Monday, June 6, 2011

Something Really Ugly Is Brewing...

I know the financial stocks have been sucking wind lately but I had not really looked at them until today.  Financials make-up the highest percentage of stocks by sector in the S&P 500 and thus can be considered a good market signal for information, in general, about what is going on systemically.   Currently the SPX is down about 4.4% from its high close this year.  But take a look at some of the huge banking/Wall Street stocks:   Since Jan 18, AIG is down 55%, BAC -33%, GS is down 22%, Citi down 20% and WFC is down 25% (since Feb 14 on WFC).  There's no way of knowing for sure what exactly is going on systemically other than to know that something very ugly is occurring. 

Of course, we can take a stab at it based on what we know about the economy and what the Fed is doing.  I have believed all along that the "QE" aka money printing has been first and foremost a means to keep the big banks from collapsing and, secondarily, to keep the Federal Government - and de facto most States - from having to close down most operations.  After all, the banks are still paying record bonuses and the Government is still happily funding Entitlements and Defense.  The only constituency not benefiting from the money printing - and that constituency which is, prima facie, the target of the QE - is the unemployed (or at least the jobless who want jobs and are not living off of unemployment welfare).

Now, we all know that the poker faces in NYC and DC are expressing that they are going to hold firm with no more QE.  But does that makes sense given what we know about how bad the economy is AND the dismal performance of the too-big-to-fail banks?  Quite frankly, the stock performance of these banks, especially that of AIG and BAC are telling me that there is a massive liquidity problem going on in the banking system.  The two entities that should have been allowed to fail, AIG and BAC, but were saved are reflecting this in the performance of their shares.  We also know that Goldman was one of the heaviest users of emergency borrowing from the Fed during the last crisis, ostensibly because its fate was wrapped around AIG back then. 

And one more point. has been doing a marvelous job at tracking the flow of new Treasury bond issuance as it gets repurchased from the primary dealers by the Fed shortly after the Treasury issues it.  On average and in general, the Fed has been rapidly taking up to 50% or more of recent Treasury issuance off of primary dealer balance sheets.  The PD's have been taking, on average, over 50% of all Treasury issuance.  See what's going on here?  We also know that since December, the Fed has monetized in excess of 100% of all new Treasury issuance.  Here's the latest evidence per Zerohedge:  LINK

I've been saying for quite some time that housing was still going south and that banks are choking on mortgages that  not being paid AND not classified as in default or in foreclosure.  The Fed has enabled this game with its money-printing.  Unless some miracle comes along from some corner of the universe OR the Fed folds on QE, something VERY bad is coming our gold?


  1. The impossible to predict resumption of the housing collapse is killing banks, and I imagine there has to be something else going on as well.

  2. I've loved the deer-in-headlights stares when I've talked to even the most investor-savvy people I know that I started putting my savings in gold and silver last year, sold all the mutual funds in all my retirement accounts, liquidated all my stock holdings, and am now shorting major indicies like the S&P.

    It's going to sting for everyone, but for those that protected themselves and saw right through the MSM's inane bullshit, it will be like a mosquito bite; the rest get taken down with a swarm of angry wasps.

  3. john of r and iMonday, 06 June, 2011

    It was possible to predict the housing collapse was going to kill the banks in 07, 08. Why is it impossible now. I'm surprised Dave left this post up. It is deceleration of intermediation (fees and deals) that kill the banks. That's why we had Queezing 1 and Queezing 2 with Tarp and stimuli. Once the bloody fiat stops eminating from Bernanke's tuchostal membranes, its over. Stop guessing and get yourself some facts.

  4. some facts..
    my baloney has a first name..
    its benny
    my baloney has a second name ..
    its bernanke..

    and if you ask me how it tastes(i forget the rest)..but its QElicious!

    The Continuing Debt Implosion Will Force More QE

    QE, either QE1, QE2, QE3…QE(n) must continue because the toxic asset problem runs extremely deep. FASB 157 allowed toxic assets to marked model rather than market. This was a huge boon to banks because it allowed them book trading profits from worthless assets after 2008. The fictitious valuations also allowed banks to gear-up (increase leverage) after the Lehman collapse.

    There’s hundreds of trillions of toxic assets still polluting the world’s financial system. This is why banks can’t get off the trading floor on the exchanges and the Fed must reinvest income from QE1, QE2, and numerous unrecognized programs, into more QE to minimize the effects of the ongoing debt implosion.

    Total credit market debt to gross domestic product, which ignores much of the world's toxic assets, still remains near historical highs and illustrates the depth of the problem at hand.

  5. Face it, we have 2 options...Hyperinflation or a Deflationary Depression that will make the GD seem like a weekend at the Hampton's. I get a kick out of all the folks who say " Tax payer Money " really? funny everyone I talk too received a refund. This is and always has been PRINTING. But its a new president digital inflation, not actual dollars in yes interesting times for sure.

    Great post Dave

  6. Ugly? gold buy silver break away from this system!

    Startling revelations from a Swiss banking insider

    : Did you have a problem with this work?

    A: Yes, a very big problem. I could not sleep for many days and after a while I left the bank. If I give you too many details they will trace me. Several secret services from abroad, mostly English speaking, gave orders to fund illegal acts, even the killing of people thru Swiss banks. We had to pay on the instructions of foreign powers for the killing of persons who did not follow the orders of Bilderberg or the IMF or the World Bank for example.

  7. (Dave in Denver)

    Thanks for the feedback Bill!

    Anonymous, I read that interview, any way of getting more info on that publication, interviewer and whether or not that has reasonable credibility. For the record, I do believe in the Bilderberg conspiracy and the interviewee connects some dots for me.

  8. Have to do something..

    Acts of Resistance: What Are You Going To Do On June 14th to Rebel Against Economic Tyranny?

    As their current policies prove, economic central planners have become so arrogant and tyrannical in their shortsighted greed. They think we are an ignorant and apathetic population that they can continue to exploit without fear of rebellion.

  9. A witches brew? many questions, so little actual silver...

    In recent months, the number of EFP transactions in silver AND gold, as opposed to the number of contracts settled in cash or settled in physical delivery, has exploded. When the majority of gold/silver futures contracts are settling in EFP and EFS transactions versus cash settlement or physical settlement, this points to a pronounced manipulation of this market and an absence of any true price discovery in gold/silver futures markets.
    In the meantime, selling of SLV shares reached an all time high in
    May. What does this all mean? I’m not quite sure I have the full
    answer yet as I keep digging, but I’m quite certain that whatever is
    going on in these paper for paper swaps in the gold/silver futures
    markets on the COMEX is not kosher and an attempt to hide physical
    shortages of precious metals that exist versus the open interest
    numbers in gold/silver futures. The CME makes it very difficult to
    compile stats regarding EFS and EFP transactions because while they
    provide a running total of month-to-date transactions for gold/silver
    futures contracts settled in cash and settled through physical
    delivery, they do NOT provide a running total of EFS and EFP
    transactions month-to-date in their daily metal reports nor do they
    respond to any requests for such information. When one of my staff
    members wrote the CME and inquired if running totals were available
    each month for EFS and EFP transactions in gold/silver futures, the
    CME staff answered no. Thus, one of my staff compiled the daily totals
    for EFS and EFP transactions for the month of May by pulling every
    daily report for gold/silver futures. This is what the totals looked
    like from May 2 to May 26, 2011.

    For gold futures, from May 2 until May 26, 2011, 0.01% of transactions
    settled in cash, 0.27% in physical, 78.22% in EFP and 21.50% in EFS
    (for a combined 99.72% of all gold futures transactions in EFP and
    EFS). For silver futures, from May 2 until May 26, 2011, 0.19% settled
    in cash, 0.93% in physical, 85.39% in EFP, and 13.49% in EFS (for a
    combined 98.88% of all silver futures transactions in EFP and EFS).
    Thus these paper for (possibly) paper swaps, if that is indeed what is
    happening in the EFP transactions, are casting huge distortions in the
    price of gold and silver to the downside.

  10. "legs" bernanke...

    Jim Sinclair - Gold to Exceed $12,500 to Balance US Debt

    “I think most of your analysis of secular trends will look and say no, no, summer time doldrums nothing happens. Well we could have something very significant happen and for a very clear reason. It’s becoming obvious even to our talking heads that this great recovery which we’ve questioned for a considerable period of time is in fact more in people’s minds than in reality. The economy is turning down again and turning down hard, there’s no question about that.”$12,500_to_Balance_US_Debt.html