonishing 12,201 to 472,205.
 
For some strange reason, the comex OI for silver fell by a huge 5900 contracts to 108,564,
 
I will now give you the inventory figures for silver and gold comex with a commentary from Adrian Douglas:
 
 
COMEX Warehouse Stocks Feb 26, 2010

SILVER

592,604 ozs withdrawn from the dealer's (registered) inventory 
617,695 ozs deposited in the customer (eligible) inventory 
Total dealer inventory 48.77 Mozs 
Total customer inventory 60.14 Mozs 
Combined Total 108.91 Mozs

GOLD

ZERO ozs deposited in the dealers (registered) category 
ZERO ozs deposited in the customer (eligible) category 
Total dealer inventory 1.62 Mozs 
Total customer inventory 8.35 Mozs 
Combined Total 9.97 Mozs

There was no movement of gold into or out of the dealer or customer inventory. There were 0.6 Mozs of silver withdrawn from the dealer inventory and 0.61 Mozs deposited in the customer inventory…the fact that those are almost the same it looks like delivery being made from dealers to long investors. The real doozy though is that 3 Million ounces were transferred by way of "adjustment" from the eligible (customers) to the registered (dealers) inventory. I wonder if that is silver they are leasing from the customers to meet the massive delivery demand this month.

There were 85 delivery notices issued in the MAR gold contract. The MAR gold contract total for the month is 85 notices or 8,500 ozs. Goldman Sachs issued none and stopped 4, BNS issued 0 and stopped 35 while JPM issued none and stopped 44.

There were 1737 delivery notices issued in the MAR silver contract. The total delivery notices for the month in silver stand at 1,737 or 8.7 Mozs. JPM issued 1712 and stopped 442, BNS issued 0 and stopped 723 while Deutche Bank issued none and stopped 191. JPM issued 98.5% of the notices. Despite the CFTC instigating a cover-up of which banks hold the manipulative short positions through changes in their Bank Participation report it is very easy to deduce it. Here is JPM being obliged to deliver all the silver to the many longs standing for delivery because JPM has a monopoly on selling silver short. The problem JPM faces is that it doesn't possess anywhere close to the silver it has sold short. It could be a very interesting month!

Contango in both gold and silver contracted from yesterday. There is $0.6 of contango in gold MAR/APR and $1.8 of contango for MAR/JUN. The contango MAR/APR in silver is 1.1 cents while for MAR/MAY contracts it is 2.1 cents.

In yesterday's report I was one day ahead of myself saying that first notice day for the March contract was Wednesday when in fact it was Thursday. The Open Interest in MAR gold is 491 contracts. The open interest in MAR silver is 3752 contracts. This represents 18.8Mozs of silver and the dealers only have 46 Mozs. I recommend reading my latest article "COMEX INVENTORY DATA REVEAL AN ALARMING TREND" which analyzes the COMEX warehouse data

http://www.gata.org/node/8373 and concludes that the drawdown rate of the dealer inventory is shockingly high and portends a coming shortage or default. 
Cheers
Adrian

 
 
end:
 
Here is what is going on with respect to silver:
 
 
1.   Please note that 592000 oz silver were removed from the dealer inventory and
 
2.   617695 oz of silver was deposited to the customer inventory.
 
These are close in numbers as it indicates that an investor took  delivery contracts from a dealer and placed it in a recognized comex bulllion warehouse
to his/her credit. The movement of real metal was transferred. Probably the same warehouse is involved so they only need to change the metal to the new owner.
 
3.  This next part is extremely important.  There is an adjustment of 3.0 million oz of silver from the customer inventory to the banker-dealer silver inventory.
 
     This means that there is a real transfer of metal out of customer inventory to the dealer inventory.  This inventory will surely be placed to new owners.
     Once the inventory is placed to new owners, the dealer inventory will decline by 3.0 million oz and then customer inventory will rise by 3.0 million oz.
 
Why would an owner of silver, paying storage fees and the like, decide to transfer silver to the dealers?
Answer, he leased it for quite a fee.  Our bet greater than 2 and 3% of the metal involved.  Thus his fee will be  60,000 oz of silver to be returned in a few months along with the 3.0 million oz leased.
Good luck to him!
 
What if the bank fails to deliver the silver back once the owner requests it back?  It is a default on the bank!
 
 
4. There were 3752 contracts that are standing for March or 18.8 million oz. You  must add the 4.6 million oz of Feb options to get a total of 23.4 million oz standing for  silver.
 
5. The immediate leasing of silver indicates that the cartel bankers are out of silver as they need 3.0 million of silver to feed the hungry mouths of the new OI STANDING!!
 
6. Note: that gold OI rose by a huge amount (12200) and the silver OI contracted in the opposite way  (5900 contracts) with a rising price of gold and silver/
 
7. The COT report which is basis Tuesday, showed in both gold and silver the commercials adding to their shorts. They have not vacated their massive shorts on either metal.
 
8. Thus, the following happened on the first day of silver delivery:
 
     a.  3.0 million oz of silver was leased from an owners inventory into the commercial bankers inventory to provide physical inventory to new longs taking delivery.
 
 
     b.  23.4 million oz of silver are waiting to be served.
 
 
    c.    in all probability approx. 3.0 million oz of silver OI received a premium of 25% to take cash instead of a physical contract.This will explain the drop in total OI
 
          as this silver disappears from site.  Normally these guys roll to the May contract.
 
 
    d/  i)  in summary:   5900 contracts on the silver OI  contracted in volume.
 
      II)    18.8 million oz of silver are standing whereby 8,7 million oz were stopped upon immediately  (no doubt the 3.0 million leased came from there)
 
      iii)  there is another 4.6 million oz of options waiting to be served with metal.
 
      iv.  approximately 3000 contracts disappeared as they never rolled  (approx 15 million oz).  Since the price of silver rose and the bankers did not reduce their shorts,
 
 
            there can only be the explanation that the new longs got a premium or so to receive cash instead of silver.  They would then immediately purchase with the cash a new May
 
           contract and repeat the process.
 
 
 
It does not make sense to have a huge increase in OI in gold coupled with a huge decrease in OI in silver with both metals rise in great volume on Wednesday and Thursday.
 
That is my two cents worth as to what I believe happened.
 
As promised, here is the COT report which is basis Tuesday. 
 
For gold comex:
 
The gold COT report revealed the following:

*The large specs increased longs by 8,391 contracts and reduced shorts by 3,373.

*The commercials reduced longs by 7,798 contracts and increased shorts by 10,368.

*The small specs increased longs by 921 contracts and reduced shorts by 5,481.

 
In silver:
 
the large speculators increased their longs by 880 contracts,
the  large speculators decreased their shorts by 1558 contracts.
the commercials increased their shorts by 2519
The small specs were non existent in the matter.
 
 
 
OK lets go to the big economic stories of the day:
 
 
I am following this story quite closely:
 
        

"According to the CFTC, for the 4th straight week, net shorts in the euro rose to a record high dating back to its introduction in Jan '99. For the week ended Tuesday, net shorts rose to 72k contracts vs 59k last week and has almost tripled over the past 5 weeks. The ever growing trade has seen the euro move from 1.395ish when shorts broke to a record high on Tuesday Feb 2nd, down to 1.35ish on Tuesday and 1.362ish today."

        
 
end.
 
It seems that too many are loading the boat against the Euro.  Just like we saw the same result last year when too many when short on the usa dollar. 
I will watch this development closely!
 
 
The following were the news items of the day:
 

US economic news:

08:30 Q4 GDP (1st revision) 5.9% vs. consensus 5.7%
•Personal Consumption 1.7% vs. consensus 2.0%
•Price Index 0.4% vs. consensus 0.6% 
•Core PCE 1.6% vs. consensus 1.4% 
* * * *

09:45 Feb Chicago Purchasing Manager's Index 62.6 vs. consensus 59.7
Jan reading was 61.5. 
* * * * *

09:55 Feb final Univ. of Michigan Sentiment 73.6 vs. consensus 73.9
The preliminary Feb reading was 73.7. 
* * * *

10:00 Jan Existing Home Sales 5.05M vs. consensus 5.50M
Dec figure revised to 5.44M from 5.45M 
* * * * *

US January existing home sales unexpectedly plunge

WASHINGTON, Feb 26 (Reuters) - Sales of previously owned homes in the United States unexpectedly plunged in January, an industry survey showed on Friday, fresh evidence the housing market has yet to find stable ground.

The National Association of Realtors said that sales fell 7.2 percent to an annual rate of 5.05 million units, sharply below market expectations for a 5.50 million unit pace.

December sales were revised slightly lower to 5.44 million pace from 5.45 million units. Compared to January last year, sales of existing homes were up 11.5 percent.

"Today's figure is certainly not good news in terms of sales," said Lawrence Yun, chief economist for the NAR.

 
 
 
I have a hard time figuring that the GDP went up by 5.9% with lousy housing, lousy consumer credit etc,  (see the Montgomery commentary on ficticious data)
Please note the huge drop in existing home sales from 5.5 million annual units to 5.05 million homes.
The consumer is dormant.
 
The following is the big story of the day:  the huge loss recorded by AIG:
 

AIG posts $8.9 billion loss

NEW YORK (Reuters) - American International Group Inc (NYSE:AIG - News) reported a quarterly loss of $8.9 billion on Friday and warned that it may need additional U.S. government support, even as it tries to pay back taxpayers after a $182.3 billion bailout.

AIG shares fell 14 percent in premarket trading.

The insurer said in a filing with the Securities and Exchange Commission that without additional government support, "in the future there could exist substantial doubt about AIG's ability to continue as a going concern."…

http://finance.yahoo.com/news/AIG-posts-89-billion-rb-4019897031.html?x=0&sec=topStories&pos=1&asset=&ccode

-END-

 
 
AIG has zero chance to repay the taxpayers the 182 billion dollars it was lent.
 
We know that AIG has underwritten massive amounts of credit default swaps on Greece, Italy, Portugal, Ireland etc and the receipients to these derivatives
 
number many enterprises, but the major holder of these would be Goldman Sachs who wishes to cash in. 
 
They would not be able to receive any cash if their counterparty AIG fails. Goldman Sachs would count on the taxpayer  (the government) to bail out AIG again and cause the dollars to flow through the back door
again. 
 
The ECB and others are not concerned per se on the default of Greece.  However they are concerned if the bond defaults cause a derivative meltdown..(credit default swap blow up)
an event  that would be a kin to a 100 x Lehman default.
 
 
Here is Dave Kranzler on this subject:
 
 

Friday, February 26, 2010

Why Are the Taxpayers Keeping AIG Alive?

AIG posts $8.9 billion loss...NEW YORK (Reuters) - American International Group Inc (NYSE:AIG - News) reported a quarterly loss of $8.9 billion on Friday and warned that it may need additional U.S. government support, even as it tries to pay back taxpayers after a $182.3 billion bailout.

Here's the news release: 
LET AIG FAIL

The degree of corruption here involving Henry Paulson, Ben Bernanke, Tim Geithner, Larry Summers, Lloyd Blankfein and others smells worse than a broken sewage holding tank in New York City in the heat and humidity of August. 

And here's an AIG spokesman spewing forth massive lies: "We think the combination of strategic asset sales and reviving businesses will generate sufficient funds to repay the taxpayer, mooting the need to pursue the previously contemplated life insurance securitization," AIG spokesman Mark Herr said.

Let me be clear about this: nearly every significant asset sale tee'd up by AIG has either failed or has fallen far short of the originally estimated sales value. AIG has NO HOPE of EVER repaying Taxpayer money used to keep AIG and Goldman Sachs, et al alive.

It's clear to me, and probably most people, that the decision to save AIG was based on the decision to indirectly bailout Goldman Sachs, and other Wall Street banks. Recall that the ex-CEO of GS was the Secretary of Treasury and the then-head of the NY Fed, Tim Geithner, is Robert Rubin's robot - Rubin being the former Co-Chairman of GS several years ago. Anyone doubt the motive?

It's also clear to me that AIG has NO hope whatsoever to pay back any of the $182 billion owed to the Government. The Government - aka Taxpayer - owns just under 80% of AIG. Please be aware that the % of ownership is not arbitrary. One reason for this is it allows the Government to not include AIG's liabilities as part of the Government's balance sheet, even though the Government is giving billions to AIG ever quarter.

And what to do we get in return? We get to watch AIG pay its employees billions in total compensation; we get to watch AIG funnel billions to Goldman Sachs and other big banks. Now it looks like AIG will be on the hook for billions in Greek debt-related Credit Default Swaps, with Goldman used as the underwriting conduit for this garbage. The media has done a great job of covering this up, but it's there.

When you open the paper tomorrow and read about the growing civil unrest in California over State education budget cuts, and you start reading about the massive teacher layoffs in your own State from budget cutbacks, keep in mind how much money Obama/Geithner/Bernanke is funneling to Wall Street, in order to keep the big banks solvent and keep the fat bonus checks flowing.

***

 
end.
 
 
From the financial times last night:
 

"Separately, Phil Angelides, chairman of the US Financial Crisis Inquiry Commission, told the Financial Times that he was concerned about the practice of creating securities and "fully betting against them" – and about Goldman's role in particular."

 
end.
 
 
James Turk has written another commentary on the contraction of loans to the business community.  The loans are declining as the banks have ony one real customer
the Federal government:
 
Here is his commentary in full:
 

What Are Banks Doing with Their Depositors' Money?


February 26, 2010 – There have been numerous reports about the sharp decline in bank lending since the beginning of the financial crisis.  The Wall Street Journal, for example, on Wednesday reported in an article entitled "Lending Falls at Epic Pace" that last year's decline in lending is the biggest since 1942.  It also provided the following chart to clearly make its point.

So if the banks are not making loans, what are they doing with depositor money? 

Well, they are still lending, but not to businesses and consumers.  They are lending to the federal government. 

Banks don't lend directly to the federal government of course, but buying US government paper accomplishes the same thing in the end.  Depositor money is sent to the federal government, ether directly when banks purchase newly issued government paper or indirectly when they purchase US government paper from others, who in turn have used their dollars to purchase this paper. 

If we mark the beginning of the financial crisis with the collapse of Bear Stearns in March 2008, data from the Federal Reserve show that since then bank lending has declined by $220 billion.  During this same period, banks increased the amount of US government paper they hold by $337 billion.  

The change is even more dramatic when viewed from the peak of bank lending that occurred in the aftermath of the Lehman Brothers collapse.  Companies cut off from the commercial paper market in the financial turmoil then prevailing turned to the banks for liquidity.  By drawing down their credit lines, they caused bank loans to surge.  Bank loans have now declined $646 billion from their October 2008 peak, as illustrated in the following chart.

This significant shift in bank assets has implications for the economy and the US dollar. 

Instead of depositor money being used to stimulate economic activity in the private sector by lending to businesses and consumers, the banks are helping to fund the growing federal deficits.  This re-allocation of resources has a negative long-term impact on the economy.  Depositor money is not being used for productive purposes like building manufacturing plants and making other investments that will create jobs and grow the economy.  It is being spent by the government, which consumes in the present and does not invest for the future.

This shift in bank assets also has negative implications for the dollar.  As the realization grows that the financial condition of the federal government is not much different from Greece and the dozens of other over-indebted countries, the value of US government paper declines as a consequence of the US government's deteriorating creditworthiness.  Given that the quality of bank assets perforce determines the quality of the dollar, deterioration, i.e., debasement, of the dollar is inevitable as banks funnel depositor money into US government paper instead of making loans.

Lastly, the reduction in bank loans does not mean the money supply is shrinking.  Rather, it is simply changing.  More and more dollars (i.e., the liabilities on bank balance sheets) are being backed (i.e., the assets on bank balance sheets) by US government debt instead of loans to the private sector.

end.

 

Gillian Tett has provided more input on the Greek bond problems.She has  correctly commented that there

is a huge amount of bonds that are sitting on the ECB shelves.  When the ECB announced its rescue pkg along with the usa,

it engaged in swaps.  The ECB is gorged with this debt. The data is too sensitive for the ECB to release the amount of bonds held.

Suffice it to day, the yield rise in Greek bonds and the warning that Moodys and Standard and Poors have given to this ancient country speaks

mountains on his huge problems.

 

Here is this important paper:

 

 

ECB keeps lid on Greek bond data 
By Gillian Tett 
Published: February 25 2010 20:33 | Last updated: February 25 2010 20:33

Somewhere in the bowels of the mighty European Central Bank, there is a number that many investors would give a lot of euros to see.

It refers to the volume of Greek government bonds that are now sitting in the ECB's coffers, after being lodged there by European banks through central bank repo operations.

Sadly, the ECB considers this number far too "sensitive" to release, even after a delay. Nevertheless, as fears about sovereign risk rise, those hidden data are assuming ever-greater importance.

On Thursday, yields on Greek bonds rose sharply higher, after Moody's warned that it – like Standard & Poor's – might soon downgrade Greek debt. The yield on Greek two-year notes, for example, rose 74 basis points on Thursday to 6.4 per cent.

But while that price swing was striking, what was equally notable was that it occurred in secondary markets that have been surprisingly thin in recent days. For notwithstanding all the recent attention on sovereign debt, traders say the liquidity of secondary Greek bond markets – together with other countries such as Portugal – has recently been very thin. And that, in turn, has exacerbated the price volatility, such as the swing that occurred on Thursday after the Moody's news.

More…

end.

Here is an article from the famed James Rickerts as to how the contagion will commence:

James Rickards was the lawyer for the central banks in bailing out Long Term Capital in 1998

 

 

How markets attacked the Greek piñata

By James Rickards

Published: February 11 2010 19:48 | Last updated: February 11 2010 19:48

Wall Street loves a piñata party – singling out a company or country, making it the piñata, grabbing their sticks and banging it until it breaks. As in the child's game, the piñata is left in shreds. Unlike the child's game, in the Wall Street version the piñata is stuffed with money for the bankers to scoop up with both hands, instead of sweets. We see this game being played today, with Greece as the piñata.

Investors trying to understand why their portfolios have begun to melt down for the second time in five years are becoming experts in the fiscal policy of Greece. A look at the piñata party might make things clearer.

Greece's travails are often measured by reference to the market in credit default swaps (CDS), a kind of insurance against default by Greece. As with any insurance, greater risks entail higher prices to buy the protection. But what happens if the price of insurance is no longer anchored to the underlying risk?

When we look behind CDS prices, we don't see an objective measure of the public finances of Greece, but something very different. Sellers are typically pension funds looking to earn an "insurance" premium and buyers are often hedge funds looking to make a quick turn. In the middle you have Goldman Sachs or another large bank booking a fat spread.

Now the piñata party begins. Banks grab their sticks and start pounding thinly traded Greek bonds and pushing out the spread between Greek and the benchmark German CDS price. Step two is a call on the pension funds to put up more margin, or security, as the price has moved in favour of the buyer. The margin money is shovelled to the hedge funds, which enjoy the cash and paper profits and the 20 per cent performance fees that follow. How convenient when this happens in December in time for the annual accounts, as was recently the case. This dynamic of pushing out spreads and calling in margin is the same one that played out at Long-Term Capital Management in 1998 and AIG in 2008 and it is happening again, this time in Europe.

Eventually the money flow will be reversed, when a bail-out is announced, but in the meantime pension funds earn premium, banks earn spreads, hedge funds earn fees and everyone's a winner – except the hapless hedge fund investors, who suffer the fees on fleeting performance, and the unfortunate inhabitants of the piñata. What does any of this have to do with Greece? Very little. It is not much more than a floating craps game in an alley off Wall Street.

This is where the idea of CDS as insurance breaks down. For over 250 years, insurance markets have required buyers to have an insurable interest; another name for skin in the game. Your neighbour cannot buy insurance on your house because they have no insurable interest in it. Such insurance is considered unhealthy because it would cause the neighbour to want your house to burn down – and maybe even light the match.

When the CDS market started in the 1990s the whiz-kid inventors neglected the concept of insurable interest. Anyone could bet on anything, creating a perverse wish for the failure of companies and countries by those holding side bets but having no interest in the underlying bonds or enterprises. We have given Wall Street huge incentives to burn down your house.

Let's be clear, public finance in Greece is a mess. Statistics have been fudged, government pensions have been inflated and reckless borrowing has been the norm. Drastic remedies are required. But the crisis is manageable, and Europe has sent clear signals that they will take care of their own house without help from China, America or the International Monetary Fund. Unfortunately, a measured response does no good to the dealers in CDS, who require volatility and even panic to make their game a profitable one. If contagion spreads in uncontrollable ways, so much the better for the traders in volatility, never mind the collateral damage.

Until the CDS market is confined to buyers who have an underlying interest in the risk being covered, and sellers who are regulated as insurance companies with adequate reserves, this market will remain a reckless enterprise bent on arson. Serious issues of sovereignty and stability are at stake. Regulators have to stop ignoring the piñata party and start providing adult supervision.

The writer is a director of Omnis and former general counsel of Long-Term Capital Management

 

 

 

 

 

end.
 
 And this from Monty Guild:  the crisis continues: (from Jim Sinclair commentary)
 
 
Posted: Feb 26 2010     By: Monty Guild      Post Edited: February 26, 2010 at 5:36 pm

Filed under: Guild Investment

THE GLOBAL BANKING CRISIS CONTINUES…

STAGE 2: EUROPEAN SOVEREIGN DEBT UNDER ATTACK

Taken together, the Icelandic and Greek financial crises can be seen as the second stage of the larger global banking crisis.  The first stage of the global banking crisis, which began in late 2007, was centered in the European and U.S. mortgage and mortgage derivative market.  The second stage began with Iceland's monetary and fiscal crisis in 2009 and continues with the current Greek crisis, and is centered in European sovereign debt.

The global crisis banking crisis is a multi-phase global economic crisis caused by years of over-borrowing followed by the current deleveraging.  This deleveraging was, of course, set in place by all those who gambled with their own and other people's money.  As time passes, more and more of these gamblers will be unmasked and there will be more countries, companies, industries, and individuals who will lose face and capital in coming months and years.  We anticipate that these problems will continue as various sectors delever over the next six to eight years.

Many believe that the other European nations will act to bail out Greece, and then perhaps Spain or other over-levered nations in Europe who experience debt problems.  We disagree.  In our opinion, the International Monetary Fund (IMF) is the lender who will bail out the damaged European nations.  In our opinion, it is too hard for European nations to go to their taxpayers and tell them that they are directly or indirectly guaranteeing the debt of a foreign country. 

As is their custom, the IMF will extract a high price in terms of the deep cuts in expenditures and increases in taxes demanded of the borrower.  In our opinion, the period of easy borrowing is over for the Greeks, and probably for several other European nations whose debt will come under attack in coming months and years.

The current chaos is creating substantial demand for gold and other precious metals.  Holders of Euros are seeking to acquire more gold, and holders of other currencies such as the Japanese Yen and U.S. dollar are undoubtedly thinking of following suit.  Buying gold to hedge against the probability that the Yen and U.S. Dollar will be under attack in the not too distant future is not unwise.

THE FUTURE OF THE DELEVERAGING CRISIS

The coming phases of the deleveraging crisis will simply be different flavors of one major phenomenon with one major cause.  We are saying this because we do not believe that most investors realize how long and pervasive this deleveraging crisis will be.  If this were a baseball game, we would only be in the 2nd inning (for non baseball fans among you, that means we are only 20-25 percent through the crisis).

Furthermore, crises are still brewing with respect to the solvency of U.S. states, and the legal subdivisions within the countries in the European Union.  These crises have yet to become globally recognized.  In order to bail out the states and other governmental entities below the national level, a huge quantitative easing (money printing) process will eventually be instituted in many countries.  The effect will be to keep the developed nations economies (and their currencies) under pressure for years.

Governments are not alone.  Many industries, such as banking, financial services, and insurance remain under pressure to decrease their leverage and raise capital.

 Monty Guild and Tony Danaher 
www.GuildInvestment.com

I hope you all have a grand weekend and I hope I did not load you up with a lot of

reading.

 

see you on Monday

Harvey.

 

 

 

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