GRAY'S ECONOMY

September’s Gold-en surprise

mgray12 — Sat, 24 Sep 2011 15:11:10 +0000

September’s gold price movement has been a study in contrary trends.

While gold reached $1,900 on the 2nd and has cascaded downward $243 to Friday’s close at $1,657 on the spot market.

While European banks from Germany, France and Belgium are teetering on Greek default concerns the liquidity trap from overnight lending in dollars has been the main driver, US hedge funds have also been big sellers especially this week.

Hedge funds threw out many babies with the bath water this week due to covering margin calls on leveraged bets. Gold is a case in point, but Apple and Google also suffered sell-offs.

Given the fall in gold prices, late Friday’s 23 percent rise in margin requirements by the CME does not make sense, unless we have something afoot for Sunday into Monday.

There is a strong possibility of a major market moving event very soon. Why else would you dramatically raise margin requirements on all precious metal including silver and platinum?

Is there a Greek default or a European bank being nationalized? Perhaps, lord knows there are many candidates from Dexia, SocGen to Morgan Stanley.

I am giving fair warning that tomorrow or Monday may see soaring volatility and therefore a need to suppress gold prices. This volatility will not be an outright liquidity squeeze so there in lies the need to squash gold and silver.

9/11: My Take

mgray12 — Tue, 13 Sep 2011 11:49:35 +0000

Now that the “festivities” are complete with three-day extravagaza finished, I would like to offer my comments on the day some 10-years ago.

First, I lost three people I knew very well and I grieve for all the families that lost loved ones.

I have three questions that do not seem to have answers in any investigations.

One, how did the towers come down? Office furniture, paper, wallboard and carpet do not burn hot enough to melt steel. Jet fuel does not as well, and was only burning the first minute, which then set off the building contents. Jet fuel explodes it does not have a slow burn.

Second, where did the towers go? When they collapsed they formed a ten-story pile, there was far more matter making up the building than what was in the pile? What was the dust that covered Manhattan? Pulverized concrete? How does that much concrete get pulverized? Any demolition creates some dust but not on the scale we endured ten years ago.

Lastly, where was the tail section and wings outside The Pentagon? They say it was a plane yet the hole in the building suggested a missile, no marks where wings created damage to building and no plane parts on the lawn.

I do not know who is responsible for this act, however I do not believe the official story.

These are three basic questions, which should have an abundance of proof in the reports on the “attack” and yet I have found no answers.

I thank you for your indulgence on this.

Europe’s PIIGheadedness

mgray12 — Mon, 05 Sep 2011 19:44:16 +0000

One crazy week begins with global markets getting creamed without US markets trading.
Labor Day afternoon shows the beginning of the cratering of the EU. Greek bonds show default is almost certain with 2-yr bonds at 52% yield.
Italian bank stocks and CDSs are moving in opposite directions. Equity prices at year lows while cost of capital to banks has risen to new highs.
Other EU banks in Spain, France and Belgium having difficulties accessing overnight funds, aka 2008.

Stefaan Decraene CEO of Dexia, the second largest bank in Belgium behind Fortris has resigned. Dexia has been labeled as a troubled bank for the last six months.
German banking execs including Deutsche Bank’s Ackmann preaching that a bailout is needed as many EU banks cannot price sovereign bonds on market-to-market basis because they would be labeled insolvent for their exposure.
Spot gold prices closed above $1,900 an ounce on fears that EU banks will be shuttered before Jean-Claude Trichet can get a Union bond offering together. The bond may be backed by gold in some weight, whether it will be 50% backed or 5% backed, which is the level far more likely to be enacted because there is not enough of the precious metal to do any larger level for the amount of funds needed to bailout the Euro.
I would say the future of the euro is bleaker and could be severely altered or even gone by year’ end.

Crude Reality

mgray12 — Sun, 09 Jan 2011 16:03:05 +0000

By MICHAEL GRAY

Wall Street and Washington are playing a crude joke on the US economic recovery.

Higher gasoline prices have drained over $25 billion from the US economy since September, as skyrocketing oil costs have eaten into consumer’s wallets.

But the issue isn’t supply — it’s Ben Bernanke and hedge funds.

The Federal Reserve chief has kept the dollar weak with his “quantitative easing” stimulus plan. Wall Street sees commodities like oil as a security, a hedge on the watered-down greenback. They can run up oil prices on nothing more than speculation that China may suddenly need more oil.

Oil prices have hovered near $100 a barrel recently (though a disappointing jobs report brought it back down to $88 a barrel on Friday). OPEC is of course pleased with the high prices, and refuses to increase production — but privately, even they’re puzzled by the increase in prices. There hasn’t been a spike in the demand for oil recently; in fact, the recession has decreased use.

Yet New Yorkers pay more than $3.45 at the pump, and economists are forecasting $4 or even $5 a gallon gas by spring.

“That’s over a $145 billion annualized ‘hidden tax’ on the consumer,” says Peter Buetel, president of Cameron Hanover, who covers the oil industry.

“Gasoline prices at the pump have increased over 27 percent since Bernanke began telegraphing his move in September,” Buetel added.

Stephen Schork, an energy analyst who runs the Schork Report, wrote in a November posting that Bernanke’s easing started the run-up in crude oil through a weakened dollar. Then the fast money on the Street took the ball and ran with it.

But it isn’t as if the oil market suddenly had a switch turned on in September. Energy prices never really retreated during the recession, and some analysts believe the price of gasoline should now be more than a dollar lower than its current $3-plus average across the country.

While most of the equity cheerleaders have celebrated stocks’ year-end moves and said that gold and silver may be bubbles, crude oil prices have soared more than all other investments.

Precious metals were up 8 percent for the final quarter of 2010. The Standard & Poor’s 500 index gained 13 percent during the same period while crude, facing stiff headwinds of a stronger dollar as the euro weakened on Irish and Greek debt woes, gushed over 16 percent.

Cameron Hanover’s Buetel estimates that 40 percent of the run-up in crude prices by year’s end can be laid at the feet of Wall Street.

The crude reality for consumers is that this is the same Wall Street crowd chasing profits, which took crude prices to $147 a barrel in July of 2008, only to crater to $33 a barrel by December of that year as the fast money moved elsewhere.

It’s a big part — oil at $147 a barrel — of what exacerbated the recession in 2008.

“In a fragile economic recovery, $25 billion that does not buy movie tickets, pay restaurant bills or make a retail purchase could mean a longer time for economic recovery,” said Buetel.

Disappointing holiday retail sales bear this out.

Just this week Discover Card officials said that 47 percent of consumers spent less on gifts this holiday season because of higher gasoline prices and the sales figures from retailers showed declines across the board.

So where were the sales? Investors will likely get the answer when the oil companies report their earnings later this month.

Schork said that $90 a barrel translates into $3.15 a gallon and $95 a barrel to $3.30 gallon.

“At $95, we begin to see demand destruction,” said Schork, which means consumers cut back on gas purchases.

That has little effect on Wall Street banks and hedge funds that are bidding up the price to get a better return for their investors.

At the end of last year, Wall Street money mangers controlled 200 million barrels of oil in futures contracts. That level is five times the amount of oil Nymex controls in its Cushing, Okla., crude oil storage facility.

The Commodities Futures Trading Commission, under the FinReg rules passed last year. is charged with reining in Wall Street speculators by this month. But the panel will not have any subtenant rules until late spring at best.

mgray@nypost.com

Fox is guarding the foreclosure market

mgray12 — Tue, 28 Dec 2010 15:27:04 +0000

Edited by MICHAEL GRAY

As many as 13 million homes will be lost to foreclosure by 2012, but troubled borrowers seeking help from Uncle Sam are sent straight to the very same mortgage industry insiders who led the country into crisis.

It’s hard to believe Uncle Sam would choose him, but Bruce Paradis, chairman of the nonprofit Homeownership Preservation Foundation — whose hotline number is included in every denial notice sent to borrowers rejected from the federal Home Affordable Modification Program, or HAMP — knows all about troubled mortgages because his lending company originated nearly $70 billion in bad loans from 2004-2006 under his watch.

That’s right — the former CEO of notorious subprime lender GMAC’s Residential Capital arm is charged with leading a key component of the Treasury department’s response to the mortgage morass.

The rest of the board is packed with GMAC veterans and other financial industry insiders. More than $1 million in industry funds supports the $13 million Homeownership Preservation Foundation, which has a contract from the Treasury Department.

GMAC itself is no stranger to government dollars. It was bailed out by the Feds to the tune of $17.2 billion and has tried for a fresh start on the marketing front by changing its name to Ally Financial. Residential Capital is the nation’s No. 5 mortgage servicer, handling 2.6 million loans with a face value of $398 billion, according to National Mortgage News.

Paradis retired in 2007, but GMAC remains a major lender and servicer, the name for the middlemen lenders hired to collect payments and manage loans day-to-day.

It’s no secret servicers have a strong financial incentive to foreclose, and fast. They “can turn a substantial profit from foreclosure-related fees,” a troubling conflict of interest that the Congressional Oversight Panel, or COP, led by former Senator Ted Kaufman, pointed out in a scathing critique of the Treasury’s foreclosure-prevention programs earlier this month.

The Homeownership Preservation Foundation’s ties to the industry run deep. It started out as part of Residential Capital before switching to nonprofit status, and draws significant funding from major banks and servicers.

The group received $1 million from now-defunct subprime titan Countrywide Financial Corp., $250,000 from Bank of America, $73,961 from GMAC-RFC and $25,000 from Citigroup, according to the nonprofit’s 2008 tax return, the latest available. These numbers are substantial, considering HPF had total net assets of $13.2 million at the end of 2008.

HPF declined to make Paradis available for an interview with The Post, but he told American Banker, which first called attention to his role, that it’s tough for the nonprofit to maintain neutral ground.

Asked why Uncle Sam is lending clout and resources to a nonprofit clouded by conflict-of-interest questions, a Treasury spokeswoman boasted that 5,500 people every business day call HPF’s hotline. She also highlighted the millions of foreclosure prevention options HAMP offers and insisted the hotline is a trusted place to get free help.

While the 888-995-HOPE hotline has clearly been a marketing success, the spokeswoman had no data on how many homeowners have avoided foreclosure by speaking with an HPF counselor.

The HAMP numbers that are available from the COP paint a picture of failure so dismal that noted credit expert and Georgetown law professor Adam Levitin is calling for HAMP to be shut down. Begun in early 2009 with a goal of preventing 3 million to 4 million foreclosures, HAMP will prevent only 700,000 to 800,000 foreclosures, according to the latest COP estimates. That’s just 6 percent of the 12 million tidal wave. Even worse, re-default rates are high and rising.

One thing HPF’s national network of counselors does is put borrowers in touch with their servicer. Given servicers’ outrageously poor record of working successfully with homeowners — a widespread problem that is giving rise to growing calls for reform from COP and others — this hardly seems an avenue to successful foreclosure prevention.

“We need to be sure they are working with consumers and industry effectively,” said David Berenbaum, chief program officer at the National Community Reinvestment Coalition.

As the Treasury Department continues to steer consumers towards HPF with little to show for the effort, the urgent issue of writing down troubled mortgages to their real values so the market can recover remains unaddressed.

“The plight of distressed homeowners’ is subsidiary to protecting the banks from having to take serious writedowns,” Levitin wrote in a recent blog post.

Exclusive: Silver Suits Begin

mgray12 — Wed, 27 Oct 2010 22:14:45 +0000

By MICHAEL GRAY

JPMorgan Chase and HSBC have been named in a federal lawsuit filed in Manhattan for allegedly conspiring “to intentionally and unlawfully suppress and manipulate the price of Comex silver futures.”
The suit filed yesterday by Brian Beatty a Connecticut silver trader, who is represented by Labaton, Sucharow, states that JPM has “reaped hundreds of millions if nit billions in profits from their unlawful and manipulative suppression of the prices of Comex silver futures and options contacts.”
“We are pleased to bring this suit against JPMorgan and HSBC. The potential actions taken by these banks to unlawfully manipulate the price of COMEX silver futures is one more example of how financial institutions continue to commit fraud for their financial benefit,” said Kellie Lerner a lawyer with Labaton.
The filing comes a day after a federal regulator expressed mounting concerns over the “fraudulent efforts to persuade and deviously control,” the price of silver, said Bart Chilton, Commodities Future Trading Commission member. Chilton’s other silver manipulation comments are included in the filing.
“The filing of the lawsuit is a major milestone in stopping the fraud that has been occurring in these markets and punishing those bullion banks who are responsible,” said Adrian Douglas of the Gold Antitrust Action committee.
Last May Gray’s Economy reported exclusively that federal regulators were looking into civil charges with JPMorgan Chase for fraudulent price manipulation.
JPMorgan and HSBC declined to comment.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

The Real Mortgage Fraud

mgray12 — Mon, 11 Oct 2010 18:32:42 +0000

By MICHAEL GRAY

Up until now, large banks and mortgage servicers have stated that they used false documentation and illegal signings and notary signatures to alleviate the huge backlog of foreclosure processings.

Although filing a false document with a US court would be fraudulent if you or I did it, this is only the tip of the iceberg for the banks.

Once it is revealed that the rash of foreclosures was begun to allow the banks to clear their balance sheet of toxic assets before mark to fantasy expired and also profit by it, the entire mortgage securitization market will crater.

Here is how it works:

If you have a delinquent $250K loan that the bank wishes to get rid of. It bundles this loan with other bad loans and sells it at $0.40 on the dollar.

The purchaser of the paper then forecloses on the house and sells the house for $150K. That’s a 50K profit on the foreclosed property.

Now if you do this 100,000 times the bank clears the bad paper and makes a tidy profit because the seller is either another arm of the bank or has a kick-back clause tot he bank.

Now if this scenario is “allowed to be” unveiled by any of the many ongoing investigations into this mess, then the entire mortgage market will seize.

This fraud will make robo-signing look like jay-walking in the grand scheme of things. It was a means to get the bailed out banks out from under the mess they caused.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

Mortgage Mess

mgray12 — Mon, 04 Oct 2010 20:15:49 +0000

By MICHAEL GRAY

As Wall Street banks pull back of foreclosures in lieu of fraudulent filings on the part of the processors, how far are we away from a general amnesty of first mortgages.

A foreclosure motion should be challenged by every homeowner on the grounds that the banks — for the most part — cannot produce the necessary evidence needed to foreclose on a property.

Either the robo-signing processor is lying about knowing the particulars of the filing or the bank bringing the action does not own the note, they are merely the mortgage servicer.

With all the securitization of these mortgages and the dicing and slicing of traunches the paper chase to find the true bondholder may be impossible to discern.

Is there any more of a moral hazard for homeowners than there was for the banks when they were bailed out?

As I wrote two year’s ago while TARP was still just a twinkle in the eye of Treasury secretary Hank Paulson, if you spent $2.2 trillion, then you could wipe out all the first liens on single-family homes in the US.

Now after two years and TARP has died an unnatural death, what do we have to show for it?

The fact that the ATMs are still working?

Well we have spent almost double the $2.2 trillion on TARP, shovel-ready stimulus programs and the bloating of the Fed’s balance sheet with QE and beginning of QEII. Don’t forget we are on the hook for all the QE printing.

And where do we stand?

If Uncle Sam placed the money with homeowners then we would not be mired in a deflationary housing crash, or looking at anemic GDP growth.

Had the funds been deployed with the homeowners we would be growing the economy at 10% GDP, with 4% unemployment and the Fed would be raising interest rates to cool off the economy.

These are the tools Bernanke and his group know how to use to manage the economy. They cannot do anything further right now to grow the economy without creating a hyper-inflationary bubble by increasing its balance sheet.

When all is played out in the housing market, I believe all mortgages will get a substantial haircut because the economy needs to make consumers somewhat whole to spur growth.

And the sooner the better.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

Goldman’s Slick BP Sale

mgray12 — Tue, 22 Jun 2010 12:01:43 +0000

I apologize for the lack of posts recently, but I have been promoted in the business section and my time is at a premium until I get my legs under me. And yes I am still on top of JPM and its precious metals troubles.

Please see new post below.

By MICHAEL GRAY

The smartest guys in the room strike again: Goldman Sachs liquidated more than half of its position in BP just prior to the Gulf oil spill on April 20 of this year, according to Securities and Exchange Commission filings.

The excellent call came just after Goldman Sachs International Chairman Peter Sutherland stepped down from the BP chairmanship last December, when he was replaced by former Ericsson chief Carl-Henric Svanberg effective January 1.

Between January and March of this year, Goldman sold 4.9 million shares, or 57.8 percent, closing out whole positions in three of its biggest funds, according to SEC filings.

BP shares were averaging $57 a share for the first quarter, rising for most of 2009 from a low of $35 in March of the year. BP shares closed Friday on the NYSE at $31.76.

What A Weekend

mgray12 — Mon, 10 May 2010 13:47:55 +0000

By MICHAEL GRAY

Over 10,000 hits on this blog. Guess I hit a nerve. Interesting how Silver is trading today against Gold.

Since JPMorgan’s trade tickets are being pulled for past sins, perhaps JPM is taking a second look at its future short trading to have a better chance of settlement or the silver traders have become empowered by the 800-lbs. gorilla being hamstrung for a little while.

THURSDAY’S POWER PLUNGE

As the Nasdaq and NYSE chiefs point fingers at each other over who is at fault for the 15-minute cratering of the markets last Thursday.

Yet no one is talking about the initial event that started the whole cascade. It was not a “fat finger” or a trade that was mistyped.

I am investigating a cyber attack on a electronic trading platform on P&G that was the initial event.

Now of course to get an official comment on this is nearly impossible from Dept. of Homeland Security or the SEC, but that will be what I will try to do.

More to come.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com