Saturday, March 12, 2011

Japan in danger of Nuclear Meltdown/Raid foiled in silver and gold

Good morning Ladies and Gentlemen:

Before we begin we are today's latest entrants into the hall of banking shame as they join others at the "Morgue":

Regulators close small banks in Okla., Wis.

Regulators on Friday shut down small banks in Oklahoma and Wisconsin, lifting to 25 the number of U.S. bank failures this year after economic distress and soaring loan defaults brought down 157 banks in 2010.
The Federal Deposit Insurance Corp. seized First National Bank of Davis, with one office in Davis, Okla., $90.2 million in assets and $68.3 million in deposits; and minority-owned Legacy Bank in Milwaukee, also with one office, with $190.4 million in assets and $183.3 million in deposits.
Pauls Valley National Bank, based in Pauls Valley, Okla., agreed to assume all the deposits and $28.5 million of the loans and other assets of First National Bank of Davis. Chicago-based Seaway Bank and Trust Co. is assuming the deposits and $165.9 million of the assets of Legacy Bank. The FDIC will retain the rest of the failed banks' assets for future sale.
In addition, the FDIC and Seaway Bank and Trust agreed to share losses on $120 million of Legacy Bank's assets.
Legacy Bank received about $5.5 million in taxpayer funds in January 2009 under the government's financial bailout program, and it repaid only about $355,000 in dividends, Treasury Department data show. It was the eighth bank that received funds under the Troubled Asset Relief Program to have failed or filed for bankruptcy.
The eight banks are among 164 TARP recipients that have failed to pay quarterly dividends to Treasury, according to a tally by Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.
The failure of First National Bank of Davis is expected to cost the deposit insurance fund $26.5 million; the failure of Legacy Bank is expected to cost $43.5 million.
The 157 bank closures last year topped the 140 shuttered in 2009. It was the most in a year since the savings-and-loan crisis two decades ago.
The FDIC has said that 2010 likely would be the peak for bank failures. Already this year the pace of closures has slowed: By this time last year, regulators had closed 30 banks.
The 2009 failures cost the insurance fund about $36 billion. The failures last year cost around $21 billion, a lower price tag because the banks that failed in 2010 were smaller on average. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three were closed in 2007.
The growing number of bank failures has sapped billions of dollars out of the deposit insurance fund. It fell into the red in 2009, and its deficit stood at $7.4 billion as of Dec. 31.
The number of banks on the FDIC's confidential "problem" list rose to 884 in the final quarter of last year from 860 three months earlier. The 884 troubled banks is the highest number since 1993, during the savings-and-loan crisis.
The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014.
Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted in July.

Gold closed at comex closing time at $1421.50 up $9.30 on the day. Silver was the standout rising by 89 cents for the final weekly close at $35.93.  Both metals were a little roughed up in the access market whereby gold finished at $1419.60 and silver at $35.90. The banking cartel, no doubt, were planning another raid as they bombed the London market immediately after the first fixing of gold.  At around the exact time  (2:30 pm Toyko Time) a massive earthquake hit 70 miles off the coast of Japan setting off a massive tsunami.  The world realized that the damage to the economy in Japan would be high, and eventually gold and silver reversed course and proceeded northbound, leaving the banking cartel in shell shock.  The world generally turns to gold when a huge natural disaster strikes.

There is so much happening yesterday so let us head over to the comex trading and see how things over there fared:

The total gold comex open interest fell by 5504 contracts to 515,633 from Thursday's reading of 521,137.
We had a mini-raid on Thursday so the loss of contracts was to be expected. The front options expiry delivery month of March saw its OI fall from 39 to 37.  We had 3 deliveries on Friday so the entire fall was due to those deliveries.  All eyes will be focusing on the upcoming delivery month of April in gold.  The open interest fell from 294,925 to 280,580 and this number is normal as many are rolling to the second biggest delivery month in the gold calender, June.

The estimated volume at the comex was high at 199,435 as we did witnessed the roll from April to June as explained above.  I promised you that the volume on Thursday would exceed 200,000 and it did:  228,681 with minor switches.  The banking cartel supplied massive paper and the gold boys hardly flinched.
Maybe China needs official gold?

Let us head over to silver:

The total silver OI  fell by a tiny margin to the tune of 825 contracts.  The Friday reading is 132,677 and Thursday's reading was 133,492.  And now for the big reading of March silver.  The comex folk has sent down data showing the March OI at 1338 falling 89 contracts from the Thursday level.  We had 88 deliveries so the entire fall is from those deliveries. The market expected a much higher number of deliveries and it disturbed them greatly. The next delivery month of May saw the OI fall by a tiny margin from 80,480 to 79,555.  Most of these rolled into the July contract.

The estimated volume at the comex was a humongous 94,122 contracts.  The confirmed volume on Thursday was also very high at 83,628.  JPM and Blythe were very anxious to cause a tsunami in silver pricing and they failed miserably yesterday.

Here is a chart for March 12. 2011 on deliveries and inventory changes at the comex:

Withdrawals from Dealers Inventory
Withdrawals from customer Inventory
767,603 oz
Deposits to the dealer Inventory
zero oz
Deposits to the customer Inventory
62,396 oz
No of oz served (contracts ) 35
175,000 oz
No of notices to be served  1303
6,515,000 oz

Withdrawals from Dealers Inventory
Withdrawals from customer Inventory
zero oz
Deposits to the dealer Inventory
5,000 oz
Deposits to the customer Inventory
25,565 oz
No of oz served (contracts)  1
 100 oz
No of oz to be served 36 notices or 3600 oz
3600 oz 

First off, we notice that the entire 25,565 oz of gold that was withdrawn Thursday from the dealer entered the customer.  This gold was thus properly settled.There were no other withdrawals and no adjustments.

The comex folk notified us that 1 notice was sent down for delivery for a grand sum of 100 oz.  The total number of notices sent down so far total 1041 or 104,100 oz of gold. To obtain what is left to be served, I take the OI at 37 and subtract out the deliveries at 1 to leave me with 36 notices or 3600 oz to be serviced.

Thus the total number of gold oz standing in this non delivery month of March (and options delivery month) is as follows:
104000 oz (already served) +  3600 oz (to be served)  =  107,700 oz 
we gained 100 oz from Thursday.  For those keeping score, in tonnage this equates to 3.35 tonnes.

And now for silver;

There were no deposits or withdrawals from the dealer on Friday. The customer received a total of 62,396 oz.  Another customer withdrew a massive 767,603 oz from a registered comex vault.  If you are keeping score, the net withdrawal from the customer is thus:
705,207 oz.

It is the next data that really surprises me.  The comex folk notified us that only 35 notices were sent down for servicing for a total of 175,000 oz.  The bankers just could not find any more silver. The total number of silver notices sent down so far this month total 530 for a total of 2,650,000 oz.  To obtain what is left, I take the OI for March at 1338 and subtract out Friday deliveries at 35 to leave me with 1303 notices left to be served or 6515,000 oz.

Thus the total number of silver oz that are standing in this delivery month is as follows:
2,650,000 oz (already served)  +  6515,000 oz (to be served)  =  9,165,000 oz.

With very few silver deliveries on a daily basis and with 1303 notices left to go and I do not think that the bankers will make it. Those longs who are now standing do not seem to be enticed by Blythe's advances for huge paper fiat profits. The next two weeks will be exciting to watch.

We lost only 1 contract or 5000 oz to cash settlements (yesterday's level:  9,170,000 oz) 

At 3;30 pm we got the COT report and to tell you the truth, it does not make any sense;

First the gold COT report:

Gold COT Report - Futures
Large Speculators
Change from Prior Reporting Period

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, March 08, 2011

The cot report runs from Tuesday to Tuesday where we saw a big run up in gold and silver prior to the raids.
The comex folk has sent us data suggesting that the large speculators that have been long lessened their positions to the tune of 4320 contracts.

Those large speculators that have been short, added 1993 positions to those shorts.

And now for our commercials:

Those large commercials that have been long in gold, lessened their longs by a rather large 2927 contracts.
Those large commercials like JPM and HSBC covered a huge 6,059 contracts.

 The small specs that have been long added 2463 positions to their longs.  Those that were short lightened up by 718 contracts.

Question? who supplied the paper in gold's advance?

And now for the silver COT:

Silver COT Report - Futures
Large Speculators

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Silver Report - Positions as of
Tuesday, March 08, 2011

Those large speculators who have been long silver added 644 contracts to their longs.
Those large speculators who have been short silver added a very tiny 52 contracts to those short positions.

And now for our commercials;

Those that have been long in silver lightened up a bit to the tune of  835 contracts.
And now for our famous JPMorgan and partner HSBC, a guys who have been perennially short
lightened up on their shorts to the tune of 1945 with silver advancing to well above 36.00 dollars.
I think the data is off somewhere.

The small specs that have been long lightened up by 1754 contracts.
Those that have been short covered a tiny 52 contracts on their short positions.

As I stated above, something is wrong with today's COT report.


Let us head over to our ETF's and see how they fared.

First our non physical funds.  Let us visit gold first:  March 11.2011

Total Gold in Trust

Tonnes: 1,215.48
Value US$:

Yesterday's total:

Total Gold in Trust

Tonnes: 1,217.30
Value US$:

we lost 1.82 tonnes of gold to put huge fires as demand for gold in London was escalating due to the earthquake.

And now for the SLV:  March 11.2011

Ounces of Silver in Trust352,287,171.800
Tonnes of Silver in Trust Tonnes of Silver in Trust10,957.36

Thursday's total:  

Ounces of Silver in Trust352,824,122.500
Tonnes of Silver in Trust Tonnes of Silver in Trust10,974.06.
again we lost 536,951 oz of silver.  This was probably some real silver scraping the bottom of the barrel 
lending its hand to the rapidly disappearing London silver.


And now for our physical ETF's:

First the Sprott silver fund PSLV:

the raid for the past few days, caused the premium to fall a bit to 15.16% to NAV.

The Sprott gold fund PHYS:
the premium to NAV fell to 4.02%.

The Central Fund of Canada which is equal parts gold and silver:

surprisingly saw its premium to NAV rising to 8.3%. of NAV,


Before leaving the physical metals, I would like to happily announce that our buffoon, Dennis Gartman sold off all his newly acquired gold metal. He was warned that a raid was upon us Thurday night so he liquidated everything.  The poor chap is now left with no gold.

From Bill Murphy over at
This morning, with gold in the tank, Dennis Gartman cut ALL his gold exposure. I repeat … no one in history could have traded a ten year bull market worse than he has, and I mean NO ONE. This is what he deserves for mocking the gold bugs and ignoring the antics of The Gold Cartel. The good news is how BULLISH is that!!!

And now for the big news of the day. As no doubt all of you have heard and read about the huge earthquake off the Japanese coast which set off a huge tsunami.  One of the world largest nuclear reactor is situated in Northern Japan and it has been damaged severely. It looks like we may have another 3 mile Island disaster upon us.

Here is the latest:

Japanese, Russian and Indonesian Volcanoes Erupt ... 5 Japanese Nuclear Reactors In Danger ... 1 Is Leaking and May Melt Down Within 24 Hours

George Washington's picture

Update: It's possible that a meltdown may already have occurred at one nuclear power plant. As AP wrote 4 minutes ago:
An official with Japan's nuclear safety commission says that a meltdown at nuclear power plant affected by the country's massive earthquake is possible.
Ryohei Shiomi said Saturday that officials were checking whether a meltdown had taken place at the Fukushima Dai-ichi power plant, which had lost cooling ability in the aftermath of Friday's powerful earthquake.
Reuters reports:
Japanese nuclear authorities said that there was a high possibility that nuclear fuel rods at a reactor at Tokyo Electric Power's Daiichi plant may be melting or have melted, Jiji news agency reported. 

Experts have said that if the fuel rods have been damaged, it means that it could develop into a breach of the nuclear reactor vessel and the question then becomes one of how strong the containment structure around the vessel is and whether it has been undermined by the earthquake.
Volcanoes have reportedly erupted in JapanIndonesia, and Kamchatka Russia today, presumably due to the massive Japanese earthquake. There have been no reports of damage from the eruptions.
In addition, there are problems at three Japanese nuclear power plants.
The Fukushima plant is leaking radiation, and a nuclear expert says that things are getting worse, and "Fukushima has 24 hours to avoid a core meltdown scenario". (See Tyler Durden's report).
MSNBC reports:
"The situation is still several stages away from Three Mile Island when the reactor container ceased to function as it should," said Tomoko Murakami, leader of the nuclear energy group at Japan's Institute of Energy Economics
Two other Japanese nuclear reactors are now in trouble as well. Two other Japanese nuclear reactors are now in trouble as well [UPDATE: It is now up to 5 nuclear reactors].
As MSNBC notes:
Coolant systems failed at three quake-stricken Japanese nuclear reactors Saturday, sending radiation seeping outside one and temperatures rising out of control at two others.
Radiation surged to around 1,000 times the normal level in the control room of the No. 1 reactor of the Fukushima Daichi plant, Japan's Nuclear and Industrial Safety Agency said. Radiation — it was not clear how much — had also seeped outside, prompting widening of an evacuation area to a six-mile radius from a two-mile radius around the plant. Earlier, 3,000 people had been urged to leave their homes.

Tokyo Electric Power Co. said Saturday that the temperatures of its No.1 and No.2 reactors at its Fukushima Daini nuclear power station were rising, and it had lost control over pressure in the reactors.


About an hour after the plant shut down, however, the emergency diesel generators stopped, leaving the units with no power for important cooling functions.


Hours after the evacuation order, the government announced that the plant will release slightly radioactive vapor from the unit to lower the pressure in an effort to protect it from a possible meltdown.


Nuclear Expert: "Fukushima Has 24 Hours To Avoid A Core Meltdown Scenario"

Tyler Durden's picture

In an interview with Mark Hibbs, a Berlin-based senior associate at the Carnegie Endowment for International Peace, a nonprofit think tank, Newsmax magazine asks - what happens next at theFukushima Nuclear Power Plant. The answer according to the nuclear expert, is that as Fukushima is now well on its way to a full core-melt nuclear accident, a worst case scenario could possibly lead to the same results last seen in 1986 Chernobyl.
Below we present a brief overview of the Fukushima plant fromWikipedia:
The Fukushima I Nuclear Power Plant (Fukushima I NPP, 1F), often referred to as Fukushima Dai-ichi, is a nuclear power plant located in the town of Okumain the Futaba District of Fukushima Prefecture. With six separate units located on site with a combined power of 4.7 GW, Fukushima I is one of the 25 largest nuclear power stations in the world.Fukushima I is the first nuclear plant to be constructed and run entirely by The Tokyo Electric Power Company (TEPCO).

Fukushima II Nuclear Power Plant, 11.5 kilometres (7.1 mi) to the south, is also run by TEPCO.
UnitTypeFirstCriticalityElectric Power
Fukushima I - 1BWRMarch 26, 1971460 MW
Fukushima I - 2BWRJuly 18, 1974784 MW
Fukushima I - 3BWRMarch 27, 1976784 MW
Fukushima I - 4BWROctober 12, 1978784 MW
Fukushima I - 5BWRApril 18, 1978784 MW
Fukushima I - 6BWROctober 24, 19791,100 MW
Fukushima I - 7 (planned)ABWROctober, 20131,380 MW
Fukushima I - 8 (planned)ABWROctober, 20141,380 MW
So what happens next? First, Hibbs explains precisely what already has taken place:
“What happened in Japan is very alarming because it would appear . . . that about 2:30 this afternoon Japan time, when the earthquake struck . . . three of the reactors that were operating were disenabledbecause of a loss of offsite power that was caused by the earthquake.”

The Japanese situation appears to be roughly analogous to the Three Mile Island incident in the United States, where authorities struggled for days to contain an improperly cooled reactor core but were able to avert a widespread release of nuclear material.

“We were in a situation as I recall then very similar to where we are now, where we were told by news media in 1979 that there was a core melt accident unfolding, we didn’t know how serious it would become, and what would happen,” Hibbs tellsNewsmax.

At least one of the reactors in Japan, and perhaps more, “ are on the path of a core-melt accident. It’s called a loss of coolant accident. . . . And it’s up to the Japanese authorities, together with the industries in that country, to find a way to stem this problem,” he said.

Secretary of State Hillary Clinton confirmed that the United States is trying to help alleviate the situation. "We just had our Air Force assets in Japan transport some really important coolant to one of the nuclear plants," Clinton said, according to the Associated Press.

The Japanese reactors are designed to drop neutron-blocking control rods into the core as soon as the plants detect a seismic disturbance. These controls apparently functioned normally. But even after the procedure, scientists say a base level of heat continues to flow, and coolant is needed to constrain those temperatures.
Unfotunately, Japan does not have much time:
Asked how long Japanese scientists have to correct the problem to avoid a core meltdown, Hibbs tellsNewsmax that it depends on system design, adding, “it could be a day, plus or minus 10 hours.”

“After a while, with the heat building up in there, and lack of coolant, you’re going to see damage in your fuel, the cladding, the metal container around the nuclear material, begins to buckle or balloon or break, and after a little while you’ll get a situation where the fuel falls apart, melts, and falls into the core, and then you’ve got a classical core melt accident like you had in Three Mile Island that you had in the United States in '79.”

Hibbs spoke with Japanese government officials who told him the force of the tsunami was so severe that the water may have flooded the reactors,  power generators, and cooling mechanisms, disabling the equipment. "Which means they have to resort to basically a military-type exercise, to rush in to the devastated site equipment that they can quickly hook up to the reactor to get power in there and start this emergency equipment, to get cooling water into that core and prevent that fuel from overheating.

“And if they can’t do that,” he told Newsmax, “then you’re going to have this meltdown.”

They have 24 hours or so to avoid a core meltdown, he says. But if one occurs, two scenarios could follow: The good outcome would mirror what happened at Three Mile Island, while the bad one could involve what he called a “Chernobyl scenario, where the damage to the reactor was such that the integrity of the structures were damaged.

“There was an explosion and other things happened in there, that opened up the reactor so the inventory of radioactive material . . . went into the atmosphere and generated this deadly plume that we know happened in Chernobyl.

“So that is the ultimate worst-case scenario. Nobody is saying that’s going to happen. Nobody is even saying we’re going to have a core meltdown. But we have a window of time now. We don’t know how much is left — but the Japanese authorities and the government and all the agencies that they can muster are working overtime to get cooling systems on that site powered and working.”

The April 1986 Chernobyl disaster cost an estimated 4,000 lives. More than 330,000 Russians had to be relocated because of contamination.

But Hibbs says, “A lot of worst-case things would have to happen for us to get that far.”

Hibbs said the Japanese right now are fighting the clock to contain the heating.


A lost of flash memory chips made for Apple computers are made in this region.  Also the rice fields are also located here and this is important for the Japanese economy.  The earthquake will have a devastating effect on the Japanese economy this year.


And finally, this story from Reuters:
Japan quake sparks economy fear, budget plan mooted
TOKYO (Reuters) - Auto plants, electronics factories and refineries shut across large parts of Japan on Friday after a powerful earthquake rocked the country, triggering a tsunami, buckling roads and knocking out power to millions of homes and businesses.
Leaders of the ruling and opposition parties pushed for an emergency budget to help fund relief efforts after Prime Minister Naoto Kan asked them to "save the country," Kyodo news agency.
The Bank of Japan, which has been struggling to boost the anemic economy, said it would do its utmost to ensure financial market stability as air force jets roared toward the northeast coast to assess the damage from the biggest quake to hit the country in 140 years.
The 8.9 magnitude quake sent shares skidding in Japan and elsewhere, adding to a slide in global stocks to their lowest level in nearly six weeks.
Several airports, including Tokyo's Narita, were closed and rail services halted. All of the country's ports were closed.
Electronics giant Sony Corp, one of the country's biggest exporters, shut six factories, Kyodo news agency reported.
"There are car and semiconductor factories in northern Japan, so there will be some economic impact due to damage to factories," said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
At least 44 people were killed, Kyodo said, and many were injured in the quake, with fires breaking out from Sendai city in northern Japan to Tokyo. A tsunami 10 metres high hit Sendai port in Miyagi Prefecture, about 300 km (180 miles) northeast of Tokyo, but there were no immediate reports of damage.
Miyagi and its surrounding areas include major manufacturing and industrial zones, with many chemical and electronics plants. But early reports from the area were sketchy and it was not clear if some plants were shut simply due to a lack of power or because of quake damage.
Miyagi, the area most affected by the quake, accounts for 1.7 percent of Japan's gross domestic product (GDP), Macquarie Research said.
"There are two basic economics-related concerns. The first is that the fragile economic cycle is not in a position to withstand significant disruption," Macquarie said in a note.
"The second is that the combination of a softer economy and the additional strain on public finances will put upward pressure on bond yields."
Toyota Motor Corp said it had halted production at a parts factory and two assembly plants in the area, while Nissan Motor Co, the country's second-largest automaker, stopped operations at four factories, media reported.
Two people were reported killed by a collapsing ceiling at a Honda Motor Co factory in Tochigi Prefecture, north of Tokyo, but no other details were immediately available.
The quake occurred as the world's third-largest economy was showing signs of reviving after shrinking in the final quarter of last year. The disaster raised the prospect of major disruptions for many key businesses, at least in the short term.
The yen fell as much as 0.3 percent against the dollar before recouping its losses, while Nikkei stock futures plunged nearly 5 percent at one point.
The disaster also weighed on markets elsewhere, pushing shares in European insurance companies down. Large reinsurers -- Swiss Re, Hannover Re and Munich Re -- were all down more than 4 percent.
World stocks measured by the MSCI dropped 0.4 percent to their lowest level since the end of January.
The quake hit just before the Tokyo stock market closed, so prices didn't fully factor in the scale of the disaster.
"Stocks will probably fall on Monday, especially of those companies that have factories in the affected areas, but on the whole the selloff will likely be short-lived," said Mitsuhsige Akino, a fund manager at Ichiyoshi Investment Management.
Bond futures surged on worries the widespread damage would put further pressure on the economy, while the most active gold contract on the Tokyo Commodity Exchange, February 2012, inched higher.
"We still don't know the full scale of the damage, but considering what happened after the earthquake in Kobe, this will certainly lead the government to compile an emergency budget. We can expect consumption to fall. This could temporarily pull down gross domestic product," Yamamoto said.
With Japanese interest rates already near zero, analysts said the central bank and the government had few options but to inject more money into the economy, even if it risked swelling the already bloated deficit.
"The extent of the damage is hard to tell but it seems devastating for the northern Japan economy. The government must act quickly to announce support packages and the central bank should pump more money into the economy," said Tsutomu Yamada, a market analysts at Securities.
The 1995 quake that devastated Kobe caused $100 billion in damage, though industrial production and financial markets bounced back fairly quickly.
"The government would have to sell more bonds, but this is an emergency, so this can't beavoided," Yamamoto said.
"Given where the Bank of Japan's benchmark interest rate is now, they can't really lower rates. The BOJ will focus on providing liquidity, possibly by expanding market operations."
Hokuriku Electric Co said all of three reactors at its Onagawa nuclear plant Japan shut down automatically after the quake, but no radioactive leaks were reported.
Electric Power Development (J-Power) also halted operations of its Isogo thermal power plant in Yokohama, Jiji reported.
Television reported a major fire at Cosmo Oil Co's Chiba refinery, east of Tokyo. JX Nippon Oil & Energy Corp, Japan's top refiner, halted operations at three refineries in Sendai, Kashima and Negishi, while Tonengeneral shut the main units at its Kawasaki refinery, media said.
Japanese media also reported a fire at JFE Holdings Inc's steel plant in Chiba. JFE, the world's fifth-largest steelmaker, said there was no major impact.
Primearth EV Energy Co Ltd, a joint venture between Panasonic Corp and Toyota making batteries for environmentally friendly vehicles, said its Miyagi battery factory had halted production because of power cuts. The extent of any damage was not clear, but a spokesman said it did not appear to be major.
Mitsui Mining and Mitsubishi Material halted operations at zinc and copper
smelters in the region.


As I have reported to you these past few days, the PIMCO bond fund has sold all of its treasuries.
There has been many pundits talking about the ending of QEII.

I have always stated that QEIII will commence the moment QEII ends because there is nobody in the world that will buy 2 trillion dollars of USA treasuries.  If the Chinese and Bill Gross will not buy any treasuries, then pray tell who will buy this junk?

Here is Dave Kranzler on this subject.  He is bang on!:

Thursday, March 10, 2011

The Pimco Treasury Sale Conundrum...Or Is It?

By now everyone knows that Bill Gross/Pimco has sold down his/its Treasury exposure to zero. Rather than ask "why," quite frankly, my question has been "why did it take so long?" In other words, anyone who knows anything about the bond market knows that it would be sheer stupidity to own Treasury bonds in a rising interest rate, inflationary and dollar devaluation environment. Furthermore, there's way too many "analysts" out there reading way too much into the decision. And speculation that Gross has some kind of insight into whether or not the Fed will move onto QE3 is absurd. I even laughed at the letter from the former Pimco employee posted on explaining how serious and complicated this decision was. That commentary was grandiosity at its epitome. Again, as a total rate of return fund manager and a former junk bond trader in The Show on Wall Street, the decision to own a big position or to not own a particular position is nothing more than making a decision as to whether or not that position has better return/risk potential vs. every other alternative or vs. holding just cash.

Please keep in mind that the flagship Pimco fund is a "total rate of return" fund, which means that the objective is to maximize return and minimize risk in the context of managing fixed income investment risk. In order to achieve the first objective, total rate of return, it requires having concentrated positions - i.e. big bets - vs. having a highly diversified portfolio. I've never believed in having diversified holdings unless you just want to achieve average returns, and below average after all the fund managers and brokers take their cut. Diversification does nothing more than diversify away total rate of return and any potential to outperform.

Any fund manager who manages for return will "tilt" - or overweight - his holdings at any given time within the context of the asset class objective of the fund. Over time, Gross will shift the weightings in his fund largely between mortgages and Treasuries, overweighting one vs. the other depending on his market view.

With that in mind, let's look at why Gross might have - or more like "likely has" - unloaded all of his Treasuries. Reasons 1-10 have to do with his view of the total rate of return potential of holding a big Treasury position. And this is why I was wondering why it took so long for him to dump everything. With rates where they are, the probabilty that rates will go lower are close to zero. This interest rate cycle has been in place since like 1990 or so. In a historical context, not only is the bull market in bonds (i.e. rates going lower) not only over, the probability is very high that interest rates are going to start moving a lot higher. This is pure cyanide for fixed income securities, since the price of a bond goes lower when interest rates rise. Even if you have a high coupon bond, the total rate of return for a bond in a rising rate environment is going to be negative. I would suggest that this simple determination was the primary reason Gross unloaded all of his Treasuries.

To me this is a very obvious decision because clearly inflation is accelerating and with the Fed spending 100's of billions to buy Treasuries, interest rates can not be held down - period. Why own any bond in this context? So the only sure thing we know about Gross' decision is that he thinks interest rates/inflation are headed higher. Doesn't take a rocket scientist to conclude that. Only an idiot would hold Treasuries in that case.

I read with amusement on that Gross is making a bet on a huge rally in the dollar because he's holding so much cash. That view is retarded. Right now I'm sure Gross is just happy to have maneuvered a big Treasury position to zero without the market knowing until it was disclosed and now he will take time to decide how to redeploy the cash in order to maximize return and minimize risk. Gross has actually publicly stated that he thinks the dollar is going a lot lower. Again, rocket science is not required to figure that out. So, if the dollar goes lower and inflation moves higher, that's a double-whammy for holding Treasuries vs. holding just cash (although holding dollars is not good either lol). But at least in that context, cash will outperform Treasuries since the price of Treasuries goes lower and you get less cash for them if you have to sell them before maturity vs. just holding cash now. Everyone got that concept? If not, think about owing a car that just sits in your garage vs. owning a car that you drive hard everyday. Time value will decay the value of the car that just sits, but time plus hard road usage will act on the car the same way higher rates and dollar devaluation acts on Treasuries.

Finally, QE3. Let's keep this one simple. I'm sure Gross has his view on whether or not QE3 will happen. But to think that just because Greenspan is a paid advisor to Pimco gives Gross special insight to the Fed is ridiculous. Greenspan has proved to be a senile old man now with less than half a brain. Not that he had much of a brain as Fed Chairman, but he's gone off the deep-end in his old age. Regarding whether or not QE is to be or not to be, answer me this: if Pimco and the Chinese are not buying the 100's of billions in new Treasuries that will be issued this year, and if the Fed stops buying them, then who the hell will buy all this new paper? Seriously. The Fed HAS to keep printing and buying Treasuries or our Government/system will financially collapse. It's absurd to think that the Government will let this happen as long as it has the ability to keep printing paper. So unless Bill Gross has some kind of insight into a conspiracy to let the our system collapse, I doubt he has any doubt about whether or not QE3 will occur. And more QE will hasten the devaluation of the dollar and accelerate inflation, thereby completely hammering bond prices - bonds of all flavors and credit risks. So the Gross/Pimco decision again circles back to the binomial decision of "rates higher or rates lower?"

Again, to make a big bet on fixed income securities is nothing more complicated than deciding whether or not interest rates will be go higher or lower, especially since default risk with Treasuries is not in play for the reason I just gave (we will not include the complication of debating wether or not a determined, motivated currency devaluation constitutes a "de facto" default in order to keep this discussion focused on the binomial decision process of owning or not owning Treasuries). In fact, right about now I bet Gross is wishing that he had the abilty to buy a lot of physical gold and silver for his fund, because in this environment gold and silver will continue to provide the best total rate of return of any asset class. And I bet Gross also wished that mining companies were not throwing off so much cash flow right now and that they had to issue a lot of bonds in which he could throw that cash hoard into...


This also signifies the desire of the USA to print its way into oblivion:  (courtesy Reuters)

Dudley signals Fed won't tighten any time soon
NEW YORK (Reuters) - A top Federal Reserve official signaled on Friday the central bank won't tighten monetary policy any time soon, even as the jobs recovery looked set to quicken.
New York Fed President William Dudley told business leaders in Queens, New York, that the economic outlook has improved in the past six months.
But he said, the Fed is still "very far away" from achieving its dual mandate of high employment and price stability.
"Faster progress toward these objectives would be very welcome," he said. Dudley, who was a core advocate for the Fed's easy money policy, is seen as one of the more "dovish" members of the Fed's policy-setting Federal Open Market Committee. The committee meets next week and is not expected to alter its policy. Last November, the Fed said it would buy $600 billion in Treasury bonds to further support the recovery, with benchmark interest rates already near zero.
Dudley said the February jobs report, which showed the economy added 192,000 jobs that month, has made him more confident about the job outlook. The unemployment rate fell to 8.9 percent.
"Although there is still uncertainty over the timing and speed of the labor market recovery, I do expect job growth will increase considerably more rapidly in the coming months," Dudley said. "A substantial pick-up is sorely needed."
Even if the economy were to add 300,000 jobs per month, though, there would still be considerable slack in the labor market through 2012, he said.
Dudley reiterated that a stronger recovery is not a reason for the Fed to reverse course.
Dudley faced persistent questions from the audience on food inflation. The president of the Federal Reserve Bank of New York said people forget that even as the price of food is rising, other prices are falling. He mentioned the price of the iPad 2, prompting guffaws from the audience.
In his speech, Dudley said some of the commodity price rises are likely to be temporary and unlikely to feed through into a sustained rise in inflation.
"While rising commodity prices may be giving some of you a bad headache, they are not likely to lead to a sustained rise in inflation to levels inconsistent with our dual mandate," Dudley said.
Uprisings in the Middle East and Africa have contributed to the recent rise in energy prices and muddied the water somewhat for policymakers. Dudley noted that the situation in the Middle East and Africa remains "uncertain and "dynamic."
But, he said, U.S. consumers' expectations of future inflation are currently stable. He said a sustained rise in these expectations would be a threat to price stability that "would not be tolerated."
"If that were to occur, that would be a troublesome development that would complicate the pursuit of our dual mandate," he said.

The  USA released news that the USA retail sales climbed one  percent last month;

Retail sales rise 1.0 percent in FebruaryWASHINGTON (Reuters) - Sales at retailers increased broadly in February as rising energy prices boosted receipts at gasoline stations, but consumers also spent on a range of products in a sign of resilience in the face of rising gasoline prices.
Total retail sales rose 1.0 percent, the Commerce Department said on Friday, the largest gain since October and the eighth straight monthly advance. January sales were revised up to a 0.7 percent rise from a previously reported 0.3 percent gain.
Economists polled by Reuters had expected retail sales to increase 1.0 percent last month. Compared to February last, sales were up 8.9 percent.
Excluding autos, sales rose 0.7 percent last month after gaining 0.6 percent in January. That was also in line with economists' expectations.
Consumer s last month overcame a 3.7 percent increase in gasoline prices to spend on a range of goods, including autos, whose sales rose 2.3 percent after rising 1.2 percent in January. Receipts at gasoline stations increased 1.4 percent after rising 1.3 percent in January. Excluding gasoline, sales rose 0.9 percent after rising 0.6 percent in January.
Outside autos and gasoline, consumers also spent on clothing, lifting sales 0.8 percent. Receipts at sporting goods, hobby, book and music stores increased 1.3 percent, while sales at building materials and garden equipment suppliers were up 0.6 percent.
So-called core retail sales -- which exclude autos, gasoline and building materials -- rose 0.6 percent after a 0.7 percent gain in January.
Core sales correspond most closely with the consumer spending component of the government's gross domestic product report. Spending, which accounts for 70 percent of U.S. economic activity, grew at a 4.1 percent annual rate in the fourth quarter, the fastest in more than four years.

Here is John Williams giving the correct version:  (courtesy of Jim Sinclair commentary and John Williams)
also included is his comments that the monthly trade deficit will put downward pressure on the GDP quarterly results.

im Sinclair’s Commentary
John Williams’ is an essential subscription service.
- February Retail Sales Gain of Questionable Reporting Quality 
- January Trade Deficit Suggests Downside Pressure on First-Quarter GDP Growth
"No. 356: February Retail Sales, January Trade Deficit" 

If you have forgotten about Libya, here is the latest:

NATO to move warships into central Mediterranean
BRUSSELS, March 10 (Xinhua) — NATO has decided to move warships to the central Mediterranean to enhance monitoring the situation in Libya, the alliance’s chief said on Thursday.
"We have decided to increase the presence of NATO maritime assets in the central Mediterranean … These ships will improve NATO’s situational awareness, which is vital in the current circumstances, and they will contribute to our surveillance and monitoring capability, including with regard to the arms embargo established by the UN Security Council," Anders Fogh Rasmussen said at a press conference following a meeting of NATO defense ministers.
Rasmussen said that the ministers had designated NATO military authorities to develop "detailed planning" concerning humanitarian aid and enforcing arms embargo.
However, the ministers failed to reach an agreement on the imposition of a no-fly zone over Libya amid divisions between allies.
The NATO chief said that NATO must have a "demonstrable need" for action, a "clear legal basis" and "firm regional support" to launch operation to tackle the Libya crisis.


This came in from zero hedge where a hacker will release data showing conclusively that B. of America committed fraud.  You can read it here:

Hacker Collective Anonymous To Release Documents Proving Bank Of America Committed Fraud This Monday

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After Julian Assange crashed and burned in his threat to release documents that expose fraud at Bank of America, many thought he had been only bluffing, and that BofA is actually clean. Not so fast. A member of the hacker collective Anonymous, which singlehandedly destroyed "hacker defense" firm HB Gary, who goes under the handle OperationLeakS "is claiming to be have emails and documents which prove "fraud" was committed by Bank of America employees, and the group says it'll release them on Monday" reports Gawker. As to the contents of the possible disclosure: ""He Just told me he have GMAC emails showing BoA order to mix loan numbers to not match it's Documents. to foreclose on Americans.. Shame." If indeed this makes the case against BofA' foreclosure practices stronger, it certainly explains why the banking consortium is scrambling to arrange a settlement, and also why Bank of America recently split off its $2 trillion in mortgages into "good bank" and "bad bank" entities.
As a "teaser", the Anonymous member released a November 1, 2010 email between two Balboa Insurance (a BAC subsidiary) employees, which while not proving any fraud, indicates he/she does indeed have access. The timeline on the email makes sense as it is a few weeks prior to the original disclosure that Wikileaks would expose BofA. Perhaps the Assange team merely handed off its materials to Anonymous, which has previously demonstrated its solidarity with the Australian on various occasions.
The full letter is below.
Gawker with more on why Brian Moynihan may not sleep too soundly overnight:
OperationLeaks, which runs the anti-Bank of America site, says the employee contacted the group to blow the whistle on Bank of America's shady business practices. "I seen some of the emails… I can tell you Grade A Fraud in its purest form…" read one tweet. "He Just told me he have GMAC emails showing BoA order to mix loan numbers to not match it's Documents.. to foreclose on Americans.. Shame."
An Anonymous insider told us he believes the leak is real. "From what I know and have been told, it's legit," he said. "Should be a round of emails, then some files, possible some more emails to follow that." The documents should be released Monday on, the same site where Anonymousposted thousands of internal emails from hacked security company HBGary last month. That leakexposed a legally-questionable plot to attack Wikileaks and ultimately led to the resignation of HBGary CEO Aaron Barr.
It is unclear whether this will be yet another climax-free build up, but Anonymous has certainly proven their mettle by putting HBGary effectively out of business with one masterful hack.
Those I've spoken to in Anonymous are convinced there's something to this. Anonymous has a proven track record with leaks, and Bank of America has been in their crosshairs since they cut off payments to Wikileaks in December. If it's real, it could be big. Keep your eye on It should hit Monday.
We urge readers to check into first thing Monday - after all this is the portal that released the original damning HBGary evidence, and brought down the firm within weeks. If it can do the same with Bank of America, Monday may just soon be a national holiday.
h/t MM


Before leaving you, this is the latest update on the nuclear reactor explosion;

Fukushima Explosion Update: Core Presumed Intact As Sea Water Used To Bring Temperature Down, Radiation Level At 1015 Microsieverts/Hour

Tyler Durden's picture

The damage control to the Fukushima explosion reported earlier is coming fast and furious. According to CNN, "the explosion at an earthquake-damaged nuclear plant was not caused by damage to the nuclear reactor but by a pumping system that failed as crews tried to bring the reactor's temperature down, Chief Cabinet Secretary Yukio Edano said Saturday. The next step for workers at the Fukushima Daiichi plant will be to flood the reactor containment structure with sea water to bring the reactor's temperature down to safe levels, he said. The effort is expected to take two days." While the government is trying to play down the threat from the explosion, it has nonetheless double the evacuation zone radius from 10 to 20 kilometers: "Radiation levels have fallen since the explosion and there is no immediate danger, Edano said. But authorities were nevertheless expanding the evacuation to include a radius of 20 kilometers (about 12.5 miles) around the plant. The evacuation previously reached out to 10 kilometers." Next steps are to flood the reactor with salt water. NHK reports: "The TEPCO Fukushima Daiichi nuclear power plant in Fukushima Prefecture is believed to be exploded, and in order to prevent corruption, the containment vessel will be filled with sea water to cool containers and vehicles used by the SDF pump I. According to the Ministry of Defense, work will begin at 8:00 pm, and that it expected to end around 1:00 am on June 13 (or roughly 11 am Eastern)." And while containment efforts peak, the radiation level is reported to be in the range of 1015 microsieverts / hr. In the meantime, confusion in Japan is pervasive as up to a million people are without power. And while we hope the outcome of the Fukushima situation will be prompt and favorable, the economic devastation to the country will be pervasive for weeks to come.
CNN reports:
Radiation levels have fallen since the explosion and there is no immediate danger, Edano said. But authorities were nevertheless expanding the evacuation to include a radius of 20 kilometers (about 12.5 miles) around the plant. The evacuation previously reached out to 10 kilometers.

The explosion about 3:30 p.m. Saturday sent white smoke rising above the plant a day after a massive earthquake and tsunami crippled cooling systems at the plant in northeastern Japan. Four workers were injured in the blast.

The walls of a concrete building surrounding the reactor container collapsed, but the reactor and its containment system were not damaged in the explosion, Edano said.

Before Edano's announcement, Malcolm Grimston, associate fellow for energy, environment and development at London's Chatham House, said the explosion indicated that "it's clearly a serious situation, but that in itself does not necessarily mean major (nuclear) contamination."

Japanese public broadcaster NHK said the injured workers were in the process of cooling a nuclear reactor at the plant by injecting water into its core.

The Fukushima prefecture government said hourly radiation levels at the plant had reached levels allowable for ordinary people over the course of a year, Kyodo reported.

Earlier Saturday, Japan's nuclear agency said workers were continuing efforts to cool fuel rods at the plant after a small amount of radioactive material escaped into the air.

The agency said there was a strong possibility that the radioactive cesium monitors detected was from the melting of a fuel rod at the plant, adding that engineers were continuing to cool the fuel rods by pumping water around them.

Cesium is a byproduct of the nuclear fission process that occurs in nuclear plants.

A spokesman for Japan's Nuclear and Industrial Agency earlier said atomic material had seeped out of one of the five nuclear reactors at the Daiichi plant, located about 160 miles (260 kilometers) north of Tokyo.

"This is a situation that has the potential for a nuclear catastrophe. It's basically a race against time, because what has happened is that plant operators have not been able to cool down the core of at least two reactors," said Robert Alvarez, a senior scholar at the Institute for Policy Studies in Washington. quotes Chernobyl veterans who are scrambling to calm the public that this will not be a repeat of the Prypiat disaster:
Experts said pictures of mist above the plant suggested only small amounts of radiation had been expelled as part of measures to ensure its stability, far from the radioactive clouds that Chernobyl spewed out when it exploded in 1986.  

"The explosion at No. 1 generating set of the Fukushima nuclear plant in Japan, which took place today, will not be a repetition of the Chernobyl nuclear disaster," said Valeriy Hlyhalo, deputy director of the Chernobyl nuclear safety centre.  

He was quoted by Interfax news agency as saying Japanese reactors were better protected than Chernobyl, where just over 30 firefighters were killed in the explosion. The world's worst civilian nuclear disaster, Chernobyl has also been blamed for thousands of deaths due to radiation-linked illness.  

"Apart from that, these reactors are designed to work at a high seismicity zone, although what has happened is beyond the impact the plants were designed to withstand," Hlyhalo said.  

"Therefore, the consequences should not be as serious as after the Chernobyl nuclear disaster."   
We will continue following what appears to be nothing but a prolonged attempt at disaster spin as earthquake aftershocks continue.
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I think I will leave you now to enjoy your weekend.
As for silver, I do not believe that the comex folk have the necessary inventory to serve upon our resolute longs.

There is something else for the bankers to be worried about.  Our bet is that there will be many players standing for exercised contracts in April silver trying to get ahead of the May crowd.

all the best

 To Hades, Here Is How To Trade The European Implosion

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While a crippled Europe continues to gladly enjoy being in the shadow of Fed-driven revolutions and natural disasters, its time in the sun is coming to an end. Soon everyone will realize that just today, 2 Year Greek bonds traded at all time wides of over 17%. That's right - holders of Greek bonds for 2 years will be rewarded with a 17% gain if the country actually repays these at maturity. Alas, for those who are paying attention, this has a snowball's chance in Hades of happening. And speaking of Hades, Knight Capital's Alfredo Viegas has released a note explaining not only why Greece has just passed the Rubicon following the release of its disastrous budget deficit details earlier, but also advising those who care, how to be positioned to best profit from Greece's descent into Hades, which will be promptly followed by the rest of the Eurozone. His advice: short Spanish and Italian cash bonds (this trade will work just as well using horrible, evil CDS which no politician still understands and therefore continue to be the scapegoat for everything).
Is that an insolvent country or are Greek bonds just happy to realize they are skrewed:
From Knight Capital's Alfredo Viegas
GREECE: Budget #s & the road to HADES for the other
Greece just reported a very poor budget deficit of €1.0Bn over Jan/Feb of this year.  This represents a 9% increase over the same two months of last year. Even more troubling was the news that budgetary revenues fell 9.2% thanks in part to civic protests for paying tolls and taxes.  With spending actually up 3.3%, the road to austerity for Greece seems to be taking a detour.  Greece is scheduled to receive a fresh €15Bn tranche from the EFSF/IMF next week to help it meet over €10Bn in amortizations this month. Privatizations are still being lined up, so far €7Bn has been identified out of a possible €50Bn (yeah right)! Brussels/Berlin/Athens continue to debate the sticky points like raising the retirement age, imposing a debt ceiling and higher corporate tax rates.  Meanwhile, today in Brussels at the EU summit nothing much seems to be happening with inertia over the "core vs. periphery" pushing out many critical decisions to month-end.  Although much media/investor attention remains focused on the Greece/Ireland/Portugal troika of the troubled PIIGS club, we think too little attention is being focused on the other subset of future potential defaulters -- namely Spain / Italy and Belgium.

Our house view, shared by my colleagues Brian Yelvingon/Charles Mounts - is that bondholders of Greece and most of the other PIIGS sovereign debt will be forced to take haircuts -- the external borrowing needs for GREECE are just too daunting to get over, in 2012 the IMF projects that GREECE will need €31Bn externally, then €43Bn in 2013 and then €73Bn in 2014  -- Consider for a moment the sheer lunacy of these projections -- basically the IMF is ASSuming that ESFS/IMF bailout $$ will be SUPPLEMENTED by external borrowings.  With GREECE on-the-run 5-yr DEBT already trading at ~15% yields - we very seriously doubt that they will be 'accessing' external markets in 2012...

Our goal in this brief note is NOT to suggest a trading strategy for GGB/GREECE bonds, rather our point here is to redirect attention back to the other "safer" members of the periphery, who's short-dated debt has traded back into what we consider very attractive levels for selling/shorting.  Our contention is that GREECE is likely to be the "straw that breaks the Camel's back"  insofar that if any sort of debt haircut is contemplated -- then it will become defacto impossible to recork the bottle and get the 'haircut' genie back under control.  In this regard, the asymmetry currently in short and mid-curve periphery sovereigns is we believe very compelling for investors that secure locked up borrow in the names.  Consider for instance the following bonds which we have verified with some investors as being available for borrow without much difficulty:

          Issue     Mat    Price       YTM         Recent 52wk Hi-Low
SPAIN:    SPGB 2.3   '13   98½-99    3.03/2.78      101.2 / 96    €14Bn issue
ITALY:    ITALY 4.5  '15  105 -105½  3.11/2.97      108.7 / 99     $4Bn issue

Apart from individual budgetary pressures, the Euro area is also having now to combat increasingly higher implied cost-pressure inflation, and also deal with individual core-country political dissension -- remember the upcoming German regional votes:  MARCH 20  Saxony-Anhalt and then MARCH 27  Baden-Rhineland -- this of course coming on the back of the forced regisnation of Merkel's own defense ministry for plagarizing his doctoral dissertation!  A poll last week found MERKEL's coalition now down to just 39% support, while the opposition SPD-Greens can now muster 43%.  We believe that the German electorate is quickly tiring of MERKEL's policies and that continued bailout as usual talk could become very tiresome as we approach the March 24/25 EU Summit...

The risk/reward therefore is approaching an interesting point here with a catalyst just two weeks away.   The risk to being short the "tight" EU periphery sovereigns is that we get the greenlight for the ESFS to come into the marketplace to buy PIIGS bonds.  But this risk seems limited insofar as the targeted shorts we are advocating are in places like SPAIN and ITALY rather than in the other PIIGS.  If we however get a breakdown at the summit and no clear direction (which is what we are betting) then the talk of haircuts or 'shared pain' may reemerge... if it does, we think the short-end of PIIGS sovereign bonds would therefore be at risk of significant price declines...
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