Monday, March 8, 2010

The Fed is ALL TALK

The Precious Metals and currency markets never cease to amuse me. Today comes "news" from our ever "desperate to believe there is actually a recovery" Federal Reserve that they have a "reverse repo plan". No kidding. The Fed says they have a plan to drain liquidity from the financial system. The plan sounds more like a game of Hide And Go Seek than a valid way to drain excessive liquidity from the financial system. The amusing part is that right on cue, the price of Gold craters as this "idea" is shared with the public. What an absolutely pathetic reason to sell Gold.

Fed to Add Money Market Funds in Reverse Repos
By Liz Capo McCormick
March 8 (Bloomberg) -- The Federal Reserve Bank of New York said it will expand the number of counterparties used when the central bank begins to drain the record amount of cash added to the financial system to include domestic money market funds.

The additional firms to be used for reverse repurchase agreements are “intended to enhance the capacity of such operations to drain reserves beyond what could likely be conducted through” the use of the central bank’s 18 primary dealers, the New York Fed said in a statement today. The plan is “prudent planning” and doesn’t signal any change in monetary policy, the Fed said.

Policy makers are debating how to withdraw the emergency programs aimed at reviving the economy without disrupting financial markets or bank liquidity as the recovery gains strength. Along with raising the overnight bank lending rate, Fed Chairman Ben S. Bernanke has said officials may use reverse repos, pay interest on excess bank reserves and sell securities directly to investors to withdraw or neutralize cash in the banking system.

Can anybody out there say "pipe dream"? Seriously, only a crackhead would sell Gold on this "announcement". Where is my shovel? The sh*t is getting deep. "Prudent planning"? " the recovery gains strength"?

Planning for a recovery that doesn't even exist. This announcement isn't even news. Sell Gold? The Fed comes up with this garbage for ONLY one reason: If they keep talking about a recovery, maybe the American public will believe there is one, and get their credit cards out of the garbage disposal and begin spending money they don't have to get rich again. Honestly, these financial geniuses actually believe that if they keep talking as IF there is a recovery, one will actually appear. It ain't gonna happen. Everybody, and I mean EVERYBODY knows that 4th qtr GDP was a one off that was 100% bought and paid for by the Oracle Of Orwell's stimulus spending. If there ever is a recovery, it won't be this year or next, or the year after that.

The US Federal Reserve is ALL TALK...and wishful thinking.

Hide And Go Seek: In a reverse repo, the Fed lends securities for a set period, draining cash from the banking system. At maturity, the securities are returned to the Fed, and the cash to the primary dealers. And this is supposed to drain liquidity? Temporarily? Sounds like a game of Hot Potato too. The funniest thought: Who would buy the garbage on the Fed's balance sheet? This is toxic waste that was threatening banks balance sheets when the Fed hoovered it all up, and they expect the banks, money market funds, et all to buy it back from them? Man I wouldn't sit down for a smoke with these guys... Talk about a bad buzz. Oh I get it. Once the recovery gains momentum, this garbage sitting on the Fed's books will regain it's lost value, and EVERYBODY will want to buy some of that sweet smelling trash. Once the recovery gains momentum. Man you gotta be high to believe this.

Thank you, no. I'll keep my Gold.

The Dollars pop off it's lows this morning on this "smoke blown from the Fed" was short lived as the reality of "more debt for sale" by the Treasury caught everyone's attention. And speaking of Treasury debt... Has anybody considered who's going to keep buying these Treasury notes if the banks are buying toxic waste off the Fed's balance sheet instead? It is a fact that the USA is going to run deficits of $1 TRILLION plus for the next 10 least. Isn't it a bit of a conflict for the primary dealers, who HAVE TO BID on the Treasury Auctions, to also be buying the Fed's toxic waste? The buzz just gets worse, does it not? Ah well, there ain't gonna be a recovery gaining momentum anytime soon, so why worry about it.

Treasury 10-Year Notes Drop on Concern Auction Demand Will Wane
By Cordell Eddings and Lukanyo Mnyanda
March 8 (Bloomberg) -- Treasury 10-year notes fell, pushing the yield to the highest level in almost two weeks, on concern the government may struggle to find buyers for $74 billion of securities this week at current rates.

“The market is shifting its focus to this week’s supply,” said Thomas L. di Galoma, head of U.S. rates trading at Guggenheim Partners LLC in New York. “We are cheapening up some to set up for the auctions.”

The Treasury is scheduled to sell $40 billion in three-year notes tomorrow, $21 billion in 10-year debt on the following day and $13 billion in 30-year bonds on March 11. The three-year sale ties a record.

How can there even be talk about a recovery, let alone a 'recovery gaining momentum", when the governemnt is piling on debt in leaps and bounds? This week, $74 BILLION of NEW debt. Two weeks ago, $121 BILLION of NEW debt. NEW debt every other week for the next 10 YEARS. Prudent planning? How about some prudent spending cuts?!

Now this should make the banks anxious to buy some of that Fed toxic waste...if they have any cash left.

Fannie, Freddie Ask Banks to Eat Soured Mortgages
By Bradley Keoun
March 5 (Bloomberg) -- Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages.

That’s the estimate of Oppenheimer & Co. analyst Chris Kotowski, who says U.S. banks could suffer losses of $7 billion this year when those loans are returned and get marked down to their true value. Fannie Mae and Freddie Mac, both controlled by the U.S. government, stuck the four biggest U.S. banks with losses of about $5 billion on buybacks in 2009, according to company filings made in the past two weeks.

The surge shows lenders are still paying the price for lax standards three years after mortgage markets collapsed under record defaults. Fannie Mae and Freddie Mac are looking for more faulty loans to return after suffering $202 billion of losses since 2007, and banks may have to go along, since the two U.S.- owned firms now buy at least 70 percent of new mortgages.

“If you want to originate mortgages and keep that pipeline running, you have to deal with the push-backs,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, and former examiner for the Federal Reserve. “It doesn’t matter how much you hate Fannie and Freddie.”


U.S. Treasury Scrambling to Offload Junk Bought During 2009 Bailout Frenzy
By: Martin_D_Weiss
With global investors attacking any sovereign government that’s running massive deficits or stuck with a pile of bad debts …

And with Uncle Sam obviously the world’s greatest debtor, beggar and fiat money printer …

Some folks at the Treasury Department now fear the United States could be the next victim.

So they’re scrambling to get rid of at least SOME of the junk they piled up during the great bailout frenzy of 2009.

Case in point:

The government officials running Fannie Mae and Freddie Mac have decided to force big banks to take back $21 billion in bad mortgages.

If they can get some of these sick assets off the government’s books, they figure, they can say they did SOMETHING before global investors start attacking.

So they’re using various loan provisions to force giant institutions like Bank of America, JPMorgan Chase, Wells Fargo and Citigroup to buy some of them back.

But these bad loans are a hot potato that no one wants!

Fannie and Freddie certainly don’t want them. Just since 2007, they’ve already lost $202 billion on loans like these, a figure that dwarfs the $21 billion in loans they’re trying to pawn off to the banks.

Meanwhile, the banks wish they could stuff every one of these bad loans into lead boots and toss them into the East River.

The loans are already in default. The homes used as collateral are now worth far less than the outstanding balances on the loans. And, inevitably, the banks that get stuck with them are going to take huge hits to their bottom line.

When the recovery gains momentum?

Is a Big Oil Producer in the Middle East Hoovering Gold?
By Dave Kranzler, The Golden Truth
Yesterday, The Gartman Letter contained a comment from a Canadian "friend" who stated that according to his sources: oil producer in [the Middle East] is converting about 200,000 BPD of oil sales into gold bullion - this offtake would equal about 6% of annual gold production...the quiet flight from dollars is accelerating… [and further] Russia bought 25 metric tonnes of gold in January, so 300 T per annum rate which is 45% more than the run rate of Russian gold production. A senior gold mining company operating in China informs us that China is buying all domestic gold production that is not consumed locally.

I can't speak as to the veracity of the report about the ME oil producer, but it's no secret that the Chinese are not exporting any of their gold - the Chinese Government has stated that publicly. And my chart from yesterday is based on data pulled directly from the website of the Russian Central Bank. I would argue that it is highly likely that some portion the report about the ME oil producer is true. I also find it interesting that all is quiet on the IMF gold sale front. My bet would be that several large "official" buyers are negotiating behind the scenes to purchase that chunk of gold. As Jim Sinclair has stated many times, usually when an official (i.e. large Central Bank of Govt body like the IMF) entity sells a big chunk of gold, we don't hear about it until after the transaction has already occurred. The last IMF sale to India/Sri Lanka/Mauritius is a perfect example of the golden truth of Sinclair's statement.

Stephen Roach, Chairman of Morgan Stanley Asia, recently remarked that "It is well-documented by economists at SocGen and elsewhere, that the world has now entered a race to the currency bottom." I believe that the accelerating movement wealth out of fiat currencies, and especially out of U.S. dollars, into gold by large buyers is an acknowledgement that a currency crisis involving dollars/euros/yen is right around the corner. Have a great weekend with that in mind.

Sadly, Gold was hit by the CRIMEX goons today in an effort to give the Fed's "reverse repo" announcement some credibility. This nonsense should be all flushed out of the system by the time the Asian markets open this evening, and take advantage of the discount pricing in the Precious Metals. It is interesting to note that Platinum hit a two year high today. And if there is such an opportunity ahead for a recovery to gain momentum, why was Silver sold down with Gold today? That's right, the CRIMEX goons...

Gold fell and closed below support at 1126. This opens the door for a test of the uptrend at 1110. Silver, despite following Gold down through support at 17.22, held key support at 16.92. Delivery issues for the CRIMEX in March Silver are mounting.

From Harvey Organ's - The Daily Gold:
COMEX Warehouse Stocks Mar 5, 2010


ZERO ozs withdrawn from the dealer's (registered) inventory
252,852 ozs withdrawn from the customer (eligible) inventory
Total dealer inventory 49.51 Mozs
Total customer inventory 61.42 Mozs
Combined Total 110.93 Mozs


ZERO ozs withdrawn from the dealers (registered) category
965 ozs deposited in the customer (eligible) category
Total dealer inventory 1.63 Mozs
Total customer inventory 8.34 Mozs
Combined Total 9.97 Mozs

Note 1: The month of March is a delivery month for silver. We have a huge amt of silver standing and it is quite alarming to see no silver leave the dealers inventory.

Note2: It is even more alarming to see another 252852 oz leave the customer inventory. They are certainly scared of something. The customer inventory is at an alltime low of 61.41 million oz

The dealer inventory sits at 49.5 million oz. However 22 million oz seeks the silvery metal.

OK lets see what happened with the silver deliveries:

There were 213 delivery notices issued in the MAR silver contract. The total delivery notices for the month in silver stand at 2,883 or 14.4 Mozs. JPM issued 129 and stopped 69, BNS issued 0 and stopped123, while Deutche Bank issued 0 and stopped 5.

Note No 3: there were 213 notices issued in the march silver contract. Notice that JPMorgan issued the majority with the Bank of Nova Scotia the receiver of those contracts along with JPMorgan.

The total no of notices issued now stand at 2883 or 2883 x 5000 oz per contract or 14.4 million oz of silver.

No 4: The options exercised on the Feb silver remain at 4.6 million oz of silver. These contracts get delivered upon in March as Feb is a non delivery month.

and lets see what remains to be served:

The open interest in the MAR gold contract INCREASED for a third straight day by 18 contracts to 273, in silver it also INCREASED to 650 which is a 16 contract increase from the prior session; someone wants physical metal immediately.

Note: 5: In silver the OI strangely increased back up to 650 contracts or 3.25 million oz of silver remain to be serviced upon.

Thus the total amount of silver standing for real metal in March (we do not know how much was settled for cash) is:

14.4 million plus 4.6 million plus 3.25 million which equals 22.25 million oz.

By golly, our missing 1 million oz of silver reappears.

There is no doubt that the cartel bankers are having their hands full with the silver delivery.

Actions speak louder than words. The Fed is ALL TALK.

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