I have cleaned up the blog a bit and moved some items around so you may see some changes. Let me know if there is anything format wise you think would add to the quality of the blog.
I have made some changes to the blogroll to better reflect my daily reading list and to offer all readers some fresh new sites to try out.
I have added:
EconomPic Data which is graph heavy and always a good read.
The Financial Ninja has been added. Great main course macro analysis and a side order of technical charting.
I have been stopping daily at The Housing Time Bomb for some time now. A nightly in-depth parsing of a major market theme that covers all the angles.
Check them out!
Rise of the Silver Surfer
I have not written about the precious metals in a while, I know you are all so waiting for a metals post! Haha. There were some gold and silver related items I have been watching lately that I will share tonight.
First up is the strange move by COMEX to make sure everyone understands that they can in fact deliver paper interest from exchange traded funds (GLD,SLV) in place of physical metal delivery. This should make it clear that COMEX may one day deliver to your door a certificate that says you are holding ounces of a metal in your hand, and not just a piece of paper. What could go wrong?
From Jesse's Cafe:
Paper, Scissors, Gold
As you may have heard recently, the COMEX has asserted their right under their rules to deliver the equivalent paper interest in Exchange Traded Funds such as GLD in lieu of the delivery of physical bullion for those standing for delivery under the rules of the commodity exchange...
We have often said that when the real crisis of liquidity comes, and the final flight to safety from the credit bubble collapse begins in earnest, the exchanges will alter the rules to allow for cash and paper settlement of claims for bullion, which they cannot or will not be able to deliver at the agreed upon prices.
This is what makes the current structure of the short positions held by a few banks on the precious metals exchanges a 'racket,' a type of Ponzi scheme where the same thing is sold repeatedly with no means of satisfying the aggregate of the claims and ownership.
We are sure the Comex is "well capitalized," and will continue to be so, even as it is rocked by de facto delivery failures and the substitution of more paper to back up the general failure of paper.
The wheels of justice grind slowly but they grind exceedingly fine.
Disclosure: I own GLD and SLV but I am well aware of the physical shortcomings of the funds. I only use them as a proxy for the metals.
As for my personal favorite metal, silver, The Mogambo Guru chimes in today with some mind boggling facts (excerpts):
The Silver Supply/Demand Imbalance
..But sometimes something comes along that makes me think about silver, such as David Morgan of the silver-investor.com site reporting that “during the past ten years, silver’s use in industry has gone from roughly 35% of the entire annual production in silver, to greater than 50%. Not only that, but it is the fastest growing area of the silver market.”
...So how much silver was mined? Well, the commoditynewscenter.com notes that “According to the US Geological Survey, about 672m ounces of silver was mined in 2008. And with an average silver price of $14.94 per ounce, if all mined silver was sold at spot, the entire supply chain would generate revenues of only about $10 billion.”
...And since this is after decades of dis-hoarding of strategic stockpiles, the result is that “Today, most of the U.S. silver stockpile is gone,” and whereas “the world once had about 2.2 billion ounces of silver above ground,” now there are “only about 300 million ounces. In other words, total world silver supply has plummeted by over 86% just in the last few years…while silver demand has gone UP!”
Have I ever mentioned I love silver for the long haul? No? Well I just did.
Disclosure: I own silver via multiple channels
What's the Future of Mankind? How do I Know, I Got Left Behind
"People look to me and say
Is the end near, when is the final day?
What's the future of mankind?
How do I know, I got left behind"
Ozzy Osbourne's "I Don't Know"
A smart person knows what it is they do not know. Ask 100 people if they think they are of "above average intelligence" and fully 85% of the respondents will say they are. Of course in any sample size you have the good old Gaussian distribution so we know that this cannot be the case. As a card carrying member of the mental middle of the pack, I am aware am lacking in many market understandings and thus I try to stay away from things I feel unqualified to opine on. Take Zero Hedge and Tyler's coverage of High Frequency Trading. I know it is important, but i really am not clear how it is done (or why it is allowed, but that is another discussion). Two items from the past few days also had me vexed, so I will share my bemusement with the readers.
MGIC and CIT Make No Sense to Me
The area of mortgage insurance must be a nuclear waste land in the current market meltdown. The two biggest players are PMI and MTG. This week MTG was out with earnings, well loss guidance, and that is where all the action begins:
MGIC 2Q loss widens, plans to shift new business
MILWAUKEE (AP) -- Private mortgage insurance provider MGIC Investment Corp.'s loss for the second quarter widened, the company said Thursday, as delinquencies increased due to increased unemployment, lower home prices and the ongoing recession.
For the three months ended June 30, MGIC lost $339.8 million, or $2.74 per share, compared with a loss of $99.9 million, or 81 cents per share, in the year-ago quarter.
About what you would expect. Very bad indeed. On top of this most headlines were showing "MGIC to end new origination" and this of course would have serious implications for the housing market. Market Ticker had a write up you can see here.
So what has be confused? This information:
It also said it plans to shift newly written insurance to a subsidiary beginning Jan. 1, and the parent company will then stop writing new business.
The company said the state of Wisconsin has allowed MGIC to contribute up to $1 billion to its subsidiary MGIC Indemnity Corp. to enable that entity to begin writing new mortgage guaranty insurance as of Jan. 1. MGIC plans to provide the capital in two $500 million installments, with the first slated for July 31.
However, the state's insurance commissioner must still specifically authorize the subsidiary to begin writing insurance, as must each state.
The subsidiary must also be approved as an eligible insurer by Fannie Mae and/or Freddie Mac, neither of which has yet done so.
"We cannot predict whether these approvals will be obtained and if so on what conditions," the company said.
If they must continue to write new business through the parent company, MGIC "will need either additional capital or relief from the regulatory capital requirements in 16 states," the company continue. In 14 of those state, relief will require new legislation or insurance regulation changes.
MGIC said it has not yet tried to raise capital from private sources, but has had discussions with the U.S. Treasury to seek a capital investment.
See what I mean?
MTG is basically done. They cannot do any new business and need gobs of capital to go on. So they are done? Well no. I guess you can make a new company, capitalize that, and through the magic of financial engineering, nobody is supposed to see that the new company is just a smaller version of the bigger failed one! Amazing!
I have no idea how this works or who would pony up any money for it. Never fear, here is the 5 day chart for a company that will no longer do business and will use a "mini me" firm to write new coverage as if nothing is wrong;
The other news that has be befuddled is all the wrangling over the fate of CIT. The government seems ready to let CIT go down and they judge CIT is not a good taxpayer money risk. I mean things have to be really bad for that to be true! Today there was serious talk (and a 70% rise in the penny stock) that either or both Goldman Sachs and JP Morgan could extend the firm some financing. This of course makes no sense.
If CIT could not get US government assistance at great terms because they could not even qualify in the eyes of the FDIC and Treasury, there is NO WAY they can meet the onerous terms GS or JPM would surely impose. This is either a false rumor, or a orchestrated move by the FDIC/FED/Treasury to make the market think there are non government avenues of capital out there. Spare me gentlemen, there are none. Please explain to the best of your ability what gives here in the comments.
Friday Night Entertainment
A little lighter fare to get the weekend off right!
I have read two books in the past two weeks that I thought I would share.
The first was Barry Ritholtz' "Bailout Nation". I must say that this book was really great. Over the past 2 years I have forgotten all the help that has been extended, and more important I had the entire timeline of events all jumbled. Bailout Nation has rich history lessons on the FED, bailouts across time, and banking regulations that are a must read. The book even reads fun which is not something I can say about most economic themed books. I was thinking I might pick up a couple of copies and run a couple of contests with the book as the prize.
The second book I read this week has already become a favorite. Robert Heinlein's "The Moon is a Harsh Mistress" is a masterpiece. I was so engrossed with the tale I could not put it down and read it in two blocks of 3 hours. While on the surface a Sci Fi tale, it really is a lesson in self reliance and self determination. If you are of a libertarian bent, you will love this book. All I can say is "TANSTAAFL"!
If you have ever had a cat, this is something they would certainly do:
see more Lolcats and funny pictures
Friday Night Rock Blogging
Some tunes to get things started off right!
Loyal reader Watchtower asked me to drop my favorite guitar solo by the best guitar player I know. While always a matter of opinion something like this is, I do have a clear "best all time" pick. His name is Randy Rhoads. With so many to choose from it is hard to pick one. I have selected the solo from the center section of "Suicide Solution" from the live album "Tribute". While the entire song is scorching hot, skip forward to the 4:45 time mark for what I think is the best work I have ever heard, and live no less:
I have always loved this song, but until I just looked it up I had no idea who performed it or the name of the song! Please enjoy Grand Funk Railroad and "I'm Your Captain":
Found a really rocking live version of Bad Company and "Bad Company":
Just so it is not all hard all the time here, how about a little disco? Try out Santa Esmeralda with "Don't Let Me Be Misunderstood". Major props (and a name mention on the blog) to the one who can guess where this song was reborn in a classic scene:
Last call! Grab a drink, a girl or whatever else is nearby!
I close the show with the classic 80's rock out tune by Ratt, "Round and Round":
Have a good night.