Wednesday, May 13, 2009

“We have ‘failed bankers’ giving advice to ’failed regulators’ on how to deal with ‘failed assets’”.
- William Black, associate professor of Economics at the University of Missouri

And so it has begun... As we suggested on Monday, with the US Dollar tanking, and the US Treasury Market imploding, a take down of the equity markets was necessary to put a floor under these two "poor investments". A rush to the perceived safety of Treasury bills and the Dollar would of course also aid the Fed in their suppression of Gold..or would it. So far...Gold has held it's own. The same cannot be said for the other Precious Metals and the balance of the commodity sector.

On Monday the rollover in equities began with the media calling the market weakness simply "profit taking" and a "pause in the rally". The same sentiment continued on Tuesday. Never mind the dearth of tax receipts in April, the lowest since 1983, and the revelation that The Obama budget deficit would be $89 BILLION more than previously estimated.

Today, Wednesday, come news that home foreclosures are continuing to rise rapidly, and wonder of wonder, retail sales fell "unexpectedly" for the second month in a row. Unexpectedly? Why so unexpected? Because some lame brained anal-yst predicted they would rise, and they fell instead? A real laugher...

Gold was under pressure this morning and performed admirably. Pressed to test support at 918 early in CRIMEX trade, Gold bounced hard as equities fell and rose to 930 before the close this afternoon. A very strong performance. Perhaps some of that flight to the bond market money is finding safety in the Gold Market instead now. This remains to be seen, but Gold Bears should take note of today's strength in the Gold Market. Any near term weakness in Gold may be a Bear Trap.

The mining stocks were a bit of a disappointment today. After showing strength early on in the face of further weakness in general equities, the mining sector rolled over and closed near the low of the day with the rest of the markets. This "could" lend some confidence to the Gold Bears. 910 appears to be a key swing point for Gold should a break of 918 occur.

928 Gold represents a 61% retracement off the low that followed the March 20 966 high in Gold [coincidentally the 966 high in Gold was a 61% retracement off the March 18 low that followed February 19 high of 1005]. Gold retains its bullish posture here as long as 910 holds. Near-term real resistance lies at 935 a 50% retracement off the April 17 low following the 1005 high in February. The bottom of Gold's present up leg rests at 895.

U.S. Posts First Budget Deficit for April Since ‘83
May 12 (Bloomberg) -- The U.S. reported the first budget deficit for April in 26 years, recording a shortfall in the month that usually sees a jump in individual tax payments before the Internal Revenue Service’s mid-month deadline.

“When the government can’t post a surplus in April, you know things are dire,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “It’s going to take a very long time until we see anything close to a balanced budget.”

White House forecasts higher U.S. budget deficit
WASHINGTON, May 11 (Reuters) - The White House on Monday pushed up its forecast for the U.S. budget deficit for this year by $89 billion, reflecting the recession, a raft of new unemployment claims and corporate bailouts.

A fresh estimate of the deficit showed it coming in at $1.84 trillion -- representing a massive 12.9 percent of gross domestic product -- in the current 2009 fiscal year that ends on Sept. 30. A prior White House forecast released in February projected a deficit of $1.75 trillion, or 12.3 percent of GDP.

Trade deficit widens in March to $27.6 billion
WASHINGTON (AP) — The U.S. trade deficit rose in March for the first time since last July as the global recession cut sharply into sales of American exports. The politically sensitive deficit with China increased.

The Commerce Department said Tuesday the deficit widened to $27.6 billion in March, slightly lower than the $29 billion gap that economists had forecast.

The March deficit was 5.5 percent higher than February's revised $26.1 billion trade gap, which had been the smallest since November 1999. Through the first three months of this year, the trade deficit was running at an annual rate of $359.7 billion, far below last year's $681.1 billion. Economists expect the deficit will remain at low levels this year as a recession in the U.S. crimps demand for foreign goods.

All three of these news stories are Dollar AND US Treasury Bond negative...they don't bode well for the equities markets either. They "should" buoy Gold Bulls...

Foreclosures: 'April was a shocker'
NEW YORK ( -- Foreclosures in April exceeded even March's blistering pace with a record 342,000 homes receiving notices of default, auction notices or undergoing bank repossessions, according to a regular industry report.

One of every 374 U.S. homes received a filing during the month, the highest monthly rate that RealtyTrac, an online marketer of foreclosed properties, has recorded in four-plus years of record keeping.

"April was a shocker," said Rick Sharga, a spokesman for RealtyTrac. "I would have bet on a dip because March foreclosures were so high."

Instead, filings inched up 1% from March and rose 32% compared to April 2008.

There were 63,900 bank repossessions, the last stop in the foreclosure process. More than 1.3 million homes have now been lost to foreclosure since the market meltdown began in August 2007.

The increasing foreclosures will force RealtyTrac to rethink its forecasts, according to Sharga. "We had been predicting 3.4 million filings for the year," he said, "but we'll blow those numbers out of the water."

Retail Sales Unexpectedly Fell in April

May 13 (Bloomberg) -- Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to conserve cash.

The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Other reports showed companies continued to cut stockpiles as demand slowed, and climbing oil costs pushed up prices for imported goods.

Fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for years, analysts said. Stocks dropped for a third day as the reports indicated any recovery from the worst recession in at least half a century is likely to be subdued.

Wall Street Sinks Following Retail Sales Report- AP
Wall Street fell sharply in early trading Wednesday after the government reported weaker-than-expected retail sales in April. The market has put a two-month rally on hold amid concern that an economic recovery won't come as fast as once hoped. The disappointing retail sales report added to investors' uneasiness.

Shocking! How can this be? Ben Bernake promised us a recovery... CNBC assured us that the recovery was now, BUY STOCKS! Folks, it will take a whole lot more than a handful of banks passing a sham stress test to move the economy forward. Let's try abolishing the US Federal Reserve...that might just be the ticket

Beginning of the end? Fed cannot account for $9 trillion
The Federal Reserve apparently can't account for $9 trillion in off-balance sheet transactions. When Rep. Alan Grayson (D-Orlando) asked Inspector General Elizabeth Coleman of the Federal Reserve some very basic questions about where the trillions of dollars that have come from the Fed's expanded balance sheet, the IG didn't know. Worse, nobody at the Fed seems to have any idea what the losses on its $2 trillion portfolio really are. "I am shocked to find out that nobody at the Federal Reserve is keeping track of anything," Grayson says. Grayson asked Coleman if her agency had done any research into the decision not to save Lehman Brothers, which "sent shockwaves through the entire financial system," Coleman said it had not. "What about the $1 trillion plus expansion of the Federal reserve's balance sheet since last September?" Grayson asked. "We have different connotations," Coleman replied. "We're actually conducting a fairly high-level review of the various lending facilities collectively." Translation: Nobody at the Fed knows where the money went. - Money News

Free-Market Analysis: We saw the interview with Elizabeth Coleman on TV and then again and again and again on It is entitled "Is Anyone Minding the Store at the Federal Reserve?" and it is one of the single most astonishing moments (or minutes) ever manifested or preserved in this already-amazing digital era. A century ago, when the powers-that-be pushed through the act that set up the American Federal Reserve - which basically kicked off the central banking era in America and abroad - the kind of technological ubiquity offered by the Internet would certainly have been seen as a major and alarming challenge. Well, it is.

The Grayson/Coleman confrontation has to be seen to be believed, and even then it may not seem quite believable. How could the Fed, in all its monied majesty, offer up someone so unprepared to answer the questions of a single quiet and persevering congressman. Grayson is a liberal, socialist-oriented legislator - a good government type who is fast making a reputation for taking on government corruption. He is pro-regulation, but has not been shy about confronting high profile institutions. He may not want to shut down The Federal Reserve but he certainly wants to make it operate under additional scrutiny. And he makes it clear he believes the Fed needs it. And now Coleman knows it.

During the questioning of Coleman, Grayson asks her over and over if there is a formal accounting available for the trillions in off-book balance sheet activity for the Fed. He asks patiently, and he repeats the question many times. Coleman stutters, makes statements that are obviously evasive and finally all-but-admits that she actually has no authority even to examine the Fed's off-balance sheet activities. She admits this in a frazzled manner, but only after losing her way so badly that she has to ask Grayson to repeat the question (which he has already asked about ten times.)

What the scenario seems to shows us - and this has already been suggested by the increasingly querulous appearances of Ben Bernanke - is that the huge monetary and organizational powers of the Fed are a thousand miles wide and an inch deep. True, the corporation can create tens of trillions of dollars out of thin air, but such power is not easily shared. Even the heads of large, money center banks are not necessarily part of the very small inner circle of the Fed. It is a group that seems to function almost on a need-to-know basis and its public resources (PR, etc.) are seemingly a great deal less massive than its monetary leverage.

Bob Chapman, The International Forecaster

That said this is the perfect segway to bring to your attention a bill calling for the Comptroller General of the US to audit the private Federal Reserve. At last report 124 members of the House have joined Rep. Ron Paul’s bill HR 1207, as co-sponsors, to his Federal Reserve Transparency Act of 2009. Both the Fed’s Board of Governors and the Federal Reserve Banks would be required to report to Congress before the end of 2010. This could be the most important bill in modern American history and could lead to our financial and economic recovery. When the Congress sees what the Fed has done they might just abolish it, which is really the solution. As Rep. Paul says, “Congress should reassert its constitutional authority over monetary policy.” The Constitution gives Congress, not the private Federal Reserve, “the Authority to coin money and regulate the value of the currency.” “The Fed has presided over the near-complete destruction of the US dollar,” says Rep. Paul. “Since 1913 the dollar has lost over 95% of its purchasing power, aided and abetted by the Federal Reserve’s loose money policy.” “How long will we as a Congress stand idly by while hard-working Americans see their savings eaten away by inflation?” Only big-spending politicians and politically favored bankers benefit from inflation,” he said. “Since its inception, the Fed has always operated in the shadows, without sufficient scrutiny or oversight of its operations.”

The Fed can enter into agreements with foreign central banks and foreign governments, and the GAO’s prohibited from auditing or even seeing these agreements. There are no enforcement powers over the Fed. The Fed’s funding facilities including the Dealer Credit Facility, Term Securities Lending Facility, and the Term Asset-Backed Securities Lending Facility should be subject to congressional oversight.

Every problem we have had in our economy from the Fed’s conception and passage can be directly traced to Federal Reserve policy.

Legislation should be passed to abolish the Fed and that the OMB, the Office of Management and Budget liquidate Fed assets to insure a quick transfer of their functions to the Treasury.

HR 1207 is now in the House Committee of Financial Reserves and has been there for 3 months.

This could be the most important legislation ever submitted due to the financial conditions in America at this time.

In the Senate, Sen. Bernard Sanders (I-VT) has submitted a similar bill, which has been in the Senate Banking, Housing, and Urban Affairs Committee for 2 months.

As Rep. Paul says, “auditing the Fed is only the first step towards exposing this antiquated insider-run creature to the powerful forces of free-market competition. Once there are viable alternatives to the monopolistic fiat dollar, the Federal Reserve will have to become honest and transparent if it wants to remain in business.

Contact everyone in Congress and let him or her know how you feel about this issue as soon as possible.

Fed Officials Knew About AIG Bonuses

Fed Officials knew details of American International Group's contentious bonus payments five months before the debacle erupted and they did not alert the Obama administration, The Washington Post reported Wednesday citing documents.

The documents show that senior officials at the Federal Reserve Bank of New York were deeply involved with AIG, lawyers, auditors and public relations firms about a possible public outburst regarding the payments, according to the report.

Timothy Geithner was the head of the New York Fed at the time, before his current role as Treasury secretary, but was not among the Fed officials shown to be aware of the potential furor, the Post said citing summaries of phone calls, correspondence and other documents.

The documents also showed which members of the government, outside of the New York Fed, knew about the AIG (NYSE:AIG - News) bonuses and when, according to the report.

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