Saturday, June 11, 2011

The Dow tanks/Gold and Silver Raid/Kitco and others charged in tax scam

Good evening Ladies and Gentlemen:

Before commencing, I am so sorry to report that there were no bank failures announced last night.
They get to play for another week.

Yesterday was quite a day with the Dow tanking 171 points with all the negative news from Europe and lousy USA economic data.  Gold closed yesterday at $1,528.60 down $13.50 for the session with silver finishing at $36.32 down $1.10.  In the access market, gold gained back some of its losses to close at $1532.10.  Silver lost more ground to finish at $36.20.

Let us head straight over to the comex and see how trading fared over there.

The total gold comex OI rose by 5402 contracts to 506,978 from Thursday's level of 501,576.  Gold had a good day on Thursday so the speculators piled in on the long side.  The front delivery month of June saw its OI fall from 2285 to 2260 for a loss of only 25 contracts.  We had 41 deliveries on Thursday so for a change we did not lose any gold to cash settlements and we gained a few gold oz standing.  The next big delivery month is August and here we saw the OI rise from 335,560 to 340,898.  It is this month that speculators jumped into.  The estimated volume on Friday was 136,222 as the bankers supplied much of the non backed paper gold. The confirmed volume on Thursday when the bankers were loathe to supply much paper gold came in at 112,896.

The total silver comex open interest reverted back to its narrow range coming in at 121,512 rising by 1646 contracts from Thursday's level.  The front options delivery month of June saw its OI  fall from 112 to 90 for a loss of 22 contracts.  We had deliveries of 22 contracts so the entire loss in OI was due to those deliveries and we had zero cash settlements.  All eyes will be on the next big delivery month for silver and that is July.
The OI for July fell marginally from 49,049 to 47,701.  The contraction for this front delivery month has been much slower than normal. We have less than 3 weeks before first day notice.
The estimated volume on the silver comex was very high at 75,287 as the bankers continue to supply non backed paper silver.  The confirmed volume on Thursday was fair at 52,641 contracts.

Here is the chart for 6/11/2011 regarding deliveries and inventory changes at the comex. This is for the June delivery month in gold. 

Withdrawals from Dealers Inventory
Withdrawals fromCustomer Inventory
Deposits to the Dealer Inventory
Deposits to the Customer Inventory

No of oz served (contracts)  today
42500 (425)
No of oz to be served  (notices)
 183500 oz (1835)
Total monthly oz gold served (contracts) so far this month
 487200  (4872)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

Let us begin with the gold movements. In a nutshell, there were none.
We again had no gold deposits nor withdrawals from the dealer
We had no gold deposits nor withdrawals from the customer.
We did have a monster adjustment of 100,419 oz of gold leaving a customer and entering a dealer in an obvious lease arrangement.  

The comex folk notified us that 425 contracts were served on Friday for 42500 oz of gold.
The total number of notices served thus far total 4872 for 487200 oz.  To obtain what is left to be served, I take the OI for June standing (2260) and subtract out Friday's deliveries (425) which leaves me with 1825 notices left to be served upon  (182500 oz of gold)

Thus the total number of gold oz standing in this delivery month of June is as follows:

487,200 oz of gold served  +   182,500 oz of gold to be served =  670,700 oz.(20.866 tonnes)
we had 669,100 oz on Thursday so we gained 1600 oz of gold standing.

And now for silver:

Withdrawals from Dealers Inventory
Withdrawals from Customer Inventory
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)  today
355,000  (71)
No of oz to be served  (notices)
95,000  (19)
Total monthly oz silver served (contracts) so far this month
1,815,000  (363)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal of silver from the Customer Inventory this month.

In silver we had a small deposit of 4054 oz of silver into a customer's
Delaware vault.  We again had no silver deposited to the dealer and no withdrawal by the dealer.  We had the following customer withdrawals:

1.   50,160 oz from Brinks
2.    993 oz from Delaware

total withdrawal:  51,153 oz

We had no adjustments.
The comex folk notified us that  71 notices were filed for Friday for 335,000 oz.
The total number of notices filed so far total 363 for 1,815,000 oz.
To obtain what is left to be served, I take the OI standing for June ( 90) and subtract out the deliveries on Friday (71) which leaves me with 19 notices or 95000 oz.

Thus the total number of silver oz standing in this non delivery month of June is as follows:

1,815,000 oz (served)  +  95,000 oz (to be served0  =  1,910,000 oz exactly the same as Thursday's reading.


Let us now proceed to our ETF's SLV and GLD and then our physical gold and silver funds:
Sprott and Central Fund of Canada.

 The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.
Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.

First GLD inventory changes:  June 11.2011 : 

Total Gold in Trust

Tonnes: 1,200.96
Value US$:

June 9.2011:

Total Gold in Trust

Tonnes: 1,211.57
Value US$:

June 8:

Total Gold in Trust

Tonnes: 1,211.57
Value US$:
June 7:

Total Gold in Trust

Tonnes: 1,212.87
Value US$:

Yesterday we lost a huge: 10.61 tonnes of gold from this vehicle. 
This gold is probably used to put out fires in London and also in the settling process at the comex.  Mary Schapiro, of the SEC should be charged for dereliction of her duty as she refuses to look into the authenticity of the gold inventory. (no audits)

Now let us see inventory movements in the SLV:

June 11.2011

June 9.2011
Ounces of Silver in Trust318,749,361.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,914.21

we neither gained nor lost any silver

Let us head over to our closed physical funds that we follow: the Central Fund of Canada and Sprott's gold and silver funds:

1. Central Fund of Canada: it is trading at a negative  3.4% to NAV in usa funds and negative 3.6% in NAV for Cdn funds.
    June 11.2011
2. Sprott silver fund  (PSLV):  Premium to NAV fell   to 14.21% positive NAV (June 11 .2011
3. Sprott gold fund (PHYS): premium to NAV fell slightly to a positive 1.93% to NAV  (June11.2011)

The bankers continue to play havoc with the central fund of Canada as we continue to have a discount to its NAV.  The bankers are loathe to attack the Sprott funds.

Last night the Comex released the Commitment of Traders report for last week.
Here is 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, June 07, 2011

The large speculators that have been long added a large 4652 contracts to their positions and remain resolute in their conviction.

Those speculators that have been short decided that the deterioration in the economy was too much for them to handle so they covered 2282 contracts from the short side.
And now for our commercials:
Those commercials that have been long gold and are close to the physical scene lightened up a bit on their longs to the tune of 1914 contracts.
Those commercials that have been short from the beginning of time added a rather large 5262 contracts to their short positions with the winking nod of approval from our regulators.
The small specs are out of the gold game.

And now for silver:

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, June 07, 2011

A little different from gold.

Here our large speculators continue to be gun shy from the antics of the banks as they liquidated a small 109 contracts from the long positions. They are sitting and waiting patiently for the bankers next move.
The large speculators that have been short added a tiny 474 positions to their short positions.
And now for our famous commercials:
Those large commercials that have been long silver and are close to the scene in this department
added 726 positions to their longs.

And our famous bankers who are perennially short like JPMorgan and HSBC  covered a tiny
269 contracts of their shorts. 
The small specs are also out of the silver comex game.
In summary then, the commercials in gold continue to supply the necessary non backed paper knowing full well that in the delivery process paper gold in the form of GLD paper is used in the settling process.  The COT report is less bullish that last week.

In silver, you can see the commercials do not want to supply any more silver paper.
The COT report is more bullish in silver this week.


Let us now head over to see the big stories of the day and no question about it,
this headline surprised many:

Kitco Charged With Massive Tax Fraud Scheme, Business Viability In Question

Submitted by Tyler Durden on 06/10/2011 09:37 -0400
Life for the precious metals dealer, and home of the often times infamous Jon Nadler, Kitco just got very ugly. "Claiming widespread tax fraud in the gold refining and trading sector, Revenue Quebec and police investigators this week conducted searches and seizures at 70 locations, mostly in the Montreal area. One of the targeted sites was the downtown Montreal location of Kitco, a major buyer and seller of gold. A note on the floor of its office on Thursday said that "operational constraints" had forced the service counter to close this week." It is unclear if this alleged tax fraud bust means Kitco could be out of business shortly, although based on the following statement it is somewhat difficult to have an optimistic outlook on the future employment prospects of said Mr. Nadler: "The company said it has asked Superior Court of Québec to appoint an interim receiver so that it may continue normal operations under the supervision of the accounting firm RSM Richter. The action was taken "to allow for the time required to vigorously contest Revenu Québec’s unfounded claims." At the heart of the allegation: "In a communique, Revenue Quebec said that by converting pure gold into a gold object and then refining it back into a pure state,some in the gold industry had used "artificial transactions" to obtain refunds of taxes that were never actually paid." Apparently Kitco was one of them. Oh well, we will miss the pretty charts.
No arrests were announced, but the tax department said Thursday it had reason to believe several people were involved in producing false invoices for a number of companies.

The company strongly denied any allegations in a statement Friday.

"Kitco Metals Inc. has never participated in any tax fraud, nor has it ever carried out any fictitious transactions. In all respects, Kitco vigorously contests all aspects of Revenu Québec’s investigation," it said.

Revenue Quebec said two networks of companies and individuals were at the heart of a false-billing scheme that had cost the province more than $150 million in tax on almost $2 billion in transactions.

In addition to Kitco and Carmen International Inc., it said almost 125 other companies had been complicit in the scheme.
Instead of trafficking in invoiceless gold, perhaps Kitco should have just pulled a Goldman, opened a prop desk, and bought the stuff. Hopefully they learn from this mistake.

From the Financial Post:

  Jun 10, 2011 – 6:40 PM ET Last Updated: Jun 10, 2011 6:46 PM ET
Montreal — One of Canada’s largest gold traders has become ensnared in allegations of tax fraud after Revenue Québec swooped on a web of people and companies it claims may have bilked taxpayers of at least $150-million.
Kitco Metals Inc., a well-known buyer and reseller of precious metals including gold, is among those under investigation after the Quebec tax department alleged that it is part of an intricate scheme designed to avoid paying provincial sales taxes. The company denies the claims.
In what Revenue Québec calls one of its biggest probes in recent years, more than 175 provincial investigators with search warrants this week raided several businesses, private residences and offices of accounting firms and bankruptcy trustees in the Montreal area. The revenue department alleges that some 125 companies in the gold refining and trading industry engaged in a tax fraud scam on sales transactions worth $1.8-billion. It claims the firms also avoided paying the federal goods and services tax.
No arrests have been announced.
The tax agency named two companies as being the subject of investigations — Kitco and Carmen International Inc. Revenue Quebec employees visited Kitco’s Montreal offices on Tuesday to gather information, said company spokesperson Sharlene Dozois.
“I’m quite surprised by these allegations,” said James Turk, founder and chairman of, one of the world’s largest providers of physical bullion for retail and institutional investors. “It’s a company with a good reputation.”
Founded in 1977 by current president Bart Kitner, privately held Kitco is one of the most popular coin dealers in North America and also has offices in Hong Kong and Shanghai. The company’s website, which carries live spot prices and expert market commentary, claims to attract nearly one million visits daily.
Revenue Québec alleges it has identified various networks within the gold industry where businesses make bogus transactions in order to claim input tax refunds. It claims the six-step scheme is essentially based on a repetitive cycle of processing pure gold into scrap gold, which is, in turn, sent to a refiner to be transformed once again into pure gold.
“Note that the scheme is based on bogus transactions made in order to claim input tax refunds,” the ministry said in a statement. “No actual commercial activity ever takes place…. With each [cycle], fraudulent gains grow and the scheme expands using the amounts received from the government.”
Kitco defended itself, saying it has “never participated in any tax fraud, nor has it ever carried out any fictitious transactions. In all respects Kitco vigorously contests all aspects of Revenue Québec’s investigation.”
The company won court approval to appoint an interim receiver, RSM Richter, to help it deal with the allegations and negotiate a tax assessment amount that is outstanding. “Revenue Québec would like to have that amount due,” Ms. Dozois said. [We’ve appointed the receiver] to make sure that we continue our normal operations while we’re negotiating that amount.”
Addressing the allegations, Kitco suggested it is being held “unjustly” responsible for the actions of its suppliers.
The company said in a statement that it buys precious metals scrap and pays its suppliers sales taxes on these purchases for which it receives a tax credit. It said: “It is the responsibility of these suppliers to pay back the sales taxes to Revenue Québec. [The ministry] alleges that some of these suppliers have not remitted the taxes paid to them. Revenue Quebec is unjustly holding Kitco responsible for the unremitted taxes, which led to the issuance of the tax assessments.”
In addition to the two companies named, the department named five individuals it believes were involved in producing fake bills related to false tax declaration. They are Viken Gebenlian, Haroutioun Dakessian, Oskan Hazarabedian, Benjamin Bensimon and Shadia Khatib. No further information was given about the individuals.
The revenue department regularly conducts investigations into alleged fraud and tax evasion. But rarely do the results of the investigations result in sweeps of this size. If found guilty, any persons complicit in tax fraud are required to pay an amount equal to the tax evaded, as well as the applicable interest and penalties.
They also face fines and a maximum prison term of five years.


The charges against Kitco are quite astonishing.  I will try and describe the charges so you can understand what is happening here.

It is alleged that Kitco and other company at the centre of the ring were involved in a tax scam in the conversion of pure gold into scrap gold and back into pure gold.
Pure gold is non taxable in Canada.  Gold with copper or other metals in it must be sold or bought with a sales tax.  In Quebec, for several years, they have had a harmonized tax called an HST which includes the Federal GST of 5% and the Provincial Sales tax of 8%.  Business pays the 13% and use this as an input credit.  They charge  13% of all of their sales and remit the difference between the sales tax collected and input tax credits. Gold only in pure form is non taxable.
Ontario until last year had a separate Federal sales tax called a GST of 5% which was added to a provincial tax of 8%.  These were merged into an HST last year.

Here is how the scam went.
Kitco supposedly took ounces of pure gold say 1000 oz from their inventory and sold it to a refiner A.  Let us say that the sale price was 1500.00 per oz, Canadian.

Thus the sale price will look like this:

1,000 oz of gold x 1500.00 or 1,500,000.00

Kitco would receive a cheque for 1.5 million dollars .

Step no 2:  
Refiner A adds 10% copper (6 lbs at a cost of 24.00 dollars) and sells the 1000 oz back to Kitco as scrap gold:

The invoice would look something like this:

Number of oz turned into scrap:  1000 oz


1,000 x 1500.00 gold = $ 1,500,000.

Cost of Cu: $ 24.00

Cost of making scrap: $1,000.00

total cost  1,501,024.

HST:  195,133.12

total invoice price:  $1,696,157.12

Step no 3:

Kitco writes a cheque for $1,696,157 to the refiner
and then claims the $195,133.12 as an input credit against other sales taxes.

The refiner however does not remit any sales tax on his end.
Why? because all the paperwork was phony.  There was no activity.
Why on earth would Kitco turn pure metal into scrap metal?

 Net cost back to Kitco: $1,501,024.00  (they now have 1000 oz of scrap gold.)
Their out of pocket cost for far is now 1,024.00  dollars.

Step no 4:

They then send this scrap gold to another refiner B who extracts the copper from the gold.

The invoice from them would look something like this:

1000 oz of gold to be refined;  cost 1000.00
HST  13%  130.00 dollars
 total cost  1,130.00 dollars.

the total cost to Kitco is now $2,154.00 to get the same gold back.

I would presume that the refiners write cheques back to Kitco  for part of the phony sales tax credits received by the refiners who did not submit the dollars to Revenue Canada.

Even though this started as a provincial audit, the Feds will no doubt will be involved as they receive the total dollars to start with  and then remit to the provinces their share.

It is also interesting that Kitco immediately filed for an interim receiver Richter Usher Vineberg as this will no doubt turn into an absolute mess.
The gold at Kitco is unallocated and thus can be attacked by Revenue Canada.  This would create the biggest run on a "bank" in history for Canada as depositors of gold at Kitco immediately seek redemption.  Thus Kitco had to act immediately.
The unallocated gold is surely a mess but when you add in the tax consequences, this will dwarf the Refco fraud.
The investigators noted that almost all of the invoices were made up and totally fake.
I do not believe that Kitco would have any use for scrap gold.  Most individuals take their scrap gold and refine it to pure gold.  Why would Kitco change their pure gold to scrap gold?

The authorities believe this has been going on for several years.  It is believed that the total phony invoices total 2 billion dollars.

The tax remitted to the refiners total around 150 million dollars over these years.

Quite a scam!!!

Bart Kitner is a stand up guy.  It is hard to fathom that he could be involved in this.

Let us see how this plays out.


Here are other stories making headlines:

This set the tone for the Dow to decline by 171 points yesterday as Atlanta Fed Lockhart stats that there will be no QEIII:

Fed's Lockhart: QE3 unlikely despite weaker growth

ATLANTA, June 9 (Reuters) - The U.S. economy looks increasingly weaker but there is little the Federal Reserve can do to boost employment further, Atlanta Federal Reserve Bank President Dennis Lockhart said on Thursday.
Speaking at his office in Atlanta, Lockhart said he had recently revised down his forecasts for economic growth this year given a disappointing performance during the first half.
However, he said conditions were quite different now than when the Fed launched its second round of bond purchases, the program of quantitative easing designed to stimulate the economy known as QE2.
In particular, Lockhart noted that the risk of a damaging spiral of falling prices and wages, which underpinned the Fed's decision to buy an additional $600 billion in Treasury bonds back in November, had largely vanished.
"I don't think QE3 will be necessary," Lockhart told Reuters in an interview. "I think we're going to see this modest, moderate but continuing pace of growth that doesn't require further stimulus."
Still, Lockhart admitted being less confident in his forecast for improved performance in the second half compared with a few months ago.
Part of the impediment to further easing steps comes from the Fed's own success in engineering a rise in inflation that officials say helped prevent a descent into deflation.
"We don't have anything remotely like a deflationary risk at the moment, short of a shock of some kind," Lockhart said.
In that context, the bar for another round of monetary easing is very high, said Lockhart, saying it would take "a significant deterioration as reflected in the overall economy, a set of deflationary signals and also unemployment numbers that rise dramatically."
Still, while the Fed may not be inclined to do more, it could keep borrowing costs at very low levels for a long period of time, Lockhart said.
"I could see the case for a pause that keeps a fairly static level of fairly accommodative policy to support a continuing recovery, obviously in the absence of inflation developments. I can see that for some period of time," he said.
Though U.S. economy expanded at a subdued 1.8 percent annualized clip in the first quarter, it was expected to pick up in the second quarter. Instead, the weakness has lingered.
The latest sign of trouble came from the May employment data released last week. It showed the economy generating just 54,000 jobs last month, and the jobless rate rose again, hitting 9.1 percent.
"It's a little early to interpret one month's numbers, so I'm reluctant to say a new trend has developed that is a lower trend on employment," said Lockhart, who is not a voter this year on the Fed's policy-setting Federal Open Market Committee.
"But certainly it's a disappointing number."
Part of the hope for better economic growth in the second half, he said, comes from a sense that many of the current factors creating a drag on growth will fade.
In particular, he said the ripple effects of Japan's earthquake and tsunami had a "discernible" impact on U.S. growth, adding that gasoline prices should level off, easing some of the sticker shock to U.S. consumers.
Asked about the ongoing budget debate in Congress, Lockhart said it was important to separate the immediate issue of the debt ceiling from the need for a credible long-term fiscal plan to get the budget under control.
"It's a very serious policy matter. What is important at the moment is to raise the debt ceiling and develop that (long-term) plan," he said.
With regards to Europe, where lingering problems over high sovereign debt levels continue to fester, Lockhart said while the U.S. financial system has little direct exposure to the debt of troubled nations like Greece, it too has an interest in a swift resolution of the problem.
A potential default could prove particularly problematic.
"Certainly if that were to happen it could contribute to a continued slowdown in Europe which would not be good for the global economy and would not be good for the United States," Lockhart said.

Brent Crude is now trading at a huge premium of almost 20 dollars:

ICE Brent Crude Oil Futures Price

For more oil and gas analysis and forecasts:
Energy Economist Newsletter

Closing Crude Oil Futures Price    Daily High/Low Crude Oil Futures Prices
Friday, June 10, 2011: ICE North Sea Brent Blend for July delivery closed down $0.79 at $118.78 per barrel.

West Texas Intermediate oil closed at $99.27.  The differential is now a ridiculous $19.51

The Baltic dry index continues to falter as the economy fails to gain traction:




Value1,418.00One-Year Chart for BALTIC DRY INDEX (BDIY:IND)
Change-10.000 (-0.700%)


The housing scene continues to deteriorate as the consumer can no longer use his house as a ATM card:   (courtesy Derek Kravitz and C. Rugabar Associated Press)

Americans' equity in their homes near a record low
Jun 10, 12:28 AM (ET)


WASHINGTON (AP) - Falling real estate prices are eating away at home equity. The percentage of their homes that Americans own is near its lowest point since World War II, the Federal Reserve said Thursday. The average homeowner now has 38 percent equity, down from 61 percent a decade ago.
The latest bleak snapshot of the housing market came as mortgage rates hit a new a low for the year, falling below 4.5 percent for a 30-year fixed loan. But even alluring rates have failed to deliver any lift to the depressed housing industry.
The Fed report is based on data from the first quarter of this year. Another report last week found that home prices in big cities have fallen to 2002 levels.
Normally, home equity rises as you pay off the mortgage. But home values have fallen dramatically since the bubble in prices burst in 2006. So many homeowners are losing equity even though the outstanding balance on the loan is getting smaller.
Nicole Rosen's home in tiny Spanaway, Wash., just outside the military base where her husband works, has lost $150,000 in value since she paid $275,000 for it in 2006. She has battled mortgage lenders in court for two years to stay out of foreclosure. In the meantime, the couple are paying off credit cards, figuring it's the only "positive thing we could do."
"We're paying off all our debt. We only have $200 left on our credit cards. But we're stuck in our house," Rosen said.
Home equity is important for the economy because it has a lot to do with how wealthy people feel. If they feel swamped by a mortgage loan, they're less likely to spend freely on other things. Home equity also serves as collateral for some loans.
There are 74.5 million homeowners in the United States. An estimated 60 percent have a mortgage. The rest have either paid off the loan or bought with cash.
Of the people who have mortgages, 23 percent are "under water," meaning they owe more on the mortgage than their home is worth, according to the private real estate research firm CoreLogic. An additional 5 percent are nearing that point.
(AP) Chart shows quarterly statistics on household net worthFull Image
The outlook for the housing market remains dim.
Fixed mortgage rates average 4.49 percent, extremely low by historical standards, and have fallen for eight straight weeks. But most people can't meet tougher lending requirements. Falling rates make it easier to refinance, too, but many of the people who can afford to do that already have.
And foreclosures keep hammering the housing market. On Thursday, the Obama administration said the three largest U.S. lenders - Wells Fargo, Bank of America and JPMorgan Chase - haven't helped enough people lower their mortgage payments to stay in their homes.
The government said it has started withholding the cash incentives it established for lenders under its 2-year-old foreclosure prevention program. The administration had hoped the program would prevent as many as 4 million foreclosures, but it has helped fewer than 700,000 people.
Foreclosures have economic ripples: Homes in foreclosure sell at a 20 percent discount on average, and those discounts erode prices throughout a neighborhood.
Many foreclosure sales have been delayed while federal regulators, state attorneys general and banks review how those foreclosures were carried out over the past two years. When those foreclosures go through, prices may fall even further.
Home prices are expected to keep falling until the number of foreclosures for sale is reduced, companies start hiring in greater force, banks ease lending rules and more people think it makes financial sense again to buy a house. In some areas of the country, that could take years.
The Federal Reserve report found that Americans' overall net worth grew 1.65 percent in the January-to-March period, to $58.06 trillion, mostly because of stock market gains. Most of those gains have been erased since March, though.
Net worth is the value of assets such as homes and stocks, minus debts like mortgages and credit cards.
The report found household debt declined at an annual rate of 2 percent from the previous quarter, mostly because of a decline in mortgage debt, which has fallen for 12 straight quarters.
But the decline is deceiving. Mortgage debt is coming down because so many Americans are defaulting on payments and losing their homes to foreclosure, not just because people are paying off loans.
"A lot of this debt reduction is not voluntary," said Dana Saporta, director of U.S. economics at Credit Suisse.
The Fed report suggests the average household owes about $119,000 on mortgages, credit cards, auto loans and other debt.
Debt now equals 119 percent of the money Americans have left over after taxes. In late 2007, when the country was binging on debt, it was 135 percent. In the healthier 1990s, it was roughly 90 percent.
Auto loans, student loans and other consumer credit rose 2.4 percent during the quarter, a second straight gain. Analysts say more people, many of them unemployed, are borrowing money to attend school.
The Fed's quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most of the financial transactions that take place in the United States.
It found that corporations are still hoarding cash. Excluding banks and other financial firms, companies held $1.9 trillion in cash at the end of the quarter. That was slightly more than in the previous quarter and set another record.
The reluctance of companies to spend more of their cash helps explain why job growth has been slow since the recession ended. The unemployment rate is 9.1 percent, slightly higher than when the year began.
Household net worth in America is up nearly 19 percent from early 2009 but still about 11 percent below its peak in 2007. Normally, greater wealth would spark consumer spending. But the lost home equity is counteracting it.
Per household, it comes to about $518,000. But the gap between the super-rich and everyone else in the United States has grown over the past three decades. So while average wealth is increasing, most Americans don't feel the difference.
AP Business Writer Matthew Craft in New York contributed to this report.


From Jim Sinclair on the trading on stocks: (NPR)

Dow Falls Below 12,000 For First Time Since March June 10, 2011
Fears that the global economic recovery has stalled pushed the Dow Jones industrial average below 12,000 for the first time since March and drove the stock market lower for the sixth straight week.
Friday’s drop extended the longest weekly losing streak for stocks since the fall of 2002.
Weak economic news has dampened hopes for a steady recovery, sending stocks down. Traders worry that weaker hiring, sluggish industrial output, and a moribund housing market are reversing a bull market that has lifted the Dow 20 percent over the past year.
If the indexes continue their slide for another week, it would be the first time in 10 years that the market suffered a seven-week stretch of losses. The last such stretch began in May 2001 as the dot-com bubble deflated.
The Dow fell 172.45 points, or 1.4 percent, to close Friday at 11,951.91. The S&P 500 index fell 18.02, or 1.4 percent, to 1,270.98. The Nasdaq dropped 41, or 1.5 percent, to 2,643.733.
The Nasdaq is now down slightly for the year, as is the Russell 2000 index of small company stocks. The Dow is still up 3.2 percent for 2011 and the S&P 1.1 percent.

Here is a great commentary on how the economy is faring over in Japan:
(courtesy zero hedge)

When to Buy Japan?

madhedgefundtrader's picture

It has been three months since the horrific Japanese tsunami, the economy is in free fall, and radiation is still lingering in the air and water. It now appears that the beleaguered nation’s GDP shrank at a 4% rate, in line with my own expectations, but far worse than anyone else’s. The down leg of the “V” is well underway. When does the up leg begin, and when should we start positioning for it?
One need look no further than Toyota’s Motor’s stunning year on year decline in domestic sales of -69%. Consumers in the US want to buy their fuel efficient cars, but sought after models are in short supply. Power shortages have been a major headache, and additional nuclear shut downs have exacerbated the problem. A 28 week, $60 billion buying spree of Japanese stocks has ground to a halt, taking the Nikkei down 10%.
The government has already passed two supplementary budgets to get reconstruction underway, one for $50 billion and a second for $125 billion. The Bank of Japan has carried out quantitative easing worth $500 billion; nearly triple the Federal Reserve’s own recent QE2 efforts on a per capita basis.
Surging loan demand indicates that these efforts are yielding their desired results. Companies are moving away from their famous kamban “just in time” inventory system towards a “just in case” model that provides a bigger buffer against unanticipated disasters. This is a net positive for the economy.
This Godzilla sized stimulus is expected to deliver GDP growth in 2012 as high as 3%, taking it to the top of the pack of developed nations. That will prompt rally of at least 20% in the Japanese stock market. What’s more, widening interest rate differentials between Japan and the US should finally start to weaken the yen, giving a further boost to the economy and to stocks. This burst in business activity should also enable the country to flip from chronic deflation to inflation, and will  knock the wind out of Japanese government bonds, now yielding a pitiful 1.11% for the ten year.
So when do we pull the trigger? If my theory is correct and we get a multi month “RISK OFF” trade that deflates all asset prices, then you want to hold off for now. But I can see a final bottoming of prices sometime this summer. The easy play here is to buy the ETF (EWJ).
The next level of commitment includes the five best of blue chips I mentioned in March, Toyota Motors, (TM), Nissan Motors (NSANY), Fanuc (FANUY), Canon (CAJ), and Komatsu (KMTUY). Keep in mind that you will want to hedge your currency here through buying puts on the (FXJ) and through the 2X (YCS), as a weak yen will be part of a winning recipe.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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We finally have the schedule that will complete QEII as the Government will monetize 60 billion dollars in two POMO's.

They will continue with QE light for a few sessions in July amounting to 7 billion dollars which will be totally inadequate.  Here is this summary courtesy of zero hedge:

Fed Releases Final POMO Schedule: $60 Billion And Scene

Tyler Durden's picture

The Fed just released the final POMO schedule which completes QE2: the total amount of bonds to be monetized will be $60 billion (at the upper end of the range) and with that the QE2 portion of monetary stimulus is over. Notably, there will be two POMOs on June 20. What is interesting, is that the Fed will continue the QE Lite portion as expected, with what appears to be a modest weekly POMO to the tune of $3.5 billion on July 6 and July 11, meant to replenish the bonds that mature and prepaid MBS. Alas, as the total notional shows, and as Zero Hedge expected, the $7 billion in two weeks is woefully inadequate to provide the Shadow QE that many have expected. It is interesting that as part of QE Lite the Fed will focus on what appears to be the 4-5 years part of the Curve.
And the complete breakdown:

Operation Date1Settlement DateOperation Type2Maturity
Expected Purchase Size
June 13, 2011June 14, 2011Outright Treasury Coupon Purchase08/15/2018 - 05/15/2021$4 - $5 billion
June 14, 2011June 15, 2011Outright Treasury Coupon Purchase12/15/2012 - 11/30/2013$2.5 - $3.5 billion
June 15, 2011June 16, 2011Outright Treasury Coupon Purchase12/31/2016 - 05/31/2018$4 - $5 billion
June 16, 2011June 17, 2011Outright Treasury Coupon Purchase06/30/2015 - 11/30/2016$4 - $5 billion
June 17, 2011June 20, 2011Outright TIPS Purchase04/15/2013 - 02/15/2041$1.5 - $2.0 billion
June 20, 2011June 21, 2011Outright Treasury Coupon Purchase08/15/2018 - 05/15/2021$4 - $5 billion
June 20, 20113June 21, 2011Outright Treasury Coupon Purchase12/31/2013 - 05/31/2015$4 - $5 billion
June 21, 2011June 22, 2011Outright Treasury Coupon Purchase12/31/2016 - 05/31/2018$4 - $5 billion
June 23, 2011June 24, 2011Outright Treasury Coupon Purchase08/15/2021 - 11/15/2027$1 - $1.5 billion
June 24, 2011June 27, 2011Outright Treasury Coupon Purchase12/31/2013 - 05/31/2015$4 - $5 billion
June 27, 2011June28, 2011Outright Treasury Coupon Purchase06/30/2015 - 11/30/2016$4 - $5 billion
June 28, 2011June 29, 2011Outright Treasury Coupon Purchase08/15/2018 - 05/15/2021$4 - $5 billion
June 29, 2011June 30, 2011Outright Treasury Coupon Purchase08/15/2028 - 05/15/2041$2 - $3 billion
June 30, 2011July 1, 2011Outright Treasury Coupon Purchase12/31/2016 - 06/30/2018$4 - $5 billion
Completion of $600 Billion Purchase Program
July 6, 2011July 7, 2011Outright Treasury Coupon Purchase01/15/2014 - 06/30/2015$2.5 - $3.5 billion
July 11, 2011July 12, 2011Outright Treasury Coupon Purchase07/31/2015 - 12/31/2016$2.5 - $3.5 billion
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Eric Sprott has given a great interview with KingWorld News; (courtesy GATA and Kingworld news)
Dear Friend of GATA and Gold:
In an interview today with Eric King of King World News, Sprott Asset Management Chairman Eric Sprott foresees perpetual bailouts and money printing. Sprott, who will speak at GATA's Gold Rush 2011 conference in London in August (, tells King:
"Just look at the printing of money and the way we've attempted to deal with the stresses in the banking system, and my ultimate end for gold is when people realize they are probably better off not having their money in a bank. They get paid nothing, they take all of the risk of the bank balance sheet, which is incredible, and, in my mind, why wouldn't you own gold and silver, which are going to maintain their purchasing power in almost any circumstance? You are way better off owning physical metal than owning a piece of paper at a bank."
An excerpt from the interview has been posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Over in Greece, the drama continues as this country prepares to give Europe the royal finger:

Is Greece Preparing To Give Europe The Finger?

Tyler Durden's picture


Greek PM: Major Reforms Need Referendum

The road to exiting crisis is difficult and the Greek government should proceed with major changes to make the state deficit sustainable and regain the confidence of creditors, said Greek Prime Minister, in response to a LAOS party question.

George Papandreou said that reforms on the political system or the public administration need the voting of Greek people through referendums. 

Furthermore, he stated that “the road will be difficult but we must endure the pain”, adding that he is determined to proceed with all the necessary changes to make the country’s debt sustainable.

“We need to show unity, that we are consistent in our obligations and that we will change Greece, in order to convince those who give us a “helping hand”.

“If we give up halfway, our sacrifices will be wasted”, said the Prime Minister. “If we endure, we’ll solve the debt problem for the coming generations”, he added.
The key word above, of course, is "referendum." If it comes to that, better have those EUR shorts on (at least for the short-term).

I will leave you with this article posted on zero hedge entitled:
The bankruptcy of corporate America.
it was written by Charles Hugh Smith:

Guest Post: The Bankruptcy Of Corporate America

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds
The Bankruptcy of Corporate America
The bankruptcy of Corporate America has seeped into the society and those who toil in its machinery.

Corporate America is profoundly bankrupt. Not in a financial sense, of course; the Federal Reserve's slow destruction of the U.S. dollar has boosted corporate profits most handsomely as the majority of their earnings and profits are obtained overseas; when stated in dollars, those outsized profits swell even higher.

No, the bankruptcy of Corporate America is not found on the bottom line; it is measured by altogether more profound metrics than mere money. Corporate America is bankrupt on levels which are difficult to describe; morally and spiritually bankrupt, not just in the pathologies that guide corporate goals and behaviors, but in the Potemkin shell of free enterprise they present to the world in ceaseless propaganda, and in the manner in which they have cut America loose from their corporate souls.

Corporate America only resides in America because it controls the machinery of governance and regulation here for pathetically modest investments in lobbying and campaign contributions. It would be impossible to replace the global Empire that protects and nurtures it, and so Corporate America maintains its headquarters in America, the better to shape policy and skim gargantuan profits from the Empire and its Central State in Washington.

The return on investment for lobbying and campaign contributions is simply unmatchable anywhere else; it is without doubt the highest return on investment on the planet. And the risk-return is immensely favorable; there is simply no risk that the Empire or the Central State will ever go against the "best interests" of its corporate partners.

Corporate America is not about free enterprise and competition
; it's about eliminating competition and forming highly profitable cartels and quasi-monopolies protected by regulations and barriers erected and vigorously maintained by the Central State.

Here are two first-hand reports on Corporate America's pathologically exploitive soul. The first is from inside management, the other is from someone who lost their job inside The Machine and is looking at the well-dressed troops still working inside.
In my spare time I am pursuing the opportunity of being an entrepreneur. Very long, drawn out and hazardous path it is as you know. Meanwhile I am still part of the rat race and can give you a pretty good idea of what's going on out here. I work at one of the world's largest pharmaceutical companies and I am in management in a department that had sales of 2.3 billion last year. The manufacturing department I am in not only had record sales, we increased productivity by 40% and decreased deviation investigations by 30%. Won't bore you with all the details but we accomplished so much that we were awarded the companies global lean six-sigma award.

Moving forward to today, for all our efforts and accomplishments, we the management received a 2% salary adjustment and a small bonus. Also, we are now being told that we will no longer be paid overtime. This will mean a $10,000 a year pay cut for me, a $30,000 a year pay cut for some of my co-workers. In the effort to increase short-term profits quite a few other horror shows are being rolled out that we must accept or leave.

As you know "leaving" in the current economy is a very hard prospect. Although we are all grown professionals, our morale has been destroyed. Not exactly how you think a company would reward its highest performing department. Basically an overall mood of "who cares" and "what difference does it make" is now the theme of the people I work with. I am so glad I have something else I am working on and have started preparing quite a long time ago for the devolution that is coming.

As an endnote, I just sat through a grueling 1.5 hour "meeting" (job interview) with the new corporate killer they put in charge. Basically I had to genuflect to this person and assure him I am not an obstacle to his insane need for more profitability. Being phony is not my strong suit but I am survivor and I believe I may have bought myself a few more years of servitude.
I know some readers will object to this characterization by saying, "the purpose of corporations is to make a profit for its shareholders." That is true, but the great entrepreneurs don't restrict themselves to such an atrophied view of an enterprise's purpose.

That fact that the "profit is the only thing that counts" value system is so widespread is just more evidence of how deep the rot has eaten into the social and moral fabric of the nation.

Elizabeth S.'s commentary summarizes the experience of someone who lost their position inside Corporate America, and who has a renewed appereciation for her own life and time as a result.
John Greer a.k.a. the Archdruid calls people in my status economic nonpersons. We are on the forefront of the deindustrialization of the planet. I am starting to be OK with that.


Since I last wrote, I have acquired another part time job. The other day while getting out of the car I noticed a bus going by. Oddly enough it was the bus I used to take when I had a "real job." The bus was packed with people, so much so that I could see many riders standing up. Two things happened together in my mind when the bus crossed my line of vision. First, I got the eerie, irrepressible feeling that I was seeing the equivalent of the cattle cars the Nazis used to fill for the concentration camps.

The other impression was of what I used to have to do to go to my fancy job in the city- the clothes, the makeup, the bitchy boss. There I was, standing in my old jeans, next to my old car and suddenly feeling incredibly FREE and happy and sane. (I did not feel poor, downtrodden or left out.) I realized I was no longer on a suicide mission called "gainful employment." Now, I do wish sometimes that I had a more secure income future? Of course, but, would I trade that for the mind-blowing, excruciatingly refreshing personal growth curve of the last three years? I have to say, "No."

I was also surprised that I felt no better or worse than the people on the bus either. Actually, I felt genuinely sad for them and strangely glad for myself. I feel that I am a much better person, a stronger and more resourceful person now than the one who last rode that bus going into town.

The Value of My Time

I have stopped thinking about it, the value of my time. This winter I helped my uncle who was recovering from open heart surgery. Besides cleaning and dressing his wounds, taking him to the doc and running errands, I also tore his house apart from one end to the other and cleaned or painted every reachable surface. I also tore out old carpets, etc. I probably spent hundreds of hours on that house. I did not expect payment.

My mother gave me money for food and gas. (My uncle is her brother.) My uncle is a carpenter and he knows what that kind of labor costs. He was appalled that I did so much for him and he could offer nothing in return. It was very hard, very dirty, mind-numbing, exhausting work. But, what kept me going was that it NEEDED to be done by somebody and I was the one available in that moment to do it. So, I did it.

I used to laugh with my husband and mom about much money I would make if I were paid for all the work I did. Then I just forgot about it. I showed up and did the work. Day after day. Oddly enough, my parents got money from somewhere and paid me $1,000 and my uncle decided to make me his heir. So, one day, I may own a house. Who knew that was going to happen?

I am thinking that to say I know the actual value of my time is a kind of arrogance. Perhaps. At least to me. I used to say, "I am worth at least $20.00 an hour. Blahdy, blah, blah." As if I could even know that. Perhaps I am worth a whole lot more. Perhaps the worth of something is just how badly something is needed in any given moment. I don't know, but I am pondering this.
And so might we all.
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I hope you all have a grand weekend and I will see you Monday night.

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