Saturday, May 22, 2010

May 22.2010 commentary.

Good morning Ladies and Gentlemen:
Gold closed down by $12.20 to 1175.20.  Silver fell by 6 cents to 17.63.
The gold comex OI continues to confound everyone.  Yesterday after the comex closed, the CFTC released data suggesting that the OI
actually rose by 1000 contracts to 580,000 despite the huge drubbing that this metal has received on the Thursday session.
The silver Oi actually went up as well by 300 contracts to 123815. As I pointed out to you on Thursday, I am having great difficulty in believing these figures.
The OI should be a lot lower.
The COT report on the gold was uneventful as the bankers did not increase their short positions.  However in the silver
market that was not the case as JPMorgan and friends continued to pile onto their shorts with reckless abandon:
The changes in the gold COT report were nothing of significance. However, that was not the case with silver...

*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.






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 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 Billion 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


32 States Now Officially Bankrupt: $37.8 Billion Borrowed From Treasury To Fund Unemployment; CA, MI, NY Worst

Tyler Durden's picture

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





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.





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:

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  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.


and this story from Marko's take on the FDIC shortfall:

FRIDAY, MAY 21, 2010

Banking Sector Problems Accelerate

While the banking sector reported a profitable quarter for the first 3 months of 2010, problems are continuing to escalate.

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 
In conclusion expect sideways action in gold and silver up until Tuesday and then these metals will resume its northernly trajectory as the whole world resorts to quantitive easing.
Europe is being bailed out by swap money and these dollars and euros are desperately trying to prop up markets.
see you on Monday.
To all our Canadians
Happy Holidays.

Thursday, May 20, 2010

May 20.2010 commentary...extremely important

Good evening Ladies and Gentlemen:
Gold closed down by $4.80 to 1187,80,  Silver continues to be led by the crooked bankers as it fell another 40 cents to 17.69.
The bankers are obviously worried about options and they do not want too many exercising gold and silver contracts and then taking delivery.
The open interest on the gold comex was reported as being down only 200 contracts to remain at 579,000.  As I told you yesterday, I really doubted
the OI yesterday at the same 579000 level.  After two days of raids, I can now say that this level should be accurate for todays reading of 579000
The silver OI went down by 2000 contracts to 123000 contracts.
The delivery scene is pretty constant from Tuesday.  The only change for gold is a  65 contracts exercised .  Thus an additional 6500 contracts or .2 of a tonne is added to our
standing for delivery.  In silver 2 contracts were served upon.  The silver standing for delivery remains at 23.83 million oz.  In gold, the total standing is 4.74 tonnes of gold.
In other physical news:
The premiums for the Central Fund of Canada and PHYS still remain high:

The CEF bullion vehicle closed at a 6.2% premium to NAV and the PHYS at 15.712% (Tuesday 8.3% and 16.752%).


Today, the Dow fell by 376 points.  All gold shares plummeted in sympathy with the Dow.  CEF.a and GTU  (the gold fund of central fund of Canada) both rose

Actually, gold in Canadian dollars rose today.  Gold right now is 1183.00 with the Cdn dollar at 1.07, thus cdn gold is 1265.00.  Yesterday, it was 1260.00 and so

the Central Fund of Canada rose in value.


However, this struck me:


The GLD ETF neatly demonstrated its detachment from gold market conditions by adding 3.04341 tonnes to 1,220.15158 tonnes, a record.





Generally, the rise in gold inventory at the GLD is a proxy for gold demand.  It has gone from 1159 tonnes a few weeks ago to its new record level of 1220.15 tonnes.

Reg Howe will release his paper on the GLD and on the BIS data.   He is using the BIS data to prove or disprove Catherine Fitts's assumption that the GLD is nothing but paper.


Fitts believes that the GLD swapped dollar bills for gold at the Bank of England.  The gold moved to the GLD and dollars were swapped to the Bank of England.

The bank of England can ask for its gold back at any time.

I would also like to point out that the Bank of England only has 300 tonnes of gold to its credit.  Thus the remainder of the swapped gold (1220-300= 920 tonnes) must be private gold.

What happens if the private holders cannot retrieve their gold from the Bank of England?  A very interesting scenario!!


In other news, our well informed Dennis Gartman bought back two contracts in gold that he sold a few days ago.  He knew this was a raid.

I also told the CFTC about Gartman and how this gentleman always gets the sale side right.

from the Gartman Letter:


TGL bought back two "units" of gold hedged against the GBP and the Euro this morning. 


I study mark Lundeen's commentary on a regular basis and this fellow is a wonderful statistician.


He is basically trying to overlap the Dow collapse in the 1929 -1930 to now.

Here is his new findings and I think you will find this interesting:


Mark Lundeen…

My Step Sum Has Turned Down

Hi Bill 
Here is a comparison of the DJIA's Step Sum from the 1929-32 & our current Bear Markets. As we can see, during the Great Depression, the Step Sum was rising upwards, until it began its catastrophic collapse, marking the final stages of the 1929-32 Bear, where all hopes proved forlorn.

Starting on May 04, our DJIA's Step Sum has turned down, in what I expect will also prove to be our Bear Market's catastrophic collapse. I'm expecting our current downturn to take us down below the lows of 09 March 2009. 










Ok lets go to the economic stories of the day:


The big story is the release of the unemployment and first time unemployment benefits:

U.S. economic news:

Jobless claims unexpectedly rise

WASHINGTON (Reuters) - The number of workers filing new applications for unemployment insurance unexpectedly rose last week for the first time since early April, government data showed on Thursday, dealing a blow to the labor market recovery.

Initial claims for state unemployment benefits increased 25,000 to a seasonally adjusted 471,000 in the week ended May 15, the highest level since the week ended April 10, the Labor Department said.

Analysts polled by Reuters had expected claims to fall to 440,000 from the previously reported 444,000, which was revised marginally up to 446,000 in Thursday's report.

The four-week moving average of new claims, which is considered a better measure of underlying labor market trends, rose 3,000 to 453,500.

A Labor Department official said there was nothing unusual in the state level data. The claims data fell in the survey week for the government's closely watched employment report for May. That report will be released on June 4.

New applications for unemployment benefits had been grinding lower even though payrolls have now grown for four straight months. Analysts believe the elevated level of initial claims indicates the unemployment rate will remain high for a while and only come down gradually as small businesses are still struggling.

The jobless rate edged up to 9.9 percent in April from 9.7 percent in March.

The number of people still receiving benefits after an initial week of aid fell 40,000 to 4.63 million in the week ended May 8, the Labor Department said. The level was above market expectations for 4.60 million, but was the lowest since late March.

The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, was unchanged at 3.6 percent in the week ended May 8. It was the fifth straight week that the rate was unchanged at that level.




The bond market skyrocketed with this news.  The long bond rose to 124 from 122 signalling a possible deflationary move.  It certainly portends some erie things about to happen:


Prices double gains on jobless claims jump

NEW YORK, May 20 (Reuters) - U.S. Treasuries prices jumped after the government reported that U.S. jobless claims jumped last week, contrary to expectations for a small decline.

Benchmark 10-year notes climbed a full point, doubling their early advance of 16/32. Their yields fell to 3.27 percent -- its lowest since Dec 1, 2009 -- from 3.38 percent on Wednesday.

The 30-year bond rose two points, also doubling an early sharp advance. Its yield, which moves inversely to prices, fell to 4.13 percent from 4.25 percent on Wednesday.





This did not go over to well today..the leading indicators fell instead of rising!!:

US leading index posts first drop since early 2009

WASHINGTON, May 20 (Reuters) - An index meant to gauge the future strength of the U.S. economy fell slightly in April, marking its first decline in more than a year, a private industry group said on Thursday.

The Conference Board said its index of U.S. leading economic indicators slipped 0.1 percent last month, surprising analysts who had been looking for a 0.2 percent gain.

It was the first drop since March 2009.

The index, which aims to forecast growth six to nine months out, had risen to record highs in recent months.

"These latest results suggest a recovery that will continue through the summer, although it could lose a little steam," said Ken Goldstein, economist at the Conference Board.

The report's findings are consistent with the consensus forecasts of market economists, who see growth tapering off modestly in the second half of 2010 after a robust start to the year.

U.S. gross domestic product rose an annualized 3.2 percent in the first quarter, according to government data. That was a third quarter of growth following the longest recession in more than 70 years.





The manufacturing sector in the Philly district  (Pennsylvania and NJ) was up:


Philly Fed factory activity index up in May

NEW YORK, May 20 (Reuters) - Factory activity in the U.S. Mid-Atlantic region accelerated less than expected in May, according to a survey on Thursday that showed employment growth deteriorating.

The Philadelphia Federal Reserve Bank said its business activity index rose to 21.4 in May from April's 20.2. Economists had expected a reading of 22.0, based on the results of a Reuters poll, which ranged from 15.0 to 25.0.

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

The Philadelphia report's jobs component fell to 3.2 from April's 7.3, a troubling development since employment has been the weak spot of the current economic recovery.

It also follows a report earlier on Thursday showing the number of U.S. workers filing new applications for unemployment insurance unexpectedly rose last week for the first time since early April, suggesting the labor market rebound is in trouble





But the all important commercial paper was down badly:


U.S. commercial paper market shrinks in week - Fed

NEW YORK, May 20 (Reuters) - The U.S. commercial paper market contracted in the latest week, Federal Reserve data showed on Thursday, as companies and banks pared back their reliance on very short-term funding.

For the week ended May 19, the size of the U.S. commercial paper market, a vital source of short-term funding for companies' day-to-day operations, fell by about $27.0 billion to $1.076 trillion outstanding from $1.103 trillion the previous week.



this is confirmed by these two big numbers:


1. lack of demand for foreclosure homes:


US foreclosure demand ebbs as supply mounts-survey

NEW YORK, May 20 (Reuters) - U.S. consumers are less interested in buying a foreclosed home than they were a year ago, which could slow a housing market rebound as banks prepare to sell a record number of repossessed properties, according to a survey released on Thursday.

The share of adults 18 and over who would consider buying a foreclosed property fell to 45 percent this month from 55 percent a year ago, an on-line survey conduced May 10-12 by Harris Interactive for and RealtyTrac found.

In the first quarter, banks repossessed a record of nearly 258,000 properties, on pace to shatter last year's annual record of more than 918,000 properties, according to real estate data company RealtyTrac.

"For every borrower who avoided foreclosure through HAMP last year, another 10 families lost their homes," said Pete Flint, chief executive of real estate website

Unemployment near 10 percent is overwhelming government and lender efforts, such as the Home Affordable Modification Program (HAMP), to keep struggling borrowers in their homes.

"Combined with decreased consumer interest around purchasing a foreclosure it may take even longer than anticipated to see true health return to the real estate market," Flint said in a statement…



and 2.  36000 businesses in the usa will probably go bust this year.  (Dunn and Badstreet)


36,000 firms at high risk of collapse: Dun & Bradstreet

  • Thursday, 20 May 2010 11:21 
    James Thomson

Credit agency Dun & Bradstreet has delivered a blunt warning to SMEs about the patchy state of the economic recovery, warning it downgraded the risk profiles of a staggering 80,000 firms during the March quarter – a greater number of firms than were downgraded during the first quarter of 2009.

D&B now has 36,000 firms rated as being at "high risk" failure over the next 12 months, with the majority of those being smaller and young firms (less than four years of operation).

D&B's director of corporate affairs Damian Karmelich, says the spike in risk downgrades is particularly worrying when compared to last year, when the economy was performing much worse.

In the March quarter of 2009 – when the global economy was facing the greatest crisis in 70 years – D&B downgraded 65,000 firms, far less than the 80,000 downgraded in the first three months of 2010.

"It's a real sign that risk remains and companies can't just look at the macroeconomic numbers and think that happy days are here again."…



Here is another indicator which shows that bank lending is non existant:  (from zero hedge)

I have talked about this number in the past.  the Ted spread is the rate at which banks lend to each other vs the overnight rate. The higher the number the more reluctant the banks are to lend.

In Euro terms, the Libor .is.625%,  In dollars, the rate has now risen to .485%.  Lending by banks is just not present!!  (The Ted spread is Libor/OIS  ie. Libor divided by overnight rate)


Libor Dispersion Surges, As SocGen, WestLB, Mizuho and Rabobank Flash Red Liquidity Warning Lights

Tyler Durden's picture

It should come as no surprise that the short-term funding markets for European banks are getting increasingly problematic. Unfortunately for the ECB, which can intervene with a 6-12 hour time horizon to prop up the euro, there is nothing it can do to limit the bleed in Libor. Confirming this, Libor simply refuses to slow down its constant creep higher, causing increasing pain to all those who have sold the Ted spread and Libor-OIS, both of which are back to September 2009 levels.

Yet while a surging Libor in itself is a troubling phenomenon, what is even scarier is looking at the offers provided by constituent banks to the Britsh Bankers Association, which compiles the data and provides an ex-outlier quartile adjusted Libor rate. The dispersion between the top and bottom bank in today's EUR LIBOR panel was a whopping 33% today, begging the question of just how healthy the upside panel outliers are.

The first chart shows the absolute level in 3 month Libor as provided by each member bank.

And here is the same chart showing the dispersion around the average Libor of 0.6278%.

It is far too obvious that such a dramatic dispersion is certainly not healthy, and while we are very skeptical of UBS' indicated offer of 0.48% in 3M Libor (absent the company receiving a direct line of credit from a recently very intervention happy SNB), anyone who has dealings with Soc Gen, West LB, Mizuho and Rabobank may certainly want to hedge their counterparty risk. The banks indicated 3M EUR Libor offers are far above not just the average but are substantial outliers to historical respective offered rates. We will keep an eye out on these 4 firms as we anticipate material moves wider in the offered rates as liquidity conditions worsen.


The FDIC released its quarterly report tonight and the FDIC has a negative balance of 20 billion.  This is after receiving 45 billion from the banks at the end of the 4th quarter:

FDIC Still As Bankrupt As Ever, DIF-to-Deposit Ratio At -0.38%

Tyler Durden's picture

The FDIC's quarterly banking profile has been released. Inbetween all the fluff we find that the deposit "insurance" agency has exactly negative $20.7 billion to satisfy any upcoming bank runs and liquidations. Thank god for that ongoing Treasury lifeline. Atatched is a chart of the Deposit Insurance Fund-to-Deposit ratio. Negative is, well, bad.

Luckily, depositors decided to get the hell out of deposits in the last quarter, pulling out $29 billion from the not all that Too Big To Fail any longer.

Total assets of the nation's 7,932 FDIC-insured commercial banks and savings institutions increased by $248.6 billion (1.9 percent) during first quarter 2010, funded primarily by an increase in nondeposit liabilities. Total deposits decreased by $28.6 billion, with domestic deposits almost flat, decreasing by $5.1 billion (0.1 percent), and foreign office deposits declining by $23.5 billion (1.5 percent). Domestic noninterest-bearing deposits decreased by $26.4 billion (1.7 percent), and domestic time deposits decreased by $116.1 billion (4.9 percent). Savings deposits and interest-bearing checking accounts increased by $137.4 billion (3.6 percent) during the quarter. The share of assets funded by domestic deposits declined from 58.7 percent to 57.6 percent, and the share funded by foreign office deposits decreased from 11.7 percent to 11.3 percent. Federal Home Loan Bank (FHLB) advances as a percentage of total assets continued to decline, from 4.1 percent to 3.6 percent on March 31, 2010, the smallest percentage on record (2001 to present).

Your rating:None

Today, we got this commentary from Ambrose Pritchard Evans on Germany's attempt to ban illegal naked shorting on all kinds of financial instruments including gold:
Germany's 'desperate' short ban triggers capital flight to Switzerland
A year ago, Germany's financial regulator BaFin warned that the toxic debts of the country's banks would blow up "like a grenade" once hidden losses from the credit crisis caught up with them.

By Ambrose Evans-Pritchard, International Business Editor
Published: 9:50PM BST 19 May 2010
Swiss francs - Germany's 'desperate' short ban triggers capital flight to Switzerland Photo: AFP An internal memo at the time showed that BaFin feared write-offs might top €800bn (£688bn), twice the reserves of Germany's financial institutions. Nobody paid much attention. But the regulator's shock move on Tuesday night to stop short trading on banks, insurers, eurozone bonds – as well as a ban credit default swaps (CDS) on sovereign debt – has left markets wondering whether the slow fuse on Germany's banking system has finally detonated.
BaFin spoke of "extraordinary volatility" and said CDS moves were jeopardising "the stability of the financial system as a whole". It is unsettling that the BaFin should opt for such drastic measures a week after EU leaders thought they had overawed markets with a €750bn rescue package and direct purchases of Greek, Portuguese and Spanish debt by the European Central Bank. BaFin's heavy-handed move seems to proclaim that the rescue has failed.
"The market is left asking what skeletons are lurking in the cupboard," said Marc Ostwald from Monument Securities. The short ban follows a report by RBC Capital Markets that circulated widely in the City accusing German banks of failing to come clean on 75pc of their €45bn exposure to Greek debt.

German lenders have the lowest risk-weighted capital ratios in the world after Japan. They were slow to rebuild safety cushions after the sub-prime crisis, and now face a second set of losses on Club Med holdings. Reporting rules have let Landesbanken delay write-downs, turning them into Europe's "zombie" banks.
Even so, nothing adds up in this BaFin episode. Germany acted alone, prompting a tart rebuke from French finance minister Christine Lagarde. "It seems to me that one should at least seek the advice of the other member states concerned by this measure," she said. Brussels was not notified. The deep rift between Berlin and Paris has been exposed again, leaving it painfully clear that Europe's monetary union still lacks the fiscal and governing machinery of a viable currency union.
Far from stabilising markets, BaFin's move set off a nasty sell-off in credit markets. Markit's iTraxx Crossover index – measuring risk in mid-level corporate bonds – jumped 57 basis points to 586. Markit said BaFin had caused liquidity to dry up in "febrile conditions". The Libor-OIS spread watched for signs of strain in interbank lending widened further.
If the purpose of BaFin's action was to drive wolfpack "speculators" off Greece's back, it failed. Yields on 10-year Greek bonds rose 37 basis points to 7.918pc. What it showed is that CDS contracts barely matter. The issue is whether "real money" investors such as the Chinese central bank are willing to buy Greek and Portuguese debt.
The short ban set off instant capital flight to Switzerland. BNP Paribas said €9.5bn flowed into Swiss franc deposits in a matter of hours on Wednesday morning.
The Swiss central bank intervened to hold down the franc. This caused the euro to shoot back up against the US dollar after an early plunge. The euro had already bounced off "make-or-break" technical support at $1.2135, the 50pc "retracement" of its entire rise since 2000, but any rally is likely to be short-lived.
"As a German citizen, I wish to apologise for the stupidity of my government," said Hans Redeker, currency chief at BNP Paribas. He said the CDS ban deprives reserve managers of a crucial hedging tool for non-securitised loans and will scare away global investors needed to soak up Club Med bonds.
"The European market is likely to become utterly dysfunctional. Just as the market showed signs of stabilisation with real money starting to buy euros, the Germans have destroyed this glimmer of hope," said Mr Redeker. "The BaFin ban is a desperate political move by a government battling for survival. Angela Merkel needs the support of the Left so she has given in to a witch-hunt against banks and speculators."
Six members of the FDP Free Democrats in Germany's ruling alliance are to vote against the EU's rescue fund. Chancellor Merkel must reach out to Social Democrats and Greens to secure a safe majority.
Mrs Merkel faced heckling as she tried to rally support for the EU rescue package in the Bundestag. "The current crisis facing the euro is the biggest test Europe has faced since the Treaty of Rome in 1957. This test is existential. The euro is in danger, and if we do not avert this danger, the consequences will be incalculable," she said.
Tim Congdon from International Monetary Research said deposit data from the ECB shows that there was a "major run" on Club Med banks in the second week of May. Some €56bn of interbank lending facilities were withdrawn, probably as citizens in the South switched funds to banks in the eurozone core. Bank reliance on the ECB lending window jumped by €103bn – or 22pc – in a week.
"It was extreme and very sudden, probably on Friday afternoon. The eurozone was undoubtedly in peril," he said.
The question raised by BaFin is whether underlying damage to the eurozone banking system runs even deeper than feared.
With the stock market crashing today, this article highlights the risks to the global economy:

Stocks to Tumble Another 20%, Cash the Safest Place: Roubini

Published: Thursday, 20 May 2010 | 4:25 PM ET
Text Size

Stocks are likely to continue their aggressive decline and shed another 20 percent in value as the world economy weakens, economist Nouriel Roubini told CNBC.

Nouriel Roubini
Photo: Oliver Quillia for CNBC
Nouriel Roubini

As the market slides into correction territory, Roubini said weakness in euro zone countries and a slowdown in the US and other developed countries will make things even more difficult for investors in the months ahead.

"There are some parts of the global economy that are now at the risk of a double-dip recession," said Roubini, head of Roubini Global Economics. "From here on I see things getting worse."

Prices in both stocks and commodities are likely to take a hit, and investors may only be safe in cash and other safe havens. Roubini said investors also can use options to hedge against future market risk that he said is sure to come as conditions weaken in the US, Japan, China and through much of Europe.

That will lave little room for growth both in economic measures and in most investment classes, Roubini said.

"There is that risk because the problems on the macro level are first in the euro zone. Then in China there is evidence of economic slowdown...Japan is in trouble and US economic growth is going to slow down," he said. "There is also regulatory risk because we don't know how financial reform is going to occur."

Investors then should focus on buying debt from countries that are solid economically.

"Apart from cash I would invest in short-term government bonds of countries that don't have a serious debt problem, countries like Germany and maybe Canada, a few other advanced economies that from a fiscal point of view are sounder than the weaker economies," he said.

As for Europe, he called fixing the debt problems in Greece and other troubled nations "mission impossible" and said tough decisions will need to be made.

"What needs to be done is clear. We need to raise taxes and cut spending. Otherwise we're going to get a fiscal train wreck," he said. "It's going to take years of sacrifices."

Our friends, Goldman Sachs are again being sued:
As I remember SemgGroup was a Goldman client.

May 18, 2010
Goldman, BP Sued Over Alleged SemGroup Conspiracy
Filed at 8:44 a.m. ET
NEW YORK (Reuters) - More than 80 independent oil and gas producers have sued units of Goldman Sachs Group Inc and BP Plc, alleging they conspired with SemGroup LP to defraud the plaintiffs of money owed for oil and gas delivered prior to the energy trader's 2008 bankruptcy.
The law firm McKool Smith announced the lawsuits by the Kansas, Oklahoma and Texas producers against Goldman's J. Aron & Co unit, BP Oil Supply Co and other defendants.
It said the lawsuits were filed in Kansas and Oklahoma state courts. The complaints were not immediately available.
Goldman and BP did not immediately respond to requests for comment.
According to the law firm, the producers are owed millions of dollars for oil and gas the defendants took from SemGroup as margin calls were driving that company toward bankruptcy.
SemGroup, based in Tulsa, filed for Chapter 11 protection from creditors in July 2008 after suffering $3.2 billion in losses on energy futures and derivatives trades that it said were designed to protect its physical oil trading business.
(Reporting by Jonathan Stempel; editing by John Wallace)
© 2010
I will report on Saturday and it will be a review of events for the week.
To all our Canadian friends, I wish you a safe and happy holiday weekend.
all the best

Search This Blog