“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.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=a1Yev5V7WGko&refer=home

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.
http://www.forbes.com/feeds/afx/2009/05/11/afx6404765.html

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.
http://www.google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD984RO880

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 (CNNMoney.com) -- 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."
http://money.cnn.com/2009/05/13/real_estate/April_foreclosure_stats/?postversion=2009051304

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.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLqc3woGnzWE&refer=home

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 youtube.com. 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.
http://www.thedailybell.com/index.asp?fl

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. http://news.goldseek.com/InternationalForecaster/1242242457.php

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. http://finance.yahoo.com/news/Fed-Officials-Knew-About-AIG-cnbc-15230008.html?sec=topStories&pos=3&asset=&ccode

Bailing Out On The Bailout

"Never in the history of the world has there been a situation so bad that the government can't make it worse."
-Unknown

Wall Street's rally hits a wall
NEW YORK (CNNMoney.com) -- Stocks stumbled Monday as investors took a step back after propelling the major stock gauges by more than 30% each in just two months.

Treasury prices rallied, lowering the corresponding yields, as investors pulled money out of stocks and put it into the safer-haven bonds.
http://money.cnn.com/2009/05/11/markets/markets_newyork/?postversion=2009051118

Geezo-beezo, what a surprise! Nothing's shocking... Interesting to note today that as the equity markets were making new lows late this afternoon, the Gold Stocks represented by the HUI and XAU Indexes rocketed off their lows in the last 20 minutes of trading. Could we perhaps be seeing the beginning of a move to the real "safe-haven" of Gold as traders eye the bond markets with suspicion? The DOW closed off 1.82%, and the S&P closed off 2.15%. The HUI Index closed off only 0.48%. Bullion Gold closed down today just 0.32%. This bears close observation as only a tiny amount of money shifting from the bond markets into the Precious Metals could not only protect the metals on the downside, but send them much, much higher from here. Time will tell...

It is also worth noting that new public stock offerings announced by the banks, and this afternoon by the Ford Motor Company, have historically signaled the end of Bear Market Rallies before. The bank stock offerings in particular are highly dilutive, and were sold at a discount to prevailing market prices. I can't image why anybody would be buying this wall paper. The markets never cease to amaze...

The following essays are superb, and should all be read in their entirety...it is all becoming so clear now.


“BEWARE OF OBAMANOMICS”[A MUST READ in its entirety]
By Thomas E.Woods, Jr., a senior fellow at the Ludwig von Mises Institute
Once in office, the candidate who had run on “hope” began speaking in apocalyptic terms of what might happen to Americans if vigorous government intervention were not undertaken. At the very least, we might experience an extended slump rivaling the Great Depression.

Shortly after taking office, President Obama urged the Congress to approve a “stimulus” package amounting to $787 billion in order to (he said) restore the economy to health. In his first news conference as president,Obama warned that a failure to pass this bill “could turn a crisis into a catastrophe.” “I can tell you with complete confidence,” he continued, “that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans.”

But, fashionable superstitions notwithstanding, government spending – that is, draining resources from the productive sector and devoting them to arbitrary projects – cannot improve the economy. It can only make things worse.
http://www.europac.net/whitepapers/BewareOfObamanomics.pdf

Postponing Judgement Day
By Puru Saxena
Now, I’m painfully aware that America’s economic woes are far from over and that it will be several months before the world’s strongest nation gets back on its feet. However, unlike some other analysts, I don’t foresee a total collapse in the near-future. In my view, what is more likely is that the US economy will muddle through for another year and we’ll probably see a short-lived recovery thereafter. Already, certain leading economic indicators are showing signs of bottoming out and it seems that the worst may be over.

Make no mistake, America’s establishment has elected to postpone judgement day by using taxpayers’ money. Rather than letting the system clear itself out now, Mr. Obama has intervened in the free-market system by nationalising the banks’ losses. Furthermore, Mr. Bernanke has used various tools in order to bail-out the banking system. First, he dropped the Fed Funds Rate to almost zero and when that wasn’t enough, Mr. Bernanke injected huge amounts of money into America’s banking system. It is shocking to note that over the past year, America’s monetary base has more than doubled from US$800 billion to roughly US$1.6 trillion (Figure 1)! Finally, Mr. Bernanke recently announced the Federal Reserve’s intention of monetising debt by buying US Treasuries from newly created money.

All of these measures may have averted short-term disaster, but all that has happened is that the underlying problems have been postponed into the future. By following the above short-sighted and misguided policies, American leaders have decided to burden their children and grandchildren with even greater quantities of debt.

It is my observation that the American establishment’s prime motive is to prop-up asset markets; never mind that such an objective will incur a massive cost to the American society. Let there be no doubt that by printing money, running massive deficits and increasing the national debt, American leaders are debasing their currency and setting the stage whereby foreigners will end up owning a large chunk of corporate America.

There is no doubt in my mind that over the following years, we will witness a massive shift of wealth and power from the West to the East. Over the past few decades, American companies were at the top of their game and they infiltrated the whole world. Now, it is probable that over the coming decade or two, we will see more and more foreign companies and governments increasing their stakes in American corporations.

In summary, the recent policy measures (monetary and fiscal easing accompanied by the nationalisation of private losses) adopted by the US government may have succeeded in stabilising the economy and supporting asset prices in the near-term, but the end result will be a significantly weaker US Dollar and very high inflation.
http://www.321gold.com/editorials/saxena/saxena050809.html

Don't Be Fooled by Inflation
By Peter Schiff
Recently released short-term economic data, including unemployment claims, non-farm payrolls, home sales, and business spending, which had been so unambiguously horrific in February and March, are now just garden-variety awful. With the Wicked Witch of Depression now apparently crushed under the house of Obamanomics, the Munchkins of Wall Street have sounded the all clear, pushing the Dow Jones up 25% from its lows. But the premature conclusion of their Lollipop Guild economists, that the crash of 2008/2009 is now a fading memory, is just as delusional as their failure to see it coming in the first place.

Once again, the facts do not support the euphoria. Over the past few months, the government has literally blasted the economy with trillions of new dollars conjured from the ether. The fact that this "stimulus" has blown some air back into our deflating consumer-based bubble economy, and given a boost to an oversold stock market, is hardly evidence that the problems have been solved. It is simply an illusion, and not a very good one at that. By throwing money at the problem, all the government is creating is inflation. Although this can often look like growth, it is no more capable of creating wealth than a hall of mirrors is capable of creating people.

We are currently suffering from an overdose of past stimulus. A larger dose now will only worsen the condition. The Greenspan/Bush stimulus of 2001 prevented a much needed recession and bought us seven years of artificial growth. The multi-trillion dollar tab for that episode of federally-engineered economic bullet-dodging came due in 2008. The 2001 stimulus had kicked off a debt-fueled consumption binge that resulted in economic weakness, not strength. So now, even though the recent stimulus administered a much larger dose, we will likely experience a much smaller bounce. One can only speculate as to how much time this stimulus will buy and what it will cost when the bill arrives.
http://www.321gold.com/editorials/schiff/schiff051109.html

A Bull Market That Few Are Buying
By Tim Price
It's not just what you know, it's who you know. And it's not just who you know, it's who you pay off. As the Center for Public Integrity reports (as cited in last week's Financial Times), the largest US originators of subprime mortgages spent roughly $370 million on lobbying and campaign donations in Washington during the past decade in attempts to stave off tighter regulation of their industry. The study “shows that most of the top 25 originators, most of which are now bankrupt, were either owned or heavily financed by the nation's largest banks, including Citigroup (C), Goldman Sachs (GS), Wells Fargo (WFC), JP Morgan (JPM) and Bank of America (BAC),” who collectively originated $1 trillion in subprime mortgages (almost three quarters of the total) between 2005-2007. That $370 million was money well spent though, given that it was followed, in turn, as the mortgage market imploded, by $700 billion – so far – in troubled asset relief funds – otherwise known as taxpayers' money. Who said crime doesn't pay? That's a return on capital some 1,891 times bigger than the original “investment”. Now that’s leverage. Strangely enough, US politicians have been largely silent about their own complicity in the theft of the century.

In any event it is the sudden and somewhat mystifying recovery back to health by the equity markets that is leaving more than a few market-watchers and putatively professional investors scratching their heads. How can a still deteriorating macro economy, an ongoing dearth of banking credit and a dreadful global trade outlook be consistent with a sharp recovery by stocks? There are several answers. One is that the heroic diversion of taxpayers' money toward the banking system has temporarily goosed a capital-sensitive and sentiment-sensitive stock market – this, essentially, is Grantham's view. Another is that professional investors have been sitting on the sidelines for a sufficient length of time that they are scared at the prospect of missing a suddenly fast-moving train, irrespective of where it is headed. Another is that short-covering managers have voted with their feet. Another still is that the financial crisis is nearly over and the global economy is headed for recovery. Anybody who truly believes this last scenario should be sectioned.

A rally built on sand? Relative performance by FTSE sectors, year to date: A glance at the best and worst performing index sectors within the FTSE this year shows that the rally has explicitly favoured the most cyclical and recession-vulnerable stocks: industrial metals; retailers; automobiles and parts; industrial engineers.. But the rising tide has not lifted all boats – defensives like food producers; utilities; tobacco; pharmaceuticals and telecoms stocks have all suffered negative returns. That admittedly reflects just how bombed-out and oversold many cyclical businesses became during the first quarter, but it strongly suggests a relief rally as opposed to a sustainable one. Because as the IMF recently indicated in its World Economic Outlook, recessions triggered by financial crisis are inevitably more severe than regular business cycle recessions, and recoveries are typically slower, impeded by weak private demand and credit and a steady rise in household savings.

There is another reason to fear that the rally's foundations are less than secure, and they come in the form of the dead hand of (inconsistent) government intervention, specifically but not exclusively in the Anglo-Saxon economies. For breathtaking hypocrisy, note for example the scolding issued by President Obama to bond fund managers within the hedge fund community for opposing a government rescue that compromised their duty to their investors:

"While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everyone else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. I stand with Chrysler's employees and their families and communities. I don't stand with those who held out when everybody else is making sacrifices."

Evidently those hedge funds didn’t spend enough on lobbying. As hedge fund manager Cliff Asness of AQR responded:

"Managers have a fiduciary obligation to look after their clients' money as best they can, not to support the President, nor to oppose him, nor otherwise advance their political views. Let's be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. If they give away their clients' money to share the "sacrifice", they are stealing."

And as Bill Gross of Pimco pointedly observed, as Adam Smith's invisible hand comes to resemble more and more the public fist of government, asset values will be negatively affected:

"First comes the haircutting and burden sharing, most recently evidenced by Chrysler and soon to be played out via the stress testing and equity dilution of government ownership of ailing banks. In those footsteps, however, will follow a slower rate of economic growth, not just in the US, but worldwide as heretofore libertarian capitalism is bridled, saddled and taught to trot instead of gallop over the investment plains... the Obama cannon shot will have financial consequences. Do not be deceived by the euphoric sightings of “green shoots” and the claims for new bull markets in a multitude of asset classes. Stable and secure income is still the order of the day."

So a war on terror is followed by a war on free markets, wherein those special interest groups (namely bankers) who bribe politicians most heavily get the greatest protection, while other financiers whose businesses don't involve millions of voters and who never required a penny of taxpayer support get publicly flayed.
http://seekingalpha.com/article/136716-a-bull-market-that-few-are-buying?source=article_sb_popular

The gold monetization scheme is ending
By Murray Pollitt
The G8 appears finished but their policymakers continue to try to bend the G20, and the world, to their will. The establishment, the Fed, the Bank of England, the Bank for International Settlements, the same gang that has been setting policy for decades, is still at it. They appear to remain in charge (with nary a whimper of criticism about the trillions of dollars' worth of damage their policies have caused) but, when it comes to gold, they are slowly losing their grip.

Besides setting the stage decades ago for sub-prime paper, CDSs, and so on, it appears policymakers embarked on a scheme, at more or less the same time, to monetize the hundreds of billions of dollars' worth of gold lying sterile in central bank vaults. The temptation was too much. One-percent income on gold for a central bank was better than nothing, so the argument ran, and for the Lehman types borrowing gold (and selling it) provided lots of money (capital) to play games with.

It was so easy. Besides, the gold carry trade involved selling lots of gold into the market and this helped keep the price down (and hopefully the dollar up), a subject near and dear to policymakers.

One would have to be barking mad not to see the benefits a higher gold price would have on vast chunks of the global economy. Even long-suffering Zimbabwe would be a huge beneficiary, and more wealth in Africa and Latin America would mean more exports of Fords and Cats from the United States. The establishment may not care, but that won't stop G20 members (and others) from connecting the dots and following China's lead in increasing gold weighting in monetary reserves.

Gold is again becoming a preferred central bank asset and the great monetization scheme is coming to an end. Western policymakers and banks have pushed their game too far for too long and the combination of the shift of power from G8 to G20, plus the reduced availability of gold, will turn the tide. You can sell gold only once, although, in the new wondrous world of derivatives, maybe somebody has actually sold it twice.
http://www.gata.org/node/7415

Deja Vu All Over Again

"The problems we face today cannot be solved by the minds that created them."
-Albert Einstein

I ended the week just passed excited at the "unfolding" collapse in the US Dollar and the Treasury Market. The collapse of both would be HUGELY bullish for the Precious Metals and all commodities as the Inflation Genie would have flown the coop. But then I began to think about how important the Dollar, and especially the Bond Market, are to our corrupt government.

My thoughts quickly turned to the now obvious manipulation of the "free markets", and the possibility that the government, with the aid of its corrupt banking cartel, might possibly go about rescuing the Bond Market, the Dollar, and in turn whacking Gold again just as it attempts to break the shackles of suppression.

Think about it... Another collapse in the equity markets ignites another round of deleveraging. And where did the World run to in our last deleveraging episode? To that bastion of "safety", the US Treasury Market. And in order to book passage to the Treasury Market safe-haven, you have to buy US Dollars. Demand for the Dollar rises, and woosh...there goes the Precious Metals, Oil, and all the rest. Or that's the theory...

But what if this time the equity markets collapse via government market intervention [aka: sacrifice the stock market to save the Dollar and the Ultra-Precious Bond Market] and nobody rushes to the Bond Market. What if the equity market collapses, and there is a buyers strike in the Bond Pits. Can you say catastrophe?

Then I stop and wonder... The government is obsessed with building CONfidence. How could they crash the equity markets to save the Dollar and Bonds and hope to keep the peoples confidence? Let's face it, as ridiculous as it is, Americans are convinced the "health" of the stock market is the ultimate gauge of economic health, [though nothing could be further from the truth].

The current Bear Market Rally in the equity markets is getting a bit long in the tooth as far as bear Market Rallies go. There is a great deal of "bearish sentiment" in the financial media expressing the fear of the other shoe dropping. And though the other shoe may drop eventually, consider that this present "wall of worry" the equity markets are climbing may keep this "doomed" bear Market Rally going a bit longer.

I have a small suspicion that the Fed may cede a bit of yield in the Bond Market here, but to no more than a 4% yield on the 10-year Treasury, and possibly 6% on the 30-year. And they may let the Dollar drift towards 78-80 before they swing their hammer on the equity markets again. A lot of the Fed's corrupt banking constituents are making some serious profits on this Bear Market Rally...and the public's CONfidence is soaring if you believe the headlines.

And you can bet these banking cronies will be in the drivers seat on the way down to profit yet again at the expense of Joe The Plummer's 401k. This is a dangerous game the Government is playing, and never forget the tables are rigged in the houses favor.

Rising interest rates may be tolerated in the near term as the government hopes it will "force" buyers into the housing market out of "fear" of rising financing costs vs. the reward of low housing prices. And on the flip side, rising interest rates and a falling Dollar will crush corporate profits. This of course could be used as an excuse to "pull the rug out" from under the equity markets again...just in time to "save" the Bond Market and the Dollar.

Bottom line. It may be wise to temper our enthusiasm for the breakout in the Precious Metals here, and respect the governments absolute need to prop up the Treasury Market and the US Dollar. Stops below the metals markets to protect profits would now be wise. Any new long positions added at this time should be done so with "very tight" stops. Going short the metals here may seem the obvious trade. Beware the "obvious" trade...being short a market that isn't ready to come in yet can be very painful. The time to short will come with the break in the equity markets, and then ONLY if money fleeing equities flows into the Bond Market. Should there be a buyers strike in the Bond Market the Fed will be f***ed, and the Gold and Silver Markets will welcome the newbies to the ultimate safe-haven.

There was a lot to read this weekend. I will share some links today, and save some for tomorrow. I suggest reading all of these essays in their entirety...

“Far be it for me to call the stress tests a charade, a dupe, a con game or an exercise in manipulation - I’ll leave that to others, like the Wall Street Journal, which noted this morning that the banks managed to browbeat the Fed into accepting much lower capital needs than the tests should have required. [For example, a decrease in required capital of 48.3% was negotiated by Bank of America, Wells Fargo, Fifth Third Bancorp and Citigroup when added together.] The entire exercise is turning out to be one giant joke - and the laugh is on the taxpayers.”
- Barry Ritholtz (The Big Picture)

Casey’s Charts: Are the green shoots for real? Watch part-time workers
“Since the fall of 2007, the number of employees forced to work part-time due to the economic slowdown has doubled to over nine million people - that’s two million more than at any time in 54 years of collecting the data. You can see the spike in the chart above.

“You can also see a close correlation between the start of a recession and a sharp shift to using part-time workers. And, conversely, that when an economy recovers, the use of part-time workers falls off quickly.

“Lesson of the day? This is one of the few reliable indicators of an economic turnaround … watch it closely. Until you see a distinct reversal in the indicator, ignore the government’s happy talk of green shoots and continue to rig for stormy economic weather.”
Source: Casey’s Charts, May 6, 2009.

The Clock is Ticking on the U.S. Dollar and Bond Markets!
Just last week, the $3.5 Trillion 2010 budget was passed by the US Congress, setting in stone the coming nationalization of the HEALTHCARE industry and CAP and trade energy legislation. Together they represent TRILLIONS of dollars of new levies on the private sector. The new administration, in conjunction with the public servants in Congress, have now FINISHED expanding the government by more than 95% in less than 10 months after being sworn in January 2009. The US now needs to raise $3.25 Trillion this fiscal year to cover its budget deficit and to ROLL past obligations coming due. This amounts to a staggering $21.95 BILLION PER DAY until the end of the fiscal year in October. Can you say ABSURD, INSANITY?

And to think, this DOES NOT include any private, state or municipal sector debt requirements. This level of borrowing virtually sucks the wind out of the private sector, misallocating precious capital needed by the private sector and entrepreneurs to rebuild the INCOME production in the United States and to create jobs. It now takes an astounding $6 of new DEBT to generate $1 of GDP (Gross Domestic Product). The new $3.5 Trillion deficit for 2010 is funded half from TAXES and 49% from NEW BORROWING.

The Treasury International Capital Report was released for February, and for the second month in a row, was negative to the tune of $97 Billion, marking the continued retreat of capital from US shores. As outlined above, this RETREAT from capital inflows signals the eventual WATERLOO for the US government; funding requirements will need to be shouldered increasingly by domestic savers and what else: “the printing press”, aka Quantitative Easing. US savers are offered virtually NO return and immense capital risk buying the long end. Limitless money printing looms as you can expect the Fed to announce additional treasury purchases above the $300 Billion already announced. When the fed meeting ended without additional purchases being announced, the long end took it on the nose.

Helicopter Ben was on Capitol Hill today and pointed to the long end of the treasury markets as a signal that inflation was low and investor’s appetites for US debt high, as illustrated by the lofty prices. NO, it’s the feds and primary dealer purchases (primary dealers are choking on long-term inventory) that are holding it up and the longer they do, the farther away lenders will stay, waiting to be paid for the risks they entail.

The US deficit is set to RISE by $8.5 TRILLION over the next three years. That includes new revenues from CAP and TRADE TAX on the domestic oil industry, and projected growth rates which are fantasies in the extremis from the chief executive who is bent on destruction of the private sector to pay for his new INVESTMENTS. These are known as PERMANENT government expansion and runaway new entitlements. The FISCAL and MORALLY bankrupt Administration and Congress will only be stopped by one thing: A BUYER’S STRIKE. And one is emerging like a freight train coming straight at them; you can look for it to arrive someday soon.

In Conclusion: The dominoes continue to fall; do not expect them to stop anytime soon. The final destination is completely in view: the complete destruction of the G7 monetary and financial systems. The public servants and central banks may slow it down or postpone it with GOVERNMENT actions, but escape from this predicament is IMPOSSIBLE. As Von Mises stated: There is no escape from a credit induced bubble and the public servants REFUSE to embrace any solution that does not result in going back to where we came from.
http://marketoracle.co.uk/Article10550.html

Bill King (The King Report): Bonds breaking down
“… to say bonds are retreating due to economic growth is wrong, with the 80s as an example.

“The financial crisis to date is due to credit and solvency concerns. When people fear that an entity cannot meet interest payments or repay all or part of the principal, that piece of paper tanks. But debt without credit concerns remains buoyant; some debt increases in price on safe haven buying.

“But if bonds prices tumble, all debt gets marked down; and then there could be more derivative problems. If all debt instruments decline financial firms’ balance sheets will deteriorate severely.

“One reason for the severity of the credit crisis is that too many Street denizens, including model makers, had not experienced a credit cycle turn. The last occurred in 1990.

“This bond bull market commenced in 1982. Few money managers have experienced the savagery that a bond bear market brings.

“Estimates have CDS at $40 to $50 trillion notion value. Estimates put interest rate related derivates over 50% of the $1.4 quadrillion derivative market. We don’t have to elaborate about what might be triggered.

“If stocks tumbled on Thursday on concern about inflation and the bond market breakdown, the Fed is in deep stuff. Its intent has been to reflate financial asset prices. But declining bonds could trump the Fed.

“Ben is now chagrined because his effort to prop up bonds, possibly to appease China (after Hillary’s trek there) by announcing a $300 billion monetization, has produced the opposite of the desired effect. Ben’s scheme has inflamed inflation concern, as it should have and will continue to do so.”
Source: Bill King, The King Report, May 8, 2009.

When The Rose Tinted Glasses Fall Off...
By: Clive Maund
...a premise, which is that the bond market and the dollar are much more important to the powers that be in the US than the stockmarket. Two months ago the stockmarket was plumbing new lows and the end of the world was nigh. Now, instead, you walk down Wall St and everything is smelling of roses. Unfortunately, however, there is a massive storm threatening to break that will necessitate the immediate sacrifice of the stockmarket, and especially those mugs who have been taken in by the recovery hype being doled out by the media and have been buying the market in the recent past.

The storm that is threatening to break is the combined collapse of the bond market and the dollar, which are joined at the hip. Late in April the bond market crashed important support and it dropped significantly again late last week. The dollar finally succumbed this past Friday, crashing important support. They both look set to plunge together - a scenario that will require immediate and drastic action to avert. What is the best way to rescue them? - why, to create another vicious cycle of deleveraging of course. The idea is to get the rabbits to flee out of commodities and the stockmarket and into the perceived safety of the Treasury market, just like last year, which will require them to buy dollars with which to buy Treasuries. Elite and well connected traders, who have the advantage of knowing which levers are going to be pulled and when, have made massive profits from the stockmarket ramp of recent weeks, and it is reasonable to assume that they have been reversing position in the recent past, so that they can make another killing shortly when everything goes in the other direction. How will the powers that be pull the rug from under the stockmarket? - by means of an avalanche of short selling and you had better believe that they have plenty of ammo to do it, and as we will shortly see, after the big runup of recent weeks, they have the force of gravity on their side. Once they have run the market into the ditch again they will cover their shorts and reverse position yet again, under cover of doomsday headlines in the press.

Actually, the elites may not have to work too hard to create another downblast of deleveraging, or even do any work at all. For the deleveraging, which will have its origins in the unwinding of the derivatives mountain, is quite likely to take on a life of its own, possibly becoming unstoppable.
http://news.goldseek.com/CliveMaund/1241982000.php

Bob Chapman, The International Forecaster
On Friday the dollar completely broke down, with the USDX collapsing to about 82.5, as monetizations by the Fed became a stark reality. A world stock market collapse could be imminent as a source of dollar support. We wonder how low they will let the dollar go before they collapse the stock markets to chase people back into US treasuries, which have also broken down, with treasury interest rates on the rise despite various Fed purchases of treasuries in the hundreds of billions. So much for the bogus stress tests as things turn much uglier than anticipated by the boneheads in Goldman Sachs South who are attempting to resurrect the Goldilocks Matrix. The suckers rally is simply the loading and winding of a catapult meant to throw the dollar upward as the stock market spring unwinds at the moment chosen by the PPT, which moment has already been telegraphed to Illuminist insiders for their continued looting of the sheople and for the filthy aggrandizement of their growing mountain of ill-gotten gains. The stock market shorts are being set up in the dark pools of liquidity beyond the purview of regulators as this article is being written, so if you plug yourself back into the pod electrodes of the Goldilocks Matrix again, you are in for a major shock.

Stock market rallies aimed at sucking in sheople-dupes based on bogus hedonic financial statistics, fairytale financial statements, fascistic injections of monopoly money into the economy and false Goldilocks news spin will continue on as a source of insider trading profits and as a ready source of capital to boost the dying dollar. As the world's stock markets collapse in sympathy with the US stock markets as the PPT withdraws its support globally, stocks around the world will be sold off, and the proceeds will be channeled into the perceived safe-haven of US treasuries. This boosts the dollar because sales proceeds from the liquidation of foreign stocks that are denominated in foreign currencies are exchanged for dollars in order to purchase US treasuries, thereby creating a dramatic demand for dollars. Sell into this current stock market strength and get out of the stock markets, or prepare to get vaporized by an Illuminist laser beam that is being focused on the sheople for a nice roasting so the elitists can enjoy some more mutton chops while they watch the dollar anti-gravity machine perform its magic for their entertainment and profit. Also, a dollar boost provides some assistance for carrying out JOB ONE at the Fed, which is gold suppression, so you can take a stock decline to the bank based on that principle alone.
http://news.goldseek.com/InternationalForecaster/1241979183.php

Actual U.S. Unemployment: 15.8%
This morning's news that U.S. unemployment has hit 13.7 million, pushing the rate to 8.9 percent, tells only half the story of this recession.

The total number of Americans who are not working full-time but ought to be is actually about 22 million, or 15.8 percent, according to the Bureau of Labor Statistics.

Who are those other 8.3 million Americans? Call them the unofficially unemployed.

As The Ticker points out each time the Bureau releases the monthly unemployment figure, it does not include many out-of-work Americans.

There are many reasons for this.

The problem with this methodology is that it does not include millions of Americans who are not working full-time who ought to be. Those, in the bureau's words, who are "marginally attached to the labor force."

But even though these workers don't count toward the official monthly unemployment number, they are nevertheless a true weight on the economy.

They don't pay payroll tax, or as much of it as they would; they don't contribute to Social Security or other government entitlement entitlements and they don't spend as much.

The 15.8 percent figure is the highest since the bureau began keeping these figures in 1994. Excluding the current recession, the highest previous rate came in January 1994, when it hit 11.8 percent.

By the way, in February, the White House predicted unemployment would top out at 8.1 percent this year, a figure that was blown through the following month.

It has made no call on how high the unofficial unemployment rate will go.
http://voices.washingtonpost.com/economy-watch/2009/05/actual_us_unemployment_158.html

A mildly less negative month to month data point DOES NOT REPRESENT GROWTH!

Thank god for laser eye surgery! Now, the people who were blind to the biggest financial crisis in the history of the world can see clearly again. And what do they see? A recovery!

"Bernanke strikes note of hope on economy," says the headline in today's International Herald Tribune.

"The chairman of the Federal Reserve, Ben S. Bernanke, said Tuesday that the US economy appeared to be stabilizing on many fronts and that a recovery was likely to begin this year."

Is this good news? Or what? 'Or what' is our bet.
-Bill Bonner, The Daily Reckoning

LOL, recovery. Perhaps Bumbling Ben has jumped the gun on the Legalization of marijuana... There is no recovery taking place, and there's unlikely to be one anytime soon. A decrease in the rate of decent does not a recovery make. There is no way on God's Earth that the US Economy, let alone the Global Economy are on the precipice of a recovery. Bumbling Ben has been wrong on every every economic prognostication he has uttered since he was foolishly given the job of US Federal Reserve Chairman. Why should anybody think he's going to be right this time.

Ben's precious Bank Stress tests are a complete sham. Absent the recent Congressionally coerced change in FASB accounting standards to eliminate mark-to-market accounting NONE of the banks would have passed this feeble test. All 19 of the tested banks are technically insolvent and should be euthanized immediately. By law these banks should have been closed and dissolved months ago. But alas, the US Government is above the law...

Housing prices continue to fall. "But they're falling at a slower pace," the talking heads cheer. So what, folks they're STILL falling. Foreclosures continue to rise. Home sales are predominately of distressed properties. There is no bottom in the housing market here...

Jobs continue to disappear. "But they're disappearing at a slower pace," the talking heads trumpet. LOOOOOOOOOOL! Whether there were 634k new claims for unemployment this week, or "just 601k" is an absolutely ridiculous data point to pin your economic recovery hopes on. I seriously doubt the 601k people who did lose their jobs last week feel happy for the 34k that kept theirs. Jobs are disappearing at a rapid clip, and a little mentioned fact is that a lot of these jobs that are disappearing will never be replaced in the future. Put that in your recovery pipe and smoke it...

Retail sales figures are one of my biggest data point peeves. Retail sales are measure in "Dollars spent". Retail sales are not a gauge of "volume" of goods sold, merely how much money was spent on the goods. If you believe the US Government CPI data, then you would most likely buy into the "rebound" in retail sales in April. But if you believe prices are rising, gasoline for instance, then you would be left to wonder, "are sales up, or do things just cost more"? I think they just cost more and retail sales were flat at best.

This theory also calls into question the government's measure of "growth". Is "growth" merely a byproduct of the Fed's ceaseless inflation of the money supply over the past two generations, particularly over the past 38 years following the severing of the Gold to Dollar link by Richard Nixon in 1971? Has there really been any legitimate growth in the US economy, or just a colossal growth in the nation's debt load?

The equity markets are struggling mightily with the view that the "economy is on the verge of recovery". What I see is a short squeeze being misinterpreted by the wizardry of the financial new media as the embryo of the next "bull market". LOL, we are years away from the next bull market. Each little leg up in this present Bear Market Rally has been fueled by falling trade volume, punctuated by little volume spikes as pockets of resistance are overcome. These volume spikes can be attributed mostly to short covering as there stop loss orders are hit on the way up. There are no real buyers in this market...because there are no real believers in an imminent recovery.

Yes, yes, yes, the pace of the economic decline has slowed...for now. Nothing goes straight down, or straight up. But the fact is, it is highly premature to be throwing around the recovery word, and even more irresponsible to be touting these deceiving "green shoots of growth". A mildly less negative month to month data point DOES NOT REPRESENT GROWTH! Growth is represented by a number with a + sign in front of it. I have not seen many + signs lately...except in the commodity sector, and long term Treasury yields.

The deflation death spiral "may" be leveling off, but there is NOT going to be a recovery launched anytime this year. I don't give a damn what Bumbling "I've Yet To Be Right About Anything" Ben Bernanke claims or touts.

Monday I posted charts with the breakout points for Gold, Silver, and Oil. All have been breached, Gold at 907, Silver at 13, and Oil at 55. Gold and Silver are moving higher more on renewed uncertainty regarding the banks, than on the acceleration in the fall of the Dollar. Oil continues to confound the analysts who continue to point to the glut of Oil in the marketplace. Oil, and all other commodities, are rising on the falling Dollar. The seeds of inflation are beginning to sprout. Recall the seeds were officially sown when the Fed announced their plan to buy $1 BILLION of Treasuries and FannieMae/FreedieMac paper back in March. Expect strong signs of growth in Inflation by July. Of course, this rise in Inflation will be sold to you as the "growth" in the economy promised this month by Bumbling Ben...take that to the bank.

Sorry Ben, You Don’t Control Long Term Rates
By Michael Pento
It is disappointing to discover that the Harvard- and M.I.T.-educated Ben Bernanke did not learn while attending school that long-term interest rates must be set by the free market. Belatedly, the Chairman of the Federal Reserve is about to learn this valuable and costly lesson because these rates cannot be manipulated lower by any central bank for a great length of time.

On March 18th, the Federal Reserve committed to buying up to $300 billion in long-term Treasuries over the ensuing six months. After that announcement, the market initially celebrated and interest rates immediately fell on the 10-year note from 3.02% to 2.51%. But less than two months later, rates have spiked up to 3.17%, 66 bps higher than the reaction low on the day of the announcement.

That jump in rates places into jeopardy the nascent recovery in the market and economy because so much of Washington’s planned “healing” is predicated on halting the fall in real estate prices, which have implications for consumers’ and banks’ balance sheets. Thirty-year fixed mortgages, which had fallen to a recent low of 4.625%, now face the pressure of a rising 10 year note, which has a direct impact on newly-minted mortgages (as opposed to LIBOR rates which affect ARMs).

The recent rise in Treasuries has created an incredibly important standoff between Mr. Bernanke and the bond vigilantes whose clients demand a real return on their investments.
You see, rates on the long end of the curve are primarily concerned with inflation; if inflation is expected to increase, rates must eventually reflect this by moving higher. I realize that today many are mistaking the deleveraging processes seen in stocks and real estate prices as deflation but as long as the Fed continues to monetize Treasury debt, the money supply will continue to increase dramatically and deflation in the long run will be off the table.
http://www.321gold.com/editorials/pento/pento050509.html

Treasuries Tumble as Bond Sale Draws Higher-Than-Forecast Yield
May 7 (Bloomberg) -- Treasury 30-year bonds fell the most in four months as investors demanded higher-than-forecast yields at today’s auction of $14 billion of the securities with the U.S. slated to sell a record amount of debt this year.

“This is a problem,” said Chris Ahrens, head interest- rate strategist at UBS AG in Stamford, Connecticut, one of 16 primary dealers required to bid in Treasury auctions. “The market required a fairly significant discount to buy the bonds.”

Thirty-year bonds have lost investors 20.9 percent this year, Merrill Lynch & Co. indexes show, as the Treasury increases securities sales to help fund a swelling budget deficit. Yields climbed to a six-month high today as the auction drew a yield of 4.288 percent, higher than the 4.192 percent average forecast in a Bloomberg News survey of seven primary dealers. Demand was below average, judging by total bids.

The benchmark 30-year bond yield climbed 23 basis points, or 0.23 percentage point, the most since Jan. 5, to 4.316 percent, at 5:25 p.m. in New York, according to BGCantor Market data. It was the highest yield since Nov. 14. The 3.5 percent security due in February 2039 dropped 3 15/32, or $34.69 per $1,000 face amount, to 86 3/8.

The 10-year note yield increased 16 basis points to 3.345 percent, the highest since Nov. 24.
http://www.bloomberg.com/apps/news?pid=20601087&sid=anU.bcHmkRJM&refer=home

Misleading Jobless Claims Data and Recessions
By: Tim Iacono
One of the many "green shoots" that has popped up recently for the U.S. economy is the possible peaking of weekly jobless claims, what has been increasingly referred to as a "reliable" indicator for the end of recessions since 1967 when this data was first collected.

With the four week moving average having dropped from almost 660,000 per week in early-April to just under 640,000 per week in last week's report, many now think that everything is falling into place for a speedy conclusion to this recession.

The stock market certainly thinks the recession is over...

But, that may not be the case ...

The data is not adjusted for the size of the workforce.

Now, granted, the composition of the workforce has changed quite a bit over the last 30 years and we may never reach the population-adjusted peaks that were seen back then, but surely we have to come a bit closer to those peaks now that the great credit and debt orgy of the late-20th century has come to its painful conclusion.

For example, to reach the 674,000 October 1982 peak for new unemployment insurance claims, we'd have to see a figure of over a million today. To equal the February 1975 peak of 561,000 would require over 1.1 million.

That's almost double the recent peak!

Having blown past comparisons to the 1991 and 2001 recessions for virtually every other economic statistic months ago, it could be that whether jobless claims reached a peak last month isn't the most important question out there today.

Perhaps the most important questions to ask are how close we'll get to the population-adjusted highs of the 1970s and 1980s and how long it might take to get there.
http://news.goldseek.com/GoldSeek/1241629200.php

BIG MONEY MOVING INTO COMEX GOLD & SILVER CALL OPTIONS
By Adrian Douglas
It just recently came to my attention from two different confidential sources that JPMorgan and Goldman Sachs have been buying large amounts of Calls in gold and silver. This made me put on my gumshoes and take a serious poke around the COMEX option open interest once again.

The ratio of Calls to Puts is 1.81 so Bulls outnumber Bears dramatically. What is also remarkable is the amount of open interest. For example, 100,000 contracts would be in-the-money if the gold price runs to $1250/oz in the next 30 days. This is an astounding amount of option OI considering the open interest in all the futures contracts stands at only 345,000 contracts!

The bets by bulls outnumber those by the bears by a 2.3 to 1 ratio which is even more bullish than for JUN 2009. The Total Call option interest is 113,663 contracts which is very similar to JUN 09. Furthermore if gold is trading at around $1600 by DEC then 100,000 contracts will be in the money!

I consider option players highly sophisticated speculators. Such large bets are likely being made by some large money interests who are buying out of the money options BEFORE going into the futures market. Buying long futures in large volumes will rapidly drive up the gold price but the massive open interest in the Call Options then allow access to much more futures contracts at the same price by exercising the options and then perhaps taking delivery of the gold. This is bolstered by sources revealing that JPM and GS are buying in quantity. So on the part of JPM this is likely a ploy to try to cover a chunk of their massive short position.

Let’s now look at silver. Figure 3 shows the cumulative Open Interest across all strike prices for the COMEX Silver Call positions and the Put positions for the JUL 09 options. The ratio of Calls to Puts is 1.80 so Bulls outnumber Bears by 80%. What is also remarkable is the amount of open interest. For example, 18,800 contracts would be in-the-money if the silver price runs to $25/oz in the next 60 days. This is an extraordinary amount of option OI considering the open interest in all the futures contracts stands at only 94,000 contracts!

I conclude that smart money is being placed for a massive rise in the gold price in the next 30 days and silver in the next 60 days (which probably means within 30 days for both metals) and again by December. I wouldn’t be surprised to see a pullback in between the two events. This money could not go in to the futures market without blowing the lid off the price as it would represent such a large increase in open interest. Going into the out-of-the-money option market allows flying below the radar.

The flat contango in gold and silver suggests there is a shortage developing of precious metals for delivery. We know that two large banks hold almost 100% of the commercial net short position. They need desperately to cover their exposure if the market is about to make a big move. It looks as if that is precisely what is happening.
http://www.lemetropolecafe.com/Pfv1.cfm?pfvID=7787&SearchParam=Adrian%20Douglas

International Forecaster
By: Bob Chapman
Fraud is everywhere and it continues unabated and un-prosecuted. A crime syndicate runs America. JP Morgan Chase, Goldman Sachs and Citigroup run our government. Every time these three firms participate the system is exploited one way or the other. The latest example is the rules change by the FASB allowing mark-to-model, which means our balance sheet is what we say it is. You ask, how does this happen? It happens because they control the system and our government.

The greatest fraud is the Federal Reserve and our government. They are both throwing money at the problems. The Treasury borrows the funds and the Fed creates them out of thin air. America, under the privately owned Federal Reserve for almost 100 years has done the same thing over and over again, and it looks like this time they are headed over the edge. Between the looting by the Fed and our welfare state our country is on its knees financially and economically. While this transpires, Americans and people in other nations clamor for government intervention. They want government to get even bigger and they want an even larger welfare state. That said, is it any wonder people all over the world have started buying gold over the past year?

As every nation has learned no nation prospers under monetary inflation because it robs the people of the fruits of their labor. Due to the wanton creation of money and credit we have had two stock market collapses in the last 10 years and a monumental collapse in residential and commercial real estate. How can the Fed be still in charge after the past 20 years of financial and economic disaster? If we include commodities, the losses could be as high as $100 trillion. The people who caused this are the Fed, banking, Wall Street and rating agencies, which are still in charge, and they are not even being investigated. There obviously are no rules. They are what the participants want them to be. As a result of these policies we are in worldwide depression. Due to monetization and reckless creation of money and credit little has been accomplished, except keeping banking and Wall Street afloat for the time being. This spending can only be viewed as further taxation for future generations. After the current injections of money and credit and stimulus end in the summer of 2010, the governmental and monetary powers either create $15 trillion more to jack up the US economy and others do the same, or the delayed deflation takes over. They still are treating the disease and not the cause at a terrible future price. Complicating matters China is creating $1.2 trillion in debt, the Japanese $250 billion and Europe $500 billion. You have to ask, where does it all end? London, Washington and New York have no further answers. They know that massive more money, credit and monetization has to be produced or deflation will take over. They are running on a treadmill that never stops. The bond market breakdown through the 200-day moving average is already telling us there are higher interest rates ahead, which means much higher interest costs are in the future in the long end of the market, which will cut into corporate profits as well.
http://news.goldseek.com/InternationalForecaster/1241676780.php

Silver Leads Gold as Dollar Teeters
By: Jim Willie CB
The bank sector Stress Tests clearly are a sham designed to restore confidence after accounting rules were eliminated. USFed Chairman Bernanke continues to make clownish comments about the problems centering upon bank liquidity, when solvency remains their plague issue, and will continue to be the main flaw. What a lousy economist and a lapdog banker! He has not been correct on a single issue or forecast or analysis since taking the helm at the US Federal Reserve, yet he is given high praise. The Johann Gutenberg Award might be appropriate for printing press accomplishments, but no more than that! He claims the Stress Tests were extraordinarily detailed, yet they relied on ridiculously soft economic stress factors from months ago. My stance is clear, that the Stress Tests will eventually be used as weapons to force stronger regional banks to merge with dead ones lodged on Wall Street, with the FDIC holding the legal hammer. The cancer of Lower Manhattan most assuredly will force its metastasis across the nation and into its banks.

Financial market anchors and analysts debate whether the 30% stock rally qualifies as the new bull market, as nutty green shoots are identified. The supposed green shoots are nothing more than elaborate moss on exposed decaying roots of dead standing trees. These are sprawling sequoias with hollow trunks and decayed roots. Those sell-side optimists ignore that a 30% stock market rise after a 50% decline since October 2007 is a typical bear market correction. The green shoots cannot possibly be new attempts at legitimate growth when jobs are being destroyed on a massive scale, home foreclosures continue to rage, home values continue to decline closer to 20% than 10%, corporations are guiding lower on profits and investments, and the states are cratering financially. Besides, the S&P500 Price Earnings Ratios are at historic highs, not lows. Worse, the earnings are mostly fictions. Votes are being registered in the gold & silver markets, and in the USDollar and USTreasury Bond markets.

Silver has made an initial move over the 14 level, to challenge the March highs. The gold price has rebounded, but not enough to cause as much enthusiasm. The reliable respected Adrian Douglas has spread the word that both Goldman Sachs and JPMorgan Chase have been building option call positions on both gold & silver futures contracts. Normally, options are the contrary indicator of naïve money piling on, after a segment of the game has concluded. Not so with option futures, which is the province of insider trading. Both GSax and JPMorgan are kings of insider trading, with full impunity, all for the greater good (of private profits). The other inside story comes from overseas. The Germans have demanded the return of all their gold bullion held by US bankers in custodial accounts. The Arabs are accumulating gold, platinum, and silver. The Chinese admitted their gold accumulation. The Russians have not permitted any gold mining output to enter the markets in three years. Precious metals are being looked upon very favorably as the US$-based financial structures continue to dissolve.

The silver price is moving up the most rapidly, in lead fashion. The reasons are many, but they include the fact that the shortage in silver is far more acute. Both industrial demand results in depletion, and investment demand is growing quickly. The six billion ounce stockpile in silver once established by the USGovt has been long gone for at least five years. The next stop for silver is 15, which should occur easily, and then 18 in another easy leg up. The cyclicals are both nicely aligned in a positive direction. Enrico Orlandini demonstrates that the Point & Figure chart method indicates a 26 price target for silver, although the method has a timeless element in its elegance. Those investors who averaged their unleveraged silver positions since last autumn will be greatly rewarded. Silver has always sauntered in the shadow of gold, but it will sachet soon with a smirk and a wag.
http://news.silverseek.com/SilverSeek/1241716773.php

In time, it's just a matter of time...

We rise this morning to witness a breakout out in Gold And Silver. Silver has exploded through resistance at 13. Gold cleared resistance at 907 and has set it's sights on the launch pad up the hill at 918. Financial calamity is driving this new move higher. The "Big Bank Stress Test" having been deemed a sham by countless economists in league with The Truth, is the source of this weeks banking anxiety. It remains to be seen if the two Precious Metals can maintain this momentum in the face of this mornings blah-blah about "growth in the second half" from Bumbling Ben. You can be sure the Dollar will rise on his appearance, and the stock market will fall. Growth in the second half? Good freakin luck! ...and the fourth quarter '08 was the bottom in the decline of GDP. You can rest assured that should the second quarter GDP come in at say -5.5% vs. the first's -6.1% we will be sold the notion that the economy grew +0.6%. ABSURD!

Suggestions over the weekend that Citi Bank and Bank Of America would need to raise more capital lit a fire under the Precious Metals as the week opened yesterday. This morning comes news that now 10 of the 19 banks "tested" will need to raise more capital. Bank of America dutifully denied that they were seeking more capital. How often have banks told us they were solvent only to disappear within days? Have we forgotten bear Stearns and Leahman Brothers already?

About 10 U.S. stress test banks to need more capital
WASHINGTON (Reuters) - About 10 of the 19 largest U.S. banks being stress tested will be instructed by regulators to raise more capital, according to a source familiar with official talks.

The banks have been negotiating with their regulators about the depth of their capital needs, should the recession prove to be deeper and longer than anticipated. Markets have been anxiously anticipating the results, which will differentiate the strongest banks from those still expected to sustain considerable credit losses.

The exact roster of banks needing to build their capital positions is still unclear. Banks are expected to be briefed on the official results on Tuesday. The Federal Reserve and Treasury Department will also tell them how policymakers plan to publicly unveil the market-sensitive results, the source said, speaking anonymously because the discussions are private.

Some industry insiders worry the stress test results come at a time when the sector is starting to see positive effects from some surprisingly strong first-quarter earnings figures.

"I think the great risk there is that you create some new uncertainty and concerns at the very time the financial condition of the banking industry is turning for the better," Wayne Abernathy, an executive at the American Bankers Association and a former Treasury official said earlier on Monday.
http://finance.yahoo.com/news/About-10-US-stress-test-banks-rb-15128885.html?sec=topStories&pos=main&asset=&ccode=

LOL! Leave it to Reuters to come up with a "former Treasury official" shill to stump on these banks behalf. Financial conditions for the banks are turning for the better? Yeah, right. All 19 of these banks are insolvent. Only through changes in accounting rules and other nefarious accounting gimmickry have these banks miraculously created "profits" from certain continued losses. Anybody that buys into the idea that these banks have turned the corner should have their head examined.

Consider this scenario: Have the banks been "pumped" up by the "market wizards" operating behind the curtains to allow insiders and large funds the opportunity to "sell into this rally" anticipating the worst for these banks, and their next leg down into the abyss? Not only sell profitably into this recent rally, but position themselves to short the top of the rally as the market wizards continue their quest to rape the nations investors yet again?

It's interesting to note that insider selling during this Bear Market Rally has been 8 times higher than insider buying. This stat does not bode well for the equity markets going forward.

Insider selling cause to doubt market bulls
Although market bulls insist the U.S. economy is now on the mend, and the worst of the economic crisis is over, the executives who actually run America's companies seem a tad less certain.

Directors and senior execs have sold $353 million worth of equities this month, or 8.3 times more than they purchased, according to data compiled by Washington Service, a U.S. equity research firm. On the other hand, insider buying sank to the lowest level since July, 1992.
Heavy insider selling is often viewed as a warning sign, since corporate execs typically have access to better information than regular investors.

"They should know more than outsiders would, so you could take it as a signal that there is something wrong," William Stone, of Philadelphia-based PNC Financial Services Group, told Bloomberg.
http://www.edmontonjournal.com/business/fp/Insider+selling+cause+doubt+market+bulls/1533971/story.html#PostComment

Bankrupt Banks
Trace Mayer, J.D.
At a congressional oversight panel on the government's financial rescue program, the tax-evading Treasury Secretary Timothy Geithner testified, "Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators." With the recent fair-value lying accounting changes banks have reported surging quarterly profits. Even the single digit midget Bank of America (BAC) booked a first quarter net income of $4.247 billion - 6% more than it made in all of 2008.

Olivier Garret, CEO of Casey Research, asks a couple penetrating questions and gives a couple answers.

"For starters, just where did all this income come from? And has credit quality really improved.

"The answers to both can be found buried in a company press release bearing the encouraging title "Bank of America Earns $4.2 Billion in First Quarter."

I'd like to draw your attention to the four most telling excerpts from this release.

1. Equity investment income includes a $1.9 billion pretax gain on the sale of China Construction Bank (CCB) shares."

2. Noninterest income included $2.2 billion in gains related to mark-to-market adjustments on certain Merrill Lynch structured notes as a result of credit spreads widening."

3. Credit quality deteriorated further across all lines of business as housing prices continued to fall and the economic environment weakened.

4. Nonperforming assets were $25.7 billion compared with $18.2 billion at December 31, 2008 and $7.8 billion at March 31, 2008, reflecting the continued deterioration in portfolios tied to housing.

Bank of America makes $4.2B almost completely from a one time sale of a Chinese bank and some accounting sorcery on Merrill's failing mortgages. Looking at the cash position of Bank of America if those two extraordinary events were backed out and preferred dividends were included then Bank of America actually bled about $1.3B.

The head of the sorcery order, Goldman Sachs (GS), was very creative by changing its reporting calendar which effectively erased the impact of a $1.5B loss in December from showing up in its earning statements although it still flowed through to the balance sheet. Bank of America is not the only bank with these shenanigans.

The FDIC poltergeist possessed another four banks on Friday bringing the total for the year to 29. The evaporated banks that went poof were dotted across the nation holding about $1.6B in deposits including American Southern Bank of Kennesaw, GA with $104M in deposits, Heritage Bank of Farmington Hills, MI with $152M in deposits, First Bank of Beverly Hills in Calabasas, CA with $1B in deposits and the First Bank of Idaho in Ketchum, ID with $374M in deposits.

It is clear that credit quality continues to deteriorate at the banks and almost all banks are engaged in fraudulent accounting sorcery. On the bright side for these vampires, the steep yield curve helps generate tremendous real income for the banks as they are able to suck the life out of the remaining wealth generating companies in the economy.

JP Morgan (JPM) reported a stunning profit because the value of their bonds declined in the market and Citigroup (C) had a similar $2.5B gain.
http://www.321gold.com/editorials/mayer_t/mayer_t_050409.html

Once again Tiny Turbo Tax Tim Geithner is caught in a lie about the banks "capitalization". "The vast majority"? How do you define that Tim? One out of two? It would appear that 50% of the banks tested need more capital. I would not consider one half to equal a "vast majority". 80% may constitute a vast majority, but Tim, 50%. Yeah, right. Tim goes for the CONfidence headline with his "declaration" in front of Congress instead of the honest truth. But then we all know that the first duty of a central banker is to obscure the truth. Yes, Tiny Tim is the Treasury secretary now, but he was a part of the banking cartel prior. Lying is a hard habit to break.

Hey Tim, how are those treasury Bill auctions going?

China has 'canceled U.S. credit card,' congressman says
WASHINGTON -- China, wary of the troubled US economy, has already "canceled America's credit card" by cutting down purchases of debt, a US congressman said Thursday.

China has the world's largest foreign reserves, believed to be mostly in dollars, along with around $800 billion in U.S. Treasury bonds, more than any other country.

But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.

U.S. Rep. Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had "very legitimate" concerns about its investments.

"It would appear, quietly and with deference and politeness, that China has canceled America's credit card," Kirk told the Committee of 100, a Chinese-American group.
"I'm not sure too many people on Capitol Hill realize that this is now happening," he said.

Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the U.S. Federal Reserve due to absence of foreign investors.

"There will come a time where the lack of Chinese participation may have a significant impact," Kirk said.

"We should track that, because up until last month they were the No. 1 provider of currency to the United States and now they're gone."
http://gata.org/node/7403

Tim, Ben, Larry...The Three Stooges. Guys, the jig is almost up. The banks are broke and China has cut your credit limit. Printing money to buy your own debt is futile and self destructive. Gold is all we have left to save the nation, and you keep it in chains. In time The Truth shall rise from it's bondage, and crush your feeble cartel. In time, it's just a matter of time...

Gold isn't going to $2,000 an ounce
Jeff Clark, Editor, BIG GOLD
May 4, 2009
Gold isn't going to $2,000 an ounce.

Before you gag on your coffee or suffer chest pains, allow me to explain.

We're about eight years into the bull market, and gold has breached the $1,000 level twice and has spent weeks trading above the old high of $850. Some observers are now saying that gold's pretty much had its day and that once the recession is over, it will retreat for good.

However, the four-digit gold price we've seen so far is with no price inflation to speak of, no effects of the atrocious increase in the money supply, and despite a rising dollar. What happens to gold when each of those pictures gets turned upside down - high inflation, excess cash jolting the economy, and a falling dollar? After all, gold's performance to date has been powered only by general anxiety, not by any visible erosion in the dollar's value.

I decided to take a fresh look at calculations that could be used to appraise gold's upside potential. No one of them, by itself, comes with compelling logic. But they all point in the same direction.

Gold's Percentage Rise in the Last Bull Market. What if gold in this bull market repeats the percentage rise in the last bull market? In the 1970s gold rose from $35 to $850, a factor of 24.28. Our low in 2001 was $255.95. Multiply that by 24.28 and you get a gold price of $6,214 per ounce.

U.S. Gold Holdings to Money Supply: The M1 money supply consists of currency and checkable deposits. The U.S. government currently holds 286.9 million ounces of gold. If the government were to make each dollar redeemable by the amount of gold it possesses, we'd arrive at the following price for gold: $1.569 trillion ÷ 286.9 million oz. = $5,468.80 per ounce.

Gold/Dow Ratio: The ratio was about "1" when gold peaked in 1980, meaning the Dow and gold were the same price. To restore that relationship at today's stock prices would mean when the Dow is at 6,626, gold should be at $6,626/oz. Of course, we think it likely that the Dow will get a lot lower before gold peaks. But even if it drops all the way to 4,000, that would imply a gold price of $4,000/oz.

All the Money in the World vs. Gold Reserves: If the public eventually sees the paper game being run by the central banks for what it is, governments will be forced to back their currencies with gold (and perhaps other tangibles like silver). Assuming they had to go into the market and buy the gold needed to restore faith in their currencies, the numbers might look like this: Total central banks reserves (including gold holdings) = $4.8 trillion, divided by 929.6 million ounces total gold reserves held by all official institutions that issue currency = $5,246 gold price.

U.S. Gold Holdings to U.S. Foreign Trade Deficit: The size of a country's deficit or surplus would be of no consequence if all currencies were convertible into a fixed amount of gold. However, the dollar is increasingly considered a hot potato, and when the trade balance reverses, as it must, dollars will flow back to the U.S. and fuel domestic price inflation. Based on the cumulative trade deficit of $9.13 trillion (up from $6 trillion since June '07!) and U.S. gold holdings of 286.9 million ounces, the corresponding price of gold would be $31,822 per ounce.

U.S. Gold to U.S. Government Liabilities: Finally, the GAO (Government Accountability Office) calculates an income statement and balance sheet for the U.S. government. As you'd suspect, it is dominated by future liabilities for Medicare and Social Security. What if they had to be backed by the supply of gold? Official U.S. government liabilities now ring in at an incredible $55.2 trillion. To make good on that would require a $192,401 gold price.

No, we don't think gold will hit $192,000 or even $32,000. And there really isn't any surefire way to forecast the eventual high. But it's clear that every weathervane is pointing in the same direction. So, yes, gold isn't going to $2,000; it's going higher.
http://www.321gold.com/editorials/casey/casey050409.html