Saturday, April 16, 2011

Silver Blasts to 43.05 in access market/gold advances as well

Good morning Ladies and Gentlemen:

Before beginning, I would like to announce a huge number of banks that have taken their last breath and entered our banking morgue.  Sheila Bair of the FDIC was a busy girl last night as she prepares for the holiday week:

1. Heritage Banking Group:   Carthage MS
2. Rosemont National Bank:  Rosemont MN
3. Nexity Bank:  Birmingham AL
4. New Horizon Bank   East Ellijay, Ga
5.Bartow County Bank,  Cathersville, GA.

Gold closed last night at 1;30 pm  (comex closing time) at $1485.30 for a gain of $13.60  It continued in the access market for another one dollar gain to $1486.30.  The star of the show however belonged to gold's cousin, silver.  It finished the regular session at $42.57 for a gain of 57 cents and then continued to blast through the 43 dollar barrier where it closed at $43.05. As you will see below the volumes were immense.

Let us head over to the gold comex first and see how things fared with our ancient metal of kings.
The total gold OI (open interest) added a remarkable 16,309 positions to its open interest rising to 528,213 from Thursday's level of 511,904.  JPMorgan must have been very busy supplying the needed paper to our anxious longs.  The new found longs do not like the scenario of massive global printing of money whether it is from the USA side or from Europe or Japan.  All eyes are on the front delivery month of April were we saw a small drop in OI from 1435 to 1382  for a loss of 43 contracts.  We had 82 deliveries on Thursday so all of the drop was due to those deliveries and we gained a few gold oz standing as well.  We lost no oz to the advances of our Ice- Queen.  The next front month in gold is June which no doubt will become a huge battleground.  June is the second biggest delivery month in the calender for gold after December.  The June open interest rose magnificently to 356,182 from 348,804.  The estimated volume at the gold comex was 168,704 which was excellent.  The confirmed volume on Thursday was spectacular at 185,452 with no switches.

Let us head over to the silver comex:

The total silver comex open interest rose to 148,652 from Thursday's level of 145,065 scaring the living daylights out of our bankers.  They have tried countless times to shake the silver leaves from the tree and remove weak longs.  They have failed each and every time.  The front options expiry month of April mysteriously saw its OI rise from 15 to 13 for a gain of 2. We had 3 deliveries on Thursday so we gained some more silver standing and lost zero oz to Blythe.  The next front month of May which is two weeks away from first notice actually saw its OI rise from 58,365 to 59,770.  The month of May may turn out to be a battleground in silver. However it will probably we July as July is like June a very big delivery month.  The estimated volume on the silver comex Friday was an astounding 131,723.  Our bankers must have thrown kitchen sinks, bathtubs, their mothers-in-law, you name it everything was thrown in (unbacked silver paper) trying to keep the silver price from advancing.  The bankers have called another weekend meeting where they will figure out their next move.  The losses to the banks with their massive shorts is immense.  The confirmed volume on Thursday was also extremely high at 112,983.

Here is the chart for 4/16/2011 regarding deliveries and inventory changes at the comex

Withdrawals from Dealers Inventory
4832 ( HSBC)
Withdrawals from Customer Inventory
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)  today
zero  (0)
No of oz to be served  (notices)
75,000  (15)
Total monthly oz silver served (contracts) so far this month
620,000  (124)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal of silver from the Customer Inventory this month.

Withdrawals from Dealers Inventory
 100 (Brinks)
Withdrawals fromCustomer Inventory
 160,453 (HSBC)
482 (Manfra)
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
 160,453 (JPMorgan)
No of oz served (contracts)  today
 25,600  (256)
No of oz to be served  (notices)
 112,600 (1126)
Total monthly oz gold served (contracts) so far this month
286,000 (2860) 
Total accumulative withdrawal of gold from the Dealers inventory this month
 1385 oz
Total acculumulative withdrawal of gold from the Customer inventory this month

Let us start with gold. First, there was no deposits of gold into the dealer.
Again this is most unusual in a delivery month. I would like to report another strange transaction amongst our customers.  We had a shift of 160,453 oz of gold from the HSBC vault to JPMorgan's vault.  Another withdrawal of 482 oz occurred at Manfra and thus, the net customer withdrawal will be 482 as I net out the transfer of the 160,453 oz. There were no adjustments on Friday.  
The comex folk notified us that a chunky 256 contracts were sent down for servicing.
It seems that the bankers were very busy locating the fast disappearing gold as sovereign nations are moving this metal onto their shores. I will also give you a little head start into Monday's deliveries where only 7 are intent on delivering. The bankers will probably make it through April but there is no way they will survive June. The total notices sent down so far this month total 2860 for a grand total of 286,000 oz of gold.  To obtain what is left to be served, I take the OI standing for April  (1382) and subtract out Friday's deliveries  (256) which leaves me with 1126 notices or 112600 oz left to be served upon.

Thus the total number of gold oz standing in this delivery month of April is as follows:
286,000  (served)  + 112,600 (to be served)=  398,600 oz. Thursday we had 394,700 oz so we gained  3900 oz of gold and we lost zero oz to cash settlements. I guess the remaining longs will be resolute and the offer from Blythe must be substantial if they decide to not take delivery and  to roll to June with their newfound wealth.

And now for silver:

Even though silver is in a non delivery month, we are seeing a lot of activity here.
The customer received  78,683 oz of silver. The customer withdrew 3 lots:

1. 2099 oz (Brinks)
2.559,295 (HSBC)
3. 1,026 (Delaware)
total:  562,420 oz

The dealer withdrew 4832 oz from its HSBC vault.  There were no deposits into the dealer inventory. There were no adjustments.
The total number of delivery notices filed on Friday totaled zero.  Thus the total number of notices remain at 124 for a total of 620,000 oz of silver.  To obtain what is left to be served, I take the OI for April (15) and subtract out the deliveries for Friday  (0) which leaves me with 15 notices or 75,000 oz to be served.
Thus the total number of silver oz standing in this non delivery month is as follows:
620,000 oz (served)  + 75,000 (to be served)  =  695,000 oz
We had 665,000 on Thursday so we gained 30,000 oz and lost no cash settlements to Blythe.

On Friday, we saw the gold and silver shares of mining companies not share in the joy of the rise of our two precious metals.  No doubt our banking friends will try and another raid as the regulators have been bought and paid for as they sit idly bye.  I know many are angry at the bankers antics.  I feel you should take the many opportunities offered and buy some silver or gold.  Sooner or later you will not get another chance.

Let us head over to the COT report. Since all of the major action occurred on Wednesday through Friday you will glean nothing from this report but I will give it to you anyways.

First the gold COT:

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, April 12, 2011

Those large speculators that have been long added 1543 contracts to their longs positions and won big this week.
Those large speculators that have been short added 4504 contracts to their short positions and are crying this weekend.

And now our bankers:
the commercials that are long and close to the physical scene added a tiny 171 contracts to their longs.
And the commercials who have been perennially short from the beginning of time:
covered a rather large 4806 contracts.  However they probably added a huge number of shorts from Wednesday to last night.

In the small speculator category, the small specs that have been long gold took some profits as they lowered their long positions by 4115 contracts.
Those that have been short, covered 2009 contracts.

And now for 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, April 12, 2011

Those large speculators that have been long surprisingly took profits to the tune of 2585 contracts.  They will be crying today at their lost additional profit opportunity.
Those large speculators that have been short added another 1478 contracts to their shorts and are crying because of their losses.

And now for our commercials;
Those commercials that are long silver decided to add more contracts to their longs to the tune of 1381.
And our famous commercial bank JPMorgan and friends that have been short from the year 4 BCE covered a rather large 3754 contracts.  However this must have been reversed with the huge silver rise from Wednesday through Friday.
The small specs just were not in the game as those that have been long reduced their holdings by a tiny 399 contracts and those that have been short added 673 contracts to their shorts.

In conclusion, because all of the action occurred in the last 3 days of this week, we did not learn much from this report.

Let us head to our ETF's and see how they behaved on Friday.

First, let's see what happened to our "non-physical" inventories.

First the GLD: April 16.2011:

Total Gold in Trust

Tonnes: 1,231.16
Value US$:

Total Gold in Trust:

April 14.2011

Tonnes: 1,212.96
Value US$:

My goodness the boys have been busy.  They added a monstrous:  18.2 tonnes of gold.
This gold moved from one hole at the Bank of England to the GLD spot.  The GLD swapped the Bank of England's gold with cash.  However this swap can be unwound at the wishes of the Bank.  The shareholders will be screwed royally when the music stops.

How about SLV?  April 16.2011:

Ounces of Silver in Trust355,075,219.500
Tonnes of Silver in Trust Tonnes of Silver in Trust11,044.07
April 14.2011:
Ounces of Silver in Trust
Tonnes of Silver in Trust Tonnes of Silver in Trust

April 13.2011
Ounces of Silver in Trust
Tonnes of Silver in Trust Tonnes of Silver in Trust
Today we gained 2.245 million paper oz of silver.

And now for our physical ETF's:

The Sprott silver fund: PSLV: 17.06% ( basically the same from Thursday)

The Sprott gold fund PHYS:
the premium to NAV fell to 2.24%

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

saw its premium to NAV fall in usa funds to 1.1% and .9% in Canadian funds.

. The bankers were busy shorting these ETF's along with mining shares trying to ebb the rising demand for these precious metals.


Let us now see the major stories of yesterday and early this morning.
The big stories of yesterday is the estimated contraction in second quarter GDP.  Dave Kranzler, of the Golden Truth, gave a great commentary on this:

FRIDAY, APRIL 15, 2011

More QE3 Serum

No time to do a big post today, but we are now seeing some Wall Street firms cut their Q2 GDP estimates PLUS a non-Wall Street firm with more credibility just cut its Q2 GDP forecast.  I got this from zerohedge: 
Will U.S. economic output be affected by the supply disruptions to the Japanese auto manufacturers? The answer is unequivocally yes and the economic impact will be quite severe in April and for Q2 as a whole
Here's the LINK  Goldman has also been busy lowering its outlook for Q2 and the full year.  You can google to find reference to that, or zerohedge has been chronicalling it.  Some people are of the view that the chief economist at Goldman gets "special" insight into what the Fed is thinking, and thus believe that Goldman is prepping the markets for the eventual capitulation on the QE2-extension aka QE3 call from Fed.  Also recall that I have averred in my commentaries that the renewed money printing programs would be justified by the economic effects globally of Japan and Libya.

"But what about the great economic reports today and earlier this week that show manufacturing growth and lower than expected inflation?" you might ask.  I promise you that nominal growth in these economic indexes are highly skewed by real inflation.  And please note that today's CPI report, to begin with, is a highly manipulated Government prepared report and it's widely acknowledged, accepted and proven that the Govt-CPI is recklessly and tragically incorrect.  And furthermore the only number that was better than expected was the "core," which excludes food and energy. ROFLMAO.  How many of you spend at least 30-50% of your after-tax income on food and energy (gas, heating, a/c, electric)?  Most Americans do. 

So toss these b.s. economic reports out the window and start looking at what is really going on around you.  The total level of Americans actually working as % of the population is in continuous decline - the Govt just changes the definition of what constitutes the "labor force."  The number of Americans dependent on food stamps increases every month.  Those "robust" auto sales for March?  Check again and please note that they were a product of the auto manufacturers "stuffing" dealer inventories.  Search zerohedge for that report if you need to see the proof for yourself.  Dealer inventories are at record levels, but auto manufacturers book a sale once a vehicle is shipped to a dealer.  Oh and the auto maker happily finances that sale with your money (at least GM and Chrysler use your money).  And I don't even need to mention the fact that the housing market is absolutely falling off a cliff plus prices are tanking again.

Speaking of housing, Bank of America, one of the BIGGEST homebuyer financiers on the planet, is now saying that homeowners should not look at their home as an asset.  What the hell?  I'm not making this up, see for yourself:  LINK  That truly blows my mind.  Don't forget that for the past decade, mortgage finance has been the largest part of BAC's revenues, income and bonus pools.  ROFLMAO.  This is an absolute tragic farce.  The number ONE sales pitch used in a housing transaction is that "a house is a great investment!"  Bankers all over the country got rich on this battle cry.  Now we find out that it was one big lie?  I'll give BAC CEO Brian Moynihan the "asshole criminal of the year" award for the one.

Please take time to read or reread "Atlas Shrugged."  The movie opens tonight and I'm going to see it.  The media that has reviewed it so far, is panning it.  That does not surprise me.  The Denver Post didn't even review it.  The review I saw was posted on the online Denver Post.  I'm sure the media, heavily controlled by the Corporate/Government Big Brothership, has been told to dampen its reception of the movie.  Why?  Because the subject matter as presented by Ayn Rand is exactly what is going down in our country right now.  That plus a heavy does of George Orwell.

Before you go get your "Atlas Shrugged" tickets, please read this:  Brazil, Russia, India and China, collectively known as "the BRICs," understand what Rand/Orwell understood and they understand what is happening right now in this country.  And thus, THIS is why they are systematically and methodically getting the hell OUT of the U.S. dollar.  Please read this for reference:  Arrivedercie Dollaro!


Then last night, Goldman Sachs' Jan Hatzius released this to the media. This man is a close to the scene as anybody and we must pay attention to what he says even though he is from Goldman Sachs.  He was a former treasury economist official.  (courtesy zero hedge)

Jan Hatzius Friday Night Bomb: "We Are Downgrading Our Real GDP Growth Estimate To 1¾% From 2½%"

Tyler Durden's picture

Nobody could have seen this coming: "With most of the news on first-quarter growth now in, the GDP “bean count” looks even softer than it did a couple of weeks ago. The most recent disappointments have come on the export side—with trade now set to subtract significantly from growth in the quarter—and from inventories. Consequently, we are downgrading our real GDP growth estimate to 1¾% (annualized), from 2½% previously (and from 3½% not too long ago)." Some other things nobody will be able to predict: Hatzius dropping full year GDP from 4% to 2.25%; Goldman's downgrade of precious metals, Kostin's 2011 S&P 500 price target reduction by 20%, and Goldman getting its New York Fed branch to commence monetizing $1.5 trillion in debt some time in October.
From Goldman: Do Consumers Have Enough Fuel?
  • With most of the news on first-quarter growth now in, the GDP “bean count” looks even softer than it did a couple of weeks ago. The most recent disappointments have come on the export side—with trade now set to subtract significantly from growth in the quarter—and from inventories. Consequently, we are downgrading our real GDP growth estimate to 1¾% (annualized), from 2½% previously (and from 3½% not too long ago).
  • Other indicators still point to solid activity in Q1, but markets have become increasingly concerned about growth in the remainder of the year as well. A key reason for concern is the sharp rise in gasoline prices so far in 2011—nearly 70 cents per gallon—which is siphoning off household income at a run rate equivalent to $100 billion per year. We are adjusting our headline inflation forecasts over the remainder of 2011 to take the surge in fuel prices into account.
  • Despite these higher fuel costs, consumer spending looks to have grown at a 2½% pace in real terms in Q1, and—given strength towards the end of the quarter—is headed for a stronger pace in Q2. An important reason for the resilience: the payroll tax holiday has helped consumers to absorb the increase in gasoline prices over the past few months. (Put another way, higher oil prices have fully offset the impact of the payroll tax cut.)
  • Going forward, our forecasted reacceleration in spending growth still looks possible, but will require a fortuitous combination of circumstances—a modest further pickup in the labor market, gasoline price relief, and a benign asset price environment that encourages consumers to gradually reduce saving.
With most of the news on first-quarter growth now in, the GDP “bean count” looks even softer than it did a couple of weeks ago. The most recent disappointments have come on the export side—with trade now set to subtract significantly from growth in the quarter—and from inventories. Consequently, we are downgrading our real GDP growth forecast to 1¾% (annualized), from 2½% previously (and from 3½% not too long ago).
Other indicators still point to solid activity in Q1, but markets have become increasingly concerned about growth in the remainder of the year as well. Growth-sensitive equities have suffered in recent days, and some forecasters have taken down their expectations for growth later in the year. A key reason for concern is the sharp rise in gasoline prices so far in 2011, which has the American public—and policymakers—on edge. Retail pump prices are approaching their peak levels in the summer of 2008 (Exhibit 1). The extra cost of about 70 cents per gallon, relative to prices at the end of 2010, is siphoning off household income at a run rate equivalent to $100 billion per year—income that otherwise could have been spent on other goods and services.
Despite these higher fuel costs, consumer spending looks to have grown at a 2½% pace in real terms in Q1, and—given strength towards the end of the quarter—is headed for a stronger pace in Q2. Solid growth in consumer spending will be essential if the US economy is to post above-trend growth for the remainder of 2011, as we continue to expect. But will households have enough “fuel” from income growth to sustain such an expansion, especially with fiscal and monetary stimulus reaching their peak?
In the next few pages we look at the prospects for household income growth in 2011 and 2012. We find that the payroll tax holiday has helped consumers to absorb the increase in gasoline prices over the past few months. Put another way, higher oil prices have fully offset the impact of the payroll tax cut. Going forward, a reacceleration in spending growth is possible, but will require a fortuitous combination of circumstances—a modest further pickup in the labor market, gasoline price relief, and a benign asset price environment that encourages consumers to gradually reduce saving.
Moderate Income Growth, with Risks from Taxes and Oil
Our US economic forecast envisions personal income from wages and salaries, assets, and transfers should grow at roughly a 5% nominal rate through most of 2011 and 2012.
1. Wages and salaries should grow at a 4%-4½% clip. This assumes payroll growth in the 200,000 range (just about a 2% annual growth rate—see Exhibit 2), a small increase in hours per worker, and growth of about 1½%-2% in wages per hour (similar to recent growth in private sector average hourly earnings or the Labor Department’s employment cost index; see Exhibit 3). Ultimately, it’s labor income that is needed to fuel a self-sustaining expansion, and this is more important than ever now that fiscal policy is turning towards restraint.
2. Asset income—weak interest, but growing dividends and business income. A continued low-rate environment should dampen interest income, but the rebound in the economy should lead to further gains in dividend income and small business income (proprietors’ income). We envision this component growing at a 3-5% nominal rate through 2012.
3. Transfer income will be more restrained. Aside from the annual cost-of-living increase in Social Security in early 2012, which should be more robust next year due to higher headline inflation this year, transfer income should grow relatively slowly. In particular, unemployment benefits should dwindle as individuals find jobs or exhaust their extended benefit eligibility.
Modeling each component of income growth separately suggests some downside risk to asset income and transfer income relative to our current forecasts, but potential upside risk to our current numbers on wages and salaries. Overall, we see some small downside risk to our current disposable income forecast, perhaps about half a percentage point. If we assume trend-like headline inflation of 1½%-2% over remainder of 2011 and 2012, these calculations would imply real disposable income growth in the 3% range.
Exhibit 4 illustrates the recent paths of wage and salary income, disposable income, and real disposable income with our forecasts (in shaded area) through the end of 2012. The spike in mid-2010 is due to the labor market improvement in that period, which in turn was partly the result of temporary Census hiring. The data for recent months show clearly the offsetting effects of the payroll tax holiday and rising gasoline prices. Wage and salary growth (dotted line) has been reasonably steady in the 3%-4% range, while disposable income (the gray line) has accelerated to more than 6% annualized with the cut in payroll taxes. However, in real terms (black solid line), there has been no acceleration in income, as higher headline inflation has absorbed the increase in nominal aftertax income.
As for the future, there are two main risks to a “steady as she goes” income path. The first—fittingly, given that it’s tax day—is the increase in payroll tax rates slated for the beginning of 2012, when the partial payroll tax holiday expires. This will decrease households’ after-tax income by roughly $110 billion (about 1%), clearly visible as a drop in income growth in early 2012 in Exhibit 4. Of course, it’s possible the payroll tax cut will be extended—next year is an election year, after all—but right now there is no call to do so either from Democrats or Republicans.
The second risk is the path of commodity prices; continued increases in gasoline prices in particular would pose a serious threat, especially if they occurred alongside a reversion to the higher payroll tax rate. Households currently devote 3.6% of their income to gasoline, on average, so a 10% shock to gasoline prices is worth 36bp on real disposable income growth. This is only a “first-round” effect, and leaves out any feedback into employment (i.e. if lower spending caused companies to become more cautious on hiring, that in turn could affect future spending) or via other sectors of the economy.
The bottom line: we see modest downside risk (unfortunately, a phrase we have been using a lot lately) to our household real disposable income forecasts in 2011 and 2012. The best chance for exceeding our forecasts is either a substantial acceleration in the labor market and/or a large drop in gasoline prices.
Will Consumers Loosen the Purse Strings?
Our forecast has real consumer spending growth at a brisk 4% pace in Q2 and Q3, decelerating to 3.5% late in the year and to 3% by late 2012. Given the more modest path for real disposable income discussed in the previous section, this implies a drop of somewhere between one and two percentage points in the household saving rate by the end of 2012. This would be a meaningful loosening of the purse strings, though mild by the standard of either of the last two economic expansions.
To test the plausibility of such a drop in saving, we update our model of the household financial balance. This measure equals after-tax household income less consumer spending and net residential investment. It is a broader measure of households’ financial stance than the saving rate alone. Since households think about home purchases and renovations as part of their spending, we think it makes more intuitive sense, and it also turns out that we can fit models to it with slightly more accuracy. Statistically, the key drivers of the household financial balance are 1) asset prices—higher asset prices are associated with a lower balance, i.e. more spending and investment, 2) credit conditions—with easier credit also associated with more spending, and 3) nominal interest rates—with lower rates typically discouraging saving and boosting spending.
Our model, illustrated in Exhibit 5, is estimated only on data through 2005, but has continued to track actual behavior quite closely since then: the tightening in credit and collapse in asset prices beginning in late 2007 are consistent with the observed sharp rise in the financial balance. However, the latest improvement in the financial environment—particularly the rally in the equity market over the past several months—suggests that consumers may be willing to “loosen the purse strings” at least somewhat in 2011. The forecast for the financial balance in the remainder of 2011 and 2012 is about two percentage points below the current actual level, implying a desire by consumers to spend a greater fraction of their after-tax income. Note this forecast is contingent in part on a continued rise in equity prices (per our strategists’ forecasts) and gradual easing in credit conditions. Flat equity prices would still imply a decline in the household balance, but a somewhat smaller one.
Where does all this leave us? The models suggest that our income and spending forecasts are feasible and internally consistent. But they also suggest a lot of things will need to go right for our optimistic view on spending to become a reality. First, the labor market will need to continue its improvement, and probably accelerate slightly, to provide the requisite income growth. Second, gasoline prices need to stop rising, and ideally retrace at least part of their recent gains, to ensure that income growth passes through into increases in real spending. Third, overall asset values need to rise—i.e. equity price gains need to more than offset modest home price declines—to ensure households feel comfortable loosening the purse strings. Finally, of course, households need to behave roughly in the way our model suggests they should!
Cash Flow Growth is Healthy
One other perspective on households’ spending power is provided by our measure of “consumer discretionary cash flow”. To calculate this, we take the estimates of disposable income from the previous section, net out non-cash income, add cash flow from borrowing or asset sales, and subtract essential outlays for food, energy, medical care, and financial obligations. Finally, we deflate the remaining series using an adjusted core PCE price index.
This approach paints a somewhat more optimistic picture (Exhibit 6). Near term, cash flow grows more strongly than income. The faster growth of cash flow occurs mainly because recent data on credit extension suggest a noticeable acceleration—in particular, nonrevolving consumer credit (auto loans) has grown steadily over the past six months after declining gradually over the prior two years. We expect this positive “credit impulse”—a positive second derivative of credit outstanding—to persist through most of 2011. That in turn would be consistent both with continued growth in consumer spending and a decline in the saving rate (and household financial balance).
A Divergent Impact Across Households
It’s worth noting that the broad macro themes outlined here have very divergent implications across households. Households with high exposure to equity prices—typically those at the top end of the income spectrum—have become more willing to spend as their net worth recovered quickly following the crisis. Households with relatively more exposure to housing, and/or who spend a higher proportion of their income on gasoline—typically those at the lower to middle income brackets—continue to feel considerable pressure to economize.
Using data on relative exposure to gasoline costs from the Labor Department’s Consumer Expenditure Survey, and to asset prices from the Fed’s Survey of Consumer Finances, Exhibit 7 illustrates the hypothetical impact of changes in asset values and oil prices since 2005 on spending by the top, middle, and bottom income quintiles of US households. The concentration of the negative “wealth effect” among higher-income households is consistent with the sharp drop in luxury spending and disproportionate damage to higher-end retailers in the early part of the crisis. Since then, spending at the higher end seems to have recovered more rapidly, consistent with the implication of the chart. (The payroll tax cut had a broadly similar effect across most households, except among the top quintile where it represented a smaller percentage change in after-tax income.)
Your rating: None Averag


The housing sector is still in shambles.  This is a very big commentary by Martin Hutchinson.
The banks cannot recover as foreclosures continue and prices fall. Remember that the collateral the bank has is these mortgages.
 (courtesy of Reuters):

Five years from U.S. housing peak, still no bottom
-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --
By Martin Hutchinson
WASHINGTON, April 15 (Reuters Breakingviews) - Five years on from their peak, there's still no bottom in sight for America's house prices. After rising from a trough in 2009, prices are falling again and market activity is very thin. It's another complexity for monetary policymakers with an eye on inflation: hiking interest rates could further squash housing.
The housing bubble that inflated in the run-up to 2006 owed much to the Federal Reserve's policy. During and after the 2001 recession, the Fed under Chairman Alan Greenspan held interest rates very low, and well below inflation. That coincided with a political environment and tax benefits -- like the mortgage interest deduction -- that encouraged home ownership, and was capped by financial technology that allowed mortgages to be repackaged and resold so that the original lenders retained no risk.
Yet thanks to low interest rates, the National Association of Realtors' affordability index remained above its long-term average even as the ratio of the typical house price to income soared to unprecedented levels above five times, compared with a long-term average around three times.
Helped by a dose of bubble-induced fraud that stretched some mortgage borrowers even further, lower-quality subprime borrowers began getting into difficulty even as house prices were peaking. That was the beginning of the collapse that eventually swept through the mortgage securitization market and put the banking system in difficulty, causing a financial crunch and a sharp economic downturn.
The average house price tumbled 32 percent in the three years after the 2006 peak, by the seasonally adjusted S&P/Case-Shiller 20-city index. Initially, prices then rebounded remarkably quickly, turning up in June 2009 -- around the time the recession bottomed and well before the peak in unemployment -- and climbing 5 percent in the following 12 months.
But that turns out to have been a false dawn. Even cheaper money, extra tax incentives and higher loan limits at the now government-owned Fannie Mae and Freddie Mac and at the Federal Housing Administration helped produce the rebound, but it fizzled out in the months after the tax breaks were withdrawn in April 2010.
A renewed house price decline has set in, with the January reading of the Case-Shiller index 4 percent down from its mini-peak seven months earlier -- although the index remains just above the post-crisis trough level.
Meanwhile, U.S. new home sales in February fell 28 percent from the previous year to a record low pace. The inventory of new homes rose to 8.9 months' sales, although this is an improvement on the 12 months' worth of stock two years ago. Existing home sales also declined slightly in February from a year earlier.
U.S. employment trends have turned positive in recent months, which will help prices. So will mild inflation, which increases housing affordability. But there are factors that point to a significant further decline. First, interest rates remain artificially low, and with inflation beginning to accelerate, they are declining in real terms. This has brought the NAR's affordability index to an all-time peak of 192.3 in February. That suggests even the current level of house prices may be flattered by low mortgage costs.
Second, the already high level of reported housing inventories may not tell the whole story. Homes going through the foreclosure process and those that cannot currently be sold because the owners are underwater on their mortgages represent an additional, invisible overhang.
Looked at against history, American house prices are still well over 30 percent above the cyclical low in September 1993 in real terms, adjusting the long-running Case-Shiller 10-city index for inflation. On a more thorough analysis, economist Gary Shilling believes house prices have a further 20 percent to fall. That may be too pessimistic, but prices surely face headwinds from the foreclosure pipeline and high levels of inventories.
And that's the difficulty for the Fed. With house prices in January down 31 percent from their peak by the Case-Shiller 20-city index and declining again, more loans that appeared perfectly sound when written are dipping under water. Yet with Friday's release showing consumer prices rose 0.5 percent in March, the same increase as in February, it looks as if inflationary pressures are slowly building. That means policymakers may soon have to consider raising interest rates, which will force mortgage costs higher and knock housing prices down further. Five years on, U.S. homeowners don't yet have much cause for optimism.

Yesterday, we had our 3rd Fed President, Evans of the Chicago Fed , enter the fray and this time, he urged the Fed to continue supplying the needed stimulus to the economy.
In English:  he wants QEIII.

courtesy of Reuters:

Fed's Evans: accommodative policy still needed
NEW YORK, April 15 (Reuters) - The Federal Reserve needs to keep its policy accommodative because the U.S. central bank remains below its targets for inflation and employment, a top Fed official said on Friday.
Chicago Federal Reserve Bank President Charles Evans, a voter on the Fed's policy-setting committee, said however that monetary policy alone cannot ensure economic and financial stability in the United States.
"At present, we're underrunning both our inflation objective and our employment objective -- both call for monetary policy accommodation," he said in prepared remarks to the annual Hyman P. Minsky conference here.
The Fed engaged in one of the most extensive rescue missions on record to drag the U.S. economy out of its worst crisis in decades, cutting short-term rates to near zero in late 2008 and buying nearly $2 trillion in bonds.
Recent comments by Fed officials suggest pressure is building from within to tighten financial conditions, though inflation remains below the Fed's 2-percent target and employment remains high at 8.8 percent.


China continues to grow but experience high inflation:
 (courtesy of Reuters):

China growth sizzles, inflation bubbles
BEIJING (Reuters) - China's turbo-charged growth eased just a touch in the first quarter, while its inflation jumped to a 32-month high, putting pressure on the government to do more to rein in prices and keep the economy on an even keel.
China's gross domestic product increased by 9.7 percent in the first quarter from a year earlier, down from 9.8 percent in the final three months of 2010 but ahead of an expected 9.5 percent pace.
Consumer price inflation sped to 5.4 percent in the year to March, the fastest since July 2008 and topping market forecasts for a 5.2 percent increase.
Taken together, the data published by the National Bureau of Statistics on Friday showed that the world's second-largest economy was still sizzling, little hindered by the central bank's half-year tightening campaign that many investors had feared would undermine growth.
They were also another reminder of the yawning gap that has opened up between China, the world's fastest-growing major economy, and developed nations from United States to Europe that are still struggling to kick-start their economies after the global financial crisis.
"The figures show that (China's) inflation pressure will not taper off in the short term and we expect the consumer inflation to remain high in the second quarter," said Sun Miaoling, an economist with CICC, the largest Chinese investment bank.
"The government will keep battling inflation as its priority in coming months, which could prompt the central bank to further tighten its monetary policies," she added.
The People's Bank of China has increased benchmark interest rates four times since last October and has required the country's big banks to lock up a record high of 20.0 percent of their deposits as reserves.
Global markets registered little impact from the Chinese data, in large part because the numbers had been comprehensively leaked in the days prior to the official release…


Over in Europe, Moody's has downgraded Ireland.  It seems this country has some serious problems to overcome:

Moody's downgrades Ireland's credit rating to one grade above 'junk' news
16 April 2011

Britain could end up as one of the systemically important major economies whose performance would warrant regular review by the International Monetary Fund  (IMF).
This weekend the G20 is expected to reach an agreement on a set of "indicative guidelines" – criteria that would determine whether a nation's economy would need to be subject to this higher level of IMF scrutiny. These would include various criteria like budget deficit, trade imbalances, and the size of the  nation's economy to potentially cause "spillover" damage and add to the global economic imbalances.
The chancellor, George Osborne, told reporters at the IMF's spring meeting in Washington, DC that he expected the UK to be among such countries, given the high levels of UK's public and private debt. He added that he "positively welcomed" the development as something the UK has been "in the forefront of arguing for".
He said, "In future, the IMF will be going into countries and assessing in an independent way their contributions to the imbalances." He added that the UK had taken note of the IMF's willingness to be robust in challenging the US, adding that he hoped other countries would also respond to the IMF's reviews, though there would be no sanctions if they were ignored. Other nations that would be subject to the arrangements would be the US, China, Germany and Japan. The IMF intends to take large surpluses, for instance, as seriously as large trade deficit
The step would mark a new milestone in the international community's long struggle to address the global economic imbalances that were a factor in the in triggering the worst recession in three-quarters of a century, according to analysts. They say the advent of these new "spillover reports" would by far be the most important achievement of the meeting of G20 leaders this weekend.
Osborne was also quick to point out the measures proposed by president Barack Obama to reduce the US federal deficit as evidence that the White House, long held up by Labour as the counter to the cuts policy was acting on the same lines and was following what he had outlined for speeding up the process of deficit reduction. on the following link for the entire passage..


Looks like we have had a run at the Belarus banking system.
(courtesy Reuters)

Belarus halts sales of gold for roubles
Fri Apr 15, 2011 11:57am G
MINSK, April 15 (Reuters) - Belarus' central bank has stopped selling gold to local retail customers for Belarussian roubles BYR=, it said on Friday, after demand for precious metals soared due to expectations of a currency devaluation.
The bank did not explain its decision.
Belarus is in talks with Russia on a $3 billion bailout package that Minsk hopes will help it avoid a painful devaluation of the rouble and offset the large current account deficit.
Belarussians bought 470 kilograms of gold from the central bank last month, up from 209 kilograms in January and February together, as they sought to protect their savings.
Analysts say that Belarus will have to eventually devalue the rouble by about 20-30 percent even if it receives aid from Moscow. However, the central bank has said it would not make any such moves until late April.
The rouble traded at 3,052 per dollar on Friday BYR= and has weakened by 7.57 percent so far this year against a basket that includes the dollar, the euro and the Russian rouble.
The central bank has said it would keep the exchange rate movements against the currency basket within 8 percent this year. (Reporting by Andrei Makhovsky; Writing by Olzhas Auyezov; editing by Patrick Graham).


Jessie of American cafe comments on the above:

A Run On the Central Bank of Belarus in Devaluation Fear Forces Halt to All Gold Sales

I was a little surprised the people fled to gold and tried to drain the central bank, desperately trying to get out of their fiat currency ahead of a suspected devaluation.

This is how it happens, on a smaller scale.

I was in Moscow in the 1990's when they were fleeing the Russian rouble for gold, diamonds, US dollars, and vodka. It is hard to imagine what it feels like to watch your life savings simply and relentlessly evaporate. It was a 'quiet panic' that left a deep impression on me.

Apparently the US dollar is no longer so much a safe haven in that part of the world. At least that is what I hear.

Belarus is small. When a bigger ship starts to founder, the lifeboats may be very crowded.

It cannot happen. The authorities will not allow it. This is what they always say.

Big things are happening, little brother.

The following post is from Jim Sinclair and it concerns the release of the CPI report which everyone knows is phony.  Here is this important commentary from one of Jim's followers: (courtesy Jim Sinclair commentary and yahoo
Food and gas costs push consumer prices higher CIGA Eric
Food and gas prices pushing consumer prices higher. So, what’s pushing food and gas? The answer is notpixie dust.
Americans are paying more for food and gas, a trend that could slow economic growth in the months ahead. The Consumer Price Index rose 0.5 percent in March, the Labor Department said Friday. That matched February’s increase, the largest since the recession ended in June 2009. In the past 12 months, the index has increased 2.7 percent, the biggest rise since December 2009. Excluding the volatile food and gas categories, the so-called core index rose 0.1 percent and it is up only 1.2 percent in the past year. Consumers are spending more, but the steep rise in food and gas prices could limit their ability to purchase discretionary goods and services. Consumer spending makes up 70 percent of economic activity.

It looks like gridlock between the Republicans and Democrats as they discuss the 2012 budget.  Here is Greg Hunter of USAWatchDog discussing this on his latest paper:

Posted: Apr 15 2011     

 By Greg Hunter’s

This week, President Obama gave a speech outlining his plan for long term deficit reduction.  He invited the Republican leadership for what many thought would be some sort of bi-partisan federal budget 2011 solution.  In reality, it was kind of a St. Valentine’s Day massacre because right off the bat, Mr. Obama pulled out the Presidential tommy-gun and started shooting. He said, “This debate over budgets and deficits is about more than just numbers on a page, more than just cutting and spending.  It’s about the kind of future we want.  It’s about the kind of country we believe in.”
Surprise, surprise.  The kind of country President Obama “believes in” is a lot different than the Republicans.  The President said the Republican plan “ends Medicare as we know it.” Sounds to me the President will play the class warfare card during the 2012 election season because he went on to say, “The top 1% saw their income rise by an average of more than a quarter of a million dollars each.  And that’s who needs to pay less taxes?” (Click here to read the entire text of the President’s deficit speech.) I can see why the President is playing to lower income people.  Recently, a poll revealed a majority of the poorest Americans no longer support Obama. reports, “President Barack Obama’s approval among the poorest Americans dropped to an all-time low of 48 percent last week, according to the Gallup poll, leaving the president with less-than-majority approval among all income brackets reported in Gallup’s presidential approval surveys.” (Click here to read the complete story.)
The two big issues will be billions in Medicare and Medicaid cuts (especially Medicaid) and a $1 trillion tax increase.  I see these two issues as real sticking points.  Relative to the Republican plan, the President only wants to make small changes to health care entitlements.  Obama clearly wants health care entitlements to grow, not shrink (remember Obamacare?)  Also, the Democrats and Republicans came within an hour of shutting down the government over $35 billion in cuts.  There is no way the two parties are going to agree on some compromise on a trillion bucks in tax hikes.  These two issues alone spell budgetary gridlock.  House Budget Chairman Paul Ryan said the President’s speech was “excessively partisan” and “dramatically inaccurate.” These are not the kind of words you use when you are laying the groundwork for a compromise.  I am sure Congress will play chicken again, over the budget, in the government shutdown game.
I don’t know which party has the best plan, but I do know the U.S. is in deep financial trouble.  Gridlock is not going to help with dramatic and badly needed cuts in spending.  In March alone, the federal government spent 8 times more money than it took in.  The U.S. collected $128 billion and spent more than $1.1 trillion (or $1,100 billion!)  Neither party addressed the other new welfare plan we have started for crooked bankers who have ripped-off the country and caused the financial meltdown in 2008.  The latest outrage is the $220 million in bailout money given to the wives of two Morgan Stanley bankers.  (Click here to read the complete story.)
Well,I think that wraps it up for today.
I will see you Monday night.


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