Happy Friday! The Public Gets Tee'd Up For Slaughter - Again...

"It's the only place I can find any yield whatsoever with a reasonable risk," said Lee Hevner, an individual investor who said he started buying junk bonds this year for the first time.

Those will be famous last words.  That poor sot allowed his ignorant, greedy investment advisor talk him into putting 15% of $500k stash in junk bonds.  Hope he can afford to lose most of it.

Once again, courtesy of the Fed's zero interest rate policy (ZIRP) and the Government's catastrophic fiscal policies, the yield-starved individual investor has been flooding the high yield market with money in a desperate search for investment yields that have any shot at keeping up with the true cost of living.

Investors of all stripes have been diving into junk. Many of them are searching for investments that yield more than the meager rates offered by Treasuries and investment-grade corporate bonds. They are flooding into high-yield mutual funds and exchange-traded funds, market data show.

That quote is from this article from today's Wall St. Journal titled, "Junk Bonds Feed A Hungry Market."  Here's the LINK.  This desperate quest for more investment income has triggered a big wave of money flows in high yield bond funds and ETF's, which in turn has led to a huge issuance of new high yield bond deals.

Take it from a 9-year sell-side institutional junk bond market trader, the 7% average yield paid on junk bonds is not even close to being enough compensation for the enormous amount of credit risk embedded in the typical junk bond-issuing company.  Moreover, a lot of these deals are done in order to "dividend" money out of the company and into the pocket of the "sponsoring" private equity/leverage buyout firm which owns the company.  It's a way for the sponsor fund (like KKR or Bain Capital) to cash out on a big portion of the up-front equity capital used to engineer the buyout.  Trust me, it's not a good deal for junk bond investors.

In addition, the big Wall Street firms who underwrite and sell these deals take out enormous fees.  And the junk bond mutual fund money managers and pension fund managers get paid a lot money of "manage" this money.  On a risk/return basis, high yield bonds are a terrible risk for the individual investor, even to the extent that the individual's money is being put in a "diversified" fund of junk bonds.

And think about this:  for how much longer does anyone really believe that the Fed can engineer historically record low interest rates?   We know the economy is falling off of a cliff again.  So even if the recent default history in the high yield market has decreased, as the economy tanks many of these companies will run into a brick wall.  A spiking default rate combined with rapidly rising interest rates -this will happen as more money flees the dollar and a much higher yield is required to induce investors to buy the ever-increasing rate of U.S. Treasury debt issuance - will cause high yield bond prices to plummet.  If you have a 20% decline in the value of your high yield mutual fund, this will annihilate the 7% yield it currently throws off.  

In other words, the individual investor - forced into blindly grasping for current investment income - is being set up once again by the financial elitists and corrupt bankers to get slaughtered.  It's really just another mechanism for those on Wall Street to confiscate middle class wealth. 

It brings to mind the famous Will Rogers quote about being more concerned with the return OF his money than the return ON his money.  Those who understand the necessity of moving fiat currency based investments into physical gold and silver do not have to be concerned about either.

Have a great weekend!  Hope springs eternal as baseball season starts next week and every fan out there - including me - has renewed hope that their team will reach the World Series....

Tick Tock

Central banks in the emerging markets increasing their holdings of gold has been a big part of the bull market in the metal. At the end of last year, official net purchases of gold started to rise dramatically. In the third quarter of 2011, central banks added 148.8 tonnes to their gold stocks, more than double the entire amount of government buying in 2010, according to the World Gold Council. Interestingly, the Greek central bank has been slowly adding to its holdings of gold, which would be sort of handy, should they happen to decide to re-introduce the drachmas one day  

That quote is from Matthew Lynn, a London-based financial journalist.  Here's the LINK from Marketwatch.com.  The thesis of the article is based on comments from British Chancellor George Osborne, who stated the Britain needed to increase its "reserves," meaning that the Bank of England needs to begin stockpiling gold.

I bring this up because emerging market country Central Banks have been accumulating gold aggressively since 2010.  Not GLD, but physical gold sourced mainly in London and then - in many cases - delivered to facilities in the buying country.  The article linked cites the amount that has been reported to be purchased, but many of us who study this market strongly believe that countries like China have purposely understated the amount actually stockpiled.  It certainly wouldn't be the only case where a Government lies about economic/monetary numbers...

Now England is talking about accumulating physical gold.  At some point the ability of the paper fiat futures market to control the short term price of gold and silver will be eliminated by the sheer demand for physical gold/silver that is purchased and required to be physically delivered outside of New York/London bullion bank depositories.  These depositories, by the way, happen to be owned by the same bullion banks who make up by far the largest percentage of short interest open interest in New York Comex gold/silver futures and London forwards.

This brings me to the reason for the title of this post and the current open interest in Comex gold and silver futures.   The open interest report as of yesterday is as bullish as it has been since September 2009, which marked the beginning of the move that took gold from $950 to its 2011 peak of $1900.  I might add, for those of you who saw Jeffrey Christian's bearish remarks about gold yesterday, that Christian made the same bearish comments about gold at the September 2009 Denver Gold Show, right before gold made its 2-year run to just under $1900.  Wash, rinse, repeat.

Yesterday the Comex gold open interest dropped down to 407.3k contracts.  Because today is the final day of the "roll" period for the April gold contract, it will likely drop below 400,000.  The LAST time Comex gold open interest dropped below 400,000 contracts was 9/1/09, when it fell to 384,703.  The NEXT day it jumped up to 410,754 and gold began the move to its 2011 cyclical peak just below $1900.  During that run, open interest expanded to over  660,000 contracts. 

I call that move "cyclical" because, as veteran gold market participants know, the bullion banks use the Comex paper market as their manipulation tool.  They can't prevent ultimately the price of gold from going a lot higher over longer periods of time.  What they can do is short futures into the momentum-based hedge funds that charge into the market once the upside swing begins and then engineer an open interest liquidation which triggers hedge fund dumping, then shorting, and creates the heart-stopping price corrections.  The bullion banks use this selling to cover short positions established at much higher levels.  We have seen this cycle at least three times over the last 11 years - wash, rinse, repeat.

With open interest now back to late 2009 levels in gold and silver, we are on the cusp of another cyclical move higher.  It is quite probable that this move will take gold thru $2000 and up to at least $2500.  By virtue of the gold/silver ratio, that would imply a likely move for silver over $60.  I am throwing these levels out there conservatively.  Because the underlying fundamentals driving the price of gold and silver have strengthened significantly since the last cyclical peak, I am confident that we'll see gold and silver move to much higher levels on this next extended move. 

Here's the Comex open interest report as of yesterday's close:  LINK  Note that the silver open interest was actually up yesterday and that buying was concentrated in July and not May, the next front-month for silver.  That to me implies stronger-handed buying which will hang onto positions more readily than May buyers, who have to begin liquidating/rolling their holdings in about three weeks.  Silver o/i actually bottomed in December.  Everyone who trades this market agrees that the volatile price action in silver is the hallmark of an investment that is getting ready make a big move higher.

The bottom line is that the fundamentals AND technicals are now aligned such that they have created a high level of probability that the next cyclical move for gold and silver will happen soon.  I don't think it's coincidental that these factors are aligning with the likely announcement of the next big QE programs which will be initiated by the Fed, the ECB and the Bank of England.  It is now generally accepted that these programs have to occur in order to avoid systemic collapse...tick, tock...got gold?

Got Gold?

We have entered the most favourable era for gold prices in our lifetime, and the share prices of the great mining companies will eventually outperform bullion prices...central banks are printing money and creating liquidity beyond the forecasts of all but the most paranoid goldbugs a year ago - Don Coxe, Strategy Advisor BMO (Bank of Montreal) Financial Group

By now a lot of you have either heard about or read Bernanke's statements about gold in a speech he delivered at George Washington University.  The speech was part of a series of five speeches which are part of the Fed's new "transparency" policies.  Of course, what is communicated in Bernanke's speeches has nothing to do with removing the veil from any of the Fed policies and actions that matter or need some explanation.  But I digress. 

Originally I did not want to dignify Bernanke's statements about gold with a rebuttal because the material he presented and the statements he put forth were pretty much either outright lies or outright complete ignorance.  Bernanke, to try and defend his arguments, distorted historical facts, perverted all known economic laws which underlie monetary theory and completely misrepresented the historical function of gold as a direct currency (which it has been for most of the last 5,000 years) or as a device to "anchor" the surrogated paper currency.  By this I mean the paper money that is issued against gold reserves in order to make gold as money fungible for the purposes of commericialism.

Rather than reinvent the wheel, I am linking three very compelling rebuttals to Bernanke's speech.  These rebuttals correct Bernanke's incorrect statements of historical fact and they demolish the core of Bernanke's arguments.  Quite frankly, when I read through Bernanke's speech, I found myself wondering how Bernanke was ever awarded a degree in economics, let alone a professorship and then the Chair of the Federal Reserve.

The first piece is from Paul Brodsky, a well-known money manager who has previously issued some of the most compelling work available on the current undervaluation of gold, silver and mining stocks: 

Has anyone asked why so many powerful people are going out of their way to discredit an inert rock? We think it comes down to maintaining power and control over commercial economies...

I sourced Brodsky's rebuttal from zerohedge.com and it's long but worth spending time reading:  LINK.  The second piece is short and to the point.  This one is from James Turk, who is one of the few elders in the gold investing community from whom I read every word published:  LINK.

Finally, to round out the rebuttal commentary, I thought it would be appropriate to throw in Alan Greenspan's "Gold and Economic Freedom" essay, written in 1966 five years before Nixon closed the gold window.  If the first two pieces are aren't clear, this one will be crystal clear:  LINK.  For someone who professed faith in currency by Government/Central Bank fiat while he was running the Fed, Greenspan in that essay lays out why gold is the perfect anchor for a surrogated paper currency.  Anyone who wonders why gold has been used for 50 centuries for this purpose will for sure understand after reading Greenspan's essay.  Isn't it funny that the most accurate commentary that ever came from Greenspan occurred 25 years before he ascended to the Chairmanship of the Fed?  I'm still waiting for seminal, intelligent work from Bernanke.  Maybe he's better suited to be the Talmudic scholar he always aspired to be...

Housing And Economy Starting To Crash Hard

 Just reviewed March buyer clicks, Google’s analytics on all the sites we monitor – March is turning out to be the weakest month since last October re: Buyer interest  -                                          email from a Realtor in New Jersey to Zerohedge

For many reasons explained in earlier posts, I have been thinking that - contrary to the what is being reported in the mainstream media - the small bounce we have seen in housing was nothing more than a product of the historically record low interest rates, an easing of credit availability and - probably most significant - the implementation of Government-sponsored FHA low down-payment, low rate programs.

If you strip away the seaonal adjustments and other data manipulation methods used by the Government, National Association of Homebuilders and National Association of Realtors, the truth is that real organic single family home buyers are not buying homes.  I define "organic" as the buyers who are not distressed investment buyers.  In fact, even during the period when mass foreclosures were halted until the robo-signing fraud was settled, investment buyers represented typically 30-40% of all home sales.

Today the NAR's pending home sales index was released.  It declined .5% vs. a market expectation of a 1% increase  LINK.   Please note that the pending sales index represents contracts, not closings.  I can't find the number on the NAR website for the latest month released, but in January the cancellation rate was 33%.  Only 47% of all contracts signed even closed on time:  LINK  So even when the headline number appears to be positive and well-spun, the underlying "organic" number is abysmal.   As of the February release, the 3-month moving average of investors as a percent of total buyers was nearly 49%: 

Investors are still rushing into the market, with distressed sales making up a near-record 48.7 percent of sales in February on a three month moving average, according to a new report today from Campbell/Inside Mortgage Finance  - CNBC's Diana Olick, sourced from Zerohedge.com LINK

In addition, now that the robo-signing fraud case has been settled on favorable terms for the offending banks by the Obama Administration, foreclosure activity is already starting to pick back up:   LINK  So we will see an increase in supply as banks begin to ramp up foreclosures again.  To make matters worse, Obama has directed Fannie Mae and Freddie Mac to unload big blocks of their owned real estate (REO) LINK.   Investors are lining up as I write this to bid en masse on FNM/FRE REO.  These homes will likely end up dramatically increasing the size of the single-home rental pool, thereby putting even more pressure on home values as potential buyers choose to rent instead of buy. 

And make no mistake about it, FNM/FRE are unloading their bloated housing inventory in order to make room for more foreclosures.  A friend of mine told me about a HUD conference last fall at which a friend of his was part of the catering crew.  Apparently the conference was being conducted more like a sales pep-rally to try and stimulate HUD sales and move inventory in order to make room for the next foreclosure wave by the GSEs.    Do you really want to believe the housing inventory numbers being released lately by the Census Bureau and the NAR?  I have maintained all along that the "shadow" inventory is easily double to triple what is being reported by the Government and industry associations.

The fact is that the housing market may have "stabilized" for a brief period of time, but it was a combination of the factors in the first paragraph above that enabled the short respite from the collapse caused by the big bubble blown by Greenspan and the subsequent attempted resuscitation of the bubble by Bernanke.  If you want to know why the housing market will not recover for at least a decade, if ever, take a look at this chart sourced from Zerohedge:

(click on chart to enlarge)

That chart is brutal.  It shows the ratio of people who are actually employed to the total population.  Not only does it show a massive decrease in the number of people working and generating revenue support for Government spending and welfare, but it shows a rapidly declining base of people who could even consider buying a home.  That picture is a snapshot of the true dismal condition of the U.S. economy.

For everyone who is wondering why gold and silver made a big move this morning, Bernanke gave a speech this morning in which he re-opened the door for more QE, after seemingly closing that door at his recent testimony to Congress on the state of the economy and monetary policy. 

But the fact remains that all you have to do read through this post in order to understand that the Fed has no choice but to print money if it wants to prevent a full-scale banking and economic collapse in this country; and, more important, provide the liquidity needed to finance new Treasury bond issuance.  Got gold?

How Much Treasury Debt?

If this doesn't scare the shit out of you - and scare you out of paper dollars and into real assets like gold and silver - then you are either brain dead or you just don't care anymore.

Tim Geithner (along with Bernanke) was testifying before the House Committee on Government Oversight and Reform yesterday.  Congressman Trey Gowdy (R-SC) - in a display of forcing Geithner to answer a question directly that Ron Paul should take notes on - asked Geithner if he had only ONE more debt increase request that could possibly be made, how big would it be.

After trying to shuffle - very awkwardly, I might add - around answering the question, Geithner responded with, "It would be a lot - it would make you uncomfortable."  Here's the exchange, which I found spine-chilling:

Geithner: “That I’d have to get to you in writing, I can’t do it in my head though.” (note: in the background someone says "he can't put that in writing.")
Gowdy: “How about a round number?”
Geithner: “No idea….
Gowdy: “$20 trillion?”
Geithner: “I just can’t do it in my head.”
Gowdy: “$50 trillion?”
Geithner: “I don’t know..."
Gowdy: “A lot? Can we agree it would be a lot?”
Geithner: “It would be a lot. It would make you uncomfortable.”
 
Let that sink in for a moment.  Please note that Geithner did not try to dispute the $20/$50 trillion number that Congressman Gowdy threw out.  Here's the 3 minute video of the exchange, which I sourced from Ed Steer's Gold and Silver Daily:
 

 
Let me be very clear about one thing.  This is not a joke and this not some sort of absurd exaggeration.  This is where we are right now with the finances of our country.   The fact that the Government-reported economic numbers are fraudulent is finally getting acknowledgement in the mainstream media is one thing.  But you can't find any mention of the real spending and real debt numbers.  You have to dig for the Truth on that and it requires understanding - in general -  how Government accounting works and where the numbers are buried. 
 
The REAL direct Treasury/Taxpayer guaranteed debt number right now is at LEAST $25 trillion.  This includes the $16.2 Trillion current limit PLUS the $7 Trillion in FNM/FRE Goverment guaranteed debt PLUS the Treasury bonds sitting in the Social Security Trust ($2.5 trillion last time looked).  I have not included a lot of other small off-balance-sheet guarantees like GMAC (now called Ally) debt, Fed assets which are direct off-balance-sheet liabilities of the Treasury/Taxpayer and some other stuff.   I would bet real money that the REAL number is closer to $30 Trillion.
 
This does not include the GAAP accounting for the all of the future entitlement and welfare obligations.  The net present value of this - i.e. if the Government had to account for its numbers like a corporation does - is more like $100 Trillion.  That is not my estimate.  That is a number that comes from David Walker, the former chief of the Congressional Budget Office.  On a yearly GAAP accounting basis, the Government spending deficit is more like $5 trillion (see John Williams' Shadowstats.com).   The $100 trillion is how a corporation would have to account on its balance sheet for its future obligations given what is known about future spending escalations and future estimated funding of that spending.  That would be the number on the balance sheet reported in a corporation's 10Q/10K.
 
This is reality people.  What is so completely horrifying about Geithner's statements - and complete kudos to Congressman Gowdy for pressing Geithner the way he did - is that Geithner, who is not known to be politically adept, was so flustered by the thought of getting caught in a lie that he really had no way to cover-up the truth.  The truth is not in what he said, the truth is in his lack of ability to refute the $20/$50 trillion number thrown at him by Gowdy.  The best he could come up with is that the number is so big "it would make you uncomfortable."  We know $16 trillion plus whatever is requested this fall is not big enough to make Congress or Obama "uncomfortable." 

This country is broke, it's insolvent and it's collapsing.  This is why the elitists - i.e. those who are in a position to steal everything not nailed down - are openly grabbing what they can.  THAT is what the MF Global felony was all about.  Obama knows a collapse is near.  This is why the war rhetoric is escalating, this is why Obama signed legislation authorizing the Government to seize all national resources for the purposes of military defense in the event of an "emergency."
 
Do not be scared off by the current correction going on in the precious metals.  By the time most of the people in this country understand why gold and silver are superior currencies to paper fiat dollars, the exchange price of dollars to bullion will make that exchange nearly impossible in any meaningful way for most.  The current correction is somewhat mild compared to the correction experienced in 2008.  At some point, probably sooner than most are willing to believe, the price of gold and silver will shoot up very quickly.  By then it will be too late for most people watching to afford the true flight safety of owning gold and silver rather than paper assets and money sitting in potentially Government controlled accounts.

Yaaaaa Baby - The GOLD Standard

YA GOTTA BE A COLT BEFORE YOU CAN BE A BRONCO

Throwing Cold Water On The Hot Air Coming From DC (Oval Office/Fed)

We've heard Obama and his handlers, plus the majority of Fed officials, issue statements recently which state the economy is recovering, employment is recovering, housing is recovering, etc.  And they offer the highly manipulated Government and industry-council generated data as evidence.  Note that it is now becoming widely acknowledged and accepted - even by some mainstream media promoters - that the Government data is not credible.

Let's look at today's housing starts data for February, released by the Department of Commerce:  LINK.  The headlines that stream across mention that February's numbers were down slightly from 3-yr highs last month.  What they don't mention are that the numbers reported are "seasonally adjusted annualized" numbers.  In other words, the numbers are statistically manipulated using a formula that is a highly guarded secret and then the numbers are projected forward for the year, or "annualized."  The numbers are as fictitious as the Easter Bunny. 

Now let's look at the "not seasonally adjusted" one month data for the month of February.  And note that these numbers are "preliminary."  Last month's one-month not seasonally adjusted  "preliminaries" were revised lower.  On a preliminary basis for February, only 48k homes were started, and only 31k of these were single-family homes.  Even more interestingly, only 28.6k single-family homes were completed.  This data diverges significantly from the headline-reported 698,000 annualized starts that is being reported everywhere, doesn't it?

Considering that the Government via FHA is promoting 3% down payment mortgages to buy a home, these housing start numbers suck.  I just heard the ad on the radio yesterday by a mortgage broker promoting the program on the local sports radio show.

Let's step away from the murky cesspool of Government-reported data and I'll relate a reality report from a friend of mine who works just below the CFO at a Fortune 200 company that provides component parts and services to original equipment manufacturers globally.  About 70% of its sales are derived domestically.  My friend told me about five months ago that their business in China had slowed down considerably.  Shortly after that, China's economic slowdown was being widely reported.  Two days ago when I saw him, he told me that their U.S. book of business was "dead."  For the record, I do not trade in the stock of this company and have no interest in doing so.  My point is to illustrate that the true state of the economy in this country, despite Obama/Bernanke assurances to the contrary, is dismal.  The reason he and I talk about this stuff rather than discussing John Isner beating Djokovich last weekend is that he understands that there is a big disconnect between what gets reported in the general media and what is really going on organically in the system.

Goldman Sachs agrees with me on this and bear in mind that they are going off of the publicly reported headline data, not the actual data that you have to sift through in order to dig up:  LINK  The truth of the matter is that the economy never really did show true, real-inflation-adjusted growth after the financial collapse in 2008.  And the Fed is going to have to roll out another big QE program at some point in the next few months or risk Obama's Presidency, which is something I'm sure Bernanke cares about a lot more than whether or not all the unemployed who are not considered part of the labor force can feed their families...

Listen To What Central Banks Do, Not What They Say

A sharp fall in gold prices has triggered large purchases of bullion by central banks in recent weeks, according to several traders with knowledge of the transactions...“Central banks have definitely been looking at gold as an asset class much more closely ever since European central banks stopped selling,” a senior gold banker said. “There has been a huge interest.”

The quote is from the Financial Times: LINK

Hmmmm.  Recall, recently that Congressman Ron Paul asked Ben Bernanke - who was under oath and on camera - why Central Banks still hold any gold if it was irrelevant as a currency.  Bernanke's response was that he didn't know but maybe out of "tradition."  That answer shocked me because it was so absurdly mindless - I was wondering if Bernanke had a full frontal lobotomy.  Paul also asked Bernanke if he thought gold was "money" and Bernanke said "no."  Here's the clip and it's worth watching, as it's the first time I've seen Ron Paul really hold Bernanke's feet in the fire on any issue:  LINK

The scramble behind the scenes for taking delivery is going on and it's a real threat to the banking and political elitists.  It was easy for Hugo Chavez to repatriate Venezuela's 200 tonnes from NYC and London.  And don't lose sight of the fact that China takes delivery of all of the gold it buys into a shiny new warehouse depository in Hong Kong.  But it will be interesting to see what happens if Switzerland and/or Germany make a serious move to repatriate because then you're talking about thousands of tonnes that may have already been leased out and sitting in vaults in Hong Kong, India and other depositories not controlled by the Fed, Bank of England or the big bullion banks (JPM, HSBC, Scotia, Barclays, Deutsche Bank, UBS).  I wouldn't be surprised if there's a lot of lobbying going on behind the scenes to try and quash the incipient movements for this going on the German and Swiss legislatures because if either Germany or Switzerland wants its gold and can't get it, things could get really ugly.

Bank of America: "It's Not Your Mother's Tampon"

This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.  - Matt Taibbi, Rolling Stone

I've written several posts in the past showing - with links to its 10Q and 10K filings - where all the fraud is embedded in Bank of America's balance sheet.  I even theorized when Bernanke and Geithner and merged Countrywide and Merrill Lynch into Bank of America that it was being done to use Bank of America as a sewage mechanism in order to cover up the trail of enormous fraud at Countrywide and Merrill (I am not alone in this belief).

Matt Taibbi has done some brilliant reporting for Rolling Stone.  In another era, his work might have been published in the Washington Post or the New York Times.  But this is not your mother's America.  Please take the time to read Taibbi's latest article:  "Bank of America:  Too Crooked To Fail"  LINK  There is no question that every assertion he makes is 100% bona fide.  It also is one more strong signal that our system as your parents knew it is collapsing.

Use This Sell-off To Prepare For The Next Big Fundamental Move Higher

A good hockey player plays where the puck is.  A great hockey player plays where the puck is going to be.   - Wayne Gretzky

The reason this sell off in gold and silver doesn’t particularly concern me is we have seen this pattern now for more than a decade.  Hedge funds buy paper gold and silver, pushing the prices higher on momentum and the bullion banks or commercials are on the sell side, building up a sizable short position.

That quote is from Dan Norcini's interview on King World News Blog  LINK.  Dan has been trading the futures market for twice as long as I have and, while I may not always agree with his analysis, I have to pay attention to what he's willing to share with the public and he knows the mechanics of the commodities markets as well as anyone out there.  I may not always be right when I think he's wrong, but I know that his latest commentary is 100% correct.

I have traded and observed every single manipulated Comex paper gold/silver open interest liquidation sell-off since this bull market began over 10 years ago.   This open interest liquidation sell off started last year at the end of April.  At this point in the cycle the percentage size of the correction is not as severe as a couple of the past liquidation cycles.  We are getting near the end.  The open interest peaked last April at over 160,000 silver contracts.  The o/i bottomed in December around 90,000.   The o/i bounce quickly to around 118k.  A lot of this was momentum money and this is the open interest long position that JP Morgan makes an illegal living off of.  This latest hit is JP Morgan's manipulated hit on the market working off the latest round of "hot" money jumping in the market to try and get the ride in silver from $31 to $34.  Those traders are losing money on their long positions and - based on my reading of yesterday's o/i - have started to short the silver market.  This is when JP Morgan will cover and the market will move higher again.  Likely much higher.

How can the CFTC and SEC regulators allow JP Morgan to do this repeatedly over 10 years?  You don't believe it?  Well then I guess you don't believe MF Global was product of corruption and Government enablement and disbelievers are therefore okay with the MF Global tragedy.  But the fact of the matter is that the Government entities that were supposed to regulate and prevent - and prosecute in the event of broken laws - MF Global from happening are the same Government enforcement agencies that regulate the Comex.  Ultimately the market will prevail, as it has for 5.000 years.  

In the meantime, I know these illegally manipulated sell-offs can be gut-wrenching, but you either have to start scale-in buying after the initial big market stop-loss driven drops occur or just look the other way for awhile and hold on tight.

On another note, here's a chart that should scare the crap out everyone who has faith in the U.S. dollar:

The price of the 30-yr Treasury bond looks like it could go into a freefall.  Yesterday's 30-yr Treasury auction was very ugly.  The primary dealers had to swallow 56% of the all the bonds issued.  With current Fed QE policy still in place - i.e. operation twist - we can assume that in some slick accounting maneuver, the Fed is ultimately the back-stop on the bonds taken down by the PD's.  I spot-checked the last 10 long bond auctions and there was only 1 in which the PD's took down more than 56%.  In most them, the PD's were taking down less than 50%.   Why is this significant?  Because China, Russian, and now Japan are starting to reduce their participation in U.S. Government bond auctions.  In fact, Russia has outright reduced its holding by over 50% in the last year.  Japan announced the other day that, in a move to diversify their dollar reserves - they bought $11 billion in yuan-denominated Chinese Government bonds. 

This is not a one-time event.  This is becoming a systemic trend with large holders of U.S. dollar reserves. This is a very ominous sign for the massive U.S. Government budget deficit spending program.  Either the Fed has to figure out a way to induce our large foreign financiers back into Treasuries/dollars or the Fed is going to have to print even more money to make sure the Government gets its spending heroin without sending bond yields into outer space.

On that note, since mid-December the yield on the 30-yr bond has gone from 2.80% to over 3.40%.  This is a 22% increase, signifying a 22% increase in the cost to the Taxpayers of funding spending deficits with 30-yr. bonds. This is a very bad trend.  Even worse, the flagship mortgage finance index, the 10-yr Treasury, has shot up from 1.85% to 2.30% - a 23% increase in the cost of 10-yr paper.  At some point this higher rate will funnel through to the mortgage market.  It's probably why mortgage refi applications took a nose-dive over the past couple weeks.  It will place further stress on an already fragile housing market. 

What the hell happened to the intended interest rate of Bernanke's "Operation Twist?"  like ALL Government intervention programs it is starting to fail badly, perhaps tragically...

"I Am Just Following Orders"

So here we have a system where you can 1) make up your own rules, 2) establish any value for any asset you choose, 3) inflate that value a hundred fold based on ostensible future value and returns, 4) leverage that inflated value another thousand or a million fold simply on your say-so, enough to buy up multi-billion dollar firms if you choose, 5) lean on taxpayer bailouts when you get into trouble, and 6) do this without any disclosure or accountability, all based upon a self-interested formula you concoct to enrich yourself.  (from must-read commentary posted on zerohedge:  LINK)

The biggest farce of the week/month is the Fed's declaring that JP Morgan passed the stress tests and is allowed to buy back stock and pay dividends.  How could the Fed have possibly even bothered to test JPM's enormous OTC derivatives book?  Seriously.  JPM has the biggest OTC derivatives exposure of any bank on the planet.  There is no f-ing way in hell that the Fed can go on the assumption that JPM's OTC book is immune because of "netting." 

The biggest and most efficient stress test possible is reality.  Let's look at the evidence:  Long Term Capital, Enron, Refco, Amaranth, AIG.  Need I say more?  AIG's "netting" ended up costing the U.S. Taxpayers $100's of billions in taxes to keep the system from collapsing.  I don't know of anyone who disputes that fact.  Reality stress test?  Ben Bernanke never held a job in his entire life outside of academia and the Fed.  His knowledge of reality stops at the back cover of the textbooks he studies and the ridiculous theory-based papers he has written. 

The blow-ups from derivatives keep getting bigger and more expensive for the Taxpayers.  And yet Congress, and therefore the public, continues to enable the this grand scale theft.  And now it's continuing with JP Morgan.  I know, it's all okay as long we know that Snooki is losing weight and the bank gave some additional availability on our credit card.

So now we're left with the fact that JP Morgan can continue operating on the assumption that its balance sheet is ultimately immune from some kind of financial/economic catastrophe, can continue pretending its derivatives exposure is hedged, and can therefore go ahead and start draining cash from it's operations and pay it out to the shareholders.  Who benefits from this?  Not the little odd lot shareholders or the people who have de minimus exposure to JPM's stock by virtue of having a 401k fund that owns some JPM stock.  It's the large individual shareholders and the upper management, who get paid in big chunks of stock that they unload as soon as it vests. 

This is nothing more than a grand scale maneuver to pull cash out of a de facto insolvent entity by the elitists and leave behind a worthless corporate corpse that the Taxpayers will have the pleasure of bailing out again.  What is Obama's take on this - the man who rode into the Oval Office on definitively stated promises to clean up this blatant fraud and corruption?  "I am just following orders."

The Government Data Farce Continues

The naked shorts in silver, who had the upper hand by sending silver back below $35, are going to be in for a real surprise by the speed and strength of the silver market when it turns  - James Turk, KWN interview LINK

A quick comment on today's "robust" retail sales report.  More appropriately labelled, "robustly reported" retail sales report.  First, don't forget that this is a Government-calculated and reported number.  In this report, the second footnote states: 

Estimates are concurrently adjusted for seasonal variation and for holiday and trading day differences, but not for price changes  LINK

Please note:  "adjusted for seasonal variation" AND the effect of inflation is NOT removed.  So these numbers, aside from the the likely problematic data-gathering, statistical compilation and mathematical formulas of "seasonal adjustment," are inflated by real inflation. In other words, the numbers reflect gross dollar sales, not growth in unit sales.  Even if you adjusted them by the Government-calculated CPI, they would still be overstated because the Government CPI number is fraudulently incorrect by several multiples.  John Williams - who does exhaustive work on the Government numbers - had this to say about the number:  "With overall consumer inflation in February likely accounting for more than half of the 1.1% headline monthly sales, the residual reported sales would not be statistically significant."

Let's say that there might have actually been a small increase in retail sales - again, I would argue that on  a real-inflation-adjusted basis, unit retail sales likely declined.  But what might be driving a growth in the nominal number, besides inflation and "seasonal adjustments?"   Take a look at this chart of consumer credit - the numbers come from the Fed, the chart from John Williams' Shadow Stats report:

Nothwithstanding the fact that the massive growth in student loans is - in and of itself - quite horrifying, but you'll note that it looks like the so-called household "deleveraging" is coming to an end.  In fact, as we've discussed in the past, the "deleveraging" was really the erasing - writing off - of credit card, auto and mortgage debt by the big banks.  If your pour through the numbers in the report that I linked above, you'll see that a preponderance of spending took place in food and gasoline.  These are necessities that people often use credit cards to purchase.  Ergo, the growth in consumer credit.  To the extent that retail sales are "growing,"  the "growth" is fueled by 1) inflation and 2) the purchasing of necessities on credit.

When you dissect the numbers - and remove the Orwellian stench draped around them by the media - you can really see that this retail sales report is not only problematic, but actually reflects fundamentals problems in the system.

Perhaps this is why gold and silver have rallied a lot higher today after the initial aggressive attempt by the paper manipulators on the Comex to hit them hard when the retail sales report was released.  The precious metals usually smell the "truth" emanating beneath the b.s.  This metals market reminds me a lot of the character of the market in late 2005, when silver was trying to break through $7.75 to get to $8.  I used to trade silver pretty much around the clock back then.  I remember they kept trying to take silver down below $7.50 (I also vividly remember Gartman saying gold would go back to $450 from $550 - note:  gold ran from $550 to $735 and Gartman missed the entire move).  After several aggressive attempts to smash poor man's gold, silver made 7 month run that took it over $14.

Myself, several long-time colleagues AND several respected analysts all believe that the metals market is "percolating" for a big, extended move higher.  Again, there will be a lot of volatility (like today), but at some point in the near future, we will likely see a move that takes gold and silver back over their highs of last April and likely continue significantly higher.

But Do The "Estimates" Make Sense?

"Americans are feeling wealthier now, they're borrowing more money now"  (Some dope on Good Morning America)

There's no doubt the the second part of that statement is true.  The latest consumer credit report showed that consumer debt rose substantially in January.   The source was primarily credit cards and non-revolving credit - student loans and [Government-subsidized] auto loans.  Can't find a job?  Enroll at the University of Phoenix and get a robo-stamped student loan.  Then the Government can remove you from the labor force statistics and a reduce the number of people not working or in the labor force.  The debt to personal income ratio is rising quickly again.  It's even worse if you remove Government transfer payments from the personal income LINK.  Does it make sense to make that particular adjustment?  Yes, because that's taking money from your pocket and giving it to someone who feebly qualifies for Government assistance.   We know the Government is borrowing more and more everyday - at an accelerating rate.   The Government spending deficit hit an all-time record in February:  

The Congressional Budget Office predicts a federal budget deficit of $223 billion for February, 2011, the largest monthly budget deficit ever recorded, according to the Washington Times.

We know the BLS payroll is - to be blunt - a complete fraud.  But do the manipulated results even make sense?  We saw in 2008 and 2009 that several monthly reports would show increases in financial sector and construction workers, despite the fact that Wall Street and the construction/housing market went into a freefall.

What about the numbers being reported to today?  To begin with, the birth/death model, which "models" theoretical employment based on estimates of new businesses started vs. new businesses closed.  Anyone know anyone who is starting a new business?  I know of quite a few who are closing down their businesses, many of them directly correlated with basic economy activity (construction, retail, etc).  Today the birth/death "adjustment" added 91k to the payroll report.  Does this make any sense?

Let's see the categories where the Government claims there was job growth.  Professional and business services added 82,000 jobs in February - BUT just over half of the increase occurred in temporary help services (+45,000).  In financial analyst lingo, this is a very low quality statistic in terms of analyzing the strength of the statistic.  Hired someone to help you close down your business?  We'll call it "jobs gains."  But the overall number does not make sense either.  We know that on an real inflation-adjusted basis, the economy is declining.  This category of jobs represents the "feeder" sector of the economy, which "feeds" off of growth of "host" businesses.  I'm sorry, but this number is not reliably justified.

How about "Heath care and social assistance."  In this category employment was estimated to have risen by 61,000.  In one sense, this does make sense.  Per the above Govt record spending deficit, we know that Government spending is hitting new records.  Healthcare and social assistance businesses are "private sector businesses" primarily funded by the Government (medicare, medicaid, social security disability, etc).  This employment growth, to the extent that it's real, is of very low quality because it requires record spending deficits and record Government debt issuance to sustain.  It's not low quality - it's disastrous.

How about the job growth in manufacturing?  Is it bona fide and does it make sense?  Metal fabrication and transportation jobs added 19k of the 31k BLS-reported jobs.  If it's true, this would primarily be from the auto industry, which is being subsidized with Government money, especially the loans and leases financing the "sales."  Last month the nationwide dealer inventory hit a new all-time high.  These are cars that are shipped from the manufacturer to the dealers but reported as auto sales.  The money for financing this inventory and GM and Chrysler is coming from Government supported financing.  The cars that do actually get sold to end users are primarily financed with Government subsidized loans and leases.

I think everyone gets the idea with this.  Here's the report if you would like to look at the details:  LINK
The employment number is not only manipulated to the point outright fraud, but the manipulated results just do not make sense to anyone dissecting them with thought and rationality (which excludes the shit for brains on CNBC).

Now for the biggest and most important question of the month, maybe the year:   Where will Peyton Manning end up?   Have a great weekend!

Something To Keep In Mind Before Tomorrow's Payroll Report

I don't think I would find anyone who would dispute that the BLS employment report is, at best, very poorly constructed and, more likely, intentionally and fraudulently manipulated. 

The Gallup research organization released it's own employment measure today.  I think almost everyone would agree that it is likely that Gallup's report is more accurate that that of the BLS, although I have to believe that, depending on how they format their polling questions, likely understates true unemployment.  I also am pretty sure that they assume the BLS number for the size of the labor force, which we know is fraudulent and vastly understates the population pool that would actually like to have a job.

Having said that, it is possible that the Government will try to jam another report down our throats that shows unemployment continuing to fall.  Ahead of that, Gallup finds that their unemployment metric shows that unemployment has jumped up to 9.1% in February and that underemployment - those who want jobs but are stuck with only part-time or no work - is at 19.1%.   Here's the report:  LINK

It's All In The SPIN, Baby!

                                                       'Tis but thy name that is my enemy;
                                                       Thou art thyself, though not a Montague.
                                                      What's Montague? it is nor hand, nor foot,
                                                      Nor arm, nor face, nor any other part
                                                      Belonging to a man. O, be some other name!
                                                      What's in a name? that which we call a rose
                                                      By any other name would smell as sweet;
                                                      So Romeo would, were he not Romeo call'd,
                                                      Retain that dear perfection which he owes
                                                      Without that title. Romeo, doff thy name,
                                                      And for that name which is no part of thee
                                                      Take all myself.   (is a citation necessary? lol)
 
The spinmeisters at the Fed and in the media have put some new spin on money printing. It was released today through the Fed's chosen outlet, Wall Street Journal monkey Jon Hilsenrath, that the Fed is considering a "new" way of putting "credits" (printed money) into the system using a method of "sterilization."

Funny thing, it says right in the text that Fed "prints" the money in order to implement the operation. The "spin" on it is that the Fed swaps "electronic credits" - aka printed money - for Treasury and mortgage bonds sitting on bank balance sheets. This would be not much different than the Fed coming to you and saying, "hey man, put up your IRA as collateral and I'll put some money in your bank account that you can spend."  This IS Bernanke's famous "drop money from helicopters" speech from 2002 that helped him pave his way to the FOMC Chairman appointment.  This is IT in action.

The Fed effectively creates "bank reserves," and calls it electronic credits that are "sterilized" because the Fed has taken a "similar" asset off the bank balance and simply replaced it with cash. The obvious reason for this is that the bank can spend the cash more readily than it can spend a 5yr Treasury bond. Recall I was was wondering aloud just last week how the Fed would make sure Treasury auctions were funded w/out driving rates through the roof and without printing: 

Many Fed officials believe strongly the bank reserves it has created as part of this money creation aren't an inflation threat. But they are acutely aware of a popular perception, also held by a few inside the Fed itself, that the money the Fed has created could cause an inflation problem down the road. An approach that limits the amount of new money flowing into the system—through another Operation Twist or a sterilized operation—could help them manage that perception.

Here's the LINK (if you copy the title into a google browser and click on the WSJ link that comes up, you can get a free copy of the entire article).  The key phrase in this article is "manage that perception."  Put the right spin on this and the market will swallow it hook, line and sinker and go back to watching the Peyton Manning news conference...

Think about that description of what the Fed is doing for a moment and then think about the actual flow of funds through the system that is created by this. 1) the Fed uses "electronic credits" to replace the longer term Treasuries/mortgages sitting on bank balance sheets. This is no different than printing money. The perception difference is that this is "sterilized" because the Fed is just exchanging bonds for "credits," which is the same as cash. Here's why. This maneuver now allows banks to first, go takedown more Treasury paper, thereby financing the Government deficit spending; and second, to a much lesser extent, gives the banks capital ratio room to issue more credit card debt and mortgages.  If banks had to sell outright existing Treasuries in order to buy new Treasuries, in other words if the free market we allowed to function properly, it would drive interest rates up by a significant amount.  The creation of "electronic credits" prevents the widespread selling of existing Treauries.  The Fed's balance sheet thereby becomes nothing more than a junkyard of Treasury bonds funded by "electronic credits." 

Let's look at both of those combined, but keep in mind that the primary reason for this is to finance new Treasury issuance. The Fed does the above, and then the banks turn around and buy more Treasuries at auction, likely financing close to 50% of all new auctions. The Government then gets the "electronic credit" moved to its bank account and can go and spend it like it's cash. Someone please explain to me the difference between that outright printing? Please.

Essentially what all this "sterilized" QE does is give the Fed a different "spin" on financing Government deficit spending and injecting a meaningful amount of cash stimulus into the system. In perfect Orwellian fashion, the Fed throws up a semantic smokescreen by calling it "sterilized" QE.

How many of you out there think the Government will start reducing its debt load within the next 3-5 years. Anyone? The only difference between equity (cash/"electronic") and debt is that debt has to be repaid. In other words, debt repayment is "sterilization" of cash creation because at some point the borrower - in absence of printing - has to go get the cash from the system and repay the debt. No new "credits" were created to take care of the debt repayment. Defaulted debt - assuming the Fed refuses to print to avoid default - is the same thing as printing up the original cash that was circulated from the debt issuance because that cash is never removed from the system in order to reduce the debt. Capito?
 
Bottom line is that this nothing more than money printing in disguise.  I'm sure somewhere Shakespeare is cringing because of my associating his writing with Fed "spin" language, but Orwell has a big grin on his face...

A Clear And Present Danger

However Greece unwinds, the other PIIGS are even bigger problems that will have to be dealt with.  Unfortunately, GS and JPM will be the last ones to take any pain from this because ultimately they are in control of the political decision-makers.  The corruption is beyond mind-blowing.  I also think it's a bad signal that the war rhetoric toward Iran is escalating quickly. The elitists are losing control and whenever they lose control, they start a war.

I got a call from a buddy of mine who is in the process of moving his family out of the country.  He's here for a bit and stated that he had a bad feeling that something ugly was getting ready to happen in the markets.  Coincidentally, or maybe not, I had just been thinking about the how the war rhetoric toward Iran was escalating to a pretty terrifying level.  Of course, it might be just the rhetoric of bluffing.  But please make no mistake about it.  The elitists are losing control.  If Greece defaults and goes bust, it will set off a much bigger daisy-chain of financial nuclear explosions throughout the PIIG consortium and its financiers.  Historically, without any variance, when the elitists lose control they start a massive war. 

Got gold? GLD and SLV will be useless and worthless when the real fireworks go off...

The Joke's On US

Our whole system or Rule of Law and accountability has completely broken down at the highest levels of Government and banking.  Our system is no better than the Banana Republics we grew up  to mocking and despising - THAT's our system now...

It's now starting to look like Jon Corzine and JP Morgan both are going to get away with hijacking customer funds.  I predicted early on that 1) the original amount of missing $600 million in customer would funds would turn out to be a much greater amount and 2) that Corzine and Company would get away with robbing from the middle class and giving to the wealthy.  There's just no justification whatsoever for that customer money disappearing - and that no one is being held accountable for it -other than that Wall Street executives feel entitled to loot and plunder the country's wealth free from fear of prosecution. It surprised me that no one involved in the banking collapse of 2008 was investigated or prosecuted. The entire situation was bleeding fraud and corruption.  But it blows my mind that Corzine and JP Morgan can openly steal like this and get away with it  LINK

Obama ran on a platform that included cleaning up Wall Street and DC.  Not only has he not honored that promise - that pact with his supporters - but fraud and corruption has become a lot worse.  In fact, it's gotten to the point where the perpetrators don't even try to camouflage their crimes, because they know the Government looks the other way and it seems that most people don't give a shit.

And Tim Geithner has decided that he can't be bothered with paying taxes or with subpoenas.  It turns out that apparently Geithner, when he was head of the NY Fed, was involved in the transfer of $8 billion in assets from Lehman to JP Morgan - there's JP Morgan again - right before Lehman collapsed.  The Lehman creditor's committee would like to bring Geithner in to ask him some questions surrounding his knowledge of the asset transfer.  Geithner made 35 calls to then Lehman CEO Richard Fuld and 10 to JPM's Jamie Dimon the week before the asset transfer and the subsequent Lehman collapse.  Geithner decided that he couldn't be bothered with answering questions so he simply ignored the subpoena.  Now the creditor's committee is appealing to the judge overseeing the bankruptcy to compel Geithner to appear.

You can read the story about this HERE.  What's mind-blowing about this is that Geithner is a public employee and should be held to the highest standard of integrity and truth.  As a public servant, and especially since north of a trillion dollars of public money was used to prop up the banking system, Geithner should be jumping through hoops for the creditor committee.  It's almost like he's taunting the entire legal system and the people who voted in his appointer, Obama, by ignoring the subpoena. 

What better use of his time does Geithner have?  Because, quite frankly, he's been completely useless as a public servant serving as Treasury Secretary.  It really underscores what a joke our entire system as become.

Friday Funnies

"Over the past several decades, we have witnessed numerous examples of serious lawbreaking on the part of our most powerful political and financial leaders with no consequences of any kind. ..[T]he current consensus among journalists and politicians is that...criminal prosecutions are simply not appropriate for the country's elites" (Gerald Greenwald, "With Liberty and Justice For Some").

I don't know if I should laugh or cry when I read this.  Quite frankly, for as incompetent and corrupt as Tim Geithner is, Eric Holder makes Geithner look like an amateur.  I thought W's Attorney General's were sleazy and corrupt, but Holder makes them look like monks.  Holder gave a speech today at Columbia in which he defended his track record at fighting finanicial fraud: 

Attorney General Eric H. Holder Jr. defended the Justice Department’s record on financial fraud Thursday evening, asserting that the administration’s “record of success has been nothing less than historic.”  LINK

MF Global, Robosigning, Solyndra,  massive mortgage fraud, market manipulation, ad nauseum...Eric Holder not only qualifies for Friday Funnies, he qualifies as Clown of the Year candidate.

Nothing Is But What Is Not*

The events my old colleague and I talked about back in 2002 that we anticipated that would blow our minds are happening now.  ISDA - controlled by the issuing banks - has determined that the Greek bond deal has not resulted in an even of default event though the new bonds being issued will result in about a 35% recovery rate - initially.  When Greece hits the wall again these bonds will be worthless.  And the corruption, fraud and crime at MF Global will go unprosecuted.  Jon Corzine will walk away with little more than slight embarrassment.  In fact, at Wall Street "elitist" cocktail parties, getting away with the theft of billions like this is probably awarded a high degree of social status.  This stuff blows my mind...

*This is a quote from Shakespeare's "Macbeth," Act 1, Scene 3.  For me this famous and much discussed line from the play pretty much encapsulates and describes the realities of our political and economic system.  Let's look at one of Bernanke's comments yesterday from his Humphrey Hawkins testimony.  Bernanke defended the Fed's massive currency swap [sic, bailout] of the EU banking system by stating that "the ECB is well capitalized."  Hmmm...let's take a look at the EU balance sheet (data source from zerohedge, it's accurate].   On a "book" basis after the latest LTRO operation, the ECB has $3 trillion in "assets."  The large portion of these "assets" are direct liabilities of ECB counterparties - national Central Banks and gold lease obligations.  Supporting this garbage is $82.2 billion in net capital.  That's a leverage ratio of nearly 37 to 1.  Banana Republic-esque.  A bona fide mark to market of the ECB "assets" would completely wipe out that net capital and the ECB would be in an unequivocal position of insolvency, but for its ability to print money. Unequivocal.  It certainly is not "well capitalized."  Bernanke stated under oath in front of Congress that the ECB is "well capitalized."  It is not.  Nothing is but what is not.  You can peruse the ECB balance sheet HERE.  Zerohedge has nice leverage chart HERE

Curiously, no one has said anything about the "Gold and gold receivables" asset account on the ECB balance sheet.  The key term is "receivables."  Unbeknownst to many, and in affirmation of the massive Central Bank gold leasing program used to try and keep a lid on the price of gold, several years ago the BIS changed its accounting rules and permitted Central Banks to account for gold leased out as a "receivable" and part of the gold asset account, rather than as a "lease receivable."  Any accountant and financial analyst will tell you that a lease receivable is not of the same quality of asset as the actual asset.  But what is even more deceptive about this re-classification of leased out gold is it eliminates the fact that the gold lease receivable is actually a counterparty liability.  Given the poor credit quality of the EU member banks, the gold lease receivables on the ECB balance sheet are therefore very poor in quality.  They certainly are not worth face value.  Nothing is but what is not...

And one more point about this gold leasing business.  No one really knows for sure how much of the ECB's gold is actually leased out.  Based on the collective observations of several well respected market analysts who have looked at this issue for close to 20 years, it is likely that most of the ECB's gold is leased out.  But lets assume only 1/2 of it is leased and the lessees ultimately default on those leases and are unable to return the gold that was leased out and sold (perhaps some to Venezuela, who recently took physical possession of its 200 tonnes of gold - now you know why).  You can see that the claim that a gold "receivable" can be valued at face value is quite questionable.  For me this underscores that fact that the entire asset quality of the ECB's (and the U.S. Fed's) balance sheet is like not what it appears to be on paper.  Nothing is but what is not...

One more interesting tidbit I want to get out of my "in" box.  Many of you have seen this already but many have not.  A big source of irritation for me has been the way the media, Wall Street and politicians have been focusing everyone's attention on Greece/Europe and making it seem like that's the problem we have.  Keep your eye on the ball, not the shell-game operator.  I think this chart will settle the issue for anyone who cares to look at the truth.  It turns out that on a per capital basis, the United States has the highest amount of debt per capita of any country in the world:  LINK  I think that statistic pretty much speaks for itself and it highlights for me why the real problem facing our system is us.  It turns out the China, the U.S's largest creditor by far, agrees with my assessment.  Per this WSJ article, China is starting to shift its foreign reserves away from the U.S. dollar:  LINK.   We know per the revised TIC data that China dumped over $100 billion in U.S. Treasury holdings in December.  This is not good.  And it further underscores the fact that Bernanke's attempt to deflect the probability of more QE3 yesterday was total bullshit.  I'm still waiting for someone, anyone, to explain to me how the U.S. Treasury can possibly fund the Governmnet's spending in 2012 without a significant amount of money printing...

One last note.  Mission accomplished yesterday.  I surmised that if yesterday's silver hit was just another run of the mill manipulation operation by JP Morgan, that we would see a massive reduction in the open interest of the March silver contract, of which very little would be accounted for by delivery notices.  It turns out that the open interest in silver in total declined by 1039 contracts.  Of that, March silver o/i actually declined by 1081 contracts.  Of that, only 160 of the March decline was accounted for my delivery notices. JP Morgan's silver market operation thus achieved its goal by substantially reducing the amount of silver that might have stood for delivery.  Forget rule of law in this country.  It's dead.  This illegal manipulation will go on until the Comex eventually defaults.  Obama was supposed supposed to reform Wall Street corruption and restore rule of law.  Not only has he NOT fulfilled this campaign promise, he enables the widespread corruption and looting.  Nothing is but what is not...