FNM and FRE Hold Shotguns To The Taxpayer's Head

Please re-read my post from Dec 21 and then read below:  Americans Get Desperate

It's a Happy Holiday season for the crooks running our system and paying themselves with YOUR money.  Please remember that FNM and FRE are wards of the U.S. Government, which means every cent going to the people running them comes from YOU:

Big paydays for Fannie and Freddie bosses

Here's the full article:  Let The Taxpayers Eat Cake

Don't forget to think about the Obamas enjoying Christmas in Hawaii on a vacation paid by you while millions suffer.  I heard many horror stories from a family member last night who volunteers at the Jeffco Action Center - a place where those in need can go and get clothing, toys and food for their families.  Moreover, all the Denver-area rescue centers are in desperate need of food and clothing donations, while Obama is stuffing his fat-lipped face with lots of Christmas prosperity.

Merry Christmas and a belated Happy Hanukkah to all.

The Truth About The Comex

My commentary here combines two thoughts to two separate inquiries in my comments section concerning the state of affairs on the Comex:  whether or not the Comex will ultimately default and whether or not China will be the one to force the issue.

Let's look at JPM as an example. JPM is short silver contracts representing 200 million ounces. The Comex has only 111 million total ounces of silver, of which only 56 million are registered, meaning available to be delivered. So JPM is short nearly 4 times the amount of deliverable silver on the Comex.

Aside from the extreme manipulation that is going unenforced here, if enough silver longs were to stand for delivery, theoretically JPM would blow up - or be forced to cover - driving the price of silver significantly higher.

My fund partner and I were just discussing the idea that ultimately, just like in 1980 when the Hunts tried to corner the silver market from the long side, the Comex will change its rules in order to avoid a default.  This time around the rule change I anticipate will allow JPM to settle those contracts in cash OR, as they've already done in terms of changing the rules, allow JPM to settle those contracts using the SLV ETF.  The Comex may even go as far as allowing JPM to "force settle" its silver shorts using SLV.  Remember, there is precedence for the Comex's changing the rules in order to protect itself.

IF/When this occurs, it will send a big signal to the global market about the true condition of the growing scarcity of physical gold/silver. But in the meantime, as JPM has shown with its ever-increasing weekly silver short position, JPM can just keep selling as many contracts as it wants to try and keep a lid on the price of silver knowing that it ultimately will never have to deliver the underlying amount of silver.

We have already seen the Comex bailed out of a gold squeeze last May when Deutsche Bank, a large gold futures short seller, suddenly transferred 800,000 ounces of gold from London to the Comex, alleviating a potential blow up delivery short squeeze.

So, the short answer to the issue is that I don't believe the Comex will "blow up" any time soon because the CFTC refuses to enforce market manipulation standards on the gold/silver market. And I don't believe it ever will enforce those standards, contrary to Ted Butler's dreams, and I think the Comex will continue being an illegal short-selling operation of gold and silver until there's a "de facto" default, which will occur when JPM has to force-settle its silver shorts with either a huge cash premium offer or several 10's of millions of shares of SLV.

Eventually Comex will be rendered useless. I don't know if this will occur from a physical squeeze, or if the cause will be the Comex changing the rules - as they've done in past - to allow for cash settlements, or if global players will just ignore the Comex altogether.

The 9 million ounces of gold and 111 million ounces of silver supposedly sitting in Comex depositories, even if all were made available for delivery (which would require private investors using the Comex as a safekeeping depository to register and make available their metal), and notwithstanding the fact that the total Comex inventory would fall far short of satisfying delivery demands if all the longs decided to stand for delivery, wouldn't put even a small dent in the global demand for physical gold/silver

My best guess is that China is leaving the Comex alone for now, letting the manipulating bullion banks keep a lid on the price - thereby allowing big buyers like China to accumulate metal at artificially low prices. When it becomes impossible for big chunks of gold (i.e. like the IMF gold for sale) to be acquired in the context of the current trading range, my best guess is that China will force the paper price up to the point at which a seller would be willing to offer a big chunk of metal. The price right now is transitioning into a dynamic in which the price at which big sellers are willing to sell is really where the real market clearing price will be established.  And since the IMF hasn't yet sold its remaining chunk of gold (I'm assuming they are waiting for higher prices, since they would be shooting themselves in the foot hoping for a lower price, right?), I would surmise that the market clearing price for a big chunk of gold is much higher than the current price.

I don't know if the big buyers will blow up the Comex in 2010 because, for now anyway, the Comex is a big buyer's best friend.

I will say with 100% conviction that silver at current prices is the investment opportunity of a lifetime.  Happy Holidays.

Is The Gold Bull Over? If Not, How High Can Gold Go?

The simple answer to the first part of the question is categorically "NO."  Spend seven minutes and watch the video below of Egon von Greyerz of Switzerland's Matterhorn Asset Management to understand why gold will ultimately go a lot higher than even most gold bulls would be willing to forecast.

One topic he covers is the ongoing debate about deflation vs. inflation.  Mr. Greyerz addresses this by explaining that the "deflation" we are experiencing now is setting up the inflation coming soon.  It is the rapid, catastrophic deflation in value of financial assets which is leading to the massive printing of currencies by Central Banks globally, which ultimately will lead to inflation/hyperinflation.  Bernank himself said in an infamous 2002 speech that he could print an infinite supply of money at virtually no cost in order to offset deflation.

Some other excellent comments include:  "Gold isn't going up, paper money is going down.  Paper money is doing what it's always done - it's being destroyed by Governments who are printing endless amounts of paper...and will continue at an accelerated pace."



Please note that gold has quadrupled in value against the U.S. dollar this decade without the benefit of any perceived inflation.  Given all the fears associated with the amount of money being printed by Banana Ben and other Central Banks, all it will take is for the market to get a small whiff of inflation and gold will jerk higher so quickly it will make your neck sore if you're watching.   Please make no mistake, and I'll cover this point in another blog soon, contrary to his blatant lies in front of Congress, it will be impossible for Bernanke to pull out the trillions he's injected into the system.
 
To answer the second part of the title question, I'll quote Mr. Greyerz:   "several thousand dollars without hyperinflation - with hyperinflation it could go a lot higher."

Desperation Is Setting In...

While you're reading this, think about all of the billions in taxpayer funding that Obama/Geithner/Bernanke have handed over to the banks to keep them from collapsing and to make sure the employees get paid record bonuses this year. 

Serious poverty is spilling into the middle class. 

My significant other - who teaches high school in a  lower-middle income area - and her sister - who teaches 1st grade at an upper-middle income elementary school - are both seeing the severe strains of poverty in the faces and body language of many of their students.  Last Friday, a mother of three elementary school students showed up at the school begging for help, as she had just fed her kids the last can of green beans in the cupboard.  The mother had finally capitulated after losing her job and had been too proud with the false-hope of finding a new job to apply for welfare.  The man she had voted for to be President had failed her.  And now she was desperate for any kind of help to keep her family alive, while she watched Obama hand out multi-billion dollar Christmas gifts to the big bankers who purportedly were doing "God's work," yet  who in reality provide no value to our system and who function as giant leeches sucking the last of the life-blood from the economy before the final collapse.

Christmas was not going to be celebrated by that family.   Luckily, the school helped the woman get set up with a welfare application and my sig-other's sister took her Christmas tree over to the family.  We all chipped in and purchased clothing and some Christmas gifts for the mother to give to her children this Friday. There are several other families who are facing the same abyss just at this one elementary school.  If it's this bad in Denver, I can only imagine how apocalyptic life must be for the millions struggling in other big cities with much worse economies. 

With the disasterous fiscal and financial policies that have been implemented by our Government over the past couple of decades, eventually the system was bound to collapse.  What really makes my blood boil is the fact that Obama, contrary to the platform on which he was elected, has decided to redistribute the wealth, even more than his immediate predecessor, from the middle class taxpayers to the officers and employees of Wall Street's biggest banks (and to Big Pharma and the defense industry).  Obama's blatant disregard for the campaign promises that got him elected is not quite as stunning as is the way in which he has prostrated himself before the Wall Street thieves who paid for his election.

I hope everyone pauses for a moment this holiday season to reflect on the growing millions who will be without joy and festivity over the next 10 days.  And while you're doing that, think about Obama and Lloyd Blankfein and Jamie Dimon stuffing their faces with a feast fit for kings - bought and paid for with your sweat and labor.

"They're buying us with our own money" - Cormac McCarthy, "No Country For Old Men"

"Change Nobody Believes In" - WSJ on the Health Care Bill

I am posting an editorial from today's Wall Street Journal Online on the horror show Harry Reid conducted in order to get a pure partisan agreement on health care jammed through the Senate this past weekend.  At the last minute, Nebraska Democrat Ben Nelson reversed course and cast his vote in support of the Bill.  According to "The Weekly Standard," the White House (i.e. Rahm Emanuel) threatened to mothball a big air force base in Nebraska unless the Senator from Nebraska voted for health care.

I hope everyone takes the time to read through this commentary, as it contains a lot of factual information that has been blurred over by the White House and the deep-pocketed, heavy-spending BigPharma lobby, which by far has been the Bill's biggest financial supporter: 

These 60 Democrats are creating a future of epic increases in spending, taxes and command-and-control regulation, in which bureaucracy trumps innovation and transfer payments are more important than private investment and individual decisions. In short, the Obama Democrats have chosen change nobody believes in—outside of themselves—and when it passes America will be paying for it for decades to come.

Here's the link:     CHANGE NOBODY BELIEVES IN

It would appear, now that the dust has settled and we a have clear view of how much "bribe" money Ben Nelson was given by the White House to get his vote, that Nelson literally bent Obama/Reid over for the benefit of Nebraska and the detriment of every other State.  Think about that when you go to the polls in November.

Dollar Death By 1000 Paper Cuts (Or trillions, in this case)

Zhu Min, Deputy Governor of the Chinese Central Bank, issued comments at an economic forum in Beijing yesterday in which he stated that the U.S. dollar is set up to go lower and that foreign buyers will become a lot more reluctant to buy more U.S. Treasury bonds:

“When the U.S. has to fund its deficit through the combination of issuing more Treasuries and printing more dollars, it is inevitable that the dollar will continue to weaken.”

He also said that the U.S. can no longer assume that foreign countries will continue to fund its massive spending deficits.  Here's the Bloomberg news link:  Dollar Set To Weaken

Notwithstanding the current miniscule trading bounce in the dollar, it's probably worth paying attention to statements about the U.S. dollar and U.S. spending deficits which eminate from Chinese officials, as they are the largest holder of U.S. Treasury bonds.   Might also be worth paying attention to the recent disclosure from Pimco, which revealed that its Total Rate of Return Fund unloaded a massive amount of U.S. Treasury and agency debt, the latter clearly helped by the Fed's massive purchases.

Don't assume that a big spike in interest rates in the Treasury market - caused by funds like Pimco dumping and much higher yields required by foreign buyers - means a lower price of gold.  Au contraire, assume that higher interest rates in this context imply much higher inflation expectations from the market, as a result of the weakening of the dollar.

Higher interest rates will also destroy any lingering fantasies of a housing market recovery.  Will the Fed let the market takes it natural course and stop printing money?  Or will Bernanke, with reappointment confirmation safely in hand from the full Senate in January, re-up the Fed's money printing machine (Quantitative Easing) in order to purchase the 100's of billions in Treasuries necessary to keep interests down?  I am betting heavily on the latter and it sounds like the Chinese are as well.

Commercial Real Estate Jingle Mail

'Tis that time of the season.  As per the linked article from Clusterstock.com LINK, Morgan Stanley has sent an early Christmas present to lenders who financed five buildings owned by Morgan Stanley in San Francisco.  Morgan Stanley has opted to hand the keys and building titles over to these lucky banks and investors (no doubt there's public and private pension money in the debt structure).

We've seen some bullish declarations about the housing and commercial real estate market lately.  The most recent coming from Bill Ackman, who runs Pershing Square Capital, a hedge fund with a successful track record.  Recently Ackman gave a presentation to investors which made some very bullish projections for commercial real estate.  In that presentation he has some very questionable assumptions about the ongoing "strength" of the current economy and for economic growth in 2010.  He characterizes the current economy as being "recovered from recession"  and makes some incredulous assumptions for growth in the retail industry for next year.

Based on all of the data that I look at, it would appear to me that the current economic "boom" has been fueled exclusively by direct Government stimulus in the auto, housing and defense/military industries.  The first two are unsustainable even with direct Government intervention; the latter only with continued support of skyrocketing Government debt issuance by those financing our Treasury auctions.

My hunch is that after the holiday season is over, we are going to witness an unprecedented amount of bankruptcy filings in both the retail industry and the white collar service businesses that tend to occupy urban commercial buildings.  This will not be bullish in any way for commercial real estate, as vacancy rates at shopping malls and metropolitan office buildings will spike even higher.  This doesn't even begin to address the growing inventory of multi-family housing units (apartments/condos).  I can say for sure that in the Denver area several have completed development and are begging for tenants.

Back to Ackman, he has made a huge bet on the post-bankruptcy success of General Growth Partners by taking a huge position in its unsecured debts, which will make him one of the largest shareholders when it emerges from chapter 11.   In fact, just today GGP announced that:  "General Growth Properties Inc., the mall owner seeking to emerge from bankruptcy next year, will consider all offers for the company and may sell shares to the public to raise capital" (LINK).  My hunch is that Ackman, sensing the possibility of holding something no one wants (i.e. GGP equity), designed his presentation to throw lipstick on a pig, right before the pig puts itself on the market like a NYC 11th Avenue Princess of the Night ("GGP will consider all offers." Translation:  "I need a fix, I'll do anything you like for some money").

My bigger hunch, based on the empirical data I look at - plus observing actions of smart, inside money like Morgan Stanley - is that Ackman may end up holding the bag with his equity in GGP, especially if the economy drops off a cliff in 2010, as I suspect it will.  The moral here is that if your favorite financial advisor from Wachovia, Wells Fargo, RBC or Raymond James calls you up to pitch REIT stocks, or even this "hot new stock issue from GGP," hang up the phone and change your number as soon as possible.  There is no doubt in my mind, if the Morgan Stanley jingle mail event is any indication, that Wall Street and insiders, who have already dumped billions of REIT paper into mutual funds and retail investors since March, will devote a lot of resources in 2010 trying to unloading even more commercial real estate onto the investing public.