Sunday, November 29, 2009

A London Silver Trader Challenges The CFTC

The following letter is from a London-based silver trader to CFTC Commissioner Bart Chilton.  I wanted to post this letter, which appeared in Friday's Midas report, for those who do not subscribe to  Anyone who follows the gold and silver markets knows about the severe imbalance which has occurred for several years between the size of the short interest in gold and silver futures vs. the amount of physical gold and silver sitting in Comex warehouses.  As an example, JP Morgan and HSBC combined (and it's mostly JPM's short) have a short position which represents 199 million ounces.  This is nearly 4 times the amount of silver currently listed as "registered," or available for delivery. 

In any other instance,with any other commodity, the CFTC (Commidity Futures Trading Commission), which is the Governmental body which regulates commidities trading, has always enforced "market concentration" regulations and restricted the size of the long or short position which can be held by any firm in that specific commodity.  There is usually a standard applied which measures the amount of short/long interest in a given commodity vs. its available supply on the exchange.  As Ted Butler has been pointing out for years, never in the history of commodity futures trading has the short interest in silver (and gold) come even remotely close to degree of concentration and nominal amount vs. available supply as it is in the silver market.

The issue here concerns the CFTC's refusal to impose the same standards to the silver market which have been applied and enforced in every other commodity market.  Why does the CFTC refuse to address this issue in the silver (and gold) market?  Bart Chilton  represented to Bill Murphy last December that he would address the problem in the silver market.  Since that time, a new chairman - Gary Gensler - was installed by Obama.  Gensler is a former partner at Goldman Sachs (surprise surprise).  He was also part of Robert Rubin's Treasury Department in the late 1990's.  The egregious and balantant manipulation in the Comex gold and silver markets is largely attributed to policies implemented by Robert Rubin.

I wanted to post the following letter to demonstrate how blatantly the CFTC is enabling the massive manipulation in the silver market to continue.  In my view, there is a very distinct connection between the appointment of yet another Wall Street crook to the CFTC post and the lack of enforcement in gold and silver trading.  Highlighted sections are my emphasis:

Further to my letter of the 11Nov. 2009

Dear Mr. Chilton,

I was a little disappointed that you had not acknowledged my letter to you on 11th Nov.I realise you are busy but it would be nice to at least know you were taking my information into consideration and looking into the questions I raised.

You must be aware of the concentrated positions evidenced in your own published data. This information has most certainly been in your hands for a year now. Since that time the concentration has increased to record levels. I realise that you inherited this criminal situation BUT THIS IS NOW HAPPENING UNDER YOUR WATCH.

As you know I am a metals trader based in London and am fully aware how JP Morgan et al is able to move the silver market at will. Indeed I am able to profit from such activity as we are given clear signals by them when they intend to instigate a sell off. If you cared to contact me I would be able to give you information on just how these signals work. You may wonder why I would want to expose such a profitable activity? It is because I want to trade in a fair market and think of my profession as honourable. I believe all human beings should act with integrity and when I look around in church on a Sunday realise that I am deceiving and robbing ordinary hard working god fearing human beings.

It makes me very uncomfortable to stay silent as I witness traders I know profiting from insider information. It is bad enough that a so called respectable bank is allowed to act in a criminal manner but I suggest you check into and audit the personal positions traders acting for a ‘certain bank’ take around the orchestrated sell offs.

I have been asked questions on how traders can justify such large bonuses this year. I think the press will have a field day now that these questions come into focus. Especially when we make them aware that it is not just through legal trading, and that the CFTC is fully aware this is going on.

You and I know that JPMorgan is acting as an agent for the Federal Reserve. It is common knowledge to all professional traders. I can only deduce that your lack of action in tackling this blatantly obvious manipulation because your hands being tied due to pressure from above. The CFTC’s lack of action is threatening to blow up the precious metals market.

This brings me to my main concern. Do you realise that the massive short paper positions are HANGING BY A THREAD? There is simply not enough physical metal available for delivery for the December delivery contract.
Over this Thanksgiving we saw another supposedly marked to market Derivative position blow up causing ripples through the market. Yet this default is just a fraction of what is threatened within 4 weeks in the physical market. I have been just one more voice trying to warn you this is going to end badly no matter how much you are reassured by JPMorgan the positions are hedged. All they can do is now take a MASSIVE risk in adding to the short positions in order to instigate a selloff. Unfortunately Gold will not oblige in assisting this telegraphed action. Are you willing to allow this king of risk to escalate?

Please acknowledge my letter.
Respectfully yours
Andrew T. Maguire

When Bill Murphy met with Chilton last December, he demonstrated with hard data and facts that eventually, left unchecked, that the huge, illegal and unregulated short positions in gold and silver would eventually get blown away by increasing demand for physical gold and silver.  The author of the letter alludes to this in the last paragraph. Chilton has obviously decided to ignor Murphy's warnings, as the net short position in both gold and silver become more extreme every week.

Make no mistake about it, at some point in the future, and possibly starting this month with the December deliveries of gold and silver, it will become apparent to all involved that the physical demand for gold and silver are going to completely blow up the Comex.  Anyone looking to preserve some portion of their financial health with gold and silver should buy as much as they can, as soon as they can.  When this situation on the Comex unwinds, it will catapult the price of gold and silver to unimaginable levels.

Friday, November 27, 2009

Update on December Comex Gold Open Interest: This Could Be Interesting

December open interest is 44,366 contracts. This represents 4.4 million ounces vs. the 2 million "eligible" -available for delivery - ounces of gold in today's Comex inventory report. Anyone holding a long position had to be ready for a delivery notice on Monday, meaning their futures account has to be fully funded and ready to pay for delivery as of Monday.  It remains to be seen how this will play out over the month of the December. Technically, last "notice to deliver/delivery" day is 12/31. I have yet to understand how the delivery notices are assigned (i.e. notices can be assigned anytime from Monday to 12/31), and unassigned contracts can be sold up to 12/30 or tender for cash, but if every single one of those 44,366 contracts has the intent of taking physical delivery, the Comex has a problem.

Eyes Wide Open: How Significant Is The Potential Dubai Default?

The quick answer to that question is that we don't have enough information to make a real assessment.  We know that the Dubai World fund is looking to restructure payment terms on $80 billion in debt.  Dubai World is an investment vehicle owned by the Dubai Government.

That's the devil we know.  The devil we don't know is to what extent Dubai World has off-balance-sheet liabilities.  Even more consequential, we don't know to what extent banks and hedge funds globally have engaged in Credit Default Swaps tied to the debt issued by Dubai World.  Like every other financial accident that has happened - and the bigger ones waiting to happen - the OTC derivatives abortion has the potential to magnify the damages by many multiples and to inflict damage in places where we we least expect it (i.e. U.S. investment and pension funds).

We also know that going back to Long Term Capital and Enron, when smoke started billowing from these entities, it didn't take long for those firms to disappear, incinerated by hidden, off-balance-sheet nuclear landmines.   The long list of financial firms that followed, often vaporized overnight, included Bear Stearns, AIG, Washington Mutual, Lehman, Wachovia and many hedge funds.

JP Morgan is out with a report that the U.A.E. has plenty of money available to bail out Dubai. That may be the case and this crisis may blow over as quickly as it surfaced.  But these sovereign bailouts, led by the multi-trillion dollar U.S. bailout schemes, will eventually become ineffective, drown out by the flood of money printed in order to make them happen.

One thing I do know, all the anti-gold critics and media morons have been quick to point out that gold was sold off hard and thus was not performing as a flight to quality instrument.  What I would like to point out is that gold has actually rebounded 4% off of its overnight lows and is unchanged from where it was trading for most of the day on Wednesday (albeit a bit below Wednesday's close).  No doubt gold was affected by the knee-jerk reaction of hedge funds who piled into gold's upward momentum and other weak-handed holders.  Hedge funds tend to sell anything not nailed down at the first sign of downside volatility, and this would include gold futures thereby exaggerating gold's sell-off.

Quite frankly, in the context of the dollar spike and the hard sell-off in stocks globally, I think gold is holding its own quite well. In fact, gold is outperforming the dollar quite handily since the equity markets opened today.  Keep your eyes wide open to what is happening in Dubai.  Not so much for what is obvious, but for the collateral effects that might not filter out thru CNBC, Bloomberg News, et al.  The event that triggers the next huge cliff-dive in global equity markets is likely to come out left field with little or no warning.  Did anyone expect to wake up yesterday to see European bourses down 3-4% on the news of potential debt default from Dubai?

Wednesday, November 25, 2009

Is A "Commercial Signal Failure" Upside Explosion Coming In Gold?

A commercial signal failure occurs in the commodities market when the amount of demand for physical delivery of a commodity - in this case gold - exceeds the ability to physically deliver the available supply by those obligated to deliver.  In this case that would be the parties who have sold short the Comex December gold futures contract (primarily Goldman Sachs, JP Morgan, HSBC and Deutsche Bank). If this does indeed occur, the price of gold and silver will do a veritable moon-shot in price.

The situation in December gold on the Comex could get quite interesting.  As of today's trade date, there are 94,544 open December gold futures contracts.  Anyone holding one of those contracts who does not or can not take delivery (1 contract = 100 ozs, or roughly $118,000) of Comex gold needs to have that postion sold by the end of trading Friday.  Tomorrow the Comex is closed and Friday will be a low volumn day.  The reason for this is that Monday is what is known as "first notice day," which means that anyone long a gold contact (or silver) can be tagged with a delivery notice.

Now, the amount of gold being reported by the Comex as "registered" (not that we trust that number) - which is the amount that is available for delivery - is a little over 2.1 million ozs. If o/i (open interest) on Monday is any where over 21,000 contracts (2.1 million ounces), December could be a very interesting month for gold.  In other words, if the open interest at the close of trading Friday is greater than 21,000 contracts, the Comex has a delivery problem.  The price will go parabolic.

With the open interest at 94,000+ right now, and with Friday being a very low volumn day, we can expect that the number of contracts that potentially stand for delivery will far exceed the amount of gold available for delivery.  Now, contracts can be tendered for cash instead of gold, and someone holding a contract can sell it after 1st notice day.  But, anyone holding after Friday must have an account fully funded to accept delivery because, in theory, every single long position on Monday could be tagged with a delivery notice (this never happens but theoretically it is possible).  We'll have to wait until Friday afternoon to know for sure, but I suspect the relentless move up in gold prices this week are sniffing out the possibility of a delivery issue as described above.

Two more interesting items of note, and events which confirm the growing demand for physical delivery and possession of gold.  First, it was announced today that the Central Bank of Sri Lanka purchased another 10 tons of gold from the IMF.  They said it was a move to diversify reserves, which means they are dumping U.S. dollars.  Here's the link:  Sri Lanka Buys More IMF Gold.  And India has expressed an interest to buy the rest of the IMF gold for sale:  India Interested In Rest Of The IMF Gold.

It should be clear to anyone paying attention to what is going on in the gold (and silver) market that there is an aggressive movement by central banks, investment funds and wealthy individuals to take physical custody of large quantities of gold.  There is also a massive imbalance between the actual supply of physical gold available for delivery and the enormous amount of paper liabilities for gold.  These liabilities include Comex futures, OTC derivatives, leased gold and, of course, the high likelihood that GLD is largely a massive gold leasing operation.  The paper Ponzi scheme in gold is starting to unravel and this is being reflected by the price behavior in gold, despite tame inflation numbers coming out of the Government.

Have a great Thanksgiving break - GOT GOLD?

There's a Brown Cat sleeping thru this day's show
On top of the woodpile...breathin' slowwwww
(Widespread Panic, Driving Song)

Tuesday, November 24, 2009

Must-Watch Video - The National Inflation Association's "The Dollar Bubble"

"There will be two social classes of American in the future:  those who sell their U.S. dollars today and buy gold and silver and those who buy into the false hope of an economic recovery."

I suspect that there is a lot of factual information and news reports in this 30 minute documentary that most people who view this video have not seen.  Some of the best footage is of Congressmen grilling Banana Ben Bernanke under oath and his obvious discomfort with the questions and, for those who know the facts, his obvious lies.

"Eventually this dollar is going to stop working and everybody is going to know what poverty is all about."

"Unfortunately, those who buy real estate this time around will get slaughtered."

Consider this video as yet another huge warning shot directed your false sense of well-being.  And also consider that in Weimar Germany, over 80% of Germany's citizens clung to the false hope of their national currency and held onto the (Renten)mark until it was completely worthless by late 1923. 

Presented by the National Inflation Association - NIA

"Those who cannot remember the past are condemned to repeat it." - George Santayana, poet and philospher.

Consider that during the course of this decade, gold and silver have both appreciated well over 450% against the U.S. dollar.  This is without the benefit of perceived inflation and without most large institutions and small investors participating in the "stealth" bull market.  Imagine what will happen to gold and silver when serious inflation hits the system, as a result of the catastrophically reckless fiscal and monetary policies being imposed upon us by the Federal Reserve and our Goverment....GOT GOLD?

Monday, November 23, 2009

The Bell Tolls For Tim Geithner...

The NY Times is reporting that Jamie Dimon, CEO of JP Morgan, is being touted behind the scenes as a possible successor to Tim Geithner.  The NY Post also had the story.  The fact that this story has surfaced like this suggests that the end is near for Tiny-Brain Tim:
Mr. Dimon “would love to serve his country,” the newspaper quoted people familiar with his thinking as's the link:  NY Times: Geithner May Be Done
If Obama really wants to clean up the mess in the financial sector, he would find a replacement that has absolutely no economic ties to Wall Street or the Fed.  Since the primary purpose of the Treasury Department is to oversee the collection of tax revenues, the disbursement of those revenues and managing the liability side of the Government's balance sheet (i.e. issuing debt to finance the Government), perhaps someone with a solid background in accounting and bread and butter banking operations would be a good choice.  Since regional banks are the backbone of small business lending, and small business growth is the backbone of job growth and econmic stability, perhaps a solid candidate might be the CEO/CFO of a successful regional bank.

The problem with Jamie Dimon is that he would be nothing more than a retread of Stuttering Henry Paulson  - albeit a version of Paulson less the stuttering speech impediments.  Recall that Paulson is the person who essentially hijacked $700 billion from the Taxpayers and shuffled a large portion of that money thru AIG to Goldman Sachs, JP Morgan and others.  How can we possibly expect Jamie Dimon to act differently that Paulson did, which would be for him to act in the interests of the American Public and not the corrupt Wall Street Community?

This just in from a loyal reader:  The overall strategy needs to be to avoid Wall St and anyone who may be connected to that avenue. The Treasury needs to be about protecting the taxpayers $ - Wall St is inherently set up to abscond with it.

My response:  Putting Dimon in there would be nothing more than replacing a barking chihuahua with Godzilla dressed up as Florence Nightingale.

Saturday, November 21, 2009

No Country For Old Men...

"People were always getting ready for tomorrow. I didn't believe in that. Tomorrow wasn't getting ready for them. It didn't even know they were there" ("The Road" by Cormac McCarthy).

This country needs to take care of its problems today. It is getting worse by the hour. In Colorado, public school teachers are going to face up to 17 days of furloughs next year. The State was trying to keep this a secret but an incompetent high school prinicipal let the cat out of the bag and concommitantly the fact was confirmed on NPR radio last week. The Jefferson County school district is facing a $42 million budget shortfall and deep cuts will be made to the educational protocol, but not to the incompetent bureaucracy that oversees the mess - nor to the incompetent politicians overseeing the incompetent administrators. Foreclosure filings in Colorado hit a new record during the 3rd quarter and Colorado has one of the stronger State economies. Nationwide over 14% of all mortgages were either delinquent or in foreclosure. A new record high for the 9th consecutive quarter. In some States the foreclosure/delinquency rate is over 20%.

Conditions in this country are getting worse for everyone except those in position to loot the system. Tim Geithner gets in front of Congress and ignorantly and arrogantly proclaims that he and Obama saved the system from collapse and that economic conditions are improving. THAT is an outright lie.  Real unemployment (not the Government-concocted crap numbers) increases daily, banks are jacking credit card rates to usurious levels and thereby choking off holiday shopping and State Governments are in the process of financially collapsing - all this after trillions of "stimulus" and bank bailout money was injected into the system. The reality is that Geithner and Obama have transferred 100's of billions of dollars from the Taxpayers to the big banks and big corporations. Does everyone realize that there's a tax break which gives new homebuilders billions in tax credits buried in the Bill that extended unemployment benefits and homebuyer tax credits?

Taking care of today means getting rid of Geithner, Bernanke, Summers and most of the rest of Obama's corrupt Administration. Until that happens, the problems are getting worse by the hour for everyone except the big bankers, who are getting paid record bonuses this year to do "God's work."  The only problem is that the money being used to pay those bonuses is coming from the Taxpayers. If Goldman Sachs CEO Lloyd Blankfein is doing "God's work," as he so proudly proclaimed last week, what is it exactly that Obama is doing?  Should we be pledging allegiance to the United States of Goldman Sachs, one Nation under Llyod Blankfein? Is this what everyone who voted for Obama voted for?  Obama ran on a campaign platform that was supposed to clean this mess up, get rid of the corruption, and CHANGE the way DC operates.  Instead, he's taken the problems perpetuated by many previous Administrations and is making them even worse.  Maybe this is No Country For The Middle Class...

Friday, November 20, 2009

Random Friday Afternoon Observations....

Gold and silver were unusually strong the past two days relative to the S&P 500 and the dollar.  Silver managed to hold two attempts to take it below $18.  Today it hit a low early this morning of 18.05 (December contract) but closed access trading at $18.51.  For most of yesterday and today, spot silver was trading in 2-4 cent backwardation (spot higher than the front month futures price), indicating an extremely high degree of demand for physical silver relative to its immediate supply.  I actually missed the closing price of gold on the Comex, but if you include the access market close, gold closed at an all-time record high.  Next week should be interesting, to say the least....

Some Congressional Democrats, led by Peter DeFazio of Oregon, are starting to jump on the "get rid of Geithner" bandwagon on Wednesday DeFazio called for Geithner's resignation on MSNBC.   Yesterday during Geithner's blow-smoke-up-our-ass session in front of the Joint Economic Committee, Congressman Kevin Brady point blank asked Geithner to resign:  "Mr. Secretary, you are the point person on the economy, and the buck, in effect, stops with you," Brady said. "For the sake of our jobs, will you step down from your post?"   Congressman Michael Burgess followed up with:  "I don't think you should be fired. I thought you never should have been hired."

The real issues with Geithner for me are the fact that he was found guilty of cheating overtly and for multiple years on his taxes and Obama should have withdrawn his nomination of Geithner as soon as these facts were revealed.  Rep. Burgess is right - Geithner should have never been appointed and confirmed.  But worse, it has now come to light that Geithner essentially transferred 10's of billions from the Taxpayers to the large investment banks which were derivative counter-parties with AIG when Geithner was head of the NY Fed.  Not only should Obama fire Geithner immediately on this basis, he should appoint an independent investigator to investigate every aspect of Geithner's involvement in this grand theft of Taxpayer money.   Geithner is a criminal for dodging taxes and he is likely an even bigger criminal for his role in the AIG/Goldman Sachs et al bailout.

I was going to pontificate about the possible criminal behavior of Fed Head, Banana Ben Bernanke, but I don't have the energy right now.  So on that note I'll end with, who gives a shit that Oprah is ending her talk show?

Thursday, November 19, 2009

Obama Wants Greater Government Control Of The Internet

Oh what a tangled Orwellian Web your President weaves.  Just a few days ago Obama was in China lecturing and admonishing the Chinese about internet censorship (this from the man who has asked for a "kill switch" on the internet).  Now this as reported in yesterday's Wall Street Journal (Article Link):   "Federal regulators are considering whether the government should take greater control of the Internet and ask consumers to pay higher phone charges in order to provide all Americans with cheaper access to broadband Internet service."

Obama is further demonstrating that he is NOT what his supporters voted for and everything his opponents feared when they voted for his opponent.  His Presidency is taking this country deeper into economic Hell and deeper into what will be an irreversible Orwellian abyss. 

I would urge everyone to send emails to protest to their respective House Rep and BOTH Senators.

Wednesday, November 18, 2009

Hemingway's Proverbial "Bell" Is Tolling For the U.S. Dollar

I said to friends, family and colleagues way back in 2003 that the Federal Reserve and the Government were going to loot the public's wealth until there was no wealth left to loot (folks, this includes your retirement accounts).  We saw a major chunk of wealth ($700 billion) hijacked by Henry Paulson and transferred to the big banks via AIG.  Many of these other "TARP/TALF/SCREWME" Fed programs are backed by Treasury guaranantees and will ultimately end up with trillions in wealth transferred from the Taxpayers to the big banks and the people running the big banks, who are getting paid 10's millions to do "God's work,"  as per Lloyd Blankfein, CEO Goldman Sachs.

I mention this in the context of pulling some key quotes out of Stewart Thomson's latest freebie commentary (here's the link, the quotes below are from this article:  LINK).  The key point in this commentary (aside from his excellent analysis on the price action in gold), is that the Fed is in the process of massively devaluing the US dollar, which is an insidious and subtle way for them to confiscate your dollar-based wealth, including your IRA, 401k. any cash-equivalent investments like Treasury bonds, muni bonds, defeased munis AND bank savings and CD accounts.

Here is the key comment from Thomson's commentary with regard to wealth confiscation via dollar devaluation: 
The most important news item of the past few weeks is Dr. Ben Bernanke's statement yesterday.  He says he sees no overvaluation, let alone bubble-action, in the "asset markets". His number 2 man Kohn backed him up. This is a very powerful statement from the Fed. Note that he spoke of valuation more than price, and correlated the rise in commodity assets against the 64% rise in the stock market...Dr. Bernanke is laying out is that he doesn't care about $80 oil against a Dow at 10,000. He doesn't care what your food costs [are]. He's pretending prices are low and giving the green light to dollar devaluation.
The key point here is that the massive dollar devaluation going on right now is going to lead to a much higher dollar-based cost of living for everyone, especially as it translates into higher prices for imported goods, which make up a large portion of U.S. consumption.  The inflationary price effects of Bernanke's systematic devaluation of the dollar may not be obvious right now, but it will be in the next couple of years - and believe me, he is well aware of this fact.

In the meantime, as pointed out by Mr. Thomson, the entire financial media apparatus is trying to convince everyone that a massive, short-squeeze dollar rally is on the way - that the whole world is too bearish on the dollar and that will lead to a huge move up. Well, who do you think is taking the other side of this trade?  We know every huge institution and Central Bank that is participating in the dollar carry trade is feeding the market with a steady supply of dollars.  Furthermore, we are seeing most large-country Central Banks (and some small ones) using billions of dollar reserves to buy gold.  This is flooding the market with dollars as well.  Those are not exactly the conditions under which we would expect a big move up in the dollar.

Mr. Thomson notes:  The US dollar monthly chart is in a horrific situation. It shows many of the major indicators on sell signals. This is a disaster in the making, and Ben Bernanke has better chartists in the world at his beck and call. He knows the score, and the score is: Thumbs Down On The US Dollar.

In other words, despite the common view being propogated by the usual bourgeois-worshipped idiots (see Prechter, CNBC, Gartman) about an imminent move higher in the dollar, if you "follow the money," the money trail and the statements from Bernanke point to a continued depreciation in the value of the dollar.

All this is to say that you may think that you are being "safe" by keeping your money in dubious "higher quality" fixed income investment (bonds, CDS, money markets, etc), but the fact of the matter is that these are nothing more than stagnant cesspools of paper, the value of which is being confiscated by the Fed/Government thru the process of massive dollar devaluation AND the massive transfer of your taxpayer wealth from the Treasury to the big banks.  To ignore this ongoing process is to suffer the consequences of my warning back in 2003. 

The ONLY way to protect yourself against this devaluation is to move your money into precious metals and perhaps some investments based on hard commodities, like oil, natural gas and agricultural products.  And for those of you who think the mad rush by the public to sell gold to these cash 4 gold schemes is a sign of the gold bubble topping out, who the hell do you think is on the other side of that trade?  Smart money and Central Banks.  To emphasize this point, I will conclude with another key quote from Mr. Thomson's article:
Ben Bernanke and the US Treasury are going to revalue gold against the dollar. The mechanism is the US dollar carry trade, not a confiscation of gold. Joe Public doesn't have any gold, he sold his 2 carat ring to the pawnshop months ago.
Got gold?  How about silver, which is even better?

Tuesday, November 17, 2009

Tuesday Morning Fun and a Misleading Inflation Report

This cartoon was sourced from Ed Steer's Gold & Silver Daily, which can be found here:  LINK, which is free and which I highly recommend to anyone interested in the precious metals market...

Headline Inflation Number Is Misleading....

As for today's PPI report released by the Government, it showed a .3% increase, with all the media morons highlighting the -.6% "core" reading, which does not include food and energy (I guess the Government and the clowns on CNBC exist without eating, electricity and heat).   HOWEVER, both energy and food were up 1.6%.  The decline in the core reading was attributed to price declines in light trucks and cars (you can thank Obama for subsidizing the cost of those items).

Monday, November 16, 2009

How High Gold?

This is from tonight's Midas at  John Williams of offers one benchmark with which to put a number on the price potential of gold:
John Williams of Shadowstats: $7,150 is the inflation-adjusted equivalent to gold's 1980 peak.  "If the methodologies of measuring inflation in 1980 had been kept intact, gold would have to hit $7,150 to be the equivalent of the 1980 record," Williams said.

All Of A Sudden Banana Ben Bernanke Is Commenting On The Dollar..

Historically, when questioned by Congress about the dollar, Bernanke has stated under oath that the Federal Reserve is does not comment or make policy decisions regarding the dollar, instead deferring all money supply and dollar policy decisions to the Treasury Department.  Today Banana Ben had this to say (here's the article link LINK): 
In a departure from normal practice that no official except the Treasury secretary comment on the dollar, Bernanke said the Fed is committed to a strong dollar. "We are attentive to the implications of changes in the value of the dollar," he said, adding that Fed policy would "help ensure that the dollar is strong and a source of global financial stability
I don't know about anyone else, but I find this change in policy by Bernanke to be quite startling.  Either Bernanke is an outright liar - which we know is the case - or he has decided that the Federal Reserve will  annex control of the money supply now.  We can observe from the price behavior of both the stock market and gold that Bernanke is inflating the money supply and devaluing the dollar.  Clearly he is NOT concerned about the relative "strength" of the U.S. dollar.

More On Vietnamese Gold Demand

The comment below is sourced from JB's daily commentary on gold trading in India/Asia/London/NYC, posted every night in Midas at
"Reuters amiably published two Vietnam golds today again. In the morning, local gold stood at a $44.04 premium to world gold of $1,123.30 and in the afternoon $32.21/$1,129.76 (Friday PM $27.31/$1,102.80). Clearly gold hunger in Vietnam is real and actual imports will be needed to assuage it."
I wanted to highlight this because most people are not aware that Vietnam is one of the more substantial gold importers in the world.  Note the high import premiums described above.  I can not recall a period of time when the premiums in Vietnam have persisted like this for several days.  This is indicative of both voracious demand for physical bullion globally AND the fact that the physical market is getting very tight.  We have now had several reports and anectdotal indications of bullion shortatages on the LME (that is, bullion which meets LBMA commercial delivery standards).  Moreover, it now looks like India will take the remaining IMF gold for sale if the other Central Banks  to whom the gold has been offered do not take it.  I don't think anyone figured on the IMF gold clearing the market in this short of time period.  To be sure, the gold market bears certainly expected that the IMF gold sales announcement would depress market price and they severely underestimated Central Bank demand for gold.

This is all very bad news for the large banks that are short gold in paper form.  Got physical custody of YOUR gold?

Sunday, November 15, 2009

A Lazy Way To Post On Sunday: What Now For Gold?

I wanted to post this excerpt from Friday's Midas report from for those who do not subscribe.  My advice is that anyone who wants to be involved in the precious metals market as an active investor and/or trader is handicapping themselves if they do not read Midas every night.  He even lets you try a 2-week trial without putting up a credit card.   Stay tuned because I am going to post commentary on why GDXJ (The Van Eck junior mining stock ETF) is an extremely flawed proxy for investing in junior mining stocks.  In fact, it is misleading.  In the meantime, enjoy this commentary from Midas - any bold is my emphasis:

Where to from here?

The first thing to be stressed is that the physical market is in a profoundly different posture than in Q1 2009. Then regular buyers like Turkey, Vietnam and even India were exporting. Now to varying degrees they are buyers. Kilo bar in Istanbul closed at $1.48 premium to spot on Friday despite gold’s rise; India’s return to the bid because of the rupee move noted here on Friday may have been decisive in the NY session’s Bear rout, and of course Vietnam premiums as last reported over $30 are crying out for gold supplies.

[In what is probably a surprising fact to most, Vietnam is one of the world's biggest "consumers" of gold]

(Some have questioned the interest here in Vietnam. The reality is that the country is probably the world’s most avid user of gold for domestic transactions, no doubt in part because of the dismal events of the late 20th Century. When the economy was liberalized some years ago, consumption began rising rapidly, exceeding 90 tonnes in 2006. Virtually all has to be imported.)

(According to the Mineweb article mentioned here on Friday, Vietnam imported 43 tonnes of gold in this first 4 months of 2008. China only imported 112 tonnes that year. (China, of course, has huge domestic gold production. In terms of impacting the world gold trade, Vietnam is in the same league as China.)

It is true that the US bar and coin demand is not as wild as it (contrastingly) was earlier this year, but US demand never entirely faded. And a survey of dealers today suggests they have raised their premiums quite a lot in the past 48 hours. [I can confirm this fact as a recent buyer of bullion]
We are now in a period of extreme seasonal strength. The Aden Sisters have just published a valuable bar chart which records average annualized change in the $US gold price on a monthly basis 2001-2008. It shows that the November through February phase has been reliably enormously strong.

Average change
November 30%+
December Almost 30%
January c.35%+ -fact the highest of the year
February c. 18%

There is an obvious reason for this: these are the months of India’s peak consumption.

(See P7.)

On this basis, the possibility of a serious pull back seems small.The Privateer has another way of looking at the issue:

a lot of people are starting to muse about the current bull market leg getting a bit long in the tooth. In fact, if we compare the current rally with the one which took place after $US Gold's first correction which started in May 2006, we will find that the opposite is the case…the more recent correction was longer lasting and deeper than its predecessor. So far, Gold has only broken out of that correction for six weeks. After Gold broke out of the first correction in Mid September 2007, it roared higher for the next six MONTHS.

The bottom line here is that, despite all the media monkeys and mediocre gold market analysts out there looking for a top/correction in gold because of all the attention gold is getting in the investment/financial reporting community, the typical signals of an impending correction/pullback just are not present.  What should be most troubling for those looking to cover shorts or add on a pullback is the fact that, as documented by the usual firms out of London who comment on the gold market, this latest move higher in price HAS NOT been accompanied by flood of scrap gold hitting the market.   This is indicative of the "tightness" being seen/experienced by many in the physical market and the fact that several Central Banks are now known to be large buyers. 

Where gold goes from here over the next couple weeks, especially as we enter into the Comex December options expiration and contract "roll" period, is anyone's guess.  But the odds are very high that between now and April, gold will be significantly higher in price.  I suggested last month that it wouldn't be prudent to wait until after Halloween if you were looking to buy more gold/silver.  That call looks to be pretty good.  I will offer the suggestion now that $1125 gold will look very cheap by the time most of the country is moving their clocks forward by an hour this spring.

Thursday, November 12, 2009

Geithner Is Kidding, Right?

"U.S. Treasury Secretary Timothy Geithner said the government's borrowing needs would be substantially less than expected"

If he made that statement in front of an audience of Chinese university students, he would have been laughed out of the auditorium.  I'm thinking he forgot to take the speech that Robert Rubin had prepared for him and he was ad-libbing.  Clearly, his tax-dodging was a result of a complete lack of math skills.  The arithmetic is pretty simple:  when the Government increases its spending at an increasing rate, and at the same time revenues fall off even more quickly (I guess that's really simple calculus - sorry Tim), you have a situation which requires the Government to borrow at an increasing rate to make up for the gap between spending and revenues.

I guess if the Government were to pull out of Afghanistan, rescind the unemployment insurance extension, fire most of Obama's useless Czars plus staff, cut off FNM, FRE, GM, C, AIG and its other corporate welfare projects, shelve Obama's Stimulus 2...the list really goes on and on and on and on....I guess Tiny-Brain Tim could make a case that the U.S. might actually slow down its appetite for more Treasury debt and not look like a retard.

Until then Tim, stick with the speech your masters prepare for you.  Both you and your boss are terrible at speaking off-teleprompter.

Speaking of the Devil - Welcome to Tim's "Animal Farm."  The Government released the details of the monthly budget for its first fiscal month of 2010.  Here's the details from Bloomberg News:
The Treasury's deficit totaled a no-surprise but still massive $176.4 billion in October, the first month of the government's fiscal year. The year-ago October deficit was $155.5 billion. Latest receipts are down a year-on-year 18 percent with outlays up 6%
Please note that "outlays" do not include the billions being spent on Fannie Mae and Freddie Mac.  One of Obama's first acts as Presidents was to move the Fannie/Freddie expenditures "off budget."  If you want to really see how much the Government net outlays are, you need to watch the increase in Treasury debt outstanding.  I don't have that number handy but, as we all know, the Government is hitting the latest Treasury debt ceiling this month and will need to have the ceiling raised once again in December, or we won't be getting our unemployment checks or food stamps and Goldman won't be getting paid for doing God's work.

Tuesday, November 10, 2009

Comment Of The Year Candidate

From my colleague, "Jesse," who authors the Jesse's Cafe Americain blog linked in the "My Blog List" down below:
"I don't think we have to worry too much about Bernanke destroying the value of gold, but he is doing a great job on the dollar"

If Your Advisor/Broker Calls To Sell You Muni Bonds

Hang up the phone immediately and move your account.  We have found brokers/advisors from Raymond James, Wells Fargo/Wachovia, Bank of America/Merrill and RBS to be particularly pernicious.  As per the report linked from Barry Ritholtz's The Big Picture:
"For the year ending in June 2009, the period corresponding to most states’ fiscal years, total state tax collections declined by $63 billion or 8.2% from the previous year. That loss is also a record, and is roughly twice the amount states gained during the year in fiscal relief from the federal stimulus package."

Please read this article and study the charts, which show the plunging source of revenue used to repay muni debt:  LINK

To be sure, it is likely that the Fed/Treasury will ultimately be forced to print even more money in order to bail out our municipalities.   But in between, I guarantee you that your broker/advisor will be calling you often, as muni prices tank, to sell you more "great value" paper.  And at the end of the day, even with a bailout, you'll be left with nothing but paper that has even less value than it does now.

Betting Against Roubini Is As Good As Gold

There can't be too many people left who wait to see what Nouriel Roubini has to say until they place their market bets - unless it's to bet against Roubini's view.  And it's a good thing for Nouriel that he gets paid as a university  professor and not as a market speculator - although, if I were one of his student's I'd be pissed about having to pay for his professorial garbage.  As per The Wall Street Cheat Sheet:
"If you followed his bearish advice in 2005, you would have either missed the entire rally through 2007, or you would have lost money shorting the market. If you would have followed his advice starting on March 9, 2009, you would have lost a ton of money. We should also note that Roubini said Oil would stay below $40 a barrel for all of 2009"
Here's the link, which has a nice chart of Roubini's consistently wrong market calls:  LINK

For public record, I would like to note that Roubini recently has decreed, several times, that gold is going to go lower.  I'm not sure you'll find a better bet in the history of the universe than taking the other side of that call.

My view is that Roubini has been working hard for an appointment to Obama's Council of Economic Advisors.  Quite frankly, I'm surprised Obama has not given Nouriel his wish, because Nouriel's dismal incompetence as an economist would make him a perfect fit with all the other clowns in Obama's administration.

Monday, November 9, 2009

ECU Silver Update

I hope readers of this blog were able to fully participate in the gains achieved in Aquiline and now ECU Silver (ECU.TO/ECUXF).  ECU recently released some drilling results which were quite impressive.  Here's the press release:  Lots Of Silver On This Property  ECU's stock has appreciated 17% in price since my October 14th post.

ECU already has proved 431 million ounces of silver.  ECU's independent testing verification firm, Micon International, has signed off on the possibility of 1 billion ounces.  What is NOT included in the 1 billion ounces is the potential represented by the Massive Sulphide Deposit (MSD), which ECU believes is the ultimate source of the silver and gold on the Valerdena property.

The drilling results linked above are beginning to confirm not only the existence of the MSD, but that ECU is closing in on it. In casual conversations with some investors who have actually visited the site, it is believed that the MSD could contain up to and addtional 500 million ounces of silver (not included in Micon's 1 billion number).

ECU presents a tremendous opportunity for one or two large funds to take a big position in a stock that is very undervalued on a fundamental analytic basis.  Because of its large share base (285 million shares, 337 million fully diluted), a large investor would be able to accumulate a meaningful position without driving the stock up too much.
                                                                        (click on chart to enlarge)

It is not too late for investors to climb on the ECU train ahead of its discovery by the institutional investing world.  As you can see, ECU stock traded well over $3 back in late 2006 - early 2007.  And this was before ECU had confirmed 430 million ounces.  As the price of silver continues to climb higher, as ECU continues to prove larger amounts of silver,  it is my view that ECU can easily trade well above its previous highs.

Friday, November 6, 2009

Is Our Whole Banking System Catastrophically Insolvent?

A good friend on mine works for a real estate consulting firm in NYC. One of his deals is evaluating a client's investment in an insolvent commercial property. The deal has $110 million bank loan funded by Bank of America. My friend said the property is worth $30-40 million. What I found interesting, and which confirms that banks are not even close to marking their assets properly, is that my buddy said that B of A is carrying the loan on its books at the full $110 million.

I just did a "drive-by" on B of A's latest 10-Q. It has $2.1 trillion in assets, not including cash. It is reporting $257 billion of shareholder equity. Now, BAC is over-marking the above-referenced asset by 70%. Assume across all of its assets, BAC is being generous in its marks by only 10%. This exercise implies that a true mark-to-market of BAC's balance sheet would wipe out BAC's shareholder equity.

Is this unrealistic?  I think, if anything, my analysis errs in the favor of BAC. Why? BAC has $159 billion of home equity loans on its books. We know that, in general, most home equity loans are probably worth nothing. Let's say BAC's are worth 50 cents on the dollar (this is generous). That adjustment alone would reduce BAC's book value by nearly $80 billion.

The bank has a loan loss reserve of 3.8% of its $914 billion in loans.  But the charge-off ratios for residential mortgages and credit cards (not including commercial r/e) was 4.73% in the latest quarter for mortgages and 12.9% for credit cards. Clearly, BAC is unequivocally under-reserving for the purposes of managing earnings and mainting its vital capital ratios.  And we know that the banks are undeniably stretching out their declarations of delinquencies, defaults and charge-offs. 

My point here is that between the home equity loans and the anorexic loan loss reserve, I can demonstrate that BAC's shareholder equity is overstated by at least 50%.  I haven't bothered addressing the larger balance sheet items of residential mortgages (a large portion of which come from its acquisition of Countrywide, which we know was the goliath of toxic mortgage lending) and commercial loans.  Imagine what a realistic assesment of those items would do to BAC's book value.

Then there's the off-balance-sheet toxic waste (like SIV's, CDO's, VIE's and derivatives). I said I did a "drive-by" on BAC's latest 10-Q, meaning I spent a couple hours digging through the footnotes looking for the obvious accounting exploitations the bank used to pervert its accounting presentation.  I wanted to show that Bank of America is technically insolvent. If someone wanted to spend the time dissecting the derivatives disclosures and special purpose financing vehicles, I'm sure it could be shown that Bank of America would collapse tomorrow without the Federal Reserve and taxpayer support tossed its way (please note, most of the Fed support has taxpayer guarantees - you can thank Paulson, Geithner and Bernanke for that goody tossed at the banks).

This whole exercise was started after my "catch up time" phone call with one of my best friends from NYC. After I got off the phone I realized that I had just received an inside look at how distorted the book value of just one of BAC's non-menial commercial loan assets was. Based on this simple analysis, I truly believe that if we could do an accurate forensic accounting at all the big banks, especially Goldman, JPM and Citi, it could be shown that they are all fraudulently overvaluing their assets and thus catastrophically insolvent.

Re: Fannie Mae: Inquiring Minds Would Like Know...

We know, more or less, how much money was taken from the Taxpayers and given to Goldman and other firms in order to monetize AIG's derivatives problems at 100 cents on the dollar.  And Geithner was responsible for that payout and why should he care - he skips out on paying taxes anyway. 

But most people are probably unaware that Fannie Mae was also one of the world's largest users of derivatives. I would love to know how much of the $60 billion Fannie Mae has purloined from the Taxpayers has gone to pay out Goldman, et al. There is no doubt in my mind that derivatives were more responsible for FNM's collapse than mortgage defaults. Would love to hear anyone's thoughts on this.

Thursday, November 5, 2009

Did India Ignite A Global Central Bank Bidding War For Gold?

**All eyes are on China now (and to a lesser extent, Russia and the Arab Gulf States), to see how it will respond to the suprise news about India's large gold purchase, as it was largely expected that China would be the one to take on the IMF gold that is for sale**

William Pesek at Bloomberg News wrote an interesting commentary about the 200 ton IMF gold purchase by India.  It is interesting because one of the propositions asserted by long-time gold market analysts has been that eventually Central Banks globally would go from being net sellers of gold to being competitive net buyers as they seek refuge from the wealth destruction caused by fiat currency printing presses, specifically Bernanke's electronic printing press "that allows [the U.S.] to produce as many U.S. Dollars as it wishes at essentially no cost" (Banana Ben, 11/21/2002).

Pesek writes:  "A question no one can answer yet is whether India will touch off a bidding war among central banks...Traders are now betting on who will announce the next big purchase. Will it be China looking to employ its $2.3 trillion of reserves? What about Japan, which has the second-biggest pile of currency? Or Gulf states working to end dollar hegemony? And let’s not forget about Brazil and South Korea."  (here is the article link:  Pesek on India's Gold)

As discussed earlier this week, this purchase from India, combined with the renewed urgency exhibited by two of the world's largest gold mining companies to eliminate their gold hedges, points to a growing tightness in the global availability of gold bullion - exacerbated by the rapidly declining mining supply of gold.

An Indian official commented on India's gold acquisition:  “Gold as a proportion of our reserves is relatively small,” said R.H. Patil, chairman of National Securities Depository Ltd and Clearing Corp. of India Ltd. 'Gold is the ultimate currency. In fact, only gold came to our rescue during (the) 1991 crisis, so it makes sense that RBI should try to increase its gold holdings,' Patil said."

This same article noted that: "In the last one year, China has increased its gold holdings, by weight, by 75.69%, Russia by 18.78%, the Philippines by 18.50% and Mexico by 108.91%" (LINK)

So there you have it.  India's move earlier this week may well set off a global scramble, not only by large mining companies closing out their hedge book to avoid the financial devastation of being short gold via production hedges (Anglogold dropped $688 million on its hedge since July), but more significantly, we will see Central Banks, especially eastern hemisphere and Gulf State CB's, engage in a competitive scramble to accumulate large chunks of gold and unload U.S. dollar reserves.

I would suggest that the U.S. Government is quickly losing its ability to continue engaging in its scheme to keep a lid on the price of gold in order to support the vailidity of the dollar.  Furthermore, as you can see from the chart below, the price of gold has the potential to move significantly higher in price, with the technical and fundamental factors perfectly aligned to fuel a big rise:

In over 23 years of experience in all aspects of the financial industry, including 15 on Wall Street, I have never seen an investment opportunity with the low risk/high return characteristics of gold (and silver).

Tuesday, November 3, 2009

India, American Barrick, Anglogold Ashanti: Gold Is Going Much, Much Higher

As the saying goes, "follow the money."  Three major players in the global gold market have engaged in highly scrutinized and very visible bullion transactions, sending the loud and clear message to the market that the price of gold is going to go significantly higher in price.  A more subtle message, and more significant, is the signal to the world that the supply of gold available to purchase in large quantities is quickly dwindling.

India is the world's largest consumer of gold (China will soon surpass), American Barrick (ABX) is the largest gold mining company in the world, Anglogold Ashanti (AU) is the world's 3rd largest gold mining company.  They are all buying as much gold as they can - India because that's what India does;  ABX and AU because, otherwise, those two companies will go bankrupt from their massive gold hedges.

As most of you know by now, India's Central Bank announced yesterday that it bought 200 of the 403 tons of gold that the IMF is selling.  They paid $1045/ounce.  An IMF official said the transaction would be paid for by India in hard currency, not IMF Special Drawing Rights, which means India is most likely using U.S. dollar reserves to pay for the purchase.  This is a massive move out of dollars for India ($6.7 billion U.S. dollars).  India would not be engaging in this high profile transaction if it thought that it could easily purchase an eqivalent amount at an equivalent price quietly and privately. India is, to be sure, quite cognizant of the fact that this purchase sends a bullish signal to the market.  One can only conclude that this move signals to the world that the physical supply of gold in large quantities is getting tight, a view that has been presented on this blog and by other informed sources.

American Barrick announced yesterday that it bought back 1 million ounces of gold in October, that it might complete its hedge buyback program before the 12 month window it set in September and that global mine production will continue to decline.  After the 1 million ounces purchased in October, ABX estimates that the value of the remaining hedge that needs to be closed-out is $2.1 billion. The calculation assumes $1050/ounce gold.  Ever since ABX announced its plan to close out its hedge book, the Company has aggressively worked on buying back gold to cover its hedges as the price of gold moves higher. Since September, ABX has issued $4 billion in stock and $1.25 billion in debt for this purpose. It is patently clear to anyone analyzing ABX's activity that managment is becoming increasingly concerned with the manageability of their gold short and the risk of facing the liability of much higher prices in the near future.

Anglogold Ashanti announced yesterday (11/2) that it may accelerate the closing of its hedgebook.  The Company announced that the hedge was down to 4.3 million ounces.  The original timetable for closing the hedge was 2014, a date the Company set just recently in July.  Since that time, the price of gold has gone up around $160/oz.   This means that AU has dropped another $688 million (roughly) on its gold hedge.  To put the size AU's hedge in perspective, 4.3 million ounces translates into about 122 tons.  More than half the amount India purchased from the IMF.  Unless the IMF agrees to sell AU some of the remaining 203 tons that it is selling, AU has a big problemIt should be clear to everyone that AU faces a huge challenge to buy back its gold hedge without significantly driving up the price of gold and incurring huge financial damage. 

As signalled by India, ABX, AU and some big funds in the U.S., the long-anticipated scramble by Central Banks and large investors to accumulate gold is now underway.  When I first began researching the gold market back in late 2001, I examined some ideas offered by Jim Dines in his subscription newsletter (The Dines Letter).  One of the themes was that Central Banks globally would shift from being net sellers of gold to being net buyers and that the race to buy gold by these enitities would get quite competitive, as the available supply persistently declined and the price inexorably rose.  Please keep in mind that these same Central Banks had been key suppliers to the market over the past 10+ years.  To back up this thesis with an example, the European Central Bank System had been selling 500 tons per year since 1999, up until last year.  This year, as the price of gold has continued its ascent, the ECB selling has slowed to a trickle and a few of the member banks (Germany, for one) have announced that they are done selling gold. Some ECB banks have actually purchased gold recently.

I suggested last week that it wouldn't be a good idea to wait much past Halloween if you were thinking about buying gold.  The actions announced by China, Barrick and Anglogold have added considerable urgency to that suggestion.  Gold is going to go MUCH higher in price.  Period.

Is CNBC's Steve Liesman Retarded?

I always thought his brains must have fallen out of his head with hair.  For whatever reason, Liesman once again shows his complete lack of knowledge about economics as he shows himself to be the strawman for the Fed:

Video link courtesy of

This one's for you, Steve:

We are the hollow men
We are the stuffed men
Leaning together
Headpiece filled with straw...from T.S. Eliot's, "The Hollow Men"

Monday, November 2, 2009

De-bunking Nouriel Roubini

Someone asked an excellent question in the comment section of my previous post regarding Nouriel Roubini's shoot-from-the-hip comment getting headlines today that the unwinding of the dollar carry-trade will cause the dollar to spike.  The short answer is that any spikes in the U.S. dollar index will be short-lived and shallow, as the dollar has a long way to go before it finds a spot to land which reflects the reality behind the U.S. financial system and the ever-increasing supply of dollars being produced by Bernanke.

Having said that, here are my thoughts:  The dollar carry-trade is a relatively new development fueled by zero percent Fed Funds and a rapidly expanding supply of dollars. Before we speculate on the effects of the dollar carry trade unwinding, let's figure out what events would precipitate the unwinding of the dollar carry trade. The yen carry trade lasted for several years. In fact, to a degree, its still going on relative to other currencies, just not dollars, since both the U.S. and Japan have zero interest policies implemented by their respective central banks.

When do you think the Fed will raise rates to a level which exceeds the rates in other countries? My bet is that it will be a lot longer than anyone realizes. Based on this, I think the more interesting question is "how insane will the dollar carry-trade get?" The yen carry trade financed a multi-trillion dollar bubbles in hedge funds, derivatives, the real estate/mortgage market, and the Treasury bond market. Using that as your measuring tape relative to the dollar, the starting pitchers for the dollar carry trade have yet to finish warming up and take the mound.

When do you think the Fed will stop expanding the money supply (the real money supply, not MZM or M2)? I would suggest that if the Fed starts to withdraw liquidity and raise rates, the U.S. financial system will fold up faster than a circus tent in a hurricane and Bernanke will lose his job - as will Obama and the current stable of bank-financed Congressmen.

I think Roubini says a lot of outrageous things either to grab attention or because he doesn't fully understand finance. Probably a bit of both.  I don't really pay attention to his commentary because I believe it's nothing more than superficial analysis cloaked in headline-grabbing hype and an accent that makes him sound well-educated.

Pending Home Sales Dissected

The big jump in pending home sales was greeted by the stock market and the clowns on CNBC with great fanfare.  What is more interesting is that the mainstream media neglects to mention the high cancellation rates which tend to undermine headline numbers.  A "pending sale" is a signed contract, contingent on financing.  As per a comment from a real estate professional in one of my chat rooms:  "For the past 9 months, appraisers have been appraising far under those agreements, on average.  Banks won't lend beyond appraisal.  Contract dissolves.  The real estate industry does not report this fact."  Anothger real estate professional confirmed this with:  "Pending sales can be a leading indicator, but not in the real estate market we are in now.  Prices are still not even close to [market] clearing prices.  F$%king banks are holding back foreclosed inventory.  If they did release, another big drop.  But we are also running out of ready, willing and able buyers at the low end."

So there you have it, from the horses' mouths.  The industry loves to report a "soft" statistic like "pending" sales, but how about the percent of contracts that fall through because the financing failed.  Based on the latest numbers reported by new homebuilders, cancellation rates are still running in the 20% range. The two observations above reinforce my thesis that the "bounce" in housing over the past few months has largely been the result of a last minute rush into homes by first timers looking to take advantage of the tax credit.  I would also assert that, based on the past couple weeks' mortgage applications index, home sales are about to take a cliff-dive.

Anectdotally, over the past couple weeks, myself and others are seeing "for sale/for rent" signs popping up all over Denver like spring weeds.  Not only that, the homes in the over $500k segment do not seem to be moving at all.  As for rents, if I could break the lease on my townhome, I would be able to move into an even higher quality townhome on an even more desirable block, with mountain views, for less than I'm paying currently.  Rents are falling fast - home prices will follow.

If you MUST buy a home because you can't stand the down payment burning a hole in your pocket and you want to take advantage of FHA subprime lending standards, at least wait until after the holidays.  Foreclosures will be flooding the market, desperate sellers will be listing their homes and prices are going to plummet again.  At the very least, please ignore the mainstream media headlines and imbeciles on CNBC/CNN/FOX Business/Bloomberg.

Sunday, November 1, 2009

Ron Paul's Audit The Fed Bill Has "Been Gutted" By Bank of America's Puppet in Congress

Remember in September when Barney Frank got in front of t.v. cameras and told the world that his House Finance Committee would vote on Ron Paul's Bill in October? It's November 1 and no vote. Now we know why.

The Federal Reserve has spent millions, employing Alan Grayson's "K Street hooker,"  lobbying to get this Bill destroyed (the woman about whom Grayson calls "a K Street Hooker is the former Enron chief lobbyist hired by the Fed to fight an audit bill - K Street is the street in DC where many lobbying firms are headquartered).

Mel Watt, the corrupt puppet from North Carolina, undoubtedly with Barney Frank's corrupt blessing, has accomplished the castration of Ron Paul's Bill, which has over 75% support from the U.S. population.

From a Bloomberg News phone interview with Congressman Ron Paul: .
The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today...Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.

Keith Kelly, a spokesman for Watt, declined to comment and said Watt wasn’t immediately available for an interview. Watt’s district includes Charlotte, headquarters of Bank of America Corp., the biggest U.S. lender.

Here's the article link:  Barney Frank and Friends Bend Us Over Again

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