For previous articles by the author go to: Gordon Gekko's Blog
Evidence seems to be mounting that we are headed towards some sort of implosion in the paper Gold market, and perhaps the currency/bond markets in general. Let’s take a look:
Jacksonville, FL based EverBank – a bank with approximately $8 billion in assets and 1800 employees according to the company website – recently sent this notice to customers (courtesy of Warren Bevan):
"Non-FDIC Insured Metals Select Changes" -
Section 6.3.7. General Terms: We have added language clarifying our right to close your account. We may close your Metals Select Account at anytime upon reasonable notice to you. If we believe that it is necessary to close your account immediately in order to limit losses by you or us [GG: We really don’t give a s**t about you; it’s us that we care about], we may close your account prior to providing notice to you. Notice from us to one of you is notice to all of you [GG: the nerve of these people!]. If we close your account, we reserve the right to convert your Precious Metals to U.S. dollars and tender the balance to you by mail [GG: I am willing to bet my entire Gold stash that when you receive these "converted" dollars, they will be nowhere near the market price of physical. What did you think that whole "limit losses" thing meant?] .
If you have a "Non FDIC Insured Metals Select" account with these people, you can pretty much say goodbye to any chances of ever seeing your metal. This is a clear sign that the (already tight) availability of physical metal at the manipulated Comex futures paper price is in danger of vanishing altogether. Think about it. What is the scenario in which they avoid catastrophic losses while at the same time sending you the US dollar value of the metal? When the official or Comex price has fully decoupled from the physical price. Expect to see more such notices from banks offering Metals "Investments".
Citibank recently issued this notice to its checking account (remember the type of account where you thought you could withdraw your money whenever you wanted? Well, not anymore) customers (via Market Ticker):
We reserve the right to require seven (7) days advance notice before permitting a withdrawal from all checking, savings and money market accounts. We currently do not exercise this right and have not exercised it in the past.
Hmm…let me see. Why would a bank need to impose withdrawal restrictions? Has this kind of a thing happened before somewhere? Could it be because of the danger of a bank run/capital flight from the United States? Why would Citibank fear bank runs? Why would money flee the US banking system/US? Could it be because the entire US banking system and the US Government is INSOLVENT and people - fearing a collapse in the dollar’s value (in terms of real goods i.e. for all you Prechterites out there) - rush to withdraw money convert it into real goods such as precious metals? You tell me. Also, could they maybe increase this notice period from seven to whatever the hell they want whenever they want? What will you do then? Even if you don’t buy Gold with it, withdrawing your cash from America’s insolvent banks is a very wise strategy at this point.
I work in the construction business and something has been creeping to the forefront of my attention for the past few weeks and now it seems to be moving full steam ahead.
Banks are forcing developers/builders (especially smaller ones) to give up their properties (unsold homes and lots).
Banks say the reason is that the properties in question are no longer performing assets. I am sure there are some loans out there that are not performing and the owners are going under. I am equally sure that there are plenty of developers that are still selling homes - just not at the pace originally planned on the pro formas.
Having inside information on one of these scenarios that happened today, I cannot help but wonder what is really going on? The bank told a small developer/builder I work for that they were taking back his ongoing subdivision.
He is selling houses and updated pro formas would indicate that the current sales pace would exhaust all remaining lots within 33 months. Yet the bank stated they would only give him until April 15 to find alternative financing. The bank is also willing to let him buy the subdivision at a 33% discount to what is currently owed.
If he is unable to obtain this backing, the bank will let him walk away without penalty or consequence so they can write it off.
I have been on the phone trying to put some of these pieces together. It seems there are many banks doing the same thing. However, there is apparently no interest [or ability - Mish] from anyone wanting to pick up land/lots at 30% - 50% discounts to today's prices.
Another interesting point is that the banks all state that they must have these situations written off or taken care of by the end of Q2.
Looks to me like DaBoyz are calling in the loans while the currency still has some value. Does the government plan some type of overt currency devaluation or expect the dollar to collapse on the currency markets of its own sorry weight? The cracks are already appearing in the Bond market. Foreigners are increasingly fleeing the Treasury auctions. The only thing keeping them going is manufactured "deflation" fears from time-to-time. A recent 30 year auction (10th February, 2010 to be precise) practically failed. This is what Mr. Denninger had to say about it:
Bad. Actually, let's go worse than bad and call it what it is - by any definition this is just one step off from "Failed."
The more-worrying factor here is that we've got this "mystery" direct buyers out here again taking nearly 25% of the offered amount (who is bidding for that undisclosed?) and another 11% taken down by The Fed for the SOMA account.
Yet even with this Treasury had to pay up to get it to go and the bid-to-cover was anemic at best.
Given the Primary Dealer system we have in this country, any BTC under 2.0 is an effective fail. To get an auction that behaves in this sort of fashion, complete with mystery direct bidders and heavy SOMA (Fed) participation, yet Treasury has to pay up in the form of a significantly higher coupon is not a good sign at all.
And this is what happened on 23rd February, 2010 for a 4-week $37 billion Treasury Bill auction (Per Graham Summers):
There are times in life when one witnesses something so outside the scope of normal experience, that at first you don’t see it.
Captain Cook’s diaries tell us that upon first seeing his ships offshore in Australia, the aborigines expressed “neither surprise nor concern.” Cook notes that it was not until he and his men approached the shore in smaller, more familiar vessels that the villagers reacted, arming themselves as “the sight of men in small boats was comprehensible to them: it meant invasion.”
Well, I had a similar experience during yesterday’s bond auction.
Roughly, 27% of the auction took place at the highest rate. This means nearly one third of the demand from competitive bidders (those who care about yield) came at the HIGHEST yield that was accepted. In plain terms, this alone tells you that investors want higher yields from Treasuries since nearly a full third of the debt issuance took place at the highest REQUIRED yield.
Of the competitive bids (meaning those bids coming from folks who care about yield), roughly 70% went to Primary Dealers (investors who HAVE to buy the debt and who usually turn around and try to sell it afterwards). To put this number into perspective here is the percentage of competitive purchases made by Primary Dealers in the last four 4-week Treasury issuances:
...yesterday’s auction featured MORE buys from Primary Dealers than almost any of those occurring in 2010. Remember, Primary Dealers HAVE to buy Treasuries. So to see them buying a high percentage of Treasuries at debt auctions means that few investors who can pick and choose what to buy are actually looking to buy US debt.
Of the remaining competitive buys (about $8.86 billion), only 32% came from Direct Bidders or those who bought debt directly from the Treasury: orders that can easily be tracked. The other 68% ($5.9 billion) came from Indirect Bidders: folks who we cannot track.
Even more bizarre, only $5.9 billion in Indirect Bidder competitive buys were ACTUALLY OFFERED. So we had a 100% acceptance rate for Indirect Bidder competitive buys.
Let’s put this in perspective:
This means that the Treasury took up EVERY single cent of competitive bids coming from indirect buyers. Remember, indirect buyers are usually assumed to be foreign governments (even the Treasury website admits this).
If this was the case yesterday, then foreign governments barely bought much of anything in yesterday’s auction (only 19% of total debt issued). Moreover, it implies that Primary Dealers (those having to buy) had to gorge on the auction to make up for the fact that few if any foreign governments are interested in buying our debt anymore (including even short-term debt).
So basically the demand from the indirects (i.e. foreigners) for US Debt is drying up and the Treasury is taking all of whatever miniscule amounts they are offering. As if that was not enough, we had another similar auction on 9th Match, 2010 (via zerohedge):
Two weeks after the indirect hit ratio in the 4 week auction came at a record 100%, today it was once again at almost at the all time possible high, with Indirect Bids of just $6.744 billion taking down $6.683 billion, resulting in a 99.1% hit ratio. The chart of the recent Indirect hit ratio in recent 4 week bill auctions is attached:
Dear Extended Family,I believe the most important event at our Toronto CIGA meeting was the testimony of two attendees.Two men spoke independently. One is a Canadian resident from Russia and the other from Poland.Both said the same thing, "All the signs that preceded our inflation of more than 100% per year are here now in the West."What more do you need to know?Regards,Jim
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."