Monday, September 1, 2008

Here's why the dollar has rallied in the last 5 - 6 weeks and as Jim Sinclair says below, "someone is going to get stuck holding the bag". 

As a side note, I called my local precious metals dealer on Friday and asked them how their silver and gold supplies were looking.  I was informed that silver is "very hard to find now" and while they do have gold, they don't have nearly as much as they like to have on display.  Apparently the rumors about silver and gold shortages are true.  If you're looking to get your hands on some silver or gold, you might want to hurry.

Foreign Central Banks Behind Rally in U.S. Treasuries

By Jim Sinclair
www.JSMineSet.com
Thursday, August 28, 2008

If anyone wants to know why bonds have been going nearly straight up since the middle of July, just look at the charts linked here:

http://www.jsmineset.com/cwsimages/Miscfiles/6489_Charts_for_8-28-2008_C...

The first is federal agency debt holdings in the New York Federal Reserve's custodial accounts. The second chart is U.S. Treasuries holdings in those same accounts. The third is total holdings in the custodial accounts.

Foreign central bank holdings of U.S. federal agency debt holdings hit a high of $986 billion reported on July 17 this year. This week's data shows that those same foreign central banks are now down to $968 billion. In five weeks foreign central banks have sold $18 billion of U.S. federal agency debt.

Over that same period they have increased their holdings of U.S. Treasury debt from $1.363 trillion to $1.441 trillion, an increase of $77.33 billion!

For the entire five-week period beginning July 17 to the present week, total custodial holdings have increased $59.71 billion.

Foreign central banks have been busy unloading U.S. federal agency debt and acquiring U.S. Treasuries in its place and then some. One would easily get the idea that they do not feel comfortable with federal agency debt anymore. Even a cursory glance at the agency debt holdings chart shows that the last five weeks have seen the largest drop in this category over the life of the data series I am using. While we have seen reductions in their holdings from week to week on occasion over the data range, this is the first time we have seen a reduction in U.S. federal agency debt holdings that has continued for this length of time.

As a side note.... The huge amount of U.S. Treasury purchases that has sent that chart nearly vertical helps to explain the continued rally in the U.S. dollar. It is a near certainty that something has been transpiring behind the scenes involving various central banks in regard to the U.S. dollar. Should any of this foreign central bank buying abate for any reason, the dollar will lose all support immediately. With yields on U.S. Treasuries headed firmly lower, only a foolish investor would see bonds or notes as a safe haven, given what we all know about the real rate of inflation here in the United States in contrast with the absurd and insulting numbers that the knavish Feds are dishing out.

I repeat my main assertion: Foreign central banks are behind the rally in U.S. Treasuries, and as a consequence the rally in the dollar. How much longer they remain willing to play this gambit is unclear, but one thing is not at all murky: Someone is going to get stuck holding the bag.

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Thursday, August 21, 2008

The Eagle Has Been Grounded

Mint Halts Gold-Coin Sales After Supply Depleted Amid Price Drop

By Ianthe Jeanne Dugan
The Wall Street Journal

As gold prices tumbled from their highest level ever, investors and collectors loaded up on one-ounce "American eagle" gold-bullion coins. The buying spree came to an abrupt halt this week after the U.S. Mint stopped selling the coins for the first time since production began 20 years ago.

"Due to the unprecedented demand ... our inventories have been depleted," the Mint -- part of the U.S. Treasury Department -- told its dealers Friday. "We are therefore temporarily suspending all sales of these coins."

The move shocked sellers and collectors of the coins, which are the most widely traded in the U.S. Suppliers became angry as they turned away customers. Theories about the decision's underlying cause ran rampant -- from investors in gold futures to Russia's invasion of Georgia.

"This whole thing started about the time the Ruskies made their move," a collector noted in an Internet chat room called goldismoney.info. "It may very well be that the USGovt is preparing for the real financial meltdown by hoarding all remaining gold flows."

The Mint says it simply was wiped out. It has sold 311,000 ounces of the coins this year -- about 50% more than in all of 2007. In the first few weeks of August alone, buyers snapped up 63,500 ounces.

"We are working diligently to build up our inventory and hope to resume sales shortly," the Mint wrote in a memo to dealers.

The American-eagle bullion program was launched in 1986 with the sale of gold and silver bullion coins. One-ounce coins have a face value of $50 and $1, respectively, although the coins trade close to the market value of the underlying metal. After the 2008 silver coins, known as silver eagles, surged in popularity earlier this year as silver prices rose, the Mint began rationing them.

Dealers were upset by the latest blow. "If I don't have something to sell, I lose business," says Rand LeShay of A-Mark Precious Metals, a Los Angeles dealer.

The Mint announced the suspension Friday, the day prices of gold-futures contracts -- bets on what gold will cost later -- finished below $800 an ounce for the first time this year. The drop accelerated a buying spree among investors. Gold began bouncing back and late Wednesday traded at $810.30. In March, gold futures hit a high of $1,003.20 an ounce.

American-eagle gold-bullion coins are made from 22-karat gold mined in the U.S. The front side's design was inspired by August Saint-Gaudens' $20 gold piece, minted from 1907 to 1933. On the reverse side is a nest of American eagles.

The coins are sold by the Mint to 10 dealers world-wide for a premium above the price of gold. These dealers resell the coins, which now fetch about $815.

The American Precious Metals Exchange, an online gold dealer, posted an alert about the Mint's move, generating confused and angry responses. Many customers said they were mystified because the silver-coin rationing followed a price surge, while the gold suspension followed a drop.

"The situation is strange and doesn't fit the 'normal' supply & demand economic model," the firm wrote to customers.

The Gold Anti-Trust Action Committee, an advocacy group, said the Mint's move proved financial institutions are colluding to set prices.

"The suspension is overwhelming evidence ... that the commodities exchanges are being used ... as part of a massive scheme of manipulation of the precious metals, currency, and bond markets," the group wrote on its Web site.

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Wednesday, August 13, 2008

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Tuesday, August 12, 2008

The dollar has enjoyed what the media likes to call a "rally" even though it's still far below where it should be to be considered "strong". 

Gold has suffered a fall since last week and many have said farewell to the shiny yellow metal and hello once again to the greenback. 

Have you wondered how the dollar could have gained?  Have you wondered how gold could have fallen?  Espicially in times when the Federal Reserve is printing out more money than they've ever printed before?  I wonder too.  Analysts claim various reasons but all I'm concerned with is:  Is this it, or is this just temporary?

The answer can be found in the article below.  Gold is still in a bull market and the dollar will continue to decline.  While that's not good news economically, it's good news for gold.  Right now gold is cheaper than it's been in a long time and I don't believe it will stay that way for long.

Ambrose Evans-Pritchard: Implosion of Europe will make $800 gold a bargain

Tuesday, August 5, 2008

Today, with the exception of tough talk, the Fed did nothing.  They can't do anything because their hands are tied.  If they lower rates it kills the dollar and inflation will rise even faster than it already is.  If they raise rates they kill the credit and housing industry.

All they have left is talk and they can talk until their faces turn blue but it's not going to change a thing.  The dollar will continue to fall and gold will continue to rise over the long term.

Day's like today present a great buying opportunity for those who have the cash to buy gold and as Jim Sinclair at www.jsmineset.com says, "stay away from Margin"!  Margin will kill you!

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Thursday, July 31, 2008

Over-the-counter derivatives (OCD's) are like a virus.  When you get a virus it waits there until it finds a weak spot and when it does find that weak spot, the virus thrives there and weakens your body.  Your body becomes weaker and more weak spots develop and the virus takes advantage of those new weak spots. 

Some might think that had they taken better care of themselves, they might not have come down with that nasty virus and even if they did, they wouldn't have gotten nearly as sick as they are.  The economy was gorging itself and partying non-stop.  It didn't take it's medicine and now the party is over.

The housing crisis is but one weak spot.  The virus found it a nice place to thrive.  The economy is weakening and when new weak spots develop you can bet those OCD's will show up and cause more trouble.  We've got a long, long way to go before we break that fever. 

For more information on those letal, viral OCD's and how to protect yourselves, check out Jim Sinclair's www.jsmineset.com

America's house price time bomb

By Michael Robinson BBC World Service   With the American housing market in its worst crisis since the Great Depression of the 1930s, President Bush is authorising new legislation to pave the way for massive new government intervention designed to slow the slide. Banks in the US could end up owning ever more houses The intervention would come as a little known quirk of US law threatens to drive down house prices even faster. Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages. In May 2006, at the height of the housing boom, Karen Trainer bought a $500,000 apartment in California - with money borrowed from her bank. By this year, Karen still owed $500,000 on her mortgage, but her apartment was worth $200,000 less. So she was deep in negative equity and, to make matters worse, the interest rate on her loan was about to increase. "I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense." Take the hit Is the bank going to pay for my retirement because I was a good girl and paid my mortgage Karen Trainer City of debt shows US housing woe As a successful professional, Karen could comfortably have managed the higher mortgage payments her bank demanded. Instead, she decided to stop her mortgage payments altogether and let her bank repossess her apartment. Her credit record will be badly damaged by the decision, but Ms Trainer expects this to recover soon. "Generally speaking, within 5 years you are about back where you were, so my husband and I decided we'll take the hit and live with it." Over to the bank In California and much of the rest of America, there is a powerful incentive for homeowners such as Ms Trainer to walk away from their mortgage obligations. The dangers are extraordinary Professor Susan Wachter, Wharton School of Business US home foreclosures on the rise Though banks can repossess and sell the homes of borrowers who stop paying their mortgages, under a legal quirk originating in the Great Depression of the 1930s, banks cannot easily pursue borrowers for any balance outstanding on the main mortgage on their homes. Consequently, by walking away from her apartment, Ms Trainer has also walked away from the loss on her property. Her bank gets stuck with that. Unthinkable option Traditionally in America there is a social stigma attached to those who default on their debts, which should be a deterrent to walking away from your home. The housing market has become a headache for President Bush But according to Susan Wachter, professor of real estate and finance at Wharton School of Business, in the depth of this crisis the social attitudes to such actions are changing. "This is the kind of conversation that's going on at cocktail parties, at swimming pools," Professor Wachter says. "And suddenly this option which was truly unthinkable in the past becomes thinkable." Worrying development Ms Trainer says she feels no moral obligation to go on paying a loan on a property that is going to go on losing her money. She says her friends support her decision. It's a business decision for their family that the smartest thing they can do is walk away from their home Kevin Morgan, estate agent "I think people are taking a more cold-hearted look at it," she says. "Is the bank going to pay for my retirement because I was a good girl and paid my mortgage, even though legally I didn't have to?" Professor Wachter believes that, to date, most people have had their homes repossessed because they could not manage the repayments. The trend of people now positively choosing to walk away because it makes financial sense to do so is a worrying new development. "The dangers are extraordinary," Professor Wachter says. "If all that is needed is that the house value is less than the mortgage value, there is a large number of homeowners in the United States who are in that situation". No renegotiation In the city of Stockton - the foreclosure, or repossession, capital of the US for 2007 - estate agent Kevin Morgan sells repossessed houses on behalf of the banks that now own them. This is becoming a tsunami of voluntary defaults Professor Nouriel Roubini, New York University According to him, walking away has become commonplace. "I would say it's probably 70% of the volume of our foreclosures right now," he says. "It's a business decision for their family that the smartest thing they can do is walk away from their home." As a sign of the changing times, some 60% of borrowers do not even bother to contact their banks to attempt a renegotiation of their loan, Mr Moran explains. "They stop paying and they stop talking," he says. "They just plain walk away." Total disaster It is impossible to know for sure how many of the people who are now walking away from their homes could have gone on paying their mortgages. But Professor Nouriel Roubini of New York University, one of the first economists to warn of the dangers of the American house price boom, believes the number of people positively choosing to walk away is growing rapidly. "This is becoming a tsunami of voluntary defaults," Professor Roubini says. "The losses for the financial system from people walking away could be of the order of one trillion dollars when the entire capital of the US banking system is only $1.3 trillion. "You could have most of the US banking system wiped out, so this is a total disaster." Which is why it is not just US policymakers who are hoping America's new, multi-billion dollar initiative to stabilise the housing market will succeed in its aims and thus make walking away less attractive. Because if it fails, the economic fallout could be felt far beyond America's shores. Source:  http://news.bbc.co.uk/2/hi/business/7529277.stm Sunday, July 27, 2008 Analysts Say More Banks Will Fail   By LOUISE STORY Correction Appended As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail over the next year. But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next? The nation’s banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion. But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers. “Everybody is drawing up lists, trying to figure out who the next bank is, No. 1, and No. 2, how many of them are there,” said Richard X. Bove, the banking analyst with Ladenburg Thalmann, who released a list of troubled banks over the weekend. “And No. 3, from the standpoint of Washington, how badly is it going to affect the economy?” Many investors are on edge after federal regulators seized the California lender, IndyMac Bank, one of the nation’s largest savings and loans, last week. With $32 billion in assets, IndyMac, a spinoff of the Countrywide Financial Corporation, was the biggest American lender to fail in more than two decades. Now, as the Bush administration grapples with the crisis at the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, a rush of earnings reports in the coming days and weeks from some of the nation’s largest financial companies are likely to provide more gloomy reminders about the sorry state of the industry. The future of Fannie Mae and Freddie Mac is vital to the banks, savings and loans and credit unions, which own $1.3 trillion of securities issued or guaranteed by the two mortgage companies. If the mortgage giants ever defaulted on those obligations, banks might be forced to raise billions of dollars in additional capital. The large institutions set to report results this week, including Citigroup and Merrill Lynch, are in no danger of failing, but some are expected to report more multibillion-dollar write-offs. But time may be running out for some small and midsize lenders. They vary in size and location, but their common woe is the collapsed real estate market and souring mortgage loans. Most of these banks are far smaller than the industry giants that have drawn so much scrutiny from regulators and investors. Still, only five lenders have failed so far this year, including IndyMac. In 1994, the Federal Deposit Insurance Corporation listed 575 banks that it considered to be troubled. As of this spring, the agency was worried about just 90 banks. That number may go up in August, when the government releases an updated list. “Failed banks are a lagging indicator, not a leading indicator,” said William Isaac, who was chairman of the F.D.I.C. in the early 1980s and is now the chairman of the Secura Group, a finance consulting firm in Virginia. “So you will see more troubled, more failed banks this year.”...  Full Article Here ... See the dollar chart above.  Looking at that without seeing the bigger picture can be a bit misleading.  I thought today I would show you a longer term chart so you could get a better picture of how the US Dollar has done in the last couple of years.   I got this chart from www.ino.com.  Everytime it hits a new low the usual spin masters fill the airwaves with hot air about how the US Dollar has bottomed and can only go up.  Afterwards it continues to fall and seeing how nothing has changed, I would say the USDX has much futher to fall. Source:  http://quotes.ino.com/chart/?s=NYBOT_DX&v=dmax Last week it was IndyMac and now it's WAMU in trouble.  I wonder how safe those smaller, local banks are?  Do you believe all the spin you hear from the talking heads in the media?  Personally, I wouldn't "bank" on it. Each time I go to the grocery store the bill rises along with the gas I use to get there.  It's called Inflation and whether the government admits it or not, it's here and will continue to get worse long before it gets better. What fights inflation?  Gold of course.  Gold is the anti-dollar and it's been around a whole lot longer than that greenback which so many still unwittingly place their trust in. The global economy is at the point of maximum danger By Ambrose Evans- Pritchard It feels like the summer of 1931. The world's two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution. The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a "chance of a global recession". Plainly, the IMF cannot or will not offer any useful insights. Its "mean-reversion" model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True "mean-reversion" would imply debt deflation on such a scale that would, if abrupt, threaten democracy. The risk is that these same central banks will commit a fresh error, this time overreacting to the oil spike. The European Central Bank has raised rates, warning of a 1970s wage-price spiral. Fixated on the rear-view mirror, it is not looking through the windscreen. The eurozone is falling into recession before the US itself. Its level of credit stress is worse, if measured by Euribor or the iTraxx bond indexes. Core inflation has fallen over the last year from 1.9pc to 1.8pc. The US may soon tip into a second leg of this crisis as the fiscal package runs out and Americans lose jobs in earnest. US bank credit has contracted for three months. Real US wages fell at almost 10pc (annualised) over May and June. This is a ferocious squeeze for an economy already in the grip of the property and debt crunch. No doubt the rescue of Fannie Mae and Freddie Mac - $5.3 trillion pillars of America's mortgage market - stinks of moral hazard. The Treasury is to buy shares: the Fed has opened its window yet wider. Risks have been socialised. Any rewards will go to capitalists. Alas, no Scandinavian discipline for Wall Street. When Norway's banks fell below critical capital levels in the early 1990s, the Storting authorised seizure. Shareholders were stiffed. But Nordic purism in the vast universe of US credit would court fate. The Californian lender IndyMac was indeed seized after depositors panicked on the streets of Encino. The police had to restore order. This was America's Northern Rock moment. IndyMac will deplete a tenth of the $53bn reserve of the Federal Deposit Insurance Corporation. The FDIC has some 90 "troubled" lenders on watch. IndyMac was not one of them. The awful reality is that Washington has its back to the wall. Fed chief Ben Bernanke thought the US could always get out of trouble by monetary stimulus "à l'outrance", and letting the dollar slide. He has learned that the world is a more complicated place. Oil has queered the pitch. So has America's fatal reliance on foreign debt. The Fannie/Freddie rescue, incidentally, has just lifted the US national debt from German 'AAA' levels to Italian 'AA-' levels. China, Russia, petro-powers and other foreign states own $985bn of US agency debt, besides holdings of US Treasuries. Purchases of Fannie/Freddie debt covered a third of the US current account deficit of $700bn over the last year. Alex Patelis from Merrill Lynch says America faces the risk of a "financing crisis" within months. Foreigners have a veto over US policy. Japan did not have this problem during its Lost Decade. As the world's supplier of credit, it could let the yen slide. It also had a savings rate of 15pc. Albert Edwards from Société Générale says this has fallen to 3pc today. It has cushioned the slump. Americans are under water before they start. My view is that a dollar crash will be averted as it becomes clearer that contagion has spread worldwide. But we are now at the point of maximum danger. Britain, Japan, and the Antipodes are stalling. Denmark is in recession. Germany contracted in the second quarter. May industrial output fell 6pc in Holland and 5.5pc in Sweden. The coalitions in Belgium and Austria have just collapsed. Germany's left-right team is fraying. One German banker told me that the doctrines of "left Nazism" (Otto Strasser's group, purged by Hitler) had captured the rising Die Linke party. The Social Democrats are picking up its themes to protect their flank. This is the healthy part of Europe. Further south, we are not far away from civic protest. BNP Paribas has just issued a hurricane alert for Spain. Finance minister Pedro Solbes said Spain is facing the "most complex" economic crisis in its history. Actually, it is very simple. The country was lulled into a trap by giveaway interest rates of 2pc under EMU, leading to a current account deficit of 10pc of GDP. A manic property bubble was funded by foreigners buying covered bonds and securities. This market has dried up. Monetary policy is now being tightened into the crunch by the ECB, hence the bankruptcy last week of Martinsa-Fadesa (€5.1bn). With Franco-era labour markets (70pc of wages are inflation-linked), the adjustment will occur through closure of the job marts. China, India, East Europe and emerging Asia have all stolen growth from the future by condoning credit excess. To varying degrees, they are now being forced to pay back their own "inter-temporal overdrafts". If we are lucky, America will start to stabilise before Asia goes down. Should our leaders mismanage affairs, almost every part of the global system will go down together. Then we are in trouble. Source:  http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/21/ccview121.xml Wednesday July 16, 2008 Bank failures, inflation rising, dollar falling, wars and rumors of wars, oil rising, prices at the pump rising and wages going nowhere.  The Fed bails out the big boys while letting everyone else fall into the abyss. Don't look to the government to save you or the economy.  If you want to do what you can to protect yourself and your family from the economic hell we're in then I would say buy gold and silver while you still can.  For more advice go to www.jsmineset.com and read what Jim Sinclair, Dan Norcini and Monty Guild have to say.  I take what they say as the gospel.  They're not selling anything and they're not making money off their advice.  They're doing what they do not because they have to, but because they care. Tuesday, July 8, 2008 Crisis wipes $1 trillion from financial stocks By Joe Bel Bruno 07 July 2008 @ 04:57 pm EST NEW YORK (AP) - U.S. financial companies have lost more than $1 trillion in value this year, and yet another decline on Monday shows concerns aren't going away soon. Banks and brokerages began the week lower on the same fears that have been proven toxic since last summer in the ongoing credit crisis. The financial sector was hit with a confluence of troubles on Monday: cautious remarks from a Federal Reserve official and new capital concerns at Freddie Mac and Fannie Mae. The drop in names like Lehman Brothers, Morgan Stanley and Merrill Lynch caused the financial section of the Standard & Poor's 500 index to lose almost $150 billion in value on Monday, according to the rating agency. That means S&P 500's 85 financial components have lost some $1.3 trillion since the sector reached a high last October. Even more startling is that shares of 35 of the companies, which include insurers, have lost more than half their value so far this year. The financial sector used to be the index's main driver, and many economists believe that the broader market will rise or fall on their health. "Some would argue that perhaps the sell-off in financials is overdone, but at the same time there is just much uncertainty out there about write-offs, loan losses, and how bad the housing market is," said Jim Herrick, a director of equity trading at Baird & Co. "For a period of time the pain was in the big money center banks, but now it's spreading." Fannie and Freddie fell sharply after Lehman Brothers analyst Bruce Harting said the two government-backed lenders might need to raise billions of dollars in new capital. Both are facing a proposed change to accounting standards that would require financial services firms move bonds backed by pools of loans, also known as securitizations, off their balance sheets. If this rule is passed, it would end Freddie and Fannie's primary source of generating new revenue. Harting said Fannie Mae would need to raise $46 billion in cash to meet capital requirements, while Freddie Mac would need $29 billion. The broader financial sector was hurt after San Francisco Federal Reserve President Janet Yellen said problems in the housing market and banking system could get even worse before the economy recovers. Global banks and brokerages have lost nearly $300 billion from investments in mortgage-backed securities and other risky investments since the credit crisis began one year ago. And there are fresh signs that Wall Street's biggest investment houses are having trouble navigating through volatile markets. Goldman Sachs Group Inc., the world's biggest investment bank, disclosed in a regulatory filing that it lost at least $100 million on nine trading days during the second quarter. Goldman reported that total trading revenue in the second quarter fell 17 percent to $4.87 billion, according to the filing. Full Article Here Friday, July 4, 2008 The ECB raised it's rate to 4.25% on Thursday and while looking at the Dollar chart above you might

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