Friday, September 16, 2011

Gold and Silver rebound as expected/huge news on the silver fraud case against JPMorgan

Good morning to you all from downtown San Francisco

I do not have all of my tools here but I will do the best I can and get the data to you.

Gold closed Friday at $1812.10 up a huge $33.60.  Silver responded also in splendid fashion by rising $1.33 to $40.78.  It certainly looks like Greece will not be bailed out even though the USA is trying desperately to encourage  the ECB to leverage its EFSF funds.  However before we travel that route and before I bring you the new details on the fraud perpetrated by JPMorgan, let us head over to the comex and assess the trading data.

Friday's open interest fell by 8,000 contracts from Thursday's reading.  The Friday OI registers 501,148 and the Thursday reading was 509,815.  Thursday was a big raid day so we definitely lost some spec longs. However we must pay special attention to the front options delivery month of September.  Again for the 8th straight day, the OI rose from 160 to 191 despite 6 deliveries.  As I pointed out to you on Thursday, London is in desperate need of physical gold due to the shortage of dollars and this gold is used as collateral.  The next front month of October which is a delivery month although a tiny one at that, saw its OI decline marginally from 33,287 to 31,912.  The big December contract saw its OI fall appreciably from 334, 030 to 323,433 as it was December that took the brunt of the banker's attack.  The estimated volume at the gold comex Friday was 209,216 which is pretty big.  The confirmed volume on Thursday, the day of the monstrous attack was also a gigantic 257,915.  Jamie Dimon and his cohorts should be put in jail for all of their criminal activity.

The silver comex OI does not want to follow gold's lead.  The OI continues to trade in its narrow channel of 112,000 contracts.  The total OI for Friday again registered 112,349 from Thursday level of 112,612.  In other words we lost only 300 contracts with a monster raid and a huge drop in silver price.  As I keep telling you, the silver comex is in strong hands and no silver leaves fall from the tree despite the massive raid.  The front delivery month of September saw its OI fall from 401 to 369 for a loss of 31 contracts.  We had 17 deliveries on Thursday so we had 14 contracts that we cash settled.  The next big delivery month is December and here the OI remained constant at  75,053.  Get a load of this:  the estimated volume at the silver comex Friday was 36,988 with a huge rise in price.  The bankers are getting mighty scared in silver.  The confirmed volume on Thursday was 49,723.

nventory Movements and Delivery Notices for Gold: Sept 16.2011: 

Withdrawals from Dealers Inventory in oz
Withdrawals fromCustomer Inventory in oz
675 (Manfra)
Deposits to the Dealer Inventory in oz
our famous
5,000 oz Brinks
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
8600 (86)
No of oz to be served (notices)
10,500 (105)
Total monthly oz gold served (contracts) so far this month
273,800 (2738)
Total accumulative withdrawal of gold from the Dealers inventory this month
98 oz
Total accumulative withdrawal of gold from the Customer inventory this month

let us begin with gold movements.

Again no gold deposits to the dealer and no withdrawals.
We did have a tiny 675 oz withdrawal from Manfra.

We got another of our famous exact 5,000.00 oz of gold into a Brinks customer.   Then the Brinks customer leased that gold to a dealer.
We also had another adjustment whereby the dealer returned 1088 oz of gold back to the customer.  Actually it was 1087 oz returned to the customer and one ounce was removed altogether.  Strange reporting.

The registered inventory rests friday night at 1.93 million oz.

The CME folk notified us that a huge 86 notices were filed for 8600 oz of gold. The total number of gold notices filed so far this month total 2738 or 273800 oz.  To obtain what is lleft to be served, I take the OI standing (191) and subtract out Friday's deliveries (86) which leaves us with 105 notices left to be served upon.

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

273,800 oz (served)  +  10500 oz (to be served) =  284,300 oz  or 8.84 tonnes

And now for silver 

First the chart:

Withdrawals from Dealers Inventorynil
Withdrawals fromCustomer Inventory485,079 (Delaware,Scotia)
Deposits to theDealer Inventorynil
Deposits to the Customer Inventory643,844 (HSBC,Delaware,Brinks)
No of oz served (contracts)  260,000 (52)
No of oz to be served (notices)1,585,000 (317)
Total monthly oz silver served (contracts)5,525,000 (1157)
Total accumulative withdrawal of silver from the Dealersinventory this month64,092
Total accumulative withdrawal of silver from the Customerinventory this month

Friday saw considerable action into and out of silver vaults.

Again, no silver was deposited to the dealer and no silver was withdrawn.
The customer had the following deposits:

1.  50,146 oz into Brinks
2.  10,856 oz into Delaware
3.  582,842 oz into HSBC

total deposit:  643,844 oz.

we had two withdrawals by the customer:

1.  8908 oz removed from Delaware by customer no 1
2.  476,171 oz removed from Scotia by customer no 2.

total withdrawal  485,079 oz

we had the following adjustments:

40,540 oz removed from dealer whereby 40,539 oz was added to the customer and one oz removed entirely from all vaults.

a second adjustment whereby 75,286 oz was leased by a customer to the dealer.
\the total registered silver lowers to 31.715 million  oz
the total of all silver rises to 104.79 million oz.

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.

 GLD inventory changes: Sept 16.2011:

Total Gold in Trust

Tonnes: 1,251.91

Total Gold in Trust: Sept 15.2011

Tonnes: 1,241.31
Value US$:

Total Gold in Trust:  sept 14.2001

Tonnes: 1,241.31
Value US$:

we gained a monstrous 10.6 tonnes of gold.  I feel that this gain is nothing but a paper gold gain.  London is running out of metal.

Now let us see inventory movements in the SLV: Sept 16:2011

Ounces of Silver in Trust320,103,181.700
Tonnes of Silver in Trust Tonnes of Silver in Trust9,956.32
sept 15.2011
Ounces of Silver in Trust320,103,181.700
Tonnes of Silver in Trust Tonnes of Silver in Trust9,956.32

Sept 14.2011:

Ounces of Silver in Trust320,103,181.7
Tonnes of Silver in Trust Tonnes of Silver in Trust9,956.32

we neither gained nor lost any silver

1. Central Fund of Canada: jumped in  trading to a positive 5.3 percent to NAV in usa funds and a positive 5.3% in NAV for Cdn funds. ( sept 16.2011).
2. Sprott silver fund (PSLV): Premium to NAV stayed at a positive 19.93% to NAV sept 16.2011
3. Sprott gold fund (PHYS): premium to NAV lowered  to a 3.9% to NAV sept 16.2011).
(problems with the Sprott gold site today)

Please note that the central fund of canada reverts to a  big positive to NAV.The world is now actively seeking physical silver from all sources
The Sprott silver fund commands a huge premium of 19.93% to its NAV as the bankers refuse to attack Eric and his precious metals funds.
Note: the steady  NAV premium in the gold Sprott.  


Let us head over and see what we can glean from the COT report released at 3;30 pm Friday.  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, September 13, 2011

remember this is from Sept 6 to Sept 13 just prior to the big raids.

Our  large speculators that have been long in gold surprisingly pitched 13,602 contracts  as they somehow speculated that a raid was imminent.  They guessed correctly.

Our large speculators that have been short in gold added 2,462 positions to their shorts.

And now for our commercials:

those commercials who are long in gold and close to the physical scene added a huge 9351 contracts to their long side.

those commercials who are perennially short in gold like JPM  covered a huge 7895 contracts prior to their raid.

our small specs that have been long in gold covered a huge 5055 contracts and guessed correctly about a raid.

our small specs that have been short in gold  also covered a rather large 3333 contracts of their short positions.

and now for our silver COT  (A DIFFERENT KETTLE OF FISH)

Silver COT Report - Futures
Large Speculators

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Silver Report - Positions as 

our large speculators that have been long in silver  covered a very tiny 597 contracts from their long side in total opposite to gold.

our large speculators that have been short in silver added another 323 contracts to their short side.  Their short side is getting quite big.

and now for our commercials:

those commercials that have been long in silver added a rather large 1288 more positions to their longs 

and our famous commercials that have been short silver from the beginning of time covered a smallish 631 contracts from their short side.

forgot about the small specs as they have been obliterated at the beginning of May.
The game is fought between the large specs and the commercials.


Let us no see the big stories of the day.

Without a question, this is the biggest story as new details outlining the fraud, the mechanism of the manipulation, and specific traders involved.

I would be willing to bet that HSBC supplied the details in return for them not being charged. The heat is certainly on the CFTC officials now. Bart will issue is statement this coming week:  (courtesy:  GATA, King World News,Chris Powell)

GATA has done such a great job and I feel that all of you should join as members and give them the support that they deserve for the fine work that they have done exposing the fraud perpetrated by JPMorgan.

Details of Silver Class Action Suit
Updated silver lawsuit identifies Morgan trading mechanisms, traders, 'spoof' and 'fake' trades
Submitted by cpowell on 10:32AM ET Friday, September 16, 2011. Section: Daily Dispatches
1:33p ET Friday, September 16, 2011
Dear Friend of GATA and Gold (and Silver):
An updated complaint in the class-action lawsuit against JPMorganChase alleging manipulation of the silver futures market, filed this week in U.S. District Court for the Southern District of New York, details the mechanisms of the manipulation and some of the traders executing it.
According to the updated complaint:
-- MorganChase already had a large short position in silver when it acquired another large short position upon the investment house's acquisition of the failed New York brokerage Bear Stearns in 2008. This, the complaint says, gave MorganChase hugely disproportionate influence in the silver market.
-- MorganChase used "fake" and "spoof" trades to manipulate prices downward, particularly in advance of contract expiration dates, when MorganChase held put options, which became more valuable as the price of silver was driven down.
-- MorganChase reduced its short position following the May 25, 2010, hearing of the U.S. Commodity Futures Trading Commission, in which complaints of gold and silver market manipulation figured heavily. (GATA Chairman Bill Murphy and board member Adrian Douglas testified at that hearing and presented a statement by a London silver futures trader, Andrew Maguire, detailing market manipulation he had witnessed.)
-- MorganChase regularly engaged in uneconomic trading activity in silver whose only purpose was price manipulation.
-- The CFTC received a detailed complaint about silver market manipulation from a "whistleblower" (this is presumably Maguire).
--Market circumstances during the period of manipulation alleged by the lawsuit were much different from the circumstances previously investigated by the CFTC when it concluded that there had been no manipulation.
While these are all only allegations, the silver price manipulation case against MorganChase is now extensively detailed with names of participants, specific actions and their dates, and identities of participants. Market experts no doubt will find much more of signifance in the consolidated complaint.
King World News has just published a summary of the consolidated complaint here:
The full complaint can be found at GATA's Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Over in Germany the lack of progress on the bailouts heats up as rebellions by its citizens are the order of the day.  They surely do not want any bailouts that they would have to pay for:  (courtesy zero hedge)

Bailout Rebellion in Germany Heats Up

testosteronepit's picture

For the first time ever, a clear majority (60%) of Germans no longer sees any benefits to being part of the Eurozone, given all the risks, according to a poll published September 16 (FAZ, article in German). In the age group 45 to 54, it jumps to 67%. And 66% reject aiding Greece and other heavily indebted countries. Ominously for Chancellor Angela Merkel, 82% believe that her government's crisis management is bad, and 83% complain that they're kept in the dark about the politics of the euro crisis.
"There cannot be any prohibition to think" just so that the euro can be stabilized, wrote Philipp Rösler, Minister of Economics and Technology, in a commentary published on September 9 (Welt, article in German). "And the orderly default of Greece is part of that," he added. Instantly, all hell broke loose, and Denkverbot (prohibition to think) became a rallying cry against the onslaught of criticism that his remarks engendered.
Even Timothy Geithner, who attended the meeting of European finance ministers in Poland, fired off a broadside in Rösler's direction. In the same breath, he proposed the expansion—through leverage, of all things—of the European bailout mechanism, the EFSF. According to Austrian Finance Minister, Maria Fekter, who witnessed the scene, he warned of "catastrophic" economic risks due to the disputes among the countries of the Eurozone and due to the conflicts between these countries and the ECB. Then he demanded in dramatic terms, she said, that "we grab money with our hands to stabilize the banks and expand the EFSF unconditionally."
The smack-down was immediate. German Finance Minister, Wolfgang Schäuble, took Geithner to task and explained to him in no uncertain terms, according to Fekter, that it was not possible to burden the taxpayers to that extent, particularly not if only the taxpayers of Triple-A countries were to be burdened. A bailout "with tax money alone in the quantity that the USA imagines will not be feasible," Schäuble said. (Wiener Zeitung, article in German).
Vocal support for Rösler came today from a group of 16 prominent German economists. If the government in its efforts to stabilize the euro didn't consider the insolvency of a member country, they warned, Germany would become subject to endless extortion (FAZ, article in German). And to impose a Denkverbot concerning it would be a step back into "top-down state thinking." They further lamented that these policies would turn the Eurozone into a transfer union. If the government wanted to establish a transfer union, it should discuss that with the German voters, they demanded, because it would be a fundamental change in the E.U. constitution and should be legitimized by vote. Otherwise, Germany would be "threatened by a populist movement to exit the E.U."
Meanwhile, on his visit to Rome, Rösler had to face down Italian Finance Minister, Giulio Tremonti, who'd "vehemently" demanded the creation of Eurobonds, sources of the German delegation said (Zeit, article in German). President of the European Commission, José Manuel Barroso, supported Tremonti's demands. But Rösler, like Merkel and others, rejected the idea. Transferring liabilities to other countries would remove pressure from debtor nations to reform, he said, differences in yields being a market-driven incentive to get the budget in order. Eurobonds are also legally impossible, he added, based on a recent decision by the German Federal Constitutional Court.
Eurozone must be honest: Big haircuts for bond holders, debt limits for all, says Die Zeit (article in German). The drama of saving European banks that hold Greek debt, and the debt of other tottering Eurozone nations, has been going on for a year and a half. Each effort to keep Greece on track follows the familiar script. Politicians promise spending cuts. Greeks demonstrate. E.U. inspectors check things out and leave angry. Germans declare that Greece will not get any relief until it fixes its problems. Then Greece notices that it needs yet more money and threatens to default. Germany nods. And the next installment gets paid.
By now, all hope for a happy ending has dissipated. Greece is suffering from a multitude of problems that defy quick fixes, among them a huge pile of debt, an inept and corrupt fiscal system where taxes are simply not collected, dysfunctional institutions, and a government-dominated economy. Even unlimited amounts of money can only defer the end game.
But there are already victims. The most recent one: The concept of an independent, apolitical central bank whose primary purpose is guarding the value of the currency, rather than monetizing the debt of countries that have spent beyond their means.
To see how it all started, read my first post on the Bailout Rebellion in Germany
Wolf Richter -

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The Volcker rule is now being written to include foreign operations as long as these foreign entities have divisions inside the USA.  The Volcker rule will totally annihilate the banks as all their income is from trading. They do not lend money:  (courtesy Bloomberg)

Volcker Rule May Extend to Overseas Banks

Security guards stand in front of 200 West Street, which houses the headquarters of Goldman Sachs Group Inc., in New York. Photographer: Scott Eells/Bloomberg
Regulators writing a rule limiting proprietary trading by U.S. banks are considering extending the restrictions to overseas firms with operations in the country, according to four people familiar with the proposal.
Officials next month will issue a plan to carry out provisions of the so-called Volcker Rule, part of the Dodd-Frank financial-regulation law. The purpose is to clarify what types of offshore trading are exempt from the Volcker Rule, the people said.
The Volcker Rule, designed to reduce the types of risky investments blamed for triggering the financial crisis, has prompted U.S. banks such as Goldman Sachs Group Inc. (GS) to close proprietary-trading operations. Overseas banks say that a strict interpretation of the rule may also force them to fire or relocate U.S. employees who are involved in proprietary trading, even if no American money is at risk.
“There is no question that we would lose jobs,” said Wayne Abernathy, vice president of the American Bankers Association in Washington. “A lot of what the banks have been doing in recent years to diversify their services are activities that can easily be done by foreign competitors.”
The rule, named for the former Federal Reserve Chairman Paul Volcker, includes exemptions for government-guaranteed investments, hedging, market-making and insurance-company transactions. It also exempts proprietary trading conducted “solely” outside of the U.S.

Subject to Interpretation

The language of the bill is subject to interpretation by regulators at agencies including theFederal Reserve and the Federal Deposit Insurance Corp. Dodd-Frank, signed into law by President Barack Obama last year, requires regulators to adopt rules to carry out the provision by Oct. 18.
Regulators are considering how to define operations conducted “solely” outside of the country. Trading managed in the U.S. or involving U.S.-based advisers may be subject to the rule even if it takes place overseas and has no U.S. investors, the people said.
“There has been a question how to interpret the phrase in the Volcker Rule ‘solely outside the United States,’” said Satish Kini, co-chairman of the banking group at law firm Debevoise & Plimpton LLP. “There was some hope with respect to funds, whether they were formed outside the United States and their interests were not offered to U.S. persons, whether that would be sufficient.”

Public Comment

The proposal may still change, the people said. Five regulators, including the Fed, the Office of the Comptroller of the Currency and the Securities and Exchange Commission and the Commodities Futures Trading Commission, must approve the proposal separately. The Treasury Department is responsible for coordinating the regulation. The proposed rule will be released for public comment and can be changed before it becomes final.
Colleen Murray, a spokeswoman for Treasury, and Barbara Hagenbaugh, a spokeswoman for the Fed, declined to comment. Andrew Gray, a spokesman for the FDIC, also declined to comment.
The Institute of International Bankers, which represents firms such as London-based HSBC Holdings Plc (HSBA) and Paris-based Societe Generale SA, is arguing that the Volcker rule shouldn’t apply if trading takes place offshore and doesn’t put U.S. investors or the financial system at risk.
The rule “should focus on where the risk of the activity is held,” Sally Miller, the institute’s chief executive officer, wrote in a May 10 letter to the regulators. “The statutory text focuses on the location of the activities a bank engages in.”

Moving Jobs Overseas

Foreign banks often employ New York-based investment advisers and managers to work on offshore proprietary trading. If such trading were forbidden under the Volcker Rule because U.S. employees are involved, the banks would simply move those jobs overseas, Miller said.
“It’s a jobs issue -- if we can’t use a U.S. sub-adviser, we’re going to use an adviser sitting in London or Frankfurt, so that job is not here anymore,” Miller said in an interview. “Allowing foreign banks to employ U.S. firms as sub-advisers encourages foreign banks to invest in U.S. securities.”
International banks employ more than 250,000 U.S. citizens and permanent residents, according to IIB. Credit Suisse Group AG, Societe Generale and Deutsche Bank AG are among the overseas banks that manage trades in the U.S. and would be affected by the rule.
U.S. bank executives, including JPMorgan Chase & Co. (JPM) Chairman and Chief Executive Officer Jamie Dimon, argue that the Volcker Rule places domestic banks at a disadvantage to foreign rivals that aren’t subject to the same restrictions in their home countries.
“If America adopts a lot of things very different than the rest of the world,” U.S. competitiveness will be damaged, Dimon told investors at a Feb. 15 meeting at JPMorgan’s New York headquarters.
To contact the reporters on this story: Cheyenne Hopkins at; Ian Katz in Washington at
To contact the editor responsible for this story: Christopher Wellisz at
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Moody's is threatening the downgrade the debt of Italy:  (courtesy zero hedge)

Moody's Continues Review Of Italy's Aa2 Ratings For Possible Downgrade, To Conclude Review Within Next Month

Tyler Durden's picture

Moody's continues review of Italy's Aa2 ratings for possible downgrade

Frankfurt am Main, September 16, 2011 -- Moody's Investors Service is continuing its review for possible downgrade of Italy's Aa2 local and foreign currency government bond ratings.


Moody's initially placed Italy's bond ratings on review for possible downgrade on 17 June 2011. The main drivers that prompted the rating review are:

(1) Economic growth challenges due to macroeconomic structural weaknesses and a likely rise in interest rates over time;

(2) Implementation risks surrounding the fiscal consolidation plans that are required to reduce Italy's stock of debt and keep it at affordable levels; and

(3) Risks posed by changing funding conditions for European sovereigns with high levels of debt.

In light of the increasingly challenging economic and financial environment and fluid political developments in the euro area, Moody's is continuing to evaluate Italy's local and foreign currency bond ratings in the context of the risks identified. Moody's will strive to conclude the review within the next month.

Translation: Italian headline risk is not going away for quite some time


David Rosenberg of Gluskin, Sheff has added another commentary where he states flat out that we will not only have Operation Twist but other measures as QEIII will be upon us as promised at the next FOMC meeting.

Forget Operation Twist: Rosenberg Says Bernanke Will Shock Everyone With What Is About To Come

Tyler Durden's picture

As we have been pointing out since the beginning of the week, the one defining feature of the past 5 days has been a relentless short covering rally. And while the mechanics were obvious, one thing was missing: the reason. Well, courtesy of David Rosenberg's latest, we may now know what it is. Bottom line: for all who think that Bernanke is about to serve just Operation Twist next week... you ain't seen nothing yet. "The consensus view that the Fed is going to stop at 'Operation Twist' may be in for a surprise. It may end up doing much, much more." Rosie continues: "Look, we are talking about the same man who, on October 2, 2003, delivered a speech titled Monetary Policy and the Stock Market: Some Empirical Results. I kid you not. This is someone who clearly sees the stock market as a transmission mechanism from Fed policy to the rest of the economy. In other words, if Bernanke wants to juice the stock market, then he must do something to surprise the market. 'Operation Twist' is already baked in, which means he has to do that and a lot more to generate the positive surprise he clearly desires (this is exactly what he did on August 9th with the mid-2013 on- hold commitment). It seems that Bernanke, if he wants the market to rally, is going to have to come out with a surprise next Wednesday." In other words, stocks are now pricing in not just OT 2, and a reduction in the IOER, but also an LSAP of a few hundred billion. There is, however, naturally a flipside, to Bernanke's priced in announcement: "If he doesn't, then expect a big selloff." In everything, mind you, stocks, bonds, and certainly precious metals. And, of course, vice versa.
Full note from Today's Breakfast with Dave:
The consensus view that the Fed is going to stop at 'Operation Twist' may be in for a surprise. It may end up doing much, muchmore. And this may be one of the reasons why the stock market is starting to rally (a classic 50%+ retracement, which always occur after the first 20% down-leg in a cyclical bear market would imply a test of 1,250 on the S&P 500 at the very least). Hedge funds do not want to be short ahead of next week's FOMC meeting, and who can blame them?
Here are 10 reasons why:
  1. Just go back to August 9th. The Fed was supposed to make a more emphatic comment in the press statement about "extended period" as it pertained to the length of time the Fed would stay ultra-accommodative on the rates front. Bernanke went much further than anyone thought with his pledge to keep the funds rate at the floor at least to mid-2013.
  2. Ben Bernanke has shown repeatedly that he is willing to take risks and be very aggressive.
  3. Everyone knows that the Dow finished the August 9th session with a huge 430 point gain after the FOMC press statement was fully digested. Not only that, but when Bernanke held his two-day meeting in mid-December of 2008 and unveiled QE1, the Dow soared 360 points. And last November, the day after that two-day meeting when Bernanke made it clear in his Washington Post op-ed article how key it was to ignite the stock market, the Dow jumped 220 points. It may all be just for a near-term trade, but in an industry where every basis point counts, who wants to be short knowing all that?
  4. At that August meeting, we know both from the statement and minutes that additional rounds of unconventional easing were discussed. And Mr. Bernanke made it very clear at Jackson Hole that they would be on the table again at the coming meeting
  5. The Fed would like to be out of the picture during the election campaign (especially if Richard Perry ends up winning the GOP nomination).
  6. The Fed has cut its GDP forecasts at each of the past three meetings.
  7. The stock market is actually little changed from where it was at the last meeting and we know based on that Washington Post op-ed, that it is equity valuation (specifically the Russell 2000) that Ben wants to see rally. Sanctioning lower bond yields is just a means to that end.
  8. There is no fiscal stimulus to bolster the economy, with the odds very high that the Obama jobs plan — some in his own party object to the package as per yesterday's New York Times — will be dead-on-arrival on the House floor. The Fed is the only game in town.
  9. Financial conditions have tightened nearly 100 basis points since the spring and deserve a policy response.
  10. Bernanke announced at Jackson Hole that this coming meeting was going to be a two-day affair, not one day. The last time he did this was back in December 2008 and that was when he invoked QE1. There has to be a reason why it is two days, and it must be because he wants to build the case for three dissenters. The Board is being sequestered for a reason!
Look, we are talking about the same man who, on October 2, 2003, delivered a speech titled Monetary Policy and the Stock Market: Some Empirical Results. I kid you not. This is someone who clearly sees the stock market as a transmission mechanism from Fed policy to the rest of the economy. Here is a key excerpt from that sermon:
Normally, the FOMC, the monetary policymaking arm of the Federal Reserve, announces its interest rate decisions at around 2:15 p.m. following each of its eight regularly scheduled meetings each year. An air of expectation reigns in financial markets in the few minutes before to the announcement. If you happen to have access to a monitor that tracks key market indexes, at 2:15 p.m. on an announcement day you can watch those indexes quiver as if trying to digest the information in the rate decision and the FOMC's accompanying statement of explanation. Then the black line representing each market index moves quickly up or down, and the markets have priced the FOMC action into the aggregate values of U.S. equities, bonds, and other assets.

Even the casual observer can have no doubt, then, that FOMC decisions move asset prices, including equity prices. Estimating the size and duration of these effects, however, is not so straightforward. Because traders in  equity markets, as in most other financial markets, are generally highly informed and sophisticated. any policy decision that is largely anticipated will already be factored into stock prices and will elicit little reaction when  announced. To measure the effects of monetary policy changes on the stock market, then, we need to have a measure of the portion of a given  change in monetary policy that the market had not already anticipated before the FOMC's formal announcement [emphasis added].
In other words, if Bernanke wants to juice the stock market, then he must do something to surprise the market. 'Operation Twist' is already baked in, which means he has to do that and a lot more to generate the positive surprise he clearly desires (this is exactly what he did on August 9th with the mid-2013 on- hold commitment). It seems that Bernanke, if he wants the market to rally, is going to have to come out with a surprise next Wednesday. If he doesn't, then expect a big selloff.
What he is likely to do is another story, but here are some options:
  1. Expand the balance sheet further and simply buy more bonds (at the longer end of the curve).
  2. Eliminate the interest paid to commercial banks on excess reserves (to try to spur lending).
  3. Announce an explicit ceiling on the 10-year note yield (say 1.5%), which the Fed has done in the distant past. Based on Bernanke's prior rhetoric, this would seem to be a preferred strategy (though the Fed relinquishes control of the balance sheet).
  4. Buy foreign securities (bail out Europe and weaken the U.S. dollar — talk about killing two birds with one policy stone).
  5. Announce an explicit higher inflation target or perhaps a lower unemployment rate target (i.e. reinforce the DUAL mandate).
  6. As Mr. Bernanke stated for the record in November 2002, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window. It could offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral. For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector.
Note that this is all for a trade. As we saw back on August 9th, we had a huge rally but the market is no higher today than it was then. All we have seen since is a huge amount of volatility.
Source: Gluskin Sheff
Bloomberg warns high unemployment rate could lead to widespread rioting

Posted: 12:46 PM, September 16, 2011
Soon many could be feeling the physical pain of the bad economy.
Sounding alarm bells about the nation's high unemployment rate, Mayor Bloomberg warned this morning that there could be widespread mayhem in the streets if Washington lawmakers don't start creating jobs for millions of Americans who are out of work.
"We have a lot of kids graduating college, can't find jobs," Bloomberg said on his weekly WOR radio show. "That's what happened in Cairo. That's what happened in Madrid. You don't want those kinds of riots here."
Bloomberg also said the damage may be done -- especially to recent college grads -- as the nation's unemployment rate hovers around 9 percent. "The damage to a generation that can't find jobs will go on for many, many years," Bloomberg said. Despite that, the mayor gave Obama praise for coming up with a jobs bill.
"At least he's got some ideas on the table, whether you like those or not," he said.
The $447 billion jobs plan is crucial if Obama wants to revive his sagging poll numbers as he sets off on his 2012 reelection bid.
Obama had hoped his massive $800 billion stimulus plan -- aimed at creating jobs -- would help unemployment fall below 8 percent.
A poll out earlier this week showed that Americans are skeptical of Obama's latest efforts.
The poll showed a majority of Americans don’t believe Obama’s jobs plan will make a dent in the unemployment rate. Overall, 51 percent of respondents don’t think the plan will reduce the rate, while only 40 percent thought it would.

September consumer sentiment up, expectations at 31-year lowNEW YORK | Fri Sep 16, 2011 9:58am EDT
NEW YORK (Reuters) - Consumer sentiment inched up in early September, but Americans remained gloomy about the future with a gauge of expectations falling to the lowest level since 1980, a survey released on Friday showed.
The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment edged up to 57.8 from 55.7 the month before, which had been the lowest level since November 2008. It topped the median forecast of 56.5 among economists polled by Reuters.
"Overall, the data indicate that a renewed downturn in consumer spending is as likely as not in the year ahead," survey director Richard Curtin said in a statement.
"Even without a downturn, consumer spending will not be strong enough to enable the rapid job growth that is needed to offset reduced long-term expectations."
The gauge of consumer expectations dipped to 47.0 from 47.4. It was the lowest level since May 1980. The economic outlook for the next 12 months fell to 38 from 40, the lowest since February 2009 when the world economy was gripped by the credit crisis.
Consumers have become increasingly pessimistic about the strength of the recovery this year amid worries the U.S. economy could fall back into recession. A recent Reuters poll of economists put the odds at one in three.
Confidence in economic policies remained near historic lows after being damaged by political wrangling over raising the debt ceiling. Three out of four consumers expected bad times for the economy in the year ahead. Only half of respondents said the same at the beginning of the year.
The survey's barometer of current economic conditions gained to 74.5 from 68.7, and better than a forecast of 68.0.
The survey's one-year inflation expectation rose to 3.7 percent from 3.5 percent, while the survey's five-to-10-year inflation outlook was at 3.0 percent from 2.9 percent.

09:00 Jul US overall outflows ($51.80B) vs. revised ($29.40B) in June
* Jun revised from ($29.50B) 
* * * * *

I will leave you with this important paper written by Ambrose Evans Pritchard where he states that China is liquidating USA treasuries but buying USA based assets with the proceeds:   (courtesy UKTelegraph and Ambrose Evans Pritchard:)

China to 'liquidate' US Treasuries, not dollarsBy Ambrose Evans-Pritchard Economics
September 15th, 2011
The debt markets have been warned.
A key rate setter-for China's central bank let slip -- or was it a slip? -- that Beijing aims to run down its portfolio of US debt as soon as safely possible.
"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian, former Port Arthur from Russian colonial days.
"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way. Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.
To my knowledge, this is the first time that a top adviser to China's central bank has uttered the word "liquidate." Until now the policy has been to diversify slowly by investing the fresh $200 billion accumulated each quarter into other currencies and assets -- chiefly AAA euro debt from Germany, France, and the hard core.
We don't know how much US debt is held by SAFE (State Administration of Foreign Exchange), the bank's FX arm. The figure is thought to be over $2.2 trillion.
The Chinese are clearly vexed with Washington, viewing the Fed's QE as a stealth default on US debt. Mr Li came close to calling America a basket case, saying the picture is far worse than when Ronald Reagan and Margaret Thatcher took over in the early 1980s.
Mr Li, one of three outside academics on China's MPC, described the debt deals on Capitol Hill as "just trying to buy time," saying it will not be enough to stop America's "debt dynamic" turning dangerous.
Fair enough, but let us be clear: The reason China has accumulated the equivalent of 6 percent of global GDP in reserves (like the US in the 1920s) is because it has held down its currency to gain market share. As Michael Pettis from Beijing University points out tirelessly, the mercantilist policy hollows out US industries and forces America to choose between debt bubbles or unemployment -- or, of course, protectionism, though we are not there yet.
Until China abandons that core policy, it has to keep buying foreign assets and lots of dollars. The euro can absorb only so much -- 800 billion euros so far -- before Europeans realize (the French already realize) that Chinese bond purchases are double edged, and the yen the Swissie can't absorb anything at all. (The governments are intervening to stop it.) Besides, China has the same misgivings about euro debt as it does about dollar debt. Perhaps more so after Euroland's long-running soap opera.
So what Li Daokui said is not bad for the dollar as such. He said there is "$10 trillion" waiting to be invested in the US, if America will open its doors.
It is bad for bonds -- or will be. The money will go into strategic land purchases all over the world, until the backlash erupts in earnest. It will go into equities, until Capitol Hill has a heart attack. It will go anywhere but debt.
Yet another reason to be careful of 10-year Treasuries and Bunds below 2 percent yields. There is a big seller out there, just itching to let go.


It is time to say goodbye for now.  I have limited access to the internet from Sunday on but if it becomes available I will report.

goodbye from San Francisco

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