Wednesday, January 13, 2010

There Is No Recovery Stupid

"I know that the Treasury is pretending to sell more paper this week. The truth of the matter is that the vast majority of it is being monetized by the Fed."
-Ed Steer

Silver continued it's New Years Surge today and again lead Gold higher. Silver was up 2.14% today vs. Gold being up only 0.82%. Today was day three of four in this weeks US Treasury Bond Auctions.

This morning at 11AM we had our prerequisite Cartel Gold Raid to aid the Treasury's feeble efforts to pawn the nations debt burden onto the rest of the planet. The rest of the planet's participation in our debt devolution continues to wane.

There were a lot of determined Gold and Silver buyers in the market place today as witnessed by the bounce off of today's Cartel inspired lows. Was this morning our "buy the dip" opportunity that I suggested Monday may be imminent? In all likelihood it may have been. Tomorrow, the heavy task of auctioning off 30 year debt befalls the Treasury, and the Cartel will most likely rise to the occasion with one more hit to the body Gold. Be prepared to snap this offering up as it may be the last for a number of days as there are no more treasury Bond auctions scheduled until January 26th.

Import prices and retail sales numbers for December will be released at 8:30AM est tomorrow followed by CPI numbers at the same time of day on Friday. In all likelihood these data will not be Dollar friendly, and could make the Cartels effort's to hit Gold one more time in the Treasury's stead tomorrow morning a bust.

One of the headlines I posted up yesterday, Gold drops as China hikes bank reserves, has given me pause after further review of yesterday's Gold charts. If Gold had really dropped because China's central bank hiked bank reserves, why didn't it drop during the Asian markets? I know, damn good question. As a matter of fact, after going back and reviewing a number of Gold related headlines from yesterday, it would appear that the media was making a concerted effort to convince the public that Gold's dismal performance yesterday was because of China's central bank decision to hike bank reserves. But Gold did not come under severe pressure until 11AM est in New York on the CRIMEX. The Asian Markets close at 4:30AM est. Why didn't Gold get "crushed" in the Asian markets after the Chines announcement if this was such an unfriendly Gold development?

I'll tell you why, Gold's going down yesterday had nothing to do with the Chinese central bank announcement, and it had EVERYTHING to do with the games the Gold Cartel plays to aid the US Treasury with their bond auctions. Apparently there are still fools that run to the US Dollar and US Treasuries as for "safety" when there are global market jitters. It would also appear that there are fewer foreign fools that follow this perception. Yesterdays bond offering was not particularly well received by foreign buyers, despite what the headlines my have stated.

From Harvey Organ's - The Daily Gold blog 12.10:

Today we saw the 3 yr auction and it went well as always:

13:03 3-yr auction yields 1.49% with 79.2% allotted at the high

•Bid/cover 2.98 vs ave of the past 10 auctions 2.78
•Indirect participation 38% vs ave of the past 10 auctions 50.9%
•In reaction: 2-yr 2/32 to 0.81%
10-yr 25/32 to 3.71%
Dow 10583.43 (80.56) * * * *

Note: that the bid to cover ratio is still below 3:1 and the high

indirect participation at 38% certainly has the fingerprints of
the usa government.

Who's buying these bonds every other week if the foreigners are not. The primary dealers are. Primary dealers serve as counter parties in open market operations, the central bank’s mechanism for maintaining its target rate for overnight loans between banks. Primary dealers also are expected to bid when the Treasury sells bills, notes and bonds. In effect the primary dealers serve to "guarantee demand" for government debt. And then after a few days they turn around and sell the bonds to the Fed. The Fed buys them with "new money". Where I come from this is called a scam.

Primary dealer
From Wikipedia, the free encyclopedia
A primary dealer is a bank or securities broker-dealer that may trade directly with the Federal Reserve System of the United States ("the Fed").[1] Such firms are required to make bids or offers when the Fed conducts open market operations, provide information to the Fed's open market trading desk, and to participate actively in U.S. Treasury securities auctions.[2] They consult with both the U.S. Treasury and the Fed about funding the budget deficit and implementing monetary policy. Many former employees of primary dealers work at the Treasury, because of their expertise in the government debt markets, though the Fed avoids a similar revolving door policy.[3][4]

Between them, these dealers purchase the vast majority of the U.S. Treasury securities (T-bills, T-notes, and T-bonds) sold at auction, and resell them to the public. Their activities extend well beyond the Treasury market, for example, according to the Wall Street Journal Europe (2/9/06 p. 20), all of the top ten dealers in the foreign exchange market are also primary dealers, and between them account for almost 73% of forex trading volume. Arguably, this group's members are the most influential and powerful non-governmental institutions in world financial markets. Group membership changes slowly, with the current list available from the New York Fed.[1]
The primary dealers form a worldwide network that distributes new U.S. government debt. For example, Daiwa Securities and Mizuho Securities distribute the debt to Japanese buyers. BNP Paribas, Barclays, Deutsche Bank, and RBS Greenwich Capital (a division of the Royal Bank of Scotland) distribute the debt to European buyers. Goldman Sachs, and Citigroup account for many American buyers. Nevertheless, most of these firms compete internationally and in all major financial centers.

In response to the subprime mortgage crisis and to the collapse of Bear Stearns, on March 19, 2008, the Federal Reserve set up the Primary Dealers Credit Facility (PDCF), whereby primary dealers can borrow at the Fed's discount window using several forms of collateral including mortgage backed loans.[5]

So, it would appear, that the primary dealers buy new US Treasury bonds and then trade them to the Fed via the Primary Dealers Credit Facility. This way the Fed monetizes the debt "behind the scenes" while publicly declaring that they are not monetizing the debt. Like I said, a scam.

Seriously, think about it. Why would anybody buy the debt of the USA? Or the debt of any sovereign nation?

Fed says economy weak but mending as 2010 began
WASHINGTON (Reuters) - U.S. economic activity remained at a low level as 2010 began but was improving modestly and beginning to broaden out to include wider swaths of the country, the Federal Reserve said on Wednesday.

"Reports from the 12 Federal Reserve districts indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report," according to the periodic Beige Book report compiled this time by the Philadelphia regional Fed bank.

What a load of crap. Has the Fed been right about anything through this entire economic crisis. These are the same clowns that swore up and down that the "sub prime crisis" would be contained and NOT harm the broader economy. Why is the Fed even commenting on economic activity? The Fed is going to greater and greater lengths to try and legitimize themselves to the public in the hopes of calling off the audit the public now demands. The Fed is the cause of all the economic problems in this country. To have them try and tell us the economy is improving when joblessness is at all times highs is absolutely ridiculous. The economy is floundering and teetering on the brink of a depression.

The 'Real Unemployment' Needs Real Solutions
"Everyone agrees that the recession is over," said Larry Summers, President Obama's top economic advisor, on December 13.

Yet December's unemployment numbers announced last Friday suggest otherwise -- especially the 'real unemployment' figure.

According to the Bureau of Labor Statistics the official unemployment rate is 10%, a figure which itself caused a major headline to blare, "U.S. Job Losses Dim Hopes for Quick Upswing."
But in fact real unemployment in the United States is stuck at a dismal 19%, a figure nearly twice the so-called official number. And the economy is short a staggering 22.4 million jobs in order to have an overall full unemployment rate of 5%, which is more than twice the 9 million figure the administration is using.

The economic recovery that Mr. Summers was trumpeting after the meager 2.2% September GDP growth numbers came out is in fact a "jobless recovery" -- one which already involves the largest absolute number of unemployed American workers ever, and one which may see another half million jobs lost before we really bottom out. And sadly, it will take years to recover both the 13 million jobs that have been lost in just the last two years plus the 9 million additional jobs we need to find in order to get back to real full employment.

Using GDP growth alone is a very weak and misleading indicator of true economic vitality. The only measures that really matter are, initially, the "months before net job growth reemerges" and, ultimately, total employment itself.

Christine Lagarde, France's Minister for the Economy, recently answered the critical question of when we should declare the Great Recession of 2007 over by saying that while everyone has their own yardstick, hers is very simple: "Only when we have cut unemployment, can we say the crisis is finished."

The 30 million Americans who are now effectively unemployed on Main Street and their neighbors know Ms. Lagarde is right, just as they know that the meager 2.2% growth in third quarter GDP -- which mostly came from resuscitating (and not even reforming) Wall Street -- doesn't mean that this recession is at all "over," as some in the administration would misleadingly have us believe.

Just who is everyone Larry? Larry Summers is a DUMB ASS. Look no further than the end of his Pinocchio nose to find the cause of the destruction of our economy and millions of jobs. This clown is ENEMY #1 when it comes to the US Economy. If one person should be arrested and tried for crimes against the state regarding the "cause" of all our nations financial turmoil, Larry Summers is that person.

Administration Says Stimulus Has Worked
WASHINGTON—The Obama administration, in its latest progress report on the $787 billion stimulus program, said both the overall economy and employment continued to be in better shape at the end of 2009 than they would have been without the government’s help.

But as expected, the program’s impact on economic growth in the fourth quarter was less than in two previous quarters, according to President Obama’s Council of Economic Advisers.

The council’s report, the second of the quarterly assessments mandated by Congress, said that in the fourth quarter the stimulus plan’s tax cuts and spending added about 2 percentage points to the gross domestic product, which is the size of the economy as measured by the total goods and services produced.

Though unemployment reached 10 percent at year’s end—two percentage points higher than the peak that the council forecast when the administration proposed the stimulus package to Congress nearly a year ago—the number of jobs was between 1.5 million to 2 million greater in the fourth quarter than it would have been without the recovery plan, the council said.

“Of course, with the unemployment rate still at 10 percent, the American economy is far from healthy,” the report said. “But there is little question that the economy is on the road to recovery.”

...just a lot of big questions. Road to recovery? Famous last words... Where is the economy if we take away the stimulus money? I thought so...

Question of the Day: Are Americans are getting stronger? Fifty years ago, it took two adults to carry ten dollars worth of groceries. Today, five-year-olds can do it.
- Author Unknown

Things Fall Apart in Eurozone
by John Browne, Senior Market Strategist, Euro Pacific Capital
In the U.S., monetary union depends upon political union. When California faces a crushing debt burden, it can neither print its own highly inflationary currency to ease the pressure (though its “IOU’s” are a haphazard attempt) nor leave the union to avoid this constraint. Thus, crises in U.S. states tend to push states toward the central government as they seek assistance from Uncle Sam. EU member states similarly lack their own printing presses and are therefore unable to monetize their problems. But in Europe, the emergency exit is always open – states can leave if they believe their interests are not being considered.

The EU does not have a common fiscal policy, so countries are free to bankrupt themselves according to their own decree. But when they do, there is no formal option of seeking a bailout from the pan-European government. Even if such a road were available under the EU treaties, the European Central Bank, modeled on the famously inflation-wary German Bundesbank, would be unwilling to monetize the additional spending.

Partially because of this stringent monetary policy, the euro has risen by some 40 percent against the dollar since its launch. This has severely hurt eurozone export economies like Spain, Portugal and Italy, who have long relied on currency devaluation to subsidize their manufacturers.

While countries like Germany, the world’s largest exporter, have been successful in utilizing the benefits of a strong currency to continue selling products at a real profit, others have failed. Indeed, both Italy and Greece now have government debts in excess of GDP (115% and 113%, respectively). Furthermore, Greece, with a budget deficit of some 12.7 percent of GDP, is now threatened with default.

Although the EU, by and large, currently spurns talk of a bailout for Greece, the debate will intensify if the economy deteriorates further. If, in order to preserve union, the EU does decide to bail out an individual member state, what precedent would that set?

Germany, the strongest EU economy, found it a Herculean task to bail out just 17 million people in the former East Germany. Could it even contemplate bailing out not one, but several other EU member states, without attendant political control?

There seems little room to move forward under the status quo. Though the Lisbon Treaty (read: EU constitution) just came into effect, it was passed without the mandate of citizen referenda. The member states remain culturally distinct, the citizens have little allegiance to the behemoth in Brussels, and, therefore, it seems far-fetched that the EU would go to war to compel one of its members to remain in the club. With little to glue it together, investors are questioning whether the eurozone is strong enough to withstand the shocks that would accompany a dollar collapse.

As the credibility of the U.S. dollar has eroded and that of the euro is now suspect, it is likely that investors will continue their quiet rush into gold. If so, silver is likely to become a store of value for smaller investors and the small change of the rich. In such a world, the price of silver could rise even faster than that of gold.

A global fiasco is brewing in Japan
By Ambrose Evans-Pritchard
We all know that Japan has been racking up debt for Two Lost Decades, yet the sky has refused to fall. Borrowing costs have slithered down to 1.36pc on 10-year JGBs and under 1pc on shorter debt, though they are not as low as they were .. nota bene. This seeming defiance of gravity has emboldened the Krugmanites and Keynesian prime-pumpers to call for a repeat in the US, UK, and Europe. There lies a great danger.

Mr Grice said Japan was able to pull off this feat only because its captive saving pool was large enough to cover the short-fall, and because the Japanese people continued to be reassured by the conjurer’s illusion that all was well. This cannot continue.

The country tipped into outright demographic decline in 2005. Households have already stopped adding to their stock of JGBs. As the aging crisis accelerates, the elderly are running down their assets. The savings rate will soon crash below zero.

Japan can turn to foreign investors to plug the gap, or course, but at what price? If yields reached UK or US levels of 4pc, debt costs would soak up nearly all the budget, leaving nothing for schools, roads, the police, or salaries for the Ministry of Finance. “I doubt there is any yield that international capital markets can find acceptable that will not bankrupt the Japanese state,” he said.

Note too that the Japanese will also have to run down their holdings of US Treasuries, currently $750bn or 10pc of the entire stock of US Treasury debt, as well as selling a lot of Gilts and Belgian bonds.

“This might very well precipitate other government funding crises. At the very least I’d expect it to trigger an international bond market rout scary enough to spook all other asset classes. So maybe we should all be concerned that Japan is in the hyperinflationary range. And if so, maybe we should think a little more carefully about how Western governments consider their debt burdens. Maybe Japan’s will be the crisis that wakes up the rest of the world,” he said.

Will it happen, this week, this month, this year, or will Tokyo keep the illusion of solvency going for years longer? Who knows. Japan is an endlessly mystifying society. But as Mr Grice puts it, if you are sitting on a tectonic fault line, expect an earthquake.

From Jim Sinclair:
The yearend dollar rally is predicated on improvement in the US economy and assumed sustainability of that recovery.

Trade deficit grows (.pdf).

November’s trade deficit rose 9.7% to $36.4B, larger than the $34.7B expected. Adjusting for inflation, the trade deficit grew 6.2%, prompting some economists to cut their estimates for Q4 economic growth. Exports were up 0.9% to $138.2B, but imports rose 2.6% to $174.6B.

Retail sales.
ICSC retail store sales were down 3% from the previous week vs. +1.5% last week, and were up 1.7% from the previous year vs. +2.5% last week. The decline stemmed from limited clearance merchandise; given consumer thrift, "if it is not on sale and the consumer does not need it, they will not make the purchase."

Consumer confidence drops.

The ABC Consumer Comfort Index dropped 6 points to -47, one of the steepest one-week drops in 25 years. The index had been at a 16-month high. Those who rated their personal finances positively slipped to 46%; only 24% think it’s a good time to buy things and just 9% rate the national economy positively.

U.S. budget gap widens in December from year ago
WASHINGTON, Jan 13 (Reuters) - The United States racked up a $91.85 billion budget deficit in December, a record for the month, marking a record 15th straight month of government red ink, the U.S. Treasury Department said on Wednesday.

The monthly budget gap, up from a $51.75 billion deficit in December 2008, pushed the budget shortfall for the first quarter of fiscal 2010 to $388.51 billion deficit. That compares to a $332.49 billion deficit for the same period a year ago.

More from Harvey Organ's - The Gold Blog 13.10
Today, we witnessed one of the strangest trading days in the history of gold and silver. We saw gold rise by 8.00 dollars early in the session with the culmination of the afternoon fix at 1132.40. Then the sinister bankers decided to raid gold sending the metal down to 1118.00 upon which huge buyers surfaced, buying gold all the way up to its close of 1136.40

Thus we had two outside day reversals in one trading session:

1. an outside day reversal on the downside as gold rose initially and then got bombed.

2. an outside day reversal on the upside as gold rose from its bottom of 1118. to close at 1136.00

Outside day reversals are rare. To have two occur on the same day is extremely rare and then on opposite sides--one on the
downside and then an upside.

There can be no other explanation but we have a new buyer in our midst. We have known for quite a while the China has been a serious buyer of gold.

It looks like Japanese citizenry have decided to ditch their yen and buy gold.

The bond auction finished at 1 o'clock and here are the results:

13:03 10-yr note auction yields 3.75% with 49.95% allotted at the high
•Bid/cover 3.00 vs. avg of past 10 auctions 2.67
Indirect participation 29% vs. avg of past 10 auctions 38.82%


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