On Shorting Gold and Silver, Unemployment, and Taxpayer Backed Loans

Unemployment Graphical Analysis
While there are many ways to gauge unemployment, a great parameter to look at was brought up by David Rosenberg in a piece published over at The Big Picture (click for larger view):

Number of Unemployed per Number of Job Openings

I can back this up.

A while back we were looking to fill a 6 month contract job in my working group. We put an ad out and were inundated with over 300 resumes for the position. While the job spot was an entry level lab support position, we had over 30% of applicants were PhD level scientists looking for something, anything to earn some money.

While everyone is expecting the "V" shaped recovery to start any day now, consider that graphic and wonder where all the jobs are going to come from for all those applicants.

No Debate on the Extension of Taxpayer Backing of 125% LTV Mortgages
I could spend some time on the future debacle of expanding Fannie (FNM)/Freddie (FRE) loans out to 125% LTV, but at this point I give up. There was no debate on this. The massive extension of risk backed now 100% by the taxpayers further proves my point that THERE IS NO MORTGAGE MARKET SAVE THE US GOVERNMENT. This is so dumb and this market segment so fake that I am lacking any real desire to even think about unless I want to puke. Yves Smith of Naked Capitalism has a relevant discussion up if you want to read more.

California IOU's: Paper Backed by Nothing to get Bailed out by Paper Backed by Nothing
Today California is in the end stage of their deficit spending collapse. The state will resort to issuing IOUs to workers and servicers instead of dollars. California will of course not be allowed to fail, and will be bailed out by the US government. In a thought experiment one may wonder why California IOUs, backed by nothing more than an empty promise, are any less valuable than US dollars backed by the same, but I am a tin foil hat kind of guy.

May Be Nothing
Karl Denninger continues with a torrid pace of important stories with this gem from the banking sector:

BOOM! More Obfuscation
"Someone" paid 7% for overnight money on the Fed Trading system last night (that "someone" was a bank, by the way.)
This will be claimed to be "ordinary" end of quarter distortions for closing the books.

Don't believe it for a second.

Let's put this in plain language: The discount window is open for any bank that has good collateral at less than 1/10th of that interest rate.
Therefore there is absolutely no reason for any institution to go into the Fed Funds market for overnight money at 7% unless they have no good collateral to post against it and thus cannot go to the window.
So who is it? No idea. And while the amount borrowed overnight at that rate may be tiny, that's not the point - the point is that the last time we saw anything that dramatic was just before it all went "boom" last year.
Yes, I'm sure that end-of-quarter had something to do with it. In fact, I'd be stunned if it did not.
However, as I noted, there's no reason for anyone to pay that if they have good collateral to post at the discount window, given that you can do so for 1/10th or less the price.
Keep your nose to the ground and your eyes open.
Someone (or more than one someone) is in trouble.

While there certainly may be a reasonable explanation for this (reasonable is a relative term these days) it could be very important. While the Fed is accepting anything for collateral, not having anything is very bad. My uninformed guess: a larger regional bank with heavy exposure to hotel commercial paper is about to go bust. Obvious candidates are some Las Vegas regional banks. And no I have no idea which if any it is, I am just speculating.

Gold and Silver Short Positions
The Mogambo Guru had a great piece up Wednesday which dove into the massive short positions in gold and silver:

The details are that “Despite the price decline in gold during the prior week, the bullion banks in the Commercial category only decreased their net short position by 1,474 contracts…a number hardly worth mentioning”, so you wonder why he does, unless there it is a secret code that, when run through a Junior Mogambo Ranger (JMR) secret decoder ring, gives the secret message, “The Mogambo was right! Buy as much freaking gold as you can get your hands on because this is bizarre!”

But before we could ask, he provides the answer that “The Commercial [bullion bank] net short position in gold is now at a staggering 22.5 million ounces…almost at record levels.”

And in silver, the situation is about the same, as “bullion banks continue to add to their short positions”, and the “bullion banks added a whopping 3,976 contracts to their net short position. As of Tuesday’s cut-off, the net short position in silver was 46,950 contracts…that’s 234,750,000 ounces.”

No conspiracy, just highlighting that the metals are aggressively short. it is very hard to get a bubble in something so universally bet against. Unless of course it breaks out. Not to worry, should gold bust out to $1500 an ounce and silver break out above $35 an ounce I am assured that the US government will either cancel gold and silver contracts or modify rules to protect the banks. I know, I am crazy, except this happened on "Silver Thursday" already so we have had a warm up exercise.

Comments

[doubleguns:]

More reason to hold the physical assets and avoid the third party risks.

Gangster Govt will do anything to protect the banksters that supply the campaign contributions (bribes) for reelection.

We need to elect citizens not professional gangsters voting party lines not citizen needs.

Jul 02 12:29 PM

[Doomdog:]

Watching the Jan 2011 95 strike GLD calls for the last 1.5 months (as i own them), every major "buy" or "transaction" seemed to be on the ask price. open interest has gone up around 600 contracts since i got in in mid may.

Jul 02 01:10 PM

[KingofthePa...:]

Jct: There’s nothing wrong with small denomination California State IOUs if I or anyone else can pay their taxes with them. When Argentina’s government workers were faced with cuts, their unions talked 6 state governments into paying them with small-denomination state bonds which could be used to pay for state services and taxes and which everyone accepted as useful currency. Best of all, when the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture. See my banking systems engineering analysis at youtube.com/kingofthep...
Too bad California State IOUs won’t be accepted in payment for state taxes and services like state bonds were in Argentina. Too bad California State IOUs will be denominated too big to use as local currency. Too bad Argentina people were smart enough to avoid the tent-cities catastrophe and California people are too stupid to follow their example.

Jul 04 09:27 AM