Saturday, June 12, 2010

ccommentary...June 12.2010

 
Good morning to you all:
 
 
Before starting, let me introduce you to the latest casualty to enter the banking morgue:
 
 

(RTTNews) - Regulators have closed a bank in Washington on Friday, bringing the U.S bank failure toll in 2010 to 82.

Washington First International Bank, Seattle, Washington was closed by the Washington Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation or FDIC as receiver. The FDIC said that it entered into a purchase and assumption deal with East West Bank, Pasadena, California, to assume all of the deposits of Washington First International Bank.

The four branches of Washington First International Bank will reopen during normal business hours beginning Saturday as branches of East West Bank, the FDIC said.

As of March 31, 2010, Washington First International Bank had approximately $520.9 million in total assets and $441.4 million in total deposits. East West Bank will pay the FDIC a premium of 0.5% to assume all of the deposits of Washington First International Bank.

In addition to assuming all of the deposits of the failed bank, East West Bank agreed to purchase about $501.0 million of the failed bank's assets. The FDIC will retain the remaining assets for later disposition.

The FDIC and East West Bank entered into a loss-share transaction on $418.8 million of Washington First International Bank's assets.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $158.4 million.

 

 

end.

 

 

The loss to the FDIC will not be that great, (158 million dollars)

 

We shall now begin:

 

Gold closed up by $8.10 to close at 1228.90.  Silver responded differently, closing down by 12 cents to $18.22.

 

It seems that the banking cartel have complete control on the silver market but not  gold

 

The comex gold open interest which is basis Thursday, hardly budged with the wicked raid perpetrated by the banking cartel : 

 

the OI only fell by 1268 contracts to  563,296.  The silver comex Oi surprisingly rose by 538 contracts to close out at 125381.

 

I would also like to point out that spot gold closed at its highest weekly close ever.  The previous highly weekly close was $1227.00  .  This is important as many Europeans make

 

their decisions based on gold closings at the weekly level or closing at month's end.

 

The banking cartel knew of this and were quite desperate to knock gold below the $1227 market before 1:30 pm yesterday.  They failed.  European chartists will be emboldened to enter the gold

 

buying spree seeing this record close.

 

 

On another front, with the raid on Thursday, our banker friends over in England saw huge demand for gold as we witnessed an  additional 7.6 tonnes of  gold sent to GLD, .  The inventory stands at a record

 

1,306.00 tonnes of gold:

 

 

from John Brimelow:

 

The GLD ETF added 7.60672 tonnes to 1,306.1376 tonnes (a record).

 

With the revelation that  1. the Bank of England is the custodian of the GLD

                                    2. the GLD fund can accept swaps of gold in return for cash.

 

 

it is quite easy to see how this entity can obtain gold readily whereas other funds have great difficulty in locating any serious quantity  e.g. central fund of canada and Sprott's PHYS.

 

 

The GLD swapped paper money for real physical gold at the Bank of England.

 

The Bank of England only has 300 tonnes to its credit.  However it is a foreign depository for gold.  if you deposit gold in this facility it is like depositing dollar bills into your bank..they are

 

free to loan it to whomever they wish.  We are very certain that the 300 tonnes of British gold has already been leased out.  Thus the entire 1,306 tonnes of gold is private/ and or other nations

 

sovereign gold.  However the Bank of England is on the hook for this gold if the real owners demand it back.

 

You can also see the problem that this central bank will probably incur.  When you swap dollars for gold, the dollars remain constant but gold rises.

 

The bank of England can and will ask for their gold back at one point.  However the shareholders of GLD will be compromised as:

 

1. there is no gold.

 

2. the dollars accumulated at the bank will not be sufficient to pay the shareholders as gold is rising but the paper money is remaining constant.

 

end

 

 

 

 

 

 

At the end of trading last night, we got the COT report.

 

 

In gold, the large speculators   increased their long positions by a rather large 4100 contracts.  The few  large speculators that were short

 

increased those shorts by a smallish 1308 contracts.

 

However, as always the story is in the commercial sector:

 

The intermediate bankers that are long gold increased those positions by a rather large 3461.  But their larger banking brothers  (JPMorgan, HSBC etc)

 

increased their short position by a massive 9415 contracts, in open defiance of the regulators.

 

Interestingly, the small specs have dipped their toes into the water for the first time by increasingly going long by 3900 contracts.

 

 

In summary in gold:  same story as last week.  The large speculators are digging in their heals and are joined by the intermediate bankers.

The large commercials are feeding this paper  (going short). The small specs are coming into the game but very late.

 

 

In silver a little different story:

 

the large speculators reduced their longs by a smallish 1319 contracts.  The ones who were short reduced those shortfalls by a tiny 437 contracts.

 

Again, the action was in the commercial sector:

 

the intermediate bankers increased their longs by 140 contracts, but strangely the largest bankers only added 229 contracts to their short positions.

 

I guess this is why silver advanced big time this week.

 

The small specs are not in the silver game having been burnt too often by these crooks.

 

For those of you who wish to see the data, you can find it here:

 

http://news.goldseek.com/COT/1276285748.php

 

 

end.

 

 

The positive premiums to NAV for our two funds Central Fund of Canada and PHYS (Sprotts) remain hugely positive at 8.5% and 11.07% respectively.

 

 

We shall now proceed to the delivery levels in gold and silver: at the comex

 

 

 

 

 Silver
Withdrawals from Dealers Inventory   N/A
Withdrawals from customer Inventory   N/A
Deposits to the dealer Inventory  638,722 oz
Deposits to the customer Inventory  986 oz
No of oz served  zero
No of oz to be served xxx
Gold
Withdrawals from Dealers Inventory   zero
Withdrawals from customer Inventory   129 oz
Deposits to the dealer Inventory  n/a
Deposits to the customer Inventory  n/a
No of oz served  ( 57 contracts)  5700 oz
No of oz to be served ( 1976 contracts)    197,600 oz

 

 

Comments: 

 

 

In the silver side of things we saw a good sized 638,722 oz of silver enter registered warehouses but this silver did not go

 

into the customy inventory.  We will have to wait and see how this entry plays out.  Still, with two huge delivery months of 24 million and 22million oz of silver

 

the activity into the warehouses has been on the smallish side.  Those longs are extremely patient.

 

There was no silver exercised so the total no of oz. waiting for their metal remains at 130,000 oz.

 

 

In gold.

 

 

strange indeed...no activity and we are almost halfway into the delivery cycle of June.  Judging from the activity at the LBMA, this is very worrisome.

 

On the delivery front:

 

 

there were 57 contracts served upon or 5700 oz of gold.  The total no of oz served is 18,718 contracts or 1,871, 800  oz of gold.

 

There remains   1976 contracts or 197,600 oz.

 

The total amount of gold standing for this big delivery month of june is as follows:

 

 204,000 oz (from May gold exercised)  +     1,871,800  +  197,600  oz to be served =   2,273,400 oz.

 

( in tonnage 73.3 tonnes of gold).  Somehow we lost a few tonnes of gold.  Since OI has remained pretty constant they probably rolled

 

into a future month and maybe got some compensation to roll.

 

 

The other big news on the physical front is the news of the huge jump in gold volume at the LBMA.

 

 

As I pointed out to yesterday, the daily volume of gold transfered is 24.7million oz of gold.

 

For those of you who wish to see the data in full you can find it here:

 

 

http://www.platts.com/RSSFeedDetailedNews.aspx?xmlpath=RSSFeed/HeadlineNews/Metals/8801071.xml 

 

 

The comex which is not known as a physical market has been averaging around 1.8 million oz per delivery session.(18,000 contracts)

 

The total OI is averaging around 500,000 contracts. The percentage that turns into physical is around 3.6% of all OI outstanding.

 

 

The LBMA is known to the world as the real physical market.  If you assume at worse a 4% turn of paper into real gold, one gets

 

 

24.7 million oz x  .04  =  1 million oz of physical per day or 5 million oz per week or  260 million oz per year.

 

 

The world produces around 73-75 million oz per year.  From these two exchanges, the jewellers and hoarders (investors in physical) must be satisfied.

 

You can now visualize that the world does not produce enough gold to satisfy everyone and that central banks must supply their above ground

 

gold to satisfy everyones needs.

 

It light of the huge demand for gold, it is difficult to comprehend the massive shorting that the bankers engage themselves  time and time again.

 

As foreign gold loving nations seek and obtain gold from the LBMA and ship it to their shores, you can visualize a time when the LBMA runs out and everyone

 

turns to the last bastion of some physical, the comex.

 

The turnover at the LBMA is simply mindboggling and is indicitive of some massive physical shortages throughout the world.

 

 

 

OK, we shall now proceed to the big economic stories of the day:

 

 

Yesterday, morning you could hear the groans from the Obama administration with this announcement at  8:30 am:

 

 

Retail sales drop 1.2 percent in May   (Reuters)

Retail sales plunged in May by the largest amount in eight months as consumers slashed spending on everything from cars to clothing. The big drop raises new worries about the durability of the economic recovery.

A sharp decline in retail sales is concerning for an economy in which consumption accounts for more than 70% of GDP.

Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947: 
clip_image002

The 2009-2010 year-over-year, or velocity trend line, a measure of acceleration, has failed. Consumer spending, regardless of the headline reports, is losing energy. Don’t be surprised to see increased discussions and a hasty passing of an Economic Recovery Act part II from Washington. Confidence, gold, is already discounting the possibility.

Gold-Adjusted Retail Sales (RSGLDR) and YOY Change: 
clip_image003

More…


 

end.

 

 

Please remember that the consumer is 70% of GDP.  The consumer is strapped and cannot buy.  This is why spending dropped 1.2%.

 

 

From John Williams in his analysis on spending, the CPI and the huge decline in M3:

 

 

Jim Sinclair’s Commentary

The irreplaceable ShadowStats.com. This is a by subscription service that is essential today.

- Ski-Jump-Shaped Depression  
- May Retail Sales Drop: Tentative Confirmation of  
Intensified Business Downturn  
- April Trade Deficit: A Negative for Second-Quarter GDP

"No. 302: Retail Sales, Trade Deficit" 
http://www.shadowstats.com/

 

end.
 
 
I would also like to emphasize that the huge trade deficit is an automatic subraction to GDP.  A trade surplus is a gain to GDP.
In the trade deficit we saw imports fall along with exports, but exports are falling faster than imports.  This is a huge drag on GDP.
 
This fact will become more important in the months to come as the federal debt rises from todays 13.1 trillion to around 14 trillion by November.
 
GDP is remaining constant at 14 trillion dollars, so by November we could have a debt to GDP of 100%  ( 14 trillion dollars divided by 14 trillion dollars.)
 
We are seeing many sectors of the usa economy falter as
 
1. the housing tax incentives were phased out in April
 
2. the auto sales incentives were phased out in March.
 
3. the spending stimulus has mostly been spent.
 
Dave Kranzler in his column the Daily Truth comments on the lousy retail sales number and its consequences.
A great read:
 

FRIDAY, JUNE 11, 2010

Is The Perfect Storm Brewing For Gold And Silver?

The truth is incontrovertible: malice may attack it, ignorance may
deride it, but in the end, there it is.   Winston S. Churchill

Retail sales plunged 1.2% for the month of May, which came as a complete surprise to the herd of cattle on Wall Street's cattle ranch, which was looking for more gains. We also saw a surprise increase in unemployment claims yesterday and housing purchase mortgage applications have been in freefall since the home purchase tax credit expired at the end of April. I also made the case earlier this week that we should start to see auto sales start dropping hard again, as the number of people who are taking advantage of the Government subsidized lease financing for GM and Chrysler begins to taper off, like it did with the cash for clunkers program. And I have yet to see any of the above-mentioned cattle discuss or try to quantify the GDP effect of the Gulf oil catastrophe on the economy.

George Soros was in the news today with speech he gave in Vienna yesterday in which he states that "Stage 2" of the financial crisis is starting: 
we have just entered Act II of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession...The collapse of the financial system as we know it is real, and the crisis is far from over LINK
While Mr. Soros refers to Europe in his comments, I would suggest that his view applies even more strongly to the United States. In fact, I think it can be strongly argued that several disasterous events are unfolding which are making Obama's Presidency completely unmanageable (not that anyone else would fare any better, but Obama is not handling this well and has absolutely no experience running anything bigger than a community activist organization).

My view is that, in the event that Bernanke does not want to see an economic collapse this year, the Fed will be forced to implement a second Quantitative Easing program which will be a couple multiples larger than the last one ($1.25 trillion in mortgage monetization + $300 billion of direct Treasury purchases + $200 billion in agency paper - FRE/FNM/GNMA). Bernanke can use the oil disaster plus the melt-down in Europe as his cover story and excuse for cranking up the printing press like this again. When you think about it, he pretty much has no choice unless he wants to see a new President elected by a landslide, in which case the first decision that happens is Bernanke would be sacked - probably the first phone call made after the inauguration ceremony.

If my view is correct, look for gold/silver to start making a big move higher as NFL training camps approach. The metals are holding up extremely well in the context of gold's typical seasonal weakness right now;  China/Russia seem to be persistingly buying up the yellow dog with inexorable demand; and all indicators are pointing toward a growing shortage of actual deliverable bars which are unemcumbered by multiple paper claims, like leases, futures and forwards (please see these comments from Eric Sprott, one of the most highly respected participants in the gold investing community: Deliverable Gold Shortage Brewing).

If gold/silver start to move higher like I expect, the mining shares - which have been lagging gold and are plagued by some of the worst investor sentiment I have seen bull-market-to-date - will make a move to new all time highs.
 
 
(this is Dave Kranzler's website)
 
 
Many of you know, I use the private  ECRI index  (WLI) a lot in evaluating upcoming risks to the economy. You can trust this data as real.
 
You will find this report very alarming:
 

http://www.marketwatch.com/story/personal-finance-minute-new-overdraft-rules-2010-06-09?link=kiosk

By Jon Markman

SEATTLE (MarketWatch) -- The most prescient statistical guide to the health of the U.S. economy is set to turn negative on Friday for the first time since early 2009, an event that is going to spook super-bulls and give comfort to super-bears.

But the keeper of the measure's flame says both sets of extreme views will be unwarranted, as it only means growth is about to slow noticeably -- not collapse.

The gauge is called the ECRI Weekly Leading Index, and for the past five decades it has been one of the few products of economic research that has risen above the level of tarot cards and necromancy.

Can capitalism save the world?

Wall Street columnist David Weidner interviews the producers of "The New Recruits," a documentary about social enterpreneurship, which uses free-market innovation to try and reverse extreme poverty.

While not considered mainstream due to its reliance on non-linear math to predict cycle turns rather than on regression formulas that extrapolate the past, the WLI has nevertheless forged an enviable reputation for accurately calling recessions and recoveries well in advance.

In mid-2007, the WLI forecast the 2008 recession when most economists and investors were still seeing blue skies ahead. In late 2008 it surprisingly forecast a u-turn higher into recovery amid the depths of the global financial crisis. The WLI accurately retained its positive posture for a year, garnering criticism from bears all the way, before peaking and rolling over last winter again.

Now the flip downward that began in November 2009 is about to swing all the way down into negative territory. So I called up Economic Cycle Research Institute chief Lakshman Achuthan in New York to find out what this means.

Achuthan, who's always quick with the metaphors, says that an economy recovering from a recession is like a jet aircraft, which logs its strongest acceleration when taking off -- defying the forces of gravity and pointing toward its maximum expected altitude.

Once it's at 30,000 feet, a plane levels off and stops accelerating. But it doesn't fall, it just cruises.

"You wouldn't want your plane to accelerate throughout its flight," Achuthan said. "It would blow up or burn through all its fuel before getting anywhere."

The business cycle expert says the WLI's steep decline of the past two months so far only suggests that U.S. GDP growth has peaked for this cycle, so there won't be any quarters in the recovery that rise at more than 5%. And while it does not forecast a peak in employment growth yet, the fact that the WLI is rolling over now suggests job growth will peak in late summer. Though forecasts like this are always messy, if they're accurate they should help government and business leaders determine the best policy remedies now, rather than waiting to witness it occur later.

Slowdown or recession?

The big question now is not whether a slowdown lies ahead but whether it will turn into a recession. The WLI's current condition says the answer is not knowable yet, and won't be known for a few months because while the downturn so far is pronounced it is not yet persistent.

There is still time for policy makers to roll out new forms of legislated stimulus that could blunt the effects of a nascent downturn in commodity prices, consumer sentiment and mortgage applications -- just as there was in early 2008, at a similar juncture, before tax refunds were doled out too late to prevent recession.

So how would the downturn affect stock prices? Lakshman says that equity markets tend to halt their own fast-paced recoveries from downturns a few months after WLI growth tops out. WLI growth peaked in October, so the April peak in stocks was right on time. The next phase should be a desultory decline or march sideways as corporate profit growth peaks and softens from current super-strong levels.

The good news is that for now, at least, the recovery continues to roll at a pretty good clip. ISI Group reports that its company surveys continue to show a powerful, broad-based surge in the economy that has not been as hampered by lack of employment growth as you might imagine.

By Jon Markman

SEATTLE (MarketWatch) -- The most prescient statistical guide to the health of the U.S. economy is set to turn negative on Friday for the first time since early 2009, an event that is going to spook super-bulls and give comfort to super-bears.

But the keeper of the measure's flame says both sets of extreme views will be unwarranted, as it only means growth is about to slow noticeably -- not collapse.

The gauge is called the ECRI Weekly Leading Index, and for the past five decades it has been one of the few products of economic research that has risen above the level of tarot cards and necromancy.

Can capitalism save the world?

Wall Street columnist David Weidner interviews the producers of "The New Recruits," a documentary about social enterpreneurship, which uses free-market innovation to try and reverse extreme poverty.

While not considered mainstream due to its reliance on non-linear math to predict cycle turns rather than on regression formulas that extrapolate the past, the WLI has nevertheless forged an enviable reputation for accurately calling recessions and recoveries well in advance.

In mid-2007, the WLI forecast the 2008 recession when most economists and investors were still seeing blue skies ahead. In late 2008 it surprisingly forecast a u-turn higher into recovery amid the depths of the global financial crisis. The WLI accurately retained its positive posture for a year, garnering criticism from bears all the way, before peaking and rolling over last winter again.

Now the flip downward that began in November 2009 is about to swing all the way down into negative territory. So I called up Economic Cycle Research Institute chief Lakshman Achuthan in New York to find out what this means.

Achuthan, who's always quick with the metaphors, says that an economy recovering from a recession is like a jet aircraft, which logs its strongest acceleration when taking off -- defying the forces of gravity and pointing toward its maximum expected altitude.

Once it's at 30,000 feet, a plane levels off and stops accelerating. But it doesn't fall, it just cruises.

"You wouldn't want your plane to accelerate throughout its flight," Achuthan said. "It would blow up or burn through all its fuel before getting anywhere."

The business cycle expert says the WLI's steep decline of the past two months so far only suggests that U.S. GDP growth has peaked for this cycle, so there won't be any quarters in the recovery that rise at more than 5%. And while it does not forecast a peak in employment growth yet, the fact that the WLI is rolling over now suggests job growth will peak in late summer. Though forecasts like this are always messy, if they're accurate they should help government and business leaders determine the best policy remedies now, rather than waiting to witness it occur later.

Slowdown or recession?

The big question now is not whether a slowdown lies ahead but whether it will turn into a recession. The WLI's current condition says the answer is not knowable yet, and won't be known for a few months because while the downturn so far is pronounced it is not yet persistent.

There is still time for policy makers to roll out new forms of legislated stimulus that could blunt the effects of a nascent downturn in commodity prices, consumer sentiment and mortgage applications -- just as there was in early 2008, at a similar juncture, before tax refunds were doled out too late to prevent recession.

So how would the downturn affect stock prices? Lakshman says that equity markets tend to halt their own fast-paced recoveries from downturns a few months after WLI growth tops out. WLI growth peaked in October, so the April peak in stocks was right on time. The next phase should be a desultory decline or march sideways as corporate profit growth peaks and softens from current super-strong levels.

The good news is that for now, at least, the recovery continues to roll at a pretty good clip. ISI Group reports that its company surveys continue to show a powerful, broad-based surge in the economy that has not been as hampered by lack of employment growth as you might imagine.

 

for the complete commentary press on the link below.

 

http://www.marketwatch.com/story/personal-finance-minute-new-overdraft-rules-2010-06-09?link=kiosk

 

end.

 
As far as total derivatives are concerned, these guys have got it correct.  For those who you who are mathematically inclined, here is this rather difficult paper to read:
 
For once however, we get the correct answer as to the total derivatives outstanding.  From the JIm Sinclair commentary:
 

Jim Sinclair’s Commentary

Since there has not and will not be any intervention at the source of the real problem, OTC fraudulent derivatives, the downward spiral in Western world economics will continue.

Kudos to this article for getting the number right at over a QUADRILLION dollars.

Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP 
By PETER COHAN Posted 10:45 AM 06/09/10

One of the biggest risks to the world’s financial health is the $1.2 quadrillion derivatives market. It’s complex, it’s unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost — and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.

A quadrillion is a big number: 1,000 times a trillion. Yet according to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion.

More…

 
 
end.
 
Here is a story of problems in Lynn Mass.:
 

Lynn councilors back plan to solicit donations for cops 
Desperate times, desperate measures 
By O’Ryan Johnson and Edward Mason 
Friday, June 11, 2010

Desperate Lynn city officials are ready to pass a tin cup among local merchants – and even career criminals – to raise dough to keep cops on the street, even as store owners in this hardscrabble burg complain times are already tough enough.

At least two city councilors want to put the touch on shopkeepers to scrape together $210,000 for gang patrols to keep a lid on violence this summer. Mayor Judith Flanagan Kennedy is on the fence, but the idea has passed muster with the city’s legal department, according to City Councilor Stephen Duffy, who cooked up the scheme.

“We have a lot of issues in Lynn. We need to get out there as a community and get everyone to kick in,” said Duffy.

And that includes the civic-minded crooks.

“If they feel they want to donate, we appreciate it,” Duffy added. “It doesn’t cut them any slack if they do something wrong.”

“I like it,” City Councilor Rick Ford said of Duffy’s brainstorm. “I think he’s thinking outside the box. I’d do anything for the police. One place I don’t want to cut is public safety.”

More…

 
end.
 
we have a new Japanese prime minister.  He states that his country is in serious trouble:
 

Japan PM warns of Greece-like debt crisis 
CIGA Eric

The Japanese PM is alluding to confidence; Confidence in the currency that denominates their debt. Since gold is rising in all global currencies, it suggests that confidence in those managing the existing fiat system is beginning to fray. Once confidence reaches critical mass, there is no stopping the deterioration.

Japan could face a financial mess like the one that has crippled Greece if it does not deal urgently with its swelling national debt, the new prime minister warned Friday.

"It is difficult to sustain a policy that relies too heavily on issuing debt. As we have seen with the financial confusion in the European community stemming from Greece, our finances could collapse if trust in national bonds is lost and growing national debt is left alone," he said.

Source: finance.yahoo.com

More…


end.
 
 
Black Swan author, Nassim Taleb ,describes the global debt spreading like a cancer.  You should read this:
 

Debt Spreading ‘Like a Cancer’: Black Swan Author 
CIGA Eric

The market will force some difficult decisions soon. Prosperity cannot be achieved through devaluation, leverage, and and more debt issuance into a system saturated with debt.

The root of the crisis over the past couple of years wasn’t recession, but debt, which has spread "like a cancer," according to Taleb, who is now relived that public attention has shifted to debt, instead of growth.

Source: cnbc.com

More…

 
 
end.
 
 
On that note, I shall say goodbye until Monday.
 
I hope you all have a grand weekend.
Harvey.
 
 
 

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