To start as usual the overview from www.prudentbear.com followed by what’s hot and what not
The Morgan Stanley Cyclical index was pounded for 11.9% (down 59.8%) and the Transports for 10.6% (down 31.7%). The Morgan Stanley Consumer index dropped 4.6% (down 31%), while the Utilities added 0.4% (down 31.3%). The broader market was weak. The small cap Russell 2000 sank 10.9% (down 46.9%), and the S&P400 Mid-caps dropped 11.3% (down 48.6%). The NASDAQ100 fell 8.0% (down 47.9%), the Morgan Stanley High Tech index 7.1% (down 51.4%), and the Semiconductors 10.5% (down 55.8%). The Street.com Internet Index fell 5.2% (down 43.5%), and the NASDAQ Telecommunications index dropped 6.9% (down 48.9%). The Biotechs sank 11.5%, increasing 2008 losses to 30.8%. Financial stocks were hammered. The Broker/Dealers sank 21.8% (down 72.9%), and the Banks dropped 23.7% (down 58.3%). With Bullion rallying $58, the HUI Gold index rose 14.2% (down 48%
To the safe boats folks!!! Mine is gold which is NO counterparty risk of anyone or anybody.
Gold
Retail-based demand jumps even as institutions undergo a massive exodus
By Moming Zhou
MarketWatch.com
Wednesday, November 19, 2008
NEW YORK -- Retail investors sharply increased their demand for gold bars and coins in the past few months as they struggled to find a safe place for their money amid the financial crisis, research shows.
But institutional investors have kept the upper hand, according to Wednesday's report from the World Gold Council, a gold mining industry association. Heavy selling by institutions has more than offset retail buying and pushed gold prices to their lowest level in more than a year.
Moves by retail investors, including demand for bars and coins, resulted in a net inflow of 232 tons (7.46 million ounces) in the third quarter, compared to 105 tons in the same time frame a year ago.
The figures, compiled independently for the council by GFMS Ltd, a precious metals consultancy, show strong bar and coin buying in Swiss, German, and U.S. markets.
Meanwhile, gold holdings in exchange-traded funds rose 150 tons, compared with an increase of 4 tons in the second quarter and 139.5 tons in the third quarter a year ago. The peak in ETF inflows occurred in late September after the collapse of Lehman Brothers.
Much of that money added to the gold holdings in the SPDR Gold Trust (GLD), the largest gold ETF, to more than 770 tons in October, a cache that exceeds the official holdings of Japan, which has the world's seventh-biggest gold reserves.
Demand for physical gold didn't slow even when some financial institutions were forced to sell their gold assets to ease the squeeze in their cash balances….
"Funds who would like to keep their asset of last resort are being forced to sell," said Peter Spina, an analyst at GoldSeek.com. "This is causing weakness in the paper gold market price but it is not a true reflection of the physical market."
"There will be more victims of the fund collapse and more forced liquidations even if it requires selling your most desired assets such as precious metals," he added. "Once this process works itself through, the true market prices for gold will readjust."
Gold futures closed at $732.80 Tuesday on the Comex division of the New York Mercantile Exchange, more than 25% lower than its record high above $1,000 an ounce hit in March.
Comex futures dropped to below $700 an ounce last month, the lowest since September 2007.
The London gold-fixing price, a benchmark for gold traded between big institutions, stood at $738 an ounce, down 28% from its record high of $1,023 hit in March.
Despite selling on the institutional side, physical demand for the metal has remained strong.
Including industrial and dental use, physical gold demand in dollar value hit an all-time high of $31.8 billion in the third quarter, the WGC reported. In tonnage terms, it stood at 647.6 tons, the highest since the second quarter of 2007.
... Institutions dump gold
On the other side of the tussle, some institution investors sharply reduced their gold holdings for much-needed cash in the face of the credit crunch.
Institution investment saw a net outflow of nearly 300 tons in the third quarter, according to the WGC, which more than offset the inflows in the retail sector.
Big institutions trade with each other directly in large orders through the opaque over-the-counter markets. They also bet on futures exchanges in New York, Tokyo and a few other places.
Gold was "one of the few assets remaining that could be sold at a reasonable price to meet margin calls on other, worse-performing assets," the WGC said in the report.
The significant outflow in the institutional level explains why the gold price did not perform better in the face of strong jewelry buying and demand for physical gold, the WGC said in the report.
Comex gold futures topped $900 an ounce in September after Lehman's bankruptcy filing. But prices have since seen roller-coaster declines. Futures tumbled 18% in October, the largest monthly loss since February 1983. See story on slumps in gold prices.
Some analysts said gold prices would rebound soon as much of the selling that occurred among institutions had a short-term focus and did not reflect a decline in gold's fundamentals.
Well dear reader what does us the information above show? First of all it shows us that the Gold market is managed (manipulated) because the institutional mentioned are none the less the agents of the Central Banks of which JPMorgan is possible the prime example. That means that the institutional mentioned in fact are the agents of the Central Banks and therefore it is Central Bank selling. The physical gold market was ON FIRE breaking all records while the paper market of futures contracts was being sold off. As we know this was instigated by 1 or 2 US banks selling short 10% of annual gold production and 25% of annual silver production in 4 short weeks during July.
Gold is the canary bird of the economy. As you might know in the past miners used to take a canary bird into the mines. With the canary bird the miners hoped to detect deadly gases on time. So when the canary bird fell dead to the ground, the miners knew that there is a deadly gas. So the canary bird helped them to react on time and thus to protect themselves. Well Gold is the canary bird of the economy. A rising gold prices stipulates that the economy is not doing well. This is certainly the case now and Central Banks know it. Well the Central Banks try whatever they can to keep the canary bird gold at a low price. If investors would start to buy gold in a massive way the Central Banks and their FIAT money (paper money) would fail. So the FIAT fantasy has to be kept alive at any cost. In order to keep prices under control, Central Banks have to sell physical gold via their agents and the report shows us that they are doing it heavily now. Selling physical gold means that Central Banks are reducing their physical reserves and have been doing so for years. Therefore the specialists from www.gata.org estimate that Gold reserves of the Central Banks (and especially the US) are much lower than the official number given. This is certainly possible. There is no proof that this is not correct. There has not been an independent audit of the US Gold reserves for decades. Looking at how the US is defining their reserves gives us a hint that the gold is not there anymore. First the US had the reserves as Gold Reserves on books. Later this was changed to "Custodial Gold" and a couple of months later it was changed to "Deep Gold". Well custodial gold could very well mean that there is physical gold in their vaults but that it is kept in custody and therefore is not part of the US Reserve. If this is correct, what I believe, it means that the reserves are counted double as the real owner counts these reserves as their reserve too. However what does "Deep Gold" mean? In fact nobody apart from those that came up with this definition do know. One of course can guess that it means that there is no gold at all in the US vaults anymore. Deep Gold could mean that the US government might have options or rights on gold that still has to be produced or with other words gold still is somewhere deep in the belly of mother earth. Well as mentioned we do not know it. It is just a guess. Well anyway important to know is that the gold price suppression scheme of the Central Banks needs an ongoing supply of physical gold. Selling physical reduces their supply and once the Central Banks will run out of physical or stop selling or the moment the public gets aware of the situation something will happen. Guess what. The price of gold will go up and I believe we are already close to that point.
Adrian from www.lemetropolecafe.com has the following comment regarding the report before mentioned
Quote
Notice the categorization of "inferred investment". The physical gold market was ON FIRE breaking all records while the paper market of futures contracts (inferred investments) was being sold off. As we know this was instigated by 1 or 2 US banks selling short 10% of annual gold production and 25% of annual silver production in 4 short weeks during July.
When you see the massive record breaking physical demand one has to wonder where the banks might source such supply if they had to deliver on the contracts and WHY would anyone sell such a massive amount of "inferred investment" with the physical market on fire. This is ABSOLUTE VINDICATION of GATA’s WORK. The only viable reason was this was intended to cool off the physical market. It obviously failed. On the contrary it probably stimulated the physical market as real money was being sold at a discount.
The most important point about this report is that the huge record breaking physical demand has to be met with real record breaking supply…but mine supply has declined 9.7% and Central Bank sales that have been reported are declining. This would imply that gold sales or loans that are not being reported are having to fill the growing gap between demand and supply. Such a supply squeeze is totally consistent with the Mints limiting supply, coin melt bars from Fort Knox showing up on the market, and gold supply being rationed to India with pathetic excuses of credit risk exposure and the unprecedented massive covering of the traditional shorts on the TOCOM who are going neutral to net long!
The sell off on COMEX is liquidation of demand for gold that doesn’t exist. This has helped the Cartel but it has NOT SOLVED THEIR PROBLEM OF LACK OF SUPPLY. There are still 250,000 gold futures contracts outstanding that are above and beyond the ability of the COMEX to deliver. A percentage of these contracts will stand for delivery. Perhaps it will be a large percentage, who knows? but we will soon find out. A percentage of this "inferred investment" can shortly become REAL DEMAND for PHYSICAL METAL. You can see from this report that the record demand has strained the system to the limit and created unprecedented shortages. The system can not deliver on even 10% of the Open Interest currently outstanding on COMEX. The stage is set for a coming massive short squeeze. (http://en.wikipedia.org/wiki/Short_squeeze)
Unquote
Well dear reader I do believe that Central Banks do try to manage the gold and silver price. However there are some people who understand that they should hold more of gold as reserves. The Saudis are buying and it seems the Chinese too. Please read on.
China Mulls Raising Gold Reserve By 4,000 Tons: Report
From Dow Jones Newswires
via FXStreet.com
Wednesday, November 19, 2008
BEIJING -- China's central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country's huge foreign exchange reserves, the Guangzhou Daily reported, citing unnamed industry people in Hong Kong.
The newspaper didn't elaborate on the plan.
China's forex reserves, at $1.9056 trillion at the end of September, are the world's largest. U.S. dollar-denominated assets, including U.S. treasury bonds and mortgage agency bonds, account for a big proportion of the forex reserves.
http://www.fxstreet.com/news/forex-news/
article.aspx?StoryId=82afe43d-8d3c-
494d-894d-113c196ed750
Well if Russia would have bought more gold instead of useless green paper with dark ink on it and if they would have invested in Russian companies instead in bonds of a bankrupt country (US Treasury bond/bills), they would not have to face the problems they are facing now with the Ruble under selling pressure and local companies with lack of cash due to the fact that international investors are retreating from Russia and emerging markets. Gold is money and Russia learns it the hard way. Well to be fair I must say that they were buying gold lately but it shows that they should have done so a lot more.
Following a link to an interview with Max Keiser who speaks out absolutely in a frank way.
http://uk.youtube.com/watch?v=dNpfIBmg05g&feature=related
http://www.youtube.com/watch?v=BMzEhCfanbs
Governments can't handle global run on gold coins
By John Crudele
New York Post
Tuesday, November 18, 2008
…Bill Murphy, chairman of the Gold Anti-Trust Action Committee, says the price of spot gold is even more perplexing given the demand for coins and the fact that central banks in Europe have stopped selling gold into the open market.
"Gold should be moving up," Murphy says. "How could there be such a dichotomy between the historic high premium for coins all over the world and the low Comex price?"
His answer? "Today the public is buying gold like crazy, but the US government and the banks that hold bullion are intentionally keeping the price down."
http://www.nypost.com/seven/11182008/business/governments_
cant_handle_global_run_on_go_139306.htm?page=0
Banker Manipulation Of Gold And Silver Prices Further Exposed
http://www.infowars.net/articles/november2008/181108gold.htm
Gold in inflation or deflation period
Well dear reader, lately I got some mail asking me how Gold will behave in a deflationary phase. Well I mentioned a few times that gold historically has done well either in Inflation or Deflation. According to a study of Jastram, in fact Gold did very well in deflation. Jastrom measures the purchasing power of gold. The results are as follows:
• England, inflationary periods
— the purchasing power of gold:
1623–1658: –34%,
1675–1695: –21%,
1702–1723: –22%,
1752–1776: –21%,
1793–1813: –27%,
1897–1920: –67%,
1933–1975: –25%.
• England, deflationary periods
— the purchasing power of gold:
1658–1669: +42%,
1813–1851: +70%,
1873–1896: +82%,
1920–1933: +251%
So what we can see is that in fact gold did far better in a deflation phase than in an inflation phase. If we look at the result during inflation and see a negative sign, that possibly comes as a surprise to many. Well negative does not mean that the gold price did go down it means that gold lost purchasing power. For instance, during the inflationary period of 1933-1976 gold lost 25% of its purchasing power but the gold price rose 1,434%. On the other hand gold might go down in price during a deflation period but, and that is important, according to history, increases in purchasing power.
So Jastroms conclusions are as follows:
• Gold is a poor hedge against major inflations.
• Gold appreciates in operational wealth in major
deflations.
• Gold is an ineffective hedge against yearly commodity price increases.
• Gold does maintain its purchasing power over long periods of time.
Marc Faber
All I wish to point out is that market interventions (a better term is market manipulations) with fiscal and monetary measures bring about unintended consequences, increase volatility and make it more difficult for investors and businessmen to obtain information from the movement of markets. I may add that an unintended consequence of the ban on short
selling of certain stocks (quite a large number) accelerated the unwinding of long positions because investors could no longer hedge their long positions. And when European governments began to guarantee bank deposits it brought about massive selling of assets in emerging markets because bank deposits suddenly became a safe haven. All I can say is that the history of market interventions has been a disaster (in an extreme case the planned economy, which was practiced under socialism and communism) and that they lead to huge economic and financial volatility, great uncertainty and low transparency and visibility. I am mentioning this because I am continuously assailed with emails asking me whether the world will move into deflation or inflation and how gold will perform under deflation. My view is this: We may have first some period of deflation, which induces the chief money printer to print even more money and the Goldman Sachs clerk who was dispatched by his firm to the Treasury to inject even more capital into Wall Street and other financial companies (not without any self interest since his family is the beneficial owner of a large block of GS shares through a trust account).
Eventually this could lead to very high inflation rates. In the meantime, gold should perform relatively well under any scenario It should be noted that under deflation and in an environment of deleveraging gold is likely to trade lower (as it has since its peak in March 2008 at $1032) but that relative to other asset classes it is likely to
appreciate as it has done in the past (see Figure 5). For a more scientific explanation of the behavior of gold under inflation and deflation I am enclosing to this report a Gloom Boom & Doom report I wrote in 2005 in which my friend Fred Sheehan discusses the subject thoroughly. I concede that under deflation (a decline in the overall price level) cash and highest quality bonds are the asset class of choice. However, both cash and bonds represent the liability of someone else. Hence, there is a counterparty risk – even in the case of government bonds since governments can also default! Physical gold held in a safe deposit box outside the US (Canada, Switzerland Luxemburg, Singapore, Dubai etc) does not have a counterparty risk.
Economy news and opinions
Well dear reader to start let's have a look at what Ambrose Evans-Pritchard writes
Volcker issues dire warning on slump
Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasise after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.
http://www.telegraph.co.uk/finance/economics/3474683/Volcker-issues-dire-warning-on-slump.html
30 reasons for Great Depression 2 by 2011 New-New Deal, bailouts, trillions in debt, antitax mindset spell disaster By Paul B. Farrell, MarketWatch Last update: 11:53 a.m. EST Nov. 19, 2008
(Excerpted from larger article)
30 ‘leading edge’ indicators of the coming Great Depression 2
Every day there is more breaking news, proof Wall Street’s greed is already back to "business as usual" and in denial, grabbing more and more from the new "Bailouts-R-Us" bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas — anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.
Scan these 30 "leading indicators." Each problem has one or more possible solutions, but lacks unified political support. Time’s running out. We’re already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:
1. America’s credit rating may soon be downgraded below AAA
2. Fed refusal to disclose $2 trillion loans, now the new "shadow banking system"
3. Congress has no oversight of $700 billion, and Paulson’s Wall Street Trojan Horse
4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets
5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this yea
6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers
7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money
8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states
9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt
10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps
11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up
12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns
13. Fed also plans to provide billions to $3.6 trillion money-market fund industry
14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars
15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion
16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs
17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown
18. Big three automakers near bankruptcy; unions, workers, retirees will suffer
19. Corporate bond market, both junk and top-rated, slumps more than 25%
20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall
21. Unemployment heading toward 8% plus; more 1930’s photos of soup lines
22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists
23. China’s sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai
24. Despite global recession, U.S. trade deficit continues, now at $650 billion
25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities
26. Now 46 million uninsured as medical, drug costs explode
27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt
28. Outgoing leaders handicapping new administration with huge liabilities
29. The "antitaxes" message is a new bubble, a new version of the American dream offering a free lunch, no sacrifices, exposing us to more false promises
30: At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan’s Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America’s problems will take years and will burn trillions.
He sees "nothing but large increases in the deficit … I think it would be worse than the depression. … Before I go to sleep at night, I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of U.S. government bonds." It’ll get worse because "the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government."
Reuters concludes: "Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. ‘I just want to get people thinking about this, and to realize this is a road to disaster,’ said Whitehead. ‘I’ve always been a positive person and optimistic, but I don’t see a solution here.’"
We see the Great Depression 2. Why? Wall Street’s self-interested greed. They are their own worst enemy … and America’s too.
http://www.marketwatch.com/news/story/well-great-depression-2-2011/story.aspx?guid=%7BB28B49B5%2DEFD1%2D4941%2DB57E%2DA2BA1545BA09%7D&dist=TNMostRead
The Kondratieff cycles are certainly an interesting study to find out where we might be in the long cycle. I wrote about Kondratieff cycles in one of my musings from December 2007 (http://themusingsoffritz.blogspot.com/search?updated-min=2007-01-01T00%3A00%3A00%2B01%3A00&updated-max=2008-01-01T00%3A00%3A00%2B01%3A00&max-results=33).
Following some more information about Kondratieff
FINANCES AS THIEVERY
Part 1: http://www.rpmonitor.ru/en/en/detail.php?ID=10494
Part 2: http://www.rpmonitor.ru/en/en/detail.php?ID=10495
Part 3: http://www.rpmonitor.ru/en/en/detail.php?ID=10496
The essay (analysis and prognosis) on the global crisis with applications to the economic paradigm shift.
NIKOLAI KONDRATIEV AS THE MIRROR OF THE GLOBAL CRISIS
Part 1: http://www.rpmonitor.ru/en/en/detail.php?ID=11609
Part 2: http://www.rpmonitor.ru/en/en/detail.php?ID=11610
Part 3: http://www.rpmonitor.ru/en/en/detail.php?ID=11611
From Kondratieff let's go to the article from Global Research
Global Research: "The financial crisis is deepening, far more serious than the Great Depression, system of international payments now at risk"
This crisis is far more serious than the Great Depression. All major sectors of the global economy are affected. Recent reports suggest the system of Letters of Credit as well as international shipping, which constitute the lifeline of the international trading system, are potentially in jeopardy. The proposed bank "bailout" under the so-called TARP is not a "solution" to the crisis but the "cause" of further collapse. The "bailout" contributes to a further process of destabilization of the financial architecture. It transfers large amounts of public money, at taxpayers expense, into the hands of private financiers. It leads to a spiraling public debt and an unprecedented centralization of banking power. Moreover, the bailout money is used by the financial giants to secure corporate acquisitions both in the financial sector and the real economy In turn, this unprecedented concentration of financial power spearheads entire sectors of industry and the economy into bankruptcy, leading to the layoff of tens of thousands of workers . . .
http://www.globalresearch.ca/index.php?context=va&aid=10977
Well dear reader the problems we are facing right now are too big to bail Throwing more money at the problem will just mean more money going into a black hole.
FED
In the past few weeks, bank reserves with the Federal Reserve have gone up by an incredible 6,500% to more or less US$590 billion. This has not been accompanied by an equivalent increase in the Fed's non-banking liabilities (deposits by the US Treasury). In other words, the Fed has now started to increase its expansion of the money-supply by using not only its helicopters but the newly acquired B52 (http://en.wikipedia.org/wiki/B-52_Stratofortress) too. This money creation out of nothing or out of thin air might very well result in inflation or hyperinflation in it’s purest form. Furthermore, the effective Fed Funds Rate has now dropped to 0.37%, which is significantly below the official Target Rate of 1%. So, the Fed is literally printing money and giving it away to its member banks for less than the official rate. This is quantitative easing that is not officially announced by the FED. This is certainly not what one could describe as transparency or honesty and is in my opinion one step further to consolidate the United Socialist States of the Americas.
Quantitative Easing
guardian.co.uk, Tuesday October 14 2008 12.10 BST
Quantitative easing is what non-economists call ‘turning on the printing press’.
In extreme circumstances, governments flood the financial system with money, easing pressure on banks by giving them extra capital.
Ben Bernanke, the chairman of the Fed, won the nickname ‘helicopter Ben’ when he floated just such an idea earlier this decade. US economist Milton Friedman had originally said it would be theoretically possible for governments to drop large amounts of cash out of helicopters for the public to pick up and spend."
http://www.guardian.co.uk/business/2008/oct/14/businessglossary
By John Kemp Reuters Friday, November 14, 2008
Quietly, without fanfare, the Federal Reserve has turned on the printing presses. The central bank is flooding the market with enough excess liquidity to refloat the banking system -- and hopes to generate an upturn in both economic activity and inflation in the next 12-18 months to prevent the economy falling into a prolonged slump.
Since the banking crisis intensified in September, the Fed has been rapidly expanding the credit side of its balance sheet, providing an ever-increasing array of facilities to support the financial system (repos, term auction credit, primary discount credit, broker-dealer credit, commercial paper funding, money market mutual fund liquidity and term securities lending).
Total credit extended by the central bank has surged from an average of $885 billion in the week ending August 27 to $2.198 trillion in the week ending November 12. Credit extensions surged another $142 billion last week alone -- mostly in form of increased term auction credit (+$114 billion) and other miscellaneous credits the central bank does not break out (+$41 billion)…
http://blogs.reuters.com/great-debate/2008/11/14/ quantitative-easing-has-begun/
Misleading accounting
Financial institutions and their balance sheets
Well dear reader, I mentioned a few times that one should look closely what the financial intuitions put on their balance sheet. I mentioned a couple of times that assets in Level III and some of the assets in Level II are valued at fantasy prices. Prices these assets could never be sold. Well some of these assets have now been moved to the FED and the FED even pays the banks interest on this crap (this as such is already incredible). Apart from these overvaluing assets the banks, and especially the US banks, in the past moved assets off balance, into so called SIV Special Investment Vehicles. These SIV helped the financial institutions to paint the situation in a much more rosy way than the real ugly facts would have shown. Well these SIV assets, although not on the balance sheets anymore, are still to an important extent risk that sooner or later will haunt the financial institutions because they will have to respond to demands. Following a comment found on the net.
Quote
Citicorp has a $2 trillion balance sheet - twice the size of AIG's, or the same size roughly as AIG and Goldman combined. Why do I use the AIG/GS analogy? Because we can assume Citi's assets are of kind and quality as both AIG and GS. I took a look at Citi's latest quarterly filing and the disclosure stinks. But let's generously say that Citi needs to take down the value of its assets, generically, by 20% and be generous and not include off-balance-sheet items in that mark-down. Rest assured Citi has plenty off-balance-sheet of what destroyed AIG and Wamu and Lehman and Bear and Wachovia...
If you generically reduce the value of Citi's stated balance sheet by 20%, that would shear $400 billion off vs. Citi's stated book value of $126 billion. Did they teach Vik Pandit how to spell "i-n-s-o-l-v-e-n-t" at his University?
Citi paid $800 million for Pandit's old hedge fund, Pandit made $165 million on the sale, and they closed down that hedge fund June, just 11 months after Pandit flipped into Citi. Can someone please have their Congressman investigate Pandit and Citi on this transaction? Citi also announced the closing of another hedge fund it runs and it has roughly $800 million in debt that Citi will be liable for AND they are absorbing another $17 billion in off-balance-sheet SIV assets that are no doubt worthless.
Unquote
Citigroup Under Siege Eyes Government Rescue
Shares of Citigroup fell another 20% today to $3.77 and touched a new low at $3.05. Billed as "too big to fail" Citigroup May Get Government Rescue.
http://globaleconomicanalysis.blogspot.com/2008/11/citigroup-under-siege-eyes-government.html
Citibank
Citigroup's options dwindle as shares under $4
Citigroup's options are dwindling along with its stock price as the credit landscape deteriorates and fears escalate about future loan losses at the company.
As the banking giant's shares slid below $4, analysts said Friday it may be forced to merge or sell some of its prized businesses. Citigroup has already raised $75 billion in capital this year, including a $25 billion cash investment from the government — and none of it has been enough to muster confidence
http://news.yahoo.com/s/ap/20081121/ap_on_bi_ge/citigroup_3
What would happen if we would list of those that are not credit worthy, using prudent assessment as per 1999?
Not qualify would:
1. Most banks and lenders. Balance sheets loaded with toxic "assets", off-balance sheet toxic "assets" which if brought over to the balance sheet would immediately render the firm insolvent, "assets" which are still market to fantasy rather than real world realities. With other words, the list of reasons why banks themselves are poor credit risk is nearly endless.
2. Most consumers. The percentages of "debt owners" whose mortgages exceeds the value of their home is about 25% now, but this was as of September. One wonders what the number will be next year.
Read on
http://www.oftwominds.com/blognov08/trends-debt11-08.html
on the same topic a MUST READ
America’s Mark-to-Model Banking System (revisited) Posted on November 20th, 2008
Reflection time - earlier in the year I put together a chart for my own personal use showing all financial institutions Level 1, 2 and 3 assets vs their shareholder equity, tier capital etc. After not too long I realized it was a fairly good guide to troubled financial institutions.
I posted it on the blog on Oct for all of you guys and got emails about it for a month. I think its time to review the chart because it clearly shows why all this is happening and why TARP could not be used to buy distressed assets.
Everyone was focused on Level 3 and glossed right over Level 2, which could be equally as toxic and marked to some sort of internal proprietary modeling system that give these assets much more value than reality. For many of these firms at the top of the list a mere 5% haircut in their Level 2 book renders them insolvent. This is where a lot of that nasty commercial resides.
Citi said today that its balance sheet is not that much different that Chase - by the looks of Chase’s Level 2 assets to equity, they better hope not.
Remember, its not a liquidity problem, its a solvency problem, which this chart clearly shows. The institutions listed here were my top 25 short picks earlier in the year based upon this chart. Some still look good. Please note that I have not updated this chart completely because I have not had the time but since I have not heard of very many banks selling massive amount of bulk assets, I would assume that these numbers have not shrank, more likely grown. –
Best Mr Mortgage
http://mrmortgage.ml-implode.com/2008/11/20/americas-mark-to-model-banking-system-revisited/
Well dear reader the only thing I can say is be careful. Maybe being on the safe boats is not such a bad idea.
I almost forgot to mention that not only the financial institutions try to avoid to show us the true situations (I tried to avoid in a nice way the word fraud) but many other companies do the same.
Some of them might be the following examples
GE or Junk?
Well dear reader although I am repeating certain opinions from time to time, and therefore I am warning once again about GE, I believe it is important to get this particular information as GE bonds are in many portfolios. What shall be done? Well one should follow the development closely. In case the exposure to GE or the financial sector (GE is quasi financial sector) is high, a reduction might be something to consider. If you hold GE it might make sense to read the following article carefully.
General Electric: Genuine Risk of Collapse?
General Electric (GE), the legendary American institution, founded in 1878 by Thomas Edison, is in deep trouble. Its PR machine has been in constant spin mode as the company sinks deeper into despair. It is one of the few companies in the U.S. that still retains a AAA rating. Considering Moody’s and S&P’s track record, rating companies and financial instruments, that AAA rating is not worth the paper it is written on. One look at GE’s balance sheet will convince you they do not deserve a AAA rating. AAA companies do not need to take the desperate actions that GE has taken in the last few months.
http://seekingalpha.com/article/106445-general-electric-genuine-risk-of-collapse?source=front_page_most_popular_articles
GM/Ford/Chrysler
Well dear reader the solution for the automakers might be that they declare themselves financial institutions too. All of them have a financial arm. Being financial institutions they even might be able to get part of what is being looted out of the government's coffers right now.
Plunge Protection Team or the Presidential Working Group for Financial markets
Well dear reader I have mentioned the PPT a couple of times in my past musings. The visible hand of uncle Sam, the PPT is everywhere, please read the following pdf file
Furthermore check the following link
http://seekingalpha.com/article/106606-options-trader-tuesday-outlook
Iceland
Well dear reader, Iceland is certainly an example of what can happen to other countries as well. Therefore please read the following article
http://www.ft.com/cms/s/0/66c87994-aec1-11dd-b621-000077b07658.html?nclick_check=1
Equity
Well we have to wait until we might see a year end rally that might run until February/March 2009. As long as we go lower it is better to be on the sideline. Following what Enrico Orlandini thinks
Quote
In conclusion, I have no idea if the support at 7,287 will hold or not but I suspect it will fail. I frankly do not see how the Dow can exhaust the urge to sell in just 700 more points. If I am correct then I would expect to see a hard fall down to 5,890 in a short period of time; maybe in just three to five sessions. Once we do see a bottom, I would expect to see a sixty to ninety day rally that would take stocks as high as 9,063. That of course would promote talk of a new bull market, suck in new cash, and then set the suckers up for a move down to an even lower low. In short, I am convinced this bear market still has a long way to go in terms of points and time. Oh, and look for a lot of volatility!
Unquote
Commodities
The liquidation of essentially all assets continues due to the massive global debts that need to be repaid, much of them in U.S. dollars, with the incredibly ironic result being that in the near-term the U.S. dollar has risen significantly, further hurting all commodity positions (although one day soon the financial markets will understand that U.S. dollar foreign exchange rates are meaningless). I liken the current U.S. dollar rally to two things: 1) the stern of the Titanic lurching skyward when the ship cracked in half, only to sink to the bottom shortly thereafter, and 2) the tide going out just before a tidal wave hits. Consequently, most commodities are now trading below their respective marginal costs of production, an incredible occurrence given that global supplies of most commodities (gold, silver, oil, and one dear to my heart, cobalt, to name a few) are at historically low levels. Projects are being cancelled and delayed globally as a result, with the unintended consequence that when the global deleveraging slows up, the supply/demand balances in most commodity markets will be mind-blowing, potentially yielding enormous upward price pressures at a time when global Central Banks are simultaneously on a money-printing frenzy unprecedented in history. In other words, the immediate aftermath of this U.S.-led and U.S.-promulgated global financial panic is that it has driven many assets to levels that will be even more harmful to the already delicate supply/demand balances that exist as we speak, including the stronger dollar which has additionally negative unintended consequences of its own. Most financial assets, particularly in the U.S., are still overvalued in my view (PARTICULARLY TREASURY BONDS!), but most real assets appear extremely undervalued, PARTICULARLY gold and silver due to the aforementioned manipulation.
Must Reads
FINANCES AS THIEVERY
Part 1: http://www.rpmonitor.ru/en/en/detail.php?ID=10494
Part 2: http://www.rpmonitor.ru/en/en/detail.php?ID=10495
Part 3: http://www.rpmonitor.ru/en/en/detail.php?ID=10496
NIKOLAI KONDRATIEV AS THE MIRROR OF THE GLOBAL CRISIS
Part 1: http://www.rpmonitor.ru/en/en/detail.php?ID=11609
Part 2: http://www.rpmonitor.ru/en/en/detail.php?ID=11610
Part 3: http://www.rpmonitor.ru/en/en/detail.php?ID=11611
http://mrmortgage.ml-implode.com/2008/11/20/americas-mark-to-model-banking-system-revisited/
http://www.guardian.co.uk/business/2008/oct/14/businessglossary
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