Thursday, February 11, 2010

Why Is This Not Surprising?

First-time jobless claims fall more than expected
WASHINGTON (AP) -- The number of newly laid-off workers seeking unemployment benefits fell more than expected last week to the lowest total in a month, a hopeful sign the job market may be improving.

A Labor Department analyst said the decline largely reflects the end of administrative backlogs in California and other states that had elevated claims in the previous three weeks. The backlogs represented claims that had built up over the Christmas holidays.

The winter storms that have pounded the Mid-Atlantic took place after last week's claims were filed, the analyst said. If they have an effect, it won't be evident until next week's data.

How amusing. Last week "worse than expected", this week "better than expected". Every week, total bullshit. Nothing has changed! 20% of the US workforce REMAINS unemployed or underemployed! 16,000 fewer claims for unemployment than "expected" last week and "hopes" for the economy are renewed? Just a week ago these hopes appeared dashed. What a colossal joke! Oh we must run out and buy the Dollar immediately... Whistling past the graveyard. I wouldn't use the US Dollar as toilet paper, let alone buy more of them.

Gold and Silver were once again bid firmly overnight in Asia, and Gold actually looked to breakout this morning above near term resistance at 1083. But alas, that was not to be allowed. The TRUTH must remain suppressed. The perpetual lie, and Ponzi Scheme, we call the US Bond Market must be allowed to further fleece the American taxpayer.

Front-Running the Fed in the Treasury Market, There's No Business Like Bond Business
By Antal E. Fekete, Professor_Emeritus
The mechanism of check-kiting is as follows. The Treasury issues debt which it has neither the intention nor the means ever to repay. This debt is used as "backing" for Federal Reserve notes and deposits, which the Fed has neither the intention nor the means ever to redeem. When the Treasury debt matures, it is paid in Federal Reserve credit issued on the collateral security of new Treasury debt. When Federal Reserve credit is presented for redemption, the Fed offers interest-bearing Treasury debt in exchange. This is a shell game and it exhausts the definition of check-kiting. Neither the Treasury debt, nor the Federal Reserve credit is issued in good faith. Neither is redeemable any more than Charles Ponzi's tickets were. They are both issued in order to mesmerize a gullible public, much the same way as Ponzi did.

Treasury and Fed officials know their history. They are familiar with the fate of the assignat, the mandat, the Reichsmark, not to mention the Continental. They know that no fiat money ever survived "the slings and arrows of an outrageous fortune". Their only hope is that the fate of the irredeemable dollar, as predicted by Friedman, would be different. They would not embark upon an adventure in monetary policy involving direct sales of T-bills by the Treasury to the Fed. If they did, surely this would be the end of their experiment. Foreigners as well as Americans would start dumping the dollar unceremoniously, and buy anything they can lay their hands on.

What we face here is a congenital disease of the irredeemable dollar. Open-market operations is the tool for the purpose of increasing the money supply through monetizing government debt as needed. It should be recalled that open-market operations by the Fed were illegal according to the Federal Reserve Act of 1913. The original Act looked at the monetization of government debt as an anathema. Illegal open-market operations started in the early 1920's. They were legalized ex post facto in 1935 by an amendment to the Act, after the gold standard was destroyed by the proclamation of president Roosevelt in 1933. Those who sponsored the amendment were ignorant of what effect open market operations would have on bond speculation. Economists in and out of government and academia were equally ignorant. The financial press also failed to criticize the hare-brained scheme of open market operations making, as it did, profits from bond speculation risk free.

Under the regime of the irredeemable dollar no investor in his right mind would buy a Treasury bond and hold it till maturity. Treasurys lose value as ice melts in the sunshine. They have become a plaything in the hands of speculators for their value in turning a fast buck. Under the gold standard there was no bond speculation, just as there was no foreign exchange speculation. Interest rates were stable and so were bond prices. Speculators would shun bonds. Of course, all this changed when president Nixon defaulted on the short-term gold obligation of the Treasury to foreigners in 1971, and gold was finally removed from the international monetary system at the behest of the U.S. government.

For a decade speculators were happy with the trading profits they could make in the bond market. But as the monetary system kept deteriorating, they started abandoning bonds, transferring their activities to the commodity market. By 1981 demand for bonds practically evaporated. As this spelled the end of the regime of the irredeemable dollar, the Fed had to do something to prop up the bond market by enticing bond speculators back.

Thus, then, it is quite possible that a decision was made at the highest level to offer the enticement of risk-free profits to bond speculators. It certainly cannot be denied that bond speculators have been making obscene profits in the course of the 30-year bull market in bonds that is still ongoing. These profits are unprecedented in the history of speculation, both on account of their magnitude and their regularity. They were made at the expense of productive enterprise, the capital of which has been surreptitiously siphoned off by the falling interest-rate structure.

Another way of describing this scenario (assuming it is correct) is that in 1981 the Fed, unknown to the public, decided to recruit a corps of shills to prop up a moribund bond market. The shills hired by the casinos of Las Vegas bet big and win big at the gaming tables in full view of the gamblers who are unaware that they are being treated to a show. The sight of these big payoffs will then perk up the gambling spirit of a lethargic clientele.

The shills recruited by the Fed are the bond speculators, and their remuneration is in the form of risk-free profits they are allowed to make (and keep). The scheme was a roaring success. Not only did it save the bond market from extinction; it also saved the dollar from ignominy, and was instrumental in making possible a whole string of bubbles, each bigger than the previous one.

Treasuries Drop After Record-Tying Auction of 10-Year Notes
Feb. 10 (Bloomberg) -- Treasuries fell after the U.S. sold a record-tying $25 billion of 10-year securities at a higher- than-forecast yield, and as investors weighed the prospects of European aid for Greece.

The notes drew a yield of 3.692 percent, compared with the average forecast of 3.680 percent in a Bloomberg News survey of nine of the Federal Reserve’s 18 primary dealers. The bid-to- cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.67, compared with an average of 2.76 at the past 10 sales.

The yield on the current 10-year note climbed five basis points, or 0.05 percentage point, to 3.69 percent at 4:28 p.m. in New York, according to BGCantor Market Data. It increased as much as nine basis points yesterday, the most this year.

Today’s offering was the second of three note and bond sales this week totaling a record-matching $81 billion. The U.S. sold $40 billion of three-year notes yesterday, when investors bid for 2.83 times the available debt. The government will sell $16 billion of 30-year bonds tomorrow.

Obviously yesterday's debt offering by the Treasury did not go well. One must then assume that this mornings attack on Gold and "strong bid" for the Dollar are related to the weakness in the bond market and today's additional $16 BILLION offering of 30 year notes. The initial jobless claims number, and the folly of it in general, are no reason for this mornings "surge" in the Dollar.

Stocks fall even as EU pledges support for Greece
NEW YORK (AP) -- Stocks fell modestly Thursday morning as a pledge by European leaders to help Greece with its growing debt crisis failed to inspire investors.

Investors were also reacting coolly to a Labor Department report that showed first-time claims for jobless benefits fell sharply last week.

Stocks had rallied earlier in the week anticipating the European rescue package, which could be why the pledge of support is having little impact on the market. European officials are not expected to disclose specifics of the plan until early next week.

The EU pledges support for Greece but withholds details of support. Sounds like another day at the office to me. I haven't seen a single pledge of support for California by the US Government, and not a single detail of how the administration plans to deal with the nation's ever increasing mountain of debt, yet the US Dollar must be bought, because the Greek's can't print money to pay their debt.

In a nutshell, that is what the past ten days of Euro weakness is all about. The European Central bank has refused to print money to bail out Greece. Therefore, the Euro must be a "weak currency". The US Fed prints money 24/7 and the US Dollar is considered a "strong currency". The absurdity of this belief is astounding. Gold, meanwhile, is repeatedly horse whipped because it has no liability to anyone. Go figure.

Bernanke Testimony to House Financial Committee: Full Text
Feb. 10 (Bloomberg) -- Following is the text of Federal Reserve Chairman Ben S. Bernanke’s prepared testimony to the House Financial Services Committee, as distributed by the central bank:

Never has more smoke been blowin' up the collective asses of Congress than was today by this rambling statement by Bumbling Ben Bernanke. There is NO practical way for him to drain a cent from the economy. An economy that is far from a recovery that would warrant even an attempt at draining all of it's excess liquidity.

The only thing Bumbling Ben guaranteed in his statement is a further funneling of money to the banks by paying them more interest on their excess reserves held at the Fed in the hopes that this will deter them from lending this money into the economy. Geeze, I thought the Fed bought all the toxic paper from the banks so they would increase lending into the economy. The President has all but demanded that the banks lend more, but the Fed's plans seem to be in conflict with the President's demands. I know it sounds absurd, but maybe we should buy the Dollar...

What I find most amusing is the "belief" by Bumbling Ben, that the economy is today on a path towards a "sustainable recovery". Yesterdays news of an "unexpected rise" in the US trade deficit in December will likely snip up to 1.1% off of the bogus 5.7% GDP number reported for the fourth quarter. There is no recovery, let alone a sustainable one. When will the government ever tell the TRUTH again? The rise in the trade deficit is being spun across the financial news media as "a sign of recovery in the global economy". Hey, if they say so, it must be true!

US trade deficit widens in December
Oil demand drove the US trade deficit to its highest level in a year, the commerce department reported on Wednesday.

The trade gap widened, by $3.8bn from November, to $40.2bn in December. Petroleum imports jumped by $2.6bn as oil imports rose by 9 per cent and prices rose by 1 per cent on the month.

Exports jumped by $4.6bn to $142.7bn, driven by increases in industrial supplies, food, cars and car parts and capital goods.

”All the deterioration occurred in the petroleum category, with dollar gains in non-petroleum exports and imports largely offsetting each other,” said Joshua Shapiro, chief US economist at MFR.

The $3.8bn increase in the trade deficit took analysts by surprise. Median expectations of economists surveyed by Bloomberg showed a slight narrowing of the trade gap. The steep widening fell outside the consensus range and prior estimates of the commerce department, and may indicate that a downward revision to fourth-quarter economic growth figures is likely.

Of course this helped to pressure the Dollar yesterday, as it should, but was quickly forgotten today because of the "unexpected" drop in jobless claims. No mention that the rising Dollar will make our exports more expensive overseas and cause a deterioration in exports growth going forward, thus crimping the President's plan to increase jobs growth by increasing exports. Not to mention that less than 1% of the country's 30 million companies export. Stuck between a rising Dollar or a falling Dollar. There can be no recovery without a falling US Dollar and rising Gold prices.

Obama's Math: More Exports Equals More Jobs
On Thursday, U.S. Commerce Secretary Gary Locke revealed details about the president's plan for doubling the nation's exports in five years. The plan, known as the National Export Initiative or NEI, could support two million jobs, according to the president. Although many of the funds allotted to the program won't be available until 2011, should the president's budget pass, some efforts would go into effect immediately, said Locke at the National Press Club in Washington, D.C. In the past, export promotion was "a 'some of the time' focus" for cabinet agencies and departments, he said. Now, it will be an "all the time focus."

During the downturn, small business owners' number one complaint has been their ability (or inability) to reach their sales goals, says Bill Dunkelberg, chief economist for the National Federation of Independent Business in Washington. Less than 1% of companies expected to increase sales in January, down from 1% a month earlier, according to the NFIB's latest "Small Business Trends" survey. Helping U.S. companies export doesn't just make sense financially for those firms, it could also boost jobs—especially in the manufacturing sector, he says.

Seconding that assessment is Thomas J. Prusa, an economics professor at Rutgers University. "For me, this is a policy that [could] create permanent (or long-term) improvement in the competitive position of U.S. businesses—and, in turn, [create] U.S. jobs," he says. Further, if the dollar continues to weaken, which it has in recent months, "U.S. firms should be able to compete better in foreign markets," Prusa says.

Still, this initiative won't be easy. Less than 1% of the country's 30 million companies export, according to Locke. Even fewer small companies do so, says Dunkelberg. Plus, there are very real barriers associated with international trade. Among them: currency exchange, cross-border tax differences and language barriers often inhibit a more vibrant export market.

Given these constraints, some small business owners are skeptical about the president's plan to boost exports. "The only thing you can really expect from the government on the level that Obama is talking about is introducing parties," says Scott Layman, a co-owner of Zyvax, a specialty chemicals supplier in Ellijay, Ga. "If anything, the countries where the government has injected itself the most—[North American Free Trade Agreement or] NAFTA countries—are the hardest places for us to export to," says Layman, whose company now exports to roughly 100 countries.

China orders retreat from risky assets
By Ambrose Evans-Pritchard
China has ordered managers of its vast currency reserves to withdraw from risky dollar assets and retreat to core debt guaranteed by the US government, a clear sign that Beijing is battening down the hatches for fresh trouble on global markets.

A Communist Party directive leaked to the Chinese-language edition of the Asia Times said dollar reserves should be limited to US Treasuries or agency mortgage debt such as Freddie Mac that enjoys Washington's implicit backing.

BNP Paribas said the move has major implications for global risk assets. "The message from Beijing is that we don't like this environment," said Hans Redeker, the bank's currency chief.

"When the world's biggest investor turns risk-averse, that is something you take notice of. We think this could become the new theme for the markets in the medium-term," he said.

The directive covers both the State Administration of Foreign Exchange (SAFE) and China's state-controlled commercial banks. Together they have an estimated $3 trillion (£1.9 trillion) of foreign holdings.

The exact break-down of China's holdings are a state secret but it is understood that SAFE bought large amounts of corporate debt as well as municipal and state bonds during the boom years of 2006 and 2007. Any move to liquidate holding of California debt at this crucial juncture could have serious implications.

Greek debt is the least of the World's worries. The continued ignorance of the homegrown debt problems in the US will only lead to "unexpected" consequences. I can already see the headlines: "Unexpected California Debt Default Imperils Dollar". It's only a matter of time.

Greece's creative accounting courtesy Goldman Sachs
Put together Greek bureaucrats and U.S investment bankers and what do you get? A state-of-the-art way to quietly run up even more public debt.

Der Spiegel, the German news magazine, says that Greece’s
accounting fiddles are even more elaborate than people thought. Beginning in 2002, the country allegedly used various derivative transactions to legally circumvent the European Union’s rules on government debt and deficits.

Der Spiegel says that the swaps were constructed with the help of—you guess it—Goldman Sachs. It says the U.S. bank “devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billon for the Greeks.”

While contravening the spirit of the EU rules, this kind of transaction is perfectly legal. Nobody, though, appears to be rushing forward to claim credit for the deal. Der Spiegel says Goldman declined comment on the matter, as did the Greek Finance Ministry.

If the German publication is right, Greece’s financial situation is even worse than thought. When its bond issue matures in 10 to 15 years, Greece will have to pay up for the swap transactions.

Don’t worry about Goldman, though. Der Spiegel says it sold the swaps it held as part of the deal to a Greek bank in 2005.

Why is this not surprising?

As I wrap this up for the day, it appears that Gold is thumbing it's nose at this morning's bid in the Dollar . Gold has just broken to new highs for the day at 1089, and Silver is at 15.48. We contain our excitment knowing all too well these "prices" emenate from the CRIMEX at this hour of the day.

Technically speaking however, should Gold maintain this present posture, 1083/85 become near term support, having fallen as resistance, with resistance next at 1095. Silver still seeks near-term support, and finds resistance at 15.51. This could become support should Silver's present posture lift it above 15.78.

Bernanke, Geithner, and Mr. Market all say Buy Gold Now
By Andrew Mickey, Q1 Publishing
Over the weekend on ABC’s Sunday political show This Week, the Treasury Secretary took to the airwaves once again with plenty of focus-grouped phrases to attempt to help create the image of how worse the economy would be without the stimulus, bailouts, etc.

It didn’t take long for Geithner to get off script though. Nearly halfway through the interview he started looking ahead into the future and making some bold guarantees.

The following exchange reveals a lot of how the current administration views the massive and growing fiscal deficits and its ability to continue issuing bonds:

Jake Tapper: Is the United States going to lose its triple-A government bond rating? And what happens when the credit markets are no longer willing to buy U.S. debt?

Secretary Geithner: Absolutely not. And that will never happen to this country…

If history is any evidence, when a government representative completely rules out something from happening, it’s pretty much a sure bet it’s only a matter time until it does happen.

That’s why when a reassuring Treasury Secretary says “absolutely not” and “never,” we know the dollar’s fate is pretty much sealed.

Of course, Geithner isn’t alone. The Fed Chairman continues to see the green light to keep to the printing presses running at full speed.

As we’ve discussed before in Is The Free Money Party Over?, GDP growth, unemployment, and other bits of the financial news media’s “top noise” simply don’t matter too much to the Fed Chairman. The key economic indicator Bernanke is watching is consumer credit.

After all, the economic theory du jour finds deflation as the creation of all economic ills. And simply preventing deflation by any means necessary can prevent a depression will lead to prosperity and growth.

Despite how many things are wrong with that rationale, we know that means consumer credit growth is what will signal when the Fed starts hiking rates.

Right now, consumer credit is still contracting. Last week the Fed reported consumer credit for the 11th straight month. Consumers cut their debt loads by $1.8 billion in December. That’s a sharp drop from the $21 billion in November, but since it still signals a decline in consumer spending, it’s a green light for the Fed to keep fighting deflation handing out free money.

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