Saturday, June 19, 2010

FW: commentary June 19.2010 extremely important.

 




 
Good morning to you all.
 
First as a personal note, I made a little error on Thursday.  The official name of our new grandson is Solomon Robert Shin Organ.
 
Our children adopted both of our families legacy . ( Our grandson  has my father 's    given name  Robert  and Jennifer  has her  family name  Shin) . The error occurred as
 
our granddaughter Skye informed me  in the hospital  that she has a baby brother and his name is Solomon Robert..son.  She still have a little difficulty in pronouncing the "sh".
 
 
 
Today ' s commentary will be long and every article I send down to you will be extremely important.  Spend some time digesting all the material today.
 
Let us begin:
 
Gold closed yesterday higher  to the tune of $9.70 to 1257.20.  Silver closed up by 40 cents to 19.17.
 
The  open interest on the gold  comex closed astonishingly higher to the tune of   27638 new contracts .  The new total OI for the gold comex is 597,383.  Remember this is basis Thursday as we are always 24 hrs behind.
 
The silver open interest also closed remarkably higher again, rising by 3963 contracts.  Its final resting position (Thursday night) climbed to 136000 contracts
 
coming ever so close to its record levels reached a year ago.  However I must point out that the calender spreads are now much smaller so in essence we are at record
 
levels in this department.
 
There is no question that on Thursday, the cartel banks threw everything but the kitchen sink trying to keep gold below the  $ 1250.00 mark.  They succeeded for only
 
one day.  Yesterday  (Friday), gold  exploded through the resistance level to set new records in all currencies.  Silver also exploded through the resistance level of 19.00
 
Anything past  $ 19.50 and silver will plow through the  20.00 barrier quite easily.
 
 
The COT report released after the market closed was also quite revealing:
 
In the gold sector:
 
Our large speculators increased their long positions by a rather large 2928 contracts. It ' s new position now rests at 273,657 longs.
 
Some large speculators increased their short positions by only 75 contracts . .  The large speculator short position is 43406 contracts.
 
 
Now the all important commercial sector:
 
 
The intermediate banker commercials increased their long positions to the tune of a rather large 2365 contracts.  These are bankers who realize that paper money is suspect
and they are going against their senior policy bosses by going long.
 
The large commercial bankers remained resolute in the shorting.  They increased their shorts by a whopping 7732 positions.  Their new short position I believe is a new record
 
at 457,257.
 
Finally, we have the small speculators like me:
 
the small specs that were originally long increased their long position by a tiny 217 contracts. Those who were short increased by a tiny position their short position by 137 positions.
 
The small specs are clearly out of this game.
 
The contest is between the big boys.
 
 
 
 
Let us go to silver:
 
 The large speculators increased their long positions by a massive 2986 contracts.  The final resting position as of Tuesday is:  43464
The large speculators that were short, increased their shorts by a smaller 473 positions as they are experiencing massive pain. For the record, their final resting position is:  5948
 
 
Now the all important commercial sector:
 
First the intermediate bankers:
 
they increased their longs by 472 contracts.  Their final resting position as of Tuesday is:  34328.
 
And now JPMorgan, HSBC and Scotia  (the big boys):  they increased their shorts by a massive:  2209 contracts.  The final resting position as of Tuesday is 88109.
 
The small speculators are not in this game having been blown away these past 2 years.
 
 
The short position of 88,100 contracts by namely JPMorgan and cohorts represents over 440 million oz of silver. The world produces around 600 million oz so this represents
 
73% of yearly production. Our regulators sit idly bye and watch this crime unfold.  It seems they do not know how to handle the mess that they will experience shortly.
 
 
 
I will now go to the deliveries at the comex yesterday.
 
Here is a chart for the day:
 
First let us go to the silver deliveries and reports on inventory movement.
 
Please look at the number of oz of silver that is being withdrawn from the silver customer inventory.
Yesterday another large amount of 600,295 oz were removed.
 
It is now clear that none of the inventory sitting at the comex is available to the bankers due to incumberances on the metal or just ficticious reporting.
 
I have reported to you this week that this is smoke and where there is smoke, there is fire.  The silver comex is in trouble.
 
There were only 2 options exercised for silver yesterday or 10,000oz .
 
Thus the total number of oz of silver standing for silver in this non delivery month is 190,000 oz  or about 6.1 tonnes.
 
As we get closer to July I will start reporting on deliveries on silver as July is an official delivery month for silver.
 
 
 
 
 Silver
Withdrawals from Dealers Inventory   zero
Withdrawals from customer Inventory   600,295
Deposits to the dealer Inventory  N/A
Deposits to the customer Inventory  N/A
No of oz served  2  10,000 oz
No of oz to be served xxx
Gold
Withdrawals from Dealers Inventory   302 oz
Withdrawals from customer Inventory   129 oz
Deposits to the dealer Inventory N/A
Deposits to the customer Inventory  N/A
No of oz served   86 contracts  8600 oz
No of oz to be served  599 contracts  59900
 
 
 
let us now see what is happening to the king of all precious metals:  gold.
 
 
Notice the rather small activity levels in gold.  Actually instead of gold being deposited into the vaults, it is removed.
 
In a delivery month of June one would expect massive deliveries of metal.
 
There was a small delivery notice to the tune of 86 notices delivered upon to our  patient longs or 8600 oz being served.
 
The total number of oz already served this month equates to 20,191 contracts or 2,019,100 oz
 
The number of oz left to be served equates to 599 contracts or 59,900 oz.
 
 
The total number of oz of gold standing for this delivery month equals:
 
2,019,100 oz +  59900 oz +  204,000  (options exercised in May) =  2,283,000 oz 0r 73.6 tonnes of gold ( a touch higher than Thursday).
 
 
 
 
In other physical news, the World Gold Council released its monthly report on buys and sales of central banks and many surprises.
 
From Jessie's Cafe: (you can double click to get bigger images of the data)
 
First the official WGC report:
 

18 JUNE 2010

Official Gold Reserves As of June 10, 2010, and Truths Yet to be Told


It is important to remember that these are the 'official' numbers. And it does not show how the reserves are 'encumbered' by leases and loans.

For example, there is circumstantial evidence that the Reserve Bank of Australia loans up to 100% of its gold reserves to the bullion banks who subsequently sell it, and then 'owe' it to the Bank and the people of Australia. The trick of course is the significant counterparty risk in the event of a serious short squeeze.

And they are not the only ones. Since this is an asset owned by the people, a timely and transparent accounting by the Treasuries and the Banks is something that the people of every nation obviously deserve. Whether the financial engineers, who enjoy experimenting with Other People's Money and doing favors for their private sector cronies, will ever willingly provide that information is another story altogether. It will almost certainly be under force of law, or an independent audit.

World Gold Council
Official sector gold reserves as at June 2010

European central banks sold virtually no gold over the past quarter, save a small amount for minting gold coins. Total sales by European central banks have amounted to just 1.8 tonnes since the third central bank gold agreement began in September of last year. The only sales of note made via CGBA3 have been by the IMF, which has sold 38.7 tonnes since mid-February. We expect the IMF to sell at a similar pace this quarter.

Outside of the agreement, the main purchases reported over the last quarter have been by Russia and the Philippines, both of which have long-standing gold buying programmes. The Central Bank of Russia bought another 26.6 tonnes of gold over the past quarter, taking its total gold holdings to 668.6 tonnes or 5.5% of its total reserves, and remains the 9th largest official sector gold holder. The Philippines central bank bought 9.5 tonnes of gold in March, taking its gold holdings to 164.7 tonnes or 13.7% of total reserves.

The Saudi Arabian Monetary Authority reported last quarter that "gold data have been modified from First Quarter 2008 as a result of the adjustment of the SAMA's gold accounts", meaning SAMA's gold reserves are now reported to be 322.9 tonnes or 2.8% of reserves, from 143 tonnes or 1.2% previously....





What Have They Been Doing Since the Financial Crisis Began?



"China is considered a stealth buyer of gold, said Boris Schlossberg, director of currency research at Global Forex Trading. As the world's largest producer of the metal, China often buys gold from its own mines and doesn't report those sales publicly. But in April 2009, China did admit to having added 454 tonnes, or a 76% increase, to its reserves since 2003.

Analysts suspect the country is continuing to buy gold and could in fact, be the world's largest buyer consistently. It simply doesn't reveal it's pro-gold stance proudly, however, because China is also the world's largest holder of U.S. Treasurys.

Announcing an aggressive gold buying spree is not in China's best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the country's portfolio of U.S. government bonds, Schlossberg said."

Central Banks Join Gold Rush - CNN


Just as there are stealthy buyers, how can one refuse to acknowledge the body of evidence that there are also stealthy sellers, hiding behind official secrecy, derivatives arrangements, leases, and accounting frauds that will shock and anger the real owners of the assets when their hidden and conflicted dealings with their cronies in the private banking sector are revealed?

Anyone at this point who says that the Fed would never engage in such obviously compromised and conflicted transactions, and then go to great lengths to hide them, has either not been reading the real news, or is as compromised as the central bankers and their cronies in government and the mainstream media are, morally and intellectually.

And if they will allow the equity markets to be manipulated, as any even modestly sophisticated trader with decent access to tools must now recognize and admit, why would they hesitate to enable and encourage the manipulation of the sovereign bond markets, and those markets that affect them, which are by far the most important markets of all?

The world is not big enough for them to find a place to hide from justice after the truth is revealed. So they will lie and obstruct, extend and pretend, increasingly desperate for power, corrupting all that is corruptible, until the very end, and the final downfall and collapse. And then will come the crocodile tears, and the claims of ignorance, and finally weak apologies that they thought they were doing the right thing, but were honestly mistaken.

Such is the case in all control frauds, white collar crimes, official corruption, and Ponzi schemes. 

The banks must be restrained, the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery. 

end.
 
 
There are some startling numbers to report.  First of all the IMF has now sold 38.2 tonnes in the second quarter. They have 152.8 tonnes left to go.
 
However please note the huge gains in gold by none other than Saudi Arabia.  They increased their official reserves from 143 tonnes 6 months ago to 323 tonnes.
 
The official sources revealed that this was done over a two year period:

"gold data have been modified from First Quarter 2008 as a result of the adjustment of the SAMA's gold accounts."

 
From Zero Hedge;
 
IMF Sells 38.5 Tonnes Of Gold In Q2, As Saudi Holdings Higher By 180 Tonnes

Submitted by Tyler Durden on 06/18/2010 10:43 -0500

The WGC has released its latest report of official gold holdings. The key buyers and sellers, well, seller, were Russia, +27.6 tonnes, Venezuela, +3.1 tonnes, and Philippines, +10.3 tonnes, while the IMF sold 38.5 tonnes. Yet most interesting was the surge in Saudi Arabia holdings which increased its official holdings from 143 to 323 tonnes. It appears, at least on the surface, that this was not incremental purchasing, or at least that is how the Saudi Arabian Monetary Authority is trying to spin it: "gold data have been modified from First Quarter 2008 as a result of the adjustment of the SAMA's gold accounts." We wonder just how a country can "reclassify" 180 tonnes, or more than double existing holdings, in gold. Of course, if would not be good to see the country which lies on a sea of the world's biggest non-gold, yet $-denominated commodity to be in the market, diversifying its dollar holdings into hold. If SA had in fact purchased the gold, it would be equivalent to roughly $7.5 billion worth of purchases in the open market…

http://www.zerohedge.com/article/imf-sells-385-
tonnes-gold-q2-saudi-holdings-higher-180-tonnes

 

The other big news is the huge increase in official gold reserves of Russia.  They added 1.1 million oz of gold last month (an increase of 27.6 tonnes of gold). This is the highest level of increase
for this former communist nation.  Its new official reserve total is now 668.6 tonnes. 
 
Other buyers of gold were Venezuela who increased their tonnage by 3.1 tonnes. and surpringly the Phillippines by 10.3 tonnes.
 
In summary, not only are we witnessing huge private hoarding of gold by wealthy Europeans, Asians, and Middle Eastern interests, but we are also witnessing certain central bank buying of gold.
 
The major question:  who is supplying the metal?
 
 
 
I would like to report on other physical gold and silver developments.
 
The GLF ETF had another addition to its inventory, 58,691 oz of gold or approx 2 tonnes.  The SLV added again zero.
The USa Mint had another stellar sale of its gold and silver.  They minted and sold another 9,500 oz of gold in the gold eagle program. They sold 2,500 oz gold buffaloes.
In the silver department, they minted another 136500 0z of silver.  So far this month, the mint has sold 1,861000 oz of silver eagles.  In gold the totals so far are 275000 oz in the gold buffalo program and
103500 oz in the gold eagle program.
 
We are half way through the month of June and the totals in the silver have surpassed 1.861 million oz.  It looks like June will end up with 3.8 million of silver.
If the silver sales continue for the next 12 months, the total silver used in the silver production will be  45 million oz of silver.  The USA produces only 40 million oz thus the usa mint must import
over 5 million oz of silver.
 
With respect to gold, it looks like gold production will be around 260,000 0z this month.  On a yearly basis, this works out to around  3.12 million oz.  The usa produces around 7.5 million oz so they will
not have to import any gold for the mint.  
 
You can now see the massive problems facing the physical silver world.  Silver is consummed whereas gold is accumulated. The amounts used by various manufacturers of silver is so tiny
that in cost it is very very marginal and thus price inelastic.
A world shortage will be catastrophic to the many users of silver.
 
 
 

The premiums to NAV continue to remain strong.  The premium on the GTU has already climbed back to 8%.

 

Here are the NAV's on our two ETF's, the central fund of canada and thePHYS:

 

CEF closed at an 8.3% premium (8.1%) and PHYS at 11.739% (11.878%).

 

Here is a story on the hoarding of gold by Vietnamese citizens.  They are the largest per capita hoarders of gold in the world.

Their private gold hoardings back mortgages on real estate:

Vietnam's gold habit weighs down dong

By Tim Johnston in Hanoi

http://www.ft.com/cms/s/0/83a29cdc-5cb9-11df-bd7e-00144feab49a.html

FRIDAY, JUNE 18, 2010

Silver: Is A Physical Squeeze Starting To Bubble Up?

(Note: I pulled yesterday's post about the Russian scientist/BP after enough commentors presented enough evidence which calls into the question the credibility of the news source I used. I originally found the article link on the Financial Times blog, FTAlphaville, which led me to assume the news source was good. It may or it may not be, but after doing a little more due diligence - thanks to commentor suggestions - I decided I would rather let FT rest on shakey foundations, but not The Golden Truth!)

The Comex had two large silver withdrawals this week. Yesterday's warehouse stock report showed 1.2mm ounces were removed, 900k of it from the "eligible" inventory, which is the investor inventory being "safekept" at Comex depositories but not available to be delivered.  480k of that 900k was removed from Scotia. With all the discussion and unrefuted (by Scotia) accusations about Scotia's depository safekeeping methodologies, it wouldn't surprise me to see even more gold and silver going forward being taken out of Scotia's customer inventory.

But here's an even more glaring issue: as of last Friday, the net commercial short position in silver, as per the COT report, was 55,329 contracts.  At 5,000 ozs/contract, that's 276,645,000 ounces of silver sold short by the big bullion banks (Mostly JP Morgan, HSBC and BNS - and mostly JPM at that). What's the problem?  The total silver inventory being reported by the Comex is 118 million ounces. But of that, 66 million is customer inventory not available for delivery, leaving 52 million ounces of silver that can be delivered vs. 276 million of short paper silver.

Let's break it down to just July silver. The July silver open interest is 47,921, which means that there is 239 million ounces of silver that has been shorted for July vs. the 52 million available for delivery. See the problem?  Historically JPM could count on the longs to sell their position before first notice of delivery day or tender for cash. If the Comex silver longs start correlating with the trend in the actual physical market, the Comex will default on silver deliveries...

A reader related to me yesterday that he had a silver bar delivery problem with the Comex about three months ago that had to be resolved using his broker's lawyer. Our fund has experienced several delays in getting silver delivered from the Comex - with HSBC as the counterparty - over the past year.  This includes last year, when our April silver was not delivered until June 20th (7 weeks past contractual last delivery day). 

Furthermore, I know that my friend who is a bullion trader here in Denver is having a hard time sourcing any kind of real supply of silver bullion on the "bid side" of the market, which means he's having a hard time finding retail sellers in any kind of size AND his buyers want silver right now. He was definitely postured as a much better buyer and was beating me up to sell him some silver eagles.

That the physical market in gold and silver is getting tight is not new news. But the above withdrawals from the Comex customer silver inventories this week, in the context of the anectdotal events as described above, can only lead one to believe that an enormous amount of pressure is being created by the trend of big investors demanding physical delivery into private depositories that are trustworthy and not connected to the bullion banks, who are likely leasing out some portion of the bullion in their depositories.

One more interesting development has to do with scrap supplies of gold.  In the past, when gold breaks out to new highs, European bullion dealers report the emergence of a large supplies of scrap selling that hits the market.  Last January (2009) the flow of scrap into the market was credited with causing the subsequent pullback in price.  So far in this latest move, very little scrap supply is being reported.

GATA has maintained for over 11 years that eventually the physical market demand would completely overwhelm the ability of the paper short interest to satisfy delivery demands.  I would argue that the market is starting to transition into that process and it will lead to much higher prices.  In fact, I believe all but the most knowledgeable gold investors will be stunned by coming price movements.  What will be even more shocking to many is the premium over spot that the market will pay for deliverable physical bullion.

Central banks join gold rush


NEW YORK (CNNMoney.com) -- Foreign governments have been getting in on the recent gold rush, driven by continued fears about Europe's debt crisis and the pace of the global economic recovery.

Those concerns have been propelling the precious metal to record highs over the past 18 months. In fact, gold posted a new intra-day high Friday, when it reached $1,260.90 an ounce. A day earlier, it reached a fresh record high closing price of $1,248.70 an ounce.

Last year, foreign central banks were net buyers of gold for the first time since 1997. India, China and Russia have been the biggest buyers. And more recently, the Philippines and Kazakhstan jumped into the fray with big purchases of the precious metal during the first quarter, according to data released by the World Gold Council Thursday.

What's behind the buying binge?

Each country has its own unique reasons, but there are a few broad trends that unite them all, said Natalie Dempster, director of government affairs for the World Gold Council.

Like many individual investors, foreign governments prefer to spread their wealth around to decrease their risk.

The U.S. dollar is typically the main reserve asset because it's considered to be more stable than other holdings, while the euro comes in as the second most popular reserve currency. But gold is not far behind. The precious metal plays an important role as a hedge against inflation, which could devalue paper currencies.

Unlike paper currencies, gold has a tangible value and that value is not dependent on any one country's economic policies.

When the financial crisis drove down the dollar's value in 2009, and Europe's debt woes pushed the euro to fresh four-year lows earlier this month, investors and foreign central banks flocked to safe-haven assets like gold.

Add rising deficits in both Europe and the United States to the mix, and currencies have become increasingly questionable assets, said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital.

That's why it's no surprise that foreign central banks overall have turned from sellers into buyers of gold in the last year, he said.

Who's buying gold?

Russia and Kazakhstan: As far as public records show, Russia appears to be the largest buyer of gold among central banks so far this year. In the first quarter of 2010, Russia's central bank increased its gold reserves by 26.6 metric tonnes, or about $1.2 billion at today's price, according to World Gold Council data. That's in addition to the 117.63 tonnes that Russia added in 2009.

Russia has been adding to its gold reserves steadily for more than three years, partly through buying its own domestic mine production. It considers gold both a symbol of prestige as well as a way to bolster the country's credit worthiness, Nichols said.

Kazakhstan, the third largest buyer so far in 2010, has a similar strategy, although at a much lesser level. The former Soviet-controlled country bought 3.1 tonnes, or $137 million, of the precious metal in the first quarter.

Philippines: After Russia, the Philippines falls a distant second as a buyer, after purchasing 9.6 tonnes, or about $424 million, of gold earlier this year.

The Philippines also buys its domestic production as a way of supporting local industry and as an inflation hedge, but its reserves usually fluctuate more than Russia's because the country often sells it at a later date on the open market.

India: While India has yet to publicly announce any major gold buys this year, the country bought a massive 200 tonnes, or what amounts to about $8.8 billion at current prices, from the International Monetary Fund in November.

The move, which multiplied India's reserves by 55%, was seen as a way for the country to diversify its reserves and reinforce the perception among Indian consumers that the metal is a reliable and safe asset, the World Gold Council said.

China: China is considered a stealth buyer of gold, said Boris Schlossberg, director of currency research at Global Forex Trading. As the world's largest producer of the metal, China often buys gold from its own mines and doesn't report those sales publicly. But in April 2009, China did admit to having added 454 tonnes, or a 76% increase, to its reserves since 2003.

Analysts suspect the country is continuing to buy gold and could in fact, be the world's largest buyer consistently. It simply doesn't reveal it's pro-gold stance proudly, however, because China is also the world's largest holder of U.S. Treasurys.

Announcing an aggressive gold buying spree is not in China's best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the country's portfolio of U.S. government bonds, Schlossberg said. To top of page

China Signals End to Yuan's Two-Year Peg to Dollar (Update3)

june 19 (Bloomberg) -- China said it will allow a more flexible yuan, signaling an end to the currency's two-year-old peg to the dollar a week before a Group of 20 summit.

The decision to "increase the renminbi's exchange-rate flexibility" was made after the economy improved, the central bank said in a statement on its website, without indicating a time-frame for the change. It ruled out a one-off revaluation, saying there is no basis for "large-scale appreciation," and kept the yuan's 0.5 percent daily trading band unchanged.

"The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability," the People's Bank of China said in the statement. "It is desirable to proceed further with reform of the renminbi exchange-rate regime and increase the renminbi exchange-rate flexibility."

The decision may help deflect criticism of China when G-20 leaders meet on June 26-27 in Toronto and ease pressure from U.S. lawmakers, who have urged President Barack Obama to use the threat of trade sanctions to force policy change. A more flexible currency would give China more freedom to decide on monetary policy and reduce inflationary pressures by lowering import costs, the World Bank said in a report last week.

U.S. politicians "can declare this a partial victory," said Ma Jun, a Hong Kong-based economist for Deutsche Bank AG. "The impact of this reform on the real economy over the short-term will be limited, because the yuan is unlikely to move significantly against the currency basket."

Winners and Losers

Chinese authorities have prevented the currency from strengthening since July 2008 to help exporters cope with sliding demand triggered by the global financial crisis. The currency appreciated 21 percent in the three years after a peg to the dollar was scrapped in July 2005 and replaced by a managed float against a basket of currencies including the euro and the Japanese yen. The yuan is a denomination of China's currency, the renminbi.

Companies focused on the Chinese market, including Beijing- based computer maker Lenovo Group Ltd. and Shanghai-based China Eastern Airlines Corp., said in March that they would gain from lower import costs and stronger consumer-purchasing power should the yuan appreciate. Textiles makers would stand to lose the most and some would "face bankruptcy" as their profit margins are as low as 3 percent, Zhang Wei, vice chairman of the China Council for the Promotion of International Trade, said in March.

China's inflation rate jumped to a 19-month high of 3.1 percent in May, higher than the government's full-year target of 3 percent. Central bank dollar buying has left the nation with $2.4 trillion in currency reserves, the world's largest holding.

Crisis Policies

"China has ended its crisis-mode exchange-rate policy as the economy recovers strongly and inflationary pressure continues to build," Li Daokui, an adviser on the People's Bank of China's policy board, said in an interview. "The yuan's future trend depends on the euro's movement, and the trends of other major currencies."

Yuan 12-month forwards rose the most this year yesterday, gaining 0.5 percent to 6.7125 per dollar. The contracts reflect bets the currency will appreciate 1.7 percent from the spot rate of 6.8262. They had been pricing in appreciation of 3.2 percent on April 30 before a slump in the euro and a worsening of Europe's debt crisis eased pressure for appreciation.

"The central bank's statement means China's exit from the dollar peg," saidZhao Qingming, an analyst in Beijing at China Construction Bank, the nation's second-biggest bank by market value. "If the euro continues to remain weak, it could also mean that the yuan may depreciate against the dollar."

Treasury Response

U.S. Treasury Secretary Timothy F. Geithner praised China's decision today to allow more currency flexibility and said the pledge needs to be followed by "vigorous" action to help strengthen the global economy.

"We welcome China's decision to increase the flexibility of its exchange rate," he said in a statement released today in Washington. "Vigorous implementation would make a positive contribution to strong and balanced global growth."

Geithner on April 3 postponed an April 15 deadline for a semiannual review of the currency policies of major U.S. trading partners, which may have resulted in China being labeled a currency manipulator. China owned $895.2 billion of U.S. Treasuries as of the end of March, the largest holdings.

Today's announcement is "a gesture to the U.S., but without a specific timetable," said Tao Dong, a Hong Kong-based economist at Credit Suisse Group AG. "The pressure is on China now to move its exchange rate ahead of the G-20 summit."

Currency Basket

China's overseas sales jumped 48.5 percent in May from a year earlier, the biggest gain in more than six years, according to customs bureau data June 10. Exports exceeded imports by $19.5 billion, from $1.68 billion in April and a deficit of $7.24 billion in March that was the first in six years.

China's narrowing balance of payments gap indicates that there's no basis for "large-scale appreciation" by the yuan, the central bank said in the English version of its statement. The Chinese version said no "large-scale volatility"

Twelve of 19 respondents surveyed by Bloomberg in April predicted the central bank would allow the currency to float more freely this quarter, while the rest saw a move by year-end. Eleven ruled out a one-off revaluation, while fifteen predicted a wider daily trading range.

"Continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies," the statement said. That suggests a looser link to the dollar, said Ben Simpfendorfer, chief China economist at Royal Bank of Scotland Group Plc, in Hong Kong.

"China has to offer something ahead of the G-20," he said. "Greater flexibility allows them the option to appreciate against the dollar, perhaps during periods of dollar weakness."

To contact the reporters on this story: Judy Chen in Shanghai atXchen45@bloomberg.net.

FDIC dips into the red as 2010 bank failures mount

Barcelona News.Net
Saturday 19th June, 2010

 

 

Dear Jim,

FIRST UPDATE TO STUDY OF KEY FDIC 
ENFORCEMENT ACTIONS — 2005 TO DATE

This is the first update to the analysis of key FDIC Enforcement Actions initially performed through January 22, 2010. It includes FDIC announcements of new enforcement actions taken from December 2009 through April 2010, plus new bank failures announced from January 29, 2010 through June 11, 2010.

The past several weeks have been relatively tame in terms of new bank failures. However, the information that follows suggests that probably does not reflect improving conditions in the banking sector as much as it does the government's policy of "pretend and extend" being practiced to the extreme.

A. Summary of Data

In summary, the explosive growth in the rate of new key enforcement actions has continued unabated. There were far more such actions announced over the past five months – 181 in total — than there were during any other five-month period since the beginning of this crisis.

154 new C&Ds were issued between January 2010 and April 2010. This is a 93% increase over the same period in 2009.

Furthermore, the number of banks whose troubled status the FDIC has been able to resolve — either by closing the institution in question or terminating the C&D in effect against it – has been far outstripped by the number of new C&Ds issued. In the five months since the last study, the FDIC resolved the status of 60 such institutions, 41 by closure and 19 by termination of the C&D.

Since 181 new C&Ds were issued during the same period, there are now 121 more banks operating under C&Ds than there were at the time of the initial study. The number of banks presently operating under C&Ds is now about 425.

B. Review of Methodology

By way of review, the orders tracked in this study are called Orders to Cease and Desist and Supervisory Prompt Corrective Action Directives. For ease of reference, I am referring to both as "C&Ds".

C&Ds speak directly to a bank's solvency. The most common findings underlying their issuance are that the bank has become significantly undercapitalized and bank management has become ineffective in managing risk. The bank in question becomes subject to a strict supervisory program aimed at recapitalizing the institution and restoring effective risk management procedures.

As before, the included chart summarizes the number of new C&Ds issued and for each time period specified, tracks the number of banks that have either been closed or succeeded in having their C&Ds terminated. Yearly totals are now provided for years 2005, 2006, 2007 and 2008, with a monthly breakdown beginning in January 2009.

There has been one significant change to the methodology. As this crisis has moved forward, the FDIC has taken to entering multiple orders against single banks. In some cases, a Prompt Corrective Action Directive is entered against a bank that has already been issued a Cease and Desist Order. In others, subsequent Cease and Desist Orders are entered against the same bank without the earlier ones having been lifted. I have made an effort to avoid counting the same bank more than once by including each one only in the first period it became subject to a C&D. Therefore, my numbers for each month will not always match the numbers announced by the FDIC.

C. Updated Chart

[Information current as of June 11, 2010]

Date Covered

New C&Ds

Issued

Bank Closed

After C&D

C&D

Terminated

April 2010

40

0

0

March 2010

44

4

0

February 2010

35

3

0

January 2010

35

1

0

Total 2010

154

8

0

       

December 2009

27

2

0

November 2009

34

3

1

October 2009

41

10

1

September 2009

26

7

1

August 2009

25

3

1

July 2009

24

6

2

June 2009

28

11

1

May 2009

20

4

1

April 2009

23

13

2

March 2009

22

7

1

February 2009

22

12

1

January 2009

13

2

1

Total 2009

305

80

13

       

TOTAL 2008

91

28

17

       

TOTAL 2007

48

3

27

       

TOTAL 2006

23

1

21

       

TOTAL 2005

16

0

16

Sources: FDIC Press Releases March 3, 2006 through June 11, 2010 (http://www.fdic.gov/news/news/press); FDIC Enforcement Decisions and Orders Search Engine (http://www.fdic.gov/bank/individual/enforcement/begsrch.html);

Failed Bank List (http://www.fdic.gov/bank/individual/failed/banklist.html).

D. Observations Based On Data

1. The FDIC's backlog of troubled banks continues to grow dramatically.

Over the past five months, 181 banks became newly subject to C&Ds. During that same period, 41 banks previously subject to C&Ds failed, and 20 had their C&Ds lifted. That is a ratio of nearly 3 new "problem" banks to 1 whose status was resolved.

As a result, the number of banks presently operating under C&Ds is about 425 – a 33% increase over five months. That is nearly five times the number of banks that became subject to C&Ds during years 2005, 2006 and 2007 combined.

2. The majority of bank closures have still occurred outside the FDIC enforcement apparatus.

So far in this crisis (beginning late 2007), 250 FDIC-insured banks have failed. Of these, 120 had been subject to C&Ds. The remaining 130, slightly more than half, were not subject to any ongoing FDIC enforcement action at the time they were closed.

Most recently, the percentage of failures that had previously been subject to enforcement action appears to have been increasing. For example, of the 73 banks that failed after January 22, 2010, 44 (60%) were subject to a C&D, while only 29 (40%) were not.

Still, a very significant number of bank failures continue to involve banks that are already beyond repair by the time the FDIC intervenes. This suggests the FDIC still has not been able to identify all the banks that are in imminent danger of failure.

3. The potential number of future bank failures remains staggering.

In a press release dated May 20, 2010, the FDIC announced the number of institutions on its "Problem List" rose to 775 in the first quarter of 2010, up from 702 at the end of 2009. It also announced that the total assets of "problem" institutions increased during the first quarter to $431 billion, from $403 billion at the end of 2009. Source: http://www.fdic.gov/news/news/press/2010/pr10117.html

Factoring in the banks that failed during the first quarter of 2010 (41, with total assets of about $26 billion), the FDIC actually identified 114 new "problem" banks and an additional $54 billion in "problem" assets during the quarter. This is additional evidence that the FDIC has been uncovering new "problem" banks at a faster rate that it has been disposing of old ones.

The head of the FDIC was quick to note, "the vast majority of 'problem' institutions do not fail." This has no doubt been true historically, but at the moment we are in uncharted water.

Looking at what happened over the past five months in the enforcement arena, there were 41 new closures compared to 19 new instances of C&Ds being lifted, a ratio of about 2 to 1. Looking at all of the banks that have become subject to a C&D since January 1, 2007, there have so far been 119 closures versus 57 instances of C&Ds being lifted, again a ratio of about 2 to 1.

Should these ratios hold steady going forward, we could expect to see another 515 failures at least based on current numbers alone. Meanwhile, what has been happening over the past several months suggests the number of "problem banks" will continue to increase significantly over time.

Finally, we need to keep in mind that the degree of failures experienced so far has taken place in the context of the Financial Accounting Standards Board having caved in to political pressure last year and rolled back fair value accounting requirements, permitting banks to mark their least liquid assets up to fantasy levels. This has, in turn, permitted banks to raise new capital by making their balance sheets look much healthier than they really are.

That sanctioned fraud was a one-time "gift" to banks that cannot be repeated. Chances are, banks will have less success raising new capital as time goes on, and will therefore be increasingly susceptible to failure.

Respectfully yours, 
CIGA Richard B

end

Ferocity Of Imminent Spain-Germany Cold War Will Only Be Second To Upcoming Fox Biz-CNBC No Holds Barred

Greenspan Says U.S. May Soon Reach Borrowing Limit (Update1)

By Jacob Greber

June 18 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon face higher borrowing costs on its swelling debt and called for a "tectonic shift" in fiscal policy to contain borrowing.

"Perceptions of a large U.S. borrowing capacity are misleading," and current long-term bond yields are masking America's debt challenge, Greenspan wrote in an opinion piece posted on the Wall Street Journal's website. "Long-term rate increases can emerge with unexpected suddenness," such as the 4 percentage point surge over four months in 1979-80, he said.

Greenspan rebutted "misplaced" concern that reducing the deficit would put the economic recovery in danger, entering a debate among global policy makers about how quickly to exit from stimulus measures adopted during the financial crisis. U.S. Treasury Secretary Timothy F. Geithner said this month that while fiscal tightening is needed over the "medium term," governments must reinforce the recovery in private demand.

"The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy," said Greenspan, 84, who served at the Fed's helm from 1987 to 2006. "Incremental change will not be adequate."

Rein in Debt

Pressure on capital markets would also be eased if the U.S. government "contained" the sale of Treasuries, he wrote.

"The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms," Greenspan said. The "very severity of the pending crisis and growing analogies to Greece set the stage for a serious response."

Yields on U.S. Treasuries have benefitted from safe-haven demand in recent months because of the European debt crisis, a circumstance that may not last, said Greenspan, who now consults for clients including Pacific Investment Management Co., which has the world's biggest bond fund.

Benchmark 10-year Treasury notes yielded 3.20 percent as of 12:11 p.m. in Tokyo today, down from the year's high of 4.01 percent in April and compared with as high as 5.32 percent in June 2007, before the crisis began. Yields have remained low "despite the surge in federal debt to the public during the past 18 months to $8.6 trillion from $5.5 trillion," Greenspan said.

The swing in demand toward American government debt and away from euro-denominated bonds is "temporary," he said.

"Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis," Greenspan said. "Our policy focus must therefore err significantly on the side of restraint."

--Editors: Chris Anstey, Lily Nonomiya

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

 

 

end.

 

Here is a story on the continuing plight into the problems facing Illinois:

 

Jim Sinclair's Commentary

Greece is nothing compared to the 33 states of the USA charging at 200mph towards a stone wall of bankruptcy.

Nearly Bankrupt Illinois Forced To Pay Through The Nose To Borrow Money 
Joe Weisenthal | Jun. 18, 2010, 9:02 AM

clip_image001

The market has lost confidence in Illinois, a state which has now adopted its own IOU system.

Illinois sold $300 million of Build America Bonds at a yield premium over Treasuries about 40 percent higher than two months ago after lawmakers failed to close a $13 billion budget deficit for the year starting July 1.

The fifth most-populous U.S. state sold the taxable debt maturing in 2035 priced to yield 7.1 percent yesterday, or 297 basis points over the 2040 Treasury to which it was benchmarked, according to data compiled by Bloomberg. Illinois offered Build Americas of similar maturity at spreads of 205 basis points and 210 basis points in two April issues, Bloomberg data show. A basis point is 0.01 percentage point.

More…

 

 

end.

 

I promised you a lot of reading and thus I hope I did not break my promise to you.  To all the fathers out there, I wish you all

a happy fathers day.  Please enjoy your special weekend.

 

(If some of the articles did not format properly on my blog, I am provided all the necessary links to the various sites.)

 

Harvey.

 

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