Thursday, August 28, 2008

Last Call !!

Stocks jump on better-than-expected GDP, jobs data
NEW YORK (AP) -- Wall Street barreled higher Thursday after a better-than-expected reading on the gross domestic product and a drop in jobless claims gave investors some reassurance that the economy is holding up. The Dow Jones industrial average jumped more than 200 points.

Investors are watching GDP, considered the best barometer of the economy's well-being, to look for signs that growth is picking up after being pounded by housing woes and a debilitating credit crisis. The economy grew at a weak rate of 0.9 percent in the first quarter after shrinking in the last three months of 2007.

"Better than expected." Yada, Yada, yada. This GDP number is pure fantasy. To begin with 25% of GDP is government spending. Then let's tack on a $168 BILLION government handout to taxpayers. And let's not forget that this number does NOT account for inflation. Adjusted for inflation, using ANY measure of inflation, GDP is NEGATIVE.

If "investors" are watching GDP for "signs that growth is picking up", they're watching in their rear view mirror. GDP is a backwards looking number. Everything it measures is in the past. It offers no "predictive" value whatsoever. Besides, 2nd qtr GDP is negative, as in no growth people. Just the fantasy of it.

Spring's economic rebound unlikely to last
WASHINGTON (AP) -- The economy pulled out of a dangerous rough patch in the spring, thanks largely to strong exports, but the rebound isn't expected to last. Economic slowdowns overseas could make exports tail off just as Americans are hunkering down after the bracing impact of rebate checks wanes, plunging the country into another rut later this year.

White House press secretary Dana Perino said the numbers demonstrated the economy's resilience in the face of many challenges. But she added: "No one is doing a victory dance."

Others agreed that the growth pickup wasn't a sign of better days ahead. Analysts predict the second quarter will represent the high point for economic activity this year.

It's "the last hurrah for this economic cycle," said Martin Regalia, chief economist for the U.S. Chamber of Commerce.

Federal Reserve Chairman Ben Bernanke has warned the economy will be weak through the rest of 2008. Economists believe growth will slow in the July-September quarter to a pace of around 1.5 percent, and will turn even weaker in the fourth quarter. Some, including Regalia, think the economy might jolt into reverse yet again.

Let's note here that most of the "strength" in GDP has been attributed to a weak Dollar and strong exports. With Dollar off it's lows and the rest of the World's economies "slowing", I would suspect that this waning "rebound in growth" [read: fantasy of growth] will not last. As a matter of fact, it has already ended. But those in denial refuse to recognize that truth.

Exports are the crux of the World Economy. Each economy must keep it's currency devalued to keep their exports competitive. Look at the Euro. There is now a "recognized slowing" of growth in the Eurozone. The ECB flatly refuses to cut interest rates there. So what do they do? They sell the Euro and buy the Dollar in an effort to boost their exports. The Chinese are doing the same thing. They are covertly suppressing the Yuan in an effort to keep their export prices competitive. This action has to have Hanky Panky Paulson fuming. Japan has sold the Yen and bought Dollars for years in an effort to keep their exports competitive. The Dollar won't keep rising, because in doing so it makes American exports too expensive, and exports are the last crutch holding the US Economy above water. Clearly it is a race to the bottom for global currencies. Who can get to the bottom first and give their exports away the fastest. What a dismal outlook for the Global Economy. But what a bright future for the Precious Metals.

Independence Day: Decoupling Gold and Silver from the Dollar
by James Conrad
Yesterday, something interesting happened. Precious metals went up, while the dollar went up. Everyone is amazed. But, the news shouldn't really be surprising, because it is nothing new. Gold and silver have never been tethered to the dollar, or anything other than the principles of supply and demand. When looked at in the long term, they have been rising against a falling dollar, but, also, against a rising euro and pound, for over 8 years now.

All the world’s Central Banks - most notably the Federal Reserve (the Fed), but, also, the European Central Bank [ECB], the Bank of England [BOE], the Bank of China [BOC] and the Bank of Japan [BOJ] - have been heavily printing paper money in the last few years. All have increased their M3 money supplies by staggering percentages (see Making matters worse, the central bankers are now accepting mortgage backed paper from their friends at major politically connected banks, as collateral for cash and/or government securities. Problem is, the mortgage backed bonds are suffering high default rates.

There’s no way to avoid the inevitable. No amount of lying will avoid basic truth. Our money is losing its value. Yes, the dollar has been temporarily up against other paper currencies, in the past few weeks, but that gives little solace. The rise does not reflect the positive factors operating inside the American market, but rather the fact that things are worse in Europe now. Both the dollar and all other major paper currency, is down against itself. American consumer prices have leaped up to double-digit levels, and the government is lying about it. You can read an in-depth discussion of the Bureau of Labor Statistics use of so-called “geometric” weighting here.

Simply put, regardless of what Ben Bernanke says, high levels of inflation can no longer be avoided. Even if forthright intelligent men suddenly took control of the Fed, the Treasury, and the private banking world, too much damage has already been done. We will endure higher inflation and lower growth levels as a result. The situation, now, will be much worse than back in the so-called stagflation era of the 1970s. To make matters worse, many years of bipartisan economic mismanagement will provide either a recession or an outright depression, at the very same time as inflation is rising. It is a terrible combination, but one that can no longer be avoided, at the societal level, no matter what we do.

Again, another must read essay by James Conrad. His discussion about the effect of supply and demand and "investor demand" for Gold should be an eye opener far anybody giving up hope on the Gold Bull. It is the Gold "investor" that is going to push the metal to "infinity and beyond". And judging by the recently reported GLOBAL shortages of physical Gold bullion it is clear that the "investor" has arrived at the buy window. Fundamentally Gold could not be more set up for a launch to the heavens than at present. In spite of the games and criminal activity on the CRIMEX in New York, Gold demand is soaring Globally. It will only take a run of delivery requests in the futures market to send the price of Gold on a rocket ride.

Frank Barbera: Precious Metals Heading to All-Time Highs
Frank Barbera, CMT, is a veteran money manager and currently the editor of The Gold Stock Technician [GST] Newsletter, published since 1993. Barbera uses technical indicators to analyze precious metals and mining stocks, as well as oil and the overall market. Barbera has also managed private equity capital for a number of years, most notably for the Los Angeles-based Caruso Fund, which earned returns in excess of 25% to 30% during the last bear market.

TGR: So do you think a core position today might be some bullion, or an exchange fund?

FB: I think right now the safe bet is to load up on bullion. In my opinion, it’s almost inconceivable how bullion will not do well.

I tend to think that as less foreign capital flows back into the U.S., there’s a very good chance that a housing problem, which has led to a banking problem, is going to lead to a currency and a current account problem. And I think that that’s phase three in a currency crisis. The dollar is going to devalue against commodities because commodities are acting and have been acting as a de facto currency, a currency where you can’t artificially increase supply. You have to go out and actually find more. So there’s a limit on money supply and quantity, if you will, looking at commodities as a currency, especially gold and silver. And I think that’s where the precious metals are really coming into their own.

I’m a dollar bear — I think the dollar’s probably peaking. I think it will make new lows in the next six months vs. the Euro. You want to be as much out of the dollar as you can be and you definitely want to have the physical. Let’s say, for example, that we have a crash, a big crash, and then let’s say that that crash is attended by some kind of a systemic banking problem, where maybe more than one bank fails at one time. Our system was really designed to handle your periodic, every now and then, type of banking failure.

Say something happens that really impairs the basic functioning of the U.S. financial system to the point where the president has to declare a "bank holiday," closing banks for two weeks. When the banks reopen, you may get access to your money, but you may have only a limited ability to withdraw your money. That happened in Argentina a few years ago. You could have domestic hyperinflation that would run wild for a year, maybe longer, and money would be trapped in the banking system and losing purchasing power every day.

So for investors who don’t have any exposure to precious metals, 5% or 10% can protect the greater pot of capital that you own. In my opinion, this is no time to be without that kind of protection, whether you have it in the form of an ETF or physical or some other form.

Great interview. Bumbling Ben and Hanky Panky are dancing on the head of a pin trying to stave off a systemic financial collapse. There are only a couple more tunes left on the CD before the music stops and they both fall off and take the financial system down with them. They are both praying they can keep the music going through the election. Because when the Music's Over...well, just ask Jim Morrison.

Oil prices fall as Gustav impact discounted
NEW YORK (AFP) — Oil prices reversed course and fell sharply Thursday as traders discounted the impact of Tropical Storm Gustav as it churned toward the Gulf of Mexico's energy installations.

Oil prices opened sharply higher as Gustav threatened to build into a hurricane as it headed toward the Gulf of Mexico.

"Gustav could become a hurricane before moving over Jamaica," the US-based National Hurricane Center said.

But prices eased back later in the session amid speculation about Gustav's eventual impact.

"The latest forecasts for Tropical Storm Gustav suggest a slightly lower chance of major disruptions in oil production," said Al Goldman, analyst at Wachovia Securities.

Mike Fitzpatrick at MF Global said that "even if the damage from the approaching storm is fractional it could still be significant" because of limited capacity.

"The environment of sparse capacity means that every barrel of oil lost to the marketplace will be felt, particularly as the northern hemisphere's winter is just around the corner," he said.

"Even if the storm veers to the west and south away from productive infrastructure in the Gulf, the outer bands which produce extraordinary rainfall amounts will put important refineries along the Texas coast in jeopardy of flooding."

Gustav was expected to enter the Gulf of Mexico over the weekend, then make landfall in Louisiana and Texas on Monday, according to the National Hurricane Center.

Isn't Wachovia on the list of banks soon to be in default? This is STUPIDY talking. NEVER, NEVER fool with Mother Nature. Gustav is forecast to be at minimum a CAT 3 hurricane. Katrina was CAT 3 when it hit New Orleans in 2005. US Oil infrastructure is clearly at risk. These clowns will have changed their tune by Friday afternoon, and will be tripping all over each other to buy Oil ahead of the three day weekend. Don't be fooled by projections that may have Gustav coming ashore West of New Orleans. The NE corner of a hurricane is the most destructive. I know, I've survived five of them here on the Carolina Coast. Isn't it ironic that a hurricane with a Russian name could bring the US Economy to it's knees given all the US/Russian tension the past couple weeks?

"Stupidity is an elemental force for which no earthquake is a match."
-Karl Kraus

Tuesday, August 26, 2008

Introducing Always Wrong & Never Right

What's more tragic, the nonsense spewed by the US Treasury and the Fed regarding the "soundness" of our banks, "moderating inflation" and "strong growth", or the fact that so many people believe this BS and verbal diarrhea. Bumbling Ben Bernanke and Hanky Panky Paulson have been perpetually misleading and always wrong whenever they prognosticate and pontificate about the US Economy and financial system. How many times have we been told by these two monetary monkeys and their minions that "the bottom in housing is just around the corner", "inflation will moderate in the second half", "strong growth will resume in the 'second half'"? These two should be named Always Wrong and Never Right. I'm certain we'll continue to be misled by these two miscreants until they disappear from Washington. Funny thing about being misled though, we are only mislead if we chose to be.

Wrong time and time again, and Wall Street continues to fall hook, line, and sinker for every word that drops from these two hucksters mouths. Bernanke runs his mouth at some big "Fed Conference" and suddenly the housing crisis is over, energy prices are in check, inflation has evaporated, and financial stocks are bargains. My brain hurts as it works overtime to block this stupidity from defiling it. I sit here in shock with each of you. We have all been robbed by their words, and forced to absorb losses we did not deserve because we chose the Truth over the lies. But we cannot let ourselves get discouraged. Truth always prevails over deceit. Gold is our superhero. Silver it's trusty sidekick. Together, in time, our superheroes will crush the CRIMEX and the cabal of criminals on Wall Street and in Washington that perpetuate the lies and deceit that have lead our nations financial sovereignty to the brink of destruction. It's five minutes to midnight, and the bad guys can smell defeat.

Wake-Up Call
Last week, widely regarded silver analyst Ted Butler, reported on recent developments during the July 1 – August 5, 2008 time period in the precious metals complex [specifically, open-interest data in COMEX futures].

To wrap your head around “who” the perpetrator[s] must and categorically do include, just take a peek at [admittedly dated] the Quarterly Derivatives Report [Q1 / 08, pg. 30] compiled by the Office of the Comptroller of the Currency to see J.P. Morgan sporting 93 billion+ of gold derivatives [futures] on their books.

Manipulations in the capital markets are not restricted to precious metals. We regularly see the same “man-handling” of the interest rate complex when institutions such as J.P. Morgan wield amounts of 7 – 8 TRILLION in notional [largely 3 month interest rate futures based products] from one quarter to the next:

Ladies and gentlemen, the OBSCENE amounts of these financial instruments being thrust through the system – allegedly in the name of 1 bank, amounting to MULTI-TRILLIONS per quarter – CAN ONLY BE THE WORK OF A PRIVATE CENTRAL BANK [read, the FED], because no public entity – bank or otherwise - has the balance sheet maneuverability in an impaired credit environment to conduct such business.

It is no secret that JP Morgan is the "long-arm" of the Fed. JP Morgan has been involved in the theft of America's wealth since the early 1900s. It was their rumour mongering that created the "public demand" for the Federal Reserve in 1913. It was their rumour mongering that forced the destruction of Bear Stearns. Coincidentally they were there to pick up the pieces with a "loan" from the Fed. It should not be a shock to learn that JP Morgan is behind the manipulations of Gold and Silver at the CRIMEX via their puppet masters at the Fed. It's little wonder then that the CFTC turns a blind eye to the crimes committed in the Precious Metals Markets. The suppression of Truth is job #1 at the Federal Reserve.

Is Gold About To Decouple From The € and Rise With The $?
...we are at the point where the gold market is poised to see rising long-term demand on the physical front, as the high season for gold is about to begin and the funds on COMEX have drawn back the string of the bow to its maximum. The action in the gold market of a recovery back above $820 is in the face of a slightly weakening $ only. So we feel that it is likely that the $ can continue strong, while gold rises as well.

As the $ still holds strength, it is logical that the next phase of the evolution of gold is for the gold price to move with a strong $ upwards and upwards in the € too. This is a large step for gold and for the market, because it accepts that currencies, no matter which ones, are not effective value measurers, relative to gold, but gold is an effective counter to all currencies including the €.

Once gold is seen to have de-coupled from the € and by extension the $, the gold market will come into its own internationally. Demand from Europe as well as the Far East will ensure that it is not simply a counter to the $ but extends to a counter to rising inflation and falling markets alongside falling economic confidence in general. Then gold will have matured into a truly global investment medium capable of reaching new heights and beyond. In the next few months we expect this evolutionary step to be completed.

World currency: The euro and the United States dollar
Since the mid-20th century, the de facto world currency has been the United States dollar. According to Robert Gilpin in Global Political Economy: Understanding the International Economic Order (2001): "Somewhere between 40 and 60 percent of international financial transactions are denominated in dollars. For decades the dollar has also been the world's principal reserve currency; in 1996, the dollar accounted for approximately two-thirds of the world's foreign exchange reserves" (255).

Many of the world's currencies are pegged against the dollar. Some countries, such as Ecuador, El Salvador, and Panama, have gone even further and eliminated their own currency (see dollarization) in favor of the United States dollar. The dollar continues to dominate global currency reserves, with 64.6% held in dollars, as compared to 25.8% held in euros (see Reserve Currency).

Since 1999, the dollar's dominance has begun to be eroded by the euro, which represents a larger size economy, and has the prospect of more countries adopting the euro as their national currency. The euro inherited the status of a major reserve currency from the German Mark (DM), and since then its contribution to official reserves has risen as banks seek to diversify their reserves and trade in the eurozone continues to expand.[1]
As with the dollar, quite a few of the world's currencies are pegged against the euro. They are usually Eastern European currencies like the Estonian kroon and the Bulgarian lev, plus several west African currencies like the Cape Verdean escudo and the CFA franc. Other European countries, while not being EU members, have adopted the euro due to currency unions with member states, or by unilaterally superseding their own currencies: Andorra, Kosovo, Monaco, Montenegro, San Marino, and Vatican City.

As of December 2006, the euro surpassed the dollar in the combined value of cash in circulation. The value of euro notes in circulation has risen to more than €610 billion, equivalent to US$800 billion at the exchange rates at the time (today equivalent to circa US$968 billion).[2]

Neither the Dollar OR the Euro is worthy of being a "world currency". As the world comes to realize this, particularly the Asians, it will be a race between these two to the bottom of the currency heap, and Gold and Silver will be the beneficiaries of a collapse of the Euro and the Dollar. All in good time...

The Disconnect Between Supply and Demand in Gold and Silver Markets, Part II
by James Conrad
There is no reason to believe that Europeans, with a long history of craving precious metal, and many wars and economic destruction, stretching from days of the Romans, to Napoleon, to the two world wars, do not still crave gold and silver. Collective memories of the Weimar Republic hyperinflation, and periodic bouts of severe deprivation, will cause them to react much the same as Americans. If the euro continues to sink, if banks continue to fail, and if there are increased levels of inflation, Europeans will eventually lose faith in the “coin of the realm” which, now, is the paper euro. They will buy gold.

The combined EU economy is bigger than that of the USA. When gold buying mania hits, the numbers will be significantly higher than what we will ever see in the USA. When the Euro begins to fall, and inflation starts to bite, Europeans will panic. Both pound and euro have steadily appreciated against the dollar. Inflation, up until now, has been low. So, WGC statistics show that almost no gold was purchased, at least over-the-table, by the European population, last year. However, when the European currencies begin to devalue, a lot will change.

The vast increase in physical demand is already happening to some extent, but it is mild compared to what is to come. Let’s look at Vietnam, a nation wracked by war and incompetent government, for many years. It is a nation of 86 million people, living on an average income of less than about $70 per month. According to the WGC, “net investment demand in Vietnam in the first half of 2008 totaled 56.8 tons, already outstripping the 56.1 tons recorded for the whole of 2007.” Only a very small percentage of the Vietnamese population can afford to buy significant quantities of gold.

The U.S.A., in contrast, has 3.5 times as many people, and 55 times as much income per person. This means that the gold buying potential, in America, is 192.5 times that of Vietnam. If Americans had the gold buying propensity of the Vietnamese, they would be trying to buy approximately 21,500 tons of gold every year. Europeans could purchase even large quantities.
Worldwide gold mine production is only 2,475 tons per year. It is unlikely that Central Bankers still have that much gold left in all their vaults. The reason Americans have never demanded gold, like the Vietnamese, is that they trusted their institutions, their big banks, their government, and their U.S. dollars. That trust has been deeply abused, and is in the process of evaporating. Americans are changing the way they view the world. The small beginnings are shown in a vastly increased propensity toward buying precious metals. That trend will accelerate.

Part II of Mr. Conrad's essay on the disconnect between Gold supply and Demand should be read in it's entirety. Once again he masterfully makes the fundamental case for higher Gold and Silver prices crystal clear.

Weaker oil demand eases hurricane concern
Oil prices up on supply worry, but demand continues to weaken
SAN FRANCISCO (MarketWatch) -- Crude-oil futures climbed Tuesday on concerns that Hurricane Gustav will threaten oil production in the Gulf of Mexico, but prices closed off the day's high and fell in electronic trading after the U.S. Energy Department reported weaker year-over-year domestic demand for oil.

It ceases to amaze me the lengths to which the media will go to "explain away" obvious threats to Oil supplies. Let's pretend for a moment that Hurricane Gustav grows into a Cat 5 monster hurricane and slams into Galveston Bay and floods Houston...not to mention the Oil rigs that it would steamroll en route. Are these genius telling me that this event, were it to occur, would NOT effect Oil supplies and prices because demand for Oil in the US is below last year? HA! Just such an event would cripple this nation and it's economy. The weather is one thing I'm pretty sure that the Fed cannot control...yet. Their worst fear right now, with the Presidential election just weeks away, is a catastrophic disruption in Oil supplies that sends the price of Oil into orbit. To even suggest that hurricane destruction of a portion of the nations Oil infrastructure would be "minimized" by falling demand for Oil is lunacy. Have we forgotten Katrina already?

Gustav Could Become a Giant
Gustav officially became a hurricane early this morning, and its eye made landfall on the southwest peninsula of Haiti shortly after 1 p.m. At 2 p.m., Gustav was a Category 1 storm with maximum sustained winds near 90 mph.

National Hurricane Center warned this morning: "Most indications are that Gustav will be an extremely dangerous hurricane in the northwestern Caribbean sea in a few days."

Dead Men Walking
by Bennet Sedacca
The title of this piece sums up how I feel about the current credit markets. When I first started in the industry in 1981 we were worried, but only about one company -the Chrysler Corporation. Prior to that, Continental Illinois was in the forefront. Later in my career, in 1998, it was Long Term Capital Management, the hedge fund founded by John Meriwether that captured our attention. Then we had Enron/WorldCom, and by early 2008 Bear Stearns became a worry and then a problem that needed fixing.

All of these events were isolated, dealt with, often with either direct assistance from Uncle Sam or an effort coordinated by our benevolent/socialist government financial authorities. Markets would become unnerved, fear would grow, and then the Government would step in to make sure that the systemic risk that had finally come to the surface didn't melt the entire planet.

But this is where it is "different this time". Not only is it different, I think it may be unprecedented in nature. When I look at my Bloomberg monitor each day that contains my 100 most important indices, companies, commodities, bonds, bond spreads, preferred shares, etc, I shudder. The reason I shudder is that my screen doesn't have just one "problem child". It looks like a screen that contains many "dead men walking" .

Who Are the Dead Men Walking?

Lehman Brothers

Zions Bancorp


Fifth Third Bank

Washington Mutual

National City

Regions Financial

General Motor/GMAC

Ford/Ford Motor Credit Co



This is NOT Shaping Up to be a Pretty Couple of Years

Monday, August 25, 2008

The Straw That Breaks The Camels Back

The Greatest Bailout of All Time
We are now witnessing a rapid-fire 1-2-3 chain reaction of events that's leading to the greatest government bailout of all time ...

Event #1. In the mortgage market, where this crisis first erupted, nearly half of all subprime loans issued in 2006 are now delinquent ... late payments on mid-quality "Alt-A" mortgages have soared 41.5% ... and delinquencies on prime jumbo mortgages are up a staggering 55.2% in the past 6 months.

Event #2. At Fannie Mae and Freddie Mac, responsible for over half of the nation's massive mortgage market, losses are mounting so quickly — and so obviously — that even their supposedly "safer" preferred shares are crashing in value:

And all of this has happened just since May 15, a meager 102 days ago! All in two giant companies that were the darlings of Wall Street, the creation of Washington and supposedly among the most "conservative" investments in the world!

Event #3. At financial institutions across the country, these devastating losses in Fannie and Freddie paper are ripping through balance sheets like an F-5 tornado. That includes:

Sovereign Bank, the third largest savings and loan in the United States. In our "X" List video, we listed it as a prime candidate for bankruptcy because of its D+ rating and its big exposure to mortgages. Now, it's been revealed that Sovereign has a $632 million stake in Fannie and Freddie preferred shares — the same shares that have lost about two-thirds of their value just since May 15.

Hundreds of other banks and thrifts. They were encouraged by banking regulators to buy billions of dollars in similar Fannie and Freddie preferred shares. In fact, the regulators thought these investments were so reliable, they let the banks use them for capital that's required as a cushion against loan losses. They even allowed banks to take a tax break on 70% of these securities!

Countless U.S. brokerage firms, life and health insurers, property and casualty insurers. Some are in good shape. But many have loaded up with similar investments.
Major financial institutions overseas.

All assumed these shares were safe. All believed they were getting something akin to a government-guaranteed investment. All could be severely disappointed when they discover the truth.

Final Test for Fannie and Freddie
How the crisis will play out from here is uncertain only as to timing rather than outcome. Exercising newly-granted authority, the Treasury Department will have to step in soon to rescue both agencies with an equity infusion because their stocks have shriveled to a combined market capitalization of around $7 billion. Ruinous dilution precludes their raising even $20 billion, let alone filling the $100 billion hole in negative equity that we estimate exists in their combined balance sheet.

...the government bailout would come in the form of a purchase of senior preferred stock with conversion rights that would effectively wipe out the existing common stock and a dividend priority that would choke off dividends to the existing preferred stock for some time, if not forever.

Even though the government last month made explicit for the first time its backing of all Fannie and Freddie senior debt, Freddie last Tuesday had to pay a record 1.13 percentage-point premium over the comparable Treasury on a five-year note.

But the real test for Fannie and Freddie will come over the next five weeks when, according to Barclays Capital, the pair will have to raise and roll over $225 billion of mostly short-term debt. An immediate rescue would be necessary should either agency run into problems raising the money.

FDIC gets ready for bank failures
The FDIC, which had shrunk to 4,600 employees from 23,000 at the height of the savings and loan meltdown, has been gearing up for another wave of bank failures.

It's hiring 70 new employees and bringing back 70 retirees to beef up its teams that swoop in, usually over a weekend, to take over and reopen banks under new management.

The FDIC's Atlanta regional office, which covers seven states from West Virginia to Florida, also recently boosted its bank examiner and professional staff by about 10 percent, to about 300. The agency is also expected to soon raise the insurance premiums it charges banks and thrifts to begin rebuilding its reserves.

he FDIC won't discuss its projections, but it has been increasing its loss provisions for expected bank failures and adding institutions to its growing "problem" bank list. The list totaled 90 institutions with $26.3 billion in assets at the end of March. The confidential list is expected to be longer when the FDIC issues an update Tuesday.

"We don't predict numbers of bank failures," FDIC spokesman David Barr said. "We do realize that there will be more failures, but it's something that we can manage."

Silver Investors Sucker Punched by Two U.S. Banks
On August 5, exactly two U.S. bank’s net short positions for silver futures accounted for over a quarter of all 133,255 of the contracts on the COMEX. Two banks, whose identities are protected and kept secret from U.S. citizens by the rules of the CFTC, had taken an overwhelming net short position in silver (and in the process drove silver much lower in price) and these two banks were so sure of their silver-is-going-lower call that they increased their short positioning AFTER silver had already fallen over 9%.

It would be one thing if these two U.S. banks were merely part of a much bigger exodus out of silver metal; if the positions of these two unnamed U.S. banks were merely a small percentage of many commercial entities taking the short side. It would not raise the slightest question if two bank’s net short positioning was large if the overall commercial net short positioning for silver was much larger. But when we compare the net short positioning of these two U.S. banks on August 5, 2008 to the entire commercial net short position of all commercial traders on the COMEX, we find that these two unnamed U.S. bank’s net short positioning accounted for a sickening 60.95% of the entire silver commercial net short positioning on the COMEX.

Everyone can look at the data and form their own conclusions. But when silver is in short physical supply, commanding injuriously high premiums and difficult to locate; when investors are piling into the silver ETF in droves, a 40% silver price plunge is not only not warranted, it smells.

It is difficult to imagine a legitimate reason that two U.S. banks could quickly and systematically amass a net short position on the COMEX which amounts to over a quarter of the entire action on that bourse. It will not be surprising at all if we learn that these two U.S. banks are taken to task by regulators for their actions. It will be even less surprising to learn that they have become the target of multi-billion dollar class action lawsuits by hungry lawyers representing silver investors everywhere.

Futures markets are supposed to answer the actual physical markets, not the other way around. In other words, futures markets are supposed to be a place where producers or large holders of a commodity can lay off price risk to speculators and thereby hedge against unforeseen adverse movements in the price of the commodity. Futures markets are definitely not supposed to be a place where a couple of well connected and well funded entities can bully the market with their own heavy handed trading.

If silver really was just taken down by a couple of very big U.S. banks to irrationally low levels, it won’t be long before the laws of supply and demand reassert themselves. Got silver?

Where’s the Gold?
Certainly the fundamentals of the economy relative to the price movement of gold have baffled every intelligent theory of pattern recognition postulated throughout the Internet that I’ve ever read.

If the U.S. Mint can’t get gold, yet the reported holdings of these central banks around the world can’t come up with enough to supply the sudden surge in demand, doesn’t that suggest that there’s severe discrepancy between the accounting of the central banks and the unfolding reality of no gold blanks? I mean, did the sudden surge in interest materialize while the CEO of the mint was having a burger somewhere?

I don’t recall seeing the sudden suspension of gold sales by any division of any mint during gold’s more meteoric price surges during 2006 and 2007. Gold has just come off one its most deeply corrective price drops of the entire 6 year gold cycle. Normally I would think that means that nobody is interested in gold anymore and so everyone is selling all they can. Obviously, I am dumb.

Supply and demand theory has clearly gone the way of the Edsel and some mysterious new economic force prevails – one that is not yet known to any save a special handful of (I must assume) carefully appointed individuals who are selected for their discretion and co-operative natures.

I expect the recent drop in the price of oil now portends that some major corporation must soon announce the suspension of gasoline sales, and the recent destruction in real estate demand means we’re running out of houses.

Washington Post exposes CFTC's failure amid market concentration
The Washington Post story appended here is important for a couple of reasons.

First, it shows the incompetence, negligence, or corruption (most likely the latter) of the U.S. Commodity Futures Trading Commission, its failure to recognize excessively concentrated and thus manipulative positions in the oil futures market, just as the CFTC has failed to recognize even more concentrated and manipulative positions in the gold and silver markets.

And second, the story shows that a major news organization is taking some interest in the market manipulation issue.

Oil rises as tropical storm forms in Caribbean
NEW YORK (AP) -- Oil prices ended a choppy session slightly higher Monday, edging back above $115 a barrel after Tropical Storm Gustav formed in the Caribbean.

"The dollar wants to pull oil lower and the storm wants to pull it higher. It's a bit of a tug-of-war right now," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

Gustav, the seventh named storm of the Atlantic hurricane season, was heading for the Dominican Republic and Haiti with maximum sustained winds of near 60 mph, but it was too early to tell if it would enter the Gulf.

National Hurricane Center

Sunday, August 24, 2008

Crime Of The New Century

Amateur Hour in the Precious Metals Markets
You do not get a $200 move down in gold and $7 move down in silver in a month’s time, (because they were supposedly in a bubble), and then after everyone and his mother is selling you find it almost impossible to find any actual gold or silver to buy at major dealers across the country. 100 oz. bars on eBay are changing hands at $17 per ounce, over $4 above the spot price. That is a heck of a lot closer to the market price than $12.68 spot which is what the screen says right now but where you can not buy a single ounce of physical silver. After this display anyone that uses the paper markets to invest in gold and silver is just an out and out dummy, plain and simple, and they deserve what they will eventually get… nothing. How speculators can continually line up leveraged positions against bullion banks with unlimited cash backing who in turn repeatedly smack down the markets is a mystery. Unfortunately, the cumulative action of these players is making it tough for the rest of us but at the end of the day it will not matter because we will have our gold and silver or our stocks of the companies that are producing gold and silver and making a lot of money. Even the US mint has suspended production of gold coins. Silver coins are being severely rationed because they can not divert any more silver from the industrial users that must have the physical silver to consume, taking it off the market forever. If you can not see by now, with all this data in hand, that the crash in gold and silver has nothing to do with market-related prices you would have to be a complete imbecile.

The Building Storm: Gold, the Dollar and Inflation
A good analogy to the global currency devaluation is a slow-moving hurricane that, once over warm water, gains energy.

Right now the global inflation is a huge storm, slowly circling off the proverbial coast where it is gathering strength from the hundreds of billions of dollars being fed into it by governments desperate to avoid economic collapse… and from pricing decisions being made by everyone from manufacturers to local shopkeepers looking to cover rising costs.

At this point the skies are dark, the wind is rising, and the torrential rains are beginning to sweep in. The radio is broadcasting warnings to move to higher ground, but the hurricane has yet to hit the shore.

But when it does, it will be a Category 5 and maybe worse.

That’s because, in addition to the straight-up consequences of the government monetary prolificacy and businesses raising prices to try and stay afloat, there is something else feeding power to the storm… something we have been warning about for years now: the rising odds that the global fiat currency system will fail.

Let me add some nuance to that remark.

In recent years, the global financial community, reflexively looking for an alternative to the obviously damaged U.S. dollar, has settled on the euro. But the euro is equally flawed, and maybe even more so, than the U.S. dollar. Now that the trading herd has also come to that conclusion, they are rushing back toward the dollar.

They are doing so not because the U.S. dollar is healthy, but rather because that is all that they know… a heads-or-tails continuum running something along the lines of “If the ‘it’s-not-the-dollar’ play is over, then it must be time to go back into the dollar.”

The euro sinks, the dollar goes up.

And so gold, viewed by these same traders only in terms of its inverse relationship to the dollar, gets hammered.

What they are missing, but not for much longer, is that rushing back into the dollar is akin to heading for the vulnerable coast, and not to the higher ground now proscribed. They are also missing the point that gold’s monetary value is not limited to protecting only against a failure in the U.S. dollar, but against any faltering fiat currency… a moniker that the euro deserves in spades. Not only is it backed by nothing, but it is also backed by no one.

SLV Adds Silver Big Time
Since Monday, August 18, while the paper contract-dominated spot silver market tested the high $12s, there has been considerably more buying pressure than selling pressure in the U.S. silver ETF, Barclay's iShares Silver Trust (SLV), as evidenced by the trust having to add 241.199 tonnes of silver bars in three trading days.

The Smoking Gun
The recent widespread shortage of silver for retail purchase coupled with a price collapse appears to have shaken these analysts’ confidence that the COMEX silver market is operating ‘fair and square.’ Well it should, since there is no rational explanation for a significant price decline going hand in hand with product shortages other than collusive manipulation.

For any remaining doubters that COMEX silver and gold pricing is manipulated, the following CFTC data should be considered.

These facts speak for themselves. Here are the facts. As of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. This is the largest such position by U.S. banks I can find in the data, ever. Between July 14 and August 15th, the price of COMEX silver declined from a peak high of $19.55 (basis September) to a low of $12.22 for a decline of 38%.

For gold, 3 U.S. banks held a short position of 7,787 contracts (778,700 ounces) in July, and 3 U.S. banks held a short position of 86,398 contracts (8,639,800 ounces) in August, an eleven-fold increase and coinciding with a gold price decline of more than $150 per ounce. As was the case with silver, this is the largest short position ever by US banks in the data listed on the CFTC’s site. This was put on as one massive position just before the market collapsed in price.

This data suggests other questions should be answered by banking regulators, the CFTC, or by those analysts who still doubt this market is rigged. Is there a connection between 2 U.S. banks selling an additional 27,606 silver futures contracts (138 million ounces) in a month, followed shortly thereafter by a severe decline in the price of silver? That’s equal to 20% of annual world mine production or the entire COMEX warehouse stockpile, the second largest inventory in the world. How could the concentrated sale of such quantities in such a short time not influence the price?

Is there a connection between 3 U.S. banks selling an additional 78,611 gold futures contracts (7,861,100 ounces) in a month, followed shortly by a severe price decline in gold? That’s equal to 10% of annual world production and amounts to more than $7 billion worth of gold futures being sold by 3 U.S. banks in a month. How can this extraordinary concentrated trading size not be manipulative?

Thursday, August 21, 2008

Dollar Dam About To Burst?

The U.S. dollar index saw significant losses as financial problems also refuse to go away and instead get even worse at firms like Lehman Brothers, Fannie and Freddie, and others. The false assumption of the past five weeks that drove the dollar higher was that the worst may have been behind us for the credit crisis and as more in the market re-realize that is not the case the greater trend of the long term bear market in the dollar resumes. Another round of poor economic data also reminded traders of just one of the many other fundamental reasons the dollar has been falling for some time and will likely continue to do so until that slew of problems is corrected, if possible.
-Chris Mullen,

You've heard it here before, "You can't polish a turd," and folks the shine is coming off this dung heap in a hurry. Precious Metals, Oil, all commodities responded accordingly...they rose fast and furiously. There were countless stories amidst the news babble today in an effort to "explain away" the surge in "everything tangible" today. Bottom line, it all boils down to supply and demand. To begin with, there is not enough Gold, and too many Dollars. Substitute any commodity for Gold in that previous sentence, and they all tell the same story, too damn many Dollars! The Dollar dam is bursting:

Fannie, Freddie Bailouts May Hinge on Debt Rollover
Aug. 20 (Bloomberg) -- Fannie Mae and Freddie Mac's success in repaying $223 billion of bonds due by the end of the quarter may determine whether they can avoid a federal bailout.

Rising borrowing costs and evidence that demand for their debt was waning last month led Treasury Secretary Henry Paulson to seek the authority to pump unlimited amounts of capital in Fannie and Freddie in an emergency. Freddie paid its highest yields on record in a debt sale yesterday amid concern that credit losses are depleting the capital of the beleaguered mortgage-finance companies.

Rolling over the debt ``is the single most important factor to their ability to remain liquid,'' said Moshe Orenbuch, an analyst at Credit Suisse in New York. ``So far, they've been able to do that.''

Investors in Asia, the biggest foreign owner of Fannie's $3 trillion of bonds, are reducing their share of purchases, potentially increasing the need for Paulson to make good on his pledge to backstop the companies.

``This whole backstop mechanism was set up so the actual need for it could be avoided,'' said Mahesh Swaminathan, a mortgage strategist for Credit Suisse in New York. ``The market is testing the Treasury's resolve.''

Paulson likely to reach for GSE "bazooka"
WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson last month described a proposed federal backstop authority for Fannie Mae and Freddie Mac as a "bazooka" whose mere presence would silence market unrest over the viability of the two mortgage finance giants.
But just weeks after receiving the new weapon from Congress, the Treasury looks increasingly likely to have to use it, at a cost of billions of dollars to taxpayers.

A deepening American housing slump, mounting mortgage losses, and rising borrowing costs are conspiring to shatter confidence in Fannie and Freddie especially among their shareholders, who fear a de-facto government takeover will wipe them out. Shares of the two government-sponsored enterprises plunged to their lowest levels in 18 years on Wednesday.

"I think the number of options are dwindling every day that we see declines in the stocks. It has become virtually inevitable that the government has to nationalize Fannie and Freddie," said Kevin Cronin, chief investment officer at Boston-based Putnam Investments.

Confidence in GSEs is fading rapidly
Overview: Fannie Mae and Freddie Mac are struggling as investor confidence in the two Government Sponsored Enterprises (GSEs) is fading rapidly. The share prices of Fannie Mae and Freddie Mac were down more than 20% on Monday after an article in Barrons questioned the two GSEs' ability to raise the necessary capital, and the risk of a Treasury Department takeover. Yesterday, investor concerns over a government bailout heightened anew and Fannie Mae's share price dropped 27% while Freddie Mac was down 22%. While the risk of GSE shareholders losing their money is of course serious, the rise in agencybacked mortgage bond yields is, in our view, more worrying and risks prolonging the downturn in the US housing market.

And so, just a couple weeks after assuring Congress, and the American Taxpayer, that the blank check Congress gave the Treasury as a "backstop" for Fannie and Freddie would most likely never be used, the markets are now pounding the table, and calling Hanky Panky Paulson's bluff. The Dollars that will have to be printed to "blow up" Fannie and Freddie with Pinocchio Paulson's "bazooka" will be mind boggling. This is NOT good news for the buck. Can you say "elevator, going down"?

For the record ...
by Larry Edelson
Gold continued to drop earlier this week, breaking below $800 an ounce, falling to as low as $780. How much lower will it go? Does the decline mean the bull market in gold is over? What significance does gold's decline have for inflation, the dollar, and the natural resource markets?
These are all questions on investors' minds right now, and I'll answer them for you.

First, let me state emphatically, and for the record — gold's bull market is NOT over. No way, no how.

Second, crude oil's bull market is NOT over.

Third, the natural resource bull market is NOT over.

Fourth, inflation has NOT peaked.

Fifth, the financial crisis affecting the U.S. economy is far from over.

And last but not least, no way is the dollar's bear market over.

I sound pretty confident, right? Now I'll explain why. Let's start with the main force at work ...

The Fundamentals Underlying the Dollar's Bear Market Have Not Changed One Iota

The Fundamentals Underlying the Long-TermBull Market in Gold Have Not Changed Either

Leading economic indicators fell sharply in July
NEW YORK (AP) -- A private business group's measure of the economy's health showed the largest drop in one year as stocks fell, new building permits declined and unemployment rose.

The New York-based Conference Board's said Thursday its monthly forecast of future economic activity fell 0.7 percent in July, far more than the consensus estimate of a 0.2 percent decline by Wall Street economists surveyed by Thomson/IFR.

The last time the index showed a drop this great was last August, when it fell by 1 percent.
Revised June data showed no change to the index, which has slipped 0.9 percent for the six months ending in July.

The decline was the steepest in the index this year. The largest drag on the index was the decline in building permits, followed in order by stock prices, rising unemployment claims, a tightened money supply and falling manufacturers' orders for consumer goods.

Interest rate spreads, consumer expectations and manufacturers' orders for capital goods all contributed to the index.

What a strange coincidence. The last time the Leading Economic Indicators Index showed a drop this great was last August. And we ALL remember last August. Gold and Silver bottomed last August, almost one year ago to the day. They then rose, and rose substantially. They didn't stop rising until the Bear Stearns bailout on March 17, 2008. Between the August 15, 2007 low and the March 17, 2008 high, Gold rose 61% and Silver rose 92%. Will recent history repeat itself this Fall and Winter? Time will tell. The field has been plowed, the fundamental seeds to higher Precious Metal prices have been sowed, and soon it will be raining Dollars. I've got goosebumps...

Gold and Silver launched off their recent lows today as the Dollar was taken to the woodshed, and investors finally woke up to the disconnect between prices for Precious Metals and their lack of physical supply. The paper markets for Gold and Silver have been revealed for the shams that they are. They must be destroyed.

Silver hurtled two levels of short term resistance today at 13.36 and 13.70. They now serve as support. Short term resistance in Silver tops out at 14.04. Should Silver challenge resistance at 14.04, traders with new positions in the low/mid 12s should look to protect profits. A strong breach of 14.04 opens up Silver for a clear run to 15.

Gold has been strong all week, and launched off support at 812 this morning, and at this hour is challenging short term resistance at 836. Traders with positions in the 790s- low 800s should be protecting profits here. Major resistance at 855 looms close overhead. Gold must clear 855 with authority to establish a near term bottom here for Gold at 772. A dip to 818/12 cannot be ruled out here, and should be bought should it occur.

Monday, August 18, 2008

Where's The Bullion?

As we suggested yesterday, bubbles don't burst when supply is short. A "physical" shortage of BOTH Gold and Silver has been exposed by this unprecedented take down in these two Precious Metals. This physical shortage has also exposed the CRIMEX futures market for the fraud that it is as well. When the bullion banks are literally paying these criminals to sell Gold and Silver that doesn't exist, "Houston, we have a problem."

What happens next is anybody's guess. When you're dealing with government sanctioned fraud, it is impossible to take a position with confidence. Recent history would suggest though, that not only will Gold and Silver begin to rise shortly, they may rise at an accelerated rate yet seen in this Bull Market to date.

Physical Gold and Silver Bullion in short supply was the talk of the day. I have included links to five essays that discuss the real shortage of physical Gold and Silver that has left investors empty handed. The first essay by James Conrad, The Disconnect Between Supply and Demand in Gold & Silver Markets, is an absolute must read in it's entirety. In layman's terms, Mr. Conrad exposes for all to see, the fraud that is the Gold and Silver futures markets at the CRIMEX. There is no punishment severe enough for these Rat Bastids government sanctioned theft. But there is a way to fight back. Take delivery of the metal promised in a futures contract, and ream these vermin a horrifying death.

The Disconnect Between Supply and Demand in Gold & Silver Markets
by James Conrad

Contrary to the pundits at CNBC, Bloomberg, etc., the price of gold really has nothing to do with the value of the dollar or the value of oil. It doesn’t matter what the dollar is worth, in relation to euros, pounds sterling or Zimbabwee money. It only matters what supply and demand factors exist for gold. Yes, the demand will fall a bit if the price goes up, for example, in euros, because the euro has depreciated. But, what really counts is not what the euro, yen or dollar price is, but, rather, whether or not there is enough demand to soak up the available supply.

Gold is priced in dollars, but, so long as people holding either dollars, euros, yen, yuan or Zimbabwean money, are willing to pay whatever price gold is selling for, in an honest market, the price should rise. Obviously, enough people are willing to pay for gold and silver, at the previous $978 and $19.50 per troy ounce price, because the U.S. Mint could not source enough metal at those price, and had to suspend coin production.

This proves that people are more than willing to fork over, in whatever currency they are using, the previous prices for gold and silver, in such quantities, that a shortage was already existing, before the price collapse, especially in the silver market. It is true that people in poorer countries like India, might have back on their consumption.

But, while they were cutting back, demand and consumption of gold in North America, including Canada and the USA, was soaring. For example, before it suspended production of bullion coins, due to shortages, the U.S. Mint’s statistics show that it was printing 2.5 times as many gold coins, and almost 4 times as many silver bullion coins, this year, compared to last year. Gold and silver bullion, in bar form, was also flying off North American retail shelves.
Bottom line: Enough people were buying, when the price was high, to exhaust the supply. Basic economics says that, in a free market, this means the price must rise.

But we don’t live in a world of free markets. Instead, we are living in an Orwellian 1984 double-speak world. Welcome to the world of Fed/PPT, where 2+2=5, blue is yellow, and black is white. All things are as they say they are, rather than as they really must be. Welcome to the world of a controlled business media, where the pundits will do anything and say everything to convince you to forget your math, and your eyesight. No, they tell you. It really isn’t so. What you’re seeing isn’t the way it is. Believe, instead, what we tell you. We can do it! We have special skills. There is a new world order. We can make 2+2=5. Just give us your money, and we’ll show you how!

But, let’s return to reality. Right now, virtually no North American precious metals dealer can give you a firm delivery date on large quantities of silver. They have no stock to sell. This means demand is robust. On Friday, as the COMEX gold price was collapsing, the U.S. Mint suspended gold bullion coin production because it cannot source enough gold bullion! That could not happen if bullion banks were selling claims to real physical metal into the marketplace. Indeed, the Mint began rationing silver bullion coins two months ago, when it started having trouble sourcing silver bullion. Word from the Perth Mint in Australia is that it is taking weeks or months to take physical delivery of gold and silver, even though investors are already supposed to own that metal. Supposedly, it is simply being kept in the Mint's vault for safe storage. But, it is getting harder to take it out of “storage”. Meanwhile, as previously stated, Indian gold and silver dealers, wholesalers and banks all have empty vaults. None of this can happen if demand is down, and supply is abundant.

We have a disconnect between reality markets and fantasy markets. The COMEX and London Metals Exchange are fantasy markets controlled by the big bullion banks. They must be engaged in market manipulation, because nothing can explain a big price collapse, in the midst of widespread shortages and robust demand. A group of big financial institutions, deeply enmeshed in the global trading system, and heavily involved in the gold and silver market, must be deliberately inducing temporary panic, for their own purposes. These malevolent characters will eventually be able to buy back their short positions at low prices, and, possibly, also, even collect a significant long position. The process is a continuing one, and hasn’t stopped yet. On Friday, for example, the subsidy for leasing gold and silver was raised to very high levels.

It is obvious what they are doing. More important, however, is why? What does it mean? Well, the PPT bank executives are generally “people in the know” about financial events, before they actually happen, sue to close relations with regulators like the Federal Reserve, and FDIC. They folks are so desperate to cover short positions, that they are willing to spend a billion or so dollars, subsidize precious metal leases, to collapse the market, and destroy investor confidence. But, why? We know that the Federal Reserve, like other central banks, sees gold as a rival to the dollar. But, that’s not enough, because they’ve never attacked precious metals with such ferocity as now, and, if the Fed were directly involved, they could probably supply real metal.
If something terrible is about to happen in the financial world, the losses that big banks would take on their precious metal short positions would put most of them into bankruptcy.

Remember the words of Warren Buffett. Derivatives are the financial world’s weapons of mass destruction. Precious metals futures short positions are highly leveraged transactions that could cost hundreds of billions if the price of gold were to suddenly explode.

Silver Shortage Causes Price Disconnect
Many people agree there is a shortage of retail investor silver, but they get confused by the lower price. They think a lower price means more silver must have come into the market. That is not how our markets work. Our markets are affected by paper silver futures contracts, and very few people ever attempt to take delivery of that silver, they buy it on leverage, for the investment returns, not for real silver. So, some people can sell "silver promises" to excess, and never deliver, and if they sell more "paper silver" than exists, that can manipulate the price.

Heavy demand for India gold amid dwindling stocks
MUMBAI (Reuters) - India's gold prices were higher on Monday as foreign markets rebounded, but heavy demand from investors and retailers left sellers with little stocks to offer, dealers said.

A dealer in a large bank said the delay in deliveries had increased to one month and premiums ruled to up to $2.5 an ounce against 80 cents in normal times.

"Demand world over has revived, so suppliers are having a problem meeting all the commitments," the dealer said.

Fuelling the heavy demand in the wholesale market, was the retail market that was seeing a rush from customers.

Gold Hits "Supply Squeeze" in Europe and US as Private Investors Pile In Ahead of Seasonal Surge
This new bearish consensus on Gold – mirroring a 7% jump in the Dollar's trade-weighted index since this time last month – led hedge funds and other "large speculators" to close almost one-in-five of their bullish bets in the futures & options market last week.

Overall, says the latest data from US regulator the CFTC, the total number of live gold contracts now in play shrank by 11% in the week-ending Tues 12 Aug., taking "open interest" to its lowest level since Sept. 2007.

It's down by one quarter from the same time last month and smaller by one-third from the all-time peak set back in January.But while professional and institutional investors trading paper bets on the Gold Price scramble to reduce their positions, private individuals are creating a squeeze in physical metal right across Europe and North America.

The US Mint has reportedly halted sales of American Gold Eagle coins, and is said to be refusing new orders from gold bullion dealers.

Kitco Inc., one of the largest gold investment retailers in the USA and Canada, warns on its website that "due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products."

Once inventory is received there delays in processing and shipping by our vaults."

Unprecedented Investment Demand Leads to Supply Issues in Physical Bullion
The massive disconnect between the physical market and the paper futures market continues. There is now an unprecedented situation where large wholesalers and retailers of physical bullion in the US and internationally are having difficulty keeping up with investment demand. Some are completely out of stock of some of the most popular bullion products such as gold Krugerrands (1 ozt) and gold American Eagles (1 ozt) and silver American Eagles (1 ozt) and silver bars (1 ozt, 10 ozt and 100 ozt).

There are similar issues internationally and The Times of India reports: "There is a shortage of the yellow metal in the bullion banks and traders."

There are now also significant delays in delivering bullion (usual deliveries of 5 to 10 days are now taking some dealers 4 to 8 weeks to make).

Large government mints and refiners are having difficulty meeting the demand and some are rationing supply to large dealers.Large wholesalers, retailers and institutions such as the Perth Mint are experiencing huge demand and even as spot prices have been falling sharply, there are little or no sellers and buyers are continuing to vastly outnumber sellers.

Another indication of the sharp tightness in the bullion market is seen in the fact that premiums are rising very significantly on nearly all bullion coins and bars. Wholesale prices for some bullion coins have risen 2% to 3% in a matter of weeks.

This huge demand is not being reflected in the futures market where the speculative hot money of large hedge funds and institutions with short term horizons is leading to materially lower prices. Leveraged margin players who were long have had their heads handed to them on a plate as the shorts are pushing prices as low as possible in order to maximise profits.

Clearly, this situation is not sustainable as ultimately the laws of supply and demand of the physical metal will dictate prices and not the speculative and manipulative antics of black box, momentum following traders.

Large, smart money is accumulating physical bullion away from the more risky leveraged casino that is the futures market. Thus, this latest of vicious sell offs is set to be another sharp correction in the gold bull market designed to as usual flush out the weak hands. The bounce when it comes will likely be just as dramatic as the shorts attempt to cover en masse. Should some large players decide to stand for delivery of near term futures contracts when they expire, then we could see some real fireworks and gold will be above $1,000/oz in very short order.

Let's Be Hunts
Ask delivery of $12.80 silver and $790 gold, today. There are 300 million of us. A single ounce of physical silver for every man, woman and child in the United Snakes would squeeze these rat-bastards harder than the Hunts could ever do. There were two Hunt brothers in 1979. There are 300 million of us in 2008. Even in this country, there aren't enough jail cells to hold us all. And we could take their pants off, once and for all.

Sunday, August 17, 2008

How Do You Spell Relief?

Putting a more positive spin on commodities’ fall from grace, Frank Holmes (US Global Investors) said: “This commodities sell-off, which began in July and has continued into August, also corresponds to the long-term seasonal cycle in which prices for many commodities tend to bottom out in late summer before rebounding in the fall.”

IMPORTANT NEW NOTICE: Due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products. Please note that you can continue to place orders and prices will be guaranteed; however, cancellation fees will still be applicable regardless of the length of the delay. Consequently once inventory is received there may also be delays in processing and shipping by our vaults.

This notice was on the top of the Kitco Metals Prices page. This sounds like there is a SHORTAGE of physical bullion to me. Bubbles DO NOT burst during supply shortages. I am beginning to suspect that the "paper market" may be facing a default, and that prices have been driven lower to allow the massive shorts in these markets to escape before they are forced to deliver bullion that is unavailable. A default in the paper markets on the CRIMEX would be devastating for the criminals that operate there, and send "physical" Gold and Silver to the outer reaches of the universe. Both metals are ridiculously oversold, particularly Silver. The US Mint is currently rationing Silver Eagles and has suspended sales of 2008 Gold Eagles. Physical Silver in any size under 1000oz bars is almost impossible to locate and purchase for immediate delivery from most distributors and manufactures.

Something is going on, none of what we've witnessed makes a damn bit of sense in a "free market". This Dollar rally is the most bogus rally ever witnessed by investors/speculators. Currency intervention aided by the sale of foreign equities by American Investors is driving the Dollar now, but doubtful for long. American Investors selling their foreign investments have to buy Dollars to bring their money home...thus creating demand for Dollars. Couple that with central bank currency intervention, and a squeeze of the Dollar shorts develops. There are NO real buyers of Dollars, this is a fleeting rally in a doomed currency that will end as quickly as it began.

The theory that the Fed is going to raise interest rates because inflation is "getting worse" is a load of crap. In my post August 6, 2008 Fed Powerless To Stop Rise in Gold Bumbling Ben and the Fed made it clear that the Fed would stand still on interest rates well into 2009. The stock market, cheered by the prospects of continued low rates, rose 300 points that day. This past Thursday we see inflation rising at a 17 year high, and all of a sudden the Fed is going to change their mind and raise rates. LOL. There is not a snow ball's chance in hell the fed is going to be raising interest rates, PERIOD. IF Inflation was so bad and IF the Fed were going to begin to raise rates soon, why then are Treasury prices rising and not falling? As long as the blind keep running to Treasuries as a "safe-haven" interest rates will NOT rise. Only when global investors begin to dump Treasuries and "force" interest rates higher, will the Fed even consider raising interest rates. A dumping of US Treasuries on the markets will crush the Dollar.

The Fed is absolutely desperate to keep Treasury prices from collapsing. They are also desperate to keep asset prices from collapsing. This can only be achieved, or rather be attempted, by printing, printing, and printing more money. And printing that much money will only devalue the Dollar more, and send Gold and Silver prices screaming higher. As I suggested the other day, something more is going on than meets the eye. This financial mess is a lot, A LOT, worse than "they" are letting on. This wholesale take down of commodities, and Precious Metals in particular, has been contrived in an effort to bring the market in for the Big Money to steal your positions and profit from them in their never ending greed as this financial mess implodes across the globe and destroys ALL fiat currency.

The bounce in Precious Metals, and ALL commodities hard and soft, we are soon to bare witness to, is going to be magnificent and extremely volatile. Roll the video tape. History is going to look back on this period with shock and awe, and refer to it often as The Beginning Of The End Of The US Dollar.

A light bulb always burns brightest, before it burns out.

Oil: Demand Destruction Overdone?

Much ado has been made of ‘demand destruction’, an economic term that refers to declining demand for a good due to high prices. The past month or so the mainstream US press has latched onto demand destruction as a reason for the decline in oil prices much in the same way they blamed speculators for high oil prices just a few weeks earlier.

Also, when talking about demand destruction, they will refer to US numbers only; conveniently forgetting the rest of the world. The mindset here is still that the US is the top dog and the rest of the globe is irrelevant. So let’s indulge them in their narrow-mindedness for a minute and look only at US consumption as presented by the Energy Information Administration.

Overall oil consumption in the United States has actually been on the rise for the past 3 weeks during this period of unprecedented ‘demand destruction’. This is supported by the EIA’s own numbers.

The Endgame Nears For Fannie and Freddie

IT MAY BE CURTAINS SOON FOR THE MANAGEMENTS and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac. It is growing increasingly likely that the Treasury will recapitalize Fannie and Freddie in the months ahead on the taxpayer's dime, availing itself of powers granted it under the new housing bill signed into law last month. Such a move almost certainly would wipe out existing holders of the agencies' common stock, with preferred shareholders and even holders of the two entities' $19 billion of subordinated debt also suffering losses. Barron's first raised the possibility of a government takeover of Fannie and Freddie in a March 10 cover story, "Is Fannie Mae Toast?"

Heaven knows, the two government-sponsored enterprises, or GSEs, both need resuscitation. Soaring mortgage delinquencies and foreclosures have led the companies to gush red ink for the past four quarters, and their managements concede the outlook is even grimmer well into next year. Shares of Fannie Mae (ticker: FNM) and Freddie Mac (FRE) have lost around 90% of their value in the past year, with Fannie now trading at $7.91, and Freddie at $5.88.

Similarly, the balance sheets of both companies have been destroyed. On a fair-value basis, in which the value of assets and liabilities is marked to immediate-liquidation value, Freddie would have had a negative net worth of $5.6 billion as of June 30, while Fannie's equity eroded to $12.5 billion from a fair value of $36 billion at the end of last year. That $12.5 billion isn't much of a cushion for a $2.8 trillion book of owned or guaranteed mortgage assets.

Times Online: Why the Russia-Georgia conflict matters to the West

“It would be a serious mistake for the international community to regard the dramatic escalation of violence in Georgia as just another flare-up in the Caucasus.

“The names of the flashpoints may be unfamiliar, the territory remote and the dispute parochial, but the battle under way will have important repercussions beyond the region.

“The outcome of the struggle will determine the course of Russia’s relations with its neighbours, will shape Dmitri Medvedev’s presidency, could alter the relationship between the Kremlin and the West and crucially could decide the fate of Caspian basin energy supplies.

“It was known that a serious confrontation had been building up. British Intelligence predicted this year that a war in the Caucasus was probable. The focus was Georgia, the West’s main ally in the region and the only export route for Caspian oil and gas outside Kremlin control.

“Part of the responsibility must lie with President Saakashvili. The US-educated Geogian leader has rightly been praised for turning around his country’s dire economy, transforming the Soviet-style army into a modern Western force and standing up to the Kremlin.

“On paper the small Georgian military is no match for the might of Russia. But Mr Saakashvili has calculated that his friends in the West, notably America and Britain, will protect him.

“… Russia has made clear in word and deed that it will do anything to prevent Nato’s expansion on its western and southern flanks.

“America and Britain are closely involved in providing military assistance to the Georgians in the form of arms and training. The support is aimed at encouraging the rise of Georgia as an independent, sovereign state.

“But the help is also partly a means of protecting the oil pipeline across Georgia that carries crude from the Caspian to the Black Sea, the only export route that bypasses Russia’s stranglehold on energy exports from the region.”
Source: Richard Beeston, Times Online, August 8, 2008.

Richard Russell (Dow Theory Letters): Danger of deflation

“We’ve recently seen the greatest expansion of credit in history. It was a product of Asian and Mid-Eastern countries holding down the value of their currency by creating more of their own money and buying dollars. The Fed got into the act in 2003 when it held down Fed Funds to 1% for month after month. It was a wild expansion of money and credit. Now the party is over.

“The US and the economies of the free world run on credit. In the US it now takes six dollars in credit to produce one dollar in Gross National Product. Maybe the biggest problem today is that the banking system has become so traumatized that it is restricting credit. Today ‘nobody can get a loan’, the complete opposite of the situation which existed prior to the housing bust. The danger – constricting credit will impact heavily on the nation’s GDP. If that happens, say hello to a blistering recession.

“With credit being restricted, a second and very serious danger surfaces. That danger is asset deflation. The very thought of asset deflation sends chills of fear up Fed chief Ben Bernanke’s spine. Credit contraction, asset deflation – shades of the Great Depression.

“What’s the antidote for deflation? It’s print, print, print. What would gold’s reaction be to ‘print, print, print’? Gold’s reaction would be – rise, rise, rise.”
Source: Richard Russell, Dow Theory Letters, August 13, 2008.

Mike Lenhoff (Brewin Dolphin): US exports to come under pressure

“The chart below shows the year-on-year growth rate for US GDP over the past 40 years along with the contribution from net exports in goods and services. The message is not that each cyclical downturn has been associated with a rise in the contribution from net exports but that, whatever its contribution, net exports have never prevented the US economy from sliding into a recession. The contribution from net exports today is greater than at any time in the past four decades but will this make a difference? Probably not!

“US GDP grew by 1.8% year-on-year in the second quarter of 2008. Yet 1.5% of this growth came from net exports. Less than a third of a percent came from domestic demand. The domestic economy has lost pretty well all momentum. So imports have been curbed but US exports have been holding up well, thanks to a competitive exchange rate and the strength, at least until now, of the developing economies. The contribution from net exports is just about all that is holding up US growth, but this is now likely to give.”

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Bill King (The King Report): US dollar an unattractive haven

“After over-levered dollar shorts/euro longs cover those positions much of the world will realize that the exploding US budget deficit and further financial system problems make the dollar an unattractive haven. So with the euro and pound no longer safe havens from the dollar, the yen and gold should rally.

“With international tensions reaching a new level of intensity and the global financial system still under historic duress, we’d guess that the dollar rally could continue but it is a temporary technical reaction.

“Soon the fundamentals, especially an already record US budget deficit that should greatly escalate, will re-emerge and instigate a very, very painful re-connection with economic and financial realities.”
Source: Bill King, The King Report, August 11, 2008.

Financial Times: China to overtake US as largest manufacturer

“China is set to overtake the US next year as the world’s largest producer of manufactured goods, four years earlier than expected, as a result of the rapidly weakening US economy.

“The great leap is revealed in forecasts for the Financial Times by Global Insight, a US economics consultancy. According to the estimates, next year China will account for 17% of manufacturing value-added output of $11,783 billion and the US will make 16%.

“Last year the US was still easily in the top slot and accounted for a fifth of the total. China was second with 13.2%.

“John Engler, president of the National Association of Manufacturers, a Washington-based trade group, played down the effect of the projections. It was ‘inevitable’ that China would take over on account of its size, he said. ‘This should be a wholesome development for the US, for it promises both political stability for the world’s largest country and continuing opportunities for the US to export to, and invest in, the world’s fastest-growing economy.’”

“The expected change will end more than a 100 years of US dominance. It returns China to a position it occupied, according to economic historians, for some 1,800 years up to about 1840, when Britain became the world’s biggest manufacturer after its Industrial Revolution.”
Source: Peter Marsh, Financial Times, August 10, 2008.