Saturday, July 10, 2010

July 10.2010 commentary.

Good morning Ladies and gentlemen:
Before we begin, I would like to introduce to you the newest entrants to the banking morgue having succumbed Friday night.
It seems that Sheila Bair gave them a reprieve last week due to the long holiday weekend:
Bay National Bank Baltimore MD 35462 July 9, 2010
USA Bank Port Chester NY 58072 July 9, 2010
Home National Bank Blackwell OK 11636 July 9, 2010
Ideal Federal Savings Bank Baltimore MD 32456 July 9, 2010
Gold closed up by $13.80 to 1209.80.  Silver also rose by 19 cents to close at $18.05.
The total open interest on the gold comex is starting to intrigue me.  At 1;30 pm Friday, the comex announced its OPEN INTEREST
which is of course basis Thursday.  The OI dropped by 6515 contracts to rest at 564,951.
The silver comex OI has already been dropping.  Yesterday's reading was 118,547 down by 616 contracts.
The price of gold and silver are  still relatively high, so this contraction is quite bulllish for these metals.
The Committment of traders accounts released after the market closed was quite revealing:
In the silver category:
the large specs that were long, reduced their positions by a hefty 7579 contracts.  Those large specs that were short ,reduced their positions by a tiny 713. contracts.
However as always, the major interest is in the commercials:
those traders that were long silver reduced some of their positions by a tiny 626.  But get a load of this:  the commercials who normally have been supplying all the paper namely JPMorgan and
HSBC reduced their shortfall by a rather large 6768 contracts.
The small specs are just not in the silver game..those that were long increased their positions by 1907 and those that were short increased that short position by 1183.
Thus the huge raid orchestrated by the banking cartel fleeced our unsuspecting large specs (hedge funds) once again.


In gold:


we see the same pattern developing:


The large specs (the hedge funds) decreased their long positions by a whopping 28,719.  However those hedge funds that were short

increased those short positions by a rather large 6964 contracts.


Let us proceed to the commercial category where one can see first hand the damage that was done.

The commercials that were long (swap funds and intermediate bankers) increased their long positions by 11265 contracts

They seemed to be totally oblivious to the banking antics of JPMorgan and et.

Now take a look at the large commercials that are always short:


They reduced their short positions by a massive 29549 contracts.

 The large commercials that were long in gold were fleeced.


In the small spec category, those that were long reduced their long positions by 2840 contracts.  Those that were short strangely increased

their shorts by 2291 contracts.


When the small specs decide to  increasingly go short on a raid, you get bet the farm that they will  be fleeced the following week.  Judging by the action on Friday,

that event looks to be right on track.


In gold, the commercials reduced their net short position in only 4 days to the tune of 40,000 contracts.  That is as bullish as you can get.

I cannot recall ever seeing such a contraction in just 4 days.  It must be a record but we will have to wait for Ted Butler to report on that aspect.


Now I will give you the closing inventory numbers and notices sent for gold and silver at the comex:

OK here are todays figures:
Withdrawals from Dealers Inventory   ZERO oz
Withdrawals from customer Inventory   400,279 oz
Deposits to the dealer Inventory  N/A
Deposits to the customer Inventory  N/aoz
No of oz served  1  5000 oz
No of oz to be served 758 3.8 million oz
Withdrawals from Dealers Inventory   ZERO
Withdrawals from customer Inventory   N/A
Deposits to the dealer Inventory  N/a
Deposits to the customer Inventory  1661
No of oz served  zero   oz
No of oz to be served  xxxxx
Before starting, we are witnessing a continual silver drain on one hand and no gold entering the dealer inventory to satisfy those patient longs on the other hand.
Notes:  not only did we witness a massive 400,279  oz of silver leave the customer inventory, but we got another sizeable transfer of 380,000 oz.
This is where a  lease is granted by an owner who receives a huge premium of say 20-25% to "lease" his silver bt the comex folk..  He is probably promised that he would receive his entire 380,000 oz plus a premium of 20-25%
the next delivery month of Sept. This is in reality silver in backwardation as the front month price is higher than the back months  as the comex people entice those physical silver holders to part with their metal
and get a paper claim. There were no notices yesterday.
The total number of notices sent out by the comex for silver is represented by the number: 1820 or 9.1 million oz of silver.
The total number of silver standing is 9.1 million + 3.8 million + .200 million (options exercsied) =   13.1 million oz.
Somehow another  half million oz of silver vanished in thin air. There is no question that we have got a lot of faulty accounting by the comex people.
With silver flying from all directions, these guys cannot keep their numbers straight.
It is also strange that this late in the month we have a huge 758 contracts left to be served.  I guess they are having massive problems getting any silver.
In gold:
please note that no gold entered the dealer vaults. Only 1661 oz entered the customer inventory.
There were no notices so the amt of gold standing for July remains at 49,700 oz.
Strangely no gold seemed to disappear.
Ed Steer comments on the mint's reports on silver and gold eagles and buffaloes:
it looks like silver eagles will pass the 3.0 million mark again. In 9 days they have sold 1.1 million oz so the total sales should be around 3.3 million for the month. Remember that the usa only produces 40 million oz per year.  Thus the mint will probably for the first time need to import silver.
In gold in the 9 days approx 51, 000 oz have been used in the making of gold coins.At this rate, the total gold used in the month would total 155,000 oz or 1.86 million oz.  The usa produces 7.5 million oz so the mint will not have to import gold for the minting of the coins
Here is the report by Ed Steer:
The U.S. Mint had another busy sales day on Friday.  They reported selling another 10,000 ounces of gold in their gold eagle program... plus another 2,000 24-K gold buffaloes... and a further 225,500 silver eagles.  Month-to-date... 43,500 ounces of gold have disappeared into the gold eagle program... 8,500 into the 24-K gold buffaloes... and 1,101,000 ounces of silver into silver eagles.  I hope you were buying your share, dear reader.
Here are some of the major stories of yesterday:
Subject: BofA Admits Hiding Debt

JULY 10, 2010.

BofA Admits Hiding Debt

Details Come as SEC Is Set to Unveil Review of Wall Street 'Window Dressing'


Wall Street Journal

Bank of America Corp. admitted to making six transactions that incorrectly hid from view billions of dollars of debt, following a bid to cut the size of a unit's balance sheet and meet internal financial targets.

The disclosure, made in a letter to the Securities and Exchange Commission, comes as the agency prepares to unveil the results of an inquiry into banks' accounting for borrowing deals known as repurchase agreements, or "repos."

BofA's letter was sent in April in response to the inquiry, but this is the first time the details of the six trades in question have been disclosed. The bank had acknowledged in its last quarterly report that its accounting for the transactions, made at the ends of quarters from 2007 to 2009, was incorrect.

The bank's disclosure also suggests the trades may be an example of end-of-quarter "window dressing" on Wall Street, in which banks temporarily shed debt just before reporting their finances to the public. The practice, which The Wall Street Journal has uncovered in a series of articles, suggests the banks are carrying more risk most of the time than their investors or customers can easily see, and then juggling it during quarter-end reporting of financials.

Window dressing isn't illegal in itself. But intentionally masking debt to deceive investors violates regulatory guidelines. BofA said its incorrect accounting wasn't intentional.

Apart from requiring more disclosure about the bank's repo accounting, the SEC hasn't taken any action against BofA over the matter. The fact that the letter was released suggests the SEC has concluded its review.

Though much smaller in scope, Bank of America's accounting of the six trades is similar to what a bankruptcy-court examiner said Lehman Brothers Holdings Inc. did to make its balance sheet look better before it filed for bankruptcy in 2008. Lehman used a strategy dubbed "Repo 105" that helped the Wall Street firm move $50 billion in assets off its balance sheet, the examiner said in March.

Following the Lehman examiner's report and the Journal disclosures, the SEC said it is considering stricter disclosure and a clearer rationale from firms about quarter-end borrowing activities.

The SEC review on repo activity could be released as early as this coming week. A spokesman said Friday that the SEC will release the banks' responses after the agency completes its review.

In its letter to the SEC, which has been posted as a regulatory filing, Bank of America disclosed details of how it erroneously classified some short-term repos as sales when they should have been classified as borrowings over the past few years. Repos are short-term financing arrangements that allow banks to take bigger risks on securities trades. Classifying the transactions as sales instead of borrowings—as in the Repo 105 strategy—allows a bank to take assets off its balance sheet and thus reduce its reported leverage.

In the letter, Bank of America said its incorrect accounting for the six trades wasn't intentional. "We do not deliberately structure transactions that are economically disadvantageous" to serve its own purposes.

The bank says its overall efforts to manage its balance sheet are "appropriate" and that the "intent of these transactions was to reduce the specific business unit's balance sheet to meet its internal quarter-end limits for balance sheet capacity."

The classifications involved as much as $10.7 billion in repos, a relatively small amount for the bank, which has $2.3 trillion in total assets.

The six transactions are known as "dollar roll" trades, executed by Bank of America's investment-banking and capital-markets unit with an unidentified trading partner at the ends of fiscal quarters from 2007 to 2009. Dollar rolls are deals in which mortgage-backed securities are transferred to a trading partner with a simultaneous agreement to repurchase similar securities from the same partner soon thereafter.

The practice amounts to a bank renting out its balance sheet for short periods; the bank gets fees, and the client on the other end of the trade gets short-term cash.

BofA says it designed the trades so that the securities coming back to BofA would be similar to but not "substantially the same" as those it transferred out. That would require the trades to be treated as sales that would remove assets from the unit's balance sheet. But the securities that came back to Bank of America were in fact "substantially the same"—the same type, for instance, with the same guarantor and coupon. That means they should have been accounted for not as sales, but as borrowings that wouldn't have reduced the unit's balance sheet.

BofA says it hasn't entered into such trades since early 2009. The errors in accounting for the trades resulted from a deficiency in internal controls, according to a separate letter the bank sent the SEC.

The bank says it since has strengthened its controls and re-emphasized to its staff the need to "escalate" consideration of any unusual balance-sheet changes, in particular if they result from "non-normal" transactions near the end of a quarter.

The SEC sent letters in March to 19 large financial institutions asking about their repo accounting. SEC Chief Accountant James Kroeker said in May that the inquiry hadn't found any widespread inappropriate practices.

But Mr. Kroeker said the SEC had asked several companies to provide more disclosure about their repo accounting in their securities filings. At least three banks, including BofA, already have done so.

These next two stories are also from Ed Steer.
Consumer credit is collapsing and my favourite, the Baltic Dry Index fell 4% on Thursday.  It has fallen for 31 consecutive days.
The Baltic Dry Index tells me the economy is faltering as commodities are not being shipped.  This index almost always predicts how the economy is faring.
Anyway, here are the two stories for you to maul over: Ed Steer took the report from the King Report:
... "consumer credit was the really big fundamental story on Thursday. May consumer credit tanked $9.1B (-4.5% annualized) while April was revised sharply lower, from +$1.0B to -$14.9B. Revolving credit collapsed at a 10.5% annualized rate. (Non-revolving credit -1.5%).  Lower income, no job growth and plunging consumer credit can mean only one thing economically."  Yes, it does... and that's why the trial balloons are already out for Q.E. 2.0.  More on that further down.

Bill also mentioned that the Baltic Dry Index plunged 4% on Thursday, the 31st straight daily decline.  The BDI is a leading indicator... and, if you give the graph below a glance, you'll see that this "leading indicator" is pointing straight down.


Bill also mentioned that the Baltic Dry Index plunged 4% on Thursday, the 31st straight daily decline.  The BDI is a leading indicator... and, if you give the graph below a glance, you'll see that this "leading indicator" is pointing straight down.




Yesterday, we got this strange admission from Dennis gartman on the BIS affair:


This morning The Gartman Letter, in a chivalrous gesture, commented concerning the BIS swap news

"every once in a while the folks at GATA do make some sense, and their insights into what has gone on in this instance are worth our time.



and Chris Powell of GATA responds:

Including the statement

"the BIS arranged gold swaps must be suspected as part of a scheme to manipulate the gold market."




Many of you kow that I also heavily lean on the data of the ECRI, a private think tank.  They are generally very good and accurate:

from Reuters.

US growth gauge falls to lowest since July '09-ECRI

NEW YORK, July 9 (Reuters) - A measure of future U.S. economic growth fell to the lowest since July 2009, indicating that the economy will continue to slow, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 121.5 for the week ended July 2, down from 122.3 in the prior week.

That was the lowest level since July 24, 2009 when it stood at 120.3.

The index's annualized growth rate fell to -8.3 percent after a -7.6 percent growth rate a week earlier.



You may want to read John Embry's latest piece on the demise of the usa dollar:

John Embry’s latest…

U.S. dollar’s collapse inevitable




I will leave you with this great report from Greg Hunter: from usawatchdog: CIGAs,


I was sitting here trying to find a way to wrap up the week and then, like a bolt of lightning, an idea hit me.  Gold expert Jim Sinclair sent me this story: “Federal Budget Deficit Hits $1 Trillion For 1st 9 Months Of FY’10.”  The story said, “The shortfall, reflecting $2.6 trillion in outlays for the first three quarters and $1.6 trillion in receipts, narrowed slightly compared with the same point in fiscal 2009.”  So where did the “shortfall” come from?  Try the more that 8 million who lost their jobs.  The story went on to say, “. . . individual income and payroll tax receipts were down 4% over the nine-month period, suggesting that wages and salaries have not improved to the extent that corporate profits have.” Corporate profits have “improved”because they laid-off all those workers!!  (Click here for the entire Dow Jones Newswires story)

Sinclair says, “Nothing has changed. Nothing has been rescued. The can that is being kicked daily down the path is going to turn around and bite the kickers.    
Gold is the only insurance.”  When things get bad enough, there will be more stimulus cash put into the economy and more bank bailouts.  Sinclair is like legendary football quarterback Joe Montana–never bet against either of them.

The second story that should scare the heck out of you is one where the headline reads,“IMF presses US to cut debt.”  The story goes on to say, “The International Monetary Fund on Thursday urged the United States to rein in its ballooning budget deficit without putting the “modest” economic recovery at risk.  Amid jitters that high levels of unemployment may force a double dip recession, the IMF warned the slow U.S.recovery would continue and that debt problems loomed.”  (Click here for the complete story from Yahoo News.)

Talk about a squeeze.  The U.S. has lost millions of jobs; it has falling tax revenues and a ballooning deficit.  Now is the time the International Monetary Fund picks to tell the U.S. to cut its debt?  Not a chance going into the 2010 mid-term elections!  People like Paul Krugman and Nancy Pelosi are pushing for more spending (money printing).  I am betting they will get their wishes granted.  

These two stories do not bode well for the so-called “recovery,” the value of the U.S. dollar and  keeping interest rates held down to ridiculously low levels.  These two stories scare the heck out of me.  Not just because of what they say, but also because they’re making their way into the mainstream media.  That means, before long, everybody will catch on America is in deep financial trouble.  We do not have a “dip” coming our way but a swan dive off of Niagara Falls into a dry river bed.


I would also like to point out that the BIS story is certainly making its rounds. A lot of financial analysts are writing that the gold that the BIS received in the swap will be sold if the commercial bank fails to pay the 14 billion dollars.
The BIS  firmly understands gold and I can assure you that if the commerical bank fails to deliver the 14 billion dollars, then the BIS would keep the gold in its inventory.  From its inception, the BIS had 200 tonnes of gold
to its credit  and prior to private share confiscation, it traded on its gold value. It is true that the 380 tonnes is triple the amount it now has to its credit.
many have asked me the mechanics of the trade with the commercial bank and the BIS;
I believe this is how it went down:
1. commercial bank got called upon on a gold call. 380 tonnes of gold
2. commercial bank went to its captive central bank who refused to part with any of its gold.
3. the ECB also refused.
4. the commercial bank went to the BIS for help and since it is in their interest to keep the paper fiat alive, they obliged.
5. first off, the commercial bank leased gold from its captive central bank or several captive banks.
6. the commercial bank forked over 14 billion dollars to this captive central bank(s)
7.then the commercial bank swapped this gold in situ with the BIS.  The BIS got the gold as collateral and swapped 14 billion dollars worth of dollars
8. the BIS and the commercial bank probably negotiated a cash settlement with the caller of the gold or maybe some of the 14 billion dollars was used to purchase
gold on the open market.  However I doubt if they could get very much gold.
9. the caller of the gold probably received the money and carried on with other purchases of paper gold  all the while, picking up any physical metal on the way.
Have a great weekend.

Thursday, July 8, 2010

July 8.2010 commentary.

Good evening Ladies and Gentlemen"
Tonight's commentary will be short but I will make this up to you on Saturday which will be more thorough.
Gold closed today down by $2.80 to 1195.80.  Silver closed down by 12 cents to 17.86.
The gold comex OI continues to contract, with its final resting position at 571,466 down 6266 contracts.
The silver comex OI hardly budged rising by a scant 201 contracts to 119,163.
Withdrawals from Dealers Inventory     ZERO oz
Withdrawals from customer Inventory   N/A
Deposits to the dealer Inventory  N/A
Deposits to the customer Inventory  602,288oz
No of oz served  91  455,000 oz
No of oz to be served  860 4.3 million oz
Withdrawals from Dealers Inventory  zero
Withdrawals from customer Inventory   N/A
Deposits to the dealer Inventory  n/a oz
Deposits to the customer Inventory  63802 oz
No of oz served zero  zero
No of oz to be served  xxxxxxoz
COMEX Warehouse Stocks July 8, 2010.


I would like to mention that again there was a huge adjustment of 460,000 oz of silver moving from the customer inventory into the dealer inventory.  In the last three days a total of 3.8 million oz

has been transfered by way of an adjustment.  This is generally a lease of customer silver to the dealer who must pay back the customer next month.  Should be interesting.


There were 91 delivery notices or 455,000 oz of silver served upon those patient longs.  There has been 1819 notices issued or 9.1 million oz.

Thus the total number of silver standing for this delivery month of July is as follows:


9.1 million oz + 4.3 milion (waiting to be served) + .2 million oz( options of silver exercised) =   13.6 million oz.


Somewhere in the past few days 2 million oz of silver evaporated. 


In gold ;

There were zero hits so the total amt of gold standing remains at 49700 oz.

Again we see zero oz being added to the dealer warehouses.  We are now almost halfway through the July month and still no amount of gold has entered.

And when are beginning to approach the next delivery month for gold and that is August which is traditionally a good delivery month for volume although it falls behind December and June.

It is strange that 63,802 oz was deposited into the customer vault from origins unknown.




I would like to highlight a few of the stories tonight and then dwell on the big story the BIS swaps.


The Federal Budget Deficit for the first 9 months hit the 1 trillion mark.  By Oct. the deficit will hit 1.5 trillion dollars:

Federal Budget Deficit Hits $1 Trillion For 1st 9 Mos Of FY'10

Last update: 7/8/2010 10:29:36 AM

WASHINGTON (Dow Jones)--The federal budget deficit for the first nine months of the 2010 fiscal year was just over $1 trillion, the Congressional Budget Office reported Wednesday.

The shortfall, reflecting $2.6 trillion in outlays for the first three quarters and $1.6 trillion in receipts, narrowed slightly compared with the same point in fiscal 2009.

Receipts were 0.5% higher for the period compared to the first three quarters of 2009, CBO said in its monthly budget review.

The rise in revenues was a result of increased corporate tax collections, due to improving economic conditions, and a shift by the Federal Reserve to higher-yielding investments.

But individual income and payroll tax receipts were down 4% over the nine-month period, suggesting that wages and salaries have not improved to the extent that corporate profits have.




John Paulsen's gold fund has some 2 billion dollars in redemptions.  This may be been the reason for a lot of volatility in the gold market in June;


Paulson Hit With $2 Billion In Redemption Requests, Likely Source Of Recent Gold Market Liquidations

Tyler Durden's picture

Absolute Return+Alpha reports that John Paulson's $33 billion hedge fund is now substantially lighter in AUM courtesy of scared investors pulling $2 billion in redemptions by the end of June. Whether this was driven by the disclosures of the fund's participation in the allegedly illegal Abacus transaction, or the fund's deplorable performance in June is unknown and irrelevant. What is relevant is that this confirms our suspicions regarding volatile moves in gold in recent days, aredriven primarily by liquidations, most likely those emanating from John Paulson's gold portfolio, which as of the most recent 13F, accounted for 30% of the fund's total assets via ETFs (GLD), miners and other secondary exposure.

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This is to all coin collectors  out there..The usa government wants to know what you are collecting:

$600 Sale? Get Ready for Tax Form

money By David L. Ganz, Numismatic News
June 29, 2010

This article was originally printed in Numismatic News.
>> Subscribe today!

A blizzard of paperwork could be about to hit numismatics.

Passage by Congress of the national health care legislation has had an unintended consequence to the nation’s coin collectors, vest-pocket dealers who buy and sell coins, and larger dealers who are frequent buyers of coins that collectors periodically liquidate as they trade up their collections for better coins, or simply sell to take a small profit or loss.

What has happened is that effective Jan. 1, 2012, the whole system of giving and receiving Internal Revenue Service 1099 forms will be turned on its head and all persons (including corporations) who are in business will now have to give 1099 tax reporting forms for coins and other goods that they sell as well as buy.

The responsibility for issuing forms kicks in at $600 for coins or bullion – not a very high level and one that has already started sounding alarm bells. It doesn’t matter in what form payment is made, whether cash, check, credit card, or Yap stone money, the $600 threshold applies.

There’s a bill introduced by Rep. Dan Lungren (H.R. 5141), which has gathered over 80 members of Congress as co-sponsors to repeal this section. Evidently, however, the drafters of the provision think there is a $17 billion loophole that this plugs.

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The Industry Council for Tangible Assets is alerting member dealers and the public at large in the hope that some sense of outrage will lead to a ready modification before the law becomes operational in 2012.

Form 1099 is used to report independent contractor income, income from dividends, income from other things – and is one of the reasons why children receive tax bills for work or labor or services performed. 

Section 9006 of the Patient Protection and Affordable Care Act (Public Law 111-148, signed into law by President Obama this spring) turns 1099 forms into reporting forms not only for independent contractor’s income – what they have long been used for – but also to show sales, gains and losses on purchases and sales of goods as part of a trade or business.

The section reads (in relevant part) “SEC. 9006. EXPANSION OF INFORMATION REPORTING REQUIREMENTS. (a) IN GENERAL. – Section 6041 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsections:

‘‘(h) APPLICATION TO CORPORATIONS. – Notwithstanding any regulation prescribed by the secretary before the date of the enactment of this subsection, for purposes of this section the term ‘person’ includes any corporation that is not an organization exempt from tax under section 501(a).

‘‘(i) REGULATIONS. – The secretary may prescribe such regulations and other guidance as may be appropriate or necessary to carry out the purposes of this section, including rules to prevent duplicative reporting of transactions.’’


Subsection (a) of section 6041 of the Internal Revenue Code of 1986 is amended – 

(1) by inserting ‘‘amounts in consideration for property,’’ after ‘‘wages,’’
(2) by inserting ‘‘gross proceeds,’’ after ‘‘emoluments, or other’’, and
(3) by inserting ‘‘gross proceeds,’’ after ‘‘setting forth the amount of such.’’

The property section means that if B. Max Mehl was selling coins to another major dealer of that era, a 1099 would have to be issued. When he bought from the public, the same thing is also required. The “report” does not necessarily measure profit or loss, but it does show activity.

The old exemption against corporations is also gone. If you buy or sell more than $600 of coins, or whatever, from, to or with a bullion dealer, for example, you have an obligation under the new law to issue 1099s.




From the Jim Sinclair commentary tonight we get this story:


Jim Sinclair’s Commentary

Ski jump recovery.

40 percent of Florida homes sales are foreclosures 

Sales of foreclosed homes in Florida made up nearly 40 percent of all purchases in the first part of this year, a “terrifying” statistic, one analyst said, and one that led to deeply discounted prices on distressed properties.

In Miami-Dade County, foreclosure sales made up nearly half — 47 percent — of all homes sales in the first five months of 2010, according to a new report from Irvine, Calif.-based RealtyTrac, which aims to measure foreclosure sales and their impact on home pricing. In Broward County, 46 percent of all homes sales involved distressed properties.

To compare, less than 1 percent of Florida home sales in 2005 were of foreclosed properties, RealtyTrac found.

The report, released Wednesday, defines foreclosure sales as those of homes that are bank owned or where the owners have defaulted on the mortgage and received at least one foreclosure notice.

“Forty percent is a significant number,” said Michael Sichenzia, president of Dynamic Consulting Enterprises in Deerfield Beach. “When you look at where it should be, it’s a terrifying number in the short term and will reverberate throughout the whole system.”

Sichenzia said distressed property sales should make up about 2 percent of total sales.

By 2007, foreclosure sales grew to 4 percent of the total market in Florida. It rose to 38 percent last year.




Now I would like to give you an update on the BIS disclosure that has been reported on by many outlets.


Last night we got a strange correction from the Wall Street Journal:


Gold swap mystery deepens as BIS gets correction from Wall Street Journal

Submitted by cpowell on 07:41PM ET Wednesday, July 7, 2010. Section: Daily Dispatches10:47p ET Wednesday, July 7, 2010
Dear Friend of GATA and Gold:

The Wall Street Journal this evening updated and corrected its report about the gold swaps undertaken by the Bank for International Settlements, disclosing an e-mailed statement from the BIS stating that the swaps were with commercial banks, not central banks as the newspaper first reported.

The updated story suggests that some puzzlement continues about the swaps:

"The enormous amount of gold involved, nearly tripling what the BIS itself owns, left many market participants wondering about the nature of the deals. The BIS declined to identify the commercial banks involved. ... It isn't clear what prompted the banks to borrow from the BIS instead of their central banks."

Further, without citing authority the paper says "the gold hasn't entered the open market," but "if the banks that loaned the gold are for some reason unable to make good on the loan, the BIS could opt to sell the gold in order to get its money back, which could amount to flooding the market with an unexpected boost to the global supply."

But gold being money that for years has been appreciating against nearly all currencies, as noted for you a few minutes ago here -- why would any institution want to sell gold "to get its money back?" -- unless, of course, "flooding the market" and suppressing the gold price wasn't the real objective?

Another unanswered question is where the European commercial banks got all that gold, "349 metric tons ... nearly tripling what the BIS itself owns." The European commercial banks aren't known for holding that much metal on their own account. (If you rent a safe-deposit box at a European commercial bank, you might want to check its contents in the morning.)

While the story has changed in an important way, the first principle of journalism hasn't, and journalists here haven't yet demanded information from the primary sources, the BIS and the commercial banks themselves. Nor has there been any change in the conclusion that must be drawn from the story so far. That is, the secrecy and the involvement of the BIS, an admitted gold market rigger, impugn the transaction as part of another gold market rigging scheme.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


I wrote this email to lemetropolecafe as to what I thought was happening early this morning:


Chris and Bill:
I am having great difficulty in believing the email from the Wall Street Journal.
The BIS does not do transactions with commercial banks, only central banks. 
No commercial bank has gold of that size.
What is even stranger is that the operation of supplying gold to this unknown entity is still ongoing.
I may be wrong but it looks to me that a central bank got collared i.e. sold a gold call on gold it does not have.
The gold was leased years earlier and the entity that owned the call wanted physical and not cash.
The central bank in question was probably a captive bank of the ECB.
The ECB did not have the authority to lend gold to the captive bank to bail it out.

It was a metal crisis.

In the email it stated that the gold is held and not liquidated. Why then was the deal with a commercial bank and not a central bank, and then let that central bank deal with its problem child? 
They are lying!
I must check, but this would be the first time that the BIS entered into an agreement by-passing a central bank authority.
Strange indeed.
all the best

and now the real story:

I have just finished talking with Reg Howe on the matter and he feels that I am close as to what actually happened.

It is his opinion that the bank in trouble is in reality a big commercial bank within a captive central bank's jurisdiction that got caught with a collar or a call on gold that gold contracted could not be

delivered.  The captive central bank did not wish to part with any of its  gold so the commercial bank called on the BIS for help and they arranged this crazy bail out swaps.


The bailout may have been cash settled or maybe gold and cash together as there may have been some arm twisting to get this affair settled.


The BIS does not accept deposits of cash or gold from a commercial bank but lately,  it can do gold loans to commercial entities. What probably happened here was a commercial bank

got in trouble and its central bank refused to help.  The ECB also did not want to bail out this bank so the problem bank went to the BIS for help.


This is hugely positive because it was hidden from public view and the last thing that the world wants to hear is that a central authority did not want to help one of its commercial banks.

Reg thus believes that it was not a liquidity problem, it was a shortage of metal problem. and the problem was solved with swaps and the shifting of collateral to take sure that the BIS which is loaning money

is repaid. The collateral is the gold swapped.  The amount of tonnage in this problem transaction was the entire 380 tonnes of gold.


I was close. I thought it was the captive central bank in trouble.  In reality it was the commercial bank inside the captive bank's country that became the troubled zone and had to be bailed out.

Reg Howe is certainly  the authority on the BIS.


In essence we got a run on a bank but the bank was a commercial entity and not a central bank.  The central bank urged the BIS to make a statement less the world thinks that it is void of gold.

The central bank originally urged that the BIS keep this quiet so it was put as a footnote hoping nobody would see it.  Somebody did and thus we have the story.


I will see you on Saturday.


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