Saturday, July 24, 2010

Commentary July 24.2010 extremely important

Good morning Ladies and Gentlemen:
 
Before starting my commentary, let me introduce you to the latest casaulties who have entered the banking morgue:
 

Bank Closing Information – July 23, 2010 
These links contain useful information for the customers and vendors of these closed banks.

Community Security Bank, New Prague, MN 
Thunder Bank, Sylvan Grove, KS 
Williamsburg First National Bank, Kingstree, SC 
Crescent Bank and Trust Company, Jasper, GA 
Sterling Bank, Lantana, FL

http://www.fdic.gov/

 

end.

 
 
Gold closed down by $7.80 to finish the week at 1187.70.  Silver however did not follow its wealthier cousin, it remained unchanged at 18.11
 
refusing to go below the 18.00 mark.
 
 
The open interest on the gold comex fell considerably with Fridays reading down 6485 contracts (basis Thursday) to 552,377.
 
The silver comex Open Interest behaved differently, rising by 1568 contracts to 117,862.
 
It looks like we have reached the rock bottom stage in OI with respect to silver where no amount of bank intervention will cause the longs to liquidate.
 
In gold we still have some weak longs that refuse to understand the criminal nature of how the banks operate. 
 
 
At 3:30 pm Friday, the COT report was released and you can see first hand the damage down by the bankers.
 
In the gold COT:
 
The large speculators that have been long decreased their positions by a huge amount to the tune of 15,904 contracts.  They got fleeced for the umpteenth time.
 
The large speculators that have been short surprisingly increased those short positions by quite a large margin to the tune of 10710 contracts. They supplied the necessary
 
paper along with the larger commercials during last week's raid.
 
The large commercials that have been long in gold, increased their long positions by quite a large 10,482 contracts.  These large commercials are swap dealers and intermediate bankers
 
who are closer to real physical than the  other large commercials like JPMorgan and HSBC who do nothing but short and supply the paper.
 
Speaking of these guys, those commercials who have been short since 4 BCE, used the raid opportunity to cover a massive 22 202 contracts.
 
The small specs who have not been in the game recently, behaved in the following manner:
 
Those specs who were long, reduced those longs by a huge 5212 contracts.  Those specs who were short, increased those short positions by a good sized 858.
 
 
Generally, the specs get it wrong.  This is the most bullish COT report that I have seen for gold in quite some time.
 
 
Let us now go to the silver COT report:
 
The large speculators that are long silver, pitched some of their long positions to the tune of 1349 contracts.
 
The large speculators that are short silver increased those short positions to the tune of 2199 contracts as these guys supplied the necessary paper.
 
The large commercials that have been long silver did not follow their cousins in gold, they INCREASED their long positions to the tune of 1153 contracts.
 
The large commercials (JPMorgan and HSBC) that have been short silver from the beginning of time, covered their shorts by a smaller margin to gold:  2101 contracts
 
The small specs in silver are still not in the game.
 
So you can see the struggle in the COT report whereby the bankers still have control over gold but are losing it in silver.
 
 
I want to go straight to the Comex inventory and notices and see what gives over there.
 
First of all, I would like to make a little correction from Thursday's commentary.  In my great haste to get the commentary out, I  did a mental addition on the silver contracts
 
oustanding and it was in error.
 
Here is what I wrote on Thursday:
 
The total number of oz of silver standing for this delivery month of July is as follows:
 
11.2 million oz + 1.9 million oz (to be served) + .200 million oz of options exercised=  15.3 million oz.
Please note that yesterday saw a reading of 14.6 million oz so we gained 700,000 oz of silver.
 
when you see the amount of silver rising with a few days to go shows the comex is in serious trouble as it scrounges the bowels of the earth in
an attempt to find available silver.  This is very ominous.
 
 
 
end.
 
 
The correct addition is as follows:
 
11.2 million oz + 1.9 milion oz of silver to be served or 380 contracts + .2 million oz of options exercised =  13.3 million oz.
 
The silver comex notices decreased by 1.3 million oz.  I was so excited at seeing 1.9 million oz of silver left to be served that I goofed.
 
The data however in the charts was quite accurate.
 
 
 
This development is important as we now go to Friday's reading;
 
 Silver
Withdrawals from Dealers Inventory   91831, oz
Withdrawals from customer Inventory   479140
Deposits to the dealer Inventory  N/A
Deposits to the customer Inventory  N/A oz
No of oz served  (contracts= 6)  30000 oz
No of oz to be served9contracts=283) 1.4 million oz
Gold
Withdrawals from Dealers Inventory   N/A
Withdrawals from customer Inventory   32oz
Deposits to the dealer Inventory  3300 oz
Deposits to the customer Inventory  n/a oz
No of oz served (contracts = 60)  6000 oz
No of oz to be served (contracts=97)  9700 oz

COMEX Warehouse Stocks July 23, 2010

 

Ok let us begin:

 

In silver we saw a massive 91,831 oz of silver leave the comex dealer inventory and NOT get entered into the customer inventory.

It left the front door and out to various entities that did not wish to keep their silver in a comex vault.

There was also another strange internal transfer of silver.  This time 450,000 oz of silver was transferred back into the customer

inventory as this no doubt was a lease repaid from  May.  This silver no doubt was the major part of silver removed from the

customer inventory as these guys refused to let any of its silver stay at any comex facility.

 

Now let us see how the notices shaped up:

 

Wow, we have only 3 days to go and only 6 notices were served upon or only 30,000 oz of silver

Please notice that we now have 1.4 million oz or 283 contracts left to be served.  On Thursday's reading he had 380 contracts, so we lost

97 contracts yet only 6 were served upon. 

 

The rules of the comex states that if silver or gold is served upon, it must come from the dealer inventory and then withdrawn

This did not happen yesterday.  Then how could 97 contracts disappear? This is 485,000 0z of silver which represents approx. 8.7 million usa dollars worth of silver.

The owners of these long positions having plucked their money down on July 1.2010 surely would  not give up this late in the game and also having surely witnessed the chaos at the silver comex.  Something happened and if I am a betting man,

it looks like these guys got a huge cash settlement instead of taking the metal.  There is no other explanation.

Silver is now in backwardation as players are getting more for the silver in the front month than in future months.

We are witnessing the leasing of silver metal by the customer to the dealer for a huge premium and now settlement for huge dollars instead of taking the metal.

The silver comex is in crisis.

The amount of silver standing in this delivery month of July is as follows:

 

1.4 million oz (283 contracts) left to be served+ 11.2 million oz (22 54) + .200 million oz of silver options exercised) =  12.8 million oz of siver.

(the other 485000 oz of silver was cashed at a premium)

 

How about gold;

Different story..very little gold is entering the comex or leaving.We are now 23 days past the last delivery month of June where 2.3 million oz have been standing and no metal has

entered the vaults.  This is very strange indeed.

We got 60 contracts served upon or  6000 0z of gold.  The total number of gold notices served upon is 809 notices or 80,900oz of gold or 2.5 tonnes of gold.  This is really high for a non delivery month.

 

The number of gold oz that looks like will stand for this non delivery month of July is:

 

80900 oz + 9700 oz =   90600 oz of gold or  2.82 tonnes of gold.

 

If any of you out there have any other explanation for the silver please let me know.

 

end

 

The big event yesterday was the release of the phony European bank stress tests. The bankers hit gold to show us that everything is fine in the banking world and not to worry.

They juiced the stock markets as well.  Jim Sinclair is correct in his short 4 sentence commentary on the subject:

 

Jim Sinclair's Commentary

The EU Banking Stress Test is a total Joke. Only trading books are being tested, not bank inventory and operations.

In order to fail you really have to be crushed. Still 9 banks have failed.

This is simply more MOPE designed to mislead.

ShareThis

 

end.

 

Also this:

 

European stress tests on 91 banks will take into account bank losses only on government bonds they trade rather than those they hold to maturity, according to a draft European Central Bank document.

 

This stress test was nothing but garbage.

 

Here are the results of the stress tests for your enjoyment.  Please do not read anything into them:

 

EU Bank Stress test results

12:04 Bank of Portugal says all Portuguese banks tested have passed stress tests -- wires
Bank of France says BNP Paribas (BNP.FP), Societe Generale (GLE.FP) and Credit Agricole (ACA.FP).

Germany say Hypo Real Estate (HRX.GR) is the only German bank to fail stress test (which had been announced on 19-Jul).

12:08 IRISH Irish banks, Alllied Irish Banks (AIB) and Bank of Ireland (IRE) pass stress tests -- wires
AIB and IRE do not need additional capital beyond requirement set in Mar. rish regulator is working with AIB to meet existing year-end deadline to raise €7.4B capital.

12:09 Spain says Espiga, Unnim, Atebank, Cajasur Bank all fail stress test

12:11 Swedish FSA says four major Swedish banks all pass CEBS stress test with a comfortable margin
The four major Swedish banks – Nordea (NDA.SS), SEB (SEBA.SS), Svenska Handelsbanken (SHBA.SS) and Swedbank (SWEDA.SS) – all pass the CEBS (Committee of European Banking Supervisors) stress test with a comfortable margin. 

 

 

 

end.

 

Zero Hedge's Tyler Durden has reported again that the usa will issue another 100 billion of debt next week:

 

It's That Time Of The Month Again: US Prepares To Bleed Over $100 Billion In Debt Next WeekSubmitted by Tyler Durden on 07/22/2010 10:49 -0500
Another week has passed, and it is time for the US to issue another $100+ billion in coupons. The US Treasury has just announced next week's bond issuance calendar, this time 2s, 5s and 7s. This has nothing to do with the weekly issuance in hundreds of billions in Bills: already this month we have redeemed over $400 billion in short-term debt. (And, for purists, it is indeed not a monthly but a bi-weekly event: the US still continues to issue about $200 billion in coupon debt each month).

Luckily, Bernanke is on TV preaching hopeful signs, and a faith in the almighty printer, and he will make sure this latest indication of just how very much under control the US budget deficit is, proceeds without a glitch.

-END-

 

 

Jim Willie has brought out a great article on the issuance of debt and here these dollars are hiding.

 

 

I am highlighting the entire commentary for you:

you can find the article at :  /www.gold-eagle.com/editorials_08/willie072210.html

 

The article is basically what I have been telling you.

First of all, we have an issuance of debt in excess of deficits. In the month of June the usa printed 142 billion dollars more than what was needed.

During the past 45 months, the usa has issued 4.7 TRILLION Dollars of new debt, yet the deficits are 3.2 trillion dollars.  An excess of 1.5 trillion dollars above what was necessary was printed and sent to destinations unknown to us.

 

Also Willie goes into areas that I have highlighted to you on many occasions:  that the entire debt issuance of the usa is bought by the usa itself.

He highlights that the entire 1.88 trillion dollars of debt issuance in 2009 is summarized as follows:

1. Foreign Holders who purchased 600 billion dollars

2. The federal Reserve itself who bough 286 billion dollars

3. USA households that bought 528 billion dollars.

 

He goes into great discussion that on section 1, the foreign holders are represented mainly by th UK.

How on earth can this basket case of a nation with huge deficits and banking problems purchase such as huge amount?

Impossible..this is the usa who is buying their own debt and parking it in England.  They then state that "foreign holders" are buying this debt..preposterous!!

 

He then discusses that the 3rd section or households is a plug number which is Government uses.  With the usa ad 22% unemployment

it would be impossible for this sector to purchase any amount of usa debt with such lousy returns.

 

Thus the usa is buying the entire debt itself and disguising its actions.

 

As for the excess debt created, it is my assumption that this extra debt created is used to buy the major usa stocks and it is this that is keeping the usa stock markets up.

 

 

I strongly urge to you to read this article slowly today and capture the essence of what is going on:

 

 

 

SMOKING GUNS OF USTREASURY MONETIZATION
Jim Willie CB                        July 22, 2010


home: Golden Jackass website
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Jim Willie CB is the editor of the "HAT TRICK LETTER"

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

A significant feature of fiat money systems is the privilege for the custodian of the reserve currency to engage in regular practices of ham-fisted monetary management, even permission for fraudulent centers to flourish, surely developing a debt monster that an economy grows dependent upon. Fannie Mae might be the most offensive blight on such privilege. Unfortunately, many shenanigans have matured into grand fraud. They are smoking guns of USTreasury fraud and counterfeit, with strong whiffs of monetization. Much more monetization is to come, fully endorsed and sanctioned. Other clever techniques are being used, given the Quantitative Easing has officially been halted. A close look reveals that Excess Cash Reserves at the USFed are being drawn down, which are thus funding the USGovt deficits in the last couple months. Ironically, such reserves held by big banks at the US Federal Reserve were the only thing preventing vast insolvency. Now that cash is being used, and the USFed insolvency is slowly exposed. Details can be found in the July Hat Trick Letter reports. Evidence is compelling, and grand motive for foreign creditors to reject the USDollar, whose active control strings are traced to Wall Street. When recognized monetization destroys the last vestige of trust and confidence in the USDollar, when more official rounds of sponsored Quantitative Easing arrive, the USDollar will be on a downward spiral. In fact, all major currencies face the same prospect of vast monetary expansion. They will all fall sharply in value, and by counter-effect, the Gold price will rise powerfully.

CHINESE WARNING SHOTS ACROSS THE BOW
This story is a gem. The Chinese Dagong credit agency made an inaugural splash with a debt downgrade of the USTreasury Bonds. They called the US-based trio of debt rating agencies politically biased, an under-statement. The Dagong agency used its first splash into sovereign debt to establish a bold standard of creditworthiness around the world, giving much greater weight to wealth creating capacity and foreign reserves than Fitch, Standard & Poors, or Moodys. Dagong pays more attention to rapidly escalating debt levels. The Chinese Govt has coordinated their strategy, selling off short-term USTreasury Bills, but hangs onto a large raft of long-term USTreasury Bonds. On a net basis, the Chinese purchases have hit a plateau.

Meanwhile, with distracting commentary, China has doubled its gold holdings. At least the Chinese Govt thas promised not to use their foreign reserves as a weapon. What a relief!! And Wall Street promises no more bond misrepresentation, no insider trading, no more fraud, no more drug money laundering (see Wachovia & Wells Fargo). What a relief!! The USGovt strives for clarity about management of China's $2.5 trillion in FOREX reserves, the world's largest. It contains $868 billion in USTreasurys at last count. The growing fear is that, in anger over trade friction, or in disgust over reckless USDollar management, or from a response to discovered hidden USTBond monetization, or with ambition to displace the US from its dominant post, China could dump USTreasury Bonds with a vengeance. The credit market analysts justifiably call it the Nuclear Option. The Beijing officials have given veiled warning to reduce the USGovt deficits and to put aside thoughts of another Quantitative Easing. The next QE2.0 comes as sure as night follows day. It comes with a heavy cost. The message is written on the wall, that the United States has forfeited its sovereignty with rampant debt production rather than industrial production.

USTREASURY ISSUANCE EXCEEDS USGOVT DEFICITS
This story is a gem. USTreasury bond issuance exceeds even the gargantuan USGovt deficits. The gap is $1.5 trillion over four years. One could guess that Wall Street is selling bonds and squirreling the money in foreign banks, a basic counterfeit in a syndicate operation. The operation might bring new meaning to monetization. At least a parallel exists. The majority of home mortgages have their income stream used in more than one mortgage bond. That is the real reason why home loan modification is a thin farce. The MERS database conceals the game, but the public has the satisfaction of knowing that MERS has no legal standing. The state courts are declaring no legal standing, and foreclosure procedures are blocked as a result. People cannot be removed from their homes when the database is used in handoffs of notes and titles.

Under Goldman Sachs rule, the USDept Treasury is running some bold kind of racket game, whose purpose is unclear, except it lacks legitimacy. The USGovt borrowing through debt issuance was $142 billion more than the June USGovt federal deficit, which means they are doing more than financing the deficit. The extra proceed funds are not accounted for. In chronic fashion, excess issuance has been the pattern, as the USGovt has issued $1.5 trillion more in debt securities than its budget deficit in the past four years. During the past 45 months, the USGovt has accumulated an incremental $4.7 trillion in new debt, but the federal budget deficit has grown by $3.2 trillion, much less but still a mammoth amount. Nobody asked why so, and nobody asks where the resulting funds from the bond sales go. One is left to speculate that a vast bold new syndicate technique is simply selling bonds beyond newly formed debt, seizing the funds in foreign locations for syndicate usage. The June USGovt official budget deficit was logged at $68.4 billion. During the same month, the USGovt borrowed a staggering total of $210.9 billion. These are not refinances of USTreasury debt in rollover. On a consistent basis, the USGovt has borrowed much more in each deficit month than was required to close the deficit and finance the debt accrued. The differential of excess debt issuance for the first six months of 2010 comes to a hefty $290 billion, a pattern in continuance.

Perhaps the Wall Street firms in control figure that with large numbers, nobody will notice, or given the hidden monetization, they might as well put the bond presses in hyper-drive. The cumulative data, as well as the mindboggling differential (dotted line) between the two series is shown on the attached chart. Perhaps it is for war funding far in excess of the stated costs, to save embarrassment and questions. Perhaps it is for enormous vertically integrated business investment in Afghanistan of clandestine type. Perhaps it is for the heavily rumored underground cities under construction for elite resident purposes. Perhaps it is extra costs for additional new military bases scattered across the globe. Perhaps the answer is simpler, in that it is just being counterfeited and stolen by the financial syndicate with impunity. This is a smoking gun.

ENGLAND BUYS $170B USTBONDS FROM SAVINGS ???
This story is a gem. The Chinese dump USTreasurys and England accumulates them. Or more accurately, the USFed hides its vast monetization efforts in the United Kingdom account ledger item. No way to the reasonable man can Britain purchase $170 billion in USTreasurys in five months from legitimate sources of savings!! In May 2010, China reduced their USTreasury holdings by $32.5 billion, now the lowest level since June 2009. China shed $35.4 billion in short-term USTBills, offset by a mere $2.9 billion in purchased USTBonds. Furthermore, Japan reduced holdings in USTBonds, as did the OPEC nations. However, buyers could be found, all Anglo descent, at least on the surface. The total foreign USTreasury holdings rose from $3957 billion to $3964 billion. Attribute the good tiding news to gigantic ongoing accumulation by England, just like the last several years. The UK-based buying is highly suspicious, like a group of homeless men walking out of a haberdasher shop wearing Brooks Brothers suits with bad hair and mismatched shoes, but arouses no attention except by intrepid analysis divorced from Wall Street or the USGovt. Generally, the United States financial system suffered a dramatic decline in May as foreign purchases of US assets hit a wall, falling from $110.3 billion to just $33 billion. See the graph of steady Chinese unloading of USTreasurys in the last several months.

As of end May, China still holds a gaggle of USTreasurys, but their USTBill holdings are down to a trifling $7 billion, as China sells into the confusion, especially at high principal prices tied to near 0% yields. China is selling the bubble. Without any question whatsoever, the USFed and USDept Treasury are using the United Kingdom as a ledger item for their mammoth USTreasury monetization, all barely hidden, with the TIC data used as a tiny fig leaf that offers inadequate coverage. The story receives no mainstream attention. The United Kingdom has wrecked banks, staggering deficits, no trade surplus, yet managed to buy a whopping $28 billion of USTBonds in just the month of May. Seems like Printing Pre$$ operations and London serving as the Hidey Hole. At end 2009, as of the December tally, the UK owned $180.3B in USTBonds, yet somehow managed to accumulate in the new year, up to the current $350.0B. THE UK SUPPOSEDLY HAS ALMOST DOUBLED THEIR HOLDINGS IN A MERE FIVE MONTHS!!

Bear witness to the shadow USFed debt monetization operation, operating out of the United Kingdom, or at least its accounting. The hidden USTreasury Bonds reside in England, home of the master to US bankers. Anyone who accepts the following graph on its face is foolish, compromised, or politically motivated to the extreme.

Bear in mind that we are talking about crippled England here, or the United Kingdom more generally. The UKGovt just announced spending cuts to reach 40% of budget, not the previous 20%. Britain could not cope with an extended episode in the credit crisis, according to the Bank For Intl Settlements. Yet this nation gobbled up $170 billion in USTreasurys from ripe savings in five months?? Hardly. The Bank For Intl Settlements has warned that sovereign debt under siege cannot adequate be relied upon as the coupon for broad national financial rescue and stimulus, not again, not in the next round. The UKGovt is admitting openly that the situation is worse than they said before. Newly ordained Prime Minster David Cameron ordered the officials to draw up 40% cuts, the biggest in history. He has ordered cabinet ministers to draw up a Doomsday budget whose essential service spending cuts could see tens of thousands given pink slips. Yet this nation gobbled up $170 billion in USTreasurys from ripe savings in five months?? Hardly. This is a smoking gun.

In the summer 2008 leading up the the Wall Street death experience, the British suffered their own shameful episode with Northern Rock, Royal Bank of Scotland, even the venerable Lloyds of London each succumbing, no longer breathing life in a solvent sense. They are equally broken and insolvent as the biggest US banks. Billions of pounds were spent in nationalizing the Royal Bank of Scotland (partial), Lloyds Banking Group (partial), and Northern Rock (total) in an attempt to prevent their collapse. Neither the UK nor the US is on any path of reform or restructure. London redeemed failure from a real estate bust, which is the absolute opposite of investment or stimulus. Yet this nation gobbled up $170 billion in USTreasurys from ripe savings in five months?? Hardly. This is a smoking gun.

USGOVT HIDEY HOLE IN "HOUSEHOLD" CATCH-ALL
This story is a gem. Eric Sprott of Sprott Asset Mgmt casts a suspicious eye at the USTreasurys for the so-called Household category in their accounting. It is a blatant ledger item for illicit monetization, a veritable crime scene without the cordoned zone and yellow tape. Sprott directs his accusations like a skilled prosecutor. He reinforces the claim of Ponzi Scheme cited by Bill Gross of PIMCO. Sprott calls the solution to finance the mammoth USGovt deficits to be the actual problem, namely hidden monetization. The Hat Trick Letter is in perfect synch with his line of reasoning and accusation, as the "Household" accounting ledger item is the culprit. This item has been the topic of past Jackass focus and analysis. Data in gory detail is offered in his indictment. Sprott points out that in order to balance the budget for fiscal 2009, the USGovt needed to sell $2041 billion in new debt, equal to three times the new debt that was issued in fiscal 2008. Witness the grand rampup without identified sources of buyers, mythical buyers in official USTreasury auctions, fraudulent accounting on the official books. No purchasing groups could could afford to increase their 2009 USTreasury purchases by 200%, a simple conclusion. So by process of elimination, the monetization source arises most visibly, but he shows where it appears in the accounting.

In the latest USDept Treasury Bulletin published in December 2009, ownership data reveals that the United States increased the public debt by $1.885 trillion dollars in fiscal 2009. That much is clear. According to this report, there were three distinct groups that increased their purchases from 2008 levels. The first was "Foreign & International Buyers" which purchased $697.5 billion worth of USTreasury securities in fiscal 2009, a 23% rise from fiscal 2008. The second group was the US Federal Reserve itself. Their published balance sheet reveals an increase in its USTreasury holdings by $286 billion in 2009, a 60% annual rise. Consider that jump to be a direct result of the official USFed Quantitative Easing program announced in March 2009. Quick summaries cover the other groups. Q1, Q2, and Q3 data from 2009 suggests that the State & Local Govts and US Savings Bonds groups were net sellers of USTreasurys in 2009. Then the pension funds, insurance companies, and depository institutions increased their purchases by only a paltry amount. The remainder was purchased by a category called loosely "Other Investors" as a catch-all. This other group purchased $90 billion in 2008, but then turned up into hyper-drive its purchases to $510.1 billion of freshly minted USTreasury securities so far in the first three quarters of fiscal 2009. On an annualized rate of purchase, the catch-all category is on pace to buy $680 billion of USTreasurys this year, over seven times the 2008 level. So the murky vague "Other Investors" saved the day and financed a gargantuan amount of the USGovt deficit.

Go to the source. The USDept Treasury Bulletin identifies "Other Investors" as consisting of Individuals, Government Sponsored Enterprises (GSE, as in Fannie Mae & Freddie Mac et al), Brokers & Dealers (who sell as intermediaries), Bank Personal Trusts & Estates, Corporate & Non-Corporate Businesses, Individuals, and Other Investors. It is far-fetched to believe parties in these groups had $700 spare billion to invest in the USTreasury market in fiscal 2009. Sprott dug deeper, and found the source in the data. The Federal Reserve Board of Governors Flow of Funds Data provides a detailed breakdown of the owners of USTreasury securities to 3Q2009. Within these parties, the GSE group acted as small buyers of a mere $5 billion this year. Brokers & Dealers were sellers of $80 billion. Commercial Banks were buyers of $80 billion. Corporate & Non-Corporate Businesses collectively were buyers of $11.6 billion. Add these cited parties to arrive at a net purchase of only $16.6 billion. The huge increase of purchases in 2009 came solely from one source within the "Other Investors" group.

The Federal Reserve Flow of Funds Report defines the infamous "Household Sector" which is a grab bag catch-all miscellaneous ledger item. The Hat Trick Letter has honed in on this corrupted ledger item in past reports. This category supposedly purchased $15 billion worth of USTreasurys in 2008, then jumped with ink jet assist (printing press) in 3Q2009 to a staggering $528.7 billion in purchases, a 35-fold increase. The Household is on track to buy $704 billion worth in all fiscal 2009. The bottom line is a shocker! What is the Household Sector? It is a combination of miscellaneous, ledger adjustments, and blatant monetization. Sprott calls it a PHANTOM that does not exist, but serves the purpose to balance the ledger in the US Federal Reserve Flow of Funds report. In the past, this ledger item was calculated as residuals, securities on loan across groups, even inclusive of rounding error. The monetization is no longer hidden. He concludes that USTreasurys have become one giant Ponzi scheme, just like Bill Gross of PIMCO quipped. This is a smoking gun.

BY THE END OCTOBER 2009, THE "HOUSEHOLD" ACCOUNTING CATEGORY OWNED MORE USTREASURYS THAN THE US FEDERAL RESERVE ITSELF. THAT IS CORRECT. MONETIZED USTREASURY BONDS ACCOUNT FOR MORE THAN WHAT THE USFED HOLDS. THE USTBONDS ARE HIDING IN ENGLAND.

Sprott summarized the bulk buyers of the $1885 billion in USTreasurys through Q3 of 2009:

  • Foreign & International buyers which purchased $697.5 billion
  • The US Federal Reserve which bought $286 billion
  • The Household Sector which bought $528 billion (think printing press).

Foreign USTBond holders share their worry openly. Zhu Min is deputy governor of the Peoples Bank of China. In a recent discussion on the global role of the USDollar, he told an academic audience that "The world does not have so much money to buy more USTreasurys. The United States cannot force foreign governments to increase their holdings of Treasuries… Double the holdings? It is definitely impossible." With foreign sources unwilling or unable to support USGovt debt, the monetization card will be used repeatedly and powerfully inside the desperate US-UK quarters. When the process is more widely recognized and publicized, the USDollar will be denigrated further, and rejected as quickly as any reasonable alternative can be produced by consensus. It is that simple. Worse, a viable alternative might be put forward with powerful force, enough to break any resistance from inertia or threadbare obstructions.

IMPLICATIONS TO THE USDOLLAR & GOLD
No creditor nation whose leaders are in their right mind would continue to support the USDollar as the global reserve currency when its debt securities are the object of such open fraud and high volume monetization. The USFed Chairman Bernanke before the USCongress testified that the USTreasury is not buying its own debt with printed money. His denial was a lie. He cannot identify the USTBond buyers. The evidence is compelling, and all around us. One does not have to be an advanced financial engineer to detect the trails of the monetized debt, its accounting location at the Household slot within the USGovt and within the United Kingdom in the Treasury Investment Capital (TIC) Report. The USGovt is racking up gigantic deficits, which will run in the neighborhood of $1.5 trillion annually for some time. The second half recovery claim is for the simple-minded. Austerity measures are a pipedream. Reform is nowhere. Confusion is everywhere. Economic recovery is a mirage.

Recent condescension from Kartik Athreya of the Richmond Fed toward economist critique was particularly offensive and disgusting. One does not need advanced economics degrees to detect grand malfeasance like described in this article, and utter failure of policy directions. Trained and decorated economists in the United States have very little to show for their erudite prose, abstruse doctrinaire, and affluent effluence. They have given wreckage to the USEconomy and insolvency to its financial foundation, as the cancerous outcome to their arrogant financial engineering and complex money & banking charts. An advanced statistics degree totally overwhems an advanced economics degree any day of the week. We make tools to fine tune a business, as our resumes overflow with successful stories.

Blown opportunities, wasted bailouts, and lack of solutions like reform & restructure assure a much high gold price. Actually, they assure much lower currency valuations. With the redemption of Wall Street bond failure in October 2008 (see TARP Funds), and the nationalization of failed firms (see Fannie Mae, AIG), and the vacant economic stimulus that served little more than state budget shortfall plugs, the potential for a $2000 gold price was provided. Over $2 trillion was wasted. Debt across the debt-plagued landscape will be monetized. That is a fanciful way of saying newly printed money will be used to buy the wrecked debt, so that it can be shoved under the carpet. The growing lump under the carpet is not a piece of furniture, but rather a fashion cancer. With the redemption of British bond failure in 2008, and the nationalization of failed firms, the potential for a $2000 gold price was reinforced from the Anglo flank. Over one trillion British Pounds were wasted. Debt across the debt-plagued landscape will be monetized. With the redemption of European sovereign debt in May 2010, and the absence of stimulus in the European Economy, the potential for $3000 gold price was provided. Almost $800 billion was wasted. Debt across the debt-plagued landscape will be monetized. Gold thrives when the major currencies are debased, debauched, and destroyed.

The winds are showing strong signals of another powerful round of Quantitative Easing, the so-called QE2. When announced formally, or incontrovertibly detected, the potential for a $5000 gold price will be provided. The USEconomy is moribund, and the EU Economy is moribund. Economic stimulus and monetary accommodations have ended in the United States. The deceptive cry of a second half recovery is met by the arrival of a second half deep swoon. November elections are coming in the United States, when liberal policy, free spending, and reckless decisions are normally made. Numerous smart analysts like Eric Sprott, Jim Grant, Jim Rickards, and Porter Stansberry expect the QE2.0 to set sail soon, a second shameful voyage, maybe announced this calendar year. Some analysts believe another financial market crisis episode will be permitted first, in order to permit an easy political path for the next round of Quantitative Easing. The QE2.0 is assured, not even worthy of a forecast. My forecast is for QE3.0 to be announced by early 2012, and for QE4.0 to be announced in 2013. The reason is simple. Absolutely no effort is being made to fix anything. Vast sums of newly printed money are being thrown at a problem without much thought or planning, while many new rules actually freeze businesses. The prevailing objective is to preserve power, but at a cost of devaluating all major currencies with a flood of money supply.

Banks still hold tons of toxic debt, as mortgage debt has been written down by $270 billion but residential housing alone has come down $7 trillion in value. Even the SEC head Shapiro admitted that a slew of bank failures is coming soon. Restructure of the USEconomy is not even a topic, as consumption is desired, not seen, as job growth is desired, not seen. Capital formation and job creation are no longer an understood concept within the tarnished marble halls of US economist offices. Return of the US industrial base is not even discussed, a lost bastion. Instead, the priority of banking and political leadership is preservation of power, in order to control the coveted USDollar Printing Pre$$.

The entire world is working overtime behind conference doors to fashion a new global reserve currency. The IMF Special Drawing Rights vehicle is openly discussed, more like a Straw Man. The New Nordic Euro is a promising initiative conducted in secrecy, to be constructed with a gold component. By design, it is to enable a return to monetary system stability. However, by design it is also a USDollar killer. Its arrival will come without any doubt. When it does, the talk will not be about a skein of distracting topics. Talk will be about hyper-inflation and the United States facing a Third World prospect. Talk will be about $5000 gold. Talk will be about nothing fixed by the stewards in charge. Let's hope by then, that some form of justice is introduced into the unfolding chapters of an American Tragedy.


 

end.

 

In a deflation, we have excess debt created trying to hold up prices.  In inflation, we have huge debt created pushing up those prices.

In deflation, the issuance of credit is contracting and in inflation, credit is increasing.

 

Can we have both?  yes.

We are witnessing price rises in essential things we need (food and services) but in things we do not need, the prices are falling. (housing)

 

Governments cannot live in a deflation as they have no control over the situation.  They live by inflating.

It is also impossible for a net debtor nation like the usa to engage in deep deflation as foreign creditors would not be served.  In the 1930 depression -deflation, the usa was a net

creditor nation at the time and they withstood the pressure of lowering prices. The usa could not and will not allow this to happen today.

Expect the usa to go into a hyperinflationary depression as they lower the usa dollar to levels sufficient enough to wipe out their debt.

The prices will be so sky high and nobody could afford them.

That is why you have silver and gold.

 

As many of you know, I try and divide the global problems into two:

 

1. a physical problem.

2. a debt or paper problem.

 

Banks  will default on both and the resulting action will create such a gold rush that will make this current economic malaise tame in comparison.

 

Have a great weekend

Harvey

Thursday, July 22, 2010

July 22.2010 commentary...silver is basically sold out.

 
Good evening Ladies and Gentlemen:
 
Gold closed today up by $3.80 to 1195.30  Silver on a percentage basis did better rising by 32 cents to 18.12.
 
The open interest on the gold comex dropped marginally by 611 contracts to 558,862.  The silver comex OI however dropped another 1235
 
contracts as the intermediate banks do not like the looks of things.  They are exiting some of their shorts, leaving the entire paper supply to the likes of JPMorgan and HSBC.
 
As I pointed out to you yesterday, the CFTC has the green light now to set position limits on silver and gold.
 
Bart Chilton has a video on this and he even thought that many cartel members will go to jail on this obvious criminal shorting of metal futures, a concentration of which has never before occurred.
 
I have not seen the tape as somehow my computer cannot retrieve it.  Maybe your computer can.
 
Here is this important link:  (from lemetropolecafe.com and Adrian Douglas)
 

Bart Chilton- Our Elliot Ness


Watch Bart’s video…note the piece about disruptive trading and folks going to jail!www.cftc.gov/files/oirm/video/cftc_023455.wmv
Cheers
Adrian.

 

I would like to proceed directly to the silver and gold inventory and notice to deliver at the comex.

 

 Silver
Withdrawals from Dealers Inventory   ZERO oz
Withdrawals from customer Inventory   N/A
Deposits to the dealer Inventory n/a 
Deposits to the customer Inventory  193009 oz
No of oz served  98  490,000 oz
No of oz to be served 384 1.9 million oz
Gold
Withdrawals from Dealers Inventory   N/A
Withdrawals from customer Inventory   550 oz
Deposits to the dealer Inventory  n/a
Deposits to the customer Inventory  n/aoz
No of oz served  zero oz
No of oz to be served  xxxxxx oz

 
COMEX Warehouse Stocks July 22, 2010
 
First off, we see that zero oz of silver was deposited at the silver comex.
 
In a footnote, the comex revealed another of those famous internal transfers...this one
a huge  540,000 oz of silver transferred from the customer inventory to the dealer.
 
Then the comex revealed that 193,009 oz was deposited into the customer inventory.
 
The total number of notices served upon the longs today was 98 or  490,000 oz
 
The total number of notices served so far this month total 2248 or 11.2 million oz.
 
What does this mean?  Simply the comex is in trouble and sought help from the customer.
It leased 490,000 oz of pure silver and must have paid a huge premium.  The customer
then bought with the proceeds an equal number of Sept contracts with a prayer that there is no default.
He wins if the silver game is still alive in Sept.  He loses on a default but gains only with fiat money as his silver inventory
is gone.
 
The total number of oz of silver standing for this delivery month of July is as follows:
 
11.2 million oz + 1.9 million oz (to be served) + .200 million oz of options exercised=  15.3 million oz.
Please note that yesterday saw a reading of 14.6 million oz so we gained 700,000 oz of silver.
 
when you see the amount of silver rising with a few days to go shows the comex is in serious trouble as it scrounges the bowels of the earth in
an attempt to find available silver.  This is very ominous.
 
In gold, again we see zero oz of gold enter the dealer or leave the dealer.
We only witness a tiny 550 0z of withdrawal from nervous nelly gold customers.
 
We again had zero oz of gold options exercised, so the amount of gold standing for this non delivery month of July remains at 74,900 oz of gold.
 
The next front month of gold is the August contract.  The month of August is traditionally, the third biggest delivery month for gold, following
 
in the footsteps of December and June.
 
The number of gold contracts standing in the front month of August  total a huge 227,429.
 
As I mentioned yesterday, the last day for the gold contract is July 28.2010.  The first day notice and the day that bankers can serve upon our longs in gold
is July 30.2010.  Options go off the board on July 27.2010.
 
end.
 
 
Today, the news was all about Ben Bernanke's testimony and today he revealed that QE II will probably be implemented to jump start the sagging economy.
 
That put a fire under all commodities including gold and silver.
 
The Dow rose over 200 points on that news and on good earnings from Caterpillar.
 
Here is the official blurp from Washington on Ben's testimony (Humphrey-Hawkins):
 
 

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress Thursday that the fragile economy still needs government stimulus spending to strengthen the recovery and help reduce unemployment.

Testifying before the House Financial Services Committee, Bernanke did urge lawmakers to come up with a credible plan to reduce the government's record-high budget deficits in the long run. But he said they shouldn't move now to slash spending or boost taxes, or undertake some combination of both.

"I believe we should maintain our stimulus in the short term," Bernanke said as he spoke about the economy's challenges for the second straight day on Capitol Hill.

Bernanke again said the Fed is prepared to take new steps to bolster the recovery if needed.

"We are ready, and we will act" if the economy doesn't continue to improve, Bernanke told the House panel.

But he refrained from repeating comments made earlier in the week, that he didn't anticipate the Fed taking new action in the near term. Those comments to the Senate Banking Committee sent stocks tumbling Wednesday. The market on Thursday recovered those losses after another strong batch of earnings and some encouraging signs of growth in Europe.

END

 
 
Today is Thursday and thus we get the jobless number and the number of new benefits.

With the Dow rising by 200 points you would expect the jobless number to be down.
 
 
Actually, the jobless number rose:
 
 

US jobless claims rose 37,000 last week

WASHINGTON, July 22 (Reuters) - New U.S. claims for jobless benefits climbed more steeply than anticipated last week, according to a Labor Department report on Thursday that further underlined the drag on economic activity from persistently weak job markets.

Initial claims for state unemployment benefits rose 37,000 to a seasonally adjusted 464,000 in the week ended July 17, the department said, more than erasing a decline in the prior week that included the Independence Day holiday.

Analysts polled by Reuters had forecast claims would rise to 445,000 from the previously reported 429,000 in the July 10 week, which was revised slightly down to 427,000 in Thursday's report.

The report covered the survey week for government's closely monitored employment report for July, which is scheduled for release early next month.

A Labor Department official said there were no special factors affecting the numbers, but noted that the Independence Day holiday could have caused a backlog in processing

 
 
end.
 
 
Also today, existing home sales fell by 5.1%.  There are 3.99 million homes for sale and it would take 8.9 months of sales to go through all of those sales.
It does not include new foreclosurers.
 
I think I have given you the highlights for today.
 
I will give a thorough review of things on Saturday.
 
all the best.
 
Harvey.
 

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