bizjournals.com Standard & Poor’s Ratings Service said Tuesday that it downgraded its outlook on Bank of America and Citigroup to negative from stable.
The move underscored that the global financial crisis is far from over despite BofA, California’s largest bank, repaying the government’s investment of $45 billion in the bank under the federal Troubled Asset Relief Program in December. The revised outlook signals possible downgrades to their credit ratings.
S&P assigns counterparty and debt ratings on Bank of America and Citigroup of “A” and “A-1”
The ratings agency’s change in its outlook for the two big banks reflects the more onerous terms BofA or Citi would face if another government bailout is needed.
“We believe there is increased uncertainty about the U.S. government’s willingness to provide additional extraordinary support to highly systemically important financial institutions in a way that will benefit debt holders,” S&P analyst John Bartko said in lowering the outlook on the banks.
“We previously stated our belief that the extraordinary support was temporary. We believe markets are beginning to stabilize and the U.S. government is seeking ways to reduce the potential for moral hazard and systemic risk associated with large financial institutions,” Bartko added.
S&P pointed to proposals to tax the big banks to help recoup the cost of the bailout and a bill introduced in December to prohibit company-specific bailouts as raising concerns about the terms of another big bank bailout, if needed.
S&P’s rating on BofA gets a lift of three credit notches based on expectations that the government would step in to help BofA (NYSE: BAC) and Citigroup, (NYSE: C) given their status as systemically important financial institutions.
“We are uncertain whether BofA will be able to show sufficient additional improvement over the next two years in its operating performance and profitability to benefit its stand-alone credit profile,” Bartko said.
Reuters A record 38.2 million Americans were enrolled in the food stamp program at latest count, up 246,000 from the previous month and the latest in record-high monthly tallies that began in December 2008.
Food stamps are the primary federal anti-hunger program, helping poor people buy groceries. The Agriculture Department updated enrollment data on Friday with a preliminary figure for November.
USDA estimates up to $58 billion will be spent on food stamps this fiscal year, which ends Sept 30, with average enrollment of 40.5 million people. Food stamps were renamed the Supplemental Nutritional Assistance Program in 2008.
Participation has surged since the financial-market turmoil of late 2008 and has set records each month since December 2008, when it reached 31.78 million. Enrollment is highest during times of economic distress.
chinapost.com. Taiwan's financial institutions have a total exposure of NT$37.8 billion (US$1.2 billion) to Spain, Greece and Portugal, the regulator said, citing a preliminary check.
Domestic banks offered credit and made investments of NT$10.6 billion, of which NT$3.2 billion are in Greece, NT$6.6 billion in Spain and NT$800 million in Portugal, the Financial Supervisory Commission said in a statement on its web site.
Taiwan's investment trust funds invested a total of NT$3.7 billion in the three nations, while insurers invested NT$19.5 billion, of which NT$120 million are in Greece, NT$19.3 million are in Spain and NT$150 million in Portugal. The regulator will closely monitor the credit situation of the three nations and the exposure of the domestic institutions.
ALKMAN GRANITSAS Greek stocks fell sharply Monday, extending their losing run to four sessions, as investors battered banking shares.
The Athens Stock Exchange's general index closed 3.9% lower at 1806.40 on relatively heavy turnover, while major markets firmed. Investors also demanded a higher premium for holding Greek government bonds over German Bunds, the euro zone benchmark.
"What we are clearly seeing is not a selloff in just specific Greek shares; we are seeing a wholesale selling off of the country," said Nicholas Douzinas, head of foreign markets at Intersec Securities in Athens.
"We are seeing many open sell orders on the market," he added.
Banking stocks were especially hard hit, falling 6.8%, amid speculation that Greek banks were facing financing difficulties and possibly further credit-ratings downgrades. Market leader National Bank of Greece SA dropped 8.5%, while No. 2 lender EFG Eurobank Ergasias SA dived 9% and Alpha Bank SA closed 5.4% lower.
But both Greek and foreign banking officials Monday privately denied speculation that the Greek banks were facing any financing difficulties. Analysts said that the selloff in bank stocks reflected the difficult environment facing Greek banks.
"I'm a little doubtful about all this speculation," said a senior analyst at a local bank. "But it's a fact, the market sees that the banks are facing a very difficult environment and that's weighing on banking stocks."
Indeed, Greek banks, which are due to start reporting results next week with Piraeus Bank SA on Feb. 18, are widely expected to report disappointing fourth-quarter earnings.
Since December, when Greece's sovereign debt was hit by three ratings downgrades in quick succession, the Athens stock market has lost more than 1,000 points. The index is down nearly 18% this year.
Bank shares also are suffering from the higher yields that investors are demanding for Greek debt, which indirectly affects their borrowing costs. The yield gap between 10-year Greek and German bonds widened to 3.63 percentage point Monday, up from about 3.50 percentage point on Friday.
The market's fall came ahead of a meeting Wednesday between Greek Prime Minister George Papandreou and French President Nicholas Sarkozy and a European Union summit on Thursday.
Many market participants are looking to see if Greece's EU partners will declare some kind of direct or indirect financial support for the country in an effort to forestall future borrowing problems when the country goes to the bond market in April or May.
In addition, the Greek government is to publish a much-awaited tax reform proposal on Wednesday. Civil servants also have scheduled a strike for Wednesday.
"Right now, everyone is looking ahead to Wednesday and Thursday," said Intersec Securities' Mr. Douzinas.
A new Rasmussen Reports national telephone survey shows that 75% of likely voters now say they are at least somewhat angry at the government’s current policies, up four points from late November and up nine points since September. The overall figures include 45% who are Very Angry, also a nine-point increase since September.
Just 19% now say they’re not very or not at all angry at the government’s policies, down eight points from the previous survey and down 11 from September. That 19% includes only eight percent (8%) who say they’re not angry at all and 11% who are not very angry.
Part of the frustration is likely due to the belief of 60% of voters that neither Republican political leaders nor Democratic political leaders have a good understanding of what is needed today. That finding is identical to the view last September, just after the tumultuous congressional town hall meetings the month before. But only 52% felt this way in November.
Americans are united in the belief “that the political system is broken, that most politicians are corrupt, and that neither major political party has the answers,” Scott Rasmussen explains in his new book, In Search of Self-Governance.
Male voters are definitely angrier than women. Voters earning $60,000 to $100,000 per year are more frustrated than those in any other income group.
Eighty-nine percent (89%) of Republicans are angry with the government’s current policies, which is perhaps not surprising with the White House and Congress both in Democratic hands. But 78% of voters not affiliated with either major party agree.
Sixty-one percent (61%) of Democrats share that anger, but Republicans are three times as likely as Democrats to be Very Angry.
The divide between the Political Class and Mainstream voters, however, is remarkable. Eighty-eight percent (88%) of Mainstream voters are angry, but 84% of the Political Class are not. Those numbers include 57% of Mainstream voters who are Very Angry and 51% of the Political Class who are not angry at all.
But then 68% of Mainstream voters don’t think the leaders of either major political party have a good understanding of what the country needs today. Sixty-one percent (61%) of the Political Class disagree.
By comparison, the majority of Republicans, Democrats and unaffiliateds don’t believe the current political leaders have a good handle on what is needed today.
Older voters and higher-income voters share that belief most strongly.
Democratic Senate candidates are struggling in a number of states in part because of unhappiness with the government’s policies, including the controversial national health care plan. Opposition to that plan played a key part in the GOP upset Senate win last month in Massachusetts.
Eighty-three percent (83%) of Americans say the size of the federal budget deficit is due more to the unwillingness of politicians to cut government spending than to the reluctance of taxpayers to pay more in taxes.
Voters have consistently said for months that they have more confidence in their own economic judgment than that of either the president or Congress.
Tom Eley Anger among workers at the New United Motor Manufacturing Inc. (NUMMI) plant in Fremont, California, toward the United Auto Workers (UAW) exploded at a January 24 meeting discussing the imminent closure of the facility. Nearly 5,000 workers will lose their jobs when the plant, formerly a joint venture of General Motors and Toyota, closes on March 31. Four hundred or so workers were present at the meeting
Several attendees captured the eruption on video, which began during comments by UAW Local 2244 Bargaining Chairman Javier Contreras. Contreras was booed, jeered, and interrupted as he attempted to present details of the severance package. At one point an outraged older worker demanded to know “where the hell” the union official had been for the last six months. Contreras burst out, “Shut the f— up, you motherf——!” At that point, furious workers rushed to the front of the room. Contreras and other local UAW personnel were defended by a few union officials. Local union leaders pleaded for calm and called in the police in a bid to control the workers.
Workers present say that the yelling began because union officials would not allow them to speak. Workers are angry that they have been kept in the dark over UAW negotiations with NUMMI.
The video footage reveals that the UAW, on the one hand, and rank-and-file auto workers, on the other, make up two mutually hostile camps. The workers bristle with mistrust and contempt for the union; the UAW officials are defensive and thuglike. The episode exposes the UAW’s role in executing the layoff and wage cut dictates of business—as well as their unmistakable contempt for the workers they nominally represent.
General Motors ended its participation in NUMMI in June 2009 as part of its forced bankruptcy at the hands of the Obama administration. Toyota then announced it would no longer continue operations there as of March 2010, blaming GM’s unilateral withdrawal from the partnership.
The UAW, which played a critical role in the bankruptcy process for GM and Chrysler by imposing plant closures and wage and benefit cuts while stifling worker opposition, has fallen back on its usual stock-in-trade of chauvinism and jingoism. It has singled out Toyota for attack, recently organizing a nationalist rally in Washington, D.C., outside the Japanese consulate that was attended by a handful of officials and their hangers-on.
Many workers at NUMMI have emphatically rejected the anti-Japanese rhetoric. Speaking of the explosive meeting, a long-time auto worker, Ken Villegas, told the San Francisco Chronicle that “the general tenor of the rank-and-file complaints were that union leaders should go after GM, as well as Toyota,” along with complaints over secretive severance negotiations.
Another Chronicle report confirms that the anger at the union meeting stemmed in part from the one-sided attack on Toyota. “Rank-and-file members harangued leaders that day for conducting a campaign against Toyota over the impending closure while not going after General Motors,” it wrote.
A NUMMI worker, when asked by a reporter with the left publication Monthly Review about the UAW protest outside the Japanese consulate in Washington, expressed outrage. “That was these guys,” he said of the local union officials. “I don’t know what the hell that is! Why blame Toyota? One of the reasons they don’t blame GM—I don’t know what the percentage is—but they own a portion of GM. Are you going to shoot yourself in the foot? No, they’re not going to do that. The problem is the membership doesn’t have a voice.”
Another worker denounced the UAW and the Obama along similar lines. “If Toyota owes us doesn’t that mean General Motors owes us too?” he asked. “And does the fact that [UAW President Ron] Gettelfinger sold us out for 17.5 percent of General Motors stock have anything to do with violating our charter and the severe conflict of interest? How can you trust your representatives? They’ve got to look at both ledgers. They’ve got to make sure those 17.5 percent of shares grow—and at whose expense?”
“We know they’re going on trips to Palm Springs,” another worker said of the UAW officials. “There was a photograph circulating in the plant of them laying on lawn chairs and drinking margaritas.”
The UAW is trying to handcuff workers until the plant is shut down, while it seeks to secure more perks for union officials from Toyota. It is pushing a severance package that would bar workers from taking action in the plant’s last two months, a proposal that “would link workers’ departure payouts to the continued, smooth operation of the factory through its closing,” according to the Chronicle. Workers are also outraged that the UAW is demanding a share of whatever severance pay they receive.
Negotiations with NUMMI have been strung out by the UAW demand that the maximum severance package be increased to more than $60,000. This would benefit only a handful of workers and, of course, union officers. Union executives are also demanding a $72 million contribution from NUMMI to a health insurance program controlled by the UAW. “Most of the people working at the plant won’t even be eligible for it,” one worker told a reporter. “It’s mainly for the UAW as a whole rather than for the local.”
Local 2244 president Sergio Santos declared that if NUMMI does not meet the bureaucracy’s demands for cash, it “would be a slap in the face to American workers.”
The UAW has in fact done nothing to keep the plant open. In interviews, workers derided a local UAW petition drive, noting that while it was being circulated, machinery was being removed from the plant.
The NUMMI closure will lead directly to 1,400 more layoffs in the local parts industry, and indirectly to thousands more. This is in California, where the unemployment rate is already at 12.4 percent and where vital social services have been scaled back due to the worst of the nation’s state budget crises.
NUMMI’s suppliers have in recent days announced their own major layoffs. Johnson Controls has said it will close its Livermore plant, resulting in 321 layoffs, with 240 of these coming in late March, timed to coincide with the closure of NUMMI. In addition to the 4,700 jobs lost at NUMMI, Fremont will see an additional 314 parts and supply jobs vanish. The city of Hayward will lose 387 jobs after the closure of Injex Industries. Modesto will lose 186 jobs with the shutdown of Trim Master, Inc. Stockton will suffer 154 job losses after Kyoho Manufacturing closes, and Merced will lose 53 jobs after Arvin Sango shuts its doors.
TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 104,000 jobs in January. Meanwhile, the Bureau of Labor Statistics (BLS) reported the U.S. economy lost 20,000 jobs. We believe the BLS has underestimated January’s results due to problems inherent in their survey techniques.
In addition to their regular report, the BLS published benchmark revisions to their employment estimates derived from an actual payroll count for March 2009. As a result, job losses from April 2008 through March 2009 were revised up a whopping 930,000, or 23% from their earlier revisions. In addition, the BLS revised their job loss estimates for 2009 up 617,000, or 14.8%.
While the BLS originally reported job losses of 4.2 million in 2009, TrimTabs reported 5.3 million, a difference of more than a million lost jobs. We consistently reported that based on real-time tax data, job losses were much higher than the BLS was reporting. This past January, the BLS revised their job loss estimate to 4.8 million, an increase of almost 600,000 lost jobs. The new total brought the BLS’ revised estimates much closer to TrimTabs’ original estimate based on real-time tax data.
Since July 2009, TrimTabs estimates and the BLS estimates have diverged again. While the tax data points to a weak job market, the BLS estimates point to a steadily improving job market. We believe the job market is much worse than the BLS is reporting and that in January 2011, when the BLS revises their estimates for 2010, their April 2009 through December 2009 results will move much closer to TrimTabs’ results.
The BLS has seriously underreported job losses for the past two years due to their flawed methodology. TrimTabs has identified the following four problems:
1.The BLS employment estimate is based on a survey, and not on an actual count of employees. While the BLS survey is large and supposedly designed to capture the complex nature of the employment market, it is still a survey and therefore subject to error. TrimTabs believes that rapid changes in an employment cycle cannot be captured by surveys.
2.Several times a year, the BLS applies enormous seasonal adjustments to their survey results to account for seasonal fluctuations in the job market. For example, this January, the BLS added 1.92 million jobs to their survey results to report a job loss of 20,000 to account for the layoff of retail holiday workers. In our opinion, the sheer magnitude of the seasonal adjustment which dwarfs the monthly result renders this month’s job loss estimate meaningless.
3.At the time of the first release, only 40% to 60% of the BLS survey is complete and is subject to large revisions over the next two months.
4.The BLS applies a mysterious “birth/death” adjustment to their survey results to account for business openings and closings. While the payroll data was adjusted substantially, the “birth/death” adjustments were left unchanged. In 2008 and 2009, the BLS’ “birth/death” adjustment added 904,000 and 882,000 jobs, respectively, for a total of 1.79 million. By way of comparison, in 2006 and 2007, the BLS’ “birth/death” adjustment added 964,000 and 1.13 million jobs, respectively. We find it highly unlikely that in 2008 and 2009, during the worst recession since the 1930’s, more businesses opened than closed netting 1.79 million jobs.
In our opinion, flawed BLS survey results, month-after-month, do the public a huge disservice. While its results point to a slowly recovering economy, TrimTabs’ results point to a dangerously weak economy.
A comparison of TrimTabs’ employment results versus the BLS’ results from January 2008 through January 2010 is summarized below.
Several other employment related statistics support Trimtabs’ conclusion that the labor market is weaker than what the BLS is reporting:
·Real-Time tax withholding data shows that wages and salaries declined an adjusted 1.0% y-o-y. In January 2009, wages and salaries declined 5.0%. If the labor market were improving, we would expect a positive year-over-year growth rate. The fact that tax withholding data is still declining year-over-year suggests that the labor market is still contracting.
·The Monster Employment Index declined further in January, falling 0.9%.
·The TrimTabs Online Jobs Index reported slightly higher job availability in January but remains at a low level.
·Advanced Data Processing reported a job loss of 22,000.
·Weekly unemployment claims edged up in the past month, rising 10.2% since the beginning of January.
·In January, a whopping 11.5 million people were collecting some form of unemployment insurance, up 27.8%, from 9.0 million in November.
Mish In the continuing theater of BLS absurdities, the unemployment rate fell to 9.7% in spite of a 25th consecutive month of job losses. Some stopped counting at 22 months in November. However, I find November questionable.
This month professional services contributed 44,00 jobs to the plus side, but 52,000 of them were part-time jobs. Amazingly a table below shows the number of part-time workers decreased by 849,000 from last month. Go figure.
Moreover, the so-called 64,000 rise in November can be attributed to the seasonally adjusted hiring of 94,000 temporary workers. Here is a look at revisions ....
BLS Revisions
Household Revisions
The above table does not affect the unemployment rate. Revisions to the Household Survey do. Here are the household revisions.
Bingo. Just like that the population shrank as did the civilian labor force.
For some reason the BLS does this in pieces. The following chart shows the result.
There are now a whopping 2.5 million people without a job but want one, yet are not counted as unemployed.
So yes, the "official unemployment rate" can hold its own or even drop with this kind of nonsense.
The unemployment rate fell from 10.0 to 9.7 percent in January, and nonfarm payroll employment was essentially unchanged (-20,000), the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and in transportation and warehousing, while temporary help services and retail trade added jobs..
Establishment Data
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Highlights
20,000 jobs were lost in total vs. 150,000 jobs last month.
75,000 construction jobs were lost vs. 32,000 last month.
11,000 manufacturing jobs were added vs. 23,000 lost last month.
48,000 service providing jobs were added vs. 69,000 lost last month.
42,000 retail trade jobs were added vs. 18,000 lost last month.
44,000 professional and business services jobs were added vs. 20,000 last month.
16,000 education and health services jobs were added vs. 26,000 last month.
14,000 leisure and hospitality jobs were lost vs. 41,000 last month.
8,000 government jobs were lost vs. 27,000 last month.
52,000 temporary help jobs were added vs 58,000 last month and a whopping 94,000 in November.
Look at that last line again.
November added 94,000 temporary jobs seasonally adjusted. Even if true it is hardly anything to crow about but it does explain the positive job growth in November.
A total of 60,000 goods producing jobs were lost (higher paying jobs). Professional services contributed 44,00 jobs to the plus side, but 52,000 of them were part-time jobs! Amazingly a table below shows the number of part-time workers decreased by 849,000 from last month.
Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.
Index of Aggregate Weekly Hours
Work hours were up one tick to 33.3. Short work weeks contribute to household problems. Moreover, before hiring begins at many places, work weeks will increase.
Birth Death Model Revisions 2009
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Birth Death Model Revisions 2009
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Birth/Death Model Revisions
There are so many revisions and the BLS Birth/Death Model methodology so screwed up it is pointless to further comment other than to repeat a few general statements.
Please note that one cannot subtract or add birth death revisions to the reported totals and get a meaningful answer. One set of numbers is seasonally adjusted the other is not. In the black box the BLS combines the two coming out with a total. The Birth Death numbers influence the overall totals but the math is not as simple as it appears and the effect is nowhere near as big as it might logically appear at first glance.
BLS Black Box
For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.
The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.
Here is the pertinent snip from the BLS on Birth/Death Methodology.
The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
Note that the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.
Household Data
In January, the number of unemployed persons decreased to 14.8 million, and the unemployment rate fell by 0.3 percentage point to 9.7 percent.
The number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up in January, reaching 6.3 million. Since the start of the recession in December 2007, the number of longterm unemployed has risen by 5.0 million.
In January, the civilian labor force participation rate was little changed at 64.7 percent. The employment-population ratio rose from 58.2 to 58.4 percent.
The number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) fell from 9.2 to 8.3 million in January. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
Persons Not in the Labor Force
About 2.5 million persons were marginally attached to the labor force in January, an increase of 409,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
Among the marginally attached, there were 1.1 million discouraged workers in January, up from 734,000 a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million people marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.
Table A-8 Part Time Status
Note: many table numbers have changed. Last month and for as long as I remember, this used to be Table A-5.
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The chart shows there are 8.3 million people are working part time but want a full time job. A year ago the number was 8.8 million. More importantly, last month it was 9.2 million. Specifically, 849,000 part-time workers now have full-time status (or lost their job altogether).
In general a decreasing number of part-time workers is a good thing. It remains to be seen if this is an outlier or the start of a trend.
Regardless, there are still millions of workers whose hours will rise before companies start hiring more workers.
Table A-15
Table A-15 is where one can find a better approximation of what the unemployment rate really is. Note: many table numbers have changed. Last month and for as long as I remember, this used to be Table A-12.
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Grim Statistics
The official unemployment rate is 9.7%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.
It reflects how unemployment feels to the average Joe on the street. U-6 is 16.5%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further although most likely at a slower pace than earlier this year.
Looking ahead, there is no driver for jobs and states in forced cutback mode are making matters far worse.
Jim Willie A great disconnect exists in the gold market between the exchange futures contract price (the paper price) and the gold bullion paid price for transactions (the physical price). The differential in price is growing wider, enough to place tremendous pressure on the gold market itself. Look not to the gold premium paid for purchases, but to high volume purchases in the tens of million$. In mid-December, almost every demand for gold contract delivery was matched by a cash delivery, complete with 25% bonus premium offered. The officials even produced a new ledger item called 'Cash For Delivery' that was necessary to balance their badgered books. It prompted little attention. Some call it a basic bribe. Others call it a technical default.
Fast approaching is the event of GAME OVER for London, a condition that has already reached critical level, according to a key reliable source of information with London connections and direct experience with its market events. How long can a major metals exchange sell contracts but have miniscule supply of gold in their vaulted possession? The paper gold market and the physical gold bullion market have finally separated in a practical manner, meaning actual gold has almost no role anymore in London paper contract settlement. The absence of gold in London requires extraordinary tactics to settle contracts and to obtain gold bullion. Red tape procedures delay delivery for individuals, and bribes accompany gold delivery demands as standard practice. The London Bullion Market Assn has almost zero gold, its supply having been drained in high volumes since early December, a process currently in acceleration. The opportunity to convert fiat money into precious metal at prices considered reasonable is also vanishing. The London gold banker said,
"There is going on a lot more than meets the eye. The physical system is actually consolidating bigtime and is organizing itself with lightning speed, totally hidden from pretty much anyone, even the so-called insiders. The paper precious metal market and the physical precious metal market have defacto disconnected. The paper and physical gold markets currently operate in parallel universes. The outflow of physical metal from bank vaults is happening at a mind bending pace."
Notice the reference to consolidation and re-organization in a manner not apparent to those fixated on the existing cockamamy corrupted system that is permitted by loyalist regulators. The officials in the LBMA, COMEX, USDept Treasury, and elsewhere are struggling to maintain the current system, and reportedly are not in step with awareness of the newly devised structures coming into place. In the background, far from view, new systems are being fabricated from scratch. Some involve complex barter systems soon to emerge and hit the scene with a splash, with impressive vertical integration. At the same time, new currencies for usage are still undergoing planning, foundation setup, contract latticework, and more for actual implementation.
The true gold price might very soon become unknown, an extremely positive development. Telltale events such as bankruptcy, lawsuits, and arrests are likely to come, all in time, since the breakdown in order has led to extraordinary reactions. Right now, we see extremely strong tactics using naked gold short contracts at the London metals exchange (LBMA) and the COMEX in the United States to drive down the gold price. It is all illegal and permitted. Margin calls have hit, forcing further selling of paper contracts. Gold investor sentiment among the naive and less informed has been dragging, ever since early December.
The world is approaching a climax event. Sure, many analysts have made such a claim for months. But with Europe in flux, the USCongress in flux, the Persian Gulf in flux, the US-China trade battles escalating, and USTreasury debt finance recognized more and more as monetized printing press activity, we are truly approaching a climax event as gold metal has exited the London market. The trigger event is unknown. It will likely not be directly related to the above event fronts. It will probably be a typical garden variety event pertaining to the far from ordinary stresses tied to the ongoing crisis in the credit market, gold market, and currency market.
The financial press is critically important precisely now, for not spilling the facts on the current gold market breakdown and divergence. Much of the pressures are hidden though, since the financial press networks report only the official paper-based prices. Do not expect to read in Reuters or Bloomberg or the Associated Press or Wall Street Journal or the New York Times or Investors Business Daily or Barrons that a grotesque gold shortage exists in the London metals exchange or at the COMEX in New York and Chicago. They will not report that London is virtually drained of gold, yet still sells gold contracts. Accurate news reporting would accelerate the breakdown and remove the possibility for time extension. The press will not report that billionaires are emptying their gold bullion accounts at rapidfire pace, out of gross distrust of the bankers, since gold leasing has illegally been standard practice for many years. Imagine selling lumber contracts without wood delivered. Imagine selling mortgages without home titles delivered. Actually, Wall Street did precisely that from 2003 to 2007. More...
IT IS midnight on 22 September 2012 and the skies above Manhattan are filled with a flickering curtain of colourful light. Few New Yorkers have seen the aurora this far south but their fascination is short-lived. Within a few seconds, electric bulbs dim and flicker, then become unusually bright for a fleeting moment. Then all the lights in the state go out. Within 90 seconds, the entire eastern half of the US is without power.
A year later and millions of Americans are dead and the nation's infrastructure lies in tatters. The World Bank declares America a developing nation. Europe, Scandinavia, China and Japan are also struggling to recover from the same fateful event - a violent storm, 150 million kilometres away on the surface of the sun.
It sounds ridiculous. Surely the sun couldn't create so profound a disaster on Earth. Yet an extraordinary report funded by NASA and issued by the US National Academy of Sciences (NAS) in January this year claims it could do just that.
Over the last few decades, western civilisations have busily sown the seeds of their own destruction. Our modern way of life, with its reliance on technology, has unwittingly exposed us to an extraordinary danger: plasma balls spewed from the surface of the sun could wipe out our power grids, with catastrophic consequences.
The projections of just how catastrophic make chilling reading. "We're moving closer and closer to the edge of a possible disaster," says Daniel Baker, a space weather expert based at the University of Colorado in Boulder, and chair of the NAS committee responsible for the report.
It is hard to conceive of the sun wiping out a large amount of our hard-earned progress. Nevertheless, it is possible. The surface of the sun is a roiling mass of plasma - charged high-energy particles - some of which escape the surface and travel through space as the solar wind. From time to time, that wind carries a billion-tonne glob of plasma, a fireball known as a coronal mass ejection (see "When hell comes to Earth"). If one should hit the Earth's magnetic shield, the result could be truly devastating.
The incursion of the plasma into our atmosphere causes rapid changes in the configuration of Earth's magnetic field which, in turn, induce currents in the long wires of the power grids. The grids were not built to handle this sort of direct current electricity. The greatest danger is at the step-up and step-down transformers used to convert power from its transport voltage to domestically useful voltage. The increased DC current creates strong magnetic fields that saturate a transformer's magnetic core. The result is runaway current in the transformer's copper wiring, which rapidly heats up and melts. This is exactly what happened in the Canadian province of Quebec in March 1989, and six million people spent 9 hours without electricity. But things could get much, much worse than that.
Worse than Katrina
The most serious space weather event in history happened in 1859. It is known as the Carrington event, after the British amateur astronomer Richard Carrington, who was the first to note its cause: "two patches of intensely bright and white light" emanating from a large group of sunspots. The Carrington event comprised eight days of severe space weather.
There were eyewitness accounts of stunning auroras, even at equatorial latitudes. The world's telegraph networks experienced severe disruptions, and Victorian magnetometers were driven off the scale.
Though a solar outburst could conceivably be more powerful, "we haven't found an example of anything worse than a Carrington event", says James Green, head of NASA's planetary division and an expert on the events of 1859. "From a scientific perspective, that would be the one that we'd want to survive." However, the prognosis from the NAS analysis is that, thanks to our technological prowess, many of us may not.
There are two problems to face. The first is the modern electricity grid, which is designed to operate at ever higher voltages over ever larger areas. Though this provides a more efficient way to run the electricity networks, minimising power losses and wastage through overproduction, it has made them much more vulnerable to space weather. The high-power grids act as particularly efficient antennas, channelling enormous direct currents into the power transformers.
The second problem is the grid's interdependence with the systems that support our lives: water and sewage treatment, supermarket delivery infrastructures, power station controls, financial markets and many others all rely on electricity. Put the two together, and it is clear that a repeat of the Carrington event could produce a catastrophe the likes of which the world has never seen. "It's just the opposite of how we usually think of natural disasters," says John Kappenman, a power industry analyst with the Metatech Corporation of Goleta, California, and an advisor to the NAS committee that produced the report. "Usually the less developed regions of the world are most vulnerable, not the highly sophisticated technological regions."
According to the NAS report, a severe space weather event in the US could induce ground currents that would knock out 300 key transformers within about 90 seconds, cutting off the power for more than 130 million people (see map). From that moment, the clock is ticking for America.
First to go - immediately for some people - is drinkable water. Anyone living in a high-rise apartment, where water has to be pumped to reach them, would be cut off straight away. For the rest, drinking water will still come through the taps for maybe half a day. With no electricity to pump water from reservoirs, there is no more after that.
There is simply no electrically powered transport: no trains, underground or overground. Our just-in-time culture for delivery networks may represent the pinnacle of efficiency, but it means that supermarket shelves would empty very quickly - delivery trucks could only keep running until their tanks ran out of fuel, and there is no electricity to pump any more from the underground tanks at filling stations.
Back-up generators would run at pivotal sites - but only until their fuel ran out. For hospitals, that would mean about 72 hours of running a bare-bones, essential care only, service. After that, no more modern healthcare. More...
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