Baltic Dry Index. 2694 -90
LIR Gold Target by 2019: $3,000.
The only function of economic forecasting is to make astrology look respectable.
J. K. Galbraith.
It is that time of the year again, we have reached the longest day in the northern hemisphere, longest night in the southern hemisphere. It’s a long day season too, at America’s nationalized former mortgage GSEs, Fannie and Freddie, now busy racking up unprecedented losses for the long suffering hapless US taxpayers, their children and grand children. Another unintended, but foreseeable consequence, of fallen guru Greenspan’s insane policy of serial bubbles culminating in the ultimate real estate bubble from hell. Actually the ultimate bubble is Frankenstein Bernanke sovereign debt bubble that we are in now, as the US government and governments everywhere, frantically socialize all the losses and bankster excess onto government balance sheets, and desperately seek to get a new inflation bubble underway again. Stay long precious metals. Our fiat currency, dollar reserve standard, and all the other petty fiats dependent upon it, is in the process of terminal decline. What replaces it isn’t immediately apparent, but the USA now borrows a billion dollars a year simply to maintain the pools and cut the grass at the empty foreclosed homes on Fannie and Freddie’s books. Does this sound like a sane system to anyone but a central bankster?
It is a far, far better thing to have a firm anchor in nonsense than to put out on the troubled seas of thought.
J. K. Galbraith.
Cost of Seizing Fannie and Freddie Surges for Taxpayers
By BINYAMIN APPELBAUM Published: June 19, 2010
CASA GRANDE, Ariz. — Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first three months of the year. They owned 163,828 houses at the end of March, a virtual city with more houses than Seattle. The mortgage finance companies, created by Congress to help Americans buy homes, have become two of the nation’s largest landlords.
Bill Bridwell, a real estate agent in the desert south of Phoenix, is among the thousands of agents hired nationwide by the companies to sell those foreclosures, recouping some of the money that borrowers failed to repay. In a good week, he sells 20 homes and Fannie sends another 20 listings his way.
“We’re all working for the government now,” said Mr. Bridwell on a recent sun-baked morning, steering a Hummer through subdivisions laid out like circuit boards on the desert floor.
For all the focus on the historic federal rescue of the banking industry, it is the government’s decision to seize Fannie Mae and Freddie Mac in September 2008 that is likely to cost taxpayers the most money. So far the tab stands at $145.9 billion, and it grows with every foreclosure of a three-bedroom home with a two-car garage one hour from Phoenix. The Congressional Budget Office predicts that the final bill could reach $389 billion.
Fannie and Freddie increased American home ownership over the last half-century by persuading investors to provide money for mortgage loans. The sales pitch amounted to a money-back guarantee: If borrowers defaulted, the companies promised to repay the investors.
Rather than actually making loans, the two companies — Fannie older and larger, Freddie created to provide competition — bought loans from banks and other originators, providing money for more lending and helping to hold down interest rates.
----- As it turns out, Fannie and Freddie increasingly were channeling money into loans that borrowers could not afford. As defaults mounted, the companies quickly ran low on money to honor their guarantees. The federal government, fearing that investors would stop providing money for new loans, placed the companies in conservatorship and took a 79.9 percent ownership stake, adding its own guarantee that investors would be repaid.
The huge and continually rising cost of that decision has spurred national debate about federal subsidies for mortgage lending. Republicans want to sever ties with Fannie and Freddie once the crisis abates. The Obama administration and Congressional Democrats have insisted on postponing the argument until after the midterm elections.
In the meantime, Fannie and Freddie are, at public expense, removing owners who cannot afford their homes, reselling the houses at much lower prices and financing mortgage loans for the new owners.
The two companies together accounted for 17 percent of real estate sales in Arizona during the first four months of the year, almost three times their share of the market during the same period last year, according to an analysis by MDA DataQuick.
----- Mr. Bridwell sold plenty of those houses during the boom, then cut workers as prices crashed. Now his firm, Golden Touch Realty, again employs as many people as at the height of the boom, all working exclusively for Fannie Mae. The payroll now includes a locksmith to secure foreclosed homes and two clerks devoted to federal paperwork.
Golden Touch gets more listings from Fannie Mae than any other firm in Pinal County. Mr. Bridwell said he was ready to jump because he remembered the last time the government ended up owning thousands of Arizona houses, after the late-1980s collapse of the savings and loan industry.
“The way I see it,” said Mr. Bridwell, whose glass-top desk displays membership cards from the Republican National Committee, “is that we’re getting these homes back into private hands.”
Selling a house generally costs the government about $10,000. The outsides are weeded and the insides are scrubbed. Stolen appliances are replaced, brackish pools are refilled. And until the properties are sold, they must be maintained. Fannie asks contractors to mow lawns twice a month during the summer, and pays them $80 each time. That’s a monthly grass bill of more than $10 million.
All told, the companies spent more than $1 billion on upkeep last year.
http://www.nytimes.com/2010/06/20/business/20foreclose.html?hp
Unsurprisingly, faced with rising recognition that the game is about up for the political fiat money so loved by telephone number bonus fuelled banksters, gold and precious metals have resumed functioning as real money again. Central banksters demonetized it in the late 70s, and tried to write it out of the central banks universe. Central banksters would run their currencies to be “as good as gold.” It only took them less than a generation to be seen for the dissemblers that they are.
"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."
William F. Rickenbacker
Gold reclaims its currency status as the global system unravels
We already know that the eurozone money markets seized up violently in early May as incipient bank runs spread from Greece to Portugal and Spain, threatening the first big sovereign default of our era. Jean-ClaudeTrichet, the president of the European Central Bank (ECB), talked days later of "the most difficult situation since the Second World War, and perhaps the First".
By Ambrose Evans-Pritchard Published: 5:43PM BST 20 Jun 2010
A further 323,000 US families were hit with foreclosure notices last month Photo: Bloomberg News
Recent protests in Greece over austerity measures. The country's public debt will rise from 120pc to 150pc of GDP under the IMF-EU plan Photo: AFP
The ECB’s latest monthly bulletin gives us some startling details. It reveals that the bank’s "systemic risk indicator" surged suddenly to an all-time high on May 7 as measured by EURIBOR derivatives and stress in the EONIA swaps market, exceeding the strains at the height of the Lehman Brothers crisis in September 2008. "The probability of a simultaneous default of two or more euro-area large and complex banking groups rose sharply," it said.
This is a unsettling admission. Which two "large and complex banking groups" were on the brink of collapse? We may find out in late July when the stress test results are published, a move described by Deutsche Bank chief Josef Ackermann as "very, very dangerous".
And are we any safer now that the EU has failed to restore full confidence with its €750bn (£505bn) "shock and awe" shield, that is to say after throwing everything it can credibly muster under the political constraints of monetary union? This is the deep angst that lies behind last week's surge in gold to an all-time high of $1,258 an ounce.
The World Gold Council said on Friday that the central banks of Russia, the Philippines, Kazakhstan and Venezuela have been buying gold, and Saudi Arabia’s monetary authority has "restated" its reserves upwards from 143m to 323m tonnes. If there is any theme to the bullion rush, it is fear that the global currency system is unravelling. Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency.
It is certainly not inflation as such that is worrying big investors, though inflation may be the default response before this is all over. Core CPI in the US has fallen to the lowest level since the mid-1960s. Unlike the blow-off gold spike of the Nixon-Carter era, this rally has echoes of the 1930s. It is a harbinger of deflation stress.
Capital Economics calculates that the M3 money supply in the US has been contracting over the past three months at an annual rate of 7.6pc. The yield on two-year Treasury notes is 0.71pc. This is an economy in the grip of debt destruction.
Albert Edwards from Societe Generale says the Atlantic region is one accident away from outright deflation - that 9th Circle of Hell, "abandon all hope, ye who enter" . Such an accident may be coming. The ECRI leading indicator for the US economy has fallen at the most precipitous rate for half a century, dropping to a 45-week low. The latest reading is -5.70, the level it reached in late-2007 just as Wall Street began to roll over and then crash. Neither the Fed nor the US Treasury were then aware that the US economy was already in recession. The official growth models were wildly wrong.
David Rosenberg from Gluskin Sheff said analysts are once again "asleep at the wheel" as the Baltic Dry Index measuring freight rate for bulk goods breaks down after a classic triple top. The recovery in US railroad car loadings appears to have stalled, with volume still down 10.5pc from June 2008.
------It is an academic question whether the US slips into a double-dip recession, or merely grinds along for the next 12 months in a "growth slump". For Europe, nothing short of a sustained global boom can lift the eurozone out of the deflationary quicksand already swallowing up the South.
Spain had to pay a near-record spread of 220 basis points over German Bunds last week to clear away an auction of 10-year bonds, roughly what Greece was paying in March. Leaked transcripts of a closed-door briefing to the Cortes by a central bank official revealed that Spanish companies have been shut out of the capital markets since Easter. Given that the Spanish state, juntas, banks and firms have together built up foreign debts of €1.5 trillion, or 147pc of GDP, and must roll over €600bn of these debts this year, this is a crisis unlikely to cure itself.
More.
In G-20 news, in response to President Obama’s letter to the G-20 released Friday, China has grabbed the high ground going into this week’s meetings. China has moved to pre-empt a US “Chicago shakedown” BP style. Two can play at hardball if it come to it, is China’s sub text.
"It is the greenback which is unstable, and not the bullion."
Dr. Franz Pick
Global markets fear US Tresuries sell-off as China ends currency freeze
Global markets are braced for a possible sell-off in US Treasury bonds after China said over the weekend that it will allow the yuan exchange rate to adjust against the dollar, ending a two-year currency freeze that has led to trade clashes with Washington and Brussels.
By Ambrose Evans-Pritchard Published: 11:34PM BST 20 Jun 2010
China's Central Bank said the economic recovery had opened the way for a return to "flexibility" but ruled out an immediate one-off rise in the yuan. The currency will be allowed to fluctuate within a widened band of 0.5pc each day against a basket of currencies.
The yuan is now expected to rise slowly against the dollar, although it may fall if the euro weakens further. "There is at present no basis for major fluctuation or change in the exchange rate," said the bank.
The policy shift is a goodwill gesture towards the US and Europe before next week's G20 meeting in Canada as a rising yuan helps Western industries compete against Chinese imports. US Treasury Secretary Tim Geithner welcomed the step but said "the test will be how far and how fast they let the currency appreciate."
Senator Charles Schumer, a leading critic of China on Capitol Hill and author of legislation calling for sanctions, dismissed the announcement as meaningless. "This is China's typical response to pressure. Until there is more specific information about how quickly it will let its currency appreciate and by how much, we can have no good feeling that the Chinese will start playing by the rules," he said.
When China allowed the yuan to rise in July 2005 the move triggered a slide in US Treasury bonds, with knock-on effects on US mortgage and corporate debt. Investors will be watching closely to gauge response to sales of $108bn of US notes this week.
China has become the biggest force in global bond markets with holdings of $900bn (£600bn) of US government debt. Yuan revaluation is likely to dampen China's export growth and slow the pace of reserve accumulation, reducing the need to recycle money into foreign bonds. Hans Redeker of BNP Paribas said a rising yuan may have the effect of draining liquidity from global asset markets.
-----A number of Chinese economists say it is in the country's interest to let the yuan rise before overheating gets out of hand. Reserves have reached $2.4 trillion, causing inflationary "blow back" into China.
Beijing is determined to avoid Japan's fate when it let the yen rise too fast, tipping the country into slump. But the policy of holding down the currency is leading to acute price pressures. Factory gate inflation reached 7.1pc last month. Food costs are rising fast, raising the risk of civic unrest among migrant workers.
Rising wages are inflicting similar pain on exporters to a currency rise but with more pernicious effects for the country. As a result, analysts say it no longer makes sense for Beijing to maintain the peg.
China forex move could thwart U.S. hopes - Roubini
Sat Jun 19, 2010 4:49pm EDT By Walden Siew
June 19 (Reuters) - China's decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street's most closely followed economists, said on Saturday.
China said on Saturday it would gradually make the yuan more flexible after pegging it to the dollar for nearly two years, a move that the U.S. government and others around the world have long been calling for.
"This is the first significant signal in years of a change in Chinese currency policy," Roubini, best known for having predicted the U.S. housing meltdown, told Reuters.
But it remains to be seen how China would put the new system into practice including the composition of a basket of currencies that Beijing will use as a reference point for the yuan -- also known as the renminbi -- and the base date for that basket, he said in an e-mail.
"Since they have not changed the previous range for the band -- plus or minus 0.5 percent -- most likely on Monday China will allow the renminbi vs U.S. dollar to move," said Roubini.
The yuan has risen sharply in recent months against the euro, which sank over Europe's debt problems, so a stronger yuan could not be taken for granted, he said.
If the euro were to continue to depreciate, "the renminbi would have to be allowed to depreciate relative to the dollar, a paradoxical outcome," Roubini said.
His comments echoed those of an adviser to China's central bank on Saturday.
Li Daokui, an academic adviser to the monetary policy committee of the People's Bank of China, told Reuters in Beijing that the yuan could depreciate against the dollar if the euro falls sharply against the U.S. currency.
Roubini, like other analysts, said a major strengthening of the yuan looked unlikely.
http://www.reuters.com/article/idUSN1915926720100619
Tomorrow, Britain’s new coalition government gets to deliver its first austerity package. A package of benefits cuts and tax increases far beyond anything all 3 major British political parties suggested was necessary before last month’s election. All 3 said they would cut less and barely raise taxes at all, as it mostly wasn’t necessary, they pretended. Union unrest and social discontent, most now likely lie directly ahead. I have my doubts that this coalition government isn’t for rolling once the pain and social unrest starts to hit. Stay long precious metals. An already stealth competitive devaluation of Sterling is likely to be accelerated. Front or back door quantitative easing will likely be used to stem H2 10 social discontent, possibly in Q4 10, more likely in Q1 11, in my opinion. 2011 has all the makings of rolling currency crisis year.
"In the long run, the gold price has to go up in relation to paper money. There is no other way.”
Nicholas Deak.
In BP news, it’s just universally bad. BP’s Macondo blow out oil well continues pouring an unknown massive quantity of oil into the Gulf of Mexico. BP themselves don’t seem to have a PR clue. What is coming out now is that the whole regime of GOM deep water drilling was lax to the point of ineffectiveness. Reckless compared to the requirements of deep sea drilling in the North Sea UK and Norwegian sectors. BP will likely drag down all the others in the deep water sector of the GOM. None seem to have prepared any better disaster plans than deeply troubled BP. None seem to have advanced the disaster technology since the Ixtoc GOM blowout in June 1979. On this side of the Atlantic there is still deep denial in the stock market that this calamity may well be the end of the road for BP as we know it. A rump BP international might nominally survive, but it won’t be recognizable to the BP that existed prior to May 2010. Most pension fund managers are still likely far too overweight in BP and similar oil majors. Not for too much longer I suspect.
It is a commonplace of modern technology that problems have solutions before there is knowledge of how they are to be solved.
J. K. Galbraith.
We end with another country adopting resource nationalism. The great golden age of fiat 1945 – 2000 has passed.
Kazakhstan Plans to Start Taxing Oil Exports: Finance Ministry
June 21 (Bloomberg) -- Kazakhstan plans to start taxing crude oil exports, Finance Ministry spokeswoman Anna Zhekenova said by telephone today.
Exports of metals including copper, zinc and gold will also be taxed, she said, without specifying when they will start and at what rates.
http://noir.bloomberg.com/apps/news?pid=20601095&sid=aXLiAz8YwZzY
At the Comex silver depositories Friday, final figures were: Registered 52.08 Moz, Eligible 65.61 Moz, Total 117.69 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Below, sadly the first of many similar precious metals alleged frauds to surface in America and, I suspect, all around the world. From the report in the Fort Lauderdale Sun Sentinel suggests that this was a relatively crude precious metals deception. The great silver and gold short fraud on Comex involves billions, yet US authorities never close it down as it’s believed orchestrated by the Fed and US Treasury, while the open running scandal of “unallocated bullion accounts” in London and other financial centres, is I believe, a trillion dollar global scandal involving thousands of people who believe that their banks are holding precious metals for them, when in reality they have paid over good hard earned money for no more than a bankster promise to try to find some bullion for them should they decide to take actual physical delivery.
“The paper standard is self-destructive."
Hans F. Sennholz
Metals company owner sued for $29.5 million in missing funds
Investors out millions when Global Bullion Exchange shut down
By Jon Burstein, Staff Writer 5:11 p.m. EDT, June 19, 2010
The founder of a South Florida precious metals company systematically defrauded clients who are out at least $29.5 million, according to a lawsuit from the attorney in charge of recouping the funds.
The case against Jamie Campany, the former owner of Global Bullion Exchange, is part of a flurry of lawsuits filed this month as the search for customers' missing millions intensifies. The business shuttered its Lake Worth headquarters overnight in December, offering many clients no explanation as to what happened to their money.
Customers of Global Bullion Exchange, which had five South Florida offices, believed they were buying gold and silver that would be stored at a secure location until they wanted to sell the metals. Such transactions are not regulated by the federal government, leaving companies like Global Bullion Exchange free to operate with little, if any, regulatory oversight.
Global Bullion Exchange — which has filed the state court equivalent of a Chapter 7 bankruptcy case — is now under the control of attorney Daniel Stermer. Stermer alleges in a Miami-Dade Circuit Court lawsuit against Campany that the business sought out elderly customers as it "engaged in deceptive, unconscionable and/or unfair business practices and acts."
Campany's attorney, Christopher Bruno, said his client has been cooperating with Stermer in an attempt to recover clients' funds. He declined further comment on the lawsuit.
In similar vein, I have little confidence that the trustees and custodians of many of the world’s precious metals ETFs, really have all the bullion they imply in their accounts. Why else are the custodian rules written so complexly and confusingly allowing multiple layers of sub custodians, with in some cases the possibility of the use of hypothecation or bullion lending. As our new decade of the failure of fiat currency really gathers steam we will likely see a decade of paper gold and silver failure. Stay long physical precious metals held only in allocated accounts, preferably outside of the jurisdiction of John Bull and Uncle Sam. Both have past form on lining in the bullion accounts and in Uncle Sam’s case at least, confiscation in peace time without proper compensation.
"The history of paper money is an account of abuse, mismanagement, and financial disaster."
Richard M. Ebeling
The monthly Coppock Indicators finished May:
DJIA: +276 UP. NASDAQ: +499 UP. SP500: +304 UP. The great Bull market goes on with the all three continuing higher in positive numbers, but is now under serious pressure.
At the weekend we ended 1940 day by day with the Fall of France. In a 37 day blitzkrieg, western civilisation was nearly annihilated. Click on the page like above for just how dire 1940 was.
