Gold, the Comex and Exchange For Physical

This report below comes from John Cheney of Service Analytics.

We would not conclude that you cannot get gold from the Comex in the exercise of your futures contract. "Cash settled" is nothing new, and we ourselves have done this in the past. But we have been speaking with other traders and funds, and some are spotting a trend.

Comex is putting forward the offer of paper in the form of money or ETF positions aggressively, and it is the much easier alternative. Delivery of physical gold from the Comex is no longer as straightforward or even as semi-convenient as it had been in the past. In fact, it is difficult, and one must be persistent and wait long periods of time. At least, this is what we hear.

We would like to know if there has been a recent independent audit of the Comex stores, with a clean sheet of bar numbers and the status of same. From what we hear it is a mess, as bad or worse as the recent scandal in Canada and the 'missing bullion.'

"Some months ago a chap described changes in the comex rules for futures contract deliveries. Therein it was described that the EFP, exchange for physical, rules were amended to allow for delivery of GLD shares in lieu of bullion.

Well take a look at something new, at least for me, in Monday’s comex preliminary volume and open interest report. On page 3 of the attachment, notice that in addition to futures contracts listed under the EFP category, a new category is listed: “Delivery Cash Settled” = 2866 december gold contracts. Just so happens 2866 was exactly the number of delivery notices issued on FND as reported in the Nov 27 vol and op int report.

Conclusion: guess you can no longer get bullion via using comex contracts. This apparently is the next step in the evolution of gold trading."

The conclusion we reach for now is that if one is counting on the ability to receive delivery of physical gold from the Comex for whatever purposes, then don’t. You will wait and fight and stand in queue to obtain the goods from the Enron nation.

But one principle we have learned over the years is never to attribute to bad intents what can be attributed to human error and mismanagement.

Morgan Stanley Fears UK Default in 2010

As you may recall we are bears on sterling, and view the UK as the Iceland of the G20.

The monetary policies of the Bank of England were as bad as those of the Greenspan - Bernanke Fed. The difference is that the UK does not hold the world's reserve currency as a captive source of revenues.

As an aside, we see that Bank of England advisor and economic franc-tireur Willem Buiter has decided to seek greener pastures as chief economist with Citi in the States. Timely exit. Bravo, Willem.

It is sad to see a great people brought low by irresponsible leadership and economic recklessness. Perhaps there will be a movement to bring in a reform government. Hint, ask for details first, as the Yanks are finding out to their dismay as they experience continuity they can hardly believe.

UK Telegraph
Morgan Stanley fears UK sovereign debt crisis in 2010
By Ambrose Evans-Pritchard
4:09PM GMT 30 Nov 2009

Britain risks becoming the first country in the G10 bloc of major economies to risk capital flight and a full-blown debt crisis over coming months, according to a client note by Morgan Stanley.

The US investment bank said there is a danger Britain’s toxic mix of problems will come to a head as soon as next year, triggered by fears that Westminster may prove unable to restore fiscal credibility.

“Growing fears over a hung parliament would likely weigh on both the currency and gilt yields as it would represent something of a leap into the unknown, and would increase the probability that some of the rating agencies remove the UK's AAA status,” said the report, written by the bank’s European investment team of Ronan Carr, Teun Draaisma, and Graham Secker.

In an extreme situation a fiscal crisis could lead to some domestic capital flight, severe pound weakness and a sell-off in UK government bonds. The Bank of England may feel forced to hike rates to shore up confidence in monetary policy and stabilize the currency, threatening the fragile economic recovery,” they said.

Morgan Stanley said that such a chain of events could drive up yields on 10-year UK gilts by 150 basis points. This would raise borrowing costs to well over 5pc - the sort of level now confronting Greece, and far higher than costs for Italy, Mexico, or Brazil.

High-grade debt from companies such as BP, GSK, or Tesco might command a lower risk premium than UK sovereign debt, once an unthinkable state of affairs.

A spike in bond yields would greatly complicate the task of funding Britain’s budget deficit, expected to be the worst of the OECD group next year at 13.3pc of GDP.

Investors have been fretting privately for some time that the Bank might have to raise rates before it is ready -- risking a double-dip recession, and an incipient compound-debt spiral – but this the first time a major global investment house has issued such a stark warning.

No G10 country has seen its ability to provide emergency stimulus seriously constrained by outside forces since the credit crisis began. It is unclear how markets would respond if they began to question the efficacy of state power.

Morgan Stanley said sterling may fall a further 10pc in trade-weighted terms. This would complete the steepest slide in the pound since the industrial revolution, exceeding the 30pc drop from peak to trough after Britain was driven off the Gold Standard in cataclysmic circumstances in 1931.

UK equities would perform reasonably well. Some 65pc of earnings from FTSE companies come from overseas, so they would enjoy a currency windfall gain.

While the report – “Tougher Times in 2010” – is not linked to the Dubai debacle, it is a reminder that countries merely bought time during the crisis by resorting to fiscal stimulus and shunting private losses onto public books. The rescues – though necessary – have not resolved the underlying debt problem. They have storied up a second set of difficulties by degrading sovereign debt across much of the world...

Will AIG Be Able to Pay Your Insurance Claim If Needed?

"Sanford Bernstein analyst Todd Bault said AIG is facing an $11 billion shortfall to cover potential claims in its property and casualty insurance business, according to media reports Monday."

The public has been reassured repeatedly that AIG's troubles with exotic financial instruments written by its London division at the behest of some of the Wall Street banks could not affect its personal and commercial insurance business which is regulated by the states.

We have raised the issue in the past that corporations such as AIG, with its exposure to individual and small business insurance claims and annuities, have no business engaging in raw financial speculation with a commingling of liabilities and risks. At one time AIG was a major speculator in the silver markets, holding enormous short positions along with a few of the Wall Street commercial banks.

Banks and insurance companies have absolutely no business engaging in financial speculation that exposes its non-qualified investors and depositors to risk of loss that has not been fully disclosed. It is the job of the government regulators to prevent this from happening in the first place as part of the corporate licensing process. Period.

We freely admit that we do not understand the exact structure of AIG's interwoven obligations and corporate structure, who owes what, what is safe and what is not. It is not clear to us who does understand it, except to say that it is a massive conglomerate, and that there are investments and speculations and commercial enterprises that have absolutely no business being in the same portfolio as others from a risk profile. The same goes for the money center banks. These companies look more like pyramid schemes serving their management to the detriment of shareholders and customers.

AIG ought to have been broken up and taken through a restructuring process, and the commercial business fully capitalized and separated from its speculative operations first, before anyone was paid with government funds, including enormous employee bonuses and full payments to counterparties in financial speculation like Goldman Sachs.

If the financial insiders were paid, and individuals are left high and dry on car and life insurance and retirment annuities, there will be hell to pay, of this we are certain.

AP
AIG shares decline amid reports of shortfall in insurance reserves
Monday November 30, 2009

NEW YORK (AP) -- Shares of American International Group Inc. tumbled nearly 15 percent Monday after an analyst stirred concerns that the troubled insurer doesn't have enough reserves to pay some potential claims.

AIG shares dropped $4.90, or 14.7 percent, to finish at $28.40 -- their lowest close since August 19. The shares have more than quadrupled from a low of $6.60 in March.

Sanford Bernstein analyst Todd Bault said AIG is facing an $11 billion shortfall to cover potential claims in its property and casualty insurance business, according to media reports Monday. Bault declined to share the research note.

Covering that shortfall could cause problems for the New York-based insurer as it tries to repay a government bailout package it received to help stay in business.

Separately, the Financial Times reported AIG may soon get a bid for a part of its aircraft leasing unit from a group that includes the head of that business.

A spokeswoman for AIG, which is based in New York, declined to comment on either report...


NY Times
Report Cites Big Shortfall In Reserves At A.I.G.
By MARY WILLIAMS WALSH
November 30, 2009

An independent analysis of whether the insurance industry has been setting aside enough money to pay its claims estimates that the American International Group has a shortfall of $11.9 billion in its property and casualty business.

The conclusion is at odds with the often-repeated refrain that A.I.G.’s troubles can all be traced to its derivatives portfolio, and that its insurance operations are sound.

Other researchers have raised doubts about A.I.G.’s total worth since it was bailed out last year, and even the federal government has acknowledged that the company might have difficulty repaying all the money it owed taxpayers, currently about $120 billion.

In a report distributed to clients on Monday, the investment research firm Sanford C. Bernstein pointed to a big shortfall in A.I.G.’s property and casualty insurance business — which has been renamed Chartis and is intended to be the future core of the company’s operations.

The stock fell by almost 15 percent, to $28.40 from $33.30, in trading on Monday. Bernstein cut A.I.G.’s price target by 40 percent, to $12 from $20. The report’s author, Todd R. Bault, called the results “a big surprise.” He also said the inadequacy of A.I.G.’s reserves had grown in recent years — “nearly the opposite behavior that we would expect,” since the claims-paying reserves of other insurance companies had been growing...

Customers Frequently Asked Questions

1. Is my insurance policy safe?
Yes, your insurance policy is safe. Our insurance companies remain strong and well-capitalized. Regulations ensure that the assets of our insurance companies are there to back up each policy. You are protected. Your policy is safe.

2. If I have a claim, will it be paid?
Yes, our insurance companies are able to pay all valid claims. As stated above, our insurance companies are financially strong and are not in jeopardy.

3. Should I cancel my insurance policy?
Your insurance policy is safe. As stated above, our insurance companies are financially strong so your policies are not in jeopardy. Please be aware that some policies may contain surrender charges and/or cancellation penalties. Talk to your financial advisor before making any decision.

4. Should I get out of my annuity?
Your annuity is underwritten by one of the AIG insurance companies. Our insurance companies are financially sound and well-capitalized. Please be aware that some annuities may contain surrender charges. Talk to your financial advisor before making any decision.

5. I just heard that AIG is selling the company that issued my insurance policy. What should I do?
You don't have to do anything. Your policy remains safe and intact. Your policy will be seamlessly transferred to the company that buys the subsidiary.

6. Should I pay the insurance premium bill I just received?
Yes, in order for your coverage with us to continue, you will need to pay the insurance premium.

SP 500 Futures Daily Chart

Stocks are being managed on light volumes.

At most times the markets are price discovery and capital allocation mechanisms.

Under the current Bernanke-Summers regime, they have become instruments of financial engineering, the shaping of perception, and government influence.