Saturday Gold and Silver Summary

Sat, Mar 24, 2012 - 12:31pm

I've found a couple of things for your weekend, so I thought it best to start this new thread. Mainly, I had to make sure that everyone saw the latest OI numbers and CoT report.

First of all, you don't have to wait for me. If you want to get this info for yourself, just save these links to your "favorites". The daily OI numbers are usually released by about 2:30 p.m. EDT and the CoTs come out every Friday at around 3:00 p.m. EDT.

Both the OI numbers from yesterday and the CoT were exactly what I was hoping for. I posted comments with analysis into the previous thread but I wanted to ensure that as many of you saw it as possible, so I am copy-and-pasting both comments below. It is important to keep in mind the limitations of these reports. They are not necessarily forward-looking in that both are already dated by the time they are released. Therefore, they should be treated more like "forensic evidence" of current and past Cartel activity. For example, it is very difficult to use CoT data exclusively to identify potential tops as the capacity to absorb spec longs is nearly unlimited. The Cartels could go to 4:1 net short or 5:1 net short on the backs of Fed-supplied cash and the established practice of fractional bullion banking. That said for 2012 we will, however, use the net short ratios of late February as benchmarks for possible Cartel limitations. As for calling bottoms, the data is more helpful. Bottoms form over a much longer time period than tops and price declines tend to bottom in the general area where Cartel net short ratios reached 2:1.


Submitted by Turd Ferguson on March 23, 2012 - 2:39pm
Perfect, 100%-predictable OI moves yesterday.
Recall that I began feeling yesterday that the decline we saw yesterday morning was "it", the final low, at least for gold. Gold rallied in the late morning yesterday and closed the Comex down $7.70. I expected the OI to decline marginally as this has been the trend in this "correction". The numbers are in and the OI did decline marginally, falling back under 432,000 and a near double-bottom in OI with Tuesday's number, which coincides with a near double-bottom in price. With the rally today that continues this afternoon, chances are very high that I will be proven correct in this latest "Turd's Bottom" for gold.
Silver also acted as expected yesterday. Recall that, on Tuesday, silver declined $1.12 but total OI surged by over 3,000 contracts. I surmised at the time this was indicative of spec shorts being added at the bottom...shorts that will soon be fleeced by the EE with a sharp move to the upside. I was curious to see if OI rose again yesterday because, as you know, silver declined by $0.88 yesterday on the Comex session. Well, whaddayaknow? Total OI rose by 1,400 contracts yesterday during the near $1 selloff. I have deep faith that this was the final suck-in of extra spec shorts before the bottom, just like 2/28 was the final suck-in of the spec longs before the beatdown. For further evidence, as of yesterday the total silver OI is now 5,500 contracts higher than it was on 3/15/12 yet price is $1.38 lower.
Once again, this helps to complete the bottom picture. Spec longs have been wrung out of gold as total OI has now "double-bottomed" below 431, OI level we last saw on Valentine's Day when price was $1718. Spec longs have been driven out of silver, too, and importantly, fresh spec shorts have now been driven in as total silver is already 5,500 contracts off of its "correction lows".

Submitted by Turd Ferguson on March 23, 2012 - 3:21pm.
Exactly what I was hoping for! The large specs longs shed 15,468 or another 6% while large spec shorts grew by 3,975 or, roughly 11%. Beautiful! Even the small specs got in on the action by punting 4,500 longs while adding 1,600 shorts. The all-important Cartel did exactly what I'd hoped---They added 15,424 long (10%) while covering 10,126 (3%) shorts. This means the net short position of The Gold Bullion Banking Cartel shrunk by over 25,000 contracts during the week where price fell nearly $50! The net short ratio is now almost exactly 2:1, down from the 2.7:1 that it reached on 2/28 and is actually a shade lower than where it was on 12/27 when price was $1598. A very, very bullish picture!
Like gold, almost perfect! First of all, remember that total OI barely budged over the 3/13-3/20 reporting period, only falling by about 300 contracts while price fell by nearly $2. Ideally, in this situation the large spec longs would be resolute while, at the same time, the EE shrunk their net short position. Additionally, I had hoped that the bulk of the downside price pressure had come from new large and small spec shorts. THIS IS EXACTLY WHAT HAPPENED! ​While price fell $2, large spec longs actually added 30 contracts. This is what we mean when we say that "silver is in strong hands"! Another good sign is that large spec shorts surged by 17% and small spec longs punted almost 9%. Perfect!! Then...the all-important Evil Empire. The Forces of Darkness added 2,281 longs (+6.45%) while covering 1,224 shorts (1.7%). This is a net change in the overall short position of 3,500 contracts (-9.84%) and brings the net short ratio down to 1.85:1. Again, for reference, the EE net short ratio on 2/28 was 2.32:1 and, on 12/27/11 it was a scant 1.34:1. From a purely CoT perspective, you might conclude that silver still has a little ways to go before reaching the extraordinarily bullish levels of late December. However, you must keep in mind that silver is still $3 higher in price than it was back then, too. Therefore, these silver CoT numbers are perfectly acceptable to those (like me) who are searching for a bottom in the here and now.
In conclusion, I am very, very excited for next week and the weeks ahead. Combining the CoTs with the current OI, then adding in the recent backwardation and and the looks of the charts and other technicals and you get a picture that looks, smells and feels like a significant bottom and "markets" that are poised to rebound very soon.


Next up are two, very interesting weekly charts. As we search for a bottom, note first that gold actually had an UP week last week. Sure didn't feel like it, though. Also, notice that silver has had 4 straight DOWN weeks. While I admit that my eyesight is experiencing some middle-age "issues", I challenge everyone to inspect the weekly silver chart and find a period over the last 5 years where silver has experienced 5, consecutive DOWN weeks. Personally, I don't see one. This makes it seem like history is on our side next week.

Lastly, my friend "Big Red" from Virginia sent me this link earlier this week and I thought I would post it here to begin a discussion. Though, for me, the author lays a bit too much blame at the feet of the O'bottom Regime, he nonetheless does a fine job of detailing the precariousness by which freedom currently hangs. He also correctly identifies the problem as being ultimately caused by all politicians, of both parties. Other than that, it's just some light and happy, weekend reading. <sarc>

By Benjamin Smith
On the heels of NDAA, ObamaCare, Stimulus, Son of Stimulus, Patriot Act, takeover of auto, energy, media and movie industries, and the relentless implementation of Agenda 21... the Obama regime running our country into the ground has issued an updated Executive Order which suggests the probability of impending MARTIAL LAW.
We are left to scratch our heads and ask……… Why now?
The only possible answer is…
America is in fact, right now, in the vicious throes of a Cold Civil War.
Cold as in non-violent and Civil as in nationwide; an attempt to force a new government-controlled ideology upon an unwilling public
.... Read more:

That's all for this week. Let's hope and prepare for a turnaround next week, particularly once gold option expiry is behind us. See you Monday. TF

About the Author

turd [at] tfmetalsreport [dot] com ()


Mar 25, 2012 - 12:47pm

@Bugzy - Sound advice, I

@Bugzy - Sound advice, I would add something about keeping your circle of concern only slightly wider than your circle of experience/knowledge.

Solar Flare/EMP/Nukes - I still am only kept up at night by my concerns about what evil men do (EE/Cartel/IRS/Fed) and the Yellowstone Caldera. Past that, I can snooze pretty well.

El Gordo
Mar 25, 2012 - 12:57pm

Concern about danger to the masses

If we are really concerned about taking the risk out of our lives, the place to start is with the automobile. Automobiles are the biggest killer of Americans bar none. More Americans are killed every year in the USA in automobile accidents than in the entire Vietnam War.

Now, as to preparing for the worst, it's good to plan ahead for contingencies, but odds are I cannot protect myself against biological weapons by wearing a filter over my mouth and nose. Solar flares are a little hard to defend against with SPF 50 also. So, I'll just plan ahead with a little extra food and water, a few barter items, self protection weapons, and the like and spend the rest of my time enjoying this great life I have been blessed with.

Mar 25, 2012 - 12:59pm

Prepper Firearm Review/ long,medium & short distance

Today we’re going to talk about my views of firearms and how I (Prepper) see there role in our lives. I have intentionally avoided this particular topic to a large extent because this is one of those hot button issues with our community. I think that many of you will share my views but they aren’t what a lot of the prepping/survivalist community would think. Preppers in my experience are heavily weighted on the side of the more guns the better and I would have classified myself as in this camp up until a few years ago… It’s not at all that I have an issue with collecting guns, even if it’s just for the sake of doing it… More power to ya! Everyone’s free to have any hobby they like and for many years gun collecting was a hobby I pursued in earnest! I’ve just as of late made the determination that that was what I was doing, collecting guns, not necessarily making myself any better prepared.
My change of heart came slowly over the last few years when I began thinking more and more about the idea of retiring sooner then later. Retirement, meaning the not doing what I’ve been doing for the last 15 years so I can pursue more personally rewarding endeavors. These endeavors will also produce some income but won’t have to provide to the same level financially. Being that I’m a self employed business owner and no one was going to be providing me with a nice fat pension every month, I would have to provide for mine and my wifes living for the remainder of our lives. This meant that my priorities would have to be examined and possibly even radically altered if I was to have any hope of making the break from what I consider the rat race!
My goal today is to convey what my current views are on prepper firearms ownership. This is not a judgement on what a gun hobbiest might or might not ...

Be Prepared
Mar 25, 2012 - 12:59pm

Should the motto 'In God We Trust'......

A November 2005 MSNBC poll asked "Should the motto 'In God We Trust' be removed from U.S. currency?" and extended to those willing to offer their opinion the choice between

"Yes. It's a violation of the principle of separation of church and state" and

"No. The motto has historical and patriotic significance and does nothing to establish a state religion."

By 9 September 2006, 27,862 responses = 80% no, the motto should be retained and 20% yes, it should be removed.

By 24 August 2008, 7,054,407 responses = 78% no (motto retained) and 22% yes (motto removed)

By 28 October 2009, 17,811,157 responses = 89% no (motto retained) and 11% yes (motto removed)


A poll, running for 4 years, makes a clarion call about the values still left within America. We are a nation of beliefs and, from those beliefs, a Declaration of Independence and a Constitution were forged.... not perfectly and not by perfect men.... but it ensconced the ideals of unalienable rights, which broke the yoke that all rights to life were granted by the government. We have lost and are losing much by the swish of new pens on hundreds of thousands of pieces of paper. It's nice to know we haven't completely lost our way in the hearts of some of our fellow citizens. A nice thought for this Sunday afternoon.....

Mar 25, 2012 - 12:59pm

Peak Oil, the Economy, and Empire

I really like reading this guy, John Michael Greer; he writes the Archdruid Report. Don't let the name fool you; deep and wide. A proponent of peak oil and sustainable living among other things. Anyway, this weeks post continues the discussion of empire,specifically the Great American Empire, and it's inevitable decline and fall. "Many of my readers, to begin with, will have heard pundits insist that economic crises happen because modern currencies aren’t based on a gold standard, or because central bankers always mismanage the economy, or both. That’s a popular belief just now, but it’s nonsense, and it only takes a glance at American economic history between the Civil War and the founding of the Federal Reserve in 1912 to prove once and for all that it’s nonsense. The Panic of 1873, the Long Depression, the Panic of 1893, the Depression of 1900-1904, the Panic of 1907, and several lesser economic disasters all happened in an era when the US dollar was on the strictest of gold standards and the United States didn’t have a central bank. That’s bad reason #1: once you discuss the Long Depression, most of the rhetoric backing a very popular set of economic notions pops like a punctured whoopee cushion." and "Then there’s bad reason #3, which is that the cause of intractable problems like the Long Depression was well understood at the time, but nobody wants to talk about it now. That unwillingness, in turn, reflects the way that a concept once very widespread in economics—the concept of overproduction—came to be associated with a single economic school or, even more precisely, with a single economist, Karl Marx. Overproduction is one, though only one, of the elements Marx wove into his system of economic ideas, and generations of Marxist theorists and publicists used it as a reason why capitalist economies must eventually collapse; with the inevitability of Pavlov’s drooling dogs, capitalist theorists and publicists thus automatically shy away from it; and the Long Depression makes it excruciatingly hard to shy away from it." There's more, of course, but this weeks post has me rethinking many ideas I've held dear for quite a while and I'd be real interested in the opinions of the Tribe, if anyone has the time and inclination. I'm sure not savvy about the finer points of economics, and finding out that I know even less than I thought! The comments and his replies are worthwhile reading too. I know, I know so much to read and so little time.

Bugzy cpnscarlet
Mar 25, 2012 - 1:05pm


You can have influence on what YOU do regarding your above circle of concern. Stack, escape plan, food etc.

As for poles flipping and such...... well, I guess if you are really religiously minded......

Yes, your expanding influence when attempting to match your circle of concern would hopefully push these boundaries further out, as one becomes more empowered.

My point was that dis empowerment ought not to be the goal.

Thanks for your feedback.


Mar 25, 2012 - 1:06pm

Grimm reading

@bugzy, when I was a kid I fell asleep to the stories of the Brothers Grimm and Hans Christian Anderson, then later read about Orcs and Trolls. Nothing like a scary story to help me sleep well. I read most of the End of the Word as We Know It stuff in the same vein (when it is outside my sphere on influence). When it is inside I act - like food and PM stash.

@El Gordo, solar flares and SPF50. Made me laugh.

Mar 25, 2012 - 1:24pm

In G-d, I trust...

It's the FED I distrust ...along with the 538, I don't trust either..

Mar 25, 2012 - 1:27pm

I am thinking of the corzine

I am thinking of the corzine caper... ( T C C) let's see, Dimon gets to be treasurer, corzine gets to be CEO of JPM. Could happen in this Bizarro World ..

Mar 25, 2012 - 1:33pm

BRICs and South Africa move to unseat dollar as trade currency

BRICs and South Africa move to unseat dollar as trade currency

Mar 25, 2012 - 2:19pm

OH OH Fake Silver Maples Too !!!

Wow, I was reading the comments over at Silver Doctors on the fake gold bar and someone posted this link:

I had no idea there are fake silver maples out there too and they are damn good!!!

Here's a pic showing what to look for (I'm gonna go and inspect my stax ASAP):

F'ing China!!!!!

tyberious silverstax
Mar 25, 2012 - 2:35pm

RE: Fake Silver Maples Too !!!

Is it real silver? If so, then you only lose the premium. And hey it could become a numismatic, with luck!

Mar 25, 2012 - 2:47pm

fake coin detector

two years ago I came up with a system to detect fake silver/gold coins and silver rounds.

I am pretty sure that it's 100% accurate. The system uses the fact that each metal and metal alloy has its specific resonance frequency for a given size and shape.

This means that I'd be able to tell apart two exact same coins if one of them has only the slightest difference in its alloy composition.

I think that I should market it when more fakes start showing up and give all fellow Turdites a special "friends" discount ;-)

Mar 25, 2012 - 2:51pm

re post

I have a habit of posting just before a new thread is created so I hope people don't mind this repost.

I have a few questions about this

What makes N and A's silver exchange different to the new Australian Bullion Exchange ABX?

Why will it be any more a game changer than the ABX?

What made PAGE important I feel and which most have glossed over is the access to 100 million or what ever Chinese domestic customers via the Agricobank of China. i.e. demand for physical raising prices. N.A.S.E does not have that potential customer base.

Some question why they keep coming out and announcing these developments the answer is simple VOLUME. They need customers to make an exchange, KWN and here create Attention, Interest and Desire which you know leads to Action (AIDA).

Also for price discovery requires signaling, rationing and incentive. Signaling is created through a recognised market one which most refer to and this is COMEX. Until GM, BV and major bullion/coin suppliers base their prices on an alternative market COMEX is the price.

I am no expert but I here only about 10% of the trading in silver exists on the Comex and the remaining majority is in the `spot market' or via direct to mine deals. If this is true why not just ignore COMEX.

I appreciate miners, refiners and users on the industrial side feel the need to hedge but surely a better mechanism exists.

Mar 25, 2012 - 2:54pm

Extreme vulnerability of nuclear power plants to solar flares

What Pegasus says is true - the GE mark 1 boiling water reactor, of which there are still a number cooking away in the States - if the GE Mk1 loses power, it blows up. Simple. That's why they have so many backup power sources, like on site diesel generators. This is fine as long as you have power to pump the diesel fuel to power the backup generators, or to power the pumps for the trucks to deliver more fuel. The reactor can be shut down and not be delivering power and it still needs months of cooling to prevent a meltdown. So, if there is a long and widespread power failure the US has an existential problem.

Each GE MK1 is a potential planet poisoner. At Fukushima, If the wind had been blowing to the South and carried the hot particles and smoke over Tokyo - well, that would have been it for Japan.

maravich44 TF
Mar 25, 2012 - 3:34pm

..Feed The right hand of the site..

...I am guilty of taking this all for granted. Favorite site.

Mar 25, 2012 - 4:04pm

On a new topic

When Turdites, Found, Developed, Insight, Knowledge

With a hat tip to TF for his love of acronyms. I was having a conversation with Pining about how and when we became aware of metals, the Ponzi scheme and finally TFMR. I thought it would be interesting as we approach TFMR's one year anniversary to start a new forum to keep a record of it for a future look back.

My story. Back in 2008 a friend recommended a book of fiction called The Shell Game. It's amazing how so much of this books content has been part of the conversation here in the last few days. For those who have never read it, I highly enjoyed it. Here's a synopsis.
From the Publisher

The events of September 11th, 2001,the invasion of Iraq,the threat of radical Islam,an impending showdown with Iran. What do these situations have in common? Oil. And the world is running out. The SHELL GAME is far more than a thriller, it is a MUST-READ cautionary tale that exposes the next 9/11 event a deception that will lead to a retaliatory chemical weapons strike on Iran and the terrorist elements the regime supports. Though the novel is written as fiction, it is filled with all-too-real details provided by insiders in the oil industry, military, and Middle Eastern affairs that extrapolates real events from the past and present that will lead us down a path of self-destruction.Unless we stop the insanity now!

Product Description

The story opens in 2007 when two CIA spooks meet with an American Colonel in military intelligence. The war is going badly, and President Bush, who steadfastly refuses to back down, remains unchallenged at home as Democrats and Republicans continue to toss verbal grenades positioning themselves for the 2008 elections. Meanwhile, Iran s pursuit of nuclear energy will yield enriched uranium within five years, uranium that can be used to manufacture suitcase nukes. The United States military is too drained to invade Iran, and a preemptive strike is out of the question,unless a nuclear detonation were to occur in an American city, the enriched uranium traced back to Iran. A U.S. reprisal would strike a death-blow against radical Islam, quell the insurgent violence in Iraq,and yield more oil. Yes, the cost is unthinkable but if we sit back and do nothing then one day a dozen suitcase bombs could go off in a dozen American cities bringing with it anarchy and the collapse of Western civilization. December 2011: Ashley Ace Futrell is an oil expert working for PetroConsultants, married to Kelli Doyle, a former National Security Advisor and one of the CIA spooks from the opening scene. When Kelli threatens to expose the plot, Ace finds his existence hurtling down a rabbits hole of deceit where the orchestrated lies of the powerful few could lead to the darkest days of human existence, and the death knell for billions.

In the book the author refers numerous times to Michael Ruppert's Crossing The Rubicon book. After reading his book in which Ruppert wrote in 2004, he said gold was going to $1700 an ounce. At the time it was about $375. So many of Ruppert's other observations seemed spot on to me that I believed his gold forecast.

From there I came across FOFOA and Chris Martenson. Once there, one of the regulars on Martenson posted what he used as a homepage, consisting of the many sites we all read. Of course one of them was Zero Hedge. As many of us here know, is where we first discovered Turd.

I think it would be interesting to hear how many of the people on TFMR came to awareness. Please post your story in the forum.

Mar 25, 2012 - 4:14pm

SEC probes high-speed traders, report says

Computerworld - The U.S. Securities and Exchange Commission (SEC) is investigating whether trading firms that use computerized high-frequency trading algorithms have an unfair advantage over other investors, according to a published report.

Mar 25, 2012 - 4:24pm

Oh, there it is!  I now see

Oh, there it is! I now see the BO "my son" likeness.

If Zimmerman is guilty, let the truth prevail. Ditto for Corzine. Sick of media trials. For the most part, New Gingrich makes me blow chow, hoever, his disgust over BO's

statements regarding this poor kid, do nothing but bias the judgement. Shame.

RuNuts ClinkinKY
Mar 25, 2012 - 4:36pm

ClinkinKY Re:I actually watched this entire video...

ClinkinKY wrote:
If he (McMurtry) had his way, EVERY CEO in the world could divide his salary amongst the "the workers" and it still wouldn't amount to a "spit in the ocean" when it comes to solving the problem of world-wide debt and the "the solution(s)"

Wow, really? I'm not sure how you "watched this entire video" and heard that but it has absolutely nothing to do with the focus of the song that I heard. What you suggest smacks of some kind of crazy socialism. Buzzword much? AND You got 7 effing thumbs up for misstating what the song was about? SMH...

McMurtry states that a CEO would have trouble making ends meet on minimum wage, I believe I'd call that fact. The point being insinuated, that the line between the "lucky" & not so "lucky" is growing thinner every day.
Now, go look a disabled vet or a farmer that lost his ass in the MFGlobal fiasco in the eye... tell them face to face "too bad".
The song is about America losing her production capabilities, jobs, homes and values, it's about the middle class being sucked dry in circumstances in which they had no say or control.. and yes, it's about people like you who look at those who have been robbed of the American dream and don't give a shit so long as you have yours.
/Though they have ears, they hear not...
For those that missed it the first time.
tyberious realitybiter
Mar 25, 2012 - 4:45pm

ridiculous hypocrisy

I completely understand the vilification of the media, they have their own agenda.

But, does not anyone recognized the ridiculousness and hypocrisy of the photo comparison?

The kid is not out in public, it is obviously a cell phone image, and perhaps, just perhaps he is a kid, being a kid, having fun, being innocent and goofy in his own home!

To take one image, of one moment of the child's short life, is truly a disservice, and God know who he truly was, a KID!

Are you kids on Facebook, what childish have they done?

Think About it!

ClinkinKY RuNuts
Mar 25, 2012 - 4:48pm

@ RuNuts

Just my personal opinion. I also don't care for that Creedence Clearwater Revival song "There's A Bathroom On The Right"...or something to that effect, nor the line in Jimi's Purple Haze..."excuse me while I kiss this guy"

Mar 25, 2012 - 4:50pm

What they do know! positve trends in corporate profitability and CEO compensation stand in sharp contrast to the experience of most workers. The earnings of the average American worker rose by only 0.5 percent in 2010; adjusted for inflation they actually fell. In fact, ”The average worker’s hourly wages, after accounting for inflation, were 1.6 percent lower in May [2011] than a year earlier.” Moreover there is little reason to hope that economic dynamics will eventually create a sound foundation for future wage growth.“The jobs that are being created [during this expansion] pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.”

Not surprisingly, there is a connection between the steady growth in profits and CEO compensation and labor’s deteriorating position.

Mudsharkbytes ClinkinKY
Mar 25, 2012 - 4:56pm

@RU Nuts

The line is "'scuse me while I kiss the sky!" Just FYI.

ClinkinKY Mudsharkbytes
Mar 25, 2012 - 5:07pm

@ Mudsharkbytes

If you were actually addressing me, I hope you noticed the "wink" at the end of post.

Mar 25, 2012 - 5:08pm

Armstrong today

Gold is a good investment NOT because of all the fiat nonsense, but because inflation has passed it by and there will be a huge burst of price movement. That will come when the Sovereign Debt Crisis hits the USA and that does not seem likely until 2015.75.

Ivars, your chart says the same?

Mar 25, 2012 - 5:27pm
Mar 25, 2012 - 5:30pm


Video unavailable
Mar 25, 2012 - 5:32pm

How "Interest Rate Swaps" Are Bankrupting Local Governments

Interesting story at globalresearch:

Far from reducing risk, derivatives increase risk, often with catastrophic results. — Derivatives expert Satyajit Das, Extreme Money (2011)

The “toxic culture of greed” on Wall Street was highlighted again last week, when Greg Smith went public with his resignation from Goldman Sachs in a scathing oped published in the New York Times. In other recent eyebrow-raisers, LIBOR rates—the benchmark interest rates involved in interest rate swaps—were shown to be manipulated by the banks that would have to pay up; and the objectivity of the ISDA (International Swaps and Derivatives Association) was called into question, when a 50% haircut for creditors was not declared a “default” requiring counterparties to pay on credit default swaps on Greek sovereign debt.

Interest rate swaps are less often in the news than credit default swaps, but they are far more important in terms of revenue, composing fully 82% of the derivatives trade. In February, JP Morgan Chase revealed that it had cleared $1.4 billion in revenue on trading interest rate swaps in 2011, making them one of the bank’s biggest sources of profit. According to the Bank for International Settlements:

[I]nterest rate swaps are the largest component of the global OTC derivative market. The notional amount outstanding as of June 2009 in OTC interest rate swaps was $342 trillion, up from $310 trillion in Dec 2007. The gross market value was $13.9 trillion in June 2009, up from $6.2 trillion in Dec 2007.

For more than a decade, banks and insurance companies convinced local governments, hospitals, universities and other non-profits that interest rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools. The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels. This was not a flood, earthquake, or other insurable risk due to environmental unknowns or “acts of God.” It was a deliberate, manipulated move by the Fed, acting to save the banks from their own folly in precipitating the credit crisis of 2008. The banks got in trouble, and the Federal Reserve and federal government rushed in to bail them out, rewarding them for their misdeeds at the expense of the taxpayers.

How the swaps were supposed to work was explained by Michael McDonald in a November 2010 Bloomberg article titled “Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire”:

In an interest-rate swap, two parties exchange payments on an agreed-upon amount of principal. Most of the swaps Wall Street sold in the municipal market required borrowers to issue long-term securities with interest rates that changed every week or month. The borrowers would then exchange payments, leaving them paying a fixed-rate to a bank or insurance company and receiving a variable rate in return. Sometimes borrowers got lump sums for entering agreements.

Banks and borrowers were supposed to be paying equal rates: the fat years would balance out the lean. But the Fed artificially manipulated the rates to the save the banks. After the credit crisis broke out, borrowers had to continue selling adjustable-rate securities at auction under the deals. Auction interest rates soared when bond insurers’ ratings were downgraded because of subprime mortgage losses; but the periodic payments that banks made to borrowers as part of the swaps plunged, because they were linked to benchmarks such as Federal Reserve lending rates, which were slashed to almost zero.

More at source.

Mar 25, 2012 - 6:10pm

Nicole Foss

I haven't been that active in Turdville but I'm a frequent follower and have a lot of respect for a lot of the great posters here. Today I've got something that's bugging my mind. I've been a firm believer of the governments printing themselves out of this debt disaster and this would instantly be followed by inflation which would eventually be positive for PMs. By chance I came across peak oil specialist Nicole Foss. I've spent some time the last week or so watching most of her videos on Youtube and reading a few of her articles. What struck me right away was her close similarity to my core believes of peak oil and how it will eventually change our world. What got my head spinning was her strong opinion on a deflationary period lasting what she says to be up to 10 years before we encounter any inflation. She completely dismisses any kind of QE as non functional in the sense that the banks still won't be expanding their credit lines and that the money in essence won't be entering the markets. This will according to Foss lead to a huge wave of inevitable deflation coming our way. Foss says hold cash and basically totally dismisses PMs as they will be struck down by deflation the coming years. Now I'm aware that the inflation/deflation debate has been going on for some time and I've been (probably still am) a firm believer of the inflationary scenario. However Foss had some real good points and she seems like a highly intelligent person with a background that I respect. I'm starting to wonder if she could be right. I mean what is there to say that the deflationary pressure caused by peak oil could just be so enormous that any QE in the world won't help enough to push us into inflation? And even if they do print like crazy what if the money stays within the banking system like Foss predicts? A deflationary collapse seems so logical when you look at the effects peak oil will have on a society. Lower production, higher unemployment, lower spending, even lower production and so on. What if oil production falls off so sharply the Fed just doesn't have the firepower to conquer deflation? Here's a a questioning session with Nicole Foss and she addresses QE inflation/deflation at 9.25 I'd love to hear what people have to say about this. RRJJ


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Key Economic Events Week of 4/22

4/22 10:00 ET Existing Home Sales
4/23 10:00 ET New Home Sales
4/25 8:30 ET Durable Goods
4/26 8:30 ET Q1 GDP first guess

Key Economic Events Week of 4/15

4/16 9:15 ET Cap Util and Ind Prod
4/17 8:30 ET Trade Deficit (Feb)
4/17 10:00 ET Wholesale Inventories
4/18 8:30 ET Retail Sales (March)
4/18 8:30 ET Philly Fed
4/18 10:00 ET Business Inventories (Feb)
4/19 8:30 ET Housing Starts and Building Permits

Key Economic Events Week of 4/1

4/1 8:30 ET Retail Sales (Feb)
4/1 9:45 ET Markit & ISM Manu PMIs
4/1 10:00 ET Construction Spending (Feb)
4/1 10:00 ET Business Inventories (Jan)
4/2 8:30 ET Durable Goods (Feb)
4/3 9:45 ET Markit & ISM Services PMIs
4/5 8:30 ET BLSBS

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