Silver Investing - Risk And Reward by David Morgan

One of the questions I am asked most frequently is, “Where can I invest in precious metals to maximize returns?” The answer is not as straightforward as one might expect.

An area that comes to mind for many is the futures market, where the leverage is great and the rewards can be just as great. However, to be successful requires much more time, effort, and money than many a novice “futures trader” can handle. The amount of success in trading the futures is a very low percentage, something on the order of 2%–3%. It has been my experience having done both futures and stock trading that stock trading/investing is much better suited to most private investors and allows leverage that is similar to and sometimes exceeds that of the futures market.

The advantages are that your risk is better controlled most of the time. I want to be clear: both futures trading and stock investing/trading are risky endeavors, but investing as a whole has risk, as does life itself. The point is, given the risk/reward profiles of futures or stocks, my experience is that stocks are more appealing.

This is a time period when gold and silver have been moving in a large trading range and the underlying mining equities have been reacting in a sluggish manner. That is to state, the mining shares generally have not performed in a manner providing greater leverage than the metals themselves.

There is still plenty of time for an investment in precious metals, but a wise investor should choose carefully ahead of the herd. It is my considered opinion that the window of opportunity exists right now for those who are not in this market or for those who wish to have further exposure to the precious metals. This window of opportunity may not last to the end of this year. In fact, let me go on record and state that the next two to four months should provide one of the best and safest times to purchase quality mining companies. If you can purchase during general stock market weakness and when metals prices are down as well, you can be pretty well assured you are buying low, before the next leg up in this market.

The big money is made if you catch a major trend and stick with it long enough to make substantial gains. Our premise is that the era of paper assets peaked in the year 2000, and commodities were at the bottom. We also believed that the paper money time bomb was ticking and astute investors around the world would seek the safety and time-tested soundness of real money—gold and silver. These two precious metals represent the top tier of all commodities, because they are readily accepted around the world as a means of final payment. Additionally, in times of financial stress, the metals are a store of value.

Basically, you have been given a second chance to buy before the next major leg up in the precious metals cycle and it is my firm belief that this time it will be led by the mining equities, for a number of reasons. First, there are more equity investors in the U.S. and other countries than at any time in history. On top of that fact, many trade from electronic platforms and are only a mouse click away from buying or selling a stock. Secondly, people love to buy with the herd. Once gold clears the US$1000 level again and stays there, many investors will have the confidence to buy into the mining shares.

Most people are lazy to some degree and they will do whatever is easy and convenient, and that means, as stated above, when the precious metals bull begins to run again, people are far more apt to purchase mining stocks than to buy silver or gold coins.

Silver Stocks

At this point in the precious metals cycle, many investors who discover the silver market may think they have missed most of the move. In fact in some cases they are correct. Our financial reports focus on “Money, Metals, and Mining,” and quite frankly, I cannot give you the opportunities we saw and recommended in 2002-2006 . . . but the next leg up will be very worthwhile, especially in light of the fact that the investing public trusts almost nothing in terms of “investment” at this time.

Real estate investing is dead, stocks have rallied but for how long, the municipal bond market looks shaky, and even the sacred U.S. Bond has been shunned to a great extent by foreign trading partners.

The most important fact about investing in the precious metals, actually for almost all markets, is simply that the majority of the move comes in a very compressed timeframe. One way to think about it is that maybe 90 percent of the entire move comes in the last ten percent of the time. If this cycle for silver is going to last 15 years, then the majority of the move upward will come during the last year. I call this the “blow-off” phase, or the “greed-panic” phase. In my view, this will occur because everyone will be dumping the U.S. dollar for something/anything, and the most sought-after class is the precious metals.

Notice I did not state gold, but precious metals. Certainly gold will be sought, but silver and silver-related investments would be the star performer at the end of the cycle. There are two reasons for this. First, silver is more affordable than gold. Those investors flooding into this market during the panic phase will be looking for the best alternative to the U.S. dollar possible, and that will be silver because it costs less per ounce than gold. Secondly, most will do some cursory investigation and find that silver outperforms gold during inflationary times.

To validate my point, think back to the dot-com bubble. Every little company with an Internet address was moving up, and most had very little merit. This is typical of markets-- near the end the public rushes in and drives prices to unsustainable levels.

First it must be understood that the universe of true silver stocks is extremely small. My definition of a true silver stock is a company whose primary revenue stream is based on silver. This is an unusual creature because approximately 75 percent of all silver comes from the mining of other metals. Depending upon which study you examine, about 25 percent of silver mined is a result of copper mining, 33 percent is a result of lead/zinc mining, and even 14 percent of silver comes out of the ground as a result of gold mining.

The reason an investor wants a primary silver producer is the fact that the stock price will be leveraged to the price of silver. If an investor buys a stock that has its primary metal as copper yet still yields quite a bit of silver, the company is more apt to move on the price of copper not silver.

Additionally, most miners who are base-metal miners and have a great deal of silver in the mix really do not care about the silver price, and they sell it for "peanuts" to use the proceeds against their primary mining activity. You may find other information on a huge universe of silver stocks available, but take your time to study and educate yourself. Just because a company has silver in its name, or is exploring to find silver, that does not make it a silver company.

It is an honor to be.

Sincerely,

David Morgan

Mr. Morgan has followed the silver market for more than 30 years. He wrote the book, Get the Skinny on Silver Investing. Much of his Web site, Silver-Investor.com, is devoted to education about the precious metals; it is both a free site and does have a members-only section. To receive full access to The Morgan Report, click the hyperlink.

D_I_V_O_R_C_E by Theodore Butler

Old-time country music fans will recognize the title as one of the late Tammy Wynette’s greatest hits. Men and women are alike in uncountable ways, yet are also remarkably different. In every species, the female is from Venus, the male from Mars. Sometimes, even relationships that have endured for the longest time end in divorce.

Today, I write of the pending divorce I see in a relationship that the world has grown comfortable in observing for hundreds of years. As such, when it becomes obvious that the two will part ways, most will be shocked and in disbelief. Yet there will be no reconciliation and the split should prove permanent. The divorce I speak of is in the price relationship between gold and silver.

Gold will still be gold, of course, and will remain as it has been since the dawn of civilization, valued by the world’s inhabitants for its beauty and rarity. As will silver. Each will exist forever, as they have existed through the ages. Each will rise and fall in price based upon supply and demand and investment flows and the presence (or absence) of manipulation. Nothing can change that. What will change is the price relationship they have shared in everyone’s living memory. They are about to begin separate journeys.

In the coming price relationship dissolution, silver will be the cause of the break up. That’s because it is the price of silver, relative to gold, that is out of line. Just like a spouse long-abused in a one-sided relationship, silver will be the one to blossom once the marriage is terminated. Certainly, I am not suggesting that gold has abused silver, as inert materials can’t possible abuse anything. The abuse of the silver price has come from the long-running manipulation. It is the coming end of the silver manipulation that will set silver free to begin its own new price life.

One of the irreconcilable differences in the gold-silver price relationship is something quite visible. Yes, both have been manipulated in price by the concentrated short selling of the big bullion banks on the COMEX. But the amount of short selling in gold never exceeded the amount of real gold existing in the world that could conceivably cover the short position. For example, the current total commercial net short position in COMEX gold futures sits at 20.4 million ounces (as of July 21). The net short position of the 4 largest traders is 16.1 million ounces. That’s a lot in terms of dollars, almost $20 billion and $16 billion respectively, but not so much in terms of the amount of gold bullion in the world (2 billion ounces). The total net short position in COMEX gold futures represents just 1% of the gold bullion in existence.

Half of the gold bullion in the world is owned by government entities (remember, I speak of gold bullion only, not the total 5 billion ounces of gold said to exist in all forms). The US government, alone, is reported to own 260 million ounces of gold. If the big 4 gold shorts really got into trouble, just 6% of the US Government’s gold stash could conceivably be used to bail them out completely and make delivery, if necessary. Let me be very clear here - I’m not saying this will happen. I am saying it could happen. If the US, or any number of other world governments decided that a gold short covering price fire must be extinguished, they could put it out with physical material if they chose. Not would, necessarily, but could.

This is not the case in silver. The 4 largest traders are net short 235 million ounces on COMEX futures. While that’s not very large in dollars, at just over $3 billion, it is enormous in terms of the amount of silver bullion in existence. The big 4 in silver are short more than 23 times what the big 4 are short in gold, relative to above ground bullion inventories. But here’s the kicker - there is no possible way for any government entity to extinguish a silver short covering price fire by actual delivery of government owned silver. That potential price smothering material simply does not exist in government hands. The US Government, the world’s largest owner of gold reserves, and formerly the largest owner of silver reserves, now owns no silver. For those that are convinced that there is government involvement in the gold and silver price manipulations, this is a difference worth considering.

This is not the only difference that will lead to a gold/silver price break up. The reason we have such a mismatch in the relative size of the short positions compared to world inventories, lies in the very nature of what silver has evolved into over the past century. Silver became a vital industrial material and its formerly large inventories have been consumed to the point where there is less silver bullion in existence than there is gold bullion. That one in a million of the world’s citizens know this fact, promises to make the gold/silver price divorce, when it occurs, as sensational as the most notorious celebrity split. Only instead of reading of racy details in a trashy tabloid, the specifics will be carried in the financial press and in price reporting. The growing awareness of the particulars of the divorce will drive many to want to buy silver.

I have long anticipated this divorce, but now its timing seems at hand. This has been the recent theme of my articles, where I have evoked images of this could be the last time and game changers. As an analyst studying supply and demand fundamentals, timing is not normally the focus of my attention. If I am to be wrong, it will likely come on the timing side. That said, there are two features in the current environment that may bear on the timing of the coming gold/silver split. Whether this is the time should be revealed in these two factors.

One, the current relative structure in the gold and silver futures markets, as defined by the Commitment of Traders Report (COT), suggest the divorce may be near. In gold, the commercials are shorting heavily again, showing no fear in selling into the recent price rally. So far, the big shorts have not yet shown a similar willingness to short additional silver contracts. This holds the promise that they may not short on further price gains. Simply put, if the big silver shorts don’t sell additional contracts, the silver price will fly and the divorce papers will be filed. If they do sell, the price marriage will be held together temporarily.

The second factor involved is the course of the CFTC in dealing with the issue of position limits in silver. This is directly related to whether the big shorts sell additional silver contracts. If the Commission does the right thing (as I hope), and levels the playing field in silver, then the big shorts can’t sell more COMEX silver short. If that occurs, as it should, the gold/silver divorce will be final. If not, the bad marriage will linger.

Just like a marriage that never should have occurred, given the real facts, silver has no business being less than 2% of the price of gold. Whether it deserves to be equal to gold in price is debatable, but it certainly doesn’t make sense for gold to be 70, or 50, or even 20 times more than the price of silver. On any reasonable and objective measurement, from annual production to existing inventories, the gold/silver price relationship is lopsided. You may think my divorce analogy is a bit extreme, but the coming price out-performance of silver compared to gold will reward those who back the real winner. The current price relationship is on the rocks. Those that can switch gold holdings to silver should do so without delay.

THE DOW CHART- LONG TERM

Folks, let's not get carried away with the Dow breaking 9,000, because the long term chart suggests something much different. If your buying into the current propaganda, you will be left heartbroken and broke. Right now, your probably breathing a sigh of relief that your current 401K is resembling a 301K, but let me suggest you might be left with a 101K if the chart is any indication. After fielding a couple of questions on the long term possibilities on the DOW, I decided to run my long term chart for the answers. So wholla.....Here is what the chart is telling me. Let's look at the chart from 1981 to present. As you can see, the DOW generally trends upwards between the upper and lower resistance bands and trends between them from high to low. Now let's take a look at the first significant event on this chart which is the year 1987. As you can see, the DOW broke out of the upper resistance band in Jan 87. By Oct 87, it corrected all the way back down to the lower resistance band and luckily held at that point. That minor correction is known as the Stock Market crash of 1987. Technically speaking it was just a correction from the stupid over speculation that the market could operate out of the norm. Now having righted the market. The market continued it's trend until March of 1996. Uh oh. The retard speculators are back. Having sat on their hands for nearly 9 years. They were eager to pump up the market and use the great technology boom to do so. Like clock work, the market was pumped up over the upper resistance band until 11 Sep 2001. We all know what happened on that day, so I won't go into detail. Needless to say, the bubble was popped and eventually corrected below the long term resistance line. With that bubble popped and the market righted, we should of left it alone - but no so fast. How could we re-inflate the market back to the long term trend. Enter the Grand housing Boom bubble. McMansion's for everyone was the dream and the dream was realized with B.S. financing programs. No money down and cheap interest rates were the catch phrase of the day. Bad Credit or No credit! It didn't really matter. You were getting your McMasion. Now take a look at the chart. They couldn't even get the market back within the long term trend lines with the great housing boom. Sadly, it all blew up with most Americans caught with their pants down and the market corrected all the way down to around 6500ish. Does that number sound familiar? Look at the chart! 6500 is where the bubble started in 1996. They used two consecutive bubbles to keep it a float until it deflated back to where it started. 6500ISH! The two bubble are so obvious it probably makes you feel like a fool! Hind sight is not 20/20. If you would of followed the trend, you would of known what was coming. Speaking of what is coming? Does the Energy Bill (Cap and Trade) and the Health Reform Care Bill sound familiar? Why do you think they're pushing hard for this? Oh yes, you guessed it. They need to start the next bubble, so be prepared! O.K.....one last look at the chart. The market should attempt to test the 61.8% Fib level at 9500. If the 9500 number is not broken, look out below. (If 9500 is broken, it must hold for two consecutive days.) The Dow will correct back to 8,000 and if 8,000 doesn't hold look to 6,500. Now here's where it can get scary. If 6,500 is broken, 5,200 offers some some support along with 4,000. If a "Black Swan" events occurs, 1,600 is where it will settle. Be prepared!

International Forecaster July 2009 (#6) - Gold, Silver, Economy + More By: Bob Chapman

The following are some snippets from the most recent issue of the International Forecaster. For the full 24 page issue, please see subscription information below.

US MARKETS

...

The US Illuminists are gambling big. This is the most dangerous part of their strategy, namely, how to take down America and the dollar without destroying themselves in the process, both financially and politically. They are going to get smoked. Even now the stock, bond and commodities markets are spiraling out of their control, and their new outrageous salaries and bonuses are about to be debauched as they are left holding the bag with huge positions in dollar-denominated paper assets. They will try to dump this paper without sending gold and silver on a moon-shot, but they are doomed to failure. The amounts of paper assets and debt are simply too massive, and the commodities markets and other tangible assets are too small to absorb these gargantuan sums of money and credit without exploding to the upside. Just keep buying gold, silver and their related shares on the dips, and you just can't lose in the long term. The trend is your friend. Gold and silver are trending up, and stocks, bonds and derivatives are trending down - way down!!!

About two months ago our sources informed us that the US government had begun sending large amounts of cash to embassies throughout the world to be exchanged for local currency. We have had a number of reports that this in fact has been the case.

Having been involved in counterintelligence and for some 50 years in economics and finance, I believe this is a precursor to problems centered around the US dollar.

It was just a few months ago that the USDX was 89.5. The USDX is a dollar index, and is computed by using a trade-weighted geometric average of six currencies and their weights are: the euro 57.6%; the Japanese yen 13.6%; the British pound 11.9%; the Canadian dollar 9.1%; the Swedish Korona 4.2% and the Swiss franc 3.6%.

We recommended the sale of the dollar at 89.5. It recently closed at 79.5.

We believe that between now and the end of October that the USDX could fall to 71.18, its former low of 18-months ago. At that time a number of businesses outside the US were refusing to take US dollars and we believe that will happen again, and that is what the Treasury Department is anticipating and the reason for sending the cash to the embassies for conversion to local currencies.

We also believe these events could precipitate a short bank holiday in the US due to disruption of capital flows in and out of the US and concern if not panic in the US banking community. We also believe the government will use such events as a trial run for a future major banking shutdown. They will be interested in the public’s reaction as a precursor to what might happen in the future if there were a major banking shutdown.

Americans are well aware of the Madoff scandal, but procedures used in his conviction leave many unanswered questions.

Conspiracy charges were never brought against Mr. Madoff. We had information we published just prior to the story breaking of what Mr. Madoff had been doing. Our contacts not only gave us the story, but details of how the funds were transferred from NYC to Israel and other offshore locations, such as the Cayman Islands, Belize and Switzerland. There were many wire transfers and also the physical transfer of bearer bonds to these locations.

What was interesting was Mr. Madoff’s association with veteran officers in the US military. That leads us to intelligence sources that have told us that Mr. Madoff was operating his scheme with elements of the CIA, the Russian-Israeli mafia and the Mossad. This would explain Mr. Madoff’s closed trial.

A number of banks were used in the operation. The Israeli Discount Bank, Bank Leumi, Bank of New York, Chase and Citibank’s private banking facility.

There is no question funds were being used by government agencies just as were those of AIG.

For his efforts Mr. Madoff received 150 years in prison, a ludicrous sentence under the circumstances. The nature of his trial was unusual. No media coverage, no attempt to charge any co-conspirators and no effort that we are aware of to recover funds, except for a billion here and a billion there. You don’t run a scheme like this out of your back pocket. Many on Wall Street knew what was going on and scores of others were involved. In the case of following the money all the court has to do is check with the NY Federal Reserve and the Treasury Department, both of which have access to every money wire out of his company and the banks he used. That would be too easy or is the avenue deliberately not being pursued. Then there is the case of the SEC, which knew for years a scam was being perpetrated. They were served up proof positive of a scam and did nothing to stop it. That tells us higher up in government they were told hands off, look the other way. The whole episode stinks, just like BCCI, Iran-Contra and Nugan-Hand, all CIA scam operations.

Mr. Madoff was convicted on 11 criminal charges – none of which included conspiracy. In other words, who assisted you in your criminal acts? Strangely the court had no interest in uncovering who else was involved. Thus far only a few billion dollars have been recovered.

The only reason Mr. Madoff turned himself in and pleaded guilty to all 11 counts of criminal activity was to protect his co-conspirators by not having to testify and government willingly allowed that. Mr. Madoff kept insisting he acted alone. After 28 years on Wall Street we can hardly believe that. None of his family was charged, yet they had to know what was going on.

There are just too many unanswered questions that government and Wall Street have been all too willing to sweep under the rug.

THE GOLDMAN SCAM:

There is absolutely no question that Goldman Sachs is a criminal enterprise and that they have co-opted our government.

We believe that they have been involved in massive unlawful activity using a program that may have been given to them by the government. The program is a major front running device that capitalized in picking up trades by snipping them out in nanoseconds and opportuning the system with a program no one else has. The Street has been and is furious that the media, regulators and our duly elected are not even discussing what could be the second biggest scam and abuse of our times. The biggest is the suppression of gold and silver prices.

Worse yet, few people realize that exchanges actually pay firms to trade against order flow when they act as a “supplementary liquidity provider.” Exchanges pay firms ¼ of a penny if they provide liquidity when an order appears in the system. This is an extra incentive to front run order flows. Can you imagine that this is a policy of the NYSE, led by the pirates at Goldman Sachs?

During the past two weeks, since these revelations, we have heard nothing from the SEC and their course of action. If something is not done nobody in their right mind would want to trade on our markets again.

If there is, as we suspect there is wrongdoing, this scam is bigger than Madoff and Stanford combined. Due to the position that the NYSE allowed Goldman to be placed in, they have a virtual monopoly on the NYSE’s Supplemental Liquidity 2 Provider Program.

It is Nasdaq’s view; these irregularities reveal that the NYSE’s true motivation for these SLP operations is to discriminate among its members and to burden some member’s ability to compete with the NYSE. This is as sinister as it gets.

We spent 28 years on Wall Street and we know that when a firm has an 87.5% trading accuracy record, something unnatural is going on. That is Goldman Sachs followed by JPMorgan Chase and Citigroup.

It was only six months ago Goldman received $10 billion from the US Treasury and relied on government guarantees to issue debt. This, in part, was how such enormous profits were made, up 64% year-on-year. As well, the government, via the Fed, stepped in and had the taxpayers pay $13 billion of AIG debt to Goldman, their part of a $105.4 billion rescue. This program has allowed Goldman to make record profits in the middle of a depression, some $27 billion a year.

As usual the media refuses to dig in and get the story we and a few others have dug up. Nor, as expected, has the SEC done anything.

...

THE INTERNATIONAL FORECASTER

WEDNESDAY - JULY 22, 2009

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USD Dollar Chart

A quick look at the US Dollar Index Chart......Upside resistance appears at 81.50 and downside resistance appears at 75. A close number to watch is 78.31 which is a major downside Fibonacci retracement level. If this number is broke on the downside, look at 77 and 78 to provide further support. The dollar is currently trading sideways and a move either to the upside or downside should occur in the next two weeks.

***Warning****** No green shoots!

Is this the beginning of the recovery? The answer is NO! What your seeing is the result of inflation - i.e. the excessive printing of money. The "green shoots" that your seeing is inflation at it's finest. Don't be fooled and don't get caught in the bear trap stock market. I will explain this one last time. When a government or quasi agency (Federal Reserve) prints excessive money (also called monetization of debt or quantative easing), it will lead to consumer price inflation in about 2-3 years. The experiment currently being conducted on the economy is attempt to re-inflate asset prices, but the main problem with this experiment is the adverse effects it will cause. The re-inflation process will happen in a failed sequence. Write this down and watch the shit hit the fan. 1). Watch the US Dollar Index closely. It's currently sitting at 78.88. If it starts falling towards 72, this should cause great alarm and panic whistles and bells should be sounding everywhere. The US Dollar Index will not go straight down. It will roller coaster down. 2.) The stock market will appear to rally as the US Dollar Index heads towards 72. This rally is fake as they come. It will not be based on market strength, but rather a weakness in the currency which it is traded. Keep your eye on the ball - US Dollar index rather than the stock market. The stock market will hit a point on the upside where it's extremely overvalued compared to the currency which supports it and a violent correction to the downside will occur. 3800 to 5200 on the Dow is my price target, but much lower is not out of the question. 3.) Once gold breaks 1,000 for two consecutive days, it will run up to 1,600 very quickly. Silver will lag and target 26 or higher. 4.) If 72 is broken on the downside on the US Dollar index, the currency will have failed and must be replaced. A "new" currency will be issued with an exchange of 3 old to 1 new. 5.) A "bank holiday" is imminent. No ATM withdrawals, checks written or cashed, or credit card transactions. Once again, watch the US Dollar index as it approaches 72. A "bank holiday" will be announced on a Sunday which Sunday I do not know. If these conclusions sound extreme, keep watching CNBC and get your investment advice from Cramer and be unprepared for what your about to witness. Be careful and extremely wary of the month of October. September 1 to November 30 are going to be very interesting. Please post your questions and comments below.

Repost - Where is Silver headed?

Where is Silver headed? To answer that question we must take a look at the chart and see what the charts telling us. Silver went through a classic cup and handle formation straight into a head and shoulder formation. If that's not bullish, I don't know what is......Silver should trend into a roller coaster up trend before revealing the next formation. Minor upside resistance lines reside at the shoulders between 13.80 and 14.20. If this level is cleared, the next resistance resides at 15.50 and 16.00. If Silver tries to test the 15.50 level, the next pattern should reveal itself. I am guessing it will be another head and shoulder formation and perform the usual 3 dollar high to low game. The number 16 is really the only game in town for Silver.

If 16 is broke on the upside, 26 will be fully in play.

The International Forecaster 18 July 2009 by Robert Chapman

Goldman Sachs raking in massive profits, growth in high-frequency trading, bogus CPI figures, subprimes still being sold off, the need for financial policy reform cannot be overstated, PIMCO Paul McCulley has ideas for the economy, clamor for another stimulus package, zero hedge is a bad recommendation

Due to the fact that Goldman Sachs is currently the favorite of Washington they are raking in massive profits during a time when most banks and brokerage firms are struggling for survival.
Due to a very successful second quarter, Goldman has set aside $226,156 per employee in compensation – a 75% increase per employee. That means annualized compensation could be $1 million per employee for the year. We find this of great interest inasmuch as the recently converted bank received a $10 billion taxpayer bailout via Goldman’s connections in Washington. They also received a myriad of benefits from several other government schemes over the past two years. It is nice to know that in part American taxpayers made this possible while unemployment is running on a U6 basis at 20.5%, and Americans are losing their homes by the millions.
Pay surged 75% in the second quarter and compensation and benefits costs were $6.65 billion, up 37% from the equivalent quarter in 2008.
The immense profits of 33% were mainly due to trading profits of $2.7 billion. Goldman made up 24% of the Black Box program. Program trading made up 73% of all NYSE trading.
High frequency trading is one of the fastest-expanding strategies on Wall Street. The Street is no longer a place of raising capital, but a vast gambling casino. This is moral hazard at its utmost. Needless to say, the most egregious example is Goldman Sachs. A perfect example of too big to fail as an owner of the Fed. There is no question its activities distorts markets. They are leaders in credit default swaps and taxpayers bailed out Goldman via AIG for $13 billion that you were allowed to pay for. In addition, Goldman is the world’s largest insider-trading hedge fund and they are kings of crony capitalism. Almost everything this conglomeration of crooks are involved in is to the detriment of the US economy and the American people collectively. They rig markets with the complicity of our government who they have bought and paid for. They are master manipulators and creators of bankruptcies.
Then we have the arrest of Russian-American programmer Sergey Aleynikov, who allegedly tried to steal Goldman’s secret code to unlocking Goldman’s method of front-running stock, and commodity trades. This platform, that we were told came from the government, allowed rapid fire trading of stocks and commodities. In fact, the industry considers such activity as front running. In this process Goldman says there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways. If that is the case, what is to stop Goldman from doing the same thing? Did they manipulate markets? Their earnings say they did. Goldman was able to read data on trades before it’s committed, and place their own buys and sells according to that nanosecond, thus, allowing them to essentially steal boatloads of money every day from the traders and others worldwide. Goldman was able to front-run any transaction, stealing pennies in each transaction.
The criminals here may be both Sergey and Goldman or just Goldman. We’ll probably never know because the Illuminati protects their own. One thing is for certain and that is that Goldman won’t be using that program any more and markets could well return too normal. All such kinds of market manipulators have to be stopped. The FBI has to get to the bottom of what has really transpired here.
The bogus CPI figures were released for June up 0.7%, the largest increase since July 2008.
The surtax on incomes of $280+k for healthcare will kill small biz, which creates something like 70% of new jobs.
The surtax on wealthier Americans would be imposed based on adjusted gross income, meaning it would also apply to capital gains and dividends, which are currently taxed at a 15 percent rate.
Pollster Frank Lutz says public support for Obama Care has fallen 10 points in the past 3 weeks. That’s why Team Obama is trying to jam it through now – before public dissent chills Congress.
Wells quietly sells $600 million in troubled subprime loans The industry publication said the loans sold for 35 cents on the dollar, about double what most hedge funds were offering.
National Mortgage News: How exactly did the publicly traded Wells wind up with so many crummy non- prime loans from these once highflying firms? Answer: I don't know and Wells isn't talking.
Perhaps one reason the PPIP (Public-Private Investment Program) and the Federal Deposit Insurance Corp.'s 'Legacy Loan' sale initiative (involving whole loans, presumably residential and commercial mortgages) hasn't caught fire is 'sunshine,' that is, the concept of disclosure. If bankers and investment bankers use these government programs that means all the messy details of their crappy investments might see the light of day, which could anger shareholders — and maybe even board members who might lean toward being "activists.
No matter how you do the math, Wells is going to take a nice hit on the sale, if it hasn't done so already. Will the public ever get wind of the NPL sale price (outside this story)? That's hard to say. The Securities and Exchange Commission requires that publicly traded companies disclose "material events" in their 10-Qs and Ks but when you have a mega bank the likes of Wells a $600 million loan auction might garner a sentence in the next earnings report, at best.
Goldman’s record quarter was partly the result of increased leverage and exposure. Why was Goldman allowed to lever up? (Yeah, we all know why.) Zereo Hedge: Why Does Goldman Need A Fed Exemption For VaR Calculations? Lately the topic of Goldman's VaR has taken on significant prominence, not least because as Zero Hedge disclosed yesterday, it hit a record high.
The clue may come from a February 5 letter by the Federal Reserve to Goldman CAO Sarah Smith.
The letter had come in response to GS requests for "temporary exemptions from the application of certain aspects of the Board's Market Risk Rules for state member banks and bank holding companies and the Board's general risk-based capital rules for bank holding companies."
Citigroup is close to a secret agreement with one of its main regulators that will increase scrutiny of the US bank and force it to fix financial, managerial and governance issues.
Pacific Investment Management Co.’s Paul McCulley said the Federal Reserve should push inflation above its long-term target to coax consumers to spend money if the U.S. economy stays mired in recession.
“The way to make monetary policy effective is for the central bank to promise to be irresponsible,” McCulley wrote in a July commentary posted to Pimco’s Web site, citing a 1998 paper written by Princeton University economist Paul Krugman.
“Radically” different central-bank policy may be needed to change inflation expectations if the U.S. economy starts to resemble Japan’s era of deflation, McCulley wrote. He said the U.S. economy is not currently suffering from deflation. In addition to Krugman’s paper, McCulley cited a May 2003 speech by Fed Chairman Ben S. Bernanke as a blueprint for policy.
McCulley and his colleagues at Newport Beach, California- based Pimco, the world’s largest bond fund manager, have forecast a “new normal” in the global economy that will include heightened government regulation, lower consumption and slower growth. The U.S. government may need to enact a second stimulus plan to spur growth in the coming months, McCulley said July 7 in an interview with Bloomberg Radio.
If consumers and businesses continue to hoard cash, monetary policy makers may need to boost inflation until prices are as high as they would have been without deflation, McCulley wrote.
Commuter traffic on the Port Authority of New York and New Jersey’s bridges, trains and tunnels dropped “significantly” in the first half of 2009 as job losses mounted, the authority said today.
Volume on the authority’s six crossings between New York City and New Jersey fell 3.1 percent to 59.4 million vehicles from the same period a year ago, with Lincoln Tunnel traffic dropping 5 percent, the agency said in a statement. Ridership on the agency’s PATH trains declined 3.5 percent to 35.7 million.
Truck traffic dropped 11.2 percent to 3.8 million in the first half, costing the authority $3.6 million in toll revenue.
The average length of unemployment is higher than it's been since government began tracking the data in 1948.
Goldman Sachs, the Wall Street leviathan that is heavily invested in the cap-and-trade carbon market scam, has admitted it has developed and used software that can manipulate such financial markets.
From the mortgage bubble, Goldman learned an important -- and very valuable -- lesson: Government policies, especially if shaped by a network of former Goldman officials, could be used to create vast profits, indeed whole markets.
Having survived, thanks to the million-dollar bailout from Obama and the Joyce Foundation, the Chicago Climate Exchange went on to merge with Climate Exchange Ltd in 2006. Goldman Sachs took a 10% stake in the firm at the time and later increased its holdings to at least 19%. CCX is also 10% owned by Generation Investment Management, a firm founded and chaired by Al Gore and co-founded by the above-mentioned former Goldman CEO, Hank Paulson.
There was a great clamor last week for a second Federal stimulus - because the first one wasn't working. President Obama threw cold water on that idea over the weekend, when he rejected calls for a second stimulus and suggested that we need to be patient and give the first stimulus time to work.
Well, President Obama will soon be changing his tune, says our guest Gary Shilling.
By the third or fourth quarter, Gary says, the government will launch a second stimulus. Next year is an election year, and despite ballooning deficits, politicians won't sit idly by and watch themselves not get re-elected because the economy has failed to recover.
The second stimulus will finally trigger an economic recovery...but it won't happen until next year.
In the meantime, Gary thinks, the stock market will crash again, with the S&P dropping 35% to 600.
More than 175 prominent economists warned that politicians' attacks on the Federal Reserve are putting "the independence of U.S. monetary policy…at risk," and urged Congress to back off lest it undermine the Fed's ability to manage the economy and thwart inflation.
The 185-word petition, initiated by a band of academic economists, reflects growing unease among professors, former Fed officials and some investors that the vehemence of the criticism from Congress of the Fed's handling of the financial crisis suggests a readiness in Congress to weaken the freedom the Fed has to move interest rates as it sees fit.
The US Federal Reserve believes that the recession will end “before long” but predicts that unemployment will remain at high levels for several years to come.
Members of the federal open market committee raised their forecasts for unemployment, according to minutes from their last meeting three weeks ago, and now expect it to reach between 9.8 and 10.1 per cent in the last quarter of this year. They expect it to remain at about 9.6 per cent next year and 8.5 per cent in 2011. [How can the economy improve if unemployment is rising?]
The House proposal aims to extend insurance coverage to 37 million Americans over the next decade, covering more people through Medicaid and providing subsidies to help others meet a new federal mandate to purchase insurance. Democratic aides said the proposal would cost more than $1.2 trillion over the next 10 years, and would ensure that 97 percent of Americans were enrolled in a health plan by 2015.
About half of the cost would be covered by reducing spending on federal health programs, primarily Medicare, which serves the elderly and the disabled. But much of the rest of the money would come from a new tax on families earning more than $350,000 a year and individuals earning more than $280,000. The taxes, which would take effect in 2011, would affect about 2.1 million taxpayers, the nonprofit Tax Policy Center projected.
The surtax would start at 1 percent and rise to 5.4 percent on income exceeding $1 million. Combined with the expiration next year of tax cuts enacted during the Bush administration, the surtax would drive the top federal tax rate to 45 percent, the highest level since lawmakers rewrote the tax code in 1986.
House leaders defended the plan by saying it targets those most able to pay -- the wealthiest 1.2 percent of households -- while honoring President Obama's pledge to protect the middle class from higher taxes.
Mortgage applications in the U.S. rose for a second week as the lowest borrowing costs since May propelled a surge in refinancing.
The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 4.3 percent to 514.4 in the week ended July 10, from 493.1 in the prior week. The group’s refinancing gauge jumped 18 percent, while the index of purchases fell 9.4 percent.
“We will see more refis as rates come down,” Robert Dye, a senior economist at PNC Financial Group in Pittsburgh, said before the report. “It’s nice to see mortgage rates coming down; that’ll be a linchpin for the recovery.”
Lower monthly mortgage payments will help limit the damage to household finances caused by mounting unemployment and sinking home values. Economists are incorporating an easing in the housing slump, now in its fourth year, in their forecasts of an economic recovery in the second half of 2009.
Today’s report showed the mortgage bankers’ refinancing gauge increased to 2,009.4 from the previous week’s 1,707.7. The purchase index fell to 258.8 from a three-month high of 285.6 the prior week.
Combined sales of existing and new homes climbed to a 5.1 million annual pace in May, the highest level so far this year. Purchases slumped to a 4.8 million pace in January, the lowest level since comparable records began in 1999.
Pending Sales
In another sign the housing slump may be bottoming out, a July 1 report from the National Association of Realtors showed the number of Americans signing contracts to buy previously owned homes rose in May for a fourth consecutive month.
The share of applicants seeking to refinance loans climbed to 54.9 percent of total applications last week from 48.4 percent.
The average rate on a 30-year fixed-rate loan fell to 5.05 percent, the lowest level since the week ended May 22, from 5.34 percent the prior week. The rate reached 4.61 percent at the end of March, the lowest level since the bankers group’s records began in 1990.
At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $539.88, or about $74 less than the same week a year earlier, when the rate was 6.22 percent.
The average rate on a 15-year fixed mortgage fell to 4.59 percent from 4.83 percent the prior week. The rate on a one-year adjustable mortgage decreased to 6.47 percent from 6.58 percent.
Reporting from Washington -- Despite evidence that banks are regaining their health, the Treasury Department is pressing forward with a highly controversial program to help finance purchases of toxic assets that were at the heart of the nation's plunge into economic chaos last year.
There is no genius in what Goldman Sachs has been doing. They control our government in that they were able to get the latest version of the Inslaw/PTECH/PROMS software and front run the market including their own clients, and too, at the same time fulfill the demand of the “Working Group on Financial Markets” in manipulating our stock and commodity markets. These people are lowlife, white collar, scum. Goldman Sachs is simply a criminal enterprise as is our government.
We are two years into the credit crisis and the commercial credit market continues to shrink. This is where business and manufacturing borrow money on a short-term basis to fund projects. As of July 15th, funding fell $39.7 billion to $1.098 trillion, off from the prior week’s $1.136 trillion. It peaked in August 2007, at $2.2 trillion. That is off 26% in nine months, or $1.1 trillion.
The May net TIC figure was minus $66.6 billion versus minus $38.0 billion in April. That capital has been flowing out of the US for four of the last five months.
MGIC has stopping writing mortgage insurance, because without 20% down it’s unprofitable. The housing and mortgage business are still in freefall and tight credit won’t loosen up anytime soon.
The NAHB, the National association of Home Builders, was 17 in July, up from 15 in June. They obviously see stabilization, which escapes us. They must be overjoyed over the $8,000 taxpayer subsidy tax credit for first time buyers; 60% or more of which will have loan failures. These are almost all subprime loans carried by the FHA, or the American taxpayer. Recovery cannot take place until the foreclosure crisis and the giant inventory overhead is wiped out and that will be in 2013 at the earliest. In 2011 and 2012, we are going to have another subprime crisis. Government did not lean anything.
CIT Group bondholders are discussing whether to swap some of their claims for equity to reduce CIT’s indebtedness. The company needs $6 billion in cash. They have already received $2.33 billion from the taxpayers via the Treasury.
On Thursday the Fed’s balance sheet rose $80.2 billion to $2.07 trillion, basically on a purchase of $64 billion of MBS, mortgage based securities, from banks.
In addition the Fed monetized $1.5 billion of TIP’s. It also monetized $7.5 billion of two and three year paper on Tuesday.
The July employment Report should be terrible. Last year the B/D model only created 25,000 jobs. Over the past three months the B/D ratio created 210,000 jobs per month. That means July’s number will be between 500,000 and 800,000.
Last month in Long Beach, CA loadings inbound fell 23.5%. Outbound was off 26.9% and empties fell 15.1%. The total was off 22.4%.
It didn't take long to run into an "uh-oh" moment when reading the House's "health care for all Americans" bill. Right there on Page 16 is a provision making individual private medical insurance illegal.
The provision would indeed outlaw individual private coverage. Under the Orwellian header of "Protecting The Choice To Keep Current Coverage," the "Limitation On New Enrollment" section of the bill clearly states:
Except as provided in this paragraph, the individual health insurance issuer offering such coverage does not enroll any individual in such coverage if the first effective date of coverage is on or after the first day" of the year the legislation becomes law.
So we can all keep our coverage, just as promised — with, of course, exceptions: Those who currently have private individual coverage won't be able to change it. Nor will those who leave a company to work for themselves be free to buy individual plans from private carriers.
From the beginning, opponents of the public option plan have warned that if the government gets into the business of offering subsidized health insurance coverage, the private insurance market will wither.
Drawn by a public option that will be 30% to 40% cheaper than their current premiums because taxpayers will be funding it, employers will gladly scrap their private plans and go with Washington's coverage.
Zero Hedge: The CNBC Business Model - With the recent elimination of anything even remotely approaching journalistic rigor or analysis, and its substitution with endless propaganda and the pitching of "hope" as an investment conduit, many have been scratching their heads over the question of just how
it is that CNBC is still on the air, let alone make money: after all selling hope is a very expensive process.
I provide the answer.
Below is an early segment from CNBC in which Joe Kernan provides his analysis of Schwab's just released results. As the video quality is pretty bad (yeah, I know, sorry) I will summarize how it works:
1. Intro - Kernan: Glowing review of Schwab's EPS "beat"
2. Kernan: "Schwab is a fine, fine company and a fine individual."
3. Kernan: "...and quite a sponsor for us."
4. Kernan: "...and we are ready to just be sponsored on Squawk Box."
5. Conclusion - Kernan: "...I don't think you can have too much [of Schwab]."
6. Cut to Charles Schwab Commercial.
So now you know.
http://zerohedge.blogspot.com/
Treasury officials say the program is still needed because the assets -- complex securities on the balance sheets of banks that have virtually no market to trade in because they are so difficult to value -- still pose a threat.
"The outcry from those in need of loans is substantial," said Lee Sachs, special advisor to Treasury Secretary Timothy F. Geithner. "We need to keep taking steps to help regenerate credit creation in this country.
But some outside critics say the government has moved so slowly to address the toxic assets that the problem is largely fixing itself and that the program's design from the very beginning was so complex that it was bound to fail.
California’s credit rating, the lowest among U.S. states, was cut for the second time in as many weeks as lawmakers and Governor Arnold Schwarzenegger met behind closed doors to resolve a ballooning budget deficit that left the state paying bills with IOUs.
Moody’s Investors Service yesterday lowered California’s credit rating two steps to Baa1 from A2 and said its evaluation may be reduced further unless legislators quickly solve the cash crisis. The announcement was made as Schwarzenegger retreated to his Sacramento office with legislative leaders yesterday for seven hours of talks over how to fix a $26 billion deficit. The negotiations are scheduled to resume later this afternoon.
Michigan's unemployment rate for June of 2009 jumped to 15.2%. That's a 1.1% increase over the prior month.
Rates usually climb or fall by a few tenths of a percent. It's rare to see such a substantial increase or decrease.
But experts say the struggling economy combined with the ailing auto market means Michigan has been hit harder than other states.
International demand for long-term U.S. financial assets fell in May, as Russia, Japan and Caribbean banking centers trimmed their holdings even as China stepped up its purchases.
Total net sales of long-term equities, notes and bonds were a net $19.8 billion in May, compared with buying of $11.5 billion the month before, the Treasury said today in Washington. Monthly foreign investment flows dropped $66.6 billion in May, compared with a decline of $38 billion in April.
While Treasuries have been a haven for investors during the credit crisis, emerging economic powers continue to question the dollar’s status as the U.S. runs up record debt to fund the economic recovery. At a Group of Eight summit last week in Italy, China repeated calls for a “diversified and rational” global currency regime. Russian and Brazilian officials said the issue may come up at the wider G-20 forum in Pittsburgh in September.
“We still need the foreign capital,” David Wyss, chief economist at Standard & Poor’s in New York, said before the report. “We’re still borrowing. It’s important to see a significant inflow.”
China, the biggest foreign holder of U.S. Treasuries, increased its holdings of government notes and bonds by $38 billion to $801.5 billion. Holdings in Hong Kong also increased. Japan, the second-biggest international investor, reduced its total by $8.7 billion to $677.2 billion. Russia’s holdings fell $12.5 billion to $124.5 billion. Holdings at Caribbean banking centers also fell, declining by $9.9 billion to $194.8 billion.

Imminent Erosion of USDollar Seawall by Jim Willie

The globe is losing patience with leadership and management of the USGovt ship at sea. They simply refuse to offer a credible solution to the primary keynote crack in the hull, falling housing prices and cratered mortgages, each of which work their destructive magic to wreck the banks. The home loan modifications are a farce, a travesty not designed to modify but rather to frame a series of loan forbearances. The motive for not fixing the mortgage mess is mysterious to the masses, but not here. Jackass claims have been consistent, that effective loan modifications would alter the underlying mortgage bonds drastically. The Powerz wanted enough time delay to rejigger as many mortgage bonds as possible into new securities, thus rendering impossible any legal challenges to the original mortgage package process that was loaded with fraud to the hilt. Any drastic alteration of mortgage bonds would reveal vast fraud of two types. Many mortgage bonds did not have clearly certificate property titles with careful registrations. And then the coyote ugly part, that many mortgage bonds were simply counterfeits sold into a frenzy filled credit market designed to process the most vile vermin on paper. The USDollar is vulnerable here and now, as a new wave of bank losses is imminent from numerous types of mortgages along with some basic types. Let's see if the grapevine is correct, that the USDollar will begin to see a trashing initiative starting this weekend, out of Asia. They must be impatient beyond description. This autumn is expected to see some rather tumultuous events unfold, as the US financial structures are breaking across most of its ramparts even as loyalty to it is fading like a mist. There will be no return to the US of yesteryear, only a tragic march.

One surely struggles mightily where to begin to describe the incredible weakness, confusion, corruption, and lopsided interests when it comes to managing the USEconomy and US banking system. The recovery is a hobbled man taking a rest on a couch in the morgue waiting room. The nonsensical Green Shoots of recovery are recognized as a painted mirage at worst and error due to faulty information at best. More like a congame to sell bank stocks at inflated prices, an act difficult to repeat. The Stimulus Plan apparently has very little stimulus inside it, and 75% of its ummph is planned for next year. The US Federal Reserve is fighting disclosure of not only its balance sheet but its disbursement of TARP Funds. Imagine a silly setup where Congress cannot find out what its central bank is doing, when acting as its own contractor, how ludicrous! Perhaps claims for independence should really be packaged in executive privilege like Nixon did, to conceal crimes. Appeal to the US Supreme Court might take a long long time, since they enjoy three months vacation in summer. When a Constitutional challenge of the USFed as Congressional contractor does find its way to the august high court, we will find out how compromised they are also. Images of "The Pelican Brief" by John Grisham come to mind, violence upon bench justices in the winds.

NO! NOT THE VENERABLE GOLDMAN SACHS!

So Goldman Sachs was allegedly caught with their clever Ultimate Insider Trading software, whose handy Unix boxes monitor trade orders at the New York Stock Exchange. The secured information was then in microseconds used to create rafts of computer trade orders intended to snatch pennies per trade but with hundreds of millions of shares, enough to log beaucoup profits at quarter's end. Yes, GSax has plenty of expertise, just maybe not the legal kind. They might have taken insider trading to a new level worthy of the history annals. The supposed smarter than genius cadre really screwed up when they admitted the code and the trade program could be used to manipulate markets. So the public and authorities must believe that the venerable Goldman Sachs could gather illicit trading profits, had the capability to gather illicit trading profits, but did not gather illicit trading profits. Finally, the masses have some evidence of how GSax has managed to beat the market consistently. They appear to have front-run the NYSE stock market, and brazenly defy the prosecutors because they might exert considerable control over them. Thanks to their strong control of most USGovt financial apparatus, the FBI helped to contain the problem. The only trouble is that London and Germany have their hands on the software, and might actually reveal its inner workings. One can only hope they reveal more about it than exploit its usage further. Is this a trade secret issue or a crime secret issue? You decide! One might wonder if GSax might become too distracted and preoccupied with managing the leak, so that they take their eye off the five game fields they attempt to control. One colleague claims the Powerz are stuck managing bigger and heavier and more numerous balls in a vast juggling act bound to end.

RESTLESS US CREDITORS BEING DECEIVED

Patience has almost run out in the minds of foreign creditors, exhibited by their words and actions. They observe many events, many programs, many directives, many speeches. The do not, however, see much change in the course of the USGovt ship at sea. It remains aground. If observant enough, they can detect how the USDept Treasury and comrade in arms the USFed have used the foreign central banks to quietly bid for USTreasurys at auctions. The auctions were doing very poorly in May and June until foreign central banks stepped up to the plate. The major question unasked and unanswered is whether the USFed gave foreign central banks the USDollars with which to bid up the USTreasurys at auction. My belief is obviously yes, for three reasons. First, the USFed was struggling at auctions with rising bond yields and bad publicity. Second, the process was applying sufficient pressure to their own stable of primary bond dealers, which was sitting on over $360 billion in gradually lower quality bond inventory, to bring down their own dealer network. Dresdner Kleinwort exited the dealer network, but two Canadian big banks entered (or are entering) the dealer network motivated by grave stupidity. See Toronto Dominion and Royal Bank of Canada. Third, they have the means, they have the ability, they have the sway, they have the bold defiant arrogance. The US banker syndicate can rejigger the Indirect Bidder definition, but that is but a small smokescreen that fades by noontime. Notice how Indirect Bidders (largely foreign central banks) grabbed over half the USTreasury supply with a participation rate of 54% in a recent purchase of $18.878 billion of the $35 billion for sale. Thanks to the superstar Greg Weldon for the chart. His work is unrivaled, although his boasted rugby play was without a helmet.

(Click on images to enlarge)

China has been the principal spokesman for challenging the USFed in the monetization of USTreasurys, a reckless but unavoidable practice. The Beijing objections are motivated by a steadfast refusal to permit the USGovt to inflate the debts down at a time when it would be impossible to inflate them away. The task reminds one of Sisyphus, who was compelled to roll a huge rock up a steep hill, but it would always roll back down again when he rested, forcing him to repeat the arduous task. The USGovt financial stewards must deal with multiple huge rocks, as each month produces new auction volume. So the answer to the riddle appears to be HIDDEN MONETIZATION. If foreign central banks used their own money, a strong USDollar response would surely have come, since the volume of the USTreasury auctions each week is larger than the typical monthly volume a year ago.Would the USFed set up accounts in foreign locations for the purpose of bidding on its own USTBonds secretly? Obviously yes. They already set up vast USDollar Swap Facilities last October in foreign locations. This ugly deception will leak out in time. Besides, the declining IMF reserves data seems to contradict the USFed claims of not monetizing. The impact will be felt upon the USDollar initially, since the weaker sister of the incredibly ugly Siamese Twins will be vigorously defended like the Alamo. That would be the attached USTreasurys.

BANKS BRACE FOR NEXT CRUSHING WAVE

Details are provided in the July Hat Trick Letter, the Macro Economic Report just posted this week, on the plight of the banks. They must contend with rising prime delinquencies, rising commercial loan defaults (due to 35% property valuation declines and no funding facilities), rising Jumbo mortgage defaults, rising home equity loan defaults, and the advent of the major wave of Prime Option ARM defaults. Let's not leave out rising credit card defaults, and the unprecedented wave of small business bankruptcies. The two big assaults will clearly be delivered by the commercial loans and Prime Option ARMs, but Jumbo losses might creep up to challenge for the top ignominy. The insane Option mortgage loan is the major time bomb that finally has entered the building for bankers. Here is a shocker statistic, one that Dr Ben (the Boob) Bernanke should read carefully, given his stated belief in summer 2007 that the credit crisis was contained within the Subprimes. My contention immediately in response was the credit crisis was an ABSOLUTE BOND CRISIS, touching all bonds of all types, sure to be clear. It is now clear. The continued spike in the delinquency rate is growing worse for prime mortgage loans. Their DQ rate has risen astoundingly in the last three years, spiking to nearly 5.94% in May. The combination salvos will be deadly. The banks masquerade as solvent, but are not, despite the Stress Test charade. With the phony accounting rule change to help lift the bank stocks, they were able to fleece investors with overpriced stock sales on dead banks. Not again, it is sleepy times for the big banks!

Big banks will have a major obstacle in pulling off the Grand Consolidation game. They are hoarding reserves, placing them under the watchful care of the USFed, even gaining a paltry interest. The big banks probably are lying in wait like lions, watching and waiting for the regional banks, the mid-sized banks, to suffer painful commercial loan losses. Then the big banks will swoop down and acquire the regional banks at distress level prices, using their vast funds held at the USFed. THIS IS THE GRAND BANK CONSOLIDATION PLAN. Recall that the banking system has 96% of its reserves sequestered at the USFed. The USDept Treasury under syndicate boss Paulson ordered the participating TARP fund recipients not to open the loan gates, but rather acquire banks over time patiently. So we have some hint of intentions. THE ONLY PROBLEM FOR THE BIG BANKS IS THEIR IMMINENT RUIN FROM MAJOR ADDITIONAL CRIPPLING LOSSES FROM ABOVE CITED SOURCES. They might masquerade as healthy solvent banks, but they are actually large seaside cottages whose foundations washed away to sea long ago. The pillars visible to the beachcombing public are mere facades. Their attempts to put fresh paint on the facades do not work, since one cannot apply paint to an underwater surface.

The big banks have generously agreed to assist the State of California in the IOU coupon issuance. JPMorgan Chase, Bank of America, Wells Fargo, and Union Bank consented to accept the registered warrants as they are officially called, until last Friday July 10th. The IOUs ain't legal tender, but interest bearing warrants in coupon form. Hmm! No Constitutional challenge there! The $3.4 billion in such coupons have floated. The process is opening Pandora's Box and raises numerous questions. Big banks do not carry large exposure, but the development is one more log on a burning bonfire. Thanks to local Californians who supplied rich information, the July report covers some interesting angles. A side market, for instance, has emerged on Craigslist even after eBay was blocked by the intrepid lapdog SEC. In some cases taxes can be paid with these IOU coupons. Reminds me of a circus with numerous tents. The other tents feature migrant workers who have begun to demand cash sent from Latin American home areas, never seen before. The mortgage foreclosure endless wave of destruction continues to wreak havoc upon California. The state is one of the most besieged, with metropolitan Los Angeles the epicenter for damage. As property values continue to fall, now at nearly 40% in the Golden State, its economy and households and banks all suffer death throes, with no exaggeration.

BRACE FOR BANK SHUTDOWN

Harry Schultz and Bob Chapman have revealed some harsh plans for a temporary US bank system shutdown on or about September 2009. The story has been promoted by Peter Brimelow on MarketWatch for further publicity. See "Latest Schultz Shock: a Bank Holiday" which explains the US State Dept tipoff to the many US Embassies. (CLICK HERE) The July Hat Trick Letter cites multiple confirmations solicited and given. My analysis goes on about speculation as to the motive, implementation, cover for criminal activity, and market impact. The USDollar would likely suffer a sudden quantum drop devaluation, followed by incredible pressure to avert USTreasury default. Despite the mockery in my email inbox for over two years, this inevitable inexorable disaster of upcoming USTreasury default is unfolding like a path growing more narrow and treacherous, with marauders on the hillsides lobbing Paulson Cocktails (ala Molotov) from strategic high ground. The creditors will show their strength very soon, very soon indeed! The unintended consequences would be endless, not the least of which might be final declaration of state of emergency state by state, or martial law nationally. Attempts at capital controls should be on the table of discussion soon, but that comes with a monumental backfire waiting to happen, as implementation seems next to impossible in less than two years time. Look for implementation of numerous plans to be circumvented by the reality of market forces, like elimination of the IRS-enforced income taxes in favor of a Value Added Tax nationally.

CHAOS WILL PREVAIL WITHIN SEVERAL MONTHS, PERHAPS A YEAR AT MOST. My deep suspicion is that a bank holiday would enable the forced merger of reasonably healthy banks across the nation with the dead zombies on Wall Street, to further spread their cancer. Never pass an opportunity of darkness to snatch and pinch bank deposits under the generous pressure exerted by the USGovt, in writing a new chapter to the Mussolini Fascist Business Model. On the more local level, as my friend SteveK says, "It is my belief that as the system continues breaking apart the so-called 'authorities' will not have the resources to cope. Not even close. Chaos will reign, especially in places like East Los Angeles." Total agreement here. In fact, the breakdown will offer greater opportunity to the Powerz in (claimed, supposed) control for wildly amplified flow of rescue funds, even more to corner, confiscate, and steal. See the Iraq Reconstruction Fund, where $50 billion is missing. See the Hurricane Katrina Fund, where one dollar in three was marked as the object of fraud.

USDOLLAR VULNERABLE

The USDollar is at grave risk of washing out to sea with the historically unprecedented flood of liquidity, urged on by monetization, concealed by hidden collusion. The derelict USGovt ship at sea is due to suffer the double disaster of seeing its USDollar mooring wash away. High waves from rampant insolvency, and high winds from global revolt render it extraordinarily vulnerable. The great reversal outlined in previous articles all spring and early summer has not gone away. It has gathered strength, built energy, and prepares to resume its downward descent into a very dark place. A collapse is at risk, but not until the 72 support level is knocked out and broken. The cyclical indexes all look horrible. The attempt at recovery in the US$ DX since May has been weak, without gusto, lacking follow through, not up to the hype, and evidence of imminent powerful decline. Time has run out on the important technical crossover, closely watched all these months. The faster 20-week moving average (in blue) is very close to crossing over and below the slower 50-week moving average (in red). When it clearly crosses over, the loud bear signalwill have been given, for ALL OVERBOARD in the abandonment of the broken bloated mismanaged fraud-ridden warmongering corrupted USDollar. It drags down the global economy and brings ruin to any nation stubbornly wedded to it, for richer or for poorer, willingly or not. When the breakdown resumes, gold & silver will rise. When the breakdown takes the US$ below the important 72 level, then gold & silver will be unleashed to rise to levels not imagined in years.

The acceleration to their rise will come upon arrival of the long-awaited surge in price inflation, which will surprise many. The outcome will be a powerful perverse stubborn Inflationary Depression, already giving a glimpse. Few with wits to claim argue that the nation flirts with a depression anymore.

Jul 16, 2009
Jim Willie CB