Saturday, July 2, 2011

Another Gold and Silver Raid/COT stunning report/ Extremely Low Silver Deliveries/Huge Rob Kirby Report

Good morning Ladies and Gentlemen:

First of all, I would like to wish our American friends a very happy and safe July 4th holiday weekend.
Due to this holiday, the FDIC decided to give the boys an extra week off so there were no bank failures listed on Friday night.

Even though there was no jobs report the bankers decided that a raid on the precious metals was necessary.
You could tell a raid was on by the attack of gold and silver in Asia on Thursday night.  Gold finished the comex session down $20.00 to 1482.30 for a loss of $20.00.  Silver also fell badly down $1.11 to $33.79.  Silver has a good resistance level around 33.00 and gold at $1480.00  Both levels held nicely.

Let us proceed to the comex and see the damage.  I will also highlight a stunning COT report and then present a blockbuster Rob Kirby report on the bank derivatives.

The total gold comex OI on Friday showed a huge drop to 491,065 from 498,789 and this is basis Thursday night.  You can just imagine what Monday's reading (basis Friday) will show. The front options delivery month of July saw the OI fall from 159 to 83 for a loss of 76 contracts.  We had 100 deliveries so all of the loss was picked up by the drop in OI and we did gain some gold ounces standing.
The next big gold delivery month is August and here we witnessed the damage as the OI dropped from 315,635 to 307,194 as many speculators are fleeing the scene.  The estimated volume came in at 137,322 for Friday and the confirmed volume for Thursday was 154,540.

The total silver comex OI continues to contract.  The total OI for Friday (basis Thursday) resulted in a total OI of 110,978 a drop of 1097 contracts from Thursday.  We should see another minor drop on Monday's reading.  The front delivery month saw a big drop in OI from 2397 to 1860 or 537 contracts.
Since we had only 110 deliveries, Blythe Masters must have been very busy with her fiat check-book convincing silver longs to take fiat.  The next delivery month for silver is Sept and here we witnessed a drop from 57,223 to 56,800 for a loss of only 400 contracts. Some of our fiat recipients moved into Sept once they settled their July contracts.  The estimated volume at the silver comex was extremely low at 45,794.  It seems that the speculators have left this arena.  The confirmed volume on Thursday was also anaemic at 49,560. Due to the huge margin increases, silver is moving more and more into a physical market.

Here is the chart for 7/02/2011 regarding deliveries and inventory changes at the comex. 

Withdrawals from Dealers Inventory
Withdrawals fromCustomer Inventory
159,779 (scotia)
Deposits to the Dealer Inventory
Deposits to the Customer Inventory

No of oz served (contracts)  today
1700 (17)
No of oz to be served  (notices)
 6600 oz (66)
Total monthly oz gold served (contracts) so far this month
 10,000 (100)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

Again in gold we continue to see no gold deposits into the dealer.
For that matter, we also saw no gold leave a dealer's vaults.
The only activity was a rather large 159,779 oz from Scotia and a tiny 32 oz from Manfra.
Thus, total withdrawal by the customer amounted to 159,811 oz.
There was a counting error removal of 497 oz out of the customer gold inventory as an adjustment.

The comex folk notified us that a total of 17 notices were filed for 1700 oz of gold. The total
number of notices filed so far this month total 100 for 10,000 oz.
To obtain what is left to be served upon, I take the OI standing for July (83) and subtract out
Friday"s deliveries (17) which leaves me with 66 notices or 6600 oz left to be served upon.

Thus the total number of gold oz standing in the month of July is as follows:

10,000 oz served  +  6600 oz (to be served)  =   16,660 oz or .516 tonnes.

And now for silver 

First the chart:

Withdrawals from Dealers Inventory
Withdrawals from Customer Inventory
736,472 (Brinks,  HSBC) 
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)  today
50,000 (10)
No of oz to be served  (notices)
9,250,000  (1850)
Total monthly oz silver served (contracts) so far this month
600,000  (120)
Total accumulative withdrawal of silver from the Dealers inventory this month
  nil oz
Total accumulative withdrawal of silver from the Customer Inventory this month.


Again we witness no silver enter the dealer's vaults. The dealer also witnessed no
withdrawals as well.  We did see two big withdrawals from the customer:

A)  706,468 oz from Brinks
B)  30,004 oz form HSBC

total withdrawal of silver  736,472 oz.
The total of silver in the registered (dealer) category remains at 28.09 million oz
The total of all silver lowers to 98.713 million oz.

The comex folk notified us strangely only 10 notices were served on Friday for a total of 50,000 oz.  Please remember that July is a big delivery month and only 10 notices sent?
Looks to me like the comex boys are having trouble even finding paper SLV to settle.  The actual silver metal is becoming extremely scarce for the comex due to the huge demand by investors all over the world.
The total number of silver notices sent down so far this month total only 120 for 600,000 oz.
To obtain what is left to be served upon, I take the OI standing (1860) and subtract out today's deliveries  (10) which leaves me with 1850 notices or  9,250,000 oz left to be served upon.

Thus the total number of silver oz standing so far this month is as follows:

600,000 oz (served)  +  9,250,000 (oz to be served)  =   9,850,000 oz
we lost over 2.1 million oz of silver for cash settlements as the boys who wish to play the fiat game got rewarded and moved onto the Sept silver month.

My goodness, I just checked what the notices of intent for Tuesday will be for gold and silver.

Gold:   a big fat zero
Silver:  only 19 notices.

And they cannot find any paper SLV?

The mint released their report on silver for the month and the total silver eagles sold amounted to 3.4 million oz.  Thus on a yearly basis the mint sales equate to 40.8 million oz.
The USA nation produces approximately 40 million oz so the entire production must go to the mint first.  The comex and others must import silver from London England, Canada, Mexico and other places to fulfil their duties.


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:  July 2.2011 :

Total Gold in Trust

Tonnes: 1,205.81
Value US$:

Total Gold in Trust: June 30.2011

Tonnes: 1,208.23
Value US$:

we lost 2.42 tonnes of gold. This gold leaves the Bank of England's vaults for foreign destinations like China and Russia.

The GLD shareholders were get royally toasted (no pun intended) when the music stops.

Now let us see inventory movements in the SLV:  July 2:2011

Ounces of Silver in Trust306,610,335.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,536.65

June 30.2011:

Ounces of Silver in Trust306,610,335.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,536.65
June 29.2011:
Ounces of Silver in Trust308,023,801.200
Tonnes of Silver in Trust Tonnes of Silver in Trust9,580.61

June 28.2011:

Ounces of Silver in Trust308,657,432.900
Tonnes of Silver in Trust Tonnes of Silver in Trust9,600.32

we lost zero ounces of silver from the SLV today.  With the SLV short 37 million oz this is massive fraud waiting to take down the following:

1. SLV shareholders
2. the comex 
3. LBMA  (London)
4. The Bank of England and the entire global financial world.

1. Central Fund of Canada: it is trading at a negative 1.4% to NAV in usa funds and negative 1.0% in NAV for Cdn funds.  ( still not updated yet)
    June 29.2011
2. Sprott silver fund  (PSLV):  Premium to NAV rose  to 17.2% positive NAV (July 2 .2011
3. Sprott gold fund (PHYS): premium to NAV fell to a positive 1.88% to NAV  (July 2.2011).

The Sprott silver fund still is maintaining a huge positive to NAV.


Let us head over to the Commitment of traders report and see stunning developments there:

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, June 28, 2011

By goodness, look what we have here.

Those large speculators that have been long, pitched a huge 36,272 contracts from their positions.
Please remember that this is from Tuesday June 21 to Tuesday June 28.2011.  The raid began on Thursday and these figures will be included in next week's COT report.

Those large speculators who have been short gold added another 1,053 contracts to the shorts.

In the commercial category:
Those commercials that are close to the physical scene added 10, 013 contracts to the longs.
And now our famous commercials that are short gold:

THEY COVERED A MASSIVE:  32,479 contracts.

The small specs that have been long gold removed a tiny 776 contracts from their long side.
The small specs that have been short gold strangely added a huge 4391 contracts to their shorts.

In light of the raid on Thursday or Friday which will accentuate this COT report, the gold complex is now in an extremely bullish state. 

Let us visit 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 28, 2011

The large specs that have been long silver covered a rather large 3,015 contracts from their longs.
Those large specs that have been short silver added a tiny 310 positions to their shorts.

And now for our famous bankers:

Those commercials that are close to the physical scene and generally long in silver added another 1512 contracts to their longs.

And now for our famous banker JPMorgan and fellow court jesters: they covered 4886 contracts of their shorts.
Please note the difference between gold and silver.
Silver has lost its leverage as many small specs have vanished from the silver arena.

The small specs have been blown out on May first and thus have no significance here.


Rob Kirby had delivered a great paper on interest rate swaps and total derivatives by the USA banks. The paper is entitled:  Derivatives: A Capital Markets Gong Show for Whom the Bell Tolls.  In my required reading section (over 2 years ago), Rob Kirby wrote the definitive paper on interest rate swaps: the Elephant in the Room.

Here we describes why Bill Gross got it wrong with his bets and why JPMorgan won again for its shareholders. Bill Gross bet that the longer term bonds would rise in yield.  They have fallen in yield. Here in this report, Kirby describes that the actual bank reporting falls under the purview
of the OCC (Office of Control of Currency).  However the holding companies of the banks do not fall under the control of the OCC but the Federal Reserve.

Please note the huge amount of derivatives held secretly by the holding companies of banks.
As Ted Butler guessed, JPMorgan handed off much of their silver derivatives to the secret muddy holding companies of friends of JPMorgan with the likes of Morgan Stanley, Citibank and Bank of America etc.

This is the time tomb ready to explode which will devastate the final world.
Please read this commentary carefully and I will from this day on have it in my required reading.

Derivatives: A Capital Markets Gong Show For Whom The Bell Tolls

-- Posted Friday, 1 July 2011 | Share this article | Source:

By Rob Kirby

Back in early March, 2011 – PIMCO’s Bill Gross were calling for much higher rates and telling the world that they were selling U.S. Government Bonds. 

          PIMCO's Bill Gross Says to Sell U.S. Treasuries Now

……To wit, he predicts that when the Fed’s QE2 bond-buying binge ends at the end of June, there will be nobody to take the Fed’s place as last-resort buyer of U.S. Treasuries at artificially low rates. Treasury yields will need to ramp up sharply by 1.5 percentage points to attract private buyers. Given that the ten-year U.S. Treasury is currently yielding only 3.5%, a 1.5 percentage point jump would equal a 43% increase in interest rates (1.5/3.5). That’s a big move in interest-rate land and would have a significantly negative effect on bond prices.
As you can see, not only did the anticipated rise in interest rates NOT materialize – rates have actually fallen:

Remember folks, Bill Gross [PIMCO] is reputed to run the world’s largest bond fund.  Not only was Gross wrong – in investment terms he was SERIOUSLY WRONG – a great many percentage points wrong.  Not only did 10 yr. bond rates not go up by 150 basis points – they have indeed FALLEN by more than 50 basis points. 

This illustrates a point; namely, that being the biggest in your space [and having former Fed Chairman Alan Greenspan acting as advisor to your company] doesn’t ensure that you NEVER, EVER make a poor market call and “lose-your-shirt” – so to speak. 

Accordingly, it sure is a good thing that the world’s biggest derivatives player - J.P. Morgan - has “seemingly” NEVER, EVER made a bet even “1 % wrong” with their 80 Trillion derivatives book.  The Morgue has a Market Cap of roughly $180 billion. A wrong bet of a mere 1% on their ‘book’ would translate to a loss of $800 billion dollars eviscerating their entire capital base more than four times over.  The knock on effect from such an event would trigger multiple tsunamis reverberating through the global financial system.  Sounds absurd, but it’s pure math.

Either J.P. Morgan NEVER makes a mistake or they get a pass if / when they do make a mistake.  Back in early 2006, Business Week reported,

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006,

What that means folks, is:  J.P. Morgan’s derivatives book constitutes national and international security and they along with other large derivatives player are NECESSARILY excused from wrong way bets.  The obscenely large derivatives books of J.P. Morgan and other select money center banks are being used to execute U.S. monetary policy and to achieve other arbitrary financial market outcomes.  This has been occurring since at least the mid 1990’s and severely ramped-up in the mid 2000’s.

Additionally, what can be said for J.P. Morgan can also be said for the likes of B of A, Citibank, Goldman Sachs – all with derivatives books [currently] ranging from 44+ to 79+ Trillion in size.  Take note of the TOTAL derivatives for Commercial Banks at 243 Trillion:

               TABLE 1 excerpted from: OCC Quarterly Derivatives Report Q1/11

Commercial Banks Vs. Bank Holding Companies

The Office of the Comptroller of the Currency [OCC] tells us, in the Executive Summary of the Q1/11 Report that derivative contracts remain concentrated in interest rate products, which comprise 82% of total derivative notional values. Credit derivatives, which represent 6.1% of total derivatives notionals, increased 5.3% to $14.9 trillion.  It is the settlement of these interest rate derivatives – specifically int. rate swaps of duration between 3 and 10 years – that creates artificial scarcity of physical U.S. government bonds.

The OCC’s quarterly derivatives report is published three months in arrears and typically runs about 30 – 35 pages in length.  All but one page of this reporting deals with data on the Commercial Bank level.  Commercial Bank reporting falls under the purview of the Office of the Comptroller of the Currency.  It’s in the Commercial Bank reportage ONLY where we get a glimpse of bank activity in precious metals:

excerpted from: OCC Quarterly Derivatives Report Q1/11

ONLY one page of the quarterly derivatives report [table 2] gives us a high level view of derivatives at the Holding Company Level.  Bank Holding Com pany reporting falls under the purview of the Federal Reserve and DOES NOT INCLUDE any breakout or reveal on precious metals derivatives holdings.  Take note how – at the Holding Company Level, Morgan Stanley’s Derivatives book swells to over 51 TRILLION – vaulting them from a rather insignificant 8th place on the Commercial Bank list into 4th place on the Holding Company list below.  :

                TABLE 2 excerpted from: OCC Quarterly Derivatives Report Q1/11

Historically it is VERY WELL DOCUMENTED that Central Banks the world over have illustrated a large propensity to hide / veil / obfuscate all their activities relating to precious metals and specifically gold.  Note the disparity between the transparency offered by the OCC with their Commercial Bank reportage versus the Holding Company data with falls under the purview of the Federal Reserve.  This amounts to 80 Trillion worth of derivatives that the public knows “sweet nothing” about.

Remember folks, it was none other than former Federal Reserve Vice Chairman Alan Blinder – while appearing on the Nightly Business Report back in 1994 – issued these prescient words,

                  “the last duty of a central banker is to tell the public the truth”

By comparing Total Derivatives in TABLE 1 [Commercial] versus TABLE 2 [Holding Co.] we can identify that Morgan Stanley’s derivatives book stands as a 50 TRILLION BLACK HOLE where reporting of precious metals are concerned; Goldman’s 5+ TRILLION, B of A’s 20 TRILLION, J.P. Morgue’s about 1 TRILLION.

Now everyone should appreciate the fact that Morgan Stanley’s “book” grew from 42.1 Trillion at Dec. 31/10 to 51.2 Trillion at Mar. 31/11 – THAT’S an increase of 9.1 TRILLION in three months at an institution with a market capitalization of 35 billion.  Even if you’re asleep and have your head buried in the sand, you’ve got to admit that 9.1 TRILLION ramp in business in 3 months for a company with a 35 billion market cap is quite a feat, eh?  Remember folks, interest rate derivates – BY THEIR VERY NATURE, DO HAVE 2-WAY CREDIT / COUNTERPARTY RISK. 

The feat performed by Morgan Stanley, outlined above, becomes even more unbelievable when you stop and consider that – according to the OCC – there are virtually NO DECLARED or IDENTIFIABLE END USERS [counterparties] for these products:

excerpted from: OCC Quarterly Derivatives Report Q1/11

Now we must ask who Morgan Stanley did their impressive 9.1 TRILLION trade in 3 months with?  Just because they remain anonymous doesn’t mean they don’t exist – but they are certainly known to the Federal Reserve because the Fed has purview, as regulator, over Bank Holding Companies.  So, by extension – the Fed is comfortable [from a credit standpoint] with “whoever it is” that Morgan Stanley is doing this mind boggling business with.  What we can say about the nature of this business is this:  in the absence of identifiable end users [counterparties], this trade creates artificial demand for U.S. Government bonds.

So who would Morgan Stanley [and the Fed by extension] accept as a secretive counterparty on this scale - in credit sensitive transactions that serve to create artificial demand for U.S. government securities?  Embodied in the answer to this question IS THE REASON why the world’s largest bond fund – Bill Gross/ PIMCO – got it ALL [counter-intuitively] WRONG on interest rates.  It also happens to be the EXACT same reason whyAmaranth got it ALL [counter-intuitively] WRONG with Natural Gas back in 2006.

How many ways can you say Exchange Stabilization Fund?  It’s the Exchange Stabilization Fund acting through the New York Fed – utilizing agents J.P. Morgan, Citibank, B of A, Goldman Sachs and Morgan Stanley as proxies to implement imperialist U.S. monetary policy.

Let us forget for a moment that natural gas trades in Europe for 2 – 3 times what it trades for in North America – with the reasoning most often given by mainstream pundits that “natural gas is a local market” and let’s move on to crude oil and specifically let’s take a closer look at the price spread between North Sea [Brent] Crude @ 108.30 and West Texas Intermediate [WTI] @ 91.72:

Crude Truth

Historically and until VERY recently, WTI has traded at a premium to North Sea Brent Crude.  This historic relationship has now “flipped” and grown to PERVERTED inverted-ness [today to the tune of 16.58 per barrel] and we have been fed a line by “officialdom” for the past couple of years that this is mainly due to storage constrains or “a glut of crude” centered on Cushing, Oklahoma.

Well guess what folks?  The BIG LIE that the perversion of global crude oil prices were due to a “glut” at Cushing, Oklahoma were laid bare by a PANICKING U.S. administration last week when they announced that 60 million barrels of crude were to be released from the Strategic Petroleum Reserve.  If there truly was a “glut” of any kind – which according to the lies told to the world by officialdom there must be with Brent trading at a 16.58 premium to WTI – there would be no release of crude from the Strategic Petroleum Reserve.

Many market pundits wrongly refer to or reference the derivatives complex as a “DEBT” that the world has been stuffed with.  This is WRONG.  What the derivatives complex really is – it’s a price control grid which enables its handlers to harvest the fruits of the world’s labor at arbitrary prices. 

The reality – the U.S. Fed and Treasury have become increasingly desperate to make their lies about low inflation believable and provide cover for their increasing monetary debasement by attacking and rigging the most visible, go-to alternatives to failing fiat currency.

In doing so, global financial stewardship provided by America has turned our global capital markets into a sleazy GONG SHOW.

It’s high time these dirt-bags had their bells rung.

Subscribers are getting this plus a whole lot more.

Rob Kirby

Subscribe here.


In other news, construction spending in down for the sixth straight month.  And the economy is growing?  (courtesy Reuters)

U.S. May construction spending down for 6th month

WASHINGTON, July 1 (Reuters) - U.S. construction spending fell for a sixth straight month during May to its lowest in more than a decade, according to a Commerce Department report on Friday that underlined the soft pace of activity in building trades that normally are major employers.
Spending on new construction fell 0.6 percent after a matching revised 0.6 percent April drop that previously was reported as a 0.4 percent increase. Economists surveyed by Reuters had forecast May construction spending would be flat.
Total May spending was at a seasonally adjusted annual rate of $753.48 billion, the lowest rate since $751.4 billion in September 1999, the department said.
Spending on both public and private building projects weakened in May. Overall private construction fell 0.4 percent and, within that category, spending on new homes and apartment buildings fell 2.1 percent.
Public construction spending for projects like improved highways and streets, new schools and transportation projects declined 0.8 percent in May after a 2.4 percent April fall.

The consumer continues to be discouraged with the economy:
(courtesy Reuters)

Consumer sentiment worsens in June as outlook sours

NEW YORK (Reuters) - Consumer sentiment worsened in June on jitters about the economic outlook and spending is likely to remain lackluster in the long-term, a survey released on Friday showed.
Falling gasoline prices stabilized consumers' view of their current economic conditions, but expectations remained gloomy, the Thomson Reuters/University of Michigan survey showed.
The final reading for the consumer sentiment index came in at 71.5, down from 74.3 the month before. It was a hair below the preliminary June figure of 71.8 and shy of the median forecast for 71.9 among economists polled by Reuters.
While small spending gains can be expected in the second half of the year, the trend is more likely to vary between lackluster and zero than lackluster and robust over the next several years, the survey said.
"Resurgent spending is not on the horizon, nor is widespread retrenchment," survey director Richard Curtin said in a statement.
"Importantly, the consumer no longer has the financial wherewithal to power the economy into overdrive."
The survey's barometer of current economic conditions edged up to 82.0 from 81.9 in May. The gauge of consumer expectations fell to 64.8 from 69.5 and below forecasts for 66.6.
Consumers one-year inflation outlook improved, falling to 3.8 percent from 4.1 percent. But the five-to-10-year inflation outlook inched up to 3.0 percent from 2.9 percent.

Over in Minnesota, almost all of the entire state employees were laid off as the government there shout down:  (courtesy Huffington Post)

Minnesota Shutdown 2011: State Government Shuts DownMinnesota Shutdown 2011
Posted: 07/ 1/11 12:10 AM ET

The post and live blog below are a collaboration between Patch and HuffPost reporters.
Minnesota Governor Mark Dayton (D) and top Republican state lawmakers failed to reach a budget deal to avert a government shutdown ahead of a midnight (CST) deadline.
"I really believe I've done everything I possibly could and offered everything I could possibly think of," said Dayton addressing the state of the negotiations from his office on Thursday night. "This is a night of deep sorrow for me because I don't want to see this shutdown occur."
The Democratic governor and state GOP lawmakers had been engaged in contentious talks to close the state's $5 billion budget gap -- much of it left behind by GOP presidential candidate Tim Pawlenty, who declined to seek a third term in the 2010 election.
The AP relays background on the discussions:
Negotiations between Dayton and legislative leaders were fitful, starting and stopping with no outward signs of progress, and details were scant, since the two sides agreed to what they jokingly called "the cone of silence." By Thursday night, Dayton and Republicans had not met for hours, leading Senate Democratic Leader Tom Bakk to remark that any hope for a last-minute deal to avert the shutdown had appeared to "disintegrate." ... The showdown was something of a small-stage version of the drama taking shape in Washington between President Barack Obama and the Republicans over taxes and the nation's debt ceiling.
At a news conference at the Minneapolis-St. Paul Airport on Thursday, Pawlenty urged Republican lawmakers in his home state to hold their ground in negotiations to strike a budget deal.
"This country needs to get its government finances under control," he said. "That needs to happen in Washington, D.C., and that needs to happen in St. Paul, Minnesota."
A shutdown of the Minnesota government comes as the state's second in six years.

And this commentary on the same subject of Minnesota: (special thanks to Jim Sinclair and
author Monica Davey of the New York Times.

Minnesota Budget Talks Fail; Shutdown Is Likely By MONICA DAVEY
Published: June 30, 2011
CHICAGO — The broadest shutdown of state services in Minnesota’s history appeared all but certain to begin early Friday, Gov. Mark Dayton indicated late Thursday after intense talks over a new budget broke down among the state’s leaders.
Since early this year, politicians in St. Paul have been locked in a battle over how to work out a $5 billion budget deficit under a divided government. Republicans, who took control of both chambers of the Legislature after elections last year, called for cuts and reining in spending to the $34 billion that the state expected to take in over the next two years. But Mr. Dayton, a Democrat who was also elected in 2010, called for collecting more in income taxes from the very highest earners to spare cuts in services to the most vulnerable residents.
While private negotiations went on, day after day, and the Friday deadline approached, it seemed as though the argument had never really shifted much at all.
“This is a night of deep sorrow for me because I don’t want to see this shutdown occur,” Mr. Dayton told reporters late Thursday. “But I think there are basic principles and the well-being of millions of people in Minnesota that would be damaged not just for the next week or whatever long it takes, but the next two years and beyond with these kind of permanent cuts in personal care attendants and home health services and college tuition increases.”
Into the evening, both sides sought to sway public opinion on a shutdown that is certain to affect Minnesotans’ daily lives. Republican lawmakers went to their chambers asking that the governor call a special session so some state services might be temporarily kept running, even if negotiations took longer. Democrats, meanwhile, accused the Republicans of “political theater” and called for compromise.

Greece is not stupid.  They are desperate for cash yet they buy gold bullion.

(courtesy Wall Street Journal)

Greece Boosts Its Gold Holdings

By Rhiannon Hoyle
The Wall Street Journal
Thursday, June 30, 2011
Greece's central bank increased its gold reserves marginally in May, choosing not to sell some of its vast holdings as efforts continued to trim the public debt.
The International Monetary Fund's statistics on international reserves show Greece bought 1,000 troy ounces of bullion, increasing gold reserves to 3.584 million ounces last month, according to a person who saw the data. The May figures are to be made public in the coming days.
If bought at average spot market value during May, the purchase would have cost $1.51 million.
Greece's gold reserves remain down slightly, however, from the 3.601 million ounces held at the same time a year ago, after the central bank sold a small amount of its holdings in mid-2010.
The debt crisis in Greece and other euro-zone nations such as Portugal has led to speculation among market participants and observers over whether Europe's debt-laden countries may move to liquidate their gold holdings in order to raise cash.
Last month Germany's governing coalition budget speaker Norbert Barthle and his counterpart Carsten Schneider from the Social Democrats urged Portugal to consider selling some of its gold pile to ease debt woes.
"There has been a lot of speculation about what Greece will do with its gold, but I am very doubtful that sales will be on the table," a senior trader at a European bank said. "When I speak with central banks, they acknowledge that gold sales make people worry even more. It's like selling the family silver."
In May last year, Greece -- which holds about 78% of its total reserves in gold -- narrowly avoided default with the help of a E110 billion ($159 billion) bailout from its euro-zone partners and the International Monetary Fund. Still facing prohibitively high borrowing costs on international markets, Greece is now seeking about E100 billion in fresh aid.
However, as analysts at the Royal Bank of Scotland pointed out in a note to clients last week: "Gold is held under the auspices of the central banks and politicians are not allowed" under the constitution of the European Union "to take hold of it as this would compromise the independence of the central banks themselves."
RBS also noted that sales of gold reserves by countries like Greece would do little to help trim public debt.
"It is understandable that some observers would argue that gold is a sterile asset and could be mobilized in these very testing times," the bank's analysts, Nick Moore and Daniel Major, said. "At the same time, the scale of the debt problem is too big for gold sales to make any difference. For instance, Greece's gold holdings account for 1% of the country's government debt."

Gold production from South Africa continues to falter: (Reuters)

SAfrica's Q1 gold output falls 9.3 pct q/qJOHANNESBURG, July 1 (Reuters) - South Africa's gold output during the first quarter of this year fell 9.3 percent compared to the fourth quarter of 2010, the Chamber of Mines said on Friday.
Gold output fell to 44,682.7 kg compared with a revised 49,245.4 kg produced in the fourth quarter last year, it said in a statement.
The chamber also revised total gold production for 2010 to 191,402.3 kilograms from the 191,833.7 kilograms published earlier.
South Africa was the world's largest gold producer for decades up until 2006, but dwindling grades, deeper mining and stoppages for safety-related reasons have hit the sector.

Alan Greenspan has started to pound the table that the huge stimulus of QEI and QEII had no lasting effect:  (courtesy Jim Sinclair and CNBC )

Fed’s Massive Stimulus Had Little Impact: Greenspan Published: Thursday, 30 Jun 2011 | 5:24 PM ET
The Federal Reserve’s massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday.
In a blunt critique of his successor, Fed Chairman Ben Bernanke, Greenspan said the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy.
"There is no evidence that huge inflow of money into the system basically worked," Greenspan said in a live interview.
"It obviously had some effect on the exchange rate and the exchange rate was a critical issue in export expansion," he said. "Aside from that, I am ill-aware of anything that really worked. Not only QE2 but QE1."
Greenspan’s comments came as the Fed ended the second installment of its bond-buying program, known as QE2, after spending $600 billion. There were no hints of any more monetary easing—or QE3—to come.


Bank of America executive Moynihan got subpoena from the attorney general of NY in the 
foreclosure fraud: (courtesy zero hedge).  Remember that the banks have massive collateral with over 
1 million of foreclosed homes:

Brian Moynihan, Other Current And Former Bank Of America Execs Subpoenaed By NY Attorney General

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Bank of America just can't catch a break. First it gets caught in a trap of a "non-settlement" settlement which will only expose it to billions more in legal fees and other reserve fund increases, and now this. From the WSJ: "New York state Attorney General Eric Schneiderman has issued subpoenas seeking new depositions from the Charlotte, N.C., bank's chief executive and other current and former executives, according to people familiar with the situation. The subpoenas are a sign that Mr. Schneiderman, who became New York's top law-enforcement official this year, doesn't intend to drop the civil-fraud investigation of Bank of America begun more than a year ago under predecessor Andrew Cuomo." Perhaps it is about time Ken Lewis finally get some primetime TV exposure where he belongs: on the defendant's chair. "Mr. Lewis, who retired partly because of rancor over the Merrill deal, declined comment through his lawyer. Mr. Price's lawyer couldn't be reached to comment." Considering the complete disaster New York prosecutors have now completed with the DSK arrest, they will need a very high profile arrest and conviction to make up for it. Kenny boy sounds like just the type to fit the bill.
From the WSJ:
The attorney general's office and Bank of America have clashed recently about how to proceed in the Merrill case. In court filings, Mr. Schneiderman's office said it intended to begin its depositions, but Bank of America asked a judge to delay any depositions until the attorney general produced certain documents disclosing communications between employees who worked with Mr. Cuomo and outside parties.

Last week, New York state Supreme Court Judge Bernard Fried ruled that Mr. Schneiderman must hand over the documents requested by Bank of America, describe the parameters of the search for the documents, and list any documents not produced on grounds of privilege. The judge also ruled that depositions wouldn't begin for 90 days.

Pressure from U.S. regulators contributed to Bank of America's decision to buy Merrill as the firm teetered in 2008. The deal was struck the same weekend that Lehman Brothers Holdings Inc. tumbled into bankruptcy.

The legal friction with Mr. Schneiderman is the latest reminder that Bank of America is a long way from shedding legal and financial wreckage of the crisis. The bank's 2008 takeover of mortgage lender Countrywide Financial Corp. culminated in this week's $8.5 billion settlement with holders of mortgage-backed securities issued by Countrywide.
Of course, at the bottom of the whole BofA-Merrill fiasco is none other than Hank Paulson who pressured Ken Lewis to take the deal or else. But not even we are that naive to hope that Paulson will ever go to court for any other reason. After all, if anyone watched the straight to HBO movie by a NYT reporter, Hank could do no wrong.
Although Agent Orange sure could (courtesy of the most value destroying M&A transaction in the history of corporate finance). Perhaps it is also time to take another long hard look at Mozillo (and not giggle).

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It seems that the more accurate Chicago PMI better replicates what is happening in the USA economy as a whole.
The ISM number gave a positive manufacturing data number but the gain was all in inventory.  The Chicago number was down badly.  This is explained in the following zero hedge commentary:

Presenting The Inventory Schizophrenia Of The Chicago PMI And The Manufacturing ISM

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To many the significant beat of today's Manufacturing ISM was not very surprising based on yesterday's higher than expected Chicago Purchasing Managers Index. As most economists know, the Chicago PMI has traditionally been a spot on predictor of that other more comprehensive survey, the Mfg ISM. Indeed, asWikipedia explains, "The Chicago-PMI survey registers manufacturing and non-manufacturing activity in the Chicago region. Investors care about this indicator because the Chicago region somewhat mirrors the nation in its distribution of manufacturing and non-manufacturing activity." Traditionally the correlation has been in the 80s and higher. Sure enough, anyone who simply bought the market on an expectation that the ISM would replicate the Chicago PMI won. Yet the biggest surprise was beneath the surface, where a more granular read indicates some very violent schizophrenia. As Goldman said earlier, when reporting on the ISM: "a sharp increase in the inventories index (from 48.7 to 54.1) explained 1.1 points of the 1.8 increase in the headline index." Said differently, nearly two thirds of the total beat came from a jump in inventory levels. Yet what happened in the Chicago PMI yesterday? Well: take it from the horse's mouth. The Chicago Business Barometer called it a "precipitous decline" after it plunged from 61.6 to 46.96, the biggest drop in years.
Which number is real? Is Chicago's much more focused inventory number accurate, in which case the ISM is massively misrepresenting reality, and inventory, not to mention the composite, is actually collapsing,  or, as we pointed out, is this merely a delayed reaction, and the ISM will now tumble following this abnormal jump in inventories, in which case next month's ISM will be in the 45 range, as predicted by the New Orders less Inventories leading indicator. One thing is certain: only computers can continue trading in which day to day datasets indicate an unprecedented degree of schizophrenia at the economic data manipulation level.
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I will leave you with the following zero hedge piece.  As you know, the debt ceiling has remained at the 14.294 trillion mark for the past 2 months as Tim Geithner raids the Federal pension funds to the tune of around 300 billion dollars.
That will run out on August 2.  In this piece, zero hedge discusses how the USA went shorter and shorter on the debt curve to acquire cheap financing but this will begin to haunt them.  In the next two months, the USA has 500 billion of paper due and without an agreement the USA must default. On top of this, is the regular 136 billion monthly budgetary deficit.  If they pass the debt ceiling they will need:

136 billion per month of budgetary deficit replaced.
500 billion dollars of paper to be redeemed
300 billion to replenish the pension funds.
this is a lot of paper.  (courtesy zero hedge)

T-Minus Two Months Until The $500 Billion Rolling Debt Ticking Timebomb Goes Off

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Ever since the famous Stanley Druckenmiller Op Ed published in early May, which called for an outright default of the US, saying it would not be the end of the world, and in fact the US would emerge stronger as a result of finally taking the first steps to getting its fiscal house in order, there has been a visible shift regarding the US debt ceiling discussion, with republicans (so far) digging in and refusing to budge on the issue. After all, on the surface Druckenmiller is absolutely correct: with interest rates near record lows for the past 3 years, interest payments would be manageable for a long time even if general rates were to surge due to the Treasury's fixing of low cash coupons over the past 3-4 years, amounting to about 20-30% of all annual tax receipts. There is however one very big problem with this argument, one which we pointed out back in April 2010 when we said that"What people don't realize is that...unless the UST can roll its debt not on a monthly but now weekly basis in greater and greater amounts, the interest rate doesn't matter. All it takes is one semi-failed auction and it's game over as hundreds of billions in bills become payable." Enter the always forgotten maturing debt argument. And as a just released presentation by the Bipartisan Policy Center titled "Debt Limit Analysis" reminds us, aside from the actual deficit funding math, which is that in August there is a $134.3 billion cash shortfall that has to be funded with debt, there is a far greater risk. Or, put numerically, 467.4 billion far greater risks. This is the amount of debt that matures through August 31, and has to be rolled over or the US is bankrupt... in every sense of the word. Once again, America's politicians and media get broadsided by the definition of gross versus net. Because, in reality, the inability to issue more debt post August 3 means a halt to all new debt issuance. Which, unfortunately because it means Geithner's scaremongering is actually correct, would imply the end for the debt ponzi.
Below is the maturity schedule in August from the BPC:
And their commentary, which recaps what we said 14 months ago:
  • Treasury must “roll over” almost $500 b in debt that matures during August 2011
    • New debt is issued and the proceeds are used to repay the maturing debt plus interest due
    • Treasury will require market access throughout August to avoid defaulting on maturing debt
  • About $380 b in short-term T-Bills maturing, plus $90 b in long-term securities
    • Quarterly refunding auction on August 15
And that's not it. On a Net basis, there is in addition another $134.3 billion in deficit that must be satisfied somehow. Alas, after August 3rd it will become impossible to plunder savings accounts going forward which means a game over in the kick the can down the road game:
Breaking down the spending side:
The BPC's observations on what happens on August 4 absent a deal are rather spot on:
  • If the debt ceiling is not raised by August 2, all three ratings agencies will put the United States on watch for a downgrade, at a minimum. Fitch (6/8/11):
    • “If the debt ceiling is not raised by the [X Date] and timely and full payment of its obligations, including Treasuries, is not secure, the U.S. sovereign rating will be placed on Rating Watch Negative.”
  • An actual downgrade would cause major losses among holders
  • Even without downgrade, it is likely that rates would increase, perhaps significantly
    • Less likely, but possible, that Treasury would lose market access during such an unprecedented event and default
As a reminder we are now 32 days away from D-Day, and about 60 days from the need to fund half a trillion, all of it with new gross debt issuance.
To date, there has been no progress in D.C. at all. Will there be progress in the next 4 weeks? They better, or as demonstrated, the extend and pretend game, contrary to the well-meaning intentions of the likes of Drucknemiller, is about to come to a very violent end.
Full presentation link.
Debt Ceiling Analysis

Well that about does it for this week.
To all our American friends, a very happy holiday weekend
I will rejoin all of you on Tuesday evening.

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