Good morning Ladies and Gentlemen:
As of early this morning there is no report of any bank that failed last night so Sheila must be giving
her tired troops a weekend off.
It was quite a week.
Gold closed up by $13.10 to$ 1357.40. Silver rose by 74 cents to$ 24.56.
I will now give you details on the trading of gold and silver at the comex yesterday followed by deliveries
and changes in inventory.
Now let us begin with the gold comex:
The total gold comex open interest fell slightly yesterday by 323 contracts to 603,043
The front delivery month of December saw its OI drop fractionally by about 2000 contracts
to 390,270. This is of course basis Thursday night. Friday's numbers will be revealed on
Monday and they will certainly show a big rise in OI due to gold's strong performance.
The front options delivery month of November saw its close at 737 contracts meaning
that 73700 oz of gold were exercised and waiting to be served. Of that 665 notices of intent were sent down.
The volume on the comex on Friday estimated to be a monstrous 204,352. This number
will rise as they always underestimate. The true volume on Thursday turned out to be
161,298 a little higher than estimated.
In silver:
the total open interest continues to rise with a gain of 756 contracts to finish with a reading
of 153,044.
The front delivery month of December registered an OI of 91,066 for a gain of about 400 contracts.
The front options delivery month of November saw a closing reading of 386 contracts or
1.93 million oz of silver were exercised waiting to be served with metal.
The estimated volume at the comex yesterday was also monstrous: a total of
71,717 contracts traded. Looks like the banking cartel were busy trying to curtail silver's advance.
The volume on Thursday confirmed at 56,692 which is above estimates and a little higher than normal.
Now for the deliveries and inventory changes:
Here is a chart on the 29th of October for gold and silver comex inventory changes and deliveries.
| Silver | |
| Withdrawals from Dealers Inventory | zero oz |
| Withdrawals from customer Inventory | 991 oz |
| Deposits to the dealer Inventory | Zero |
| Deposits to the customer Inventory | zero |
| No of oz served (contracts 393 | ,1965,000 oz |
| No of oz to be served..a guess | Too early to guess |
| Gold | |
| Withdrawals from Dealers Inventory | zero |
| Withdrawals from customer Inventory | 98032 oz |
| Deposits to the dealer Inventory | Zero oz |
| Deposits to the customer Inventory | 2765 oz |
| No of oz served (contracts = 665 | 66500 |
| No of oz to be served ..a guess 72 | 7200 oz |
Let us start with silver:
The comex notified investors that only a small withdrawal had occurred and that was a tiny 991 oz.
The action occurred in the delivery of options exercised. The Comex notified investors that
393 contracts were exercised and served upon options exercised for a total of 1.965 million oz of silver.
Boy! that is a record for a November delivery which has been always comatose for years.
Actually, there were two notices of intent to deliver on this coming Monday:
1. 376 contracts for Nov 1..originating from Oct 28 notice of intent
2. 17 contracts for Nov 1..originating from Oct 29 notice of intent
These guys have a habit of keeping exercised contracts in their back pocket so I will not guess as to what
is left to be served.
So thus far we have a total number of silver oz standing of 1.965 million oz which is higher than the final
reading of 1.495 million for October. Someone or some entity is in need of silver very badly!!!
This number will rise throughout the month and I will detail what they disclose to us.
Now for the all important gold comex:
The comex folk revealed that there was a net 2765 oz received by a customer.
The transactions are twofold:
1. receipt of 3215 by a customer
2. withdrawal of 425 by a customer
for a net 2765 oz.
There was another adjustment of 60,125 oz where a dealer paid a customer back
for leased gold
The comex notified investors that a total of 665 notices were sent down for delivery
Actually there were two notices:
1. 644 notices sent down on Oct 28.2010
2. 21 notices sent down on Oct 29.2010
these will be served upon longs who have exercised their options and are waiting to be served.
The open interest shown is 737 of which 665 probably left to service the longs. Remember the
comex always reports 1 day later making our life miserable but that is the rule of the house.
I will use 72 contracts as that is the least number that must be served upon. (737-665 contracts)
The total number of gold contracts standing in this non delivery month of November is as follows:
66,500 (oz already served) + 7200 oz ( to be served) = 73700 oz or 2.295 tonnes..a very high
number for an option month. This number will also rise throughout the month.
November is always a comatose month in both gold and silver. It looks to me like sources are
trying to get physical any way they can.
Now for the COT report which is basis Tuesday and it is very bullish for gold and silver:
| COT Gold, Silver and US Dollar Index Report - October 29, 2010 |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In summary:
those large speculators that have been long somehow got spooked when the raid occurred last week
and pitched a monstrous 16,122 contracts. Those large speculators that have been short took the
opportunity to lessen some of their shorts by 5456 contracts.
And now for the all important commercial category:
those intermediate bankers that have been long pitched some of their contracts during the raid to
the tune of 3563 contracts.
And now our two famous bankers, JPMorgan and HSBC who have been perennially short, took the
opportunity of the raid to lessen their short position by a monstrous 14,210 contracts.
The small speculators were in the game last week: those that were long in gold were not fooled
and they increased their positions by 1486 contracts. Those that were short surprisingly increased their
shorts by 1467 contracts. These guys got burnt badly!!
And now for the silver COT report:
| Silver COT Report - Futures | ||||||
| Large Speculators | Commercial | Total | ||||
| Long | Short | Spreading | Long | Short | Long | Short |
| 53,018 | 12,509 | 39,270 | 30,157 | 88,023 | 122,445 | 139,802 |
| -3,260 | -472 | 2,534 | 1,556 | 1,272 | 830 | 3,334 |
| Traders | ||||||
| 86 | 41 | 44 | 34 | 37 | 148 | 101 |
| | Small Speculators | | | |||
| | Long | Short | Open Interest | | ||
| | 30,535 | 13,178 | 152,980 | | | |
| | 1,046 | -1,458 | 1,876 | | | |
| | non reportable positions | Change from the previous reporting period | | |||
| COT Silver Report - Positions as of | Tuesday, October 26, 2010 | |||||
From this report you can see that the dynamics for silver trading have changed!!
Those large speculators that have been long decreased those positions by a very large 3260 contracts.
However those large speculators that have been short only lessened their positions by a tiny 472 contracts in contrast to the gold
COT report.
And now for the all important commercial category:
those intermediate bankers that have been long silver were not fooled by the raid and increased their positions but a
very sizeable amount of contracts for them: 1556 contracts.
And now for our famous banking duo, JPMorgan and HSBC subject to the lawsuits and CFTC probe:
Look closely: these guys could not cover on the raid..they increased those positions by 1272.
With the whole world watching, these guys have chutzpah!! (nerve).
And now for the small specs:
those small specs that were long continue to pour it on, with a rise of 1046 contracts.
Those small specs that were short saw the light and covered 1458 contracts.
The small specs silver traders were more clever than the small gold traders.
I have two important physical news to report to you.
(In all my commentaries I report on the physical metal news first followed by the economic stories that influence the
metal prices)
The big news of the day is the listing of the Sprott silver ETF and I will report on this daily.
The total number of shares listed is 50 million shares at 10 dollars or 500 million dollars of intake.
Sprott will be on the prowl for 20.4 million oz of silver.
Sprott will make his deal with major mining companies which will cause massive headaches for
the bankers as they need the silver to satisfy others at the comex.
Here is this big announcement courtesy of Sprott Asset Management:
Sprott Physical Silver Trust Announces Initial Public Offering
2010-10-29 11:00:35.529 GMT
of 50,000,000 Trust Units
TORONTO, Oct. 29 /CNW/ - Sprott Asset Management LP ("Sprott") today announced that Sprott Physical Silver Trust (the "Trust"), a trust created to invest and hold substantially all its assets in physical silver bullion and managed by Sprott, has agreed to issue in its initial public offering (the "Offering") 50,000,000 transferable, redeemable units of the Trust ("Units") at US$10.00 per Unit, for gross proceeds of US$500,000,000. As part of the Offering, the Trust has granted the underwriters an over-allotment option which is exercisable in whole or in part to purchase up to an additional 7,500,000 Units at US$10.00 per Unit.
The Units will be listed on the NYSE Arca and the Toronto Stock Exchange under the symbols 'PSLV' and 'PHS.U', respectively. The Offering was made simultaneously in the United States and Canada through a syndicate of underwriters led by Morgan Stanley and RBC Capital Markets in the United States and RBC Capital Markets and Morgan Stanley in Canada. The Canadian syndicate includes TD Securities Inc., Canaccord Genuity
Corp., National Bank Financial Inc., BMO Capital Markets, HSBC Securities (Canada) Inc., GMP Securities L.P., Wellington West Capital Markets Inc., and Mackie Research Capital Corporation.
Copies of the U.S. prospectus related to this Offering may be obtained by contacting Morgan Stanley & Co. Incorporated, 180 Varick Street, 2nd Floor, New York, New York 10014 Attention: Prospectus Department (telephone: 866-718-1649 (toll free) or 917-606-8474) or by e-mailingprospectus@morganstanley.com, or RBC Capital Markets Corporation, Attention: Prospectus Department, Three World Financial Center, 200 Vesey Street, 8th floor, New York, New York 10281- 8098 (telephone: 212-428-6670, fax: 212-428-6260). The offering in Canada is only being made by the Canadian prospectus,
which includes important detailed information about the Units being offered. Copies of the Canadian prospectus related to this Offering may be obtained by contacting RBC Capital Markets, Attention: Distribution Centre, 277 Front St. W., 5th Floor, Toronto, Ontario M5V 2X4 (fax: 416-313- 6066) or Morgan Stanley & Co. Incorporated 180 Varick Street, 2nd Floor, New York, New York 10014 Attention: Prospectus Department (telephone
866-718-1649 (toll free) or 917-606-8474) or by e-mailing
prospectus@morganstanley.com.
end.
This will be the death knell of the banking silver cartel as demand for silver is so great with very little silver around.
The second big announcement is the IMF who stated that as of Sept 30.2010 another 32.3 tonnes of gold was sold.
They also stated in the body of the announcement that Bangladesh bought 10 tonnes of gold.
First the official announcement and then I will comment:
·
WASHINGTON |
Oct 29 (Reuters) - The International Monetary Fund sold 1.04 million ounces (32.3 tons) of gold in September, well above the amount sold in August, an IMF spokesman said on Friday.
The sale was part of a plan announced late last year for the Fund to sell 403.3 tonnes of gold to boost its lending resources. The fund said the sale would avoid disruptions to the gold market, which has been buoyed by huge liquidity injections of central banks around the world.
The IMF sold 320,000 ounces to Bangladesh, the spokesman said. (Reporting by Pedro da Costa and Emily Kaiser; Editing by Theodore d'Afflisio)
·
end
I have been keeping track on their sales. As of August 31 2010 the IMF needed to sell another 75 tonnes. They always list sales to a country
different from open market sales. So I believe that they have released 42.3 tonnes leaving them with 32 tonnes of gold to dispose.
It seems very strange that the only countries buying gold from the iMF are from the India area.
For those newcomers, the IMF initially in 1947 announced that the gold they hold and "received" from member nations were stored
at the following central banks:
1. Bank of France
2. Federal Bank of New York
3. Bank of England..and strangely:
4. Bank of India.
There must be a reason that the IMF records the sale of gold separately from market operations
and all of the iMF sales to individual countries are all from the Indian region. I throw it up to you guys for thoughts on this.
Please remember that this statistic is up to Sept 30 and we had a blow out October. My bet is that
the IMF totally eliminated all their gold by the end of October. It is my hunch that this is the last amount of gold left that the cartel
has in its arsenal to suppress gold. Let us see in the days ahead how gold trades.
If there is no physical gold left, gold should rise by 100's per day.
end
Viet Nam has been a major country importing gold and this gold backs its currency, the dong.
The citizens of Viet Nam use gold to back mortgages as they do not trust paper money.
Due to the huge smuggling of gold into the country and the run on their dong, the government
has curtailed the accumulation of gold by the bankers.
This will hurt gold somewhat, but the citizens over there will find a way to get gold into their country:
Here is this announcement for you to read: courtesy of Reuters
Vietnam Bans Banks From Selling Customer Gold for Loans
HANOI (Reuters) - Vietnam’s central bank has stopped banks selling gold deposited by customers and using the funds for loans or for converting into foreign currencies, partly to help take downward pressure off the dong VND=.
It is also concerned that, if the value of gold continues to soar, banks could suffer heavy losses when they have to buy gold back to repay depositors.
A State Bank of Vietnam circular issued on Friday also bans banks from lending gold for producing and trading small gold bars, Nguyen Ngoc Bao, head of the central bank’s Monetary Policy Department, said in an interview.
As of Friday, banks can lend gold only for producing and trading jewellery, he said in the interview, published on the central bank’s website (www.sbv.gov.vn).
Bao said that banks had until now been allowed to convert a maximum 30 percent of their gold deposits into dong.
A recent surge in the gold price has led to increased smuggling of the metal into Vietnam, fuelling demand for dollars to buy it and thus pushing the value of the dong down on the black market.
The authorities effectively banned gold imports in mid-2008 to help tackle the trade deficit and take pressure off the dong, although they have granted import quotas occasionally since then, most recently in early October.
That has done little to reduce speculation the dong could be devalued for the fourth time since last November. [ID:nSGE69H06Z]
However, dealers said gold prices in Vietnam had softened in recent days and activity in the gold market had also subsided in anticipation of central bank measures to curb banks’ use of gold.
Small gold bars, sold by banks and private gold shops, are used widely in Vietnam instead of the dong as a savings vehicle and for real estate payments, for example.
The central bank’s Bao said an increase in gold deposits and lending had fuelled the dollarisation of the economy.
Bao said the new ruling was intended to limit the circulation of gold in the economy. It would also help curb gold smuggling and speculation, thus "contributing to stabilising the foreign exchange and currency markets", he said.
At the end of September, 23 out of 44 Vietnamese banks had gold deposits totalling 92.6 tonnes, 60 percent of which had been lent on, central bank data shows.
The central bank has devalued the dong VND=SBVNVND=VN three times since November and speculation about another devaluation has been putting pressure on the currency, making businesses reluctant to sell dollars.
Governor Nguyen Van Giau was quoted on Oct. 19 in a state media report as saying the central bank had no plans to adjust the exchange rate. [ID:nHAN476861] (Reporting by John Ruwitch and Ho Binh Minh; Editing by Alan Raybould)
-END-
end.
Hong Kong has always been a major gold centre and China has used this important centre as a gateway into China's increasing appetite for gold jewellry. They have been one supplier to the Chinese, followed by Italy, Switzerland and England.
Here is a report that shows jewellry demand in China jumping to 118 tonnes per year just from Hong Kong alone. Earlier in the year, I commented that
total demand for gold in China has been estimated at 400 tonnes per year and they produce 325 tonnes or so. This does not include gold used as official reserves. Since China also adds to its official reserves, huge tonnage of gold is arriving on China's shores. Here is this big story courtesy of Reuters:
Hong Kong Jan-Aug gold flow to China double on year
SINGAPORE, Oct 29 (Reuters) - The flow of gold from Hong Kong to China in the first eight months of 2010 is already nearly double that for the whole of 2009, suggesting appetite in the mainland for jewellery and investment purposes is rocketing.
China, the world's top consumer of base metals and second biggest user of oil is on gold bugs radar, with any hint that Beijing plans to boost its gold holdings rippling through international markets sending bullion higher.
No official numbers exist on mainland Chinese imports, but official Hong Kong trade data shows 78.5 tonnes of gold moved from the former British colony to the mainland in the year to August.
If the pace of buying continues for the rest of the year, Hong Kong's exports and re-exports of gold to China would be about 118 tonnes, compared with 44 tonnes last year and 90 tonnes in 2008. Re-exports are defined as material exported in the same state as imported.
Total exports of unwrought and semi-manufactured gold from Hong Kong in the year to August stood at 183 tonnes, down nearly 20 percent, highlighting ebbing demand for gold jewellery from the rest of the world, according to data published on the website of Hong Kong Census and Statistics Department. (www.censtatd.gov.hk)
Soaring gold prices which hit a record high at $1,387.1 in mid-October has depressed demand for gold jewellery in top consumer India and the rest of the world.
Hong Kong is Asia's biggest bullion trading centre and a main conduit for gold flows in the mainland. Hong Kong's imports of gold in the first eight months of the year shot up 31 percent to 186 tonnes, the data also showed.
end.
In other physical news, our ETFs resumed its huge positives to NAV with the central of fund of Canada showing a
8.5% positive to NAV and the PHYS showing a 3.5% gain.
I will be adding a third one, the PHU.s for Sprotts silver.
We will receive valuable information of all three as:
1. the central fund of canada (CEF.a) is equal amounts of physical silver and gold
2. the PHYS is strictly gold
3. the PHU.s is strictly silver.
many have asked me to include the central fund of canada's GTU.un for gold comparison
and I will generally include that if there is a disparity in the premiums.
Here is John Brimelow on the premiums. You will note that after 5 days there has been a change in the GLD and these doorknobs
sold 5.16 tonnes of gold. With gold rising in ever increasing demand this development is strange indeed:
The bullion vehicles also responded. CEF closed with a premium to NAV of 7.2% and PHYS of 3.58% (Wednesday 5.3% and 3.08%). The GLD ETF, after 5 days of no change, woke up and shed 5.16469 tonnes to 1,293.10087 tonnes. On its face a rather strange reaction to a strong rise in gold.
We received this Friday night, a drop in silver inventories at the SLV. Something big is going on as demand is going through the roof
and these bankers are using some of the silver inventory to bail out problems: (from the official SLV website)
Silver holdings in the iShares Silver Trust, the biggest exchange-traded fund backed by silver, decreased 82.13 metric tons to 10,141.92 metric tons as of Oct. 29, according to figures on the company’s website.
Silver futures for December delivery rose 3.6 percent to $24.75 an ounce on the Comex division of the New York Mercantile Exchange.
================================================================================ Oct. 29 Oct. 28 Oct. 27 Oct. 26 Oct. 25 Oct. 22 2010 2010 2010 2010 2010 2010================================================================================Million Ounces 326.070 328.711 328.711 328.711 328.711 328.711 Change (ounces)-2,640,468 0 0 0 0 0--------------------------------------------------------------------------------Metric tons 10,141.92 10,224.05 10,224.05 10,224.05 10,224.05 10,224.05 Daily change -82.13 0.00 0.00 0.00 0.00 0.00================================================================================NOTE: Ounces are troy ounces. SOURCE: iShares Silver Trust end.
I have now exhausted the physical portion of my commentary so how let us go to the bigger
economic stories which will influence metal prices.
There are two stories worthy of mention:
1. Consumer confidence
2. GDP growth announcements.
First, consumer confidence as reported by Reuters:
U.S. consumer sentiment dips to lowest since November
NEW YORK, Oct 29 (Reuters) - U.S. consumer sentiment worsened more than expected in October, hitting its weakest level since November, with concern about the economy high leading into next week's election, a survey showed on Friday.
The Thomson Reuters/University of Michigan's final October reading on the overall index on consumer sentiment came in at 67.7, down from 68.2 in September and below the 68.0 median forecast among economists polled by Reuters.
Tuesday's congressional elections are expected to result in losses for the Democratic Party, at least partly because of high unemployment and consumers' views on how Democratic President Barack Obama is handling the economy.
Earlier this month, the survey showed consumers' assessments of government economic policies fell to the lowest level since Obama took office.
"Residents of nearly all local areas expressed economic discontent. It would not be surprising for consumer confidence to rebound following the election; it would be surprising if those gains proved to be more than temporary," the survey's director, Richard Curtin, said in Friday's report.
Consumer spending typically accounts for about two-thirds of U.S. economic activity and is considered critical to the recovery.
The survey's barometer of current economic conditions declined to 76.6 in October from 79.6 in September. It was forecast by economists to come in at 73.5.
The survey's gauge of consumer expectations edged up to 61.9, above last month's 60.9 reading but below a forecast of 65.
The survey's measure on consumers' 12-month economic outlook rose to 67 compared with 61 in September, but the measure on their five-year outlook declined to 70 from 73 in September.
At the same time, the one-year inflation expectations measure rose to 2.7 percent from 2.2 percent in September, and the five-to-10-year inflation outlook index inched up to 2.8 percent from 2.7 percent in September.
end.
The consumer is 70% of the GDP so it looks like that there will be minimal growth in the usa.
The second big story is the GDP growth:
08:30 Q3 US GDP +2.0% vs. consensus +1.9%; Deflator +2.2% vs. consensus +1.9%
* Q2 GDP +1.7%
* Q2 Deflator +2.0%
* * * *
from Jim Sinclair and John Williams:
Thought For The Morning
1.4% of the GDP growth of 2% was inventories.
That is scary.
Jim Sinclair’s Commentary
John’s work is a great deal more than just these one liners.
His report on QE is excellent. It should be read.
- Third-Quarter GDP Growth Statistically Indistinguishable from Zero
- Official Economic Activity Is Virtually Flat Other Than for Inventory Building
- Fed Will Be Forced to Monetize Treasury Debt, Irrespective of Current Jawboning, Games Playing and Hand Wringing
- October Employment Data Likely Will Disappoint Market Expectations
Here is the official story from Reuters on the GDP number:
Consumer spending lifts third-quarter growth
WASHINGTON (Reuters) - U.S. economic growth edged up as expected in the third quarter but not enough to chip away at high unemployment or change perceptions of more monetary easing from the Federal Reserve next week.
Gross domestic product expanded at a 2.0 percent annual rate as consumer spending rose at its quickest pace since 2006 and businesses continued to rebuild inventories, the Commerce Department said on Friday. The economy expanded at a 1.7 percent rate in the second quarter and third-quarter growth matched economists' expectations.
"Growth is still positive, but a bit disappointing. It's not where we would like it to be at this point of the recovery," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.
The GDP report probably will not dissuade Fed officials at their November 2-3 meeting from announcing a second round of bond purchases next week to push interest rates down further and energize the recovery. But it is likely to color their debate.
Analysts expect the Fed to announce bond purchases of at least $100 billion a month to push borrowing costs lower and spur businesses to expand investment and hiring.
The economy is experiencing a slow recovery by historical standards, with unemployment at 9.6 percent and Americans increasingly nervous about the future.
That is expected to shift the country's political landscape in Tuesday's congressional elections, seen as a vote on President Barack Obama's performance on the economy. His Democratic party is expected to suffer big losses.
The U.S. central bank cut overnight interest rates to near zero in December 2008 and has bought about $1.7 trillion worth of Treasury and mortgage-related debt since then…
-END-
end.
As many of you know we have 3 major problems occurring at the same time which would probably cause the financial meltdown of
the world. These are:
1. the Foreclosure Mess of 2010 where asset backed mortgages were fraudulently sold by the banks to Fannie and freddie
and then to other investors in the USA, Canada and throughout the world. Investors are demanding that the bankers repay
their investment as their sale was faulty, fraudulent with many omissions and the warranties were falsely sworn. The banks thus have no proper
backing for their mortgages and they will all surely fail.
Home owners thrown out of their homes will use the court system and try and get their home back. This alone will bring down the system.
2. the major lawsuits filed against the banks for manipulation of silver. You will see that this will morph into gold as well.
The bankers have massively shorted both silver and gold and cannot possibly supply metal if everyone asked for it.
Major countries are already seizing the opportunity to move these precious metals onto their shores.
3.On Wednesday, the FOMC will probably announce a huge QEII whereby massive amounts of usa bonds will be bought by the Fed
itself. Zero Hedge disclosed on Thursday the "fill in the blank" requested by the NY Fed to the primary dealers and they will ask for 1 trillion
dollars per 6 month period or 2 trillion dollars in a full year. This is equal to the entire amount of bonds that the usa needs in the forthcoming year.
Many have written a 4th major problem and that is the bond bubble.
Yes, the huge purchase of bonds has created a bond bubble and when it bursts, hyperinflation will be upon us in a nanosecond.
Also think about all of those trillion dollars of interest rate swaps that must be paid.
I would like to leave you with two articles which expound on the foreclosure mess and the massive QEII that will be forthcoming.
The first is from zero Hedge:
Will The $426 Billion "Second Lien Monster" Require A New Marshall Plan For Housing? Reuters Special Report On Fraudclosure
Submitted by Tyler Durden on 10/29/2010 15:40 -0500
· Ohio
· PIMCO
The article:
Reuters' Matt Goldstein has completed a special report on foreclosure fraud, asking rhetorically: "foreclosures are rising; lawsuits are flying; banks are beleaguered; there has to be a better way?" Goldstein looks at fraudclosure from the perspective of the fight between junior and senior liens, a topic Zero Hedge discussed a month ago (The Foreclosure Mess MBS Hate Triangle Emerges: Junior Versus Senior Bondholders Versus Servicers) highlighting that $426 billion in loans are second lien, and, as highlighted previously, sit on the balance sheets of BofA, JPM, Wells and Citi in the biggest circle jerk in this whole mortgage crisis fiasco (always remember: one TBTF's mismarked assets always end up being another TBTF's unfudgeable liabilities). As the chart below shows, the banks have no choice but to come up with a compromise: obstinately keeping their heads in the sand is a guaranteed way for the entire financial system to blow up.
Which is why Goldstein asks what are the alternatives to resolve this problem. Six potential proposal have emerged: A Camp David summit, Second lien writedowns, Regulatory easing, Big Refi, Bond investors deal, and a Borrowers compromise. At the end of the day none of these solve all the problems, and all go through the perspective of a TARP 2-type intervention for the banks. Which means that Obama will have to make a decision whether or not to impair the equity and senior debtholders again. And if the president once again sides exclusively with the banks, that will certainly be the tipping point in US populist anger.
At the end of the day, DoubleLine Portfolio Manager Vincent Fiorillo, may be right, and what may be called for is the same type of multilateral bail out costing trillions of dollars in inflation adjusted terms that was the "Marshall Plan."
“No one wants to put the banks in an untenable situation,” said Vincent Fiorillo, a mortgage-backed security trader and portfolio manager with Los Angeles-based DoubleLine Capital. “If the choice is between getting something, I think that as a fiduciary getting something would be my first choice.” Fiorillo said it may ultimately take some third party to bring all the sides together and hammer out a “Marshall Plan for the mortgage business.”
Perhaps the unwillingness of various actors who do have much to lose by escalating the issue is one reason why they have so far been unwilling to enjoin de facto monopolists such as Pimco and the New York Fed to pursue aggressive putbacks. Of course, the status quo is most agreeable to all market participants. The problem is what happens when the cash runs completely dry from the simple flesh and blood securities that are at the basis of every MBS. And that's why we soon may truly need a Marshall Plan, the type that is more than a metaphor and is a full fledged wholesale rescue of a crushed entity. Only this time instead of rescuing a continent beleaguered by the ravages of the biggest war in history, it will be the US housing sector, ravaged by what is becoming perceived as the biggest and most pervasive mortgage fraud in history.
Full Reuters must read special report.
end.
I will leave you with this great commentary for Greg Hunter of WatchDog usa.
The article is terrific: ( I encourage you to click on the Prof Black video)
The Fed Bought Fraud
29 OCTOBER 2010 28 COMMENTS
By Greg Hunter’s USAWatchdog.com
In the wake of the financial meltdown of 2008, the Federal Reserve announced it would buy mortgage-backed securities, or MBS. The January announcement by the Fed said it would buy MBS from failed mortgage giants Fannie Mae and Freddie Mac in the amount of $1.25 trillion. At the time, the Fed said in a press release, “The goal of the program was to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally.” (Click here for the full Fed statement.)It did provide “support” to the mortgage market, but did it also buy fraud and cover the banks that sold it? The evidence shows, at the very least, it bought massive amounts of fraud.
We now know the Fed definitely bought valueless MBS because it has joined other ripped-off investors to demand Bank of America buy back billions in sour home debt. A Bloomberg story from just last week, featuring Philadelphia Fed President Charles Plosser, reports, “The New York Fed, which acquired mortgage debt in the 2008 rescues of Bear Stearns Cos. and American International Group Inc., has joined a bondholder group that aims to force Bank of America Corp.to buy back some bad home loans packaged into $47 billion of securities. On the one hand, the Fed has “a duty to the taxpayer to try to collect on behalf of the taxpayer on these mortgages,” Plosser said today at an event in Philadelphia.”
Mr. Plosser lamented the “difficult spot” the central bank is in because it is both bank regulator and plaintiff. He said, “Should we be in the business of suing the financial institutions that we are in fact responsible for supervising?” (Click here to read the complete Bloomberg story.) To that question, I ask shouldn’t the Fed have done a much better job of supervising the big banks in the first place? The whole financial and mortgage crisis from sour securities to foreclosure fraud is in the process of blowing sky high. The entire mess is clearly the biggest financial fraud in history! It looks to me like the regulators were just supervising their pay checks being deposited into the bank.
And remember, the $1.25 trillion of mortgage-backed securities the Fed bought from Fannie and Freddie? How much of that is fraud? William Black, the outspoken Professor of Economics from the University of Missouri KC, says all the big banks were committing “major frauds”in the mortgage-backed security market. Black says, at Citicorp, for example, “. . . 80% of the mortgage loans it sold to Fannie and Freddie were sold under false representations and warranties.” (Click here for the complete Black interview.)Black claims the frauds increased at some banks, and it is sill going on today! (I admit I used this same video in a recent post. I use it again, because it is the single most important and damning indictment of the big banks out there. Professor Black defines the size of the entire fraudulent mortgage mess.)
If he’s right, and I think he is, that means the Fed just spent the last 20 months (the program ended in August 2010) buying a trillion dollars in mortgage fraud! That is a staggering amount even for the most powerful central bank in the world. Could the Federal Reserve have bought that amount of fraudulent MBS and not have known it? Could the Fed have been buying that amount of rotten worthless debt to cover the banksters in the syndicate? Who knows if we will ever find that out because the Federal Reserve cannot be independently audited. And who knows what else it bought in sour debt to bail out their banking syndicate buddies because the Federal Reserve cannot be independently audited! It has never been audited in its 97 year history. I know one thing, if the Fed is going to keep its banking cartel alive, it is going to be forced to print massive amounts of money out of thin air to buy a heck of a lot more fraudulent mortgage-backed securities. That’s what worries and scares me the most.
Related Posts:
§ The Perfect No-Prosecution Crime
§ 5 Questions for Ben Bernanke
§ Housing is Dragging the Economy to Hell
§ Fear, Desperation and Doom Describe the Housing Market
end.
I guess we had a little boring week. Next week, I promise you more fireworks.
I hope you all have a grand weekend. I will be spending some time with my
grandchildren.
all the best
Harvey
