Saturday, April 17, 2010

April 17.210 commentary...extremely important.

Good morning to you all:
 
First of all, lets see how many bank failures occurred last night.  There were 7 failures and some of them like the City Bank of Lynnwood Washington
and the Riverside National Bank of Florida were pretty big with assets of 1. billion for City and 3.42 billion for Riverside.  This is going to cost the FDIC mega bucks.
 

April

City Bank, Lynnwood, WA with approximately $1.13 billion in assets and approximately $1.02 billion in deposits was closed. Whidbey Island Bank, Coupeville, WA has agreed to assume all deposits, excluding certain brokered deposits. (PR-082-2010)

Tamalpais Bank, San Rafael, CA with approximately $628.9 million in assets and approximately $487.6 million in deposits was closed. Union Bank, National Association, San Francisco, CA has agreed to assume all deposits, excluding certain brokered deposits. (PR-081-2010)

Innovative Bank, Oakland, CA with approximately $268.9 million in assets and approximately $225.2 million in deposits was closed. Center Bank, Los Angeles, CA has agreed to assume all deposits, excluding certain brokered deposits. (PR-080-2010)

Butler Bank, Lowell, MA with approximately $268.0 million in assets and approximately $233.2 million in deposits was closed. People's United Bank, Bridgeport, CT has agreed to assume all deposits. (PR-079-2010)

Riverside National Bank of Florida, Fort Pierce, FL with approximately $3.42 billion in assets and approximately $2.76 billion in deposits was closed. TD Bank, National Association, Wilmington, DE has agreed to assume all deposits, excluding certain brokered deposits. (PR-078-2010)

AmericanFirst Bank, Clermont, FL with approximately $90.5 million in assets and approximately $81.9 million in deposits was closed. TD Bank, National Association, Wilmington, DE has agreed to assume all deposits, excluding certain brokered deposits. (PR-078-2010)

First Federal Bank of North Florida, Palatka, FL with approximately $393.3 million in assets and approximately $324.2 million in deposits was closed. TD Bank, National Association, Wilmington, DE has agreed to assume all deposits. (PR-078-2010)

Lakeside Community Bank, Sterling Heights, MI, with approximately $53.0 million in assets and approximately $52.3 million in deposits was approved for payout by the FDIC Board of Directors. (PR-077-2010).

 

end

 

On Tuesday, I thought that the gold and silver banker cartel would hit again on either Thursday or Friday.  They chose yesterday. (options expiry on the gold shares)

Gold closed down by $24.30 to 1136.30 and in silver it was down by 75 cents to 17.67.

 

The open interest with respect to the gold comex fell by a small 2157 contracts (basis Thursday) to its resting position of 524,716.  However silver did the opposite

by rising a huge 2560 contracts to 128,188.  These lofty open interest  (OI) positions necessitated the raid whereby these crooked bankers supplied massive volumes of unbacked

silver and gold paper under the watchful eye of regulators.

 

At the conclusion of yesterdays market action at 4 pm, the commodity exchange released their committment of traders report  (COT)

Here is the gold COT report:

 

The gold COT report showed:

*The large specs increased longs by 20,297 contracts and increased shorts by 3,001.

*The commercials increased longs by 8,799 contracts, but increased shorts by 27,377.

*The small specs increased longs by 2,787 contracts and increased shorts by 1,505.

 

end.

 

You can see the battle royal between the large specs and the commercials.  The small specs know that the game is rigged

and they have vacated this arena.

 

The large specs piled on a gigantic 20,297 contracts to the long side and a few increased their shorts by 3000 contracts.

Just look at those crooked commercials:  the intermediate bankers (who sense trouble) increased their longs to go along with the large specs, but

the larger bankers namely JPMorgan, HSBC  etc increased further their shorts by a massive 27377  contracts.

 

In silver:

 

SILVER 

 

For silver, as silver added 27 cents or 1.5% to $18.23 on the cash market COMEX commercial traders increased their collective net short positioning by 3,703 contracts or 7.2% from  51,686 to 55,389 contracts net short.  The open interest rose a somewhat larger 4,949 contracts to 123,661 contracts open. 

 

Here's the nominal LCNS graph for silver futures: 

http://treo.typepad.com/.a/6a0120a6002285970c0133ecbd78d7970b-800wi

 

Thus the net short position of the commercials increased by 3703 contracts and their new net short position rose (you take the short position and subtract the longs) to 55,389.

In total with respect to silver:

 

the large specs piled onto the longs by 3443 contracts and the large specs that are short increased their shorts by 1361 contracts.

The commercials went to town.  The intermediate commericals (the smaller banks) increased their longs by 1088 contracts. The larger commercials with contempt of the law

proceeded to short an additional 4791 contracts in full view of the CFTC regulators who are meeting to discuss how they are going to solve their dilemma.

 

OK lets go to the physical inventories of silver and gold:

 

COMEX Warehouse Stocks April 16, 2010

SILVER

30,985 ozs withdrawn from the dealer's (registered) inventory 
43,718 ozs deposited in the customer (eligible) inventory 
Total dealer inventory 48.85 Mozs 
Total customer inventory 66.75 Mozs 
Combined Total 115.60 Mozs GOLD

602 ozs withdrawn from the dealers (registered) category 
1,426 ozs withdrawn from the customer (eligible) category 
Total dealer inventory 2.44 Mozs 
Total customer inventory 7.65 Mozs 
Combined Total 10.09 Mozs

 

again, no major moves into gold and silver inventories.

We saw 30,985 oz withdrawn from the dealer and that no doubt went to the customer inventory

along with an additional  13000 or so oz. Very minor moves.

 

Lets start with gold as April is a delivery month for gold.

 

There were 76 delivery notices issued in the APR gold contract. The APR gold contract total for the month is 13,039 notices or 1,303,900 ozs.

 

So far, this month 1.304 million oz notices to deliver have been served upon the long holders.  Deliveries of actual metal usually take about a month to occur.


What is left to be served?

The Open Interest in the APR gold contract is 493 or 0.05 Million ozs.

Thus there are 49300 oz left to go.  So the entire month of April has:  1.304 + .0493 +  .074 (options exercised last month) =   1.4273 million oz

 

 

In silver: no change.  This total will be added to the May silver as May is a delivery month for this metal.

 

There were no delivery notices issued in the APR silver contract. The total delivery notices for the month in silver stand at 466 or 2.33 Mozs.

 

The numbers are huge and we are witnessing very little removal of metal from the comex.

 

As for the rumours yesterday, I got a little more detail.  The default that we heard came from mini silver contracts.  The contracts originated from December

and the recepient longs who have not been given silver as of yet number 2 in total not receiving their metal.  The source of the knowledge is John Brimelow, a well respected financial writer

who we quote often in our commentaries.  I will fill you in once I get details of the size of the orders. It is most unusual to wait 4 months to receive your metal. I guess the only reason it may take 4 months

is that they are sending the metal by row boat from Hong Kong to New York and the boat has no motor.

 

The mint has just updated levels of sales of gold and silver eagles.

 

From Ed steer:

 

Talking about silver disappearing... the U.S. Mint updated their April sales figures yesterday.  They reported that 21,500 gold eagles and another 749,500 silver eagles were sold.  This brings April one-ounce gold eagle sales up to 33,500... and silver eagle sales up to 1,147,000.  The Comex-approved depositories reported a net inflow of a very tiny 17,950 ounces on Wednesday.  But there was a lot of in-and-out movements associated with that small change... and you can view all the action here."– From Ed Steer's Gold & Silver Daily, read the full report here.

 

end.

 

Last quarter, the silver eagles reported sales of 9 million oz.  So far 1.147 million oz of silver has been used to make the silver eagles.   It looks like April will come in at 2.29 million oz

 

However the big news again comes from the SLV which saw its inventory again depleted by a huge 2,157,000 oz of silver.  No gold was removed from the GLD.

Since Feb 26.2101 there have been 16.7 million oz of silver leave the Bank of England with a rising silver price.  The smoke we have witnessed signals a massive fire in the silver complex.

 

Chris Mullen of gold seek comments:

 

The CME Delivery Report showed that 76 gold and zero silver contracts have been posted for delivery on Monday.  The GLD ETF showed no changes yesterday...but, once again, the silver ETF stole the show, as the boys and girls over at SLV reported another huge withdrawal... the second in as many days.  This time it was 2,157,100 ounces.  Since February 26th... 16.7 million ounces of silver have been withdrawn in ten consecutive tranches.  That's 5% of SLV's silver removed by 'authorized participants'... almost ten days of world silver production.  What entity [or entities] needed silver that badly, or in such a hurry... and how tight must the supply line be if they have to resort to getting it from SLV?  I can tell you this, dear reader, if the silver users who have withdrawn this metal from SLV had to source it from the Comex... I can absolutely guarantee that the price of silver would not be $18.50 spot right now!

 

end.

 

OK lets go to the big news of the day.  I guess you all heard that Goldman Sachs have been charged with civil fraud in the subprime lending that started the entire financial mess that we are in.

 

Here is the official release on the story:

 

THE NEW YORK TIMES

LOUISE STORY and GRETCHEN MORGENSON
Published: April 16, 2010

U.S. Accuses Goldman Sachs of Fraud

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers…

http://www.nytimes.com/2010/04/17/business/17goldman.html?hp-END-

 

I am going to give you a shortened version of what this is all about

 

First of all, if I am not mistaken, the SEC can not charge anybody criminally on any matter.  They can only charge civil  and then let the Attornys General of all states charge them criminally.

The SEC does not have a mandate to charge anybody criminally.  All they can do it get a dollar settlement.

 

Now the shortened story in plain English:

 

1. Goldman Sachs prepared these registered securitzed mortgaged back securities (RMBS) and sold these low grade mortgages to unsuspecting clients.

 

They were termed subprime because of their low quality of people who received these mortgages.  They were bunched together in a bundle and sold in a bulk form.

They were graded triple A by the ratings agencies. (the rating agencies are not yet named in any fraud proceedings yet)

 

2. Now the fun begins.  John Paulsen who runs a large hedge fund and a former Goldman employee

approaches Goldman and offers them 15 million dollars to select lousy mortages and these are put into a vehicle called Abacus 2007.

 

3. Goldman tells investors that an independent party ACA management selected the mortgages and Goldman  failed to disclose that Paulsen selected the mortgages for Abacus 207.

 

4. Goldman and Paulsen then created Credit Default Swaps betting against the very product that they invented and sold to unsuspecting investors. Goldman again neglected to tell

investors that Goldman and Paulsen bought credit default swaps and bet against the very vehicle that they promoted.  They neglected to tell investors that Paulsen paid 15 million dollars

for the priviledge of selecting the garbage that went into Abacus 2007 and were eventualy shorted by these two entities.

 

5. The party that underwrote the Credit Default Swaps was AIG who had to be bailed out by the taxpapyer.

6. Paulsen's gain on the credit default swaps was 1 billion dollars and the loss to shareholders of Abacus was 1 billion dollars.

 

There is no question of criminal fraud here. Goldman knew what they were doing. The key was the payment of the 15 million dollars by Paulsen

to pick the awful mortgages and then go short these by way of the credit default swaps.

 

Goldman will go down on this on as the public will not let them get away with this.

 

Here are some commentaries on this issue:

 

Ratigan Deconstructs Goldman, Connecticut AG Blumental Wants Criminal Charges Filed

Tyler Durden's picture




We expected Dylan to explode during today's show. We were disappointed as he somehow managed to contain it, and did a pretty good recap of the Goldman affair (if a little too many matchbox cars on the show for our taste). The notable take home for us was that CT AG Blumenthal said that "criminal charges have to be pursued against Goldman." We are sure Cuomo is not too far from this line of thinking. And we would be remiss if we did not point out that credit has to be given where it is due: Gretchen Morgenson (whom half the blogosphere was bashing a month ago over semantics) and Louise Story broke the entire story 4 months ago, and the SEC complaint reads verbatim from the authors' December 24 article.

 

end

 

Gold Tumbles as No.1 ETF Holder Named in Goldman Sachs Fraud Charges - Friday 16th April 2010

Gold Prices fell at their fastest pace in 13 months late Friday in London, sinking 1.9% inside 3 hours as news of US government charges against Goldman Sachs spooked investors holding shares in the huge SPDR Gold Trust.

The single largest investor in the SPDR Gold Trust (ticker: GLD), the Paulson & Co. hedge fund, is named but not charged in the Washington suit.

Controlling some 8% of GLD's 
Gold ETF stock according to end-2009 filings – now worth $3.5 billion at current Gold Prices – manager John Paulson apparently turned $1 billion by betting against subprime mortgage-backed bonds packaged and sold to other investors by Goldman Sachs.

US regulator the Securities & Exchange Commission now claims that Goldman Sachs failed to tell those investors that Paulson & Co. was betting against them. Paulson was in fact involved in selecting which mortgage-backed securities Goldman's other clients would be sold, the SEC alleges.

"Paulson wasn't accused of wrongdoing," notes Bloomberg, although a mistaken headline atBarron's magazine online claimed that "Goldman, Paulson Defrauded Investors with CDOs, SEC Says" shortly after the story broke.

Silver Prices also sank as New York opened for business, dropping over 3% to a two-week low of $17.76 an ounce.

According to the SEC's charges – which sue both Goldman Sachs and also Fabrice Tourre, a Goldman vice president currently in London – "Paulson paid Goldman Sachs & Co. approximately $15 million for structuring and marketing ABACUS 2007-AC1", a portfolio of subprime-mortgage-backed bonds.

"By October 24, 2007, 83% of the [residential mortgage bonds] in the ABACUS 2007-AC1 portfolio had been downgraded and 17% were on negative watch. By January 29, 2008, 99% of the portfolio had been downgraded.

"As a result, investors in the ABACUS 2007-AC1 CDO lost over $1 billion. Paulson's opposite CDS positions yielded a profit of approximately $1 billion for Paulson."

Goldman Sachs' stock fell almost 10% on the news, dragging the major US indices well over 1% down.

Elsewhere, the Euro meantime sank to a 1-week low vs. the Dollar. The 
Gold Price in Euros fell to a 9-session low of €27,000 per kilo.-END-

Certainly there could be some truth in all this, which would be a first or second based on my experience the last decade. Remember … PRICE ACTION MAKES MARKET COMMENTARY … and that is the easiest explanation of the day, whether it holds water or not. RL has it right…

This is the very heart of the matter for gold

When the world financial structure was imploding in 2008, the gold cartel needed to invent credible "dialogue" that would be a cover for supressing gold and keeping investors from running it up to over $2000…thus, the the dialogue of ""selling all classes of assets", including paper and tangible ones was floated…I remember Joe Kernan (CNBC) almost being in shock when gold started its big fall…as the new "gold dialogue" kept being repeated, it gained credibility–Even Richard Russell insisted that the $ was being bid up-and gold sold-to pay off debt denominated in dollars…a "flight to cash" [the 'safe' dollar]…utter nonsense… I really didn't think that old trick would work anymore but it is–as I write Joe Terranova on CNBC, is saying "risk on" means lower gold Monday-"risk off" means higher gold…everybody's running with the "big lie" that gold is "risky"..and so it goes…

***

 

 

 

end.

 

Bill Holter:

 

BREAKING NEWS: Goldman Sachs charged by the SEC of FRAUD

All,
I don't even know where to start with this item, as it represents everything that is wrong about the crumbling nation of the United States. Fraudulent banks and hedge fund managers, financial crimes worse (if that's even possible) than Ponzi schemes, and "heroes" that turn out to be villains.

Per the attached file (the actual SEC complaint) and the below link with commentary from Zero Hedge, Goldman Sachs and "brilliant billionaire investor" John Paulson (no relation to the far more criminal Hank Paulson) defrauded investors in 2007 of more than $1 billion by creating worthless portfolios of subprime mortgages and selling them to the public while they were themselves shorting those bonds, which less than six months later has lost 83% of their value and nine months later all their value.

http://www.zerohedge.com/article/breaking-sec-charges-goldman-sachs-fraud-subprime-mortgages

Think about it, the famed John Paulson, one of the largest hedge fund managers in the world (who frankly just burst onto the scene in recent years due to all the "profits" he made shorting mortgage bonds), actually PAID GOLDMAN SACHS $15 million for the right to help them chose a portfolio of worthless assets that he would have the ability to SELL SHORT against the buyers of the fund. Goldman Sachs obviously willingly took this money to defraud its investors and enrich itself and its co-conspirator "insider" John Paulson.

By the way, this is the same John Paulson that has since become the largest holder of the fraudulent GLD gold ETF, so obviously he doesn't know everything – I cannot wait until the day that GLD, SLV, and all of the fraudulent ETF Ponzi schemes are exposed for not actually owning the gold/silver the purport to have. When I saw this guy's name surface last year as the next great genius, who supposedly made billions in the subprime mortgage fiasco, I looked at him in the same way that the old brokers at Jackson Steinem looked at Budd Foxx when he started to suspiciously make all that money with Gordon Gekko. And what do you know, he too will probably end up in prison as yet another high level lackey of Goldman Sachs.

Moreover, remember how I wrote just yesterday (and dozens of times before) about how Alan Greenspan is the individual more responsible for the collapse of the United States than any single person? Well, look at who Paulson uses to "advise" his hedge fund. Yep, Alan Greenspan.

http://dealbook.blogs.nytimes.com/2008/01/15/greenspan-to-join-paulson-as-adviser-reports-say/

 

 

 

end.

 

Here is the complete complaint filed by the SEC:

 

SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 21489 / April 16, 2010

Securities and Exchange Commission v. Goldman, Sachs & Co. and Fabrice Tourre, 10 Civ. 3229 (BJ) (S.D.N.Y. filed April 16, 2010)

The SEC Charges Goldman Sachs With Fraud In Connection With The Structuring And Marketing of A Synthetic CDO

The Securities and Exchange Commission today filed securities fraud charges against Goldman, Sachs & Co. ("GS&Co") and a GS&Co employee, Fabrice Tourre ("Tourre"), for making material misstatements and omissions in connection with a synthetic collateralized debt obligation ("CDO") GS&Co structured and marketed to investors. This synthetic CDO, ABACUS 2007-AC1, was tied to the performance of subprime residential mortgage-backed securities ("RMBS") and was structured and marketed in early 2007 when the United States housing market and the securities referencing it were beginning to show signs of distress. Synthetic CDOs like ABACUS 2007-AC1 contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.

According to the Commission's complaint, the marketing materials for ABACUS 2007-AC1 — including the term sheet, flip book and offering memorandum for the CDO — all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC ("ACA"), a third party with expertise in analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. ("Paulson"), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps ("CDS") with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson's adverse economic interest or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials.

The Commission alleges that Tourre was principally responsible for ABACUS 2007-AC1. According to the Commission's complaint, Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre is alleged to have known of Paulson's undisclosed short interest and its role in the collateral selection process. He is also alleged to have misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson's interests in the collateral section process were aligned with ACA's when in reality Paulson's interests were sharply conflicting. The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1. By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% was on negative watch. By January 29, 2008, 99% of the portfolio had allegedly been downgraded. Investors in the liabilities of ABACUS 2007-AC1 are alleged to have lost over $1 billion. Paulson's opposite CDS positions yielded a profit of approximately $1 billion.

The Commission's complaint, which was filed in the United States District Court for the Southern District of New York, charges GS&Co and Tourre with violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. §77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b) and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants.

The Commission's investigation is continuing into the practices of investment banks and others that purchased and securitized pools of subprime mortgages and the resecuritized CDO market with a focus on products structured and marketed in late 2006 and early 2007 as the U.S. housing market was beginning to show signs of distress.

More…

 

end.

 

Dan Norcini:

 

Trader Dan's Commentary

I have often quipped that if some of these firms could make a profit betting against Granny's life tenure, they would do so.

One thing about this charge is that it will open the flood gates for additional litigation against Goldman from institutions and pension funds, etc, that purchased these products from Goldman Sachs. This is the nature of the non-transparent derivative market and the beast that it has spawned.

end.
 
In other news, this is not good for the Obama administration.  The coumser is 70% of GDP:
 

.

Consumer mood unexpectedly worse in early April

NEW YORK (Reuters) - U.S. consumer sentiment took a surprise negative turn in early April due to a persistently grim outlook on income and jobs, a private survey released on Friday showed.

A slip in economic expectations to its lowest in a year likely stemmed from consumers hearing negative information on government programs and a perception that the recovery is too slow, according to Thomson Reuters/University of Michigan's Surveys of Consumers.

"While consumers think the overall economy will continue to improve, they still hold quite negative views on their own income and job prospects," Richard Curtin, director of the surveys, said in a statement.

Consumer sentiment is seen as a proxy for consumer spending, which fuels about 70 percent of the U.S. economy.

The surveys' overall index on consumer sentiments slipped to 69.5 in early April -- the lowest in five months. This was below the 73.6 reading seen at the end of March and the 75.0 median forecast of analysts polled by Reuters.

The survey's gauge of current economic conditions slipped to 80.7 in early April, the lowest since December. This was below the 82.4 in late March and 84.0 forecast by analysts.

The survey's barometer of consumer expectations fell to 62.3 in early April, the lowest since March 2009. This was below the 67.9 seen at the end of March and fell short of the 68.7 predicted by analysts.

More than one in five consumers said they had heard negative information about government programs when asked to identify news of recent economic developments, about twice as high as a month or a year ago, the latest data showed.

Asked to evaluated federal economic policies, including healthcare reform, 45 percent rated them unfavorably, up from 40 percent in March.

Consumers' weaker expectations came despite recent data showing the biggest payroll gain in three years in March and a hefty 1.6 percent rise in retail sales last month.

"Although confidence in economic policies and legislation showed signs of weakening, it is too soon to determine if the reaction will be temporary or a more lasting concern," Curtin said.

The index of consumers' 12-month economic outlook fell to 71 from 78 in March but was up from 54 a year earlier.

Consumers polled in early April expected near-term inflation to accelerate.

The survey's 1-year inflation expectation index rose to 2.9 from 2.7 percent in late March, while the five-to-10-year inflation measure held steady at 2.7 percent in early April.

-END-

 
This commentary is from Dave Kranzler on the disappearance of silver and gold from vaults and the fractional banking system utilized by the bullion banks:
 

Thursday, April 15, 2010

The Comex and The Fractional Bullion System

Everyone knows the concept behind a "fractional" banking system, right? You have $1 in deposits and you lend out $10. The Romans invented the concept and it is widely understood to have been one of the ingredients that led to Rome's demise. 

As per the electrifying CFTC hearings on March 26, and a fact that GATA has long understood, the Big Banks which deal in gold and silver, also known as "Bullion Banks," apply and utilize the fractional banking system to bullion dealings.

In 2007 Morgan Stanley settled a class-action lawsuit in which Morgan Stanley was selling silver to customers and charging them for storage. It turned out that Morgan Stanley was selling and storing silver that didn't exist. One of MS's defense arguments was that it was common industry practice to sell and store metal that didn't exist. And as long as the customer buys and sells thru MS without asking for the metal to be delivered, MS can get away with it because the round-trip transaction is cash in/cash out. The scheme crumbled when some investors asked for serial numbers and weights. Details are here, if you are interested: 
LINK

Let's apply this to the Comex. As of the most recent COT report, which shows open interest, long and short positions for speculators and commercials (primarily bullion banks), the total net short position for the bullion banks in gold was 244,900 contracts and in silver 51,700 contracts. This translates into 24.9 million ounces of gold and 258.5 million ounces of silver. Here's the problem, as of today, April 15, the total amount of gold reported by the Comex that is available to be delivered, the "registered" inventory, was 2.4 million ounces. In other words, the total paper short position of the bullion banks in gold was more than 10 times the amount of gold available to be delivered. Similarly in silver, the amount of registered silver was 48.9 million ounces. The bullion banks are short 5.3 times the amount of silver available.

The key to this scheme is that for each delivery month, a small percentage of the long position, relative to open interest and relative to the short positions, actually stands for delivery. That being the case, the CFTC and the powers that be at the Comex look the other way with regard to the absurd amount of paper gold and silver sold short in relation to the amount of underlying physical gold and silver that can be delivered. It's a complete "fractional" bullion banking system. But what will happen if some large investors - or sovereign funds or foreign Central Banks - decide to take long positions in gold in silver with the intent to take delivery? I expect that eventually this will happen and we'll see the Comex-equivalent of a catastrophic bank run.

Another interesting event has been occuring with SLV. Since February 26 thru today, 16.7 million ounces of silver has been removed from the SLV trust. At first glance, this might not seem unusual. However, a quick perusal of the data over the last two years (data history is available on the SLV website), reveals that this is an unusually large amount of silver to be withdrawn over a 6 week period. What makes it even more unusual is that since Feb 26, the price of silver has risen from $16.46 to $18.41 - nearly 12%. Typically, drops in the gold and silver held in GLD and SLV correlate with price declines and market sell-offs.

We can only speculate about what is going on. However, I would like to point out that JP Morgan is by far the predominant holder of the massive silver short position on the Comex. They are also the custodian (i.e. the keeper of the silver) for SLV. And to add one more layer of intrigue, over the past couple weeks, there has been an unusually large amount of silver which has moved in and out of the Comex warehouses. That data can be tracked here: 
LINK. You'll note that today ScotiaMocatta experienced a very large withdrawal from its "eligible" category. This category is the silver that Scotia safekeeps for investors and which is not available for futures delivery. Scotia's reliability as a bullion depository has recently come under intense scrutiny. 

Coincidence? Only time will tell. But it is now becoming much more widely recognized by big bullion investors that it is crucial to make sure that the bullion you are invested in is being held on an "on demand" verifiable basis and that it has not been misplaced by the fractional system that is an accepted industry practice among the bullion banks. 

I know exactly where my gold and silver is and I know exactly where the gold and silver (and the weights and serial numbers of the bars) owned by the fund I manage is. Do you? Are you sure you really own gold and silver, or is it a worthless paper certificate with little or no metal backing the claim?

 
 
 
end.
 
 
From Forbes Magazine:
 

U.S. Cities In Free Fall 
Francesca Levy, Forbes.com 
Apr 13th, 2010

Economic indicators in these metros have gone from bad to worse, with no sign of recovery.

Miami boasts a popular South Beach club scene, Art Deco Architecture, and perhaps the best Cuban food in the country. But residents don't have much else to celebrate.

More than three years after the economy started its downward slide, the Miami metro area, like a handful of Sun Belt cities, still hasn't begun to recover. Median home prices in Miami have fallen 38% since its market peaked in the second quarter of 2007; the city's 11% unemployment rate is above the national average and has grown more than most of the 40 cities we surveyed.

Cities in the "Sand States" of Florida, California, Arizona and Nevada, where overbuilding was rampant, are also in trouble, claiming nine of the top 10 spots in our list of cities in free fall. In Las Vegas, Riverside, Calif., and Phoenix, median home prices have fallen 50%, 44% and 37% from their respective peaks. Jobs are vanishing. Though country-wide, employers added 162,00 jobs last month, Riverside gained 13% fewer jobs in February 2010 (the latest numbers available by metro) than it did the same month three years earlier. Tampa, Fla., saw a 10% drop, and Los Angeles added 9% fewer jobs over the same time period.

These cities are also slow to absorb their glut of unsold foreclosed homes, keeping recovery at bay.

"These were highly speculative housing markets," says Jonathan Miller, president of Miller Samuel, a Manhattan-based real estate appraisal firm. "In the markets that have unloaded a lot of foreclosed housing stock there's still a lot more coming."

More…

 
 
end.
 
You must here these two videos;
 
The first by Eric Sprott:
 

Sprott speaks out in this excellent interview.

If you have a sense of humor look at the advertisement. What an unlikely match they make.

 

you can find the video at www.jsmineset.com

 

scroll down and you will see it.

 

Following this video features Ron Paul attacking Ben Bernanke.

From this video, I think I know the origins of the 440 billion dollar loans that are showing up at the Fed balance sheet  and where it went.

From the video, Ron Paul asks how the IMF is going to fund its 500 billion dollars needs

to rescue countries.  Bernanke does not respond at all.

 

Ron Paul does not seem to know that the Fed has initiated a loan of 441 billion dollars.

It looks like the recepient is the IMF and thus the usa is going to bail out the world.

 

Got gold anyone?

I will leave you with this article suggesting that LA is going broke due to the huge pension costs that the city faces:

from Jim Sinclair's commentary:

Jim Sinclair's Commentary

Greece is PEANUTS compared to States of the USA. This will dawn on people like a bolt of lightening soon.

Pension funds have been the  dumping ground for Wall Street junk. That is why there has been no recovery in this liquidity driven equity rally.

I have my suspicions of why the Pension Fund managers are not screaming foul.

Going for broke in L.A.? 
Unless pension costs can be brought under control, the city may face bankruptcy. 
By Tim Rutten 
April 14, 2010

Former mayor Richard Riordan has been roiling the civic waters by arguing that the surest — and perhaps the only — way out of Los Angeles' fiscal crisis is a declaration of municipal bankruptcy, which he believes ought to come sooner rather than later.

In a conversation with The Times over the weekend, Riordan argued that bankruptcy may be the only way to attack the structural problem gnawing the heart out of the city budget: unsustainable public employee pension costs. Currently, Riordan says, the city is struggling to meet its pension obligations, and that's assuming it will receive 8% annually on the money invested on retirees' behalf. In fact, the average return over the past decade has been just 4%. Over the next few years, L.A. may be looking at $1.5 billion in pension obligations it can't meet. "We need some adults to come alive in the city and to talk through how to meet that liability," he said. "If that doesn't happen, we shouldn't rule out bankruptcy."

Mayor Antonio Villaraigosa's chief of staff, Jeff Carr, says categorically that "this mayor has made it clear that we are not going to declare bankruptcy." Moreover, while federal law lets bankruptcy judges reduce negotiated pension and health benefits in the private sector, it forbids changes in public employees' agreements.

Wherever you come down on the bankruptcy question, it's clear that anything approaching a genuine resolution of the civic financial troubles will have to involve a thorough overhaul of the pension system. Traditionally, public employment offered generous benefits because wages and salaries were lower than in the private sector for comparable work. More recently, public sector salaries have increased — in part because the governmental workforce is the most significantly unionized in the American economy — at the same time compensation in most of the private sector has been falling. When you narrow the focus of this national trend to labor-friendly L.A., the picture that emerges is fairly stunning.

More…


I hope that everyone has a grand weekend, and I will see you on Monday.

 

Harvey.

 

 

 
 

Thursday, April 15, 2010

april 15.commentary.

Good evening Ladies and Gentlemen:
 
Just got home and I everything went well so now I am free to write
 
Gold closed up by 70 cents to 1159.70.  Silver rose by 2 cents.
 
The open interest continues to fluctuate on either side of 525000 level in gold and 125000 level on silver.
 
The gold comex OI fell with todays reading by 1983 contracts to 526873.  This is basis yesterday.
The silver comex Oi went the other way rising by 1967 contracts to its final resting position of 125628.
 
Silver and gold both rose yesterday so its looks like some of the intermediate banks are covering their shorts.
 
I am going to report on rumours.  I emailed Adrian and he told me that this could be very explosive.
I will not comment on it until I see all the details:
 

The following rumor came my way this morning from the best of sources:

A major Wall Street firm has defaulted to two of their clients on delivery of mini-silver contracts which were supposed to be delivered in JANUARY. Mini contracts! Stay tuned on this one. Will update you if I hear anything more.

The odds are growing that The Gold Cartel is getting turned on (not in a physical way) by its own sycophants who are now buying gold and silver once they take the prices of each down on one of their raids. The Gold Cartel's former allies are laying in the weeds so to speak. So, instead of gaining traction with their former allies, they are losing traction with the same group … making their price manipulation extremely difficult.

 

 

 

 

end.

 

 

Lets go straight to the physical gold and silver inventory levels at the comex.

First an inventory snapshot:

 

SILVER

ZERO ozs withdrawn from the dealer's (registered) inventory 
17,950 ozs deposited in the customer (eligible) inventory 
Total dealer inventory 48.89 Mozs 
Total customer inventory 66.69 Mozs 
Combined Total 115.58 Mozs

GOLD

9,999 ozs deposited in the dealers (registered) category 
96 ozs withdrawn from the customer (eligible) category 
Total dealer inventory 2.44 Mozs 
Total customer inventory 7.65 Mozs 
Combined Total 10.09 Mozs

 

Before discussing details on the comex, I would like to point out that last night,

the SLV revealed a massive 3.5 million oz liquidation from their inventories (London England)

 

The number of shares outstanding has dropped from 299 million shares to 293.7 million shares

in the space of 1 week.

 

The number of oz of silver has dropped from 295 million oz to a new low of 290.185.

 

So the GLD has seen inventory rise to its highest peak a few days ago to 1141.1 tonnes of gold,and yet  we have seen silver inventories  drop from its highest peak of 305 million oz

to its current position of 290. million oz.  The drop is quite staggering at 15 million oz. with a dramatic rise in silver price!!  Only 4 million of those oz found its way into the Comex.

 

 

At the comex, no real movement of silver or gold in or out of the comex.

 

Lets go to the deliveries:

 

In gold:

 

There were 101 delivery notices issued in the APR gold contract. The APR gold contract total for the month is 12,963 notices or 1,296,300 ozs.

 

Thus we have so far1.296 million oz of gold notices to deliver.  These are contracts with bar numbers on them and must be delivered in due course.

 

What is left?

 

The Open Interest in the APR gold contract is 604 or 0.06 Million ozs.

 

So thus far we have 60,400 oz left to go or .06 million oz which must be added to the 1.296 million oz served already plus the .074 million oz of options exercised in March.

The new total is  1.43 million oz of gold.  We should come close to this total by the end of April .

 

With respect to silver:

 

There were 49 delivery notices issued in the APR silver contract. The total delivery notices for the month in silver stand at 466 or 2.33 Mozs.

 

The new total for silver is a relatively high 2.33 million oz.  This is for options exercised for a silver metal.  Delivery for this begins next month.

 

Lets go to the big economic stories of the day:

 

This has to be the big story...a huge increase in the jobless for last week:

 

 

US economic news:

08:30 Jobless claims for w/e 10-Apr 484K vs. consensus 440K

prior week unrevised from 460K
* Continuing Claims for w/e 3-Apr 4.639M vs. consensus 4.580M
prior week revised to 4.566M from 4.550M 
* * * * *

US jobless claims jump in post-Easter volatility

WASHINGTON, April 15 (Reuters) - The number of U.S. workers filing new claims for jobless benefits unexpectedly soared last week as applications held back during the Easter holiday were processed, government data showed on Thursday.

Initial claims for state unemployment benefits rose 24,000 -- the largest increase in two months -- to a seasonally adjusted 484,000, the Labor Department said.

Analysts polled by Reuters had expected claims to dip to 440,000 from 460,000 the prior week, a number that was unrevised in Thursday's report.

A Labor Department official said the increase in claims last week was mainly due to administrative factors rather than economic ones. "I don't think there is a whole lot of layoffs going on," he said.

The four-week moving average of new claims, which irons out week-to-week volatility, rose 7,500 to 457,750.

 

 

end.

 

 

Here is an article reprinted courtesy of Jim Sinclair's commentary on the big jump in the jobless.  The author is Alan Rappaport from the Financial Times:

 

US jobless claims make surprise rise 
By Alan Rappeport in New York 
Published: April 15 2010 14:04 | Last updated: April 15 2010 15:23

The number of Americans claiming unemployment benefits recorded a surprise rise last week, as the labour market continues to lag behind other improving areas of the economy.

Separately, Federal Reserve figures showed that US factories boosted their production for the ninth month running in March, as businesses have begun rebuilding their stocks.

Initial jobless claims rose by 24,000 to 484,000 last week, labour department figures showed on Thursday. That clashed with economists' predictions that new claims would decline and brought the less volatile four-week average up to 457,750.

The data were a disappointment to economists, who argue that claims need to fall to the low 400,000 level before the economy can begin consistently creating jobs. The labour department noted, however, that there was increased volatility during holidays and that Easter could have caused the surge in claims.

Continuing claims, which measure the total number of people receiving benefits, also rose, climbing by 73,000 to 4.64m.

More…

 
Dave Kranzlers writes on the jobless claims:
 
 

Dave from Denver…

Thursday, April 15, 2010

The Recovery That Isn't: Jobless Claims Going the Wrong Way

I don't care what that monkey Steve Liesman on CNBC says, the jobless claims numbers are getting bad again. The headline number was 484,000, seasonally adjusted. The raw, unadjusted number was 514,742 an increase of 99,730 from a week earlier. The Extended Unemployment Claims jumped 261,817 to 5,855,301 from the previous week. That number represents the number of people who are on the 2 1/2 year jobless benefits payroll. Here's the link: BLS Raw vs. CNBC BS

http://truthingold.blogspot.com/2010/04/recovery-that-isnt-jobless-claims-going.html

***

 
 
end.
 
 
Today we got numbers on the NY manufacturing  (the Empire report) followed by the TIC report and then commercial paper.
 
Here are the stories and i will try and comment on them:
 

April NY Fed manufacturing growth hits 6-month high

NEW YORK, April 15 (Reuters) - A gauge of manufacturing in New York State rose to a six-month high in April as new orders advanced and employment continued to improve, the New York Federal Reserve said in a report on Thursday.

The New York Fed's "Empire State" general business conditions index rose to 31.86 in April, the highest since October and up from 22.86 in March…

-END-

09:01 Feb total net TIC flows $9.0B

Compares Jan figure revised to ($10.2B) from ($33.4B)
* Feb net long-term TIC flows $47.1B vs. consensus $29.7B
Jan figure revised to $15.0B from $19.1B
* * * * *

US sees net long-term, overall capital inflow in Feb

NEW YORK, April 15 (Reuters) - Foreign investors bought a net $47.1 billion of long-term U.S. securities in February, with private buying outpacing purchases by official institutions, the Treasury Department said on Thursday.

February's net long-term purchases were more than twice those seen in January, when foreigners bought a downwardly revised $15.0 billion in long-term assets. Foreigners were net buyers of U.S. Treasury debt.

Overall inflows, which include short-term securities such as Treasury bills, also improved in February, with foreigners buying a net $9 billion after selling a net $10.2 billion the prior month. January's net outflow was initially reported at $33.4 billion.

Private investors were most active, snapping up $52.2 billion of long-term securities compared with only $1.2 billion bought by central banks and other official institutions.

Including short-term instruments, official accounts were net sellers to the tune of $21.0 billion.

-END-

 
 

US commercial paper market shrinks a 5th week -Fed

NEW YORK, April 15 (Reuters) - The U.S. commercial paper market contracted for a fifth week, as companies continued to sell longer-maturity debt in preference to short-dated debt, Federal Reserve data showed on Thursday.

For the week ended April 14, the size of the U.S. commercial paper market, a vital source of short-term funding for companies' day-to-day operations, fell by $15.4 billion to $1.074 trillion outstanding, from $1.090 trillion the previous week.

Asset-backed commercial paper outstanding rose by $200 million after falling by $7.2 billion the previous week.

The overall U.S. commercial paper market peaked at about $2.2 trillion outstanding in August 2007 when the credit crisis broke out.

 

 

 

end.

 

 

The New York manufacturing number was real good as it showed the area finally showing continual improvement.

However the next two numbers were not so good.  A small increase in flow into the USA is not going to cut it.  They need inflows of 100 billion or so a

month to keep the engine of the usa running.

 

What is more disturbing is the continual contraction on commercial paper...the lifeblood of business.

 

The next set of numbers were the following:

 

 

U.S. industrial output inches up 0.1 pct in March

WASHINGTON, April 15 (Reuters) - U.S. industrial production rose 0.1 percent in March, far less than economists had expected, held back by a drop in utilities output as heating demand fell, Federal Reserve data showed on Thursday.

Economists polled by Reuters had expected a gain of 0.7 percent. February's reading was revised up to 0.3 percent from the 0.1 percent initially reported. The Fed had said last month that February's snowstorms slowed output.

For the first quarter, industrial production rose at a 7.8 percent annual rate, the largest quarterly jump since the fourth quarter of 1999.

Capacity utilization, a closely watched measure of slack in the economy, rose to 73.2 percent from 73.0, although that was still 7.4 percentage points below the 1972-2009 average.

The Fed has listed resource usage among the factors it is monitoring to determine when the time is right to lift interest rates from near zero. Fed Chairman Ben Bernanke reiterated on Wednesday that the central bank thought rates would stay abnormally low for an "extended period."

The report showed manufacturing output rose 0.9 percent in March, led by widespread gains among durable goods industries. Utilities dropped 6.4 percent.

-END-

10:00 Apr Philadelphia Fed 20.2 vs. consensus 20.0
Mar reading was 18.9. 
* * * * *

Philly Fed factory activity index up in April

NEW YORK, April 15 (Reuters) - Factory activity in the U.S. Mid-Atlantic region grew in April, a survey showed on Thursday.

The Philadelphia Federal Reserve Bank said its business activity index rose to 20.2 in April from the March reading of 18.9.

Economists had expected a reading of 20.0, based on the results of a Reuters poll, which ranged from 15.0 to 27.1.

Any reading above zero indicates expansion in the region's manufacturing.

The survey, which covers factories in eastern Pennsylvania, southern New Jersey and Delaware, is seen as one of the first monthly indicators of the health of U.S. manufacturing.

-END-

13:00 Apr NAHB Housing Market Index 19 vs. consensus 16
Mar reading was 15.
* * * * *

Home builder confidence rises in April

WASHINGTON (Reuters) - U.S. home-builder sentiment rose faster than expected to a seven-month high in April as consumers rushed to take advantage of the home buyer tax credit, the National Association of Home Builders said on Thursday.

The NAHB/Wells Fargo Housing Market index rose four points to 19, the group said in a statement. Economists polled by Reuters had expected sentiment to edge up to 16.

A reading below 50 indicates more builders view sales conditions as poor than good. The index has not been above 50 since April 2006.

"An expected surge in buyer activity leading up to the expiration of the home buyer tax credits and a gradually improving economy helped to brighten builders' view of the marketplace in April," said NAHB Chief Economist David Crowe…

-END-

 

 

all numbers were very positive.  The Philly manufacturing index matched the gain in the Empire index.  We see home builder confidence returning.

 

Then we get this bummer of a news release:

 

00:16 US foreclosures rose 7% y/y in Q1 according to RealtyTrac
The online marketplace releases a report showing filings totaled 367K in March; the figure was a 19% m/m increase. By state, Nevada, Arizona, and Florida had the highest rates for the quarter. By totals, California, Florida, and Arizona had the most. 
* * * * *

U.S. foreclosure actions spike in Q1 despite aid

NEW YORK, April 15 (Reuters) - U.S. home foreclosures actions spiked in March and set a quarterly record despite federal programs to combat the unrelenting pace that homeowners are defaulting on mortgages, RealtyTrac said on Thursday.

The government aid, intensified in late March, has so far failed to overcome the staggering effects of nearly double-digit unemployment and wage cuts on borrowers.

Foreclosure activity jumped 19 percent to a monthly record in March, driving first-quarter actions up 7 percent from the prior quarter and 16 percent from a year ago to a record of more than 932,000 properties.

One in every 138 U.S. households got a foreclosure filing in the quarter such as a notice of default, auction or bank repossession.

Banks took back more than 257,000 properties in the quarter, a record high, putting repossessions on pace to shatter last year's record of more than 918,000 properties.

"If there's going to be a modification program that really has a material effect this year, it's not there yet," Rick Sharga, senior vice president at RealtyTrac, told Reuters…

-END-

 

 

This last piece showing a huge 19% jump in foreclosures means the banks collateral is pretty bad and thus we will see sharply higher bank failures.

 

It will also explain a bit of the consumer strength.  If properties are being foreclosed, these people are still living in these homes as they await their eviction notices.  Instead of spending it on the

mortgage and legal fees, they are spending it on goods.

Looks to me like there is going to be a big spike downwards as the banks continue on their foreclosure routines.

 

 

Here is Jim Sinclair on the subject: He picked the article written by

Alex Veiga, a well known real estate writer:

 

Foreclosure rates surge, biggest jump in 5 years 
US homes facing foreclosure jumped 16 percent in 1st-quarter as banks take back more homes 
Alex Veiga, AP Real Estate Writer, On Thursday, April 15, 2010, 12:34 am

LOS ANGELES (AP) — A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.

RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. In addition, households facing foreclosure grew 16 percent in the same period and 7 percent from the last three months of 2009.

More homes were taken over by banks and scheduled for a foreclosure sale than in any quarter going back to at least January 2005, when RealtyTrac began reporting the data, the firm said.

"We're right now on pace to see more than 1 million bank repossessions this year," said Rick Sharga, a RealtyTrac senior vice president.

Foreclosures began to ease last year as banks came under pressure from the Obama administration to modify home loans for troubled borrowers. In addition, some states enacted foreclosure moratoriums in hopes of giving homeowners behind in payments time to catch up. And in many cases, banks have had trouble coping with how to handle the glut of problem loans.

More…

 
 
Here is a Morgan Stanley article guessing on the demise of the Euro.  Personally I do not think that the Euro will collapse but there are many gold
and silver friendly points brought out that I thought it necessary to share with you.  The author is Vicnet Fernado a CFA from Morgan Stanley:
 
 

Morgan Stanley: A Eurozone Collapse Is Now Far More Likely, Here Are The Canaries To Watch Out For 
Vincent Fernando, CFA | Apr. 15, 2010, 5:42 AM

The latest Global Monetary Analyst raises the notion of stronger Eurozone nations ditching the euro in order to form a stronger, smaller currency union.

Morgan Stanley's Joachim Fels believes that the eurozone/IMF financial backstop for Greece, plus the European Central Bank's recent backing-down on collateral rules for Greece have substantially, and ironically, increased the long-term risk of a eurozone break-up.

Joachim Fels at Morgan Stanley:

… which gives rise to moral hazard: The bail-out and the ECB's softer collateral stance set a bad precedent for other euro area member states and make it more likely that the euro area degenerates into a zone of fiscal profligacy, currency weakness and higher inflationary pressures over time. If so, countries with a high preference for price stability, such as Germany, might conclude that they would be better off with a harder but smaller currency union. And because the Maastricht Treaty does not provide for the possibility of expelling euro area members, the only way how Germany could achieve this would be by leaving the euro to introduce a stronger currency.

Obviously, we have not reached the end-game yet. However, with the recent developments, such a break-up scenario has clearly become more likely, for two reasons. First, the lesson for other euro area members from the Greek bail-out package that no matter how badly you violate the SGP guidelines, financial help will be forthcoming, if push comes to shove. This introduces a serious moral hazard problem into the European equation. Fiscal slippage in other countries has now become more rather than less likely.

More…

 

end.

 
 
 
This article is certainly causing a lot of investors to be frightened:
 
 

Greece May Cancel Bond Issue

LONDON—Greece has lowered expectations on the amount it hopes to raise from a global dollar bond at the end of this month and may even drop the plan altogether, two government officials said Thursday, raising the spectre of a European Union and International Monetary Fund bailout.

One of the officials said Athens now hopes to raise "up to $1 billion to $4 billion," compared with $5 billion $10 billion previously.

"Fact is there is no strong interest in the U.S. for Greek debt," a second official said, adding Athens could cancel the issuance if "the minimum necessary amount can't be

 
 


I feel i must balance the equation.  The aobve article states that the euro is in trouble.

Now see this articel by Axel Merk:

 

U.S. Dollar – Grave Concerns Remain

By: Axel G. Merk, 
Merk Investments


-- Posted Thursday, 15 April 2010 | Digg This ArticleDigg It! | Share this article | Source: GoldSeek.com 

We continue to see risks ahead for the U.S. economy, and in particular, the U.S. dollar. Significant global imbalances remain – indeed; the recent global financial crisis has served to exaggerate many of these imbalances. Of grave concern is the unsustainable Federal budget deficit, which may have morphed out of control, with no signs of government constraint over the near-term. TheU.S. current account deficit remains at a high level, and will likely weigh on the dollar for years to come. Add to this the inflationary pressures brought about by the Federal Reserve Bank's (Fed) substantial balance sheet expansion – the balance sheet has grown nearly threefold since the beginning of the crisis – which may cause a further devaluation of the U.S. dollar. Despite political rhetoric to the contrary, in our assessment, policies are clearly working against a strong U.S. dollar. Moreover, we are yet to see evidence of a strong, sustainable economic turnaround in the U.S.

 

We were never in the "V" shaped recovery camp, and our analysis of the data thus far doesn't support such a thesis. Businesses appear unwilling to hire, with the unemployment rate remaining at historically high levels. House prices have yet to revert to long-run affordability measures, despite historically low interest rates. Banks are not lending despite a plethora of available funds - whether this is predominantly driven by continued bank risk aversion, a lack of demand for loans, or a combination thereof does not portend a strong economic rebound. Debt levels remain high and what debt is not being driven by private sector demand is more than made up for through insatiable government debt growth. Alcoholics do not drink themselves sober; likewise piling more and more debt onto the system does not rectify a country's debt-fueled problems. Until we see fiscal and monetary restraint in action rather than words, we consider the medium and long-term risks remain to the downside for the U.S. dollar.

 

Given current dynamics, we consider there to be many attractive currency investment opportunities. Of particular interest is the Asian region and those countries well placed to benefit from ongoing Asian demand. Despite a global economic downturn, Asian behemoths China and India continued to post healthy economic growth, albeit down from their lofty highs. Both countries realize they can no longer rely on exports to the West, and the U.S. in particular, to drive economic growth given the weak consumer spending outlook here. Rather, China and India have increasingly focused on developing their own domestic economies and respective middle classes. Such focus will require substantial ongoing spending on infrastructure, which is reliant on hard commodities and natural resources. As such, we favor the currencies of countries that are rich in such resources and have central banks that have followed more prudent monetary policies, like Australia, Canada and Norway.

 

In our opinion, rapid Asian domestic economic growth will create increasing inflationary pressures. Indeed, China has recently clamped down on bank lending and India has raised interest rates in response to such pressures. We believe the Chinese approach to containing inflation is highly ineffective, and that currency appreciation may be a much better solution to tame domestic inflationary pressures. China presently focuses on curtailing bank lending via required reserve rules and direct government mandates. In our opinion, a more effective, less costly response would be to allow the currency to appreciate. While this is unlikely to happen overnight, we have seen China move in this direction, allowing numerous bi-lateral swap agreements across a range of currencies, increasing the number of currencies with which the Chinese renminbi can be readily converted, and carrying out stress tests on the business implications of a stronger renminbi.

 

An Asian currency we are not currently in favor of, however, is the Japanese yen (JPY). We harbor concerns over the long-term viability of the country's ability to service its enormous levels of debt in light of unfavorable demographics – specifically, an aging, shrinking population. Moreover, recent initiatives have us concerned that the Bank of Japan (BoJ) may now reignite its quantitative easing policies, which had lain dormant throughout much of the credit crisis (ostensibly through weak leadership). Such policies may significantly devalue the currency. In our view, the recently elected Democratic Party of Japan has compromised the independence of the BoJ, telling the Bank in not-so-subtle ways that it needs to do everything in its power to stave off deflation (read: print money). Indeed, the BoJ has succumbed to this pressure, recently announcing an expanded quantitative easing program. We consider these steps may undermine the value of the JPY going forward.

 

Lastly, there has been a lot of concern surrounding Greece's woes and the spillover effects on the rest of Europe and the euro (EUR). Unlike many other market participants, we see considerable value in the EUR on a long-term view. It is welcome relief to see that market dynamics are bringing Greece to account, penalizing the country for its lack of fiscal discipline. We believe thatGreece will ultimately be seen for what it is: a low single digit percentage of eurozone GDP. In our eyes, the EUR will not only survive, but may offer significant upside potential. Structurally, in our analysis, the eurozone is simply not as effective at printing and spending money as the U.S. is. Given the spluttering economic recovery outlined above, we consider the Fed may expand its balance sheet once more in the next economic downturn, devaluing the U.S. dollar, while the European Central Bank (ECB) is likely to continue to follow much more prudent monetary policies. Therefore, while the eurozone may experience weaker economic growth, it is likely to be on the backdrop of a stronger currency. It is important to note that when a country doesn't have a large current account deficit, as the eurozone does not, it doesn't necessarily need strong economic growth to have a strong currency – one only needs to look to the Japanese yen over recent years as an example. Relative to the U.S. dollar, the EUR may retain significant value.

 

With so many global dynamics playing out, we believe there may be many attractive currency investment opportunities. In particular, we consider the significant risks to U.S. dollar weakness will remain for some time to come, given recent policy initiatives and massive global imbalances.

 

We manage the Merk Absolute Return Currency Fund, the Merk Asian Currency Fund, and the Merk Hard Currency Fund; transparent no-load currency mutual funds that do not typically employ leverage. This analysis is a preview of our annual letter to investors; to learn more about the Funds, please visitwww.merkfunds.com.

 

Axel Merk and Kieran Osborn

 

 

and then to balance everything this snapshot of the interview of Eric sprott with Maria Bartiromo:

 

 

 

Sprott Speaks, Discusses The Global Ecoonomy, The Imaginary Recovery And His New Physical Gold Trust





I still have a deep, deep concern about the leverage in the banking system. I look at the inability of governments who are spending vast amounts of money to generate much growth in GDP. I can give the example of running a $1.5 trillion deficit last year and GDP goes up $200 billion. So we are not getting much bang for the buck but we still owe the buck at the end of the year. I also worry about what's going on in China. The Chinese government has asked the banks to cool down their lending, the latest data in March show that lending has gone down from $300 billion per month to $100 billion. That's $2.4 trillion a year less. And obviously it has to have an effect on their economy as the lending of $2 trillion did positively last year. When you look back at China in 2009, they had a $4 trillion economy, they lent $2 trillion to people, they had a $600 billion stimulus: those should generate some GDP growth. I am not even convinced that 10% growth which would be $400 billion is a good response to all the measures that were taken. - Eric Sprott


Lastly for the great legal minds out there, this just came in:
 
 

Presentation By David Yerushalmi Suing The Fed On Grounds AIG Takeover Was Illegal Money Laundering Scheme

Tyler Durden's picture




Some time ago, the law office of David Yerushlami, which a week ago filed a lawsuit in the Federal District Court challenging the constitutionality of Obamacare, sued the Fed over its takeover of AIG claiming the entire transaction was illegal and was in essence a money laundering scheme. Below we present the powerpoint presentation prepared by the law firm. Here is how Yerushalmi explains his motive: "The Law Offices of David Yerushalmi, P.C. presents an online PowerPoint presentation fully narrated illustrating rather graphically just how Timothy Geithner, who was then (Sept. 2008) the president of the Federal Reserve Bank of New York, orchestrated the illegal acquisition of 77.9% of AIG's equity and voting rights. As the presentation makes clear, while the FED certainly had authority to loan AIG billions and to take all of the company's assets as collateral, which it did, it had no legal authority to acquire nearly 80% of AIG's shares and voting rights. But this is exactly what it did when it created with great fanfare what is called the AIG Credit Facility Trust." Attached also is a latter by David to SIGTARP Barofsky, discussing the same.

From: David Yerushalmi [mailto:david.yerushalmi@verizon.net] 
Sent: Sunday, January 31, 2010 9:52 AM
To: 'sigtarp@do.treas.gov'
Cc: 'Frank Gaffney'; 'Robert Muise'

Subject: Is the AIG Credit Facility Agreement Trust legal? 

Dear Mr. Barofsky: I am an attorney who has worked in the securities litigation arena for more than 25 years and I also serve as General Counsel to the Center for Security Policy, a highly-respected think tank in Washington, D.C., headed up by former Reagan administration official Frank Gaffney, which focuses on matters of national security. I have cc'd Mr. Gaffney on this email. 

In this capacity, I am representing Kevin Murray in a First Amendment/Establishment Clause case against the Fed and the Sec. of the Treasury in his official capacity as head of the Treas. Dept. We have alleged that the takeover of AIG by the US Government encourages, promotes and indeed sustains AIG's advocacy of Shariah-Islamic insurance products worldwide in violation of the First Amendment. The government filed a motion to dismiss which was denied. I have attached that opinion. Currently, we are in the throes of discovery and awaiting the court's ruling on our motion to compel Secretary Geithner's deposition, which was necessitated by the fact that the Fed and Treasury Rule 30(b)(6) deponents either testified inaccurately or feigned ignorance (no surprise to you I am sure). I have attached our Motion to Compel and our companion Response to the government's Motion for Protective Order. 

I write to you today because in the course of our discovery investigation, we effectively uncovered a fraudulent artifice which allowed the Fed/FRBNY and the Treasury (using TARP funds) to accomplish that which it could not accomplish legally at the time (pre-EESA)—the acquisition of 77.9% of AIG's equity and voting rights. We discovered this because we were looking at "standing" issues relative to the Fed/FRBNY funds provided to AIG under the Credit Facility approved in the latter half of Sept. 2008. But, what we learned was quite simply astounding.  

The FRBNY wanted more than just a standard debt deal; it wanted absolute control and ownership of AIG. But, it was illegal for the FRBNY to hold equity and the Treasury Dept. did not yet have the legislative authority, later granted under EESA, to do so. But this didn't stop then-President Geithner or his general counsel Thomas Baxter. They crafted the AIG Trust to accomplish the same goal. But the Trust was transparently invalid and illegal for two fundamental reasons: One, the FED maintained absolute control over the Trust's existence, its terms, and the Trustees through Section 1.03 of the Trust Agreement. This, as we explain in our Response papers attached, invalidates the trust; yet the government continues to speak about this as an "independent" Trust.  

Two, the Fed/FRBNY could not take legal title to the equity but neither could the Treasury Department during this pre-EESA period. So, the FRBNY named the U.S. Treasury (in the Trust Agreement) as the beneficial owner. But again, as our Response papers point out, it is elemental trust law that a beneficiary must be a person or entity that can actually hold title. While the Treasury Department can hold title, the U.S. Treasury can no more hold title than a bank account – because that is what it is. You can deposit funds or assets into a depository account but the account cannot have "ownership" because it has no more authority to do so than a tree log. But, the FRBNY had to conceal the fact that this transaction was really for the benefit of the Treasury Department (something the Treasury Dept's Rule 30(b)(6) deponent conceded under oath (also provided in our Response papers), because the Treasury department had no legal authority. And, even if it did, as under EESA a few months later, to grant the federal government voting rights would be to create a Gordian Knot of conflicts-of-interest, which is why presumably the legislation seeks to avoid the government from taking both the equity and exercising voting rights. But, at the time of the AIG Trust, there was absolutely no legislative authority for the Treas. Dept to take control of AIG. Yet, this is what the Trust purportedly accomplished. 

In the world of finance, and you certainly know this as well as I, if you seek to accomplish an illegal financial transaction ("specified unlawful activity") through false means (the Trust structure), you are in violation of federal anti-money laundering statutes (18 USC § 1956). I have attached a ppt presentation my office has prepared for oral argument in our case (although the criminal violation is not at issue insofar as we don't have standing to raise it). Since this artifice included TARP funds, you, in your capacity as the SIGTARP, do. Please feel free to use this material as you deem best. 

I will be in Washington, D.C. on Tuesday meeting with some Congressional leaders on this point, and would be more than willing to discuss this in greater detail. Thank you. 

cc:        Frank J. Gaffney, Jr, Pres., Center for Security Policy 
Robert Muise, Esq., co-counsel to Kevin Murray in Murray v. Geithner et al., U.S. D. Ct. E.D. MI, No. 2:08-cv-15147-LPZ.
...
David Yerushalmi
Law Offices:
Washington, D.C., New York, California & Arizona
T: 646.262.0500
F: 801.760.3901
E: david.yerushalmi@verizon.net
W: www.davidyerus

see you on Saturday with a comprehensive review
all the best
 
Harvey

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