Saturday, August 4, 2012

Completely Fabricated Jobs Report/All bourses in the green/risk off trading

Good morning Ladies and Gentlemen:

Gold closed up today by $19.30 to finish the comex session at $1606.  Silver finished up by 81 cents to $27.79.  Gold was immediately smashed on news that the USA had a good jobs number.  However, with Europe solidly in the green and with Spanish and Italian 10 yr yields down, gold and silver took off along with the Dow.Europe decided on Friday, that maybe Draghi will get to orchestrate his ESM banking license. It never ceases to amaze me the total manipulation in these markets and the press just look the other way.  The key events to watch for will be the 20th of August, when Greece is scheduled to repay 3.2 billion euros back to the ECB from the ESFS.  No doubt the ESFS will lend the money to repay the ECB.  They may decide to forgo this and immediately default and issue drachmas.  If the money is forked over,
 then Greece has enough money to keep them going until the beginning of September and at that point, they will probably leave and the drachma will then  be reinstituted.  So we are just marking time. The USA jobs number released at 8:30 this morning was nothing but a farce.  We will outline to you why. Before delving into those stories, let us head over to the comex and assess trading today.

The total gold comex OI fell by a rather large 1901 contracts from 396,778 to 394,877 as investors flee the this gold forum in droves.  The front month of August saw its OI fall from 4447 to 3854 for a loss of 583 contracts.  We had 547 contracts delivered upon on Thursday, so we lost 46 contracts or 4600 oz of gold standing.  The Sept gold contract month saw a gain of 23 contracts, from 1329 to 1356.  The Oct delivery month which is generally small in comparison to other months saw its OI rise 1090 contracts, from 27410 to 28,506. The estimated volume on Friday came in at 131,776 which is small.  The confirmed volume on Thursday when the bankers orchestrated their big raid came in at 171,019.

The total silver comex OI again, does the opposite to gold, it rose on Friday by 515 contracts from 123,385 to 123,900.  The August silver contract month saw its OI fall by 21 contracts, from 31 to 10.  We had 13 delivery notices on Thursday, so we lost 8 contracts or 40,000 oz of silver standing. The next big delivery month for silver is September and here the OI fell marginally by 925 contracts from 58,251 to 57,326 as some of these longs rolled into December.  The estimated volume on the silver comex on Friday came in at 38,398 which is somewhat on the slower side of things.  The confirmed volume on Thursday, was much higher at 49,626.

August 4-.2012   August/gold

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in
353.65 (Brinks)
No of oz served (contracts) today
(799)  799,000 oz 
No of oz to be served (notices)
(3055)  305,500
Total monthly oz gold served (contracts) so far this month
(6872) 687,200 oz
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month


On Friday, we had little activity in the vaults.

The customer received the following at Brinks:

1. Into Brinks;  353.65 oz

The dealer at Brinks withdrew the following

1. 602.32 oz

The customer withdrew a tiny 32.15 at Manfra.

We had another of our dandy adjustments.
This time a huge 80,015.881 oz was adjusted out of the customer account and into the dealer at Scotia.

The CME notified us that we had 799 notices filed for 79900 oz of gold.  The total number of notices filed so far this month total 6872 for 687200 oz.  To obtain what is left to be filed upon, I take the OI standing for
August (3854) and subtract out Friday's deliveries (799) which leaves us with 3055 notices or 305500 oz left to be served upon our longs.

Thus the total number of gold ounces standing in this delivery month of August is as follows:

687200 oz (served)  +  305500 oz (to be served upon) =  992,700 oz  (30.87 tonnes of gold)
we lost 46 contracts or 4600 oz of gold standing.


August 4.2012:  silver  

Withdrawals from Dealers Inventory64,693.09(Scotia)
Withdrawals from Customer Inventory 1,084,254.19  (Brinks, Delaware,HSBC,Scotia  )
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory861,404.51 (Brinks,Scotia)
No of oz served (contracts)2  (10,000)
No of oz to be served (notices)8 (40,000)
Total monthly oz silver served (contracts)145 (725,000)
Total accumulative withdrawal of silver from the Dealers inventory this month310,045.28
Total accumulative withdrawal of silver from the Customer inventory this month1,410,956.9

We again had considerable activity inside the silver vaults.

The customer had the following silver deposit:

i) Into Brinks:  596,443.41 oz
ii) Into HSBC:  450,413.71 oz

total deposit:  1,046,857.12 oz

We had the following dealer withdrawal:

i) Out of Brinks:  25,829.734 oz
ii) Out of Scotia: 127,970.69 oz

total withdrawal from the customer or eligible side:  347,l589.64 oz
we had no adjustments.

Thus the dealer inventory rests this weekend at 38.405 million oz
The total of all silver rests at 138.855 million oz.

The CME notified us that we had only 2 notices filed for 10,000 oz.  The total number of notices filed
so far this month total 145 or 725,000 oz.  To obtain what is left to be filed upon, I take the OI standing for August (10) and subtract out Friday's notices (2) which leaves us with 8 notices or 40,000 oz left to be served upon.

Thus the total number of silver ounces standing in the month of August is as follows:

725,000 oz (served)  +  40,000 oz (to be served upon)  =  765,000 oz
we lost 40,000 oz of silver on Friday.


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.

August 4.2012:

Total Gold in Trust



Value US$:64,610,333,008.92

Aug 2 2012




Value US$:64,254,396,267.38

August 1.2012:




Value US$:64,335,599,775.44

July 31.2012:




Value US$:65,262,067,469.65

The GLD folks added 3.02 tonnes of gold into the inventories.

And now for silver:  

August 4.2012: 

Ounces of Silver in Trust313,759,604.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,759.01

Ounces of Silver in Trust312,144,209.700
Tonnes of Silver in Trust Tonnes of Silver in Trust9,708.77

Ounces of Silver in Trust311,465,597.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,687.66

July 31.2012:

Ounces of Silver in Trust311,465,597.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,687.66

July 30.2012:

Ounces of Silver in Trust309,914,477.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,639.42

Surprisingly we again gained 1.615 million oz of silver into the SLV

And now for our premiums to NAV for the funds I follow:

Sprott and Central Fund of Canada. 

(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)

1. Central Fund of Canada: traded to a positive 4.6percent to NAV in usa funds and a positive 5.0-%  to NAV for Cdn funds. ( Aug 4-.2012)

2. Sprott silver fund (PSLV): Premium to NAV  rose to  3.21% to NAV  august 4 2012   :
3. Sprott gold fund (PHYS): premium to NAV lowered slightly to    3.69% positive to NAV August 4 .2012). 

Note:  have you noticed that slowly Sprott's gold fund has been rising in positive to NAV. Also Sprott's silver fund is gaining some traction. Even Central fund of Canada is gaining in its positive to NAV
It looks like England may have trouble in finding gold for its clients.


 And now let us see what the COT report has in store for us.  This  report is released at 3:30 pm on Friday and it shows the positions held by our major players. The COT report is at position levels ending July 31.2012.  It goes from July 24.2012 to July 31.2012:  First let us see 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


Our large speculators:

Those large specs who have been long in gold added another 5,246 contracts to their long side feeling quite comfortable going after the banks.

Those large specs who have been short in gold, did not feel that comfortable as they covered a rather large 7841 contracts.

Our Commercials:

Those commercials who have been long in gold and are close to the physical scene pitched a huge 11,093 contracts from their long side.

Those commercials who have been short in gold  (JPMorgan et al) continued to supply the necessary paper as they added 8674 contracts to their short side.  And our regulators cheer them on!!

Our small specs:

Those small specs that have been long in gold added a very tiny 450 contracts to their short side.
Those small specs that have been short in gold did not like the lay of the land and they covered a huge 6230 contracts from their short side.

Conclusion: terribly bearish  and probably this is why we had no big raid on Thursday as the bankers had this thing all set up.

And now for our silver COT:

Silver COT Report: Futures
Large Speculators
Small Speculators
Open Interest
non reportable positions
Positions as of:

Tuesday, July 31, 2012

Our large speculators:

Those large specs that have been long in silver added 1103 contracts to their long side.
Those large specs that have been short in silver did not like the lay of the land and covered a rather large 3774 contracts from their short side.

Our commercials;

Those commercials that have been long in silver and are close to the physical scene pitched 3500 contracts from their long side

Those commercials that have been short in silver from the beginning of time, provided more paper by adding 2407 contracts to their short side.

Our small specs;

Those small specs that have been long in silver added another 281 contracts to their long side
Those small specs that have been short in silver covered a smallish 749 contracts from their short side.

conclusion: more bearish than last week as the bankers went more short.


Here are some physical stories:

The first from Goldcore, outlines how trading in gold occurred during Thursday night in Asia and Europe.
They outline some key physical stories from Europe and the USA

(courtesy Goldcore)

Draghi Disappoints and the IMF Warns About the US Fiscal Cliff

-- Posted Friday, 3 August 2012 | Share this article | Source:

Today's AM fix was USD 1,595.00, EUR 1,303.53, and GBP 1,024.74 per ounce.
Yesterday’s AM fix was USD 1,604.50, EUR 1,305.53and GBP 1,031.90 per ounce.
Gold dropped $10.50 or 0.66% in New York yesterday and closed at $1,588.70/oz. Silver was down to a low of $26.97 and finished with a loss of 0.91%.
Cross Currency Table – (Bloomberg)
Gold traded sideways on Friday, hovering after its 4 days of losses when the European Central Bank fell short of any immediate bold action to help the Eurozone debt crisis. Draghi’s comment "to do anything it takes” was a clear example of over promising and under delivering. Gold has lost about $40 since it peaked during the initial euphoria over Draghi’s pledge.
Regarding the ECB implementing swift market intervention, the bank said it postponed a decision “for a few weeks”. (Weidmann won Round 1)
The Bank of England also left rates unchanged yesterday.
Investors are cautious ahead of today’s US jobs report at 1230 GMT.
Nonfarm Payrolls are expected at 100,000–115,000 up from 80,000 in June, while the unemployment rate is expected at 8.2%.  If the figures shatter expectations on the upside this would be negative for gold prices. A disappointment in nonfarm payrolls data would show that job creation cannot sustain the unemployment rate and could help gold break through the $1,600/oz resistance level.
Gold Prices/Rates/Fixes /Volumes – (Bloomberg)
While most market players are enjoying summer holidays, many investors are waiting on the sidelines in cash.     
A US bill sponsored by Congressman Ron Paul would require the Federal Reserve to be subjected to an audit of monetary policy, including deliberations over changes to the benchmark interest rate. 
US Fed chairman, Ben Bernanke, claimed it would diminish the Fed’s independence and subject policy making to political pressure.  
The bill, passed US Congress 327-98, and needs Senate approval plus President Barack Obama’s signature before becoming law.
Christine Lagarde, Head of the IMF, cautioned policy makers on both sides of the pond that they “should continue to be in crisis management mode” to deal with both the euro-zone debt crisis and the gaping US fiscal cliff.
And, she added, there are “serious questions about the US economic future” if policymakers fail to avert a fiscal cliff before January, at which point government spending will drop and taxes will rise sharply.”
The global economic downturn is not going away until some drastic steps in fiscal policy are undertaken.
For breaking news and commentary on financial markets and gold, follow us on Twitter.
NEWSDraghi kills hope of instant action – The Financial Times
GoldCore Limited

14 Fitzwilliam Square


I think it is a little late for this:

(courtesy CFTC)

CFTC approves new NFA financial requirement to strengthen protection of customer segregated funds at FCMs
The CFTC recently approved NFA Financial Requirements Section 16 and the related interpretive notice entitled "FCM Financial Practices and Excess Segregated Funds/Secured Amount Disbursements". NFA Financial Requirements Section 16 and the notice impose new requirements on futures commission merchants (FCM) with respect to customer segregated funds and secured amount funds accounts, and require reporting of specific information regarding financial and operational information on a monthly or semi-monthly basis. The requirements will become effective September 1.
NFA Financial Requirements Section 16
NFA Financial Requirements Section 16 contains four subsections. Subsection 16(a) requires FCMs to maintain written policies and procedures regarding the maintenance of FCM’s residual interest in customer segregated and customer secured amount funds. These policies and procedures must identify a target amount (either a percentage or dollar amount) that the FCM will seek to maintain as its residual interest. This target residual amount, and any changes to the amount or material changes to the written policies and procedures, must be approved in writing by the FCM’s governing body, CEO or CFO.
The second subsection, 16(b), prohibits an FCM from withdrawing, transferring or otherwise disbursing funds from any customer segregated funds account exceeding 25 percent of the FCM’s residual interest in those accounts unless the FCM’s CEO, CFO or a principal with knowledge of the firm’s financial information pre-approves the disbursement in writing. Subsection (b) also requires any FCM making such a disbursement to file written notice through the WinJammer online filing system of the disbursement and other specified information. The subsection also imposes requirements for disbursements from any customer segregated funds account made subsequent to a disbursement that exceeds the 25 percent threshold and prior to the next day’s required segregated funds calculation.


This is complete nonsense.  They must think we are stupid..the Government are "auditing" the NY Fed's gold but not the ownership and the paperwork on that gold,

(courtesy GATA/Chris Powell/ Los Angeles Times)

Treasury audits NY Fed's gold but only to evade leasing, swapping, oversubscription issues

10:11a ET Friday, August 3, 2012
Dear Friend of GATA and Gold:
The Los Angeles Times reported yesterday that the U.S. Treasury Department is "auditing" the gold vaulted at the Federal Reserve Bank of New York, most of which is held in custody for other countries, but only to the extent of confirming the gold content of the bars kept there, and not touching on issues of ownership impairment, like swapping and leasing, the issues raised by GATA and others aggrieved by manipulation of the gold market.
Indeed, the "audit" seems intended to dispel "conspiracy theories" without actually having to disclose anything about the U.S. government's gold market intervention policy, the issue at the heart of GATA's freedom-of-information lawsuit against the Fed in U.S. District Court for the District of Columbia, a lawsuit that was decided more or less in GATA's favor last year and revealed that the Fed has secret gold swap arrangements with foreign banks as well as many other gold-related records that are being kept secret:
Responding to the L.A. Times story, Zero Hedge quickly explained why the Treasury's "audit" of the New York Fed's gold is a fraud. "What the 'conspiracy theorists' allege," Zero Hedge notes, "is that claims existing in paper format on the physical gold held under Liberty 33 are orders of magnitude greater than the actual physical gold these claims supposedly have recourse to":
But the L.A. Times story does quote U.S. Rep. Ron Paul on that point and even mentions the movement in Germany to repatriate that nation's gold reserves from foreign vaults. And if the Treasury Department has felt compelled to commission exactly the wrong kind of audit to deflect rising concerns about gold issues, that's progress too.
The L.A. Times story is appended.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *


Here are some of the major paper stories:

In the following video, Stratfor's Adriano Bosoni does a great job dissecting the problems facing the 17 euro monetary zone.  Record levels of unemployment is certainly not helping along with the high unemployment of its youth especially in the southern or periphery nations of Europe e.g. Italy, Spain and Greece.

As we mentioned yesterday, Italy and Spain are calling for the ECB to do the following:

1. allow the ESM a banking license to buy bonds on the primary markets such as to keep interest rates lower.

2. continue with SMP on the secondary markets with the same theme to lower interest rates.

Berlin will certainly not allow the first, but will allow the second choice. Berlin has basically stated that aid is available but only on a memorandum of understanding has been signed, something that Spain and Italy will be reluctant to sign due to the stigma that this will lead to a full out bailout as long term rates rise due to that fear.

This is an important video for you to see:

(courtesy Adriano Bosoni/Stratfor/zero hedge)

Of Beggars, Choosers, Unemployment, And Bailouts In Europe

Tyler Durden's picture

"The problems of a group of 17 different economies that are growing further apart - all functioning under the same currency - will not be solved by any actions taken by the ECB" is how Stratfor's Adriano Bosoni describes the can-kicking that has once again become the euro-zone this summer. From the systemically rising and drastically desperate unemployment rates around the Southern nations, which are not benefiting from the typical seasonal advantages of the Summer tourist trade (since both recessionary contraction of spending and fear of violence are keeping northern Europeans at home); to theMadrid-to-Rome 'demands' in the face of Berlin's clear message, Bosoni notes the ironic fact that 'aid' is there (as Draghi pointed out today) if it is asked for (and an MoU is signed) but both Spain and Italy know full well that the mere act of signing that Memorandum signals the market that a full sovereign bailout is closer at hand and will further steepen yield curves and shrink market access (which in our view is now gone for anything but short-duration issuance in Spain). A succinct 'status update' on where Europe stands.

Your early Friday morning opening Spanish 10 yr bond yield:


Add to Portfolio


7.013000.15200 2.12%
 07:50:00 ET on 08/03/2012.


Your opening Italian 10 yr bond yield:  

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


6.104000.22300 3.53%
As of 07:53:00 ET on 08/03/2012.


After all bourses were put to bed, S and P downgrades 15 Italian Financial Institutions and state that Italy faces a greater recession that what was previously thought.
The two major banks to watch out for are:

1. Unicredit  (downgraded to BBB+ from A-2
2. Banca Monte Dei Paschi di Siena:  cut to BBB- from A-3 

S&P Downgrades 15 Italian Financial Institutions, Says Country Faces Deeper Recession Than Previously Thought

Tyler Durden's picture

It is late in the afternoon on a Friday, which means one thing: it is time to dump all left over bad news under the rug. Sure enough, here comes S&P. From Bloomberg:
Full release:
Standard & Poor's Ratings Services today said it has taken rating actions on 32 Italian financial institutions.
These include affirming our counterparty credit ratings on 15 entities,  lowering our ratings on 15, removing the ratings on four from CreditWatch  negative, and revising the outlook on one.
The rating actions reflect our view of increased credit risk for the Italian  economy and its banks. They follow our revision of our economic risk score for  Italy, one of the main components of our Banking Industry Country Risk Assessment (BICRA), to '5' from '4'. We have maintained our BICRA for Italy at group '4' and our industry risk score at '4' (see "BICRA On Italy Maintained
At Group '4', Economic Risk Score Revised To '5' On Increased Credit Risk For Italian Banks," published Aug. 3, 2012, on RatingsDirect on the Global Credit Portal).
With Italy facing a potentially deeper and more prolonged recession than we had originally anticipated, we think Italian banks' vulnerability to credit risk in the economy is rising. In this context, the combined effect of mounting problem assets and reduced coverage of loan loss reserves makes banks more vulnerable to the impact of higher credit losses particularly in the event of deterioration in the collateral values of assets.
In our opinion, a more severe recession will likely push up the stock of Italian banks' problem assets in 2012 and 2013 to levels higher than we previously expected and high relative to the stocks in other banking systems in Europe. At the same time, the banks' coverage of problem assets through provisioning, which was already low by international standards because of the banks' extensive use of tangible collateral in their assessment of provisioning needs, has fallen further over the past few years.
See the list below for the rating actions on the financial institutions and their relevant subsidiaries.
We will publish individual research updates on the banks identified below, including a list of ratings on affiliated entities, as well as the ratings by debt type--senior, subordinated, junior subordinated, and preferred stock.
The ratings listed below are issuer credit ratings unless otherwise stated.
Ratings Affirmed
Banca Fideuram                            BBB+/Negative/A-2
Banca Mediocredito del Friuli-Venezia Giulia SpA                                          BBB/Negative/A-3
Banco Popolare Societa Cooperativa SCRL Credito Bergamasco                        BBB-/Negative/A-3
Banca Aletti & C. SpA
Credito Emiliano SpA                      BBB/Negative/A-2
Intesa Sanpaolo SpA                       BBB+/Negative/A-2
Banca IMI SpA
Istituto Centrale delle Banche Popolari Italiane SpA
CartaSi SpA                               BBB-/Negative/A-3
Istituto per il Credito Sportivo          BBB+/Negative/A-2
Mediobanca SpA                            BBB+/Negative/A-2
MedioCredito Centrale SpA                 BBB-/Negative/A-3
UniCredit SpA                             BBB+/Negative/A-2
UniCredit Leasing SpA
                      To                  From
Banca Carige SpA                       BB+/Negative/B      BBB-/Negative/A-3
Banca di Credito Cooperativo di Conversano S.c.r.l                       BB+/Negative/B      BBB-/Negative/A-3
Banca Popolare dell'Alto Adige                       BBB-/Negative/A-3   BBB/Negative/A-2
Banca Popolare dell'Emilia Romagna S.C.                        BB+/Negative/B      BBB/Negative/A-2 
Banca Popolare di Vicenza ScpA                      BB+/Negative/B      BBB-/Negative/A-3
Dexia Crediop SpA                         B+/Negative/B       BB-/Negative/B
Eurofidi Scpa                       BB+/Negative/B      BBB-/Negative/A-3
Iccrea Holding SpA
Iccrea Banca SpA
Iccrea BancaImpresa SpA                       BBB-/Negative/A-3   BBB/Negative/A-2
Unione di Banche Italiane Scpa                          BBB/Negative/A-2    BBB+/Negative/A-2
Downgraded; CreditWatch Action
Agos-Ducato SpA       BBB-/Negative/A-3   BBB/Watch Neg/A-2
Banca Monte dei Paschi di Siena SpA                         BBB-/Negative/A-3   BBB/Watch Neg/A-2
Banca Popolare di Milano SCRL
Banca Akros SpA                       BB+/Negative/B      BBB-/Watch Neg/A-3
Outlook Action
FGA Capital SpA       BBB-/Negative/A-3   BBB-/Stable/A-3
CreditWatch Action; Ratings Withdrawn
                  Withdrawn   To               From
Cassa di Risparmio della Provincia di Teramo SpA                  N.R.        B/Negative/B     B/Watch Neg/B
NB. This list does not include all ratings affected.

Your closing Italian 10 yr bond yield  (it closed before the S and P announcement)

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


6.048000.27900 4.41%
As of 08/03/2012.

Early Friday morning Euro/USA cross:  1.226 at
All European bourses are up over 2%, with the DAX up 2.34% at 8 am and the Paris CAC up 2.5%
The Spanish Ibex is up: 3.15% as we start Friday, 1/2 hour before the USA jobs report.


Late Friday afternoon we received this rumour from Spain:

6:04 European Market Rumour: We are hearing from various market sources that the Spanish government is going to have an unscheduled press conference today in which it will ask for official support from the EFSF
Just as a quick follow up to some of the rumors making the rounds in the market today, it is worth noting that Spanish Prime Minister Rajoy is already scheduled to hold a press conference early this afternoon in Spain. His office said on Thursday that Rajoy "will give a press conference after the cabinet meeting to take stock of the political course" of his government, which has been in power since December. * * * * *

Your closing Spanish 10 yr bond yield:


Add to Portfolio


6.848000.31700 4.42%
As of 08/03/2012.


And finally here are some stories from Greece:  first from Greek newspaper Kathimerini 

Greece to conclude talks with troika on Sunday: Kathimerini reported that the Greek government is expected to wrap up talks with troika officials on Sunday on the €11.5B in spending cuts over the next two years. The paper said that among the subjects that Finance Minister Yannis Stournaras will discuss with the troika are where else Greece will find more than €200M in savings so that it can avoid cuts to "special" salaries in the civil service and how it can make up a shortfall in revenues that would be caused by allowing Greeks to pay their income tax in installments. It cited sources who said that the government has yet to reach an agreement with the troika on its plan for income taxes to be paid in nine or ten installments. It also noted that it is not clear if Prime Minister Samaras's wish to avoid cuts to low pensions will come to fruition.

 and the second from the Wall Street Journal

Greece forced to scrap plan for Eurozone bridge loan: The WSJ, citing two senior Greek government officials, reported that Greece has scrapped its plan for a bridge plan after being rebuffed by its Eurozone partners. Recall that it had been previously reported that the EU was not particularly receptive to Greece's recent request for a bridge loan in the absence of an update from the troika. The officials told the Journal that Greece will instead issue more treasury bills this month and tap its bank recapitalization fund to make a €3.2B repayment to the ECB.


We hear war drums banging away as Khamenei warns Iran's top leaders to expect war within weeks:

(courtesy Jim Sinclair/Debka files)

Jim Sinclair’s Commentary
They expect war every week, but regardless, Debka’s comments are interesting.
Khamenei Warns Iran’s Top Leaders: WAR IN WEEKS
On July 27, just before Friday prayers, Iran’s supreme leader Ayatollah Ali Khamenei summoned top Iranian military chiefs for what he called “their last war council.”
“We’ll be at war within weeks,” he told the gathering, debkafile’s exclusive Iranian and intelligence sources disclose.
Present were Defense Minister General Ahmad Vahidi, Khamenei’s military adviser General Yahya Rahim-Safavi, Armed Forces Chief Major General Seyed Hassan Firuzabadi, Revolutionary Guards Corps commander General Mohammad Ali Jafari and Al Qods Brigades chief General Qassem Soleimani. The commanders of the air force, the navy and ground forces were also there.
Each of the participants was tapped to report on the readiness of his branch or sector for shouldering its contingency mission.
While retaliation had been exhaustively drilled in regular military exercises in the past year, Khamenei ordered the biggest fortification project in Iran’s history to save its nuclear program from even the mightiest of America’s super-weapons. Rocks are being gathered from afar, piled on key nuclear installations, covered with many tons of poured concrete and finally plated with steel.
That same Friday, the US Air force unveiled its new Massive Ordnance Penetrators. Each bunker buster weighs 30,000 pounds and is able to penetrate 60 feet of reinforced concrete.

And now for some USA stories:

First the official Bloomberg release of the payrolls showing a rise in employment greater than forecasted at 163,000 jobs and a revised 64,000 gain in the June payrolls

(courtesy Bloomberg)

U.S. Payrolls Rise More Than Forecast; Unemployment 8.3%

Payrolls in the U.S. climbed more than forecast in July, boosted by a pickup in employment at automakers, even as the jobless rate unexpectedly rose to a five-month high.
The increase of 163,000 followed a revised 64,000 gain in June payrolls that was less than initially reported, Labor Department figures showed today in Washington. The median estimate of 89 economists surveyed by Bloomberg News called for a gain of 100,000. Unemployment rose to 8.3 percent.
Uneven hiring may hold back consumer spending, the biggest part of the economy, as a global slowdown and impending U.S. tax changes weigh on businesses. Job cuts at companies fromMorgan Stanley (MS) to Cisco Systems (CSCO) Inc. mean unemployment may remain elevated, one reason the Federal Reserve this week said it is prepared to take new steps if needed to boost growth.
“It’s good to see hiring pick up a little bit,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Some of the details don’t make it an unequivocally good report. The labor market is expanding but at a slower pace. The Fed is still very much in play for the September meeting.”
Stock-index futures extended gains after the figures, with the contract on the Standard & Poor’s 500 Index rising 1.1 percent to 1,376.5 at 8:52 a.m. in New York.
Estimates in the Bloomberg survey ranged from increases of 50,000 to 165,000 after a previously reported 80,000 gain in June. Revisions to prior reports subtracted a total of 6,000 jobs to payrolls in the previous two months.

Private Payrolls

Private payrolls, which exclude government agencies, rose 172,000 after a revised gain of 73,000. They were projected to rise by 110,000, the survey showed.
The unemployment rate was forecast to hold at 8.2 percent, according to the survey median. Estimates in the Bloomberg survey ranged from 8.1 percent to 8.3 percent. The report showed more people left the labor force.
Factory payrolls increased by 25,000, more than twice the survey forecast of a 10,000 increase and boosted by a 12,800 pickup in employment at makers of motor vehicles and parts.
The figures may have reflected fewer shutdowns at automakers for annual retooling related to the new model year, indicating the jump will be reversed this month. Chrysler Group LLC and Ford Motor Co. (F) are among companies that said they would idle fewer plants.

Auto Sales

Demand for so-called big-ticket items like automobiles may be cooling. Car and light trucks sold at a 14.1 million annual rate in July, down from a revised 14.3 million in June and indicating little momentum as the industry heads for the best year since 2007, according to Ward’s Automotive Group.
“Economic fundamentals have remained soft,” Jenny Lin, Ford’s senior U.S. economist, said on an Aug. 1 conference call with analysts. “Job growth as measured by non-farm payroll is modest.”
Employment at private service-providers increased 148,000, the most in five months and reflecting more jobs in education and health services. Construction companies cut payrolls by 1,000 workers and retailers added 6,700 employees.
Government payrolls decreased by 9,000 for a second month.
Average hourly earnings rose by 2 cents to $23.52 in July, today’s report showed.
The average work week for all workers held at 34.5 hours.

Underemployment Rate

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 15 percent from 14.9 percent.
The jobless rate, derived from a separate survey of households, has exceeded 8 percent since February 2009, the longest stretch in monthly records going back to 1948.
Fed officials, after meeting this week, left unchanged their statement that economic conditions would likely warrant holding the benchmark interest rate target near zero at least through late 2014. They said unemployment “remains elevated.”
Policy makers “will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” the Fed statement said. Economic growth is expected to “remain moderate over coming quarters and then to pick up very gradually.”

Fed’s Bernanke

Monthly payroll growth of about 100,000 is needed to keep the jobless rate stable, while growth of roughly 150,000 to 200,000 is needed to lower unemployment, Fed Chairman Ben S. Bernanke said at a news conference in April, citing a “very rough estimate.”
Through June, the U.S. had recovered about 3.8 million of the 8.8 million jobs lost as a result of the 18-month recession that ended in June 2009.
Charlie Jones, a resident of in Washington D.C., who has been out of work for more than a year, says he is relying on food stamps for meals while his girlfriend pays the rent. He signed up with a temporary agency for jobs in office installation and is searching actively for other openings.
“It’s a very tough job market,” said Jones, 35. “It’s discouraging. I keep waiting but they haven’t called me in a long time. I have a friend like me who recently got work, so I think hopefully something should turn up for me.”

Presidential Election

Employment and the economy are central themes in the presidential campaign, with PresidentBarack Obama and Republican challenger Mitt Romney debating whose policies would best boost the expansion.
Gross domestic product grew at 1.5 percent annual rate in the second quarter after a 2 percent gain in the first three months of the year, according to figures from the Commerce Department. Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year.
Cisco Systems, the biggest maker of computer-networking equipment, plans to eliminate about 1,300 jobs, or 2 percent of the workforce, as Europe’s debt crisis and sluggish corporate spending threaten sales.
Financial firms are also trimming jobs as revenue softens. Morgan Stanley said its headcount will drop by about 700 in the second half, bringing total 2012 reductions to 4,000. Credit Suisse Group AG will eliminate 138 positions in New York starting this month. Deutsche Bank AG will cut about 1,900 jobs by year-end, mostly outside Germany. The lender is also shrinking compensation and benefits.

Fiscal Cliff

The so-called fiscal cliff, in which taxes will rise and government agencies will reduce spending next year if Congress doesn’t act, raises the risk of more cutbacks. Lockheed Martin Corp. (LMT), the world’s largest defense contractor, may have to dismiss about 10,000 of its 120,000 employees if lawmakers don’t act before $1.2 trillion in across-the-board cuts to federal spending, according to Robert Stevens, the Bethesda, Maryland- based company’s chief executive officer.
The Labor Department, in guidance posted on its website, said it would be “inappropriate” for defense companies to send 60-day notices to employees given the uncertainty about whether the reductions will occur or which jobs will be cut.
Honda Motor Co. (7267) is among companies looking to expand. The Tokyo-based auto maker, which relies on U.S. vehicle sales for more than half its profit, said it is investing $40 million at its Greensburg, Indiana, plant that produces the Civic compact and will hire 300 workers later this year.
To contact the reporter on this story: Shobhana Chandra in Washington

Zero hedge's initial reaction to the report showing that official QEIII is postponed until 2013.
The unemployment rate remain at 8.3%.  The labour participation rate falls to a low of 63.7% and the population employment ratio remains at 58.4%.

(courtesy zero hedge)

July Non Farm Payrolls Slam Expectations At 163,000K, Unemployment Rate 8.Rises To 3%

Tyler Durden's picture

Expectations were +100,000, NFP prints at 163,000K. Goodbye QE in 2012.
From the report:
Total nonfarm payroll employment rose by 163,000 in July, and the unemployment rate was essentially unchanged at 8.3 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in professional and business services, food services and drinking places, and manufacturing.

Household Survey Data

Both the number of unemployed persons (12.8 million) and the unemployment rate (8.3 percent) were essentially unchanged in July. Both measures have shown little movement thus far in 2012. (See table A-1.)

Among the major worker groups, the unemployment rate for Hispanics (10.3 percent) edged down in July, while the rates for adult men (7.7 percent), adult women (7.5 percent), teenagers (23.8 percent), whites (7.4 percent), and blacks (14.1 percent)  showed little or no change. The jobless rate for Asians was 6.2 percent in July (not seasonally adjusted), little changed from a year earlier. (See tables A-1, A-2, and A-3.)

In July, the number of long-term unemployed (those jobless for 27 weeks and over) was little changed at 5.2 million. These individuals accounted for 40.7 percent of the unemployed. (See table A-12.)

Both the civilian labor force participation rate, at 63.7 percent, and the employment-population ratio, at 58.4 percent, changed little in July. (See table A-1.)
Participation rate drops to 63.7%, 3 month low and back to secular low levels:


And now the fudge factor: (they provided a phony addition of 429,000 non existent jobs

(courtesy zero hedge)

Seasonal And Birth Death Adjustments Add 429,000 Statistical "Jobs"

Tyler Durden's picture

Happy by the headline establishment survey print of 133,245 which says that the US "added" 163,000 jobs in July from 133,082 last month? Consider this: the number was based on anon seasonally adjusted July number of 132,868. This was a 1.248 million drop from the June print. So how did the smoothing work out to make a real plunge into an "adjusted" rise? Simple: the BLS "added" 377K jobs for seasonal purposes. This was the largest seasonal addition in the past decade for a July NFP print in the past decade, possibly ever, as the first chart below shows. But wait, there's more: the Birth Death adjustment, which adds to the NSA Print to get to the final number, was +52k. How does this compare to July 2011? It is about 1000% higher: the last B/D adjustment was a tiny +5K! In other words, of the 163,000 jobs "added", 429,000 was based on purely statistical fudging. Doesn't matter - the flashing red headline is good enough for the algos.
Seasonal Adjustment:
Birth Death:


And now the quality of jobs:

Full-Time Jobs -197,000; Part-Time Jobs +31,000

Tyler Durden's picture

We got the pre-spun job quantity data already, where we learned that nearly 3 times the headline print was due to seasonal and B/D adjustments and is thus nothing but noise. Now we get the quality. As can be seen below, courtesy ofTable A9 from the Household Survey, in July the number ofpart-time jobs added was 31K, bringing the total to 27,925, just shy of the all time record of 28,038. Full time jobs? Down 228,000 to 114,345, lower than the February full-time jobs print of 114,408. Once again, more and more Americans are relinquishing any and all benefits associated with Full Time Jobs benefits, and instead are agreeing on a job. Any job. Even if it means working just 1 hour a week. For the BLS it doesn't matter - 1 hour of work a week still qualifies you as a Part-Time worker.
Full time and part-time jobs summary:

end .

 And lets baffle them with more B.S. The employment index falls below 50 for the first time in over a year and yet we see a jobs growth?  How can anybody believe in these numbers? 

 (courtesy zero hedge)

Baffle With BS Continues: Non-Manufacturing ISM Better Than Expected As Employment Drops To Lowest Since 2011

Tyler Durden's picture

The strategy to keep everyone utterly confused and merely chasing momentum and trends continues. After the surge in this morning's NFP report, driven entirely by statistical fudging and part-time jobs, which has sent the market higher by well over 1%, we next get a Services ISM update for July according to which the US non-manufcaturing sector improved modestly, to 52.6, on expectations of an unchanged print at 52.1, making the case for NEW QE even more distant. But wait, just to keep everyone totally baffled with BS, the ISM says that the employment index dipped below 50 for the first time since 2011, printing at 49.3 from 52.3: in other words, the employment in the US services sector is now contracting, something which the NFP number roundly denied. Confusion? Mutual exclusivity? It doesn't matter to algos, who are confident that the Fed will certainly launch more QE with the S&P at 2012 highs no matter what the facts say.
Of course, the punchline continue to be the respondents who see only downside. But this too is irrelevant.
  • "The general economy and unemployment are keeping our business flat." (Health Care & Social Assistance)
  • "Beginning to see effects of slowing economy. New orders are down versus same time last year." (Information)
  • "Business is slowing; input costs are weakening." (Agriculture, Forestry, Fishing & Hunting)
  • "Seeing a slight uptick in sales revenue." (Public Administration)
  • "Things have not changed too much this past month; however, we are seeing more aggressive marketing/sales efforts by suppliers hungry for business." (Transportation & Warehousing)
  • "Overall, we are still seeing growth over last year, but the sequential growth has gone flat to negative." (Wholesale Trade)



John Williams gives his correct version on the unemployment data:

(courtesy John Williams/through Jim Sinclair)

Jim Sinclair’s Commentary
Here is the latest from John Williams’
- Nixonian Unemployment Reporting
- July Household-Survey Employment Plunged by 195,000
- Annual Add-Factors in Birth-Death Model Upped to 548,000 Jobs
- July Unemployment: 8.3% (U.3), 15.0% (U.6), 22.9% (Shadow Stats)
- Shadow Stats Unemployment Within 0.1 Percentage Point of Cycle-High
- Year-to-Year July M3 Money Supply Growth Even with June
"No. 461: July Employment and Unemployment"


This is by far the most important article of the day. We see that for the first time in 4 years, the Fed has re instituted repo transactions with the banks in order to provide liquidity into the system. It is this cash that fuels the stock market as our financial institutions borrow the cash and bid up the stock market.  Prior to this, it was the reserves on the Fed balance sheet that provided the liquidity, but it seems that it has run out.
Thus the need for repo transactions to keep the shadow banking arena alive and fuel the stock market (the Dow to over 13,000) and give the incumbent Obama in edge in winning the November election:

(a must read...courtesy zero hedge)

Promises Of More QE Are No Longer Sufficient: Desperate Banks Demand Reserves, Get First Fed Repo In 4 Years

Tyler Durden's picture

While endless jawboning and threats of more free (and evenpaid for those close to the discount window) money can do miracles for markets, if only for a day or two, by spooking every new incremental layer of shorts into covering, there is one problem with this strategy: the "flow" pathway is about to run out of purchasing power. Recall that Goldman finally admittedthat when it comes to monetary policy, it really is all about the flow, just as we have been claiming for years. What does this mean - simple: the Fed needs to constantly infuse the financial system with new, unsterilized reserves in order to provide bank traders with the dry powder needed to ramp risk higher. Logically, this makes intuitive sense: if talking the market up was all that was needed, Ben would simply say he would like to see the Dow at 36,000 and leave it at that. That's great, but unless the Fed is the one doing the actual buying, those who wish to take advantage of the Fed's jawboning need to have access to reserves, which via Shadow banking conduits, i.e., repos, can be converted to fungible cash, which can then be used to ramp up ES, SPY and other risk aggregates (just like JPM was doing by selling IG9 and becoming the market in that axe). As it turns out, today we may have just hit the limit on how much banks can do without an actual injection of new reserves by the Fed. Read: a new unsterilized QE program.
First, here is a reminder of what has been going on in the secular amount of excess reserves as indicated by the Fed.
The total amount of reserves is dropping rapidly which is to be expected: as the Fed's balance sheet contracts due to maturing FX swaps, and numerous other asset reductions, this means that liability side has to contract in parallel which then means that bank reserve levels are not only flat, they are declining. Obviously, absent "reserves" i.e., electronic fungible money created by the Fed, which courtesy of Shadow Banking can be promptly transformed into cash, banks can not buy. Period.
But not only that: there is some speculation that banks have over the past several years used reserves as a stealthy plug to fill capital shortfall at firms whose asset side is being rapidly depleted by non-performing loans and other detractors from cash flow formation. In other words forget buying assets and generating an ROE: banks need reserves to preserve their viability, or else.
All of this came to a head today.
What happened today? Well, first, here is what happened yesterday. The WSJ explains:
Starting Friday, the Federal Reserve Bank of New York will implement a series of "small value" repo operations to test its capability to temporarily boost bank reserve levels.
And there you have it: following several years of reverserepos, or liquidity extracting exercises by way of temporary reserve sequestation, the Fed has finally launched the opposite: or outright repos, or liquidity providing exercises. Which also means that at least one bank was in dire need of new reserves, all posturing by the Fed to the contrary notwithstanding. Because there simply is no reason for the Fed to launch a repo operation out of the blue following 30 "test" Reverse Repos conducted since December 2009.
The WSJ continues:
In a statement Thursday, the New York Fed said the operations are a "matter of prudent advance planning" and "have been designed to have no material impact on the availability of reserves or on market rates."

What is more, it said, "these operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."

Operations by the Fed involving what are known as repurchase agreements, or repos, act to temporarily add bank reserves to the system by essentially borrowing bonds for a fixed period of time. Once a cornerstone of the day-to-day efforts to achieve the monetary-policy objectives set by the Federal Open Market Committee, the tool has fallen by the wayside as the central bank has moved to pursue massive purchases of bonds. The New York Fed noted that the last time it put in place a repo operation was on Dec. 30, 2008.
December 30, 2008 as a reminder, is when the financial world was collapsing, but was before the March 2009 announcement of the fully expanded QE1, which saw $300 billion in Treasurys and more MBS purchased by the Fed. As the table below shows, in the interim between December 2008 and today, the only operations the Fed conducted were Reverse Repo, which are designed to extract excess liquidity from the system, and telegraph as much.
And today: the first repo since December 2008, for a total of $210 million.
That that the Fed finally broke the mold and did a full blown Repo today speaks volumes about what is going on. Namely that banks are crying uncle and that any additional sustained rise in stocks will need a reserve infusion from either the Fed or the ECB. Everything else is merely noise. However, as the NFP report today indicated, one can kiss expectations for a LSAP-based, or unsterilized, QE in September goodbye. And as Draghi yesterday proved, absent Spain admitting it is fully broke, there will be no new bond buying via SMP or any other mechanism (ignoring for a second that the SMP as a rescue mechanism is completely worthless as the previous two instances of SMP bond buying proved).
The other problem of course is that Spain now will absolutelyNOT demand a bailout as its 2 year cost of debt has plunged as the market expects it do just that and demand a rescue, in the process covering its 2 year shorts and pricing itself out of the one conclusion that makes the action logical. But why would Spain demand a bailout now that it can again finance itself at the short-end of the curve cheaply.And so the market is forced to short the 2 year again to push Spain's hand, which leads to more jawboning and repeating the rinse cycle all over again, and so on, in a massively circular argument which shows just how idiotic the conversation between the market and broke politicians is. Yes, welcome to the new normal cause and effect, where attempts to frontrun politicians are always and without exception self-destructive. This is yet another thing the market will realize eventually.
But the biggest issue is that as today's first Repo operation in 4 years proved, at least one bank needs at least $1 in excess reserves. That this is happening with $1.6 trillion in reserves already in circulation shows just how critical and how reliant on flow the US banks are.
And now check to Ben and Draghi to figure out a way to once again refill bank reserves. 

Is The Inexplicable American Consumer Rebelling?

testosteronepit's picture

Wolf Richter
The strongest and toughest creatures out there that no one has been able to subdue yet, the inexplicable American consumers, are digging in their heels though the entire power structure has been pushing them relentlessly to buy more and more with money they don’t have, and borrow against future income they might never make, just so that GDP can edge up for another desperate quarter.
But it’s been tough. Despite the Fed’s insistence that inflation is “contained,” or its periodic fear-mongering about deflation, consumers have been hit with rising costs. Tuition has beenballooning—up 21% in California in 2011 alone! Student loan balances exceed $1 trillion. Some parents who are still paying for their own student loans are now watching their kids piling them up too [read.... Next: Bankruptcy for a whole Generation]. Healthcare expenses have seen a meteoric rise. And so have many other items that cut deep into the average budget.
Inflation is a special tax. It’s not that horrid if it’s small, if higher yields compensate investors and savers for it, and if higher wages compensate workers for it. But that hasn’t been the case. The Fed’s Zero Interest Rate Policy has seen to it that entire classes of investors and savers get their clocks cleaned; and wages haven’t kept up with inflation since the wage peak of 2000—with the very logical but brutal goal of bringing wages in line with those in China.
But for a welcome change, disposable income adjusted for inflation, reported earlier this week, actually rose 0.3% in June from May. So spending should have gone up as well. It didn’t. The inexplicable American consumer spent less in June than in May. And April. The decline was focused on goods, the lowest since January.
And instead of buying goods with the additional money they’d earned, they saved! What temerity! It wasn’t a one-month fluke. The savings rate reached 4.4%, after a fairly consistent uptrend from the November low of 3.2%. An unusual and courageous act of rebellion in face of the punishment the Fed inflicts on savers.
There’s other evidence: while new car and truck sales weren’t great in July at a seasonally adjusted annual rate of 14.09 million units—down from June’s 14.38 million and February’s 14.50 million, the high of the year—they concealed ominous undercurrents. Honda’s sales jumped 45.3% and Toyota’s 26.1% over July 2011. After the March 11 earthquake last year, supply-chain problems created shortages, which the flood in Thailand made worse. Brand-loyal buyers who couldn’t find the right model, option package, or color, rather than switching to other makes, delayed their purchase—thus creating pent-up demand. Now, supply problems have been resolved, and buyers are swarming all over their favorite dealerships. This specialized pent-up demand obscured a huge problem: GM’s sales dropped 6.4% and Ford’s 3.8%. The two leaders taking a simultaneous turn south! This doesn’t bode well for total vehicle sales once Honda’s and Toyota’s pent-up demand has been satisfied. Another act of rebellion by the inexplicable American consumer.
But the Commerce Department, in its press release on income and spending, had a convenient answer: blame “the economic turmoil in Europe.” For everything. And then it added what was practically a campaign ad: “Therefore, it is critical that we continue to push for policies that will grow our economy and support our middle class, such as abolishing the Fed (sorry, my screw-up) the remaining proposals in President Obama’s American Jobs Act.” And it goes on to praise Obama’s tax proposal. Priceless! Expunging the last vestiges of objectivity from our government agencies, such as the Department of Commerce whose Bureau of Economic Analysis had collected the numbers.
The cellphone in your pocket is NASA-smart, write Alex Daley and Doug Hornig. Yet it costs just a couple hundred dollars. So why is it that these rising technical capabilities are leading to drastically falling prices in tech products, but not in your medical bill? The answer may surprise you. Read.... “Why Your Health Care Is so Darn Expensive.”

The Fed mouthpiece Hilsenrath describes the jobs reports as inferior to what was needed and thus the door is still open for more QE from Bernanke.  As zero hedge reports pay more attention to whether the Fed engages in more repo action as this supplies the juice for our broker boys.

(courtesy, Hilsenrath, Wall Street Journal/zero hedge)

Here's Hilsenrath: The Door Is Still Open For The Fed To "Help The Economy"

Tyler Durden's picture

One didn't think that an economic event could come and go without some commentary from the WSJ's resident "Fed mouthpiece-cum-economist" who has rapidly become a caricature of himself, and is solely known for his heretofore programmed leaks of Fed policy, which tended to work until it didn't. In a normal day when newsflow or fundamentals actually mattered, we would focus on far more important things. However, since we are caught in the manic phase of the market's daily bipolar gyrations, and nothing can make a dent in sentiment at least until Monday when the market suddenly decides it was 100% wrong in its re-interpretation of Draghi's comments (last we checked there is still no press release from the Bundesbank saying it has agreed to any bond buying, let along short-dated) and decides to plunge all over again, here is Jon with more propaganda that today's NFP beat, which is still well below the 200+ needed to maintain the declining unemployment rate trendline, means nothing for the Fed.
Today’s employment data aren’t enough to dramatically alter the Federal Reserve‘s view that the economy is growing too slowly to register meaningful improvement in the unemployment rate.

Though payrolls improved, the jobless rate hasn’t come down since the beginning of the year, keeping it well above almost any definition of maximum sustainable employment, which is half of the mandate Congress has given the Fed. (The other half, or course, being stable prices.) That leaves the door still open to new moves by the Fed to help the economy.

On Wednesday, the central bank made what amounted to a conditional promise of action. In a statement carefully worded to send a strong signal, it said it will “closely monitor” the economy and “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions.”

Fed officials get another snapshot of the job market — on Sept. 7 — before their next meeting, which is set for Sept. 12-13.
Our advice: ignore the pleading of hits hollow scribe, and focus solely on whether the Fed will continue engaging in repos in the next month. A few more of those will give the answer everyone is looking for.


I will leave you today, with this piece, from the Golden Truth's Dave from Denver.  He describes the gold/XAU ratio and it is at an all time low despite gold's rise to the $1600's. He shows what the bankers have done by shorting our mining shares to smithereens.  The bankers will do anything to dampen gold/silver demand.

(courtesy The Golden Truth/Dave from Denver)


Friday Chart Porn: Value Play Of The Decade

Before I get to the good stuff, I wanted to comment quickly on today's employment report released by the Government.  As we all know by now, the NFP (non-farm payroll report) is one of the most highly politicized and statistically manipulated economic statistics on the planet.  It's gotten to the point at which it's become absurd in extremis the degree to which so-called experts get in front of the public and discuss this report as if it has any meaning at all.  In fact, the only meaning it represents to me is the outrageous degree to which the Government is willing to stretch the truth in an attempt to exert control over the public.  Unfortunately, for the actual 20% of the population that is unemployed/under-employed, this monthly three-ring circus of Wall Street economists, CNBC and the Government has turned truly tragic.

Now on to the good stuff...A long-time colleague of mine sent me this chart which shows the ratio of the XAU mining stock index to the price of gold going back to 1984.  I have not seen anything like this in blogosphere or posted on the usual gold-bug aggregator websites.  The XAU index is composed of 16 of the largest gold/silver mining stocks traded on the NYSE/Nasdaq.  If you are interested, here's the list: LINK  The ratio itself represents the value of the index in relation to the price of an ounce of gold:

(click on the chart to enlarge)

As you can see, despite the 11-year move in gold, which has taken gold from $250/oz to as high at $1900, the market value of mining stocks in general has declined in relation to the price of gold by extraordinary amount since its peak in 1996, when the price of gold averaged around $380/oz and silver around $4.80/oz.  Does this make sense, especially given that the large mining companies have steadily increasing their dividend payout ratio and throwing off record amounts of cash flow?

Either the market is pricing in the expectation of gold and silver selling off to the level where they started this bull market or the universe of mining stocks represents the value play of the decade.

Barring some miracle bestowed upon us by some fantastically imagined divine intervention, the financial, economic and political problems faced by the world are going to continue to get worse.  This would argue against a big drop in the price of gold/silver and in support of the value theme.

The trigger for a massive inflow of capital into the mining stock sector will be the eventual discovery of this asset class by the large institutional funds - pensions, insurance companies, mutual funds, general-category money managers.  As an asset class as a whole, institutional investors globally have less 1% of their asset base invested in the sector.  At the peak in 1980, this allocation was over 6%.   We're talking trillions in capital that will potentially flow into this sector, triggering a mania in mining assets that will at least rival, and likely exceed, the mania we saw in internet and tech stocks at the end of the last decade.

So for instance, the total market cap of all publicly traded mining stocks (gold/silver) is roughly $200 billion.  This is less than the individual market caps of the top 15 stocks in the S&P 500.  Fidelity has a small dedicated mining stock fund that has about $2 billion in assets.  But as an institution Fidelity has over $3 trillion under management.  At some point, just like with the tech bubble, Fidelity will move a lot of capital across many of its funds into the gold/silver mining stock sector.  Sheer investor demand will require it.  This trend will sweep across all large asset management companies.

I'm not going to try and put a timetable on when this investing shift will occur.  But I will say that it is absolutely accurate to say that it's silly to discuss whether or not the precious metals sector is in some sort of "investment bubble" when most of the capital that could potentially flood into the sector and create a "bubble" has yet to do so.   Have a great weekend.

I hope you have a grand weekend.
I will see you Monday night


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