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BNP Paribas, France’s biggest bank, halted withdrawals from three investment funds because it couldn’t fairly value their holdings after US subprime mortgage losses roiled credit markets. Assets in the funds were $2.2 billion.

As this took place the FTSE, CAC, DAX and Dow futures plunged. Italian, German, Dutch and US banks have halted liquidations. NIBC Holding N.V. in Holland has absorbed $188 million in losses so far.

As a result of all this the Fed added $24 billion in funds for banks to stem any extra demand and to assist foreign banks if necessary. The ECB, due to a sudden demand for cash from banks, loaned an unbelievable $130.2 billion to banks. As that took place overnight interest rates rose to their highest level in six years. The London Interbank rate rose to 5.86% from 5.35%.

As we predicted this would happen three years ago so it has happened. Liquidity has completely dried up, as investors aren’t recycling their money back because of subprime concerns.

The ECB provided the largest amount ever in a single so-called fine turning operation exceeding the $95 billion provided on 9/12/01 after 911.

So-called ALT-A mortgages, which were supposed to be higher quality than subprime loans, are also suffering rising delinquencies and the harsh scrutiny of rating agencies and rightly so, just as we predicted they would be. Loans that should have never been made.

What the ECB and the Fed are saying is here is unlimited cash to stay in business. The flipside is mega-inflation that eventually will send gold and silver straight up.

The financial markets are under siege and the California State Teacher Retirement System, one of the largest pension funds in the nation, gave asset stripper, LBO, global buyout fund Blackstone $1 billion to invest. They have to be totally insane. This is not a prudent investment for retirement funds. It’s entirely unsuitable. If you are in the fund I’d tell them to cancel.

Companies are extending payments on commercial paper backed by home loans for the first time as the subprime mortgage crisis spreads to debt perceived to be among the safest in the market.

AIG says mortgage defaults are spreading. They say ALT-A delinquencies are as common as those in the subprime category. They said there is surprising distress in the Midwest markets, as well as in Florida and California.

Most retailers posted weaker-than-expected July sales, 61% of retailers missed expectations. Only 39% exceeded forecasts.

The WSJ says also victims of the subprime fallout has been money-market funds, which invest in CD’s and commercial paper, some of which contain CDOs.

A second Goldman Sachs hedge fund is suffering from losses and is selling down some of its positions. North American Equity Opportunities hedge fund is down 15% this year, including July losses of 11%.

Bear Stearns default swap spreads were about 30 BPS wider at 140 BPS, or $140,000 per year for five years to insure $10 million in debt. Countrywide’s swaps rose 40 BPS to 220 BPS.

Tarragon is currently experiencing liquidity issues caused by the sudden and rapid deterioration in real estate markets. That has stopped them from selling - $50 million in financing transactions. Their stock TARR is halted.

75% of retailers have missed Wall Street’s expectations on sales.

Word from the top is that Subprime Mezzanine CDO’s that were 10 to 20 to one levered vehicles containing BBB and BBB- bonds of subprime debt were flogged to unwitting buyers in Asia and Central Europe. That is Chinese banks, the Chinese government, Taiwanese banks, Korean banks and European banks. They held 80% AAA and 20% garbage.

Reits are dead: First Franklin is shutting down. Impac, Accredited Home Lenders and next SCME Mortgage Bankers are dead meat. The world doesn’t have a clue yet as to how bad this will be.

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In a latest revision known as the productivity miracle from the last GDP report, reduced non-farm productivity to 2.1% over the past five years. Over 40 years it has been averaging 2.5%.

This week productivity was revised downward to 1% from 1.6%. First quarter productivity increased only 0.6%. Second quarter productivity was 1.8% versus the first quarter and only +0.6% yoy. Unit labor costs rose 2.1% q-t-q and 4.5% yoy. First quarter unit labor costs were revised to 3% from 1.8%.

Goldman again reconfigured its commodity indexes that again lowered the weighting of gasoline, oil, so that is why gasoline has declined in price. The GSCI is changed every time the administration wants lower gas prices. This is rigging the market. They did the same thing a year ago.

Early Friday morning the latest figures we have are the ECB has injected over $300 billion into the Eurosystem and the Fed has injected $150 billion. We will have more concise numbers later. The Bank of Japan offered to throw in $8.45 billion, the Reserve bank of Australia $4.19 billion, Bank of Canada $1.4 billion and the Bank of Korea just said, “how much do you want?”

We are talking about confidence. That confidence in the financial system is gone. The pros took so long to realize what has been going on and we still do not think they realize what the insider elitists are up too. They do not believe the central banks although they want them to bail out the system. They do not any longer believe the rating system. They are starting to wonder whether derivatives and hedge funds will hold up. They know real estate is history and they are praying the stock markets do not collapse. What the pros don’t seem to understand is that the Fed, US Treasury and other central banks have been manipulating all markets big time for over ten years. As long as they were making lots of money they didn’t care to know.

When confidence dissipates so does growth, economies go into reverse and people lose their jobs. We are already into recession and have been for some time. Our government and Wall Street lie about it and our media refuses to challenge them. There was a loss of confidence in real estate and that is being followed by wide cracks in the financial system.

The in your face sign of escaping confidence was the decision by the ECB, the Fed and other central banks to inject $500 or so billion into the monetary system. They haven’t told you that they’ve been doing this for a long time and their number one target has been the gold price.

All this has been caused by banks refusal to lend money. That has been followed by crisis, central banks intervention and then forced lending at much higher interest rates, which has simply worsened the situation. 

The bottom line is the ECB, the Fed and other central banks are flooding the world with money in Weimer fashion. Gold and silver can only go higher.

We started writing about derivative abuses in 1993, such as marking by model and have chastised Sir Alan Greenspan for his advocacy of no regulation, no scrutiny and no governance of derivative and wise guys. This is another Greenspan Folly.

The pursuit of yield is a never-ending loser and now the chickens are coming home to roost.

While the government reported the economy grew at 3.4% annualized in the second quarter, that strength did not filter into the transport sector. Their tonnage fell 1.8% during the second quarter and was 3.2% lower than the same quarter in 2006. Seventy percent of all tonnage travels by truck so how can it be that the economy grew at 3.4%?

The International Council of Shopping Centers, July same store sales, increased 2.6%, as Wal-Mart’s July sales increased only 1.9% even though they cut prices up to 50% on back-to-school items.

Realty Trac sales foreclosure filings declined 7% mom and are up 87% yoy.

We are anxious to see what happens in Japan over the next few days. The record indulgence in the carry trade-yen short/long everything else, - by individual investors - means that those investors are not only accruing hellacious losses on assets, they are also getting drilled on their yen shorts – double jeopardy.

At Countrywide: Payments are at least 30-days late on about 20% of “nonprime” mortgages on 6/30, up from 14% yoy. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% yoy. For all loans, the rate was 5%, up from 3.9%.

Investors have moved to fully price in a ¼% reduction in US interest rates in the next two months. We believe they are wrong, but if they are right the dollar will collapse and gold and silver will fly.

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On Friday the stock markets very nearly went down like the bridge in Minneapolis.  The profligate policies of the Fed, and in particular the subprime/CDO/adjustable rate-reset debacles which they created with their call for looser credit, ridiculously low interest rates and adjustable rate mortgages for the masses, are now starting to weigh heavily on all financial markets, especially the stock and bond markets.  But yesterday, Thursday, because of the Feds diabolical scheming to suppress gold, a spark was lit like the one that set the Hindenberg ablaze, causing a veritable inferno in the stock markets that was barely prevented from spreading into the next trading day by the Fed which used a fire hose of credit and liquidity to the tune of 38 billion dollars to put out the blaze!  If you count the credit injections from Thursday by the Fed, France and the Bank of Japan in the amount of 162 billion dollars, that makes a total of one fifth of one trillion (yes trillion with a "t") dollars of credit injected into the markets worldwide just to keep them from going down in flames.  Despite this monstrous injection, US stock markets saw their gains from earlier in the week erased almost completely.  We would ask the Fed what they are going to do for an encore.  This is like using a Band-Aid to close a gaping wound.  It is a futile, temporary measure to postpone the inevitable, which is a full-blown recession followed by a depression.

The spark was ignited yesterday, as mentioned previously, by a huge yen hit on gold which also sent the stock markets for a loop as a huge, liquidity-draining, carry trade-unwinding thermonuclear device wreaked havoc everywhere.  At the same time, the credit injections of 162 billion dollars were made by the cartel through their central banks to support markets while the gold hit was going down.  But the Illuminists miscalculated.  The huge credit injection was viewed negatively as an admission that there was a much broader and more intractable problem in the credit markets than was previously indicated.  This fanned the flames even hotter, sending the Dow into free-fall with a loss of 387 points on Thursday.  The market holocaust continued into the next trading day, as the Dow plummeted straight through the psychologically significant 13000 level, suffering a huge 312 point follow-up loss to a low of 12,958.04 before the Fed came in with their fire hose to stop the fire from spreading and to aid the PPT in bidding the Dow back up to a much smaller 31 point loss for a very harrowing day.  Prescriptions for nitroglycerine pills are currently on back order for the pharmacies near Wall Street as the members of the cartel suffer a collective myocardial infarction.

The quote by Sir Walter Scott comes to mind:  "Oh, the tangled webs we weave when we practice to deceive."  We have been warning for some time now that most of the cartel's gold suppression weapons are also lethal for stock and bond markets and Thursday's and Friday's market action gave you but a small taste of what can happen when the cartel tries to cover up their past financial machinations and ongoing stupidity by suppressing gold.  They are taking some terrible chances in their desperation to contain gold, and it is only a matter of time before the detonator button on any one of a myriad of Death-Stars is pushed which causes a thermonuclear explosion that will wipe out the entire world financial system.

Despite the Fed's decision to keep the Fed funds rate at 5.25%, the credit crunch had elevated rates that banks charge each other for overnight loans to over 6% before the Fed stepped in.  Banks are now in fear that on any given day a financial institution they have loaned money to could disintegrate as another subprime casualty occurs or a large customer defaults, and they want a greater return on their money for increased risk as well as a commensurate share of interest earned on loans which are being made at quickly elevating rates from the money borrowed to fund these loans.  They could care less what the Fed says they should charge.  In essence, the banking community said to the Fed:  "You've got to be kidding.  It's time for a reality check.  Financial companies are crashing and burning all around us and you expect us to take a lousy 5.25%, as inflation, which we know is now over 10%, eats away at any profits, and as risk escalates everywhere?  Don't forget, we know how the system really works."  The truth is, they are cutting their own throats by elevating the rates, because this will exacerbate the liquidity-crunch debacle, the real estate debacle, the CDO debacle and the adjustable rate reset debacle, not to mention the killing off of ongoing buyouts, M&A's and stock buy-backs, which will in turn make the markets crash and burn.  They are trapped and they cannot get out.

As the nuclear conflagration in the stock markets continued on Friday, the gold bulls decided to send a message to everyone with the wisdom to hear.  Totally disgusted and fed up with the cartel and its central banks' ongoing gold suppression which had just brought gold down about $6 per ounce from 664 to 658 in the early going, the gold bulls sent gold on an $18 per ounce rocket ride from 658 to 676 over a very short span in three dramatic upward moves on Friday, before gold settled at about 670.  The message is:  "Hey morons, look at gold!  While everything is crashing and burning everywhere, gold is on its way up.  The dollar is toast, so cash and treasuries are no longer safe havens, but gold is and always will be a safe haven from all this turmoil.  Get a freaking clue!"  We also note that much of the credit pumped into the market by the Fed in three bursts seemed to somewhat coincide with the three bursts in gold.  The cartel must have been livid as the credit they injected was used to lift gold.  Ah, the irony of it all!  Now the cartel is faced with a rising gold price each time they inject credit and liquidity.  Their weapon against the credit crunch is gold- friendly, and therefore, from their point of view, counterproductive.  The situation for them is hopeless, and they know it.  PM stocks also moved up as the general markets tanked.  The XAU climbed 1.69 to 144.23 and the HUI climbed an impressive 6.64 to 346.02, very remarkable considering the condition of the stock markets generally.      Gold futures open interest has remained at surprisingly low levels in the 351,000 to 356,000 range for the past 8 trading days.  This shows you just how fearful the cartel is of getting caught overextended in shorts by some out-of-the-blue debacle like we saw this Thursday and Friday, especially when they are playing Russian roulette with financial markets in order to suppress gold.  The dollar is tanking once again on a second and even weaker dead-cat bounce, and open interest in USDX futures has dropped a significant 3951 contracts on Friday as the USDX dropped from 80.744 to 80.679 per NYBOT.  If this terrifying stock action continues, eventually people will stop using the dollar as a safe haven and start looking at gold.  If this happens the dollar will descend into fiat money hell as gold rockets past the moon into interplanetary space.  This may already be happening as the dollar faired rather poorly while everyone was bailing out of the stock markets and gold was rising by leaps and bounds.

Things are looking mighty shaky in the United Goldilocks Matrix!!!   

Again we see a correction to 11,200 to 12,000. Then a correction to 10,300. Then to 8,800 to 9,500 and then to 7,286. Earnings will increase only 4-8% this year and next year they will be lower. The machinations of the central banks will be counterproductive, only worsening the ultimate outcome. Gold and silver will fly.

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-- Posted Sunday, 12 August 2007 | Digg This Article

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