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May 8, 2010

Issue 95  -  Tipping Point Close?

 
The Financial markets have evidently entered a new phase.  This phase will have extreme volatility which will cause people to become more anxious.  The stock market had a near meltdown this past week when it dropped 1000 points midday.  This was eventually reversed and finally finished down about 400 points.  What does this mean?
It’s hard to know for sure but I believe it is time for EXTREME caution.  The dips have been great times to buy over the last year and a half but that may not continue.  In fact, I will be looking to sell in the next week or two when a rally occurs.  One thing is for sure, it is safe to stop listening to the government and Wall Street heads as they are proven liars: (from HuffingtonPost)
 
Greenspan Wanted Housing-Bubble Dissent Kept Secret

As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves.

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting.

At the same meeting, a Federal Reserve bank president from Atlanta, Jack Guynn, warned that "a number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on 'flipping' the properties--selling them quickly at higher prices."

Had Guynn's warning been heeded and the housing market cooled, the financial collapse of 2008 could have been avoided. But his comment was kept secret until Friday, when the central bank released the transcripts of Federal Open Market Committee meetings for 2004 and CalculatedRisk spotted it. The transcripts for 2005 to the present are still secret.

"The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy," Guynn warned.

But when the Fed released contemporaneous minutes of the meeting, the bank downplayed Guynn's concerns.

"Reports from some contacts suggested that speculative forces might be boosting housing demand in some parts of the country, with concomitant effects on prices, suggesting the possibility that house prices might be moving into the high end of the range that could be consistent with fundamentals," reads the minutes, which were released to the public several weeks after the meeting.

 

Remember Greenspan saying that it was impossible to spot a bubble?  He is now a proven LIAR.  These Fed minutes show that not only did they know a bubble was forming, they purposefully hid the information from the public.  These people should be thrown in jail.  Yet, they are receiving huge 5 and 6 figure speech fees.  Sickening.  Now we learn this:  (again from HuffPost)

 

Fed Privately Lobbying Against Audit, Documents Show

The Federal Reserve is privately lobbying against a bipartisan Senate amendment that would open the central bank to an audit by the Government Accountability Office, according to documents distributed to Senate offices by a Fed official.

The effort to beat back the audit relies on playing two members of the same caucus -- Sens. Bernie Sanders (I-Vt.) and Jeff Merkley (D-Ore.) -- off each other.

In order to obtain the documents, HuffPost agreed not to reveal the name of the Federal Reserve official who did the specific lobbying in question. Fed officials, including Chairman Ben Bernanke, have made public statements against requiring disclosure and members of the Senate and their aides have talked about Fed lobbying in general, but the documents reveal a very specific hand-to-hand style of combat being engaged in as the vote on the amendment draws near.

 

What is going on in this country?  The banks are now RUNNING it!  This is outrageous that the Fed is lobbying.  They supposedly are working for the good of the country.  Why then, would they want to keep what they’re doing secret?  Obviously, as a simple reading of the Greenspan story above shows, to keep they’re true intents and feelings from you and me.  Wasn’t it the Fed who talked us into bailing THESE bozos out:

 

Freddie Mac Seeks Billions More After Big Loss

By THE ASSOCIATED PRESS

Published: May 5, 2010

WASHINGTON (AP) — Freddie Mac is asking for $10.6 billion in additional federal aid after posting a big loss in the first three months of the year.

 

Gee, another $10.6 billion.  When does the madness stop?  When do we just let this thing fail?  I’m sure Fannie Mae is waiting in the wings for their turn at the taxpayer's wallet.  Before I move forward, I found a video this week that is quite interesting.  We have little understanding of large numbers so here is something to watch:

 

This is $100 bills.  200 million is NOTHING compared to what the U.S. owes.  It would take 500,000 piles like this one to pay all of our debts and liabilities.  If that doesn't convince you we are bankrupt as country then I don't know what will.  Here is an image which shows the cash a little clearer:

This is mind boggling.  But things are getting BETTER we're told.  Then why is this story possible:

 

Bank Risk Soars to Record, Default Swaps Overtake Lehman Crisis

May 7 (Bloomberg) -- The cost of insuring against losses on European bank bonds soared to a record, surpassing levels triggered by the collapse of Lehman Brothers Holdings Inc., as the sovereign debt crisis deepened.

The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers soared as much as 40 basis points to 223, according to JPMorgan Chase & Co. The index closed at 212 basis points March 9, 2009. Swaps on Greece, Portugal, Spain and Italy rose to or near all-time high levels.

Credit risk rose for a sixth day on concern the Greek debt crisis is spiraling out of control and triggering concern banks may face losses on their sovereign bond holdings. The Group of Seven plans to hold a conference call today to discuss the turmoil, after a global stock rout that briefly erased more than $1 trillion in U.S. market value.

"Financials are caught in a really bad place right now," said Aziz Sunderji, a London-based credit strategist at Barclays Capital. "Investors are selling bonds, not just hedging with CDS. It shows investors are repositioning portfolios and there’s a more long-term repricing of peripheral risk."

Pacific Investment Management Co.’s Mohamed El-Erian and Loomis Sayles & Co.’s Dan Fuss said Europe’s crisis may spread across the globe because of investor concern that governments have borrowed too much to revive their economies.

 

So, again we're being lied to, day after day after day.  If things were better the insurance for default on these bonds would not be higher then when Lehman Brothers tanked.  Would they??????  The current insurance is over 2%!  Imagine buying a bond that is paying 8 or 9% and having to pay 2% of your returns in default insurance.  That’s nuts!  But things are better????  Come on now, we’re smarter than that.

The guy at the end of the clip also frets that the crisis my spread because “governments may have borrowed too much.”  Gee, ya think?  Look at this chart from contraryinvestor.com:

 

 

So the new growth in credit is practically all the government.  That’s sustainable???  Notice on the lower half of the chart that the household and financial sector debt is NEGATIVE.  This story shows the idiocy in a plainer light:  (from GATA)

 

Federal, State and Local Debt/Deficits Keep on Growing Larger

"May 3 (Bloomberg) -- Construction spending in the U.S. unexpectedly increased in March, propelled by gains in state and local government projects."

 
Rather than help States and Municipalities balance their spending budgets and reduce their outstanding debt, the Federal Govt gave local contruction spending a boost in March by giving States stimulus money to spend on construction projects. This is non-recurring, unsustainable economic activity and perhaps it will help incumbents - mainly Democrats - gain some traction with the voters.

I would like to point out for those who missed the press release Friday, the Lt. Governor of NY State announced that next year's NY State budget deficit would likely hit $15 billion, on top of this year's $9 billion deficit...Add in California's $20+ billion deficit and the red ink of some other big States like Illinois, Texas and New Jersey and the world wants Greece to cut back spending?

If you want to put the "lense" of truth on the above news, please read this commentary from James Turk. Here is a quote from his commentary that is directly from the BIS (Bank for International Settlements - the global Central Bank of Central banks) report entitled  "The future of public debt: prospects and implications:" 

First, fiscal problems confronting industrial economies are bigger than suggested by official debt figures…As frightening as it is to consider public debt increasing to more than 100% of GDP, an even greater danger arises from a rapidly ageing population. The related unfunded liabilities are large and growing...looming long-term fiscal imbalances pose significant risk to the prospects for future monetary stability...unstable debt dynamics could lead to higher inflation: direct debt monetisation, and the temptation to reduce the real value of government debt through higher inflation.

 

This just shows the insanity of saying things are getting better.  You can’t charge your way to health!  Just like you can't wish your broken arm into being healed.  What about the banks, they’re getting better, right?  (from JSMinset.com)

 

Dear Jim,

The following are some additional thoughts on the seven bank failures announced by the FDIC on Friday, April 30, 2010.

 

1. Perspective on Losses

This week's losses were extremely serious, a fact belied by the virtual absence of press coverage. They were the largest in any single week since the failure of IndyMac Bank on July 11, 2008.

IndyMac had assets of about $32 billion and deposits of $19 billion. Its failure cost the FDIC an estimated $8 billion.

The seven banks that failed this week had combined assets of about $25.8 billion and deposits of $19.6 billion. These failures cost the FDIC an estimated $7.33 billion.

Prior to this week, the FDIC's estimated losses from 57 bank failures in 2010 stood at about $8.6 billion. This week's failures practically doubled that figure, to $15.93 billion.

This information cannot be reconciled with the MOPE that states the banking sector has recovered.

2. Status of the Deposit Insurance Fund

According to an AP article posted Friday (cited below), the FDIC's deposit insurance fund "fell into the red last year, hitting a $20.9 billion deficit as of [Dec. 31, 2009]." With this year's losses, the fund's deficit has grown to at least $36.8 billion. In addition, the FDIC has a huge exposure for worse-than-expected losses on some $165 billion of assets taken over by acquiring banks.

That pretty much wipes out the $45 billion the FDIC announced it was going to raise by requiring banks to pre-pay premiums for the period, 2010 through 2012. Obligations of the FDIC will soon become obligations of the U.S. taxpayer, adding billions of dollars each year to already out-of-control federal deficits.

3. More FASB-Blessed Fantasy Valuations

Looking at the  largest failure this week:

Westernbank Puerto Rico of Mayaguez, Puerto Rico, had stated assets of $11.94 billion and deposits of $8.62 billion. On paper, it was an extremely healthy bank; yet the FDIC's loss estimate for its closure is $3.31 billion. Based on that estimate, the real market value of its assets is only $5.31 billion. Bank management had over-valued these assets by 125%.

 

So the banks are lying about assets values to the tune of 100%?  This is COMMON.  The banks are bankrupt.  Just like United States, but that doesn’t stop the spending:

 

Food-stamp tally nears 40 million, sets record

WASHINGTON (Reuters) - Nearly 40 million Americans received food stamps -- the latest in an ever-higher string of record enrollment that dates from

December 2008 and the U.S. recession, according to a government update.

Food stamps are the primary federal anti-hunger program, helping poor people buy food. Enrollment is highest during times of economic distress. The jobless rate was 9.9 percent, the government said on Friday.

The Agriculture Department said 39.68 million people, or 1 in 8 Americans, were enrolled for food stamps during February, an increase of 260,000 from January. USDA updated its figures on Wednesday.

 

So if the food stamp roll never decreased, how did we have a drop in unemployment?  Does that make sense?   No, but it’s not supposed to either.  They’ll just keep distracting us with more television drivel.  Bread and circuses, while the U.S. burns.
One last thing on our “recovery” and why we need to be super cautious with the stock market.  Look at this chart and comment from contraryinvestor.com:

 

The reason we are bringing this issue up right now is in response to a number of company specific earnings reports we've heard as of late.  A number of the very large utilities are still set to report earnings dead ahead, but we were struck by recent comments just last week by the Chairman and CEO of American Electric Power.  This is no backwater utility and has operations in States with a decent amount of manufacturing.  Listen in:

                      

“We had strong results for the first quarter because of successful rate proceedings, increased off-system sales and favorable weather,” said Michael G. Morris, AEP chairman, president and chief executive officer. “For several quarters we’ve been seeing some signs of economic improvement in the states that we serve, but the signs have yet to be followed by a broad increase in electricity demand that typically accompanies economic improvement. Residential electricity sales have improved year on year. Industrial sales are down slightly from first quarter last year, but we are no longer seeing the steep declines experienced throughout 2009. Commercial sales continue to struggle.

“In light of the slow recovery of electricity demand and depressed wholesale prices, we are taking further meaningful steps to reduce our costs,” Morris said. “These steps include non-labor and labor reductions such as an offer of a voluntary severance package.

                    

What?????  Personally, we thought residential would be flat on its back to down relative to the first quarter of 2009 given the continued increase in foreclosure activity across the US.  And this was the only segment of AEP's business that was up year over year?  Moreover, with the touted macro manufacturing recovery Stateside, just how the heck could industrial sales be down year over year?  Especially set against the comparison of the Armageddon first quarter of 2009?  In March of 2009 the ISM survey rested at 36.3.  Today it's quite the different story, no?  And AEP has felt none of this?  The following table documents electric utility capacity utilization nine months after each recession over the last four decades.  Of course we are assuming the latest recession ended in June of last year, as per the rhythm of reported GDP.

As you can see electricity consumption is down A LOT from the peak.  How can things be getting better if electricity usage is down?  How does that work?  And the president of the company says the outlook is not so good?  Yeah, time to start getting out of the market.  That just means you’ll have more funds for gold and silver.  There was lots of bullish news on the metals front.  First a video:

This guy is THANKFUL for the manipulation.  You should be too.  Time to get yours.  I do think time is running out for these low prices.  Here are two reports from readers of GATA:

Below is an email that went out from a large Canadian bullion dealer:

 

"Sold almost a half tonne of silver on Friday. Bought 3,000 maple leafs in two orders over the last couple of days to replenish shop inventory...I am doing my best to add to my personal holdings but so much is coming in I can't really afford to buy it all. I don't have any personal bullion but I try to keep all the silver dollars offered to the shop. We have full page newspaper ads as well as radio ads running so a great deal of material is coming in.

On Friday I sold over 150 gold maple leafs as well as the silver I mentioned. I am seeing more affluent buyers who are cashing out certificates and converting to physical. The banks are getting weird about bullion here in Canada. They are refusing to buy bullion unless it is fully documented. I get the feeling they are trying to imply your specie would be worthless if you loose the documentation so stick with certificates which are registered. One client tried to convert certificates from Scotia Bank into bullion but the bank said the type of certificate did not allow for that. He sold it and found the premiums to buy physical there to be prohibitive so came to me. It's very easy to do well when your competitors are the banks

I am also selling lots of silver over the last few weeks. With the current lower prices I am seeing many people add to positions which is very unusual. In the past many sold corrections."

 

 Dear GATA

I am a young social science student from Denmark. Recently I talked to a high ranking employee from the Danish investment bank Saxo Bank, who told me that he knew from direct sources in the Danish central bank that in 2002 96 % of the Danish gold was being leased out in the global bullion market - probably nothing has changed.

I thought this might be of interest for you - unfortunately my source has to be under the veil of anonymity. Still it might be a useful peace of information.

 

Look, the rig is slowly ending.  However, it could end with a snap.  If Denmark doesn’t have the gold it says, why do you think we do?  Gold is the enemy of paper money.  Why do you think the rich are buying gold in Europe now?  The gold paper game is close to ending.  Now it appears that the IMF, according to their own paperwork only has ledger entries as their “gold” reserves:

 

IMF Gold

The bail-out package for Greece is 146B$ offered jointly by the International monetary Fund (IMF) and the European Union (EU). If the IMF is taking half of the responsibility for this loan package it is on the hook for 73B$. The sale of 212 tonnes of gold in 2009 to India, Sri Lanka and Mauritius netted 7.1 B$. So to raise all the IMF’s share of the Greek Bailout package they would have to sell a further 1,773 tonnes or 59% of the IMF gold reserves. If the IMF subsequently has to bailout Spain or Portugal it would then have no gold at all. But this is just hypothetical because the IMF doesn’t have 3005 tonnes of gold to sell. It only has 168 tonnes which is what remains from the 403 tonnes it declared it was selling in 2009. This gold is what the IMF claims it earned through transactions it made after the Second Amendment to its Articles in 1978. The IMF is only authorized to sell this gold and when consulting the IMF Internet site it the only gold it actually has.

GATA has long maintained that the IMF has little to no gold. It only has pledges of gold that are part of the central bank gold reserves of the member countries. This view is supported by the inability of the IMF to tell Chris Powell of GATA where the IMF gold is stored and if it is audited (See http://www.gata.org/node/6242). The Business Insider's Vince Veneziani was also stonewalled when he posed questions about the whereabouts of IMF gold (see http://www.gata.org/node/8583).

The IMF Internet site lays out that the gold that has been pledged to the IMF before the Second Amendment, approximately 2,800 tonnes is subject to "restitution" to the founding members. (see http://www.imf.org/external/np/exr/facts/gold.htm).

"Restitution. The Articles also provide for the restitution of the gold the Fund held on the date of the Second Amendment (April 1978) to those countries that were members of the Fund as of August 31, 1975. Restitution would involve the sale of gold to this group of member countries at the former official price of SDR 35 per ounce, with such sales made to those members who agree to buy it in proportion to their quotas on the date of the Second Amendment. A decision to restitute gold requires support from an 85 percent majority of the total voting power. The Articles do not provide for the restitution of gold the Fund has acquired after the date of the Second Amendment"

The former official price of SDR 35/oz equates today to about $68/oz. So this means which ever way you look at it, the IMF has no gold. The member countries pledged gold and at any time they can buy it back for $68/oz. Yes, it does require an 85% majority vote but would anyone vote against buying gold at $68/oz? This means that there is no way on earth that the 2800 tonnes of gold the IMF was pledged before the Second Amendment will ever be sold by the IMF to anyone except to the member country who originally pledged it. On this basis would anyone be naïve enough to think that the original gold ever physically changed geographic location? Of course not! The gold will have been left in the member’s Central bank vault and no doubt double counted.

 

So these international “leaders” are lying to us?  Of course they are.  They have to have time to accumulate their own gold and silver.  Remember, these are the guys always threatening, but never following through, to sell the "gold"  What’s new, you say?  Well, maybe, just maybe the jig might be up.  Look at this story:
 

CFTC Issues Advisory On Compliance With Speculative Limits

 May 2010

 

- By Sarah N. Lynch Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- The U.S. Commodity Futures Trading Commission issued a warning to the market on Friday to remind participants that speculative trading limits apply throughout the trading day as well as at the end of trading.

The warning was issued as an advisory note by the CFTC's Division of Market Oversight. A spokesman said the release of the advisory on Friday was not connected to Thursday's unusual market events.

The advisory sought to remind market players that "any trader whose position exceeds the applicable speculative position limit at any time during the day is in violation" of federal commodities law even if the trader reduces the position limit levels at the time the market closes.

The CFTC gave no explanation for why it decided to issue the advisory.

 

This is unprecedented.  Why would they do that midday?  Well, the Ticker Guy had a few charts that are VERY helpful in understanding what’s going on:
The bubbles show when the announcement was made.  Right after, silver and gold shot up.  It seems that someone (wonder who?) was selling shorts in an outrageous quantity.  Why would someone do that?  Shorts are excess supply, which drives down the price.  Some entity was above their threshold of margin.  A warning was issued and then the game was over.  I believe that a lot of traders know the game of controlling gold and silver, as testified by Andrew Maguire.  This has now led to too many people jumping on the boat at once.  People are taking advantage of the rigging process, to pad their own accounts.  They can't lose right?  Well, the little warning was a shot across the bow.  The prices of the metals sky rocketed (as one would expect in an emergency) right after the warning announcement.  The shorts were covering and this drove the price up.

Gold and silver are traditionally SAFE vehicles for storing wealth during times of trouble.  The government and Fed have been trying to break this association for years.  Hopefully the game can be put to an end.  There has been so much attention brought to this market now, that it is becoming harder to play the suppression game.

 I’ll close with something fun.  This is a video of a dancer doing an audition for So You Think You Can Dance.  (Yes, he can)