Congressional negotiators signed off on a $1 trillion deficit spending agreement for federal agencies and avoided the third government shutdown threat this year. I love it when they agree on how much money they will spend, that they do not have and is not coming in.

Those deficits should certainly be helped by the really good news of the official end of the Iraqi war. We never found any physical weapons of mass destruction, but there was certainly a lot of life and tax money destruction along the way. When millions are spent on a bomb and it explodes, lives and tax dollars are lost forever.

Have you noticed tamer inflation? According to the BLS, US consumer prices were flat in November as Americans paid less for cars and gasoline. This inflation report could leave the Federal Reserve justification to inject more inflation into the economy, which is good for debtors (governments) because they can repay debt with cheaper dollars, but it is bad for savers since inflation reduces the purchasing power of those dollars. Rick Santelli does an excellent job of explaining what these numbers really mean. It’s short, excellent and you can see the video here: http://video.cnbc.com/gallery/?video=3000062812

Client funds were apparently co-mingled with MF Global funds days before bankruptcy was declared. Once co-mingled, their finance department would not be able to tell the difference and may have used those funds to meet pesky margin calls. Bart Chilton, a CFTC Commissioner, was on CNBC this morning talking about what went wrong with MF global. It is now becoming more visible that companies, including banks, use your deposits for their own trading accounts, it is in the fine print on the contract you sign when you open a bank or brokerage account. He admits quite clearly that the rules governing how banks and investment firms can use customer funds have been “relaxed” over the years. He suggests that customers should have the ability to “opt out” from allowing their deposited funds to be used by banks and investment firms to generate revenues for the firm, and states that this would not be well received by the industry, would cut their revenues (bonuses?) and therefore cause consumer prices to rise to offset that revenue loss. People always prefer to pay fees they don’t know about and I’ll bet you never thought that your bank or brokerage could trade with your deposits keeping all profits and leaving you with the risks. I can’t imagine that it never occurred to these brilliant minds that these “relaxed rules” might possibly lead to abuse. What a shocker! This is an interview well worth viewing: http://video.cnbc.com/gallery/?video=3000062561

The SEC has filed a law suit against 6 past executives in both Fannie Mae and Freddie Mac saying that they misstated material information in reports and filings. So perhaps they as well as real estate “flippers” were the causes of the mortgage melt down and certainly removal and relaxation of rules and regulations along with governmental encouragement to increase home ownership had nothing to do with it. As we continue to fund the losses being racked up by Fannie and Freddie, soon we’ll likely to be doing the same thing for GNMA, which is a fully government backed MBS lender and has increased their market share from 5% to over 25% in the last 3 years. The Government Accounting Office has some concerns that you can read about here: http://www.gao.gov/highlights/d1249high.pdf

Christine Lagarde, acting head of the IMF, has concerns that the world economic outlook is “quite gloomy” and will require action by all countries. “There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating.” Sounds like she’s positioning the rollout of the SDR (special drawing rights) the IMF created and controlled currency. Remember, any currency is just a tool of barter and when one goes away, another one takes its place. As long as they are debt based, you will continue to loose your wealth through inflation. Read the roadmap to roll out the SDR http://www.imf.org/external/np/pp/eng/2011/010711.pdf

Of course the credit ratings agencies are not helping as the downgrades continue, both here with Citibank, Bank of America and Goldman Sachs and across the pond with Barclays, Credit Suisse and Deutsche Bank. This creates additional challenges with the banks which would now the need to raise additional capital to meet requirements. In addition, any bank holding bonds issued by the downgraded banks will also have to raise more cash to meet reserve requirements. I wonder if we will see reserve requirements reduced as this snowball picks up more speed.

This past week has been very interesting in the markets. Let’s take a look at the chart below on the Dow and 10 year treasuries. You can see that the Dow crossed below 12,000 for the first time this month. It is basically sitting on a support level, so we’ll see if it holds or if there is a break down. But where did that money go? Look at the treasury chart, you can see that the flight to safety continues into government bonds, a pure debt instrument.

It also went into the US dollar. The charts below show you that as money fled the stock market and euro dollar market the US dollar moved up substantially. This does not mean that all is well with the dollar; it is simply influenced by the euro dollar breakdown.

What about spot gold and spot silver? It was part of a liquidity trade and repositioning this week. If you have positioned into the physical metal, you know it takes time to fully execute the transaction. Not so with digital, that can move in a nanosecond. But I really think there could be some repositioning of the dollar as well as gold and silver. Time will tell and I will keep you posted. In fact you may want to read the blog below on the roiling markets.

What about the physical market? My wholesaler says that buying and selling were actually pretty even this week and availability was good. In the numismatic world, some coins went up and some went down. In fact, one of my clients had to liquidate a numismatic coin. I had quoted a bid price on Monday and the coin came in today. I am very happy to say that we were able to liquidate that coin at a higher price than Monday’s quote and of course the client was happy about that.

With the holidays almost here, most people are focused on family. We think of you as part of the ITM family and are committed to supporting you in any way we can. But markets don’t care that the holidays are here, so we will continue our vigil on your behalf. Please let us know how we can best serve you. We are here for you.