Saturday, January 29, 2011

COT report..corrected for my commentary on Jan 29.2011

Good evening Ladies and Gentlemen:

 

I accidently this morning took the previous week's COT instead of what was released last night.

 

Here is the corrected version:

 

First the COT gold report:

 

Gold COT Report - Futures

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

232,725

72,136

25,547

181,815

379,298

440,087

476,981

Change from Prior Reporting Period

-4,679

-275

-55,760

-19,774

-28,762

-80,213

-84,797

Traders

176

89

83

55

52

270

192

 

 

Small Speculators

 

 

 

 

Long

Short

Open Interest

 

 

 

65,960

29,066

506,047

 

 

 

-1,572

3,012

-81,785

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Gold Report - Positions as of

Tuesday, January 25, 2011

 

 

Here the large speculators that have been long reduced their long position by 4679 contracts.

Those large speculators that have been short reduced their shorts by a tiny fraction of 275 contracts.

 

And now for the spreaders.  The original amount of spread contracts amounts of 81000 contracts.  The comex notified us that 55,760 contracts were reduced in the spreading category.

This is why the story from Reuters is faulty where one trader "admitted" to 81000 contracts of spreading in the gold market. The story in my belief is bogus.

 

In the commercial category  those commercials that were long in gold decreased those longs to the tune of 19,774 contracts. 

And are famous bankers covered a monstrous 28,762 contracts.

 

In the small speculator category those small speculators that were long decreased those positions by 1562 contracts

Those that were short  added to those short positions to the tune of 3012 contracts.

 

It seems that the bankers covered a massive amount of their total short position.

 

and now for silver:

 


non reportable positions

Change from the previous reporting period

 

 

COT Gold Report - Positions as of

Tuesday, January 25, 2011

 

 

Silver COT Report - Futures

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

38,699

10,473

26,445

29,818

72,964

94,962

109,882

-1,311

116

-9,724

-845

-3,067

-11,880

-12,675

Traders

80

48

38

34

36

138

100

 

Small Speculators

 

 

 

 

Long

Short

Open Interest

 

 

 

30,267

15,347

125,229

 

 

 

1,434

2,229

-10,446

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Silver Report - Positions as of

Tuesday, January 25, 2011

 

 

 

In silver, those large speculators that have been long in silver lightened up a bit to the tune of 1311 contracts.

Those large speculators that have been short added a tiny 116 contracts.

 

Note: the large spreading position is silver was reduced by 9724 contracts.

I believe the correct story of the 81000 contraction is gold is the jawboning by CFTC officials to the spreaders to liquidate their positions immediately as they feared a backwardation situation in both metals may cause the Comex severe harm.

 

In the commercial category, those long commercials in gold decided to lighten up on their positions by 845 contracts.

And now for our famous commercial bankers, JPM and HSBC: they covered a rather large 3067 contracts.

Those small speculators that have been long increased those long positions to the tune of 1434 contracts.

The small speculators that have been short increased those short positions by 2229 contracts.

 

It seems that the gold COT was much more violent that the silver.

 

This is the corrected version of the latest cot.   I accidently used last week's version instead of today.

I would like to thank everyone who pointed this out to me.

 

I am OK and ready to serve you on Monday.

 

all the best

\Harvey

Gold and Silver rally/Huge Problems in Egypt/Oil rises

Good  morning Ladies and Gentlemen:

 

Before commencing, I would like to introduce to you, the latest entrants to our famous banking morgue:

 

We lost 3 banks last night  (courtesy of Jim Sinclair)

 

Bank Closing Information – January 28, 2011 
These links contain useful information for the customers and vendors of these closed banks.

FirstTier Bank, Louisville, CO 
Evergreen State Bank, Stoughton, WI
 
The First State Bank, Camargo, OK

http://www.fdic.gov/

 

end.

 

Gold closed at comex closing time at $1340.70 up a huge $22.30.  In the access market it finished the day a little lower at $1338.50.  Silver had a banner day closing up .90 to close at $27.94.  Silver and gold were hit in the access market but silve rebounded after being hit hard to close higher at 28.01 up $1.07 for the day.

 

I would like to go straight to comex trading and see how things of over fared and how those developments will assist you when Monday arrives.

 

The total gold comex open interest fell by 2226 contracts to 488,926 which is basis Thursday.  As Thursday was a huge raid against silver and gold the contraction in open interest was minor.  The January options expiry month has now been officially put to bed as it is now off the board.  The all important front delivery month of February saw its open interest fall from 99,036 to 42,809 for a loss of  56,227 contracts.  These guys switched to the next delivery month of April.  This represents 4.28 million oz.

However we must wait to see the final open interest for February and that will occur at 1;30 pm Monday. (remember in OI we are always 1 day back) The estimated volume today was good at 303,300 considering that 56K switched.  The confirmed volume on Thursday as promised to you did exceed 400,000 contracts to register a reading of 411,190.

 

In the silver comex open interest hardly budged down 720 contracts to 124,501.  The January options expiry month is now off the board in silver as well.  The front month of March saw its open interest fall marginally from 66,113 contracts to 64,946.

It will be exciting to watch this open interest throughout February as we will witness how many will stand in silver for this big delivery month.  The volume on the silver comex estimated for yesterday was a very high 73,895.  The confirmed volume on the

day of the raid on Thursday was 65,602.  The bankers did not like what they saw in silver and whacked and whacked but silver pricing remained resolute.

 

 

Here is a chart for Jan 28.2011 on deliveries and inventory changes at the comex:

 

Silver

Withdrawals from Dealers Inventory 

zero oz

Withdrawals from customer Inventory 

972 oz

Deposits to the dealer Inventory

 zero

Deposits to the customer Inventory

1980 oz 

No of oz served  (contracts  50

250,000 oz

No of notices to be served zero

zero oz

Gold

Withdrawals from Dealers Inventory 

zero

Withdrawals from customer Inventory 

 zero

Deposits to the dealer Inventory

  zero

Deposits to the customer Inventory

Zero oz

No of oz served (contracts 13

1300 oz

No of oz to be served zero

Zero oz

 

OK. let us start with the less volatile gold. 

There was zero activity in gold movements in inventory. On Monday, we have first day notice where the comex bankers will see how many longs are standing and they can start issuing paper notices of delivery. To see no gold enntering the comex vaults prior to a first day notice is something to behold!

The comex folk notified us that 13 notices were served upon our longs and that open interest thus reverted to zero.  Those 13 notices equate to 1300 oz of gold.  The total number of notices sent down for the month total 717 or 71700 oz of gold.  This is the final number of gold standing in this options delivery month of January. This represents 2.3 tonnes of gold  (Thursday’s total +  70,800 oz  so we gained 900 oz )

And now for silver:

We saw minimal activity at the silver comex vaults. A customer received 1980 oz of silver and another  customer withdrew 972 oz.  So if you are keeping score, the net deposit of silver was 1008 oz.  There was another massive adjustment of 469,750 oz whereby a dealer repaid this quantity to a customer for a prior loan/lease etc.

The comex folk notified us that 50 notices were sent for delivery totalling 250,000 oz.  The total number of notices sent down for the month totalled 819 or 4,095,000 oz

This is the final number of silver standing for the month for a gain of 1000 oz from Thursday.

The month of February is not a delivery month for silver but we do get options exercised for a silver contract.  Generally all who exercise an options contract stand for delivery .

 

I would like to point out that it looks like 30,000 options were exercised for gold as this was reported to us by Adrian Douglas of Lemetropolecafe.com.  What is interesting here is that many exercised options contracts that were out of the money.  In other words, investors did not care..they exercised at any price.

Here is Adrian’s comment on options:

More than 30,000 options were exercised yesterday with even out-of-money options being exercised of strikes at $1335, $1340 and $1345. This is a sign of investors wanting to stand for delivery. The large open interest which is still open in FEB was no doubt the reason for the vicious attack today (the reason why silver suffered relatively little by comparison). Tomorrow is the last trading day before First Notice day so it will be an interesting day and will give an indication of the FEB gold delivery problem for the cartel.
Cheers
Adrian

 

Monday will be a very important day for gold as we await the number of gold oz that will stand.  There may be a squeeze as many seek the precious metal.

End

 

Let us see how are ETF's fared:

 

The GLD updated their website last night:

Total Gold in Trust:  Jan 28.2011

Tonnes: 1,224.12

Ounces:39,356,622.80

Value US$:
51,894,370,566.81

 

 

 

 Total Gold in Trust  Jan 27.2011:

 

 

Tonnes: 1,226.55

Ounces:39,434,685.74

Value US$:
52,609,143,059.00.

 

 

 

Total Gold in Trust Jan 26.2011

Tonnes: 1,229.58

Ounces:39,532,265.85

Value US$:
52,482,981,959.72

 

 

we lost another 2.5 tonnes of gold. It seems our regulators are asleep at the wheel at both the CFTC and SEC

let us now head over to the SLV inventory.  Here is today's totals:

Ounces of Silver in Trust

335,217,607.400

Tonnes of Silver in Trust Tonnes of Silver in Trust

10,426.43

 

 

Jan 27.2011

Ounces of Silver in Trust

335,217,607.400

Tonnes of Silver in Trust Tonnes of Silver in Trust

10,426.43

 

The inventory remained the same. 

 

 Let us see how are other ETF's fared tonight:

 

The Sprott silver fund rose from  11.34%% premium to NAV to 11.81%

The Sprott gold fund saw its positive to NAV  rise to 2.96% premium to NAV., from 2.90%

The central fund of canada saw its positive to NAV rise sharply from 3.9% to 10.5% in USA funds and 11.1% in Canadian funds.

Seems the world was anxious on Friday to get a hold of silver metal at any costs.

 

end.

 Before heading over to the COT report, there has been another explanation given by the CFTC on that massive 81,000 contraction in open interest last Monday.

The explanation was given that a spreader-trader hedge fund operator had built up over 10% of the total gold interest buying a selling spreads:

Here is the story and I will refute this as it just does not make sense.  You will see that I am right when you see the data. 

First the story: (special thanks to Jim Sinclair for providing the story)

Jim Sinclair’s Commentary

The ideas that a spread financed at $10,000,000 can control the total production of gold from South Africa shows you the madness of credit, debt and markets now.

Huge U.S. gold position liquidated by fund-WSJ 
LONDON | Fri Jan 28, 2011 5:44am EST

LONDON Jan 28 (Reuters) – Hedge fund SHK Asset Management liquidated a U.S. gold futures position this week valued at over $850 million, more than 10 percent of the main U.S. futures market, the Wall Street Journal reported on Friday.

As a result of the move, which was made on Monday, the number of gold contracts on CME Group Inc.’s Comex division plunged by more than 81,000, to about 500,000, in their biggest single fall ever, the WSJ reported. It said an average daily move is about 3,000 to 5,000 contracts.

Daniel Shak, who runs the $10 million fund, told the newspaper that the trade had been profitable for him for years, but it stopped working and the exchange kept raising his margin requirements, forcing him to put up more money.

Shak said that when the exchange raised it by 25 percent on Monday, he decided to cut his losses and end the trade, the newspaper said.

More…

 

I highlighted the entire article for you and it is from Reuters:

 

Huge U.S. gold position liquidated by fund-WSJ

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LONDON | Fri Jan 28, 2011 5:44am EST

Jan 28 (Reuters) - Hedge fund SHK Asset Management liquidated a U.S. gold futures position this week valued at over $850 million, more than 10 percent of the main U.S. futures market, the Wall Street Journal reported on Friday.

As a result of the move, which was made on Monday, the number of gold contracts on CME Group Inc.'s Comex division plunged by more than 81,000, to about 500,000, in their biggest single fall ever, the WSJ reported. It said an average daily move is about 3,000 to 5,000 contracts.

Daniel Shak, who runs the $10 million fund, told the newspaper that the trade had been profitable for him for years, but it stopped working and the exchange kept raising his margin requirements, forcing him to put up more money.

Shak said that when the exchange raised it by 25 percent on Monday, he decided to cut his losses and end the trade, the newspaper said.

(Reporting by Jan Harvey; Editing by Jason N

 

The story looks bogus to me as the “transaction” occurred last Monday.  You will note that the spreading liquidated 81000 contracts.

 

Now I shall provide to you the COT report which includes the uneconomic spreading:

 Posted Friday, 21 January 2011 | Share this article | Source: GoldSeek.com  

Gold COT Report - Futures

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

237,404

72,411

81,307

201,589

408,060

520,300

561,778

Change from Prior Reporting Period

3,071

15,450

-1,210

253

-18,340

2,114

-4,100

Traders

186

85

80

53

52

277

188

 

 

Small Speculators

 

 

 

 

Long

Short

Open Interest

 

 

 

67,532

26,054

587,832

 

 

 

-2,461

3,753

-347

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Gold Report - Positions as of

Tuesday, January 18, 2011

 

 

Let us begin:

You will see that those large speculators that have been long increased those positions by a very healthy 3071 contracts.

Those that have been short, added a massive 15,450 contracts to their already short position.  They thus provided a huge bulk of the unbacked paper.

 

AND NOW FOR OUR SPREADERS:

PLEASE NOTE: A LOSS OF ONLY 1210 CONTRACTS. (This is as of Tuesday which thus includes Monday’s totals)

The story that this guy SHAK liquidated 81000 contracts on Monday is totally bogus as the figures do not suggest this transaction.

To boot: the entire spreading category has a total 81,307 contracts.  If the SHAK transaction was true, then the entire spreading position would have been liquidated.

And now for the commercial category:

Those commercials that have been long gold added to the long position to the tune of 253 contracts. .  These guys are the intermediate bankers and swap dealers who are close to the physical metal.

And our large commercials who have been perennially short covered a massive 18,340 contracts. Thus it was not the bankers who provided the short un- backed paper but the large speculators.

The small speculators that have been long decreased their positions by a 2461  contracts.  And those small specs that have been short added 3753 contracts to their short position

 

And now for the silver COT report:

n reportable positions

Change from the previous reporting period

 

 

COT Gold Report - Positions as of

Tuesday, January 18, 2011

 

Silver COT Report - Futures

Large Speculators

Commercial

Total

Long

Short

Spreading

Long

Short

Long

Short

40,010

10,357

36,169

30,663

76,031

106,842

122,557

1,440

1,056

-645

-124

-1,506

671

-1,095

Traders

78

44

41

34

37

138

100

 

Small Speculators

 

 

 

 

Long

Short

Open Interest

 

 

 

28,833

13,118

135,675

 

 

 

-1,327

439

-656

 

 

 

non reportable positions

Change from the previous reporting period

 

COT Silver Report - Positions as of

Tuesday, January 18, 2011

 

 

The large speculators that have been long silver continued to add to their positions by 1440 contracts.

Those large speculators that have been short added another 1056 positions to their shorts.

And now for our famous bankers:

Those large commercials that have been long lessened those longs by a tiny 124 contracts.

And now for our famous commercials that have been perennially short like JPMorgan and HSBC:

These guys reduced their shorts by a tiny 1506 contracts.

The small specs are now entering into the fray:

Those small specs that have been long silver reduced their positions by 1327 contracts.

And those spec specs that have been short silver added another 439 short positions to their totals.

End

 

John Brimelow reports that the premium to spot gold in Viet Nam has risen to $66.56  at $1345.00 vs spot at $1313.84.

The premium to stop in Shanghai rose to $18.81 for a closing price over there at $1334.15.

End

 

Here is another story on Russia who seeks to add gold to its inventory of official reserves:

Story courtesy of Reuters:

Russia lifts gold reserves to world's 8th largest

LONDON, Jan 28 (Reuters) - Russia added 135 tonnes of gold to its reserves in the first eleven months of last year, including 9 tonnes in December, to become the world's eighth largest bullion holder, the World Gold Council said on Friday.

The WGC said in a statement that with these additional purchases, Russia has surpassed Japan in gold reserves. Central banks' interest in gold has risen in recent years as the global financial crisis boosted gold's appeal as a haven from risk.

This has in turn helped support prices of the precious metal , which rose nearly 30 percent last year, hitting record highs at $1,430.95 an ounce.

"This week deputy chairman Georgy Luntovsky of the Central Bank of Russia indicated that gold reserves at the bank increased by 280 tonnes over the past two years and would continue to grow at a similar speed, with purchases of at least 100 tonnes every year," bank Natixis said in a research note.

"Russia seeks to do so through domestic mine production and not imports, as was implied by prime minister Vladimir Putin in recent comments," it added.

Russia was expected to be the world's fifth largest gold producer last year behind China, Australia, the United States and South Africa, metals consultancy GFMS said, with output of 205.2 tonnes.

EURO ZONE CEBANK SALES EASE

The WGC added that gold sales from euro zone central banks had amounted to less than 1 tonne in the second year of the Central Bank Gold Agreement to date, which started in late September. Annual sales under the CBGA are capped at 400 tonnes.

Total sales in the second year of the pact so far, including those made by the International Monetary Fund, totalled 52.2 tonnes. The IMF is not a signatory of the pact, but agreed to make 403 tonnes of planned sales under its umbrella.

Its sales programme finished in December.

The five-year CBGA was first signed in 1999 to curb hefty official sales that had pressured gold prices in the 1990s, and is currently in the second year of its third incarnation.

Sales in the first year of the third pact totalled just 136 tonnes, down from 497.2 tonnes five years previously.

The WGC said the latest figures demonstrate "a reduced appetite among the eurozone banks for disposing of gold reserves."

End.

And this story on the same subject (special thanks to Jim Sinclair commentary).  The author is Christian Gomez of the New American:

Russia Moving to Gold Standard? 
Written by Christian Gomez 
Friday, 28 January 2011 11:24

With the value of the U.S. dollar exponentially declining since the establishment of the Federal Reserve Bank in 1913, it comes as no surprise that many world leaders and international economists have expressed their desire for a new world reserve currency. In light of the global financial crisis, Russia may be moving toward a sound economic solution — gold.

On Monday, January 24, the First Deputy Chairman Georgy Luntovsky of the Central Bank of Russia (CBR), announced plans to purchase over 100 metric tons of gold every year — increasing the bank’s gold reserves by 13 percent in 2011.

Last year alone, the CBR expanded its gold holdings by 23.9 percent to 790 tons. Why the sudden increase? “The current set of reserve currencies and the main reserve currency — the U.S. dollar — have failed to function as they should,” Russian President Dmitry Medvedev told a Shanghai Cooperation Organization summit on June 16, 2009, adding that he would like to see the Russian ruble become a global reserve currency.

Medvedev’s desire for the ruble to be a global reserve currency, or part of a new economic world order, may not be the only reason for the sudden gold increase. With the signing of the Customs Union treaty last month, the leaders of Russia, Belarus, and Kazakhstan agreed to establish a free-trade zone among themselves with a common currency. The Customs Union — set go into effect on January 1, 2012 — has been regarded as the economic restoration of the Soviet Union.

A new gold ruble could serve as the basis for a common currency between the three old Soviet republics, much as the former Soviet ruble once was.

More…

 

End.

Now let us now see the big economic stories of the day.  The problems within Egypt intensified yesterday.  The world is very worried due to the huge problems in the Suez region where there is massive civil unrest.

Many cargo ships pass through the Suez canal and if blocked, then ships will have to cross the Cape of Good Hope.  Costs of oil in rise sharply.  The other concern is Israel who depends on Egyptian oil as Israel gave up its oil discoveries  in exchange for peace.  If militants take power in Egypt, Israel will have to attack to get its needy oil .

Last night the President of Egypt Hosni Mumbarak fired his entire government.  He is not giving up.  Here are the major stories on Egypt today and yesterday:

The three stories below are courtesy of Jim Sinclair

Jim Sinclair’s Commentary

Things in Egypt continue to crumble.

Mubarak Dismisses Egypt’s Government 
January 28, 2011 | 2241 GMT

Egyptian President Hosni Mubarak in an address broadcast on state television Jan. 28 said that he has dissolved the government and will form a new government Jan. 29. In other words, Mubarak is not stepping down.

Changing the political face of the government is unlikely to pacify Egyptian protesters. Mubarak is undoubtedly the primary target of the demonstrations. The crisis in Egypt is thus far from over. The military still appears to be the main power broker in the country, and Mubarak’s fate is likely in the hands of his generals. Mubarak’s appeal to stay and the hours-long delay in making this speech could be a negotiated step between the two sides, but the potential for more direct and overt military intervention remains extremely high. Chief of Staff of the Armed Forces Lt. Gen. Sami Annan is expected to return to Cairo by Jan. 29 and next steps by the military are likely to be discussed then.

The announcement was strategically made in the middle of the night in Egypt to give time for troops to take position. The military’s interaction with the demonstrators will need to be watched closely. So far, the military has been able to move into the cities and has been welcomed by the protesters without employing the more heavy-handed tactics of the internal security forces. What order they imposed came not from violence but from the perception that they would enable the demonstrators to bring down Mubarak.

More…

End.

 

Egypt Withdraws From Internet After Protesters Take to Streets 
By Jonathan Browning – Jan 28, 2011 8:41 AM PT

Egypt, which has one of the most advanced telecommunications markets in the Middle East and Africa, “withdrew” from the Internet, after Egyptian authorities shut connections to the outside world.

Internet traffic volumes into and out of Egypt slumped at about 12:20 a.m. Egyptian time today, according to Internet security company Arbor Networks. Mobile-phone services run by local units of Vodafone Group Plc and France Telecom SA were also halted.

“Rather abruptly, in a coordinated fashion, all of the major Internet providers that have traffic in and out of Egypt basically withdrew from the Internet,” said Craig Labovitz, chief scientist at Arbor Networks.

Egyptian authorities shut the connections after anti- government demonstrators took to the streets inspired by an uprising that ousted Tunisian President Zine El Abidine Ben Ali on Jan. 14. Internet traffic volumes slumped at about 12:20 a.m Egyptian time today, Arbor Networks said. The Egyptian authorities couldn’t immediately be reached for comment.

Vodafone said it was ordered to suspend mobile-phone services in selected areas. “Under Egyptian legislation, the authorities have the right to issue such an order and we are obliged to comply with it,” Vodafone said in an e-mailed statement. “All mobile operators in Egypt have been instructed to suspend services in selected areas.”

More…

 

end

CIGA Green Hornet submits this as an example of brain surgeons at work in Finance.

Fitch downgrades Egypt outlook to negative 
By TAREK EL-TABLAWY – Jan 28, 2011 10:36 AM ET 
By The Associated Press

CAIRO (AP) — Fitch Rating on Friday revised down its outlook for Egypt, dropping it to "negative" as mass protests in the country turned violent, engulfing the capital and other cities in the most serious challenge to President Hosni Mubarak’s regime in years.

Fitch said it was holding steady Egypt’s other ratings, including its long-term foreign currency issuer default rating, which was held at the investment grade BB+.

"The Outlook revision reflects the recent upsurge in political protests and the uncertainty this adds to the political and economic outlook ahead of September’s elections," said Richard Fox, head of Fitch’s Middle East and Africa Sovereign Ratings. Egypt is slated to hold presidential elections in the fall.

The revision came after the Egyptian stock exchange’s benchmark EGX30 plummeted about 17 percent in two days, a drop fueled by investor panic over Tunisia-inspired protests that erupted Tuesday in the Arab world’s most populous nation. The demonstrations have focused on the economic disparity in the country, spiraling food prices and the grinding poverty that afflicts nearly 40 percent of Egypt’s 80 million people.

Analysts have downplayed the likelihood that President Hosni Mubarak’s regime would be ousted as a result of the protests. But the mass rallies in which tens of thousands have clashed with riot police have pushed to the surface latent concerns about Egypt and raised questions about the economic impact on the country.

More…

End

 

 

And now for  other newsworthy business stories.

The GDP was released by the government yesterday and it registered a gain of 3.2% with the pundits predicting 3.5%.  The Dow plummeted on the news knowing full well that the economy is not really growing.

Here is the official release of GDP:

U.S. economic news:

08:30 Q4 US GDP (advance) +3.2% vs. consensus +3.6%; Deflator +0.3% vs. consensus +1.6% 
* Final Q3 GDP +2.6%
* Deflator +2.0%
 
* * * * *

Consumer spending and trade buoy economy

WASHINGTON (Reuters) - The U.S. economy gathered speed in the fourth quarter, though a touch below expectations, with the biggest gain in consumer spending in more than four years and strong exports offering the clearest signals yet that a sustainable recovery is under way.

Even with growth quickening, however, progress reducing unemployment has been painfully slow, and the report on U.S. gross domestic product on Friday is little comfort for millions of unemployed Americans or the Federal Reserve officials on a jobs-creation vigil.

The economy grew at a solid 3.2 percent annual rate in the final three months of 2010, the Commerce Department said, after expanding at a 2.6 percent pace in the third quarter. The rise was a touch below economists' expectations for a 3.5 percent rate.

For the whole of 2010, the economy grew 2.9 percent, the biggest gain since 2005. The economy contracted 2.6 percent in 2009.

"Unfortunately we still need to see much stronger growth to begin to really make a dent in the unemployment rate. Right now we are just barely creating enough jobs to stabilize the unemployment rate," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania, before the data was released.

On Wednesday, Fed officials voiced concern the pace of the recovery was still not strong enough to significantly lower unemployment and reiterated a commitment to a $600 billion stimulus effort through the purchase of government bonds.

The jobless rate has been stuck above 9 percent since May 2009. With the economy's growth potential between 2.5 percent and 2.7 percent, analysts say an expansion rate of at least 3 percent over several quarters is needed to cope with new entrants in the labor market and the unemployed.

The unemployment rate fell to 9.4 percent in December from 9.8 percent in November.

CONSUMERS SHOULDER RECOVERY

Details of the GDP report showed the economy moving in the right direction. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 4.4 percent rate - the fastest pace since the first quarter of 2006.

"The handoff from temporary factors to domestic demand is under way. This is what we need for the recovery to be self-sustaining," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

Consumer spending added 3.04 percentage points to fourth-quarter GDP growth, also the largest contribution in more than four years.

Support to growth during the fourth quarter also came from a pick-up in exports, which resulted in a narrower trade deficit. Trade added 3.44 percentage points to GDP growth, the first contribution in a year.

That offset the drag from business inventories, which increased a mere $7.2 billion after a $121.4 billion rise in the third quarter.

Inventories, which had been the main driver of growth since the start of the recovery in the second half of 2009, subtracted from GDP growth for the first time since the second quarter of 2009.

Excluding inventories, the economy grew at a 7.1 percent rate after rising at a 0.9 percent pace in the third quarter.

Business spending on equipment and software notched its seventh straight quarter of growth, though the pace slowed to 5.8 percent from 15.4 percent in the prior quarter.

Although businesses have been hesitant to hire, they have used their vast cash reserves to buy new equipment and upgrade their technology.

Investment in home building and nonresidential structures were surprise additions to growth in the fourth quarter. Home construction grew at a 3.4 percent pace, while structures expanded at a 0.8 percent - the first growth since the second quarter of 2008.

Government spending contracted, with much of the drag coming from state and local governments.

The advance GDP report also showed a rise in the personal consumption expenditures price index, reflecting the recent surge in food and gasoline prices. The overall PCE price index rose at a 1.8 percent rate after increasing at a 0.8 percent pace in the third quarter.

But the core PCE price index, which excludes food and energy costs, advanced at a record low 0.4 percent pace after rising at a 0.5 percent rate in the previous quarter, highlighting the Fed's concerns about low underlying inflation.

End

As many of you know, my favourite indicators as to how the economy is shaping up is in the Baltic Dry Index which measures the rate at which ships charge to move commodities.

This indicator is plummeting: the story is from the Wall Street Journal  under their blog: Market Beat

Baltic Dry Index: More Bad News?

This doesn’t look good.  But it might not be quite as ugly as it appears.

Behold, the Baltic Dry Index, poking around lows we haven’t seen since the first few green shoots sprouted forth from the charred earth after 2008’s great financial conflagration. Yesterday the measure closed at 1186, that’s the neighborhood it lived in during early February of 2008!

http://s.wsj.net/public/resources/images/OB-MD441_Baltic_E_20110128132904.jpg

Thomson Reuters

MarketBeat power readers will tell you that the BDI is more than just a measure of shipping costs. Over the last decade it’s gained importance as a key gauge not just for the shipping industry but the global economy. Due to the shipping industry’s stable supply structure, the index was touted as a good proxy for overall demand for raw materials, the basic building blocks of an economy.

So, is its recent move lower a bad signal on the economy? It’s hard to say exactly. For one thing, as a price measure, it reflects supply and demand. And there’s been a lot of shipping capacity added to the recently, which could push the price down.

http://si.wsj.net/public/resources/images/MI-BB823_BALTIC_E_20100302181851.jpg

Bloomberg News

Load ‘em up.

But watchers of the shipping industry also think that there could be signs of softness on the demand sign. Natasha Boyden, a shipping industry analyst for Cantor Fitzgerald, wrote this in a Jan. 24 note on the dry bulk shipping industry, which the Baltic Dry measures:

The dry bulk sector started the quarter fairly stable, however, market conditions deteriorated as the quarter wore on. While the closure of smaller steel mills before the end of the year as local governments work to meet energy efficiency goals under the 11th five-year plan likely
impacted demand on the margin, iron ore demand was relatively robust with November and December iron ore imports rising to 57.4 MT and 58.1 MT, respectively, up from 45.7 MT in
October. However, this means 2010 iron ore imports into China were 619.2 MT, down
slightly from 628.5 MT in 2009. We continue to believe the Chinese government’s attempts to
reign in a potential property market bubble has put a dent on steel demand, while policies
aimed at curbing the substantial amount of overcapacity and inefficiency in its steel industry
will likely impact production.

And Douglas Mavrinac, a shipping analyst at Jefferies and Co. writes:

In fact, not only are Chinese iron ore port inventories at historically high levels standing at approximately 80.1 million tons, given that China accounts for over 60% of the seaborne iron ore trade, any potential overtightening by the government could have major negative implications for the global seaborne iron ore trade.

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The second indictor I used is the private ECRI .  These guys give a good report on the shape of the economy.

Here is their report for last week:

US economy growth gauge falls to 6-week low - ECRI

NEW YORK, Jan 28 (Reuters) - A measure of future U.S. economic growth fell to a 6-week low while the annualized growth index declined to a 3-week low, 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 127.5 in the week ended Jan. 21 from 128.9 the previous week.

That was the lowest since Dec. 10, 2010, when it stood at 127.2.

The index's annualized growth rate fell to 3.5 percent from 4.1 percent a week earlier. That was the lowest since Dec. 31, 2010, when it was 3.2 percent.

-END-

 

The third indictor I use is the TIC report and that should be out this week.

Moody's is putting the USA on notice:

Moody's says U.S. credit rating risks are rising

NEW YORK, Jan 27 (Reuters) - Moody's Investors Service warned on Thursday of the growing likelihood that it could revise the outlook on the AAA credit rating of the United States to negative in the next two years.

Moody's had said late last year that the extension of Bush-era tax cuts for two more years would add to the likelihood of a negative outlook on the U.S. rating.

In a report issued on Thursday, the agency provided more details about the risks to U.S. ratings.

"Recent trends in and the outlook for government financial metrics in particular indicate that the level of risk, while still small, is rising and likely to continue to rise in the next several years," the ratings agency said in a report.

Prices for U.S. Treasuries were unmoved on the report, with benchmark 10-year notes remaining 6/32 higher on the day, yielding 3.39 percent.

In the thinly traded sovereign credit default swap market, the five-year cost to insure against a U.S. government default showed little change on the report.

It last traded at 50.5 basis points, off the day's earlier peak but near recent 11-month highs.

However, some traders said the report, which broke late on Thursday, could still seep into markets and pull bonds down on Friday.

"When you have punishing news like this from Moody's and other rating agencies, it will clearly leave a negative impression on Treasuries. You could see a rise on yields tomorrow," said Todd Schoenberger, managing director at LandColt Trading Inc. in Wilmington, Delaware.

-END-

Less than 24 hours after introducing the audit of the Fed bill, Ron Paul had this to say on the shape of the usa ecnonomy: (courtesy Reuters)

US Rep Paul gloomy on deficit outlook, sees crisis

WASHINGTON, Jan 27 (Reuters) - A world currency crisis awaits if the U.S. Congress and the White House do not balance the federal budget soon and that appears unlikely, Representative Ron Paul said in an interview on Thursday.

The iconoclastic Texas Republican also told Reuters he expects wide support for a bill he has reintroduced in the U.S. House of Representatives to allow greatly expanded scrutiny of the Federal Reserve by Congress' investigative wing.

Paul was recently named chairman of the House domestic monetary policy subcommittee that oversees that issue.

He said President Barack Obama's remarks on the deficit, expected to hit $1.48 trillion this year, in his State of the Union speech "was a lot of the same old stuff."

As for his fellow Republicans and the deficit problem, Paul said, "They had their chance and didn't do much."

"I think the deficit is going to continue to grow," Paul said. "I am anticipating that we will have a dollar currency crisis that's going to be worldwide and the world will be forced to have monetary reform, and we're getting closer to that all the time."

He said he was "undecided" on whether he will run again for president, an office he has twice sought unsuccessfully. Rand Paul, Paul's son, was elected to the Senate last year from Kentucky. Both father and son are prominent figures in the conservative Tea Party movement.

Paul cuts an unusual figure in U.S. politics. The 75-year-old obstetrician is a libertarian with strong views about monetary policy, the gold standard and the Federal Reserve. He collides often with Democrats and Republicans.

SENATE RUN?

He told The Dallas Morning News this week that he was considering running for the Senate.

He has reintroduced legislation in the House calling for a full audit by Congress' Government Accountability Office of the Federal Reserve to be reported to Congress by the end of 2012. Rand Paul has introduced a companion bill in the Senate.

The House version has 55 co-sponsors, mostly Republicans but also some Democrats. No Republican leaders have signed on, but House Financial Services Committee Chairman Spencer Bachus has, and Paul said that is a promising sign.

He said he expects the measure to appeal to newly elected House Republicans swept into office by the Tea Party movement.

"We should get a lot of them on. It's hard to beat what we did last year because we had every single Republican in the House and a bunch of Democrats. I think the momentum is still there. People want transparency," he said.

He said he assumes the bill, with Bachus' support, will come to a vote at the full financial services committee level. Approval would send it to the House floor. "It will always have more trouble in the Senate," he said.

On the deficit, he said, "It's just going to get worse because some things are just out of control. Republicans won't touch the military and the other side can't stand the idea of any welfare being cut ... Interest rates will be going up."

He acknowledged that bond markets, with yields low and demand still strong for U.S. Treasuries, show little or no sign of worrying about a global economic disaster.

"That is true," he said. "One reason is other countries have it as bad if not worse.

"We are the reserve currency. That gives us a special status. We're still the military power of the world and that has been known to convey confidence in a currency when it's undeserving. Things could change rather quickly.

"That's why the odds are about 99 percent that we'll have a currency crisis before we come to our senses. Then we'll have to do something. We'll have to have monetary reform."

-END-

 

The CEO of Potash warns the globe of food price increases:

Potash Corp CEO sees higher food prices for years

* Sees surge linked to grain demand in emerging economies 
* Says record yields needed annually just to keep pace

TORONTO, Jan 27 (Reuters) - A global surge in the price of grain and other agricultural commodities is part of a long-term trend being driven by rising consumption in China and other emerging economies, Potash Corp's chief executive said on Thursday.

"I think you are looking at multiple years here of higher grain prices and higher ag commodity prices around the world," said CEO Bill Doyle, who heads the world's largest fertilizer company.

While many are blaming weather-related crop damage for the recent jump, food price inflation is primarily due to the increasing demand from Asia's fast-growing middle-class, he said in an interview with Reuters.

"You just have this rekindling of demand," said Doyle. "We are seeing wealth creation and the same dynamics that were in place before the great recession have been ignited again."

Higher grain prices have led to rising fertilizer demand, allowing Potash Corp and its peers to raise prices on nitrogen, phosphate and potash products.

Earlier on Thursday, Potash Corp said its fourth-quarter profit had more than doubled. The company also raised its 2011 earnings and sales forecast.

The United Nations food agency sounded a warning on cost of food earlier this month, saying prices jumped to record highs in December and that some grains could climb even further. The price of corn alone has more than doubled in the last six months, while wheat, soybeans and other crops have also risen sharply.

"We actually need a record crop now, every year, just to keep pace with demand," said Doyle, who has worked n the fertilizer industry for close to four decades.

-END-

And finally this report issued by the IMF who states that time is running out for the uSA and Japan to lower their debt levels:

U.S. and Japan told time running out to deal with debt

TOKYO/WASHINGTON (Reuters) - Japan and the United States faced new pressure to confront their swollen budget deficits as the IMF and rating agencies demanded more evidence they can bring their public debts under control.

The International Monetary Fund said the G7's two biggest economies needed to spell out credible deficit-cutting plans before the markets lose patience and dump their bonds.

On Friday, Japan's Prime Minister Naoto Kan vowed to push ahead with tax reforms aimed at curbing the country's debt, but an uncooperative opposition and divisions within his own party on policy make the chances of success slim.

"The important thing is to maintain fiscal discipline and ensure market confidence in Japan's public finances," Kan, who took over in June as Japan's fifth premier since 2006, told parliament's upper house.

Ratings agency Standard & Poor's cut Japan's long-term debt rating on Thursday for the first time since 2002, and hours later Moody's Investors Service warned the risk of the United States losing its top AAA rating, although small, was rising.

Bond markets reacted calmly, but the latest warnings about the colossal liabilities piled up by the two countries raised fears of rising borrowing costs that could hamper attempts to restore fiscal discipline and consolidate a fragile recovery.

"In advanced economies where fiscal sustainability has not been a market concern, credible plans going well beyond 2011 need to be put in place urgently to lock in benevolent market sentiment," the IMF said in its "Fiscal Monitor" report.

The 2007/08 financial crisis prompted a dramatic rise in developed world debt, as governments spent billions of dollars propping up sinking economies and bailing out stricken banks.

In the United States, outstanding public debt has ballooned to more than 60 percent of total output since the financial crisis, and, with a record $1.5 trillion budget deficit expected this year, is set to grow further.

Japan is in an even worse position. Its debt has been growing for years as it tried to revive the economy from a huge asset bubble burst in the 1990s and outstanding long-term government debt now stands at around 180 percent of GDP.

Kan has made tax and social security reform, including a future rise in the 5 percent sales tax, a priority given the rising costs of Japan's fast-aging society and a public debt that is the biggest among advanced nations.

POLITICAL CONCERNS

In Europe, where Greece and Ireland have been driven by bond market pressure to take bailouts, many governments have adopted austerity measures to cut their deficits.

But the IMF said new tax cuts in the United States and increased spending in Japan had set back progress in rich nations more generally. Ratings agencies fretted that politics is making reining in the deficit harder for both countries.

Moody's worried that a U.S. Congress where the Republican now control the House of Representatives might fail to consider and pass some of the deficit-reducing measures proposed by a panel mandated by Democratic President Barack Obama.

S&P, which cut Japan's long-term sovereign rating to AA minus, voiced similar concerns about Tokyo.

"In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country's debt dynamics, in part due to the coalition having lost its majority in the upper house of parliament last summer," the agency said.

The debt fears hanging over much of the developed world underlined the two-speed recovery from the financial crisis, which has seen emerging economies rebound strongly, especially in Asia, while the traditional powers struggle.

"People are realizing that emerging markets are not as dangerous as other places, in light of what has happened," Mark Mobius, chairman of Franklin Templeton's Emerging Markets Group, told Reuters in Singapore.

"Emerging markets are still cheaper than developed markets despite the run up, and we see continuing flows into emerging markets."

NO CRISIS YET

The reaction of bond markets indicated there is no immediate crisis on the horizon for the United States or Japan, with the former protected for now by its status as issuer of the global reserve currency, while Japan is sheltered by the fact its sovereign debt stock is overwhelmingly held by domestic investors with ample savings.

Japanese government bonds gained on Friday, recovering from a dip after the S&P downgrade, although the Nikkei share average fell 1 percent.

"The immediate impact of the downgrade is negligible. It has long been accepted that Japan is in an unenviable fiscal situation," said Nobuto Yamazaki, an executive fund manager at DIAM Asset Management.

"But the downgrade highlighted the fact that the government's ability to follow through with its policies is being questioned. This could be a negative factor waiting to kick in if the government starts running into trouble trying to push through budget-related issues."

U.S. Treasuries were little changed in Asian trade, with the benchmark 10-year note up 1/32 in price to yield 3.41 percent, down a basis point from late U.S. trade.

"I don't think there is any risk that U.S. Treasuries will have difficulty finding a home and at a reasonable price at the moment. Particularly ... when the Fed is basically giving out money for free right now," said Roland Randall, senior strategist at TD Securities in Singapore.

"There is a bigger picture of a slow decline in the perception that people have of whether the U.S. is a safe store of wealth or not. But that's a big long-term picture."

(Additional reporting by Kevin Lim in Singapore and Ian Chua in Sydney; 
Writing by Alex Richardson; Editing by Neil Fullick)

-END-

 

And this commentary on the same subject as above:

 

World Grows Jittery About American Debt 
By URI FRIEDMAN | January 28, 2011 11:22am

clip_image002The U.S. received two stern warnings Thursday that it needs to get its fiscal house in order, and quickly. Moody’s, the credit rating agency, cautioned that it may need to downgrade its AAA-rating of U.S. debt sooner than expected, while the International Monetary Fund argued that America must tackle its mounting debt and confront thorny issues like entitlements if it wants to maintain its credibility in global markets. Moody’s AAA rating is its top designation, but the agency pointed out that the U.S. has the highest ratio of government debt to government revenue of any AAA-rated country.

The rebukes came a day after a congressional projection placed this year’s federal budget deficit at a post-World War II record of $1.5 trillion. It also came on the same day that another credit-rating agency, Standard & Poor’s, downgraded Japan’s bond rating from AA to AA- out of concern that the country isn’t making a credible effort to control its spiraling debt. During his State of the Union address, President Obama proposed deficit-reduction measures like freezing domestic spending, but critics accused him of skirting the painful spending cuts or tax increases needed to truly rein in the national debt.

How seriously should we take the threats issued by Moody’s and the IMF?

Moody’s Warning Could Spook Foreign Investors, notes Bloomberg’s Christine Richard: "The threat of a lower rating may cause international investors to avoid U.S. assets. About 50 percent of the almost $9 trillion of U.S. marketable debt is owned by investors outside the nation."

If Japan Was Downgraded, U.S. Could Be Next, maintains Time’s Michael Schuman: "Anything you can say about Japan you can say about the U.S.–and more. Unlike Japan, the U.S. is not a creditor nation, nor does the populace save enough. Despite talk of a more conservative approach to spending, the U.S. has no credible plan for reining in its deficits and debt."

U.S. Debt Will Be Downgraded, argues Douglas McIntyre at 24/7 Wall St: "The US is doomed to suffer a downgrade in its debt before its begins the hard work on restructuring Social Security, Medicare and Medicaid. A downgrade may not even be enough of a shock to bring Americans to their senses. They have paid for their entitlements and they believe they deserve them."

Downgrade Unlikely But Potentially Disastrous, explains The Washington Post’s Howard Schneider. The U.S. still has the world’s largest economy and reserve currency, Schneider reminds us. Yet, "however unlikely, a downgrade in U.S. debt or loss of confidence in the government’s ability to repay its creditors could touch off a catastrophic series of events–from a shutdown of global trade finance and credit to the collapse of banks and governments that hold large amounts of U.S. debt and depend on the flow of money through and from the United States to stay afloat."

More…

 

end

 

That concludes  today's commentary. 

I slipped and fell on ice last night so I am now going to the emergency section of the hospital to make sure I am OK.

I would appreciate it if some of you  could answer some of the questions that are sent my way.

I will do my best to answer these when I get back.

 

Harvey

 

 

 

 

 

 

 

 

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