Saturday, January 30, 2010

In The Merry Old Land Of Oz

Briefly... The Greek Debt Crisis has been at the forefront of the currency markets for the past month. Speculation is rampant that a debt default by Greece will lead to the demise of the Euro. The Euro reached six month lows to close the week as the US Dollar Index "burst" through the 79 level with the Dollar at six month highs.

It is interesting that so much focus is on Greece relative to the Euro zone when it accounts for less than 3% of the Euro zone's total GDP. It is equally interesting that so little focus is on the debt crisis in the state of California here in the US. California represents 11% of the US GDP, and if it were a country, would have the World's 7th largest economy. Yet nobody seems to care that the state is virtually bankrupt and bordering on insolvency.

As interest rates have risen on Greek debt, crash alert flags have been raised by countless "currency experts" as to the "devastating effects" this is having on the Euro. Yet there is no mention of the "devastating effects" a debt default in California will represent to the US Dollar. In many ways, what is happening in Greece today, is just a tune up for what is about to wash over the remains of the West's floundering economies as sovereign debt default replaces sub prime mortgage default as the whipping boy of yet another banking crisis.

Hans Redeker, currency chief at BNP Paribas, said Greece will face "great trouble" if it has to pay 7% rates for long. Athens must raise €53 BILLION this year, mostly in the first half. It has a been relying on cheap short-term debt to fund the budget deficit of 13pc of GDP, but this raises "roll-over risk".

A national budget deficit that is 13% of GDP, and the need to raise €53 BILLION is being painted as some sort of Greek Tragedy. The US has a national budget deficit that is almost 11% of GDP, and has the need to raise over $2 TRILLION to cover unfunded expenses this year. It would appear the US faces "greater trouble" in the very near future. In the past week alone the US Treasury sold $118 BILLION of new debt. And the government is only further deluding themselves if they believe there will be no "roll-over risk" to funding their debt just because interest rates have thus far remained low. The US is whistling past the graveyard...

Funds flee Greece as Germany warns of "fatal" eurozone crisis
By Ambrose Evans-Pritchard
The yield on 10-year Greek bonds blasted upwards by over 40 basis points to 7.15pc in a day of wild trading. Spreads over German Bunds reached almost four percentage points, by far the highest since Greece joined the euro, and close to levels that risk a self-feeding spiral. Contagion hit Portuguese, Spanish, Irish, and Italian bonds.

George Papandreou, the Greek premier, said in Davos that his country had been singled out as the weak link in a "attack on the eurozone" by speculators and political foes. "We are being targeted, particularly by those with an ulterior motive."

STOP! Consider for a moment that this Greek Tragedy is less about Greece controlling its budget, and has more to do with "financial" players seeking to cash in a "big bet" ala Bear Stearns or Lehman Brothers. What if a large bank, or group of banks stood to make a windfall on the demise of Greek debt? Recall it was a fear of debt default that forced the hands of these two prominent banks to go belly up. Has the "casino" gone a step too far, and put an entire corner of the planet at risk of financial destruction all to win a bet? Will Japan be next? The UK? The USA?

Senate Approves Amendment to Raise Debt Ceiling by $1.9 Trillion
WASHINGTON—The Senate approved legislation Thursday increasing the federal government's borrowing limit by $1.9 trillion, enough to enable the Treasury to pay its bills through 2010.

The 60-39 vote was strictly along party lines with no Republicans joining the Democratic majority to approve the legislation.

Once the increase is signed into law, the federal government will be able to borrow up to $14.3 trillion, by far the highest amount of debt it has ever held on its books. The current limit of around $12.4 trillion would have been breached by the end of February.

House lawmakers must still take up the legislation and are expected to do so next week, according to a senior House Democratic aide.

The increase comes just over a month after Congress upped the borrowing cap by $290 billion from its previous limit of $12.1 trillion.

In other words, the US Senate has just authorized the Treasury/Fed to print up another $1.3 TRILLION batch of bills. This is outrageous. Debt limit? Why bother? It obviously has done nothing to slow down spending. With an increase to $14.3 TRILLION, the nations debt to the world will now increase to 98% of projected 2010 GDP. That projected GPD of just under $15 TRILLION rests precariously on the misguided assumption that economic growth in 2010 will exceed 2.5% annually. The economy shrunk by 2.4% in 2009.

How can anyone with merely a shred of common sense take this as anything less than an overt devaluation of the Dollar?

Best economic growth in six years
NEW YORK ( -- The U.S. economy grew at the fastest pace in more than six years during the fourth quarter of 2009, according to a government report Friday.

The nation's gross domestic product, the broadest measure of economic activity, rose at a 5.7% annual rate in the fourth quarter. That was much stronger than expected and provides another sign that a recovery in the economy is taking hold.

The growth in the fourth quarter was the highest since the third quarter of 2003. The economy rose at a 2.2% annual pace in the third quarter of last year.

But even with the strong growth in the second half of 2009, the economy shrunk by 2.4% last year. That was the biggest drop in 63 years and first annual decline for the economy since 1991.

Much of the improvement was driven by a turnaround in inventories, the supply of goods that businesses produce in anticipation of sales. Businesses slashed inventories in late 2008 and early 2009 due to concerns about worsening economic conditions.

According to Friday's report, 3.4 percentage points of growth in the fourth quarter came from the change in inventories. A pickup in auto production was a significant part of the inventory turnaround, even though auto sales themselves only rose modestly.

But the U.S. consumer was somewhat of a bystander in the fourth quarter, as personal consumption grew at only a 2% annual rate in the period. Spending by consumers accounts for more than two-thirds of economic activity.

An 18% jump in the value of exports also played a major role in the economy's rebound, contributing nearly 2 percentage points of growth. Silvia said exports have a chance to be a significant source of growth in the coming year, helped by the weaker dollar and stronger growth in developing economies, particularly in Asia.

Another sign that a recovery in the economy is taking hold. LOL, another sign. So many signs that these financial media can't see the forrest through the trees. 3.4% of of growth in the fourth quarter came from a "change in inventories"? [More on that below] I can only wonder how this change in inventories will effect GDP in the coming quarters as it sits in warehouses and not in peoples homes and businesses. It would appear that little growth was derived from the all important consumer. The US Economy depends on the consumer for 70% of it's growth. How can there be any growth if 1 in 10 consumers [according to government statistics] is unemployed? The Dollar Bulls were so excited by this startling economic revelation that they pushed the Dollar ever higher off it's recent lows. So much for that jump in the value of exports being a "significant source of growth in the coming year" if the slump in the Dollar is over on such great growth news!

GDP data overstates economy's health
The U.S. economy turned in a surprisingly good performance in the fourth quarter, surging ahead by 5.7 percent on an annual basis, according to a government report released Friday.

Or did it?

With more than $1 trillion in additional government spending, bank bailout investment and loan guarantees, on top of another $1 trillion-plus in pump-priming from the Federal Reserve, it would be surprising if that money didn’t register a strong showing as it moves through the economy and financial markets.

But when you look a little more closely at the numbers, it quickly becomes apparent that it’s hardly time to start breaking out the champagne. A big part of the latest GDP gain comes from a statistical adjustment for changes in inventory levels that don’t reflect real growth. Over the past year, businesses cut deeply into those inventories — not wanting to get stuck with unsold goods. Now that they’ve cut them to the bone, the rate of inventory-cutting has slowed. The way the GDP is calculated, that slowdown adds to “growth” — even though it doesn’t reflect increased production or sales. If you back out that inventory adjustment, GDP grew only 2.2 percent.

Friday’s report was the preliminary reading on GDP, which will be revised twice before it’s final. Last time around, the number for the third quarter of 2009 started out at 3.5 percent before pared back to 2.2 percent for the final report. That could well happen this time around. Mike Englund at Action Economics thinks today’s number overestimated the drop in imports because the preliminary numbers may have overestimated the drop oil consumption. He says that accounted for a full percentage point of the 5.7 percent gain in the fourth quarter.

4th quarter's fast economic pace likely to wane
WASHINGTON (AP) -- The economy boomed at the end of 2009, growing at the fastest rate in more than six years. Now if only it could keep it up.

The economy expanded at an annual rate of 5.7 percent in the fourth quarter, the second straight quarter of growth. But analysts warn it's unsustainable.

Consumer spending, chilled by double-digit unemployment and scant wage gains, remains weak. And the benefits of government aid and higher company output to feed stockpiles will dwindle.

Many analysts predict gross domestic product will expand at a rate closer to 2.5 to 3 percent in the current quarter and 2.5 percent or less for the year.

That won't be enough to significantly reduce the unemployment rate, now 10 percent. In fact, most analysts expect the rate to keep rising for months and to remain close to 10 percent through year's end.

To drive down the jobless rate by just 1 percentage point this year, the economy would have to grow by 5 percent for the whole year. No one thinks that will happen.

I guess this sentiment explains why the stock market did not rocket higher yesterday, the price of Oil continued to flounder, and most surprisingly of all the bond markets did not sell-off. Had yesterday's 4th qurater GDP number represented real solid economic growth, the bond markets would have gotten smashed on an upside surprise in GDP like we saw yesterday. The bond market's reaction to yesterdays "great economic news", as the White House would have you believe, suggests there is plenty to worry about as we move forward from here.

The folks at the Fed and US Treasury have plenty to worry about. This AIG scandle is really beginning to mushroom:

Secret Banking Cabal Emerges From AIG Shadows: David Reilly
The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system -- apart from the matter of AIG’s bailout -- deserves further congressional scrutiny.

Treasury Secretary Timothy Geithner was head of the New York Fed at the time of the AIG moves. The hearing before the House Committee on Oversight and Government Reform also focused on what many in Congress believe was the New York Fed’s subsequent attempt to cover up buyout details and who benefited.

By pursuing this line of inquiry, the hearing revealed some of the inner workings of the New York Fed and the outsized role it plays in banking. This insight is especially valuable given that the New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve.

This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank.

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”

Let’s take Geithner at his word that a failure to resolve the insurer’s default swaps would have led to financial Armageddon. Given the stakes, you might think Geithner would have coordinated actions with then-Treasury Secretary Henry Paulson. Yet Paulson testified that he wasn’t in the loop.

“I had no involvement at all, in the payment to the counterparties, no involvement whatsoever,” Paulson said.

Fed Chairman Bernanke also wasn’t involved. In a written response to questions from Representative Darrell Issa, Bernanke said he “was not directly involved in the negotiations” with AIG’s counterparty banks.

Geither said he recused himself from the bank’s day-to-day activities, even though he never actually signed a formal letter of recusal.

New York Fed staff and outside lawyers from Davis Polk & Wardell edited AIG communications to investors and intervened with the Securities and Exchange Commission to shield details about the buyout transactions, according to a report by Issa.

That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself.

Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: “I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals -- too many counterparties, too many lawyers and advisors, too many people from AIG -- to keep a determined Congress from the information.”

Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark.

What an odd little conspiracy. A conspiracy involving no one and staffers lamenting their inability to keep Congress in the dark. Geithner recused himself although there is no record of it, Paulson knows nothing about it and was not in the loop, and Bernanke either does not remember and/or was not involved.

Mike "Mish" Shedlock sums the AIG Conspiracy up best:

"Amazingly this conspiracy involves no one. It is a historic event. Hundred billion dollar bailout decisions just happened. No one made them, no one was responsible for them, and no one was in the loop, yet all those not involved agree the process must be kept secret."

Oops! It's not a secret any longer. The cat is out of the bag

Revealed: See Who Was Paid Off In The AIG Bailout
A key question at the heart of the controversial bailout of AIG is just how much money the government lost. The Federal Reserve and Treasury Department have worked to keep that number secret and to conceal who was on the winning end.

An unredacted document obtained by the Huffington Post list the damage in detail. Goldman Sachs alone, for instance, got $14 billion in government money for assets worth $6 billion at the time -- a de facto $8 billion subsidy, courtesy of taxpayers.

The list was produced as part of a congressional investigation led by the House Oversight and Government Reform Committee into the federal bailout of AIG.

Oh! I almost forgot to mention the Precious Metals. I have been ignoring them as recent prices have NOT in any way, shape, or form represented fundamental reality. I do try to remain ever vigilant on bringing my readers sources of fundamental reality as it pertains to the Precious Metals. And today that fundamental reality revolves around the continued and growing physical demand for the Precious Metals, particularly Silver.

An interview with Ted Butler
"It's not developments...weakness in the physcial markets, that's accounting for price weakness. In fact, it's just the opposite. There is no evidence of selling in the physical markets, it's evidence only of demand."

"This price action that we've seen is ALL due to shenanigans on the Comex."

The price of silver would explode
"To give you an idea of how concentrated the positions of the '4 or less' or '8 or less' bullion banks are in silver... the '4 or less' bullion banks are short 294.1 million ounces and the '8 or less' bullion banks are short 340.3 million ounces of silver. These amounts represent 107.5% and 124.4% of the net short position. What this means in plain English is that if the '4 or less' and '8 or less' bullion banks weren't there as the shorts of last resort... and what I call 'not-for-profit sellers'... the price of silver would explode to the outer edges of the known universe."

"Using the actual COT numbers, the '4 or less' and '8 or less' bullion banks in gold are short 20.4 and 25.1 million ounces of gold respectively. With the net short position being 24.9 million ounces... the '8 or less' bullion banks are basically short a bit more than the entire net short position. If they weren't there, the Commercial category of the COT report would be market neutral."
- Ed Steer, Case Research, Gold & Silver Daily

US Mint Sales: 2010 American Silver Eagles Break Record
January sales are at an all-time, record-smashing high.
3,225,000 of the 2010-dated bullion silver coins have been sold as of today. Combined with the 2009-dated sales of 367,500 from earlier this month, US Mint authorized buyers have now purchased a total of 3,592,500 Silver Eagle coins -- the most ever in a January, dating way back to the series launch in 1986. That, in spite of sliding silver prices, rationing and a week of unavailability between the time the 2009s sold out and the 2010s became available.

US Mint Silver Eagle Sales Top 3 Million, Best Ever January
January 2010 is now in the history books. It is the best starting month of a year for the series that dates back to 1986. Despite all the aforementioned obstacles, authorized buyers scooped up 3,090,500 Silver Eagles from the United States Mint as of Friday, Jan. 22.

January is a traditionally strong month for these always popular coins, with over one million in sales registered in all but two years since 1999. Making this year’s three million plus start all the more impressive is the fact that even reaching the two million mark would have been historical. That happened only once before in Jan. 2008.

Why the big run-up? In short, availability and pent-up demand. Normally the Mint begins striking newly dated eagles in December to have them ready for the market in January. However, with little or no inventory in reserve coupled with unprecedented demand, the Mint was in a predicament. It made a decision in November to keep striking 2009-dated eagles through to the end of the year, hoping to build up enough of a supply to carry over until replaced by the 2010s.

That supply ran short. The Mint told its authorized dealers on Dec. 22 that it would begin selling 2010-dated eagles on Jan. 19 in an allocated, or rationed process. As happenstance would have it, its 2009 inventory was completely depleted on Jan. 12 after selling 367,500 for the month. Buyers had to wait an entire week to place orders. And while silver prices moved narrowly during that time frame (before falling off a cliff a few days later), that week of unavailability created its own buzz — especially for those who desired to own or sell newly dated eagles.

Demand for the 2010s was immediately apparent. 2010 Silver Eagle sales exploded as buyers quickly grabbed 2,480,000 within the first 48 hours. In that short time, the Mint sold over 8.6 percent of the total it had in all of 2009 — which was a record-breaking year for the series. And despite silver prices diving between last Wednesday and Friday, or perhaps because buyers were getting in on a perceived dip, another 243,000 left US Mint doors.

Couple this stunning demand for US Silver Eagles with NO reported withdrawals of Silver from the Silver ETF, SLV the past week, and one wonders incredulously at the recent drop in Silver prices that began, oddly enough, the day after the 2010 Silver Eagles were released to the public to pent up demand. Silver has closed lower seven of the past 8 trading days beginning on January 20th.

Blame it on the CRIMEX. Or blame it on the CFTC. You decide. I'm blaming it on both.

1 comment:

  1. The Greek don't have a nice time right now, one historian already warned theyare prne to bloodycivil wars, my take: Will Greece’s default bring down the Euro?. By the way, I have just added a Reference List to my economics blog with economic data series, history, bibliographies etc. for students & researchers.