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Week Ahead 5-10-2010

admin on 05 10, 2010

First and foremost to all of those Mom’s out there I hope you had a great Mother’s day.

Now let’s get down to the nitty gritty!

SILVER, JPM, Consumer Confidence, FDIC Banks Closures, Greece, EU Bailout, Fannie/Freddie,Webinar Link and the Bounce!

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SILVER: JPM Trading Probe

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I reported back in January that there has been something sketchy going on in the silver trading pits.  I was merely following along with the reports about the incredible short interest that has accumulated under a smaller amount of banks.  It has gone from4 banks have gone from a 40% to 90% of total short interest in the Silver futures.  The total amount of Silver short can not be physically delivered because it does not exist in the open market.  To say the least the CFTC has allowed this to happen.  There have been reports that JPM is merely a front for the our Central Bank to keep the Gold and Silver in price from appreciating.  I also posted the reports on the whistle blower who blew this whole case wide open: Andrew Maguire.  He has had his own drama with an attempted murder, when he and his wife were struck in a hit and run car accident.

The plot thickens with this criminal and civil investigation that is posted yesterday by the NYPost.

This is another witch hunt for the public eye and not much will come out of it.  They may slap them on the wrist and someone will be the fall guy with millions in a bank account on some island waiting for him when he gets out of his resort style jail cell.  Just like the Goldman joke that is currently under way, I do not see any major fines.  It maybe a record breaking fine for the media to shout from the roof tops, but in the grand scheme of things the fines will barely scratch the surface of what they truly made on all of the shady deals.  JP Morgan, if they are the front end for the Central Bank, how can they truly be on the hook for anything?  The key here is that they may stop shorting for the very near term and this alone could drive prices up through the recent highs.

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I read a report that Consumer Confidence was crushed from last week’s market movement.  [private_free]This should tell you how far the heard is behind the news cycle.  It takes a 1,000 point drop to light a fire under their asses.  The media has done a fantastic job of only covering the positives of our grand “economic recovery.”  We just hear ” economic recovery” touted from every institution possible.  The reason…to get you to spend money.

Obviously, you are not hearing that we are on pace to double the bank shut downs vs last year.  The FDIC shut down 4 banks last week to bring the total to 68.  These four banks were expected to cost the FDIC an estimated $78 Million.  This number represents an average of 27.6 % of assets that the FDIC has to cover. This number is important because it represents an average of what other bank’s assets could be in jeopardy. Even if you cut that number is half and use a 13.8%, that means that other banks may have that much more risk on their books.  In prior articles we wrote about the FASB rule that was revoked that allows banks to hide their level 3 asset write offs.  This is a blatant investor rip off. They have taken away any transparency that was in place and now expect investors to blindly put their money into one of these institutions.  I hope investors start to demand transparency or don’t invest in the banks.

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EU Package

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Amazing that the EU waits until now to drag out this $700 Billion bailout.  I guess it took the threat of complete collapse to warrant the ” band together” attitude.  Germans are furious over Merkel’s decision to support the Greece bailout plan.  They do not like the fact that they have to bailout another country that gets to retire much earlier than they do.  The riots in the streets of Greece shows how their public has been misled while they have enjoyed living beyond their means under a socialistic society.  The Greece government already has a VAT and an income tax.  The country says it has a high amount of tax evasion which has led to an underground economy that is almost 30% of the country’s GDP.  There will be continued riots and most likely a strategic default of the country.  The high tax evasion will continue and with further austerity cuts the evasion will only get worse.  This spells disaster for the EU even with their big new shiny bailout package.

The market seems to like that the EU and IMF have rode in on a white horse to save the day.  The question remains if this will truly settle the skeptics.  How long does it take before the rest of the world realizes that you can not just create $700 Billion out of thin air and if it is lost no one will care.  The US is on the hook for at least $100Billion to IMF, and probably much more through the currency swaps that have been restarted.

A quote from Bloomberg on the currency swaps:

“In a swap, central banks exchange foreign currency with an agreement to reverse the transaction at a later date. The central banks will then lend the dollars at fixed rates to firms in their countries. Dollar liquidity tightened in London last week amid concern financial institutions are holding too many assets of Europe’s most-indebted nations.

The action signals that Fed officials are concerned about implications of the Greek crisis for American markets.

“These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers,” the Fed statement said.”

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Interest Rates

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I have to mention it one more time to keep an eye on the interest rates.  In the 10 year, TNX, we saw an incredible drop in the yield when the market dropped last week.  Rates traded as low as 3.3%.  It may take some time for it to play out, but Moody has already warned about the coming ratings drop on the US.  We have seen what a ratings drop did to Greece and Portugal.  If the rates start to pop then we know what the potential outcome will be.  We can only take create a limited amount of debt as approved by congress.  The FED has found their work around and we are paying the price.

Last week we wrote about the $1.3 Trillion that Bernanke admitted was created out of thin air and now we will just create another couple of Billion to pay off the loses that are accumulating at our nations housing dumping ground: Freddie Mac and Fannie Mae.

Fannie Mae Needs $8.4 Billion More in Aid and Freddie Mac needs $10.6 billion from the Treasury.

When does the bleeding stop?  We the people need to make it happen.  Like the Germans are doing to Merkel, this country needs to put people in office that will stop the spending.  Not only on a national level, but state and local as well.

Last week’s webinar was a great success and I appreciate the turn out and I apologize to those who could not get in.  The recording replay is posted here:

http://www.cheapiv.com/?p=65

I am taking this bounce as a gift and adjusting.  It is hard to imagine that the market will not like that another $700 Billion is going to be used for another bailout.  When is a country to big to fail?

We will be doing another webinar this week so stay tuned for details.

Have a Great week!

Ryan Mastro

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