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Daily Digest - Dec 6

Saturday, December 6, 2008, 9:10 AM

Gold price manipulation,  bailout lacks coherence, liquidity trap, Citi Ponzi scheme alleged, Harvard endowment loses 22%, worst retail in 35 years, China faces social unrest, one-in-ten (!) mortgages in forclosure, Jon Stewart video, CA issues IOUs to vendors, community proposes to print own money, and a challenge from Chris Whalen to Timothy Geithner.

Economy

 

The Manipulation of Gold Prices

More important, however, than dwelling on the accuracy of conspiracy theories is the fact that huge international banking firms normally do not take metal deliveries from futures markets. They normally buy on the London spot market. The fact that they are demanding delivery from COMEX means one of two things. Either the London bullion exchanges have run out of gold, or these firms are finding it cheaper to buy gold as a "future" than as a spot exchange.

Smart traders at big firms may be buying on COMEX to sell into the spot market, for a profit. This pricing condition is known as "backwardation". Backwardation is always the first sign that a huge price rise is about to happen. In the absence of backwardation, there is no rational explanation as to why HSBC, Bank of Nova Scotia (BNS), Goldman Sachs, and others are forcing COMEX to make large deliveries.

The fact that this backwardation is hidden from the public eye is not surprising. In spite of the ostensible existence of a so-called "London fix", 96% of all OTC transactions are secret and unreported. The transactions happen solely between two parties, and are done opaquely, in complete darkness. The current London fix may well be just as fake as the bank interest rate reports that comprised LIBOR proved to be, just a few months ago.

RED ALERT: GOLD BACKWARDATION!!!

Gold going to permanent backwardation means that gold is no longer for sale at any price, whether it is quoted in dollars, yens, euros, or Swiss francs. The situation is exactly the same as it has been for years: gold is not for sale at any price quoted in Zimbabwe currency, however high the quote is. To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion gold or coined gold.

I dubbed this event that has cast its long shadow forward for many a year, the last contango in Washington - contango being the name for the condition opposite to backwardation (namely, that of a positive basis), and Washington being the city where the Paper-mill of the Potomac, the Federal Reserve Board, is located. This is a tongue-in-cheek way of saying that the jig in Washington is up. The music has stopped on the players of ‘musical chairs'. Those who have no gold in hand are out of luck. They won't get it now through the regular channels. If they want it, they will have to go to the black market.

U.S. bailout monitor sees lack of a coherent plan

Elizabeth Warren, the chairwoman of the oversight panel, said in an interview Monday that the government instead seemed to be lurching from one tactic to the next without clarifying how each step fits into an overall plan.

"You can't just say, 'Credit isn't moving through the system,' " she said in her first public comments since being named to the panel. "You have to ask why."

If the answer is that banks do not have money to lend, it would make sense to push capital into their hands, as the Treasury has been doing over the last two months, she continued. But if the answer is that their potential borrowers are getting less creditworthy with each passing day, "pouring money into banks isn't going to fix that problem," she said.

The liquidity trap Commentary: Financial engineering seems worse than the alternative

People
used to boast about hot stocks they owned. Now they crow about how much
of their money is in cash. Those holding cash have been richly rewarded
with no losses and opportunities to buy assets (condos and equities) at
huge discounts.

As prices continue to decline, those that moved too
quickly to buy at the bottom are seen as fools. Consider the massive
losses of the sovereign wealth funds, Bank of America and Countrywide, and even Warren Buffett's latest foray
into General Electric  and Goldman Sachs. Investors, convinced that prices will
continue to decline, sit with their liquid resources on the sidelines.
As that investment demand takes a holiday, prices will decline further.
This phenomenon is well understood. In the 1930s, it was called the liquidity trap.
People took their money out of the bank and literally buried in the
backyard or stuck it under a mattress. When that happened, the money
supply contracted another notch and the lack of transactions cut into
the velocity of money.

 

http://www.thedailyshow.com/video/index.jhtml?videoId=212876&title=clust... Jon Stewart, bailout starts at 1:45 min. marker

 

'PONZI SCHEME' AT CITI SUIT SLAMS RUBIN

A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking.
Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

Harvard Endowment Loses 22%

In a sign of the economic times, Harvard has sent a letter to its deans saying that the university's $36.9 billion endowment fund lost 22 percent of its value in the last four months and could decline as much as 30 percent by the end of the fiscal year on June 30.

A conversation about economics with Nassim Taleb (Interview about turkeys, video with Charlie Rose)

Retail Sales Are Weakest in 35 Years

Some retailers, though, have begun to figure out how to manage in the bleak environment, selling huge amounts of merchandise at steep discounts to generate cash. That will erode profits, of course. Department store profits will most likely plummet 20 to 60 percent in the final three months of the year, said Bill Dreher, senior retailing analyst with Deutsche Bank Securities. But retailers who are unloading merchandise early in the season are at least demonstrating an ability to take control.
"Even if they're giving away the product, it reduces inventory levels and keeps the problem from continuing," Mr. Dreher said. "It shows retailers are being disciplined."

End of Work, End of Affluence

In other words, since the Last Christmas in America.

We all know the 16-year recession/malaise had a "happy ending": huge new oil fields were discovered in Alaska, the North Sea, West Africa and elsewhere, ushering in a renewed era of cheap, abundant petroleum. President Reagan "saved" Social Security for a generation by raising contributions paid by employer and employees, and he heralded a "lower taxes, higher permanent deficits" ideology that is now accepted as the norm: deficits don't matter, even when they reach the trillions, because our good friends the Gulf Oil Exporters and Asian exporters will buy all our debt forever and ever, keeping interest low forever and ever.

Uh, get back to me on how that's working out in 2010.

Then the U.S. created and launched two revolutionary technologies which both created new wealth around the globe: the personal computer (microprocessor and cheap RAM) and the Internet (TCP/IP, Ethernet, and the commercialization of Tim Berners-Lee's World Wide Web with free browsers) spawning the generation-long boom of the 1980s and 90s.

China 'faces mass social unrest'

Rising unemployment and the economic slowdown could cause massive social turmoil in China, a leading scholar in the Communist Party has said.

"The redistribution of wealth through theft and robbery could dramatically increase and menaces to social stability will grow," Zhou Tianyong, a researcher at the Central Party School in Beijing, wrote in the China Economic Times.

"This is extremely likely to create a reactive situation of mass-scale social turmoil," he wrote.
His views do not reflect leadership policy but highlight worries in elite circles about the impact of the economic slowdown.

Mr Zhou warned that the real rate of urban joblessness reached 12% this year and could reach 14% next year as the economy slows.

One in Ten Mortgages Late or in Foreclosure!

Job Losses to Drive Mortgage Delinquencies

Jay Brinkmann, MBA's Chief Economist and Senior Vice President for Research and Economics said, "An initial look at the number of foreclosure starts would seem to indicate at least a leveling off of foreclosures. These numbers, however, are being influenced by several factors including various moratoria on foreclosure filings and by mortgage companies holding loans in the 90+ day bucket during the modification and workout process.

Evidence of this can be seen in the large increase in loans 90 days or more past due but not yet in foreclosure. This rate jumped by 45 basis points, the highest increase in this category ever recorded in the MBA survey and far above the average 4 basis point jump we would expect to see. While 20 states showed declines in the rate of foreclosure starts between the second and third quarters, every state showed an increase in the 90 days or more delinquent category with the exception of Alaska and all of the increases were greater than what we would expect due to normal seasonal factors."

Farting Cow Tax

MONTGOMERY, Ala. - For farmers, this stinks: Belching and gaseous cows and hogs could start costing them money if a federal proposal to charge fees for air-polluting animals becomes law.

Farmers so far are turning their noses up at the notion, which is one of several put forward by the Environmental Protection Agency after the U.S. Supreme Court ruled in 2007 that greenhouse gases emitted by belching and flatulence amounts to air pollution.

"This is one of the most ridiculous things the federal government has tried to do," said Alabama Agriculture Commissioner Ron Sparks, an outspoken opponent of the proposal.

It would require farms or ranches with more than 25 dairy cows, 50 beef cattle or 200 hogs to pay an annual fee of about $175 for each dairy cow, $87.50 per head of beef cattle and $20 for each hog.

To repair Rhode Island roads, report calls for new tolls, taxes and higher fees

Both new and higher fuel taxes. The proposals include increasing the gasoline tax, now 30 cents, by up to 15 cents per gallon by 2016, which would raise an estimated $64 million per year. They also include a new “petroleum products gross earning tax,” beginning with the equivalent of 10 cents per gallon of gasoline in 2010 and adding another 5 cents in 2014. That would affect all petroleum products, from gasoline and aviation fuel to those made from petroleum derivatives, such as plastics, paint and fertilizer. It would eventually raise about $66 million per year, the draft report says.

  • Car registration fees, now $60 for two years, would rise $40 per year immediately and could more than double, to $140, by 2013, depending on which version was used, raising up to $46 million per year.
  • A new mileage fee. The $150-million plan would not include it, but the $300-million plan would impose a half-cent-per-mile fee, raising an estimated $50 million per year. But officials said yesterday that they expect to eliminate the transfer of some sales tax revenue to the transportation system, proposed elsewhere in the report. Raising the mileage fee to 1 cent per mile would make up the difference.

At a half-cent per mile, driving 10,000 miles per year would cost $50 per vehicle. One cent would cost $100.

I.O.U. California?!  Eyes IOUs for Second Time Since Depression (Update1)

Dec. 5 (Bloomberg) -- California, the world's eighth-largest economy, may pay vendors with IOUs for only the second time since the Great Depression, State Finance Director Mike Genest said.

 Milwaukee neighborhoods could print own money

They may be talking funny money, but it's not funny business.

Residents from the Milwaukee neighborhoods of Riverwest and East Side are scheduled to meet Wednesday to discuss printing their own money. The idea is that the local cash could be used at neighborhood stores and businesses, thus encouraging local spending. The result, supporters hope, would be a bustling local economy, even as the rest of the nation deals with a recession.

"You have all these people who have local currency, and they're going to spend it at local stores," said Sura Faraj, a community organizer who is helping spearhead the plan. "They can't spend it at the Wal-Mart or the Home Depot, but they can spend it at their local hardware store or their local grocery store."

Power to, and Thank Heavens for - The Blogosphere

Across the United States, more than 30 daily newspapers are for sale, and buyers are scarce. 


A Challenge to Tim Geithner: Debate Me on the Bailout To Date and the Model of Political Economy that Should Apply Going Forward (Another Good "Chris")

December 5, 2008
Mr. Timothy Geithner
President
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045

Dear Mr. Geithner:

With this note, I hereby challenge you to a two hour public debate "On the Bailout To Date and the Model of Political Economy that Should Apply Going Forward." I propose that the debate be held in New York as soon as possible.

I have asked my colleagues at Professional Risk Managers International Association to facilitate the event and to act as organizer to ensure a free and fair exchange. The have agreed to do so. I copy Steve Lindo, Executive Director of PRMIA, and James Tunkey, Regional Director of the NY Chapter, on this note

I have also asked CNN to televise the event and to provide a facility for PRMIA members and members of the public to attend. They have agreed to do so. I copy Caleb Silver, Executive Producer of CNN Money on this note.

I propose our colleague Josh Rosner of Graham Fisher & Co. as moderator. Josh knows the subject matter of the bailout as well as any, he is an independent researcher, and is also known for his fairness and intellectual rigor. Obviously you would have to agree or we could discuss other candidates. I copy Josh on this note.

Let me say that while I have been critical of you in the past, this is not personal. I have the greatest respect for all of my former colleagues in the Federal Reserve System and the other bank regulatory agencies. My colleagues at IRA and I honor their service, including yours. But when our Founding Fathers spoke of the "checks" in checks and balances, I believe they had something in mind like NHL hockey - maybe even the Moscow league. When you step on the ice of public policy leadership, you have to take the shots. I am giving you a chance to take a shot at me in front of a live, nationally televised audience.

My colleagues at PRMIA will ensure that this event is civil and informative, Indeed, this is a great opportunity for you to talk directly to the financial community and make the case of why you should be the next Treasury Secretary of the United States. If you have the courage to accept this invitation, then I might think about believing you got what it takes for the job.

In any event, I wish you good luck in the future. Bcc: everyone I know in the regulatory community and the media for the record.

Yours,

Christopher Whalen
Managing Director

Office: 914-827-9272
Mobile: 914-645-5304
Skype: "rcwhalen"
AIM: "[email protected]"

www.institutionalriskanalytics.com

 

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24 Comments

wdstk46's picture
wdstk46
Status: Bronze Member (Offline)
Joined: Nov 17 2008
Posts: 59
Re: Daily Digest - Dec 6

I never cease being amazed at some of the drivel that is printed about futures markets.  Let's just take the first paragraph.  In it the author claims that there was heavy short selling into the March and July 2008 highs.  I'll take the March high since that marked the final price high.

Not only were huge short positions NOT opened up, the high was the result of short covering!  From January to March, the only group that was increasing their shorting were the investment funds and large traders, and that was just 5,359 contracts.  The commercials, the largest block of traders, reduced their short positions by 41,505 contracts and small traders covered 4,027.  These positions were covered by a total reduction in long positions of 40,173 contracts from all groups, mostly commercials again.  Total open interest was FALLING into the high, not increasing as the article implies.

Further, selling by commercials into a high is typical, not an aberration.   Farmers, for example, will constantly short into rising prices.  That is the only rational thing to do.  That's how they lock in the profit from their harvest.  For the same reason, elevators will continuously buy into falling prices.

The Comex deliveries in December were not anywhere near threatening.  The last figures I saw were about 40% of deliverable supplies.  These will be replaced by the shorts.  The Comex watches the ebb and flow of stocks constantly.   Contrary to the articles assertions, the stock are constantly audited.  The CFTC is not the auditor.  They are the regulator.

The rest of the article is just as misleading as to the situation on the Comex.  Prices DROPPED nearly $70 going into delivery.  This guy needs to go back to school. 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 6

Wdstk46 wrote:

I never cease being amazed at some of the drivel that is printed about futures markets. 

I never cease being amazed at some of the very intelligent and very different points of views posted on this site and other excellent blogs. Thank you for your in-site. You raise some very interesting counter merits! 

I can clearly see why the newspaper and mainstream media are going tango uniform. I don't think it is advertising alone. I noticed on the blogs there are readers who are in some cases smarter than the writers, and whether they are right, wrong or indifferent - I listen! 

BN37's picture
BN37
Status: Bronze Member (Offline)
Joined: May 17 2008
Posts: 39
Re: Daily Digest - Dec 6

Man I hope those top two articles are wrong or off by a few months in the least. My hopes for the future ride, in large part, on my being able to sell my business and convert the funds into gold.

wdstk46's picture
wdstk46
Status: Bronze Member (Offline)
Joined: Nov 17 2008
Posts: 59
Re: Daily Digest - Dec 6

Davos,

Please know that my slightly insulting tone was not meant for you or this site.  It's great!  I have a long history in this field and have been going rather nuts lately listening to all the misinformation being bandied about.

Education is this site's strong suit and I am grateful for the opportunity to add my voice.  I love you guys!

Ray Hewitt's picture
Ray Hewitt
Status: Gold Member (Offline)
Joined: Apr 5 2008
Posts: 458
Re: Daily Digest - Dec 6

I have a long history in this field and have been going rather nuts
lately listening to all the misinformation being bandied about.

I could tell right away.

Maybe you care to comment on this article. I was impressed by the analyses.

The Manipulation of Gold Prices Some key paragraphs:

The Federal Reserve must now make a tough choice. In the past, Federal
Reserve Chairmen may have felt it necessary to support regular attacks
on gold prices to dissuade conservative people from putting a majority
of their capital into gold. Now, however, the world economy needs much
higher gold prices in order to devalue paper money, not against other
currencies in a "beggar thy neighbor" policy, but against itself. This
can jump start the system. If the Fed continued to support gold price
suppression, that would collapse the stock market far deeper than they
can afford, most insurers will end up bankrupt, and there will be no
hope of avoiding Great Depression II.

I think Ben Bernanke is aware of this. Gold shorts will be
abandoned, to avoid financial catastrophe. In commenting, I take a
practical view, accepting what appears to be so, without passing
judgment on the acts and omissions of the last 21 years.

Anyone
who reads the written works of our Fed Chairman knows that Bernanke’s
long term plan involves devaluing the dollar against gold. This is the
exact opposite of most prior Fed Chairmen. He has overtly stated his
intentions toward gold, many times, in various articles, speeches and
treatises written before he became Fed Chairman. He often extols the
virtues of former President Franklin Roosevelt’s gold
revaluation/dollar devaluation, back in 1934, and credits it with
saving the nation from the Great Depression. According to Bernanke,
devaluation of the dollar against gold was so effective in stimulating
economic activity that the stock market rose sharply in 1934,
immediately thereafter. That is something that the Fed wants to see
happen again.

More important, however, than dwelling on the accuracy of conspiracy
theories is the fact that huge international banking firms normally do
not take metal deliveries from futures markets. They normally buy on
the London spot market. The fact that they are demanding delivery from
COMEX means one of two things. Either the London bullion exchanges have
run out of gold, or these firms are finding it cheaper to buy gold as a
“future” than as a spot exchange.

The fact that this backwardation is hidden from the public eye is not
surprising. In spite of the ostensible existence of a so-called “London
fix”, 96% of all OTC transactions are secret and unreported. The
transactions happen solely between two parties, and are done opaquely,
in complete darkness. The current London fix may well be just as fake
as the bank interest rate reports that comprised LIBOR proved to be,
just a few months ago.

presentmoment's picture
presentmoment
Status: Bronze Member (Offline)
Joined: Sep 22 2008
Posts: 57
Re: Daily Digest - Dec 6 - Business Closings

I came across this today. It is amazing to see these many announcements even before the holiday sales figures are in.

http://jonathanklunk.com/2008/11/business-closings-in-2009-due-to-economy/

STORE CLOSINGS AND LAYOFFS:

By the end of Dec. 2008 as announced Circuit City Filed Bankruptcy, they promised to keep all
stores open for the holiday season, but afterwards, they plan on closing 155 stores nationwide.

Ann Taylor closing 117 stores nationwide.
A company spokeswoman said the company hasn’t revealed which stores will be
shuttered. It will let the stores that will close this fiscal year know
over the next month

Eddie Bauer to close more stores.
Eddie Bauer has already closed 27 shops in the first quarter and plans to
close up to two more outlet stores by the end of the year.

Cache closing stores.
Women’s retailer Cache announced that it is closing 20 to 23 stores this
year.

Lane Bryant, Fashion Bug, and Catherines closing 150 stores nationwide.
The owner of retailers Lane Bryant , Fashion Bug, Catherines Plus Sizes will
close about 150 underperforming stores this year. The company hasn’t
provided a list of specific store closures and can’t say ! when it will
offer
that info, spokeswoman Brooke Perry said today.

Talbots, J. Jill closing stores.
About a month ago, Talbots announced that it will be shuttering all 78 of
its kids and men ’s stores. Now t he company says it will close another 22
underperforming stores. The 22 stores will be a mix of Talbots women’s and
J Jill, another chain it owns. The closures will occur this fiscal year,
according to a company press release.

Gap Inc. closing 85 stores
In addition to its namesake chain, Gap also owns Old Navy and Banana
Republic . The company said the closures - all planned for fiscal 2008 -
will be weighted toward the Gap brand.

Foot Locker to close 140 stores
In the company press release and during its conference call with analysts
today, it did not specify where the future store closures - all planned in
fiscal 2008 - will be. The company could not be immediately reached for
comment

Wickes Furniture is going out of business
Wickes Furniture is going out of business and closing all of its stores.
Wickes, a 37-year-old retailer that targets middle-income customers, filed
for bankruptcy protection last month.

Goodbye Levitz / BOMBAY - closed already. The furniture retailer, which is
going out of business. Levitz first announced it was going out of business
and closi! ng all 76 of its stores in December. The retailer dates back to
1910 when Richard Levitz opened his first furniture store in Lebanon , PA.
In
the 1960s, the warehouse/showroom concept brought Levitz to the forefront of
the furniture industry. The local Levitz closures will follow the shutdown
of Bombay .

Zales, Piercing Pagoda closing stores
The owner of Zales and Piercing Pagoda previously said it plans to close 82
stores by Jul y 31. Today, it announced that it is closing another 23
underperforming stores. The company said it’s not providing a list of
specific store closures. Of the 105 locations planned for closure, 50 are
kiosks and 55 are stores.

Disney Store owner has the right to close 98 stores The Walt Disney Company
announced it acquired about 220 Disney Stores from subsidiaries of The
Children’s Place Retail Stores. The exact number of stores acquired will
depend on negotiations with landlords. Those subsidiaries of Children’s
Place filed for bankruptcy protection in late March. In the news release,
Disney said it has also obtained the right to close about 98 Disney Stores
in the U.S. The press release didn’t list those stores.

Home Depot store closings
Nearly 7+ months after its chief executive said there were no plans to cut
the number of its core retail stores, The Home Depot Inc. announced
Thursday that it is shuttering 15 of them amid a slumping US. economy and
housing market. The move will affect 1,300 employees. It is the first
time the world’s largest home improvement store chain has ever closed a
flagship
store for performance reasons. Its shares rose almost 5 percent.
The Atlanta-based company said the underperforming U.S. stores being closed
represent less than 1 percent of its existing stores They will be
shuttere! d withi n the next two months .

CompUSA (CLOSED) clarifies details on store closings Any extended
warranties purchased for products through CompUSA will be honored by a
third-party provider, Assurant Solutions. Gift cards, rain checks, and
rebates purchased prior to December 12 can be redeemed at any time during
the final sale. For those who have a gadget currently in for service with
CompUSA, the repair will be completed and the gadget will be returned to
owners.

Macy’s Closing 9 stores

Pep Boys closing 33 stores

Sprint Nextel closing 125 retail locations
New Sprint Nextel CEO Dan Hesse appears to have inherited a company bleeding
subscribers by the thousands, and will now officially be dropping the ax on
4,000 employees and 125 retail locations. Amid the loss of 639,000 postpaid
customers in the fourth quarter, Sprint will be cutting a total of 6.7% of
its work force (following the 5,000 layoffs last year)! and 8% of
company-owned brick-and-mortar stores, while remaining mute on other rumors
that it will consolidate its headquarters in Kansas . Sprint Nextel shares
are down $2.89, or nearly 25%, at the time of this writing.

J. C. Penney, Lowe’s and Office Depot will be scaling back and cutting jobs.

Ethan Allen Interiors - The co! mpany a nnounced plans to close 12 of 300+
stores in an effort to cut costs.

Wilson’s the Leather Experts closing all 260 mall stores.

Pacific Sunwear will close its 154 Demo stores after a review of strategic
alternatives for the urban-apparel brand Seventy-four underperforming Demo
st! ores cl osed last May.

Sharper Image: The company recently filed for bankruptcy protection and
announced that 90 of its 184 stores are closing. The retailer will still
operate 94 stores to pay off debts, but 90 of these stores have performed
poorly and also may close.

Bombay Company
The company unveiled plans ! to clos e all 384 U.S.-based Bombay Company
stores. The company’s online storefront has discontinued operations.

KB Toys posted a list of 356 stores that it is closing around the United
States as part of its bankruptcy reorganization.

Dillard’s to Close More Stores
Dillard’s Inc. said it will continue to focus on closing underperforming
stores, reducing expenses and improving its merchandise in 2008. At the
company’s annual shareholder meeting, CEO William Dillard II said the
company will close another six underperforming stores this year.

Starbucks closings: Starbucks will close approximately 600 company- operated stores
in the U.S.

Pier 1 closings: Announced that they would be closing an undisclosed number of
stores.

Kirklands Closings: A chain of home decor stores will be closing nearly 130 stores
nationwide.

Sprint closings: to cut 4500 jobs. and 125 stores.

Linens ‘n Things closings: Is closing 120 stores nationwide

Dell Inc. closed its 140 kiosks in the United States

Liz Claiborne, Inc. said it’s closing the entire 54-store Sigrid Olsen chain.

Lone Star Steak House closings: 27 stores closing.

84 Lumber closings: 12 stores closing

Rite Aid closings: 28 stores

Big Dollar closings: dollar stores closing 10 stores

 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 6

WdStk46:

I, was truly impressed with your view and could tell right off the bat that you were intimately involved with commodities and extremely knowledgeable of Gold.

I was pointing out that the blogosphere fills a vacuum. Mainstream media, I think, just blurts out what occurred. Some sites offer a more in-depth view. But, the blogs you get the in-depth and then you get expert opinion in the feedback area.

Take Tonta - the insider who helped bloggers understand the mortgage industries journey down the cesspool.

Thank you! I enjoyed your read more than the articles themselves!!!

wdstk46's picture
wdstk46
Status: Bronze Member (Offline)
Joined: Nov 17 2008
Posts: 59
Re: Daily Digest - Dec 6

Hi hewittr 

I hope you'll ignore the constant sarcasm but I'm in a foul mood :-) 

Quote:

 The Federal Reserve must now make a tough choice. In the past, Federal Reserve Chairmen may have felt it necessary to support regular attacks on gold prices to dissuade conservative people from putting a majority of their capital into gold. Now, however, the world economy needs much higher gold prices in order to devalue paper money, not against other currencies in a "beggar thy neighbor" policy, but against itself. This can jump start the system. If the Fed continued to support gold price suppression, that would collapse the stock market far deeper than they can afford, most insurers will end up bankrupt, and there will be no hope of avoiding Great Depression II.

 

Where to start...  Federal Reserve Chairmen make regular attacks on gold?  How do they do that?  What particular policy of the Fed (other than printing money in large quantities) is used?  How does that only attack gold and not ALL asset prices?  The author doesn't say.

The world economy needs higher gold prices to devalue paper money?   Against gold?  This is off the wall.  No major currency is valued against gold.  The U.S. cut its last links in 1971.  The dollar is valued against nothing.  If you want gold prices to rise, print more money.  That will send ALL prices up but, hey, you will get gold up as well.  Of course, it won't buy you any more goods since they have risen in price as well but we'll ignore that.

Fed gold price suppression is what is causing the stock market debacle and the insurance companies to go under?   Stocks started to collapse in October of 2007,  gold hung on for another 5 months.  it seems to me that the author has the problem backwards.  Insurance companies couldn't care less about the price of gold, wheat, rubber or any other commodity except to the extent they may have an investment position.  

Quote:

 I think Ben Bernanke is aware of this. Gold shorts will be abandoned, to avoid financial catastrophe. In commenting, I take a practical view, accepting what appears to be so, without passing judgment on the acts and omissions of the last 21 years. 

Is he claiming that the Fed has a large short position in the gold market.  Is this for real? 

Quote:

Anyone who reads the written works of our Fed Chairman knows that Bernanke’s long term plan involves devaluing the dollar against gold. This is the exact opposite of most prior Fed Chairmen. He has overtly stated his intentions toward gold, many times, in various articles, speeches and treatises written before he became Fed Chairman. He often extols the virtues of former President Franklin Roosevelt’s gold revaluation/dollar devaluation, back in 1934, and credits it with saving the nation from the Great Depression. According to Bernanke, devaluation of the dollar against gold was so effective in stimulating economic activity that the stock market rose sharply in 1934, immediately thereafter. That is something that the Fed wants to see happen again.

No one can "devalue the dollar against gold" since it isn't valued against gold in the first place.  In the 1930s it was.  From 1792 up to that point the dollar was defined as a unit of weight of gold (and/or silver).  At the time of the Roosevelt proclamation the dollar was valued at approximately 1/20 of an ounce of gold.  The "devaluation" amounted to changing the value to 1/35 of an ounce.  You can't do that now as the dollar, again, has no intrinsic value to devalue.

Quote:

More important, however, than dwelling on the accuracy of conspiracy theories is the fact that huge international banking firms normally do not take metal deliveries from futures markets. They normally buy on the London spot market. The fact that they are demanding delivery from COMEX means one of two things. Either the London bullion exchanges have run out of gold, or these firms are finding it cheaper to buy gold as a “future” than as a spot exchange.

Well I'm glad to hear that conspiracy theories can be wildly inaccurate.  That confirms my long held belief.  So let's look at this claim.  I have in front of me the Comex delivery summary for December.  It says that the largest delivery (96% of the total) was made by... Bank of Nova Scotia!  One of the largest of the LBMA banks!  You mean that an LBMA bullion bank was the source of all that gold?  Yep.  So much for them having to run to the Comex to buy!  So who took delivery?  The largest acceptance (about half of the total) was from... HSBC!  Another LBMA bullion bank!  Sheesh!!

 

Quote:

 The fact that this backwardation is hidden from the public eye is not surprising. In spite of the ostensible existence of a so-called “London fix”, 96% of all OTC transactions are secret and unreported. The transactions happen solely between two parties, and are done opaquely, in complete darkness. The current London fix may well be just as fake as the bank interest rate reports that comprised LIBOR proved to be, just a few months ago.

If backwardation is "hidden from the public eye", how is it that everyone and their dog is writing about it?  All you need to do is look at the financial section of any major morning paper.  

The "so called London Fix" isn't a fixing for anyone except the banks belonging to the LBMA.  It is the price at which they will trade.  

96% of all OTC transactions are unreported?  I wonder where he got that number?  If I buy a gold coin over the counter from my local dealer, of course it is unreported.   If I buy from my bank it is unreported unless it is a cash transaction that meets government requirements.  No one reports my grocery purchases either.  The price of bread is totally transparent and available to anyone with eyes.  So is the price of gold.  If you want to know what the "real" price of gold is, ask someone that owns it what they'll sell it to you for.  That's what I do and it works great.

I'm done.  This is all to nutty for me.  It is also completely distracting from the real issue which is "How do I prepare myself and my family for what might be coming?".  Chris and company have gone to great lengths to bring us a vision of the future.  We all need to focus on that and how we will deal with it on a personal level.  All this noise about conspiracies, the Comex, the Fed, the LBMA, etc is nonsense and needs to be ignored.

The truth is ugly enough.   We don't need to dress it up with visions of imagined monsters.

 

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suesullivan
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Re: Daily Digest - Dec 6

I agree that the conspiracy theories are a distraction on a number of levels, and I try not to engage in them to any degree. But I was impressed, perhaps unwarrantedly,  with the confident assertions of the seeking alpha article, in particular the assertion that the bank bailout activity of the past couple of months is designed solely to forestall the triggering of insolvency laws requiring the immediate closure of these banks. Is that a common understanding of what's going on at the moment, or more speculation/paranoia?

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Ray Hewitt
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Re: Daily Digest - Dec 6

wdstk46

Beautiful critique! 

When I read this stuff, I tend to store it to memory with all the other opinions. Then I watch and wait. I ask myself, how do these people know these deep dark secrets when they are deep dark secrets? What makes them so sure they can predict the actions of the powers-to-be? I lived with my ex-wife for twenty years and I still couldn't predict her actions during our divorce, even though I knew her motives.

The source of the hidden backwardation claim, might be Antel Fekete. He has a cult following, but I can't make sense out of  him. There is a chorus who claim gold and silver are due for a breakout this winter. Let's see what happens.

We all need to focus on that and how we will deal with it on a personal
level.  All this noise about conspiracies, the Comex, the Fed, the
LBMA, etc is nonsense and needs to be ignored.

Exactly. But I find myself addicted to this topic, always looking for a nugget of useful information. I'm stocked with all the silver and gold I can afford, which I see as a necessary financial insurance. If I never have to use it, I'll pass it onto my children. If I have to use it, it may be for my children.

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mskittyhawk
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Re: Daily Digest - Dec 6

I recommend Katherine Austin Fitts for Treasury Secretary.

Her credentials and her outlook is in the right place. 

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SkylightMT
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Posts: 125
Re: Daily Digest - Dec 6 - Business Closings
presentmoment wrote:

I came across this today. It is amazing to see these many announcements even before the holiday sales figures are in.

http://jonathanklunk.com/2008/11/business-closings-in-2009-due-to-economy/

STORE CLOSINGS AND LAYOFFS:

By the end of Dec. 2008 as announced Circuit City Filed Bankruptcy, they promised to keep all
stores open for the holiday season, but afterwards, they plan on closing 155 stores nationwide.

Ann Taylor closing 117 stores nationwide.
A company spokeswoman said the company hasn’t revealed which stores will be
shuttered. It will let the stores that will close this fiscal year know
over the next month ....

Looks like this was part of an email tht Snopes debunked; contains a mixture of outdated info, some accurate data, and some completely inaccurate data: http://www.snopes.com/politics/business/storeclosings.asp

 

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wdstk46
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Posts: 59
Re: Daily Digest - Dec 6
suesullivan wrote:

 I agree that the conspiracy theories are a distraction on a number of levels, and I try not to engage in them to any degree. But I was impressed, perhaps unwarrantedly,  with the confident assertions of the seeking alpha article, in particular the assertion that the bank bailout activity of the past couple of months is designed solely to forestall the triggering of insolvency laws requiring the immediate closure of these banks. Is that a common understanding of what's going on at the moment, or more speculation/paranoia?

The weirder the conspiracy, the bolder the claim.  I always try to apply a bit of common sense and "Occam's Razor".  That is the rule that says, in a nutshell, all other things being equal, the simplest solution is best.  Conspiracies are never simple and are my very last choice for an explanation.  Stupidity and/or ignorance are much more often the reason things go south.

Having said that, the comments about the banks are close to correct.  The Fed has two objectives, one is to shore up the banks' balance sheets to keep them solvent and the other is to provide them with the money to start makings loans again.  They seem to be succeeding in the first endeavor but I think they may fail miserably a the second.   Time will tell.  Chris's Report tonight is right on target.

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mred
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Re: Daily Digest - Dec 6

"Nor can private counterparties restrict supplies of gold, another
commodity whose derivatives are often traded over-the-counter, where
central banks stand ready to lease gold in increasing quantities should
the price rise
."

--Alan Greenspan, Before the Committee on Banking and Financial Services,
U.S. House of Representatives,
July 24, 1998

http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm

********************************

"And last, the provision of international credits and joint efforts to
influence asset prices (especially gold and foreign exchange) in
circumstances where this might be thought useful."

-- William White, Bank of International Settlements, in his speech "Past and Future of Central Bank Cooperation"

http://www.bis.org/publ/bppdf/bispap27.pdf

*********************************

Barrick Gold, as a defendant of the lawsuit that Blanchard & Co. put forward (accusing Barrick of manipulating the gold market), argued that it should be granted immunity as it was acting as an agent of the Federal Reserve and in conjunction of the bullion bank J.P. Morgan.

http://www.lemetropolecafe.com/img2003/memoformotiontodis.pdf

*********************************

"That day the U.S. announced that the dollar would be devalued by 10
percent. By switching the yen to a floating exchange rate, the Japanese
currency appreciated, and a sufficient realignment in exchange rates
was realized. Joint intervention in gold sales to prevent a steep rise
in the price of gold, however, was not undertaken. That was a mistake."

-- Paul Volcker, commenting on the events of 2-12-73. This was allegedly quoted from the Nikkei Weekly, 11-15-04 issue, but I have no direct link to that (paid subscription).

*********************************

Central banks have a great incentive to manipulate the price of the historical money, otherwise the confidence in their paper gets eroded. They need to carry out "perception management", which also justifies the government's cooking the unemployment numbers, the inflation numbers, and pretty much anything else they say.  Further accusations have been made regarding intervention in the equity markets, this time by Kevin Phillips, old Washington insider (remember him from this website's recommended articles?)The fact that the gold price gets set by basically the interplay of a couple bullion banks ought to give people some pause.

So much for Occam's Razor applied in this context. Also, it is not prudent to try to dismiss some analyst as a leader of a "cult" or something like that. First, it is not an argument. Second, people who visit this website might some day be accused of being cult followers of Chris Martenson, an absurd accusation of course, but one that could be made with equal strength (or better: weakness) as the above remark.

 

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jdownie
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Re: Daily Digest - Dec 6

wdstkk46

You say, "No major currency is valued against gold.  The U.S. cut its last links in 1971.  The dollar is valued against nothing".

I say you are wrong, the government may say the dollar is not valued against gold and you (and others) may believe it, but the market says it is. Last I looked to the tune of 1/772.25 of an ounce of gold.

Gold has not been demonetized, no matter how hard the government tries to pretend it has. Why else do Central Banks list it as an asset on their balance sheets? they could be filling their vaults with other more valuable assets to back their currency liability.

 

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Mike Pilat
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Posts: 929
Re: Daily Digest - Dec 6

jdownie: I agree with you.

Of course gold is valued by the marketplace. Why do we see all this evidence of gold manipulation if gold "didn't matter" to the monetary system?

This may come as a surprise to some, but this "barbaric relic" was, is, and always will be money. There are many practical reasons why "good money" and gold go hand in hand with each other.

I think we've got a lot of peaks going on in this time frame, but perhaps (hopefully??) we will see "peak paper" or "peak fiat" soon. Owning paper and calling it valuable seems to be one of the biggest mistakes and biggest bubbles of modern times. I hope the market reflects this and we come back to our senses. In order for a sustainable monetary system to come about, we require that the money in circulation is a reliable store of human labor or effort. When the money truly reflects hard work (i.e. the money is itself scarce), then we will have a system where money cannot be counterfeited ("printed") and where the monetary system only expands in correlation to real economic growth.

Those arguing that a gold standard causes deflation need to understand that we seem to actually need a lot of deflation now because many bubbles are bursting. Central banks aggravate the problem by trying to inflate a scenario that needs deflation. This will cause more problems down the road, as it always has. The system will only change when the people demand change.

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wdstk46
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Re: Daily Digest - Dec 6
jdownie wrote:

wdstkk46

You say, "No major currency is valued against gold.  The U.S. cut its last links in 1971.  The dollar is valued against nothing".

I say you are wrong, the government may say the dollar is not valued against gold and you (and others) may believe it, but the market says it is. Last I looked to the tune of 1/772.25 of an ounce of gold.

Gold has not been demonetized, no matter how hard the government tries to pretend it has. Why else do Central Banks list it as an asset on their balance sheets? they could be filling their vaults with other more valuable assets to back their currency liability.

The market says no such thing.   Last I looked, under your viewpoint, the dollar was valued at 1/3.11 bushels of wheat.  Is the dollar valued in wheat?  Or Soybeans? or Pork Bellies?

I fully agree that gold is the worlds finest store of value and I own a bunch but it isn't money.  Try to pay your taxes in it.  The link was severed in 1971 and won't be back anytime soon.  The governments hold gold in reserve but not as a currency backing, they hold it as a saleable asset.  Buy gold, but buy it for the right reasons.  

 

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wdstk46
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Re: Daily Digest - Dec 6

Hi mred,

I, too, have read all this and I don't disagree that governments are involved in the markets.  They are involved in ALL markets.  Everything you have quoted here is "old news".  All the actions are fairly transparent, such as the CBGA which is now in round 2.  

My gripe is specifically the allegations made in the "Seeking Alpha" post.  I contend the article was factually inaccurate and could only have been written by someone so involved in proving a "conspiracy" that he was unable to tell fact from fiction.  Occam's razor most certainly applies.  Which is the most likely scenario, that the Comex is on the verge of collapse and their gold reserves are perilously low due to LBMA members running out of physicals thus forcing the Comex to publish fraudulent documents with the backing of the CFTC which could only be discovered by the author,  or that the documents are correct and the author didn't fact check before making his assertions.

Conspiracy theories are a typical response to fear.  All problems can be laid a the feet of the "cabal".  If only we could stop "them" everything would be fine.  Meanwhile, the real problems grow.  I can't stop anyone from believing anything they want to but I do feel the need to try to put people back in focus.  

I have seen the markets from the floor of the exchanges to the boardrooms of major brokers.  I have worked with scalpers and long-term commercials.  I know what goes on in these markets.  I intend to stick to the known facts.  It is the course I recommend to all my friends.

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suesullivan
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Posts: 305
Re: Daily Digest - Dec 6

As a point of information regarding gold availability, in light of the alarming tone of the first two "gold backwardisation" articles, I just made my first gold purchase through coloradogold.com. The woman I spoke with said they are expecting new deliveries of kruggeraands and possibly gold eagles and they still have maple-leafs and a second form of gold that escapes me at the moment. I mentioned the gold website's dire pronouncements that gold is unavailable at any price and she said that's certainly not true for them and that such sites exaggerate dramatically.

fwiw,

Sue

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Mike Pilat
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Posts: 929
Re: Daily Digest - Dec 6

I figure I might as well chip in with some "on the ground" news too.

In spite of the reported gold shortages, I too have had little difficulty getting gold. As a means of disclosure, I live in the greater Washington D.C. metro area. Thus far, I have only found a single shop that can function as a reliable source with "reasonable" prices.

I have watched their inventory and availability of gold shrink greatly in the past 4 months. Though I would consider them to be a pretty busy shop, their gold bullion inventory generally seems to have shrunk to between 50 ounces and 0. They operate on a "just in time" basis now more or less. Generally the gold is about $80 over spot for coins and $40 over spot for bars. The silver bullion prices are generally 40-50% above spot with silver eagles slightly higher than junk silver.

Whereas in the past the shop would reserve gold for up to a week, they refuse to do any reservations now "because the market is too tight." I've personally seen the store swamped with hoards of people some days to the point that the employees are overwhelmed.

I don't know if all the reports of the shortages are real, but I have found this shop to the be the biggest in the D.C. metro area. I can say that they are consistently "running low" and are now operating just in time. Whether or not you call it a shortage, I would be hard pressed to call it an "abundance." But then again, gold is a precious metal for a reason.

 Mike

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mred
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Posts: 96
Re: Daily Digest - Dec 6

HI wdstk46,

Honestly I have not read the "alpha" article you mention, and I wouldn't be surprised that indeed it has all the extreme claims you describe. To the extent that you are refuting those claims, be my guest. But I also think that the accusation of "conspiracy" is thrown around way too frequently, in many occasions as a way to deter discussion. That label has been attached even to the admissions of interventions that I described above and that you accurately described as old news. Given that it is old news and that these actions are transparent, I find it curious that market interventions are called "conspiracies", although not by you as you just explained. But until your last statement, I didn't know. I now accept your Occam's principle use. If the claims are so extreme, it will be a matter of a short time to have empirical evidence to refute them. 

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mred
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Re: Daily Digest - Dec 6

ooops!! I meant that for a different thread. Sorry...

mred's picture
mred
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Posts: 96
Re: Daily Digest - Dec 6

No, I was actually on the right one.... it is way too early man!

jdownie's picture
jdownie
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Posts: 58
Re: Daily Digest - Dec 6

wdstk46

You say, "The governments hold gold in reserve but not as a currency backing, they hold it as a saleable asset."

What is the most saleable asset? Money.

What do you need reserves against? Your liabilities i.e. currency

And of course the dollar is valued against wheat, a lot less wheat than back when the dollar was fixed at

1/20 th of an ounce of gold.

It is also valued against soybeans, porkbellies, oil, iron ore, coal, toilet paper.........

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