Wednesday, September 30, 2009

Latest From Prof. Fekete

  • The Supply of Oxen at the IMF
    Some years ago I penned a paper with the title “The Supply of Oxen at the Fed”. I am indebted to Alan Greenspan for a great line in one of his speeches, entitled The History of Money, from where I borrowed my title. He wrote: “If fiat money falters, we may have to go back to oxen as our medium of exchange. In that event, I trust, the Federal Reserve will have an adequate inventory of oxen.” My article was designed to reassure Mr. Greenspan that the supply of oxen at the Fed was very secure indeed, in no small measure due to his stewardship.
  • Has Barrick Been Barricked by the U.S.?
    According to an announcement dated September 8, 2009, Barrick is going to throw into the dustbin its long-standing hedge policy, and pay for buying back its hedge-book by diluting the value of its common stocks through issuing more than 81 million new shares, or about 10 percent of the outstanding. The so-called hedges of Barrick have been thoroughly discredited and will soon be history. So-called, because the long-term forward sales contracts in question that the parvenu gold miner has invented and flaunted are not proper hedges and never have been. They are a fraud. They are naked short positions pretending to be balanced by gold ore reserves in the moon (or on this earth which, for hedging purposes, is practically the same thing). Part of the newsworthy story, of course, is the fact that the hedge book of Barrick has been increasingly under water for some nine years now, threatening the unfriendly giant with drowning.

High Gold Price Curtails Indian Imports

India’s Gold Imports Drop for Fifth Month, Traders’ Group Says

Sept. 30 (Bloomberg) -- Gold imports by India, the world’s biggest buyer, probably fell for the fifth month in September as rising prices deterred jewelry buyers, a traders’ group said.

Overseas purchases may total 50 metric tons, compared with 54 tons a year ago, said Harmesh Arora, vice president of the Bombay Bullion Association Ltd., citing preliminary data.

“The overall imports will still be less than last year as prices are still too high,” Arora said...

...India’s gold purchases have fallen every month since April and imports last month were 21.8 tons compared with 98 tons a year earlier, according to the association.


"US secretly tried to make deal with Goldman Sachs in wake of financial crisis"

NEW YORK, N.Y.—The government secretly tried to orchestrate a deal involving Goldman Sachs in the week following Lehman Brothers’ collapse and considered using the Federal Reserve to help support such a transaction, Andrew Ross Sorkin reports in the new issue of Vanity Fair.

In an excerpt from his forthcoming book, Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves, Sorkin reports that the deal, which was nearly consummated, would have merged Goldman Sachs and Wachovia. Henry M. Paulson, the Treasury secretary and former C.E.O. of Goldman, was deeply involved in the process, contacting both Lloyd Blankfein, Goldman’s current C.E.O., and a Wachovia board member, and strongly urged both to consider it. Wachovia’s C.E.O., Robert Steel, was a former vice-chairman at Goldman Sachs and Paulson’s former number two at the Treasury Department.


Some parts of this story don't totally make sense, but interesting nonetheless.

Like It Never Even Happened

Market Woke Up On Wrong Side Of The Bed

Chicago PMI the culprit: 46.1 vs. 52 exp

Global Governance (by the few, for the many)

Morgan Stanley's Mack Proposes Single Global Bank Regulator

Sept. 30 (Bloomberg) -- Morgan Stanley Chief Executive Officer John Mack, who struggled to return the bank to profitability amid the financial crisis, said a single regulator should oversee financial institutions worldwide.

“A better system would be one uber-regulator,” Mack said in an interview in New York for Bloomberg Television’s “Conversations with Judy Woodruff,” parts of which will air today. “We do need an overall systemic-risk management that everyone buys into. It’s not a U.S. systemic boundary -- it’s a global systemic risk manager.”


But, but, but... I thought regulation was anathema to these greedy capitalist pigs - not to mention "uber-regulation" on a global scale. Sorry, but the real world isn't as simple as a Micheal Moore movie. Why do big firms push for regulation? To drive up costs to competitors, capture friendly regulators, placate populist indignation, create barriers to entry, incrementally build a global system that can circumvent economic nationalism and set up oligopolies in new markets like carbon credit trading, just to name a few...

Large banks have always been international in nature and have sought regulation to protect their government subsidized monopolies...

GOFO, Libor, UST & Mortgage Rates

Duration / GOFO / LIBOR / UST
1 month / .30333 / .2456 / .01
3 month / .35833/ .2869 / .12
6 month / .47167/ .6288/ .18
1 year / .68333 / 1.2638/ .39
(as of today)

Best Mortgage Rates
30yr FRM /4.9
15yr FRM / 4.52
5/1yr ARM / 3.88
(as of yesterday)

10 Year Note 3.30
10 Year Muni 2.95
10 Year TIPs 1.54

Econ Data; Fed & Treasury Info


Why There's A Cartel:

"Insured" Commercial Banks:

Total Tangible Assets = $11,385,309,000,000
Total Liabilities = $10,525,879,000,000
Adjusted Equity = $859,000,000,000

12.25 to 1

MBS held = $1,157,041,000,000


p.s. I'm beginning to embrace the extended 13 digit notation so as to help us appreciate how far we've come. I figure if the banks/fed (ultimately debtors) go through all that trouble to add 'em I should, at the very least, show due reverence and display them in all their magnificence.

Tuesday, September 29, 2009

U.S. Economic and Interest Rate Outlook - Paul Kasriel

(Northern Trust - U.S. Economic Outlook)

Glenn Greenwald Is The Man

  • Just another example of why one should eschew the mainstream press and seek alternative media...

Gold Relatively Strong Despite $/Treasury Strength

Shadow Inventory Of Unsold Homes A Real Problem

This, along with this, should trouble those predicting a strong recovery for the mortgage/housing market in 2010 and/or 2011.

From the Bloomberg article on shadow foreclosure inventory:

...Legal snarls, bureaucracy and well-meaning efforts to keep families in their homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. While that buys time for families to work out their problems, some analysts believe the delays are prolonging the mortgage crisis and creating a growing "shadow" inventory of pent-up supply that will eventually hit the market...

...As of July, mortgage companies hadn't begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn't yet acquired the property. The figures don't include home-equity loans and other second mortgages.

Moreover, there were 217,000 loans in July where the borrower hadn't made a payment in at least a year but the lender hadn't begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren't in foreclosure, up from 8% a year earlier...

...According to Collateral Analytics, a housing research firm, homes that have been foreclosed on typically sell at a 10% to 50% discount...

..But the number of foreclosures is expected to increase in the fourth quarter as mortgage-servicing companies determine who is eligible for a loan modification and who isn't. "We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running" for a loan modification or other alternatives, says a Bank of America Corp. spokeswoman. Foreclosure sales had dropped to "abnormally low" levels in response to government efforts to stem foreclosures, she adds...

Some day - eons from now - the human species will evolve (assuming we don't destroy ourselves first) and finally accept this simple truism: when you try to reflate a debt deflation brought on by the collapse of an asset bubble all you do is prolong the contraction without a compensatory drop in severity(at the onset). (Although, the drop can be cushioned in the short-term with counter-cyclical fiscal and easy monetary policy; and we all know that in the world of political-economy there is no long-term.)

Remember: bubble = problem; deflation = solution. Crazy, I know.

Broke: The New American Dream

USD Trying to Bottom / Bounce


but I'm not gonna hold my breath...

August Price Statistics (Cleveland Fed)

The CPI jumped up 5.5 percent (annualized rate) in August, almost entirely on a spike in gasoline prices (the BLS says roughly 80 percent of the increase in the overall index was due to the increase in gas prices). Still, the 12-month growth rate in the series is down 1.5 percent. The core CPI (excluding food and energy prices) rose 0.8 percent in August, pushing its 12-month trend down 0.1 percentage point to 1.4 percent.

There were a couple rather curious price moves during the month. First, the price for new vehicles fell 14.7 percent in August, its largest monthly price decrease since the early 1970s. This is in part due to how the BLS calculated the effect of the CARS rebate on the price of new vehicles. Also, used car and truck prices jumped up 25 percent in August (their largest increase since 2004)... Elsewhere, OER (owners’ equivalent rent), which comprises roughly 25 percent of the overall CPI market basket, rose 1.0 percent in August after a virtually flat reading in July...

...The underlying price change distribution showed less softness in August, as roughly 30 percent of the index (by expenditure weight) exhibited outright price decreases, compared to nearly one-half of the index in July. Still, just 26 percent of the consumer market basket rose at rates exceeding 3.0 percent in August, compared to an average of 35 percent so far this year...

...Both one-year ahead and longer-term (5 to10 years ahead) average inflation expectations from the University of Michigan’s Survey of Consumers ticked up in early September. One-year-ahead expectations rose 0.1 percentage point to 3.1 percent, while longer-term expectations increased from 3.1 percent in August to 3.3 percent. While short-term expectations have bounced around over the past year (likely following food and energy prices), it is not clear that longer-term expectations have shifted in any meaningful way recently, as the series has remained close to its five-year average of 3.4 percent.

Complete Aug Price Stats

GOFO, Libor, UST & Mortgage Rates

Duration / GOFO / LIBOR / UST

1 month / .33000 / .2463 / .01
3 month / .39600/ .2897 / .10
6 month / .48000 / .6313/ .18
1 year / .67600 / 1.2538/ .39
(as of today)

Best Mortgage Rates
30yr FRM /4.97
15yr FRM / 4.59
5/1yr ARM / 3.91
(as of yesterday)

10 Year Note 3.32
10 Year Muni 2.95
10 Year TIPs 1.56

Econ Data; Fed & Treasury Info


Monday, September 28, 2009

A Cold Winter = Some Unexpected Cost-Push Price Inflation (at the margin at least)

U.S. Northeast May Have Coldest Winter in Decade

Sept. 28 (Bloomberg) -- The U.S. Northeast may have the coldest winter in a decade because of a weak El Nino, a warming current in the Pacific Ocean, according to Matt Rogers, a forecaster at Commodity Weather Group.

“Weak El Ninos are notorious for cold and snowy weather on the Eastern seaboard,” Rogers said in a Bloomberg Television interview from Washington. “About 70 percent to 75 percent of the time a weak El Nino will deliver the goods in terms of above-normal heating demand and cold weather. It’s pretty good odds.”...

...U.S. inventories of distillate fuels, which include heating oil, are at their highest since January 1983, the U.S. Energy Department said Sept. 23. Stockpiles of 170.8 million barrels in the week ended Sept. 18 are 28 percent above the five-year average.


Almanac predicts bitterly cold winter for parts of U.S. (Sep 2)

...The longtime periodical, published since 1818 and famous for its long-range weather predictions, is out with its annual winter forecast, which says Old Man Winter is really going to hammer folks in the Midwest and upper Great Lakes region with very cold and very snowy conditions...

...But don't let your guard down if you live along the East or West coasts.

Farmer's Almanac managing editor Sandi Duncan says no one will be immune to the rough weather this winter...


Could increased demand from colder weather mitigate demand destruction from economic contraction and a build-up in inventories? The market seems to have already digested inventory and demand trends so a surprisingly cold winter could push oil/fuel prices up which -alongside monetary/fiscal reflation and a weakening dollar- could lead to increased cost-push, price inflation. This could have a double effect on consumption: 1) the obvious displacement of discretionary spending and, 2) a ripple effect of cost side pricing pressure throughout the producing/servicing sectors and the consequent loss of consumer purchasing power.

Cracks In The Financial Establishment?

World Bank Chief to Take Shots at the Fed

...In a speech he’ll deliver at the Paul H. Nitze School of Advanced International Studies of the Johns Hopkins University Monday, Mr. Zoellick says central banks around the world fell down as regulators. He questions whether Congress should give the Fed any more power as it looks for ways to revamp financial sector oversight.

“Central banks failed to address risks building in the new economy,” Zoellick says...

Zoellick is a veteran U.S. economic-policy official who served at the U.S. Treasury from 1985 and 1993 where he was, among other posts, deputy assistant secretary for financial institutions policy under then Secretary James A. Baker III...

...“It will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority. My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators. Moreover, the Treasury is an Executive department, and therefore Congress and the public can more directly oversee how it uses any added authority...”


Yuan Bonds Issued in Hong Kong

Beijing sells 1st yuan bonds in Hong Kong

BEIJING (AP) - Beijing sold government bonds denominated in the mainland's yuan for the first time Monday in Hong Kong, adding to gradual moves to expand the international use of its tightly controlled currency.

Bonds from the 6 billion yuan ($875 million) issue were on sale to the public at Hong Kong banks. There was no immediate word on how well they were selling and how many were allocated to institutional investors...

...Monday's sale should increase the private sector use of the yuan, according to finance analysts."


GOFO, Libor, UST & Mortgage Rates

Duration / GOFO / LIBOR / UST
1 month / ..34600 / .2463 / .01
3 month / .44167 / .2825 / .09
6 month / .49667 / .6388/ .19
1 year / .66333 / 1.2550/ .40
(as of today)

Best Mortgage Rates
30yr FRM /4.98
15yr FRM / 4.57
5/1yr ARM / 3.94
(as of yesterday)

10 Year Note 3.31
10 Year Muni 2.96
10 Year TIPs 1.54

Econ Data; Fed & Treasury Info


Sunday, September 27, 2009

GOFO & Lease Rates (Gold)

The State, The Masses, and Perpetual War

"In later times... growth [of governmental authority] has continued at an accelerated pace, and its extension has brought a corresponding extension of war. And now we no longer understand the process, we no longer protest, we no longer react. This quiescence of ours is a new thing, for which Power has to thank the smoke-screen in which it has wrapped itself. Formerly it could be seen, manifest in the person of the king, who did not disclaim being the master he was, and in whom human passions were discernible.
Now, masked in anonymity, it claims to have no existence of its own, and to be but the impersonal and passionless instrument of the general will.

But that is clearly a fiction." - On Power, Bertrand De Jouvenal

I thought that quote was appropriate as the drumbeat for a new conflict in the Middle East intensifies:
etc. etc. etc.

"We are ending where the savages began. We have found again the lost arts of starving non-combatants, burning hovels, and leading away the vanquished into slavery. Barbarian invasions would be superfluous: we are our own Huns" - ibid

UPDATE: According to MI6 the venal, ruling oligarchy of Saudi Arabia gives the nod to Israeli flyovers

Weekly Gold COT Update (Sep 22)

Total COT Positions as of Sep 22 vs. Gold price (weekly, a.m. fix)
[grey: non-reporting; blue: commercial(hedging?); red: non-commercial, reporting speculative; black: spreading]

Concentrated Positions vs. Commercial Shorts vs. Open Interest

Friday, September 25, 2009

Where's John McClane When You Need Him?

Robbers fly in by helicopter to raid Swedish cash depot

Masked gunmen used a stolen helicopter and explosives to engineer a spectacular raid on a cash depot in Stockholm yesterday, breaking into the building through the roof and flying off with bags of cash, police said.

The daring pre-dawn heist stunned police, who could not deploy their own helicopters to the scene because explosives had been placed at their hangar.

Investigators believe at least 10 professional criminals were involved...

At least these criminals don't pretend they're working for the "collective good" as they rob us blind. I'll take a good ole' fashioned, creative heist over a bank bailout any day.

Fed Adds $3 Bil in SDRs to Balance Sheet

Not sure if this is significant or not but the fed has increased its holdings of SDRs (
Special Drawing Rights) from $2.2 Bil to $5.2 Bil during the last week. Will keep an eye on this...

GOFO, Libor, UST & Mortgage Rates

Duration / GOFO / LIBOR / UST

1 month / .40800 / .2463 / .01
3 month / .41833 / .2825 / .09
6 month / .48167 / .6363/ .19
1 year / .65000 / 1.2375/ .39
(as of today)

Best Mortgage Rates
30yr FRM /4.98
15yr FRM / 4.57
5/1yr ARM / 3.94
(as of yesterday)

10 Year Note 3.37
10 Year Muni 3.01
10 Year TIPs 1.60

Econ Data; Fed & Treasury Info


Thursday, September 24, 2009

Fed Balance Sheet Update (Sep 24)

Crony Capitalism Continues

Volker Says Obama Plan Leaves Opening for Bailouts

WASHINGTON (AP) — Paul A. Volcker, a top White House economic adviser, said Thursday that the Obama administration’s proposed overhaul of financial rules would preserve the policy of “too big to fail” and could lead to future banking bailouts...

...Mr. Volcker said he did not differ with the administration on most of its proposals and that he took “as a given” that banks would be bailed out in times of crisis...


Forecasting Future Savings Rate

As domestic dis-inflation, deflation expectations, and a rallying dollar took hold during 2008 the savings rate made a predictable jump. Determining what's the cause and what's the effect can be problematic, but we can look at the PCE price deflator to determine where future savings rate may go. This is important to help us understand the demand for cash balances and the level of consumption going forward. Interestingly it appears the PCE-deflator leads the savings rate; as prices rise faster the savings rate increases with a significant lag. This also has something to do with interest rates lagging inflation rates, making savings appear more/less attractive.

Accordingly, as prices have fallen over the last year, real MZM rates remain low, consumer confidence has increased, relfation has begun, and the USD F/X value has fallen there seems to be all the incentive in the world for people to curtail savings going forward. This is what the following charts seem to say as well.

SnP Update

SnP has worked off its overbought condition and remains over the yearly pivot while tapping its modified S.D. channel(yellow). We are running into numerous support levels and will treat this move as corrective in a larger intermediate-term bull until key technical levels are broken. I'll update those levels going forward.

NEI Charts

Here's the complete set of charts. I've added a snapshot below(with a few annotations) of some of the more-important data, although you should peruse the whole thing.

In Case You Forgot: USD Is Driving Everything

"What Metal Detectorists Dream Of"

Huge Anglo-Saxon gold hoard found

"The UK's largest haul of Anglo-Saxon treasure has been discovered buried beneath a field in Staffordshire.

Experts said the collection of 1,500 gold and silver pieces, which may date to the 7th Century, was unparalleled in size and worth at least £1m.

It has been declared treasure by South Staffordshire coroner Andrew Haigh, meaning it belongs to the Crown..."


GOFO, Libor, UST & Mortgage Rates

Duration / GOFO / LIBOR / UST
1 month / .38667 / .2463 / .05
3 month / .41000 / .2831 / .09
6 month / .48167 / .6394/ .19
1 year / .62500 / 1.2313/ .39
(as of today)

Best Mortgage Rates
30yr FRM /5.04
15yr FRM / 4.60
5/1yr ARM / 3.99
(as of yesterday)

10 Year Note 3.41
10 Year Muni 3.03
10 Year TIPs 1.875

Econ Data; Fed & Treasury Info


Wednesday, September 23, 2009

This Must Be Satire

Gordon Brown honoured in New York as world statesman of the year

Gordon Brown may be trailing in the polls at home, but in the US last night he was hailed as a hero for "stabilising" the world economy and showing "compassionate leadership".

The prime minister, in New York for the UN general assembly, was honoured as world statesman of the year at a VIP-packed gala dinner. The award was presented on behalf of the Appeal of Conscience Foundation, an interfaith organisation which campaigns for religious freedom and human rights, by the veteran US former secretary of state Henry Kissinger...


Reminds me of that Horace Walpole quote: "Life is a comedy to those who think and a tragedy to those who feel". When you see things like this all you can do is laugh.

The Dollar Carry Trade

FOMC Release

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

UPDATE: USD getting hammered; bonds, stocks and gold moving strongly to the upside. Go figure...

Treasury Market Not Loving 5yr Auction

A Massive $40 Bil in 5yr paper auctioned @2.47, while the market was around 2.41 (I think, my intra-day t-rate data is crap)...BtC of 2.40

Market throwing up after the auction w/ the 10yr futs trading from 117.09 down to 116.28

Complete auction results

UPDATE: 10y futs continue trading down to 116.205

Iran War Update

From the
LewRockwell Blog:

Oh No

Writes a friend with many sources in the military:

Just received information that some Special Operations units have been alerted for deployment to Israel. I will keep you posted.

Wonder if it has anything to do with this, which may have something to do with this. In any event, crude doesn't seem to be pricing in military action. We'll have to wait and see.

Hey Kids: Learn About Money From The Cleveland Fed

Great Minds Think: A Kid's Guide to Money

My favorite part is from p. 10:

One of the most important things you can do with money is to save it—that is, put
some money aside now so that you can use it later. By saving a little bit each week,
you can put together enough money to buy something special, such as a new bicycle,
a trip to an amusement park, or a gift for someone special.

You can save money at home (in a piggy bank, for instance) or at a bank. When
you deposit money in a bank, it’s kept safe in a special account with your name on
it. When you want to use the money you’ve saved, you go to the bank and make a

Yes kids save your money and watch its purchasing power fall day-by-day, year-by-year. And don't forget to keep your money "safe" in a bank so they can lend it out to someone else who wants to buy something they can't afford.

GOFO, Libor, UST & Mortgage Rates

Duration / GOFO / LIBOR / UST

1 month / .40333 / .2463 / .02
3 month / .43167 / .2850 / .10
6 month / .47400 / .6606/ .20
1 year / .62333 / 1.2625/ .41
(as of today)

Best Mortgage Rates
30yr FRM /5.03
15yr FRM / 4.59
5/1yr ARM / 3.97
(as of yesterday)

10 Year Note 3.44
10 Year Muni 3.05
10 Year TIPs 1.875

Econ Data; Fed & Treasury Info


Tuesday, September 22, 2009

Who's Afraid of Sibel Edmonds?

Sibel Edmonds has a story to tell. She went to work as a Turkish and Farsi translator for the FBI five days after 9/11. Part of her job was to translate and transcribe recordings of conversations between suspected Turkish intelligence agents and their American contacts. She was fired from the FBI in April 2002 after she raised concerns that one of the translators in her section was a member of a Turkish organization that was under investigation for bribing senior government officials and members of Congress, drug trafficking, illegal weapons sales, money laundering, and nuclear proliferation. She appealed her termination, but was more alarmed that no effort was being made to address the corruption that she had been monitoring.

A Department of Justice inspector general’s report called Edmonds’s allegations “credible,” “serious,” and “warrant[ing] a thorough and careful review by the FBI.” Ranking Senate Judiciary Committee members Pat Leahy (D-Vt.) and Chuck Grassley (R-Iowa) have backed her publicly. “60 Minutes” launched an investigation of her claims and found them believable. No one has ever disproved any of Edmonds’s revelations, which she says can be verified by FBI investigative files.

John Ashcroft’s Justice Department confirmed Edmonds’s veracity in a backhanded way by twice invoking the dubious State Secrets Privilege so she could not tell what she knows. The ACLU has called her “the most gagged person in the history of the United States of America.”


UPDATE: On a somewhat related note here are the "Most Corrupt Members of Congress"; of course that's like mentioning the slowest kids in the special-ed class.

Iran Drops Dollar

Iran replaces Dollar with Euro in FX

"Iran's President Mahmoud Ahmadinejad has ordered the replacement of the US dollar by the euro in the country's foreign exchange accounts.

The September 12 edict was issued following a decision by the trustees of the country's foreign reserves, Mehr News Agency reported.

Earlier, the Islamic Republic of Iran had announced that the euro would replace the greenback in the country's oil transactions. Iran has called on other OPEC members to ditch the sinking dollar in favor of the more credible euro."


GOFO, Libor, UST & Mortgage Rates

Duration / GOFO / LIBOR / UST
1 month / .38000 / .2463 / .03
3 month / .44000 / .2856 / .10
6 month / .48200 / .6681/ .19
1 year / .68000 / 1.2700/ .36
(as of today)

Best Mortgage Rates
30yr FRM /5.01
15yr FRM / 4.55
5/1yr ARM / 3.96
(as of yesterday)

Econ Data; Fed & Treasury Info


Monday, September 21, 2009

If It Wasn't So Sad It'd Be Funny

You can't make this stuff up:

“It is not obvious at all why that is a Treasury responsibility or even appropriate why the Treasury would undertake that kind of study,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey, and a former Atlanta Fed research director. “The Fed was created by Congress and it is not part of the executive branch.”

It's not often you find a statement that is so technically correct yet thoroughly fatuous and divorced from reality. The first sentence need not even be objected to, save the obvious point that the treasury, in theory at least, represents the public and the fed represents...

Yes, the Fed was jammed through Congress and created as an "independent" system. Of course the word independent is in quotes because it's nonsense and very misleading. The Board of the Fed - seven members nominated by the executive and rubber stamped by the Senate - has never been independent. This is all prattle to keep the flock docile, misinformed, and confused; in one breath the fed is "independent" to provide cover for the central state's desire for war, welfare, and votes while convincing the world that they should have confidence in U.S. monetary policy and accept the western financial Imperium of "managed" globalization, current account surpluses, and inveigled capital inflows to the U.S. But in another breath the fed hides behind its status as government regulator and central bank to disguise the fact that it's also a cartel keeping a private fractional-reserve, credit system alive. It has almost always been a banker's bank; a re-reflater; a lender of ... resort. Why did Lehman/Bear fail while AIG (a black hole of derivatives) was infused with public funds? Could it have been for whom they(AIG) wrote CDS? Why did they setup program-after-program, alongside direct bailouts, to aid Primary Dealers and non-U.S. and/or non-commercial banks? TARP, TAF, TALF etc. etc. Monetizing the mortgage market? All for the public good!

The Fed has always had - and still does - two masters: 1) the executive branch and 2) the financial establishment. The only time congress gets involved is during their perfunctory, embarrassing monetary policy hearings or when a maverick has the guts or naivete to attack the institution through legislation or public relations. But even then, it's usually from a populist/socialist perspective in which the fed eventually becomes slightly more of a central planner than a cartel. Actually, the history and structure of the institution can best be examined as something of a balancing act between cartel and central planner. A government-run, private syndicate - Contradiction? Not really.

“The institution is trying to keep a low profile,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington and the former director of Division of Monetary Affairs at the Fed Board. “To publish a report now invites comment on that report.”

No! Really? Now, what type of person/institution wants to keep a low profile and avoid outside commentary? One operating for the collective good of course.

“Allowing local bankers to play a leading role in selecting reserve bank presidents is the most worrying aspect of the current system,” Lou Crandall, chief economist at Wrightson ICAP LLC, wrote to clients in July.

District bank presidents are nominated by committees made up of people whose institutions the nominees may have supervised.

“The conflicts of interest inherent in the current system are glaring,” Crandall said.


Improved Gold COT Update (Sep 15)

Here's the same breakdown of the Gold COT with a monthly gold price(a.m. fix) overlaid.

The chart below is a bit convoluted but shows the net concentrated(4 largest traders) positions relative to open interest(black) and the commercial short position(grey). The red line is the percentage of OI held net short by the 4 largest traders; the green line shows the percentage held net long; the blue shows the difference. As you can see, since the start of the gold bull, both the commercial short position and the difference between concentrated shorts and longs have grown. This indicates: 1) that "hedgers" are trying to play the gold futures game by selling theoretical future production forward, into these rallies. If it was all legit hedging the amount wouldn't move in lock-step with the price(although you'd expect some correlation as a higher price provides more incentive for selling production forward). 2) Some of the increase in commercial shorts can be attributed to an increase in concentrated short positions. This makes sense to anyone who trades gold and witnesses some of the "attacks" on the metal, particularly during early NY trading. All it takes is for a few of these concentrated positions to lean on the market, one way or the other, to get it going. 3) This doesn't prove that there is gross manipulation occurring as some analysts speculate. This will be discussed in-depth later but the fact that there is a large concentrated long position, an increase in small commercial shorts alongside concentrated positions(and OI), and a rise in the GOFO rate relative to LIBOR should help disabuse those of the notion of a commercial-short conspiracy. (Although I don't doubt that large comm. shorts and CBs try to influence the market at certain times and there is the old short/sell forward game that many got stuck playing when the market turned I think it goes a bit far to say the concentrated commercial shorts in gold are perniciously manipulative.)
It's also important to see that both long and short concentrated positions are shrinking, indicating a nervousness/uncertainty among large players about future direction. The last time this happened was prior to and during the 06 and early '08 breakouts.