*The large specs increased longs by 3,816 contracts and decreased shorts by 1,384.
*The commercials decreased longs by 462 contracts and increased shorts by 6,238. JP Morgan was salivating ahead of this raid they knew was coming.
*The small specs increased longs by 254 contracts and decreased shorts by 1,246.
end
As I pointed out to you during the week, this Tuesday is the last day for options and as is the cartel's custom, they will continually raid to force option holders to lose.
Most of the option holders held 1200 gold calls and now all of those calls are worthless. Expect that gold will remain below 1200 until Tuesday afternoon and then gold will rise as the
cartel banks cover their shorts which forced the gold and silver price down.
In the silver and gold inventories, nothing much as changed from previous commentaries. The open interest on the June front month of gold remain at a very high 260,000.
It is interesting in this raid, the SLV and GLD have either advanced a little or stayed constant. Nary an oz has been sold. Remember these funds are a proxy for demand
so it is quite clear, that the bombing of gold and silver is nothing but short sales designed to temper demand.
I would like to spend time on two big stories in the financial world. Yesterday we learned from the popular EconomicPolicyJournal.com that the Fed has secretly supplied
32 states with loans to cover benefits to unemployed. The bailout of these states means that these states are insolvent.
Here are the relevent stories on this front:
Friday, May 21, 2010
32 States Have Borrowed from the Treasury to Make Unemployment Payments; California Has Borrowed $7 BillionEconomicPolicyJournal.com has learned that 32 states have run out funds to make unemployment benefit payments and that the U.S Treasury has been supplying these states with funds so that they can make their payments to the unemployed. In some cases, states have borrowed billions. As of May 20, the total balance outstanding by 32 states (and the Virgin Islands) is $37.8 billion.
The state of California has borrowed $6.9 billion. Michigan has borrowed $3.9 billion, Illinois $2.2 billion.
Below is the full list, as of May 20, of the 32 states (and the Virgin Islands) that have borrowed from the Treasury to make unemployment payments, and the amounts the Treasury has advanced them. (Numbers in red are billions)
Alabama $ 283 million
Arkansas 330 million
California 6.9 billion
Colorado 253 million
Connecticut 498 million
Delaware 12 million
Florida 1.6 billion
Georgia 416 million
Idaho 202 million
Illinois 2.2 billion
Indiana 1.7 billion
Kansas 88 million
Kentucky 795 million
Maryland 133 million
Mass. 387 million
Michigan 3.9 billion
Minnesota 477 million
Missouri 722 million
Nevada 397 million
New Jersey 1.7 billion
New York 3.2 billion
N.C. 2.1 billion
Ohio 2.3 billion
Penn. 3.0 billion
R.I. 225 million
S.C. 886 million
S.D. 24 million
Tennessee 21 million
Texas 1.0 billion
Vermont 33 million
Virginia 346 million
Virgin Islands 13 million
Wisconsin 1.4 billion
Total $37.8 billion
From Zero Hedge.com:
32 States Now Officially Bankrupt: $37.8 Billion Borrowed From Treasury To Fund Unemployment; CA, MI, NY Worst
Courtesy of Economic Policy Journal we now know that the majority of American states are currently insolvent, and that the US Treasury has been conducting a shadow bailout of at least 32 US states. Over 60% of Americans receiving state unemployment benefits are getting these directly from the US government, as 32 states have now borrowed $37.8 billion from Uncle Sam to fund unemployment insurance. The states in most dire condition, are, not unexpectedly, the unholy trifecta of California ($6.9 billion borrowed), Michigan ($3.9 billion), and New York ($3.2 billion). With this form of shadow bailout occurring, one can only wonder how many other shadow programs are currently in operation to fund states under the table with federal money.The full list of America's 32 insolvent states is below, sorted in order of bankruptedness.
| California | $6,900 |
| Michigan | 3,900 |
| New York | 3,200 |
| Penn. | 3,000 |
| Ohio | 2,300 |
| Illinois | 2,200 |
| N.C. | 2,100 |
| Indiana | 1,700 |
| New Jersey | 1,700 |
| Florida | 1,600 |
| Wisconsin | 1,400 |
| Texas | 1,000 |
| S.C. | 886 |
| Kentucky | 795 |
| Missouri | 722 |
| Connecticut | 498 |
| Minnesota | 477 |
| Georgia | 416 |
| Nevada | 397 |
| Mass. | 387 |
| Virginia | 346 |
| Arkansas | 330 |
| Alabama | 283 |
| Colorado | 253 |
| R.I. | 225 |
| Idaho | 202 |
| Maryland | 133 |
| Kansas | 88 |
| Vermont | 33 |
| S.D. | 24 |
| Tennessee | 21 |
| Virgin Islands | 13 |
| Delaware | 12 |
end.
Adding to the lack of jobs, we see this announcement:
April mass layoffs rise led by manufacturing
WASHINGTON (Reuters) - The number of mass layoffs by U.S. employers rose in April led by manufacturers who shed workers even as the economy began to recover.
The Labor Department said the number of mass layoff events -- defined as job cuts involving at least 50 people from a single employer -- increased by 228 to 1,856 as employers shed 200,870 jobs on a seasonally adjusted basis.
The number of mass layoffs in the manufacturing sector totaled 448 resulting in 63,616 initial jobless benefit claims, the department said. That was more than 24,000 higher than the previous month, but well below the 125,000 initial jobless claims in the manufacturing sector a year ago.
The Labor Department said the manufacturing sector accounted for 23 percent of all mass layoffs and 28 percent of the initial claims filed in April.
The U.S. jobs market is lagging the broader economic recovery that started in the second half of 2009. Since December 2007, when the worst recession in 70 years started, the U.S. economy has shed more than 8 million jobs and the latest data suggest it will take some time to make up for those losses.
Monthly data suggest employers are beginning to add jobs, but the overall unemployment rate remained stubbornly high at 9.9 percent in April, up from 9.7 percent the previous month, as discouraged workers started to look for work again.
In April, nonfarm payroll employment increased by 290,000, but was down by 1.381 million from a year earlier.
In the 29 months since the recession began in December 2007, the total number of mass layoff events on a seasonally adjusted basis was 58,793, resulting in a total 5.9 million initial claims for jobless benefits, the Labor Department reported.
end.
Where are the jobs?
The second big story is the revelation that the assets of the Fed has now reached 2.35 trillion dollars.
All central banks have similar accounting:
On the asset side of things, they have government debt purchased. This is how money is created.
The Fed has now 2.35 trillion dollars on its balance sheet (asset side) with 800 billion dollars of clean government debt but 1.55 trillion dollars of mortgaged backed assets
and other junk which we refer to as toxic assets.(800 plus 1.55 trillion = 2.35 trillion)
On the liability side, we have 2.35 trillion dollars of "currency" or current money outstanding. This is made up of 800 billion dollars of paper bills in circulation and
1.55 of excess reserves. The printed current money that the Fed has swapped with the banks in return for their garbage total 1.55 trillion dollars. And since collectively these banks
are not engaging in loans, these dollars are loaned back to the fed and the Fed has the chutzaph to pay these banks interest on that money.
Please recall that you have heard many times that the Fed was engaging in practice runs to contract the money outstanding. These announcements have been occuring off and on for the past
year and yet we do not see any contraction of the Fed's balance sheet. We also stated that it would be impossible for the fed to do so and we stand by that.
If the banks decide to use this money for loans (the 1.55 trillion dollars) and not loan the money back to the Fed, we will get inflation. If the velocity of this money circulates at great speed, then we will get
hyperinflation in a similar fashion as to Zimbabwe and Weimar Germany.
Here is a commentary on that subject from Jim Sinclair:
Jim Sinclair’s Commentary
A form of QE sets new records.
Fed Assets Reach Record $2.35 Trillion on Mortgage Purchases
May 20, 2010, 4:46 PM EDT
By Joshua Zumbrun
May 20 (Bloomberg) — The Federal Reserve’s assets rose 0.6 percent to a record $2.35 trillion as the central bank recorded purchases of mortgage-backed securities on its balance sheet.
Assets rose by $14.8 billion in the week ended yesterday, the central bank said today in a statement. The balance sheet reached the previous record level of $2.34 trillion April 14.
Fed Chairman Ben S. Bernanke and his colleagues are debating when to sell the central bank’s holdings of mortgage debt as part of plans to tighten credit and cut the balance sheet to less than $1 trillion, its size before the financial crisis. Last month, Fed officials reiterated a pledge to keep the benchmark rate low for an “extended period.”
The balance sheet reported $9.21 billion of liquidity swaps with foreign central banks, opened to ease funding pressures for European banks in the aftermath of Greece’s fiscal crisis. The swaps will settle today, and the Fed will be left with about $1.2 billion, Fed Governor Daniel Tarullo said in testimony before Congress today.
Holdings of mortgage-backed securities rose by $21.1 billion to $1.12 trillion. The Fed finished buying mortgage- backed securities and agency debt at the end of March, and is still waiting to settle on about $38.2 billion in net purchases of securities, according to today’s statement. The Fed has closed almost all of its remaining emergency liquidity programs this year.
One continuing program, the Term Asset-Backed Securities Loan Facility, had $44.5 billion in loans outstanding as of yesterday, down $184 million from last week. The so-called TALF is designed to spur consumer and business borrowing. It closed in March for assets except new commercial mortgage-backed securities, for which the program will remain open through June.
We now have clarification on the status of the FDIC. I reported to you on Thursday that the FDIC received 46 billion dollars up front from the banks which represent 3 years insurance
payments. Their DIF balance is negative 20.7 billion dollars. The FDIC has set aside 40.7 billion dollars as it expects that it will lose this much by year end Sept.
It also disclosed that troubled banks now number 775 banks.
The FDIC has disclosed that it has 63 billion in cash which is made up of 46 billion in upfront cash from 3 years insurance banks from the banks and 17 billion in cash. If you remove the loss provision
today the FDIC has a positive DIF of 20 billion What happens to the FDIC once this 3 year money has expired. The taxpayers will have to come to the rescue of the bankers again.
In a previous article, we learned that we can expect total losses from the troubled banks to be in the vicinity of 168 billion dollars.
Here is this story:
Posted: May 21 2010 By: Greg Hunter Post Edited: May 21, 2010 at 1:04 pm
Filed under: USAWatchdog.com
Dear CIGAs,
While the stock market was beginning its 376 point plunge yesterday, the Federal Deposit Insurance Corporation was quietly putting the best face it could on a banking system in serious trouble. In a press release to update the status of the insurance fund, the big positive headline was, “FDIC-Insured Institutions Earned $18 Billion in the First Quarter of 2010–Net Income Highest in Two Years.” FDIC Chairman Sheila C. Bair said, “There are encouraging signs in the first-quarter numbers . . . Industry earnings are up. More banks reported higher earnings, and fewer lost money.” (Click here for the complete FDIC press release.)
I can appreciate Chairman Bair’s positive attitude, but “encouraging signs” do not mean we have turned the corner and brighter days are ahead. The Deposit Insurance Fund, or DIF, has a negative balance of -$20.7 billion. That is just a $200 million improvement from the all time record deficit of -$20.9 billion at the end of 2009. I don’t see how these numbers are “encouraging.”
I talked with FDIC spokesman David Barr yesterday about the shortfall in the DIF. He said, “The FDIC is not broke.” It has an additional “$63 billion in cash.” He told me there is about $46 billion in three years of prepaid deposit insurance premiums and an additional $17 billion in cash for a grand total of $63 billion in “liquid resources” to close insolvent banks. Let me get this straight–nearly 75% of the FDIC’s bailout money is from fees collected up front. What happens when the FDIC burns through that? Will they collect another 3 years of fees?
Barr told me the FDIC is expecting to spend “$40 billion” closing troubled banks in the next 12 months. He said, “It could be less and it could be more.” Simple math says it will be more, way more. There have already been 72 failed banks so far this year. According to Barr, at the same time last year, there were only 33 failed banks. In 2009, there were 140 total banks closed. Bar freely admitted, “The pace (of bank closings) is greater this year.” Barr expects more banks to fail in 2010 than 2009, but he would not give a number. He said, “We don’t provide numbers because to us it’s not the numbers, it’s the cost.” The latest list of “problem” banks from the FDIC now stands at 775. 73 banks were added to the list since the end of 2009. That is nearly a 10% increase in less than 5 months.
Reggie Middleton is an investor and analyst who owns BoomBustBlog.com. He was one of the earliest to warn of the impending downfall of Lehman Brothers and Bear Stearns. Middleton told me, “If the FDIC had more money and manpower, it would be closing a lot more banks.” Middleton also said, “Many of America’s 8,000 banks are insolvent or close to it because of mark to market accounting.” Because of accounting rule changes, banks are allowed to value toxic assets for whatever they think they are worth, not what they actually are worth. Some call this “mark to fantasy accounting.” Middleton warns, “There is more risk now (in the banking system) than during the Lehman crisis because the pool of banks is smaller.”
When I look at residential and commercial real estate, I see no “encouraging signs.” I see frightening headlines like the one that came out just this week that says, “One in 7 U.S. homeowners paying late or in foreclosure.” (Click here for the full story) Commercial real estate doesn’t look any better. Some experts are forecasting $1 trillion in CRE losses before the banking crisis is finished. The FDIC is acting more like the Resolution Trust Corporation of the early 90’s than a deposit insurance fund. Let’s hope it does not run out of money anytime soon.
FRIDAY, MAY 21, 2010
Banking Sector Problems Accelerate
The Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $18.0 billion in the first quarter of 2010 for the commercial banks and savings institutions it insures, which was a $12.5 billion increase from the $5.6 billion earned for the similar period of 2009.
A small majority of all institutions reported year-over-year improvements in their quarterly net income. Those reporting net losses for the quarter were 18.7%, compared to 22.3% a year earlier. The average return on assets (ROA) rose to 0.54% , from 0.16% a year ago. This is the highest quarterly ROA for the industry since the first quarter of 2008.
The primary factor contributing to the year-over-year improvement in quarterly earnings was a reduction in provisions for loan losses. While first-quarter provisions were still high at $51.3 billion, they were $10.2 billion (16.6%) lower than a year earlier.
The number of institutions on the FDIC's "Problem List" rose to 775, up from 702 at the end of 2009. This represents 10% of all insured entities and is a dramatic rise from 252 at the end of 2008.
The total assets of problem institutions rose approximately 7% during the quarter from $403 billion to $431 billion. These levels are the highest since June 30, 1993, when the number and assets of problem institutions totaled 793 and $467 billion, respectively, but the increase in the number of problem banks was the smallest in four quarters.
While The Deposit Insurance Fund (DIF) balance improved for the first time in two years, its net worth is still NEGATIVE $20.7 billion - a negligible increase from the $20.9 billion deficit at the end of 2009.
The fund balance includes a whopping $40.7 billion contingent loss reserve that has been set aside to cover anticipated future losses. Combining the fund balance with this contingent loss reserve shows total DIF reserves of $20 billion.
The FDIC's liquid resources stood at $63 billion at the end of the first quarter, a decline from $66 billion at year-end 2009. In order to maintain emergency liquidity, the FDIC Board approved a measure on November 12, 2009, that required most insured institutions to prepay approximately three years' worth of deposit insurance premiums – about $46 billion – at the end of last year.
Despite the sanguine nature of the FDIC report, major problems persist. Poor loan performance in other sectors continued to hurt banks, with the total number of loans at least 3 months past due climbing for the 16th consecutive quarter.
Banks have been hurt by non-performing loans and the continued recession, causing them to dramatically reduce their lending. Commercial and Industrial Loans are down 25% from their peak. The industry's total loan balances grew by 3% during the quarter, but the increase was due to accounting changes. Without taking into account these changes, lending would have declined for the 7th straight quarter, as banks cut back across most major lending categories.
While the FDIC believes that problem banks will peak this year and decline smoothly thereafter, their optimism appears to have little basis. As the economy slips into the "Second Dip" of this "Double-Dip Hyper-Inflationary Depression" and the crisis in debt within the Euro-Zone intensifies, it is hard to believe that we are anywhere close to a termination of problems in the financial sector.
Marko's Take
