Tomorrow's Non-Farm Payrolls Consensus of -175,000 Looks "Do-able"

Tomorrow the Bureau of Labor Statistics will be reporting its October non-farm payrolls number. The consensus of economists is for a job loss of only 175,000 which is an improvement over the prior month loss, but more importantly maintains a steady uptrend as shown in the chart below.



The BLS almost always revises the prior two months, in this case August and September. They tend to 'borrow' from good results and smooth out the trend, or at least they did under the Bush Administration. We will have to wait and see what happens.

The BLS will also have their Birth-Death Model at their backs helping to lift the number with a projected 100k imaginary jobs.



The BLS number will further have the wind at its back because this is a month which the actual number traditionally comes in high, and is seasonally adjusted lower for the 'headline number.'



The good news is that the 12 month moving average of jobs is starting to show a bottoming process IF this number comes in as expected.



We can be sure that the government is looking over these results, keenly. Lyndon Johnson famously pre-approved the number before its release, often sending it back for revision when he did not care for the implied headlines.

We cannot say if that practice still exists, or is handled by lower level functionaries on the Council of Economic Advisors. Who knows, it might even be a relatively honest number by Washington standards.

Watch the Birth Death model and the revisions to September and August in particular. If they 'borrow forward' from August this will be a sign of statistical manipulation in our minds at least.

We do have an open mind, and assume that an improvement in job losses is possible, even likely perhaps. If one throws several trillion dollars at a problem in a short timeframe some result is likely to be produced for it, although in this case it will not most likely last without some fundamental reforms and restructuring.

And it goes without saying that if the number misses by noticeable degree, with all this going for it, then any talk of even a short term recovery is placed on hold.

Governments lie, and people of privilege lie and cheat readily when their results do not match their expectations, on their taxes, in their relationships, in school, at work, all most of all to themselves.

Some of them 'bend the rules' so well that they can go through months without more than one or two losing days of trading in volatile markets, in defiance of all probability and the principle of a symmetrical dissemination of information.

NAV Premiums of Certain Precious Metal Funds and ETFs

Note: the way I use this information is not so much to compare the premiums with each other, although there are some relationships there and significant deviations are of interest. Each of them is different from the others. CEF and GTU are funds holding physical gold and/or silver, and the amounts of metal they hold varies infrequently in well advertised step-wise changes.

GLD and SLV are ETFs, somewhat artificial constructs, in which the amount of metal they hold varies considerably, and intends to track the relationship with spot prices on a somewhat fixed basis.

Rather it serves to compare with data on the premiums of the same fund or ETF over time. One would do this by using the subject category at the bottom of this post, or perhaps doing it for yourself. The premiums expand and contract, excepting GLD and SLV which are control stable, being largely a discount for a management fee. A significant deviation there would be possible evidence of shorting or a paired trade.

How Can You Tell When Gold Is In a Bubble?

When the junior miners start showing these kinds of returns, you might be in a bubble.

We're nowhere near that point yet.

Foreign Holdings of US Dollar Assets

Roughly analagous to Eurodollars, although it is not clear how much if any of the central bank reserves are actually captured here in these reports by BIS reporting commercial banks, especially in China and the non-European countries. Certainly the NY Fed Custodial Accounts for Foreign Central Banks show no decline whatsoever from the long term trend of accumulation to support their mercantilism and currency pegs.



But the takeway from this chart is that a long term trend of dollar accumulation was broken, and rather painfully, in the deflating of the Wall Street financial assets fraud.

One might not expect the Europeans and Asians to accept new financial instruments in dollars quite so readily. The US seems intent on maintaining a few mega-banks to serve as "competitive" instruments of national policy on the world financial stage.

They may find that maintaining the banks and their particular weapons of financial mass destruction may be just as costly as 700 military bases in diverse locations. Such are the burdens of empire.

Long Term Weekly Gold Chart Targets 1275

Now that gold seems to have successfully broken out from its continuation pattern (ascending triangle or inverse H&S) we should be able to chart its targets more precisely than the chart from 24 September that at least successfully projected the breakout.

If there is a major liquidation event, such as an equity market dislocation, gold will likely be hit as well, but will provide an exceptional buying opportunity and would historically rebound more sharply than equities and most other investments.

As always, this is a forecast with some probablities of success, rather than a prediction.

Basically, the ascending triangle calls out 1275 and an inverse H&S targets 1300ish. A confirmed breakdown below 1000 deactivates the formations. We will know more about the first pullback when we see how far this current leg goes. It has moved much more quickly so far than most have imagined, but the short term trend is quite apparent on the chart.

US Dollar Very Long Term Chart

Here is an update of the US Dollar (DX) Very Long Term chart last shown on 3 April 2009 when the Eurodollar Squeeze was still abating.

We do not see any reason to change the longer term targets based on what appears to be a confirmation of the continuing decline.



The reasons for this decline are obvious, but so many miss this that we have to wonder what people are thinking. Despite the credit writedowns and even a potential unwinding of the dollar carry trade which we think is a bit overblown, as the demand for dollars in bank lending is slack, most analysts are missing the bigger picture of a huge overhang of eurodollars that are becoming increasingly less useful to foreign holders, especially if the power of the petrodollar declines.

There is a potential double bottom to be made at 71, with a possible target in the higher 80's based on the charts. The fundamental scenario we would see is a significant equity market dislocation and/or an exogenous geopolitical event that caused another artificial short term demand for dollars and the T bills. Currency dollars are, after all, sovereign debt of zero duration and in any panic there is a rush to the short end of the curve, to the point of accepting some negative rates of return for the safety of capital.

But after that event, the decline of the dollar will gain again in momentum lower unless there is a profound systemic reform and restructuring of the federal budget deficits. Even clever frauds can work only so many times, and there is nothing particularly clever or sophisticated about Wall Street's latest antics, excepting of course their size and their audacity which the average mind cannot well grasp.

India Puts Its Weight Behind US Dollar Alternatives

Here is an alternative index of the US dollar from the Federal Reserve that is much broader than the DX in its constituent components. It is a weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.

Broad currency index includes the Euro Area, Canada, Japan, Mexico, China, United Kingdom, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand, Philippines, Australia, Indonesia, India, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela, Chile and Colombia.

It shows the same Eurodollar squeeze and subsequent decline. As a point of order, the term eurodollar is a bit misleading from its historical roots. It basically refers to any US dollars being held in other than domestic banks, and not just in Europe. The TWEXB is not the same timeframe as the DX because it is a more recent construct.

Ladies and Gentlemen, the United States of America Is Insolvent

"In case you failed to catch it in our previous articles this year, we thought we’d state it outright for our readers this month: the United States Government is on a trajectory to default on their obligations. In its current financial condition, it will not be able to fund its forecasted budget deficits and unfunded Social Security and Medicare promises on top of its current debt obligations. This isn’t official yet, and we don’t know when the market will react to it, but there is no longer any doubt about the extent of their trajectory. There simply isn’t enough taxing power, value creation or outside capital willing to support its egregious spending...

The projected US deficit from 2009 to 2019 is now slated to be almost $9 trillion dollars. How on earth does anyone expect them to raise this capital? As we stated in a previous article, in order to satisfy US capital requirements, all existing investors would have had to increase their US bond purchases by 200% in fiscal 2009. Foreigners, however, only increased their purchases by a mere 28% from September 2008 to July 2009 - far short of what the US government required. The US taxpayer can’t cover the difference either. According to recent estimates, tax revenue from all sources would have to increase by 61% in order to balance the 2010 fiscal budget. Given that State government income tax revenues were down 27.5% in the second quarter, the US government will be lucky just to maintain its current level of tax revenue, let alone increase it.

The bottom line is that there is serious cause for concern here – and don’t be fooled into thinking this crisis will fix itself when (and if) the economy recovers. Just how bad is it?..." Sprott Asset Management

Just a reminder, in case you had forgotten in all the excitement of a bull market rally in US equities and a reasonably good baseball World Series.

Ladies and Gentlemen, the United States Is Insolvent, 29 May 2009

The States racked up some serious debt in keeping the world safe for democracy in the Second World War. On a percentage basis, it has recently spent a significant amount keeping its financial sector safe from productive effort and honest labour. They will raid the Treasury, take their fill, and then compel the government to confiscate the savings of a generation by defaulting on its obligations, its sovereign debt.

Reserve Bank of India Buys 200 Tonnes of the IMF's Gold

An apertif for the Indian central bank, and barely a nibble for dollar heavy China.

"You have a choice between the natural stability of gold and the honesty and intelligence of the members of government. And with all due respect for those gentlemen, I advise you, as long as the capitalist system lasts, vote for gold." George Bernard Shaw

LiveMint WSJ
RBI to buy 200 tonnes of IMF gold
By Tamal Bandyopadhyay and Anup Roy
Mon, Nov 2 2009. 11:15 PM IST

Decision to strengthen its gold reserves follows similar moves by central banks of some other countries.

Mumbai: The Reserve Bank of India, or RBI, is buying 200 tonnes of gold from the International Monetary Fund (IMF), nearly half of what the fund plans to sell.

In 1991, when India faced its worst ever balance of payment crisis, the country had to pledge 67 tonnes of gold to Union Bank of Switzerland and Bank of England to raise $605 million (Rs2,843.5 crore today) to shore up its dwindling foreign exchange reserves, which were then barely enough to buy two weeks of imports. India’s foreign exchange reserves were at $1.2 billion in January 1991 and by June, they were depleted by half. Currently, the Indian central bank’s foreign exchange reserves stand at $285.5 billion.

RBI’s decision to shore up its gold reserves needs to be seen in the context of other central banks across the globe increasing their gold reserves. Among them are the central banks of China, Russia and a few countries in the European Union. (also known as 'the barbarians' - Jesse)

In the last one year, China has increased its gold holdings, by weight, by 75.69%, Russia by 18.78%, the Philippines by 18.50% and Mexico by 108.91%.

Compared with this, India’s central bank did not add anything to its gold reserves in the last one year, according to Bloomberg data.

In fact, the share of gold in India’s total reserves has dwindled over the decade.

In March 1994, the share of gold in the total reserves of the country was 20.86%; by the end of June 2009, gold constituted only 3.7% of the total reserves.

An IMF spokesperson in India declined to comment on this development.

RBI’s foreign currency assets consist mainly of sovereign bonds, mainly US treasurys. So, buying more gold will help the Indian central bank diversify its assets.

“Gold as a proportion of our reserves is relatively small,” said R.H. Patil, chairman of National Securities Depository Ltd and Clearing Corp. of India Ltd.

“Gold is the ultimate currency. In fact, only gold came to our rescue during (the) 1991 crisis, so it makes sense that RBI should try to increase its gold holdings,” Patil said.

RBI’s foreign exchange reserves consist of foreign currency assets, gold, special drawing rights (SDR)—an international reserve currency floated by IMF—and RBI funds kept with IMF.

Out of RBI’s $285.5 billion foreign exchange reserves, foreign currency assets account for the most—$268.3 billion—followed by gold ($10.3 billion), SDR ($5,267 million) and reserve position in the IMF ($1,589 million).

According to RBI’s latest annual report, the foreign currency assets consisting of foreign securities declined by Rs81,010.25 crore from Rs12.98 trillion on 30 June 2008 to Rs12.17 trillion on 30 June 2009 mainly due to net sales of dollars in the domestic foreign exchange market.

At the current market value of $1,054 an ounce, or per 28.5g, RBI would need to spend about $7.4 billion to buy 200 tonnes of gold. With this, its gold reserve will rise to $17.716 billion, or roughly 6.20% of the total reserves.

IMF in September had announced that it wanted to sell 403 tonnes of its gold reserves, or one-eighth of its total holdings, to boost its finances on a long-term basis and to generate money to raise lending to needy nations. Under the concessional lending facility, IMF will lend at zero interest through end-2011 for all low-income members to help them tackle the impact of the financial crisis that rocked the world in the wake of the collapse of US investment bank Lehman Brothers Holdings Inc.

A committee set up by a group of central banks overseeing the gold sales by the IMF has allowed the fund to sell 400 tonnes of its gold annually and 2,000 tonnes in total during the five years starting 27 September.

According to a report by the Associated Press dated 20 September, India, along with China and Russia, had evinced interest in buying IMF-held gold.

At a total holding of 103.4 million ounces, or 3,217 tonnes, IMF is the third largest official holder of gold after the US and Germany.

IMF’s total holding at historical price is valued at about $9.2 billion on its balance sheet. At market prices, as of 28 August, the fund’s total gold holdings were worth $98.8 billion.

Ten Things Not to Like About the US Government Policy Actions Known as "The Bailouts"

Thanks to Cafe patron Malcolm McMichael

1. The Treasury and the Fed rewarded some aggressive risk takers and failing business models at the expense of those who followed sound business practices. Those who followed conservative practices have been penalized twice; first on the way up and again on the way down. Those companies that did fail appear to have been 'targeted' by insiders.

2. Much of the process was done in secret with minimal transparency, debate, or disclosure by people who have obvious conflicts of interest.

3. The stated objectives of freeing up credit for the real economy and stemming foreclosures have not been achieved.

4. Trillions in taxpayer money were provided with few strings attached and at minimal stipulated rates of return. Furthermore, several of these institutions are using their taxpayer money to lobby against reform and award themselves pre-crisis salaries and record bonuses.

5. Bailout actions were arbitrary, inconsistent, ad hoc, and without an apparent guiding principles of justice.

6. The banking, rating, “insurance”, and regulatory systems have not been reformed and the perpetrators of the collapse and their enablers are remain in charge, now overseeing the “recovery.”

7. Criminal investigations are minimal; few people are facing indictments or even serious regulatory scrutiny for actions that are highly questionable. Official finds are whitewashes.

8. Regulations, regulatory structures, and other safeguards were implemented, revised or swept aside in chaotic and reckless fashion. [discount window participation and collateral, short selling rules, bank holding companies, mark-to-market]

9. The insider advantages, speculative excess, and extreme leveraging of the perpetrators has been allowed to continue; in fact, allowed to expand. There is a taint of insider trading and corruption that permeates the process.

10. Wall Street is bailed out; Main Street is not. Efforts to subsidize the incomes and balance sheets of failing firms have been massive and were implemented with minimal debate, requirements, or oversight; efforts to shore up taxpayer incomes and balance sheets have been comparatively minimal, subject to extensive debate and tinkering, highly selective, and incomplete.

Market Perspective from the Daily Charts

Even if one does not use technical analysis, it is a good idea to take a look at a chart now and then to maintain one's bearings in a market. It is a natural tendency to get caught up in the short term movements, to be affected by the hype and hysteria from the bulls and the bears, and to lose the bigger picture and the general intermediate trends.

It appears to us that we are seeing a lifting of US equities in response to a government sponsored program of reflation using monetary stimulus and creation.

The dollar is showing a commensurate decline as we might expect, since the increase in equities (and the long end of the curve) is being accomplished through dollar dilution.

Déjà vu?

They can try.

Obama's Economic Policy Has Doomed the US to Stagnation - Or Worse

This was the very moment of Obama's failure, when he allowed Summers, Geithner and Bernanke to establish the principle of "Too Big To Fail" and set up a financial oligarchy at the expense of taxpayers. We would have expected this out of the Treasury under Hank Paulson, but to see this kind of policy error favoring Wall Street over the US taxpayers from a government elected on the promise of reform is inexcusable, a disgrace.

Be Prepared For the Worst - Ron Paul

Bloomberg
Stiglitz Says U.S. Is Paying for Failure to Nationalize Banks

Nov. 2 (Bloomberg) -- Nobel Prize-winning economist Joseph Stiglitz said the world’s biggest economy is suffering because of the U.S. government’s failure to nationalize banks during the financial crisis.

“If we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters at an economic conference in Shanghai Oct 31. “They would be lending and the economy would be stronger.”

Stiglitz has stuck with his view even after the U.S. economy returned to growth in the third quarter and as banks’ share prices climbed this year.

U.S. Treasury Secretary Timothy Geithner, appearing yesterday on NBC’s “Meet the Press” program, said the country’s economic recovery hinges in part on banks taking more risk and restoring the flow of credit to businesses.

“The big risk we face now is that banks are going to overcorrect and not take enough risk,” Geithner said. “We need them to take a chance again on the American economy. That’s going to be important to recovery.”

President Barack Obama said on Oct. 24 that the nation’s lenders, supported by taxpayers in the crisis, need to “fulfill their responsibility” by lending to small businesses still struggling to get credit.

Companies such as Citigroup Inc. and Bank of America Corp. benefited from a $700 billion taxpayer-funded bailout package last year. In contrast, Obama said that too many small businesses are still short of money, adding that his administration will “take every appropriate step” to encourage banks to lend.

Bank Lending

“We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.”

While the U.S. economy grew at a 3.5 percent annual rate in the third quarter, the first expansion in more than a year, the Columbia University economist said the recession is “nowhere near” its end, citing rising unemployment and weak demand.

The U.S. government plans to alter the way that a similar rescue would be handled in the future. Draft legislation proposes that banks, hedge funds and other financial firms holding more than $10 billion in assets would pay to rescue companies whose collapse would shake the financial system. (And it is an inherently unfair plan that creates even additional moral hazard by penalizing sound banking by forcing it to pay for reckless bank management. - Jesse)

Citigroup and Bank of America shares have quadrupled from this year’s lows in March.