Saturday, December 25, 2010

China problems/European problems/Canada problems/

Good morning and Merry Christmas to all:


Gold closed up by $4.90 in Europe yesterday whereas silver finished the day at 29.22 down 6 cents.


We only received one piece of data and that was a delivery notice of 114 silver contracts for a total of 570,000 oz.  Isn't it strange that the missing 580,000 oz of silver finally reappears in the form of a delivery notice.  Boy are the comex folk scrambling for metal.  The total number of notices sent down so far this month total 1722 or 8.610 million oz.  However they did not publish the number of open interest or notices to be served because the comex was closed.  The 114 notices were sent down late Thursday night.  So I cannot tell you the total number standing except that the minimum standing is the 8.6 million oz.  There were zero notices sent down for gold.

I will redo everything for you on Monday, when the complete data is sent down.  However I felt it is important that you got this immediately.


I have decided to send to you important stories that will play a major role in the economy for the balance of this year and next.


The following is a huge story.  Last week I reported on the failure of the 7 day repo auction on Chinese treasuries. Now this:(courtesy of Zero Hedge)



Shanghai Stocks Drop Following Failed 3 Month Bill Auction

Tyler Durden's picture


·         Mean Reversion



As the rest of the world celebrates Christmas, blissfully pretending all is good, and the Fed can manipulate markets to infinity without at least one of the numerous violated laws of physics being reasserted in the process, things in China are once again reminding those who care that just as liquidity giveth, so does liquidity taketh away. We pointed out a week ago that the 7 day Repo rate in China recently hit a post-Lehman high, as banks are increasingly concerned that following 3 RRR hikes, the PBOC has no choice but to resort to some tightening measure that actually works. As a result excess liquidity has suddenly become rares than hen's teeth. Today we get a first hand lesson of why this was material: Dow Jones reports that the Chinese MoF has failed to attract sufficient interest in its 3 Month 20 billion CNY auction. The result: SHCOMP is now down 1.2%. Bottom line: as the world is sleeping, China just had a failed bond auction. If news mattered, this would be a very disturbing event. Luckily for Ben, it doesn't. For the time being. It will soon. Then Montier's mean reversion meme may just strike with great deferred vengeance and furious accrued anger.

From Dow Jones:

China shares extend their falls following news the Ministry of Finance fails to attract enough bids to sell all of its planned CNY20 billion 3-month bills in an auction. The Shanghai Composite Index is now down 1.2% at 2819.72 and analysts peg support at 2800. The MOF's unsuccessful bill auction is fresh evidence of tight liquidity conditions in the market, due to China's three RRR hikes since November and rising cash demand near the year-end. "Institutions are inclined to expedite pocketing in some profit," says China Post Securities, adding "the situation will increase the likelihood of a bearish market in the short term." Banks continue to fall on various news reports that China is likely to use new measures, such as special RRR hikes, to rein in credit expansion next year.

Incidentally, the last time China had a failed bond auctionwas in mid April, just as the stock market hit its then 2010 highs, only to be followed by a drop to the year's lows.



I would like everyone to read this Christopher Laird commentary on the plight of China and what the new world economy will look like in the coming years.  This fellow is very good and has a good grasp of things:


Have We Entered A Period Of Chaos
In Financial & Commodity Markets?

Christopher Laird
December 22, 2010

I want to start out with some reassurance that there will not be any extensive math in this piece. Rather, I will attempt to use general macro economics to describe how I believe that the world has definitely reached a point of massive change from an industrial economy to a technology and post industrial economy.

This will have tremendous implications for commodities and industry, and technology.

The change is chaotic, in that the governments of the world know what is happening but they cannot stop the change. They also are having trouble controlling any aspect of it.

If the world is changing from an industrial economy to a post industrial economy, you can expect massive population shifts and job losses as machines take on more production. The entire economy changes from the inside out.

For example. The US entered the 20th century (1900s) to become the dominant world manufacturing empire. It reigned there until roughly 1970/80 when the US started losing manufacturing jobs. The entire world economy mimicked the industrial economy in one way or another.

China is not the US and this is not 1900

Now I bring up China. China is a hybrid economy combining socialism/communism with capitalism. I view China as out of control. China's experiment with capitalism, the way they handled it, is either going to work or its going to lead to a world war over resources.

I submit that the Chinese economy is growing out of control and in a huge bubble. I submit that the nature of the Chinese economy, with intergovernmental corruption and the massive amounts of money at moral hazard and already wasted on Ghost Cities (look at google) is out of control and is a chaotic economic and sociopolitical disaster waiting to happen. China is too big not to fail. Too chaotic. Too unregulated. Too un modernized still with 800 million Chinese living on $100=200 a month.

I also submit that the world economy, and the world monetary system is in a chaotic phase and is going to collapse when some final last straw crisis appears. It could be Europe, it could be another war that goes badly. In any case, merely shaking this creaky world economy is enough to cause chaotic collapse.

China has two key problems with their implementation of capitalism.

One is that they have a huge population. They graduate 3 million engineers a year! Tell me, who can use 3 million new engineers a year?? I saw a story about tens of thousands of college graduates in slums around Beijing who cannot find work. Yet this year, and next year, another 3 million engineers will be graduated in China, many to have their hopes of working in engineering dashed…

What is wrong with this picture??? There is not enough demand in China nor the world for another 3 million engineers from China alone, let alone in the US, Japan and so on…

Let me explain. Because of automation, and the use of machines, China will NEVER be able to raise the standard of living of the majority of Chinese to the level of a Western standard of living. There will simply be millions of bottom feeders who make $200 a month. Those people won't be buying anything other than ramen noodles. Good paying manufacturing jobs are a thing of the past century. That is not good news for the world's middle class.

Now, taking this China college degree situation a little further, I find other stories in the US about millions of US college graduates of recent vintage living with their parents after graduating because there are no jobs. I don't only mean no engineering jobs, but no 'fill in the blank ' jobs of any type. Um, I heard its 40%!

Now, follow along, (its either this approach or lots of pages of equations!) since the world is having to face austerity, and China WILL face a period of austerity from their massive overbuilding, and so, there is no way all these engineers in this case will find work even remotely related to their degree.

Throw away engineers. Huh?

This is a world phenomenon. These are the modern throw away college graduates, and there are tens of millions of them in every country of any size. Today, having a college degree does not by any means guarantee a decent job.

Anywhere in the world. This point proves the world cannot provide a Western standard of living to billions more people. Maybe in 50 years…

Now, as China attempts to modernize and bring the rest of their 1.2 billion people up to economic par, they find out that things like their college graduates have no jobs. Or, rather, too many of them don't.

What about India? Same problem. What about Europe? Well, Spain has something like 40% unemployment for age 18 to 30. That includes college graduates…

Same problems everywhere. Lots of willing workers and engineers, and fewer jobs each year. Something has to give…

Chaos in geopolitics and economics

As the world enters a period of evolution from an industrial society to a post industrial information/technology society, the following will happen and in fact is already well underway:

  • Labor arbitrage : Internet and fast communications enable outsourcing of all kinds of back office work like phone banks, accounting, law practice, doctors even. Not to mention the obvious factories leaving the US for China for example. Net effect is millions of permanently lost jobs to cheap foreign labor. Yes, the factory workers make only $1 to $2 an hour. Try a European or a US citizen living on that.


  • Instability : As nations lose jobs, they become unstable economically and politically.


  • Automation : increases efficiency inside factories and causes permanent job losses.


  • Wealth disparity : vastly increases with two distinct groups emerging: the 'plugged in' who have work in the new efficient economy, and this includes the super rich who probably deserve their own category, and the masses of unemployed and slave employed and under employed.


The wealth disparity problem is one of China's major concerns. In the US, a nation of roughly 120 million around 1900 took over manufacturing around the world by the time of 1950. IE even with old technology, one major advanced nation was capable of supplying goods to the entire world.

Supposedly China intends to do this with their economy. But if they cannot physically get their own wealth disparity problem under control, all they will get is a revolution.

Chaotic events

Now, with a world in very painful transition from industrial to post industrial/technical civilization, enter the chaotic trip wires.

These might be called shocks. The Lehman situation was a chaotic shock in that, even though it was expected months before, when it unraveled the Fed and other banks lost control of the situation and were hours away from a world bank shutdown. Most people are not aware of how serious that week was in Fall 2008.

But, the Lehman shock shook an already stressed out financial system, and the world entered a horrendous period of economic decline. We are only now limping. We have not exited that situation. But, the weakened state of the world economy allowed a chaotic shock to implode the financial system.

Transition state is a weak period

As the world evolves from an industrial to post industrial model, the winners and losers start to emerge. The winners will have a huge head start entering the new post industrial information economy. The losers will suffer terrible economic hardship and be at the mercy of foreigners. One of the first things the winners will do, and the first war of this transition will be to grab all the world's resources they can get their hands on.

The world is right now in the early stage of transition.

Vast financial opportunities coming

Now, I am professionally trained in Oracle Databases, which are used by the internet and just about any application you can pick. I also have a math degree.

The internet and the vast implications it has for the economy and the social fabric of the world has rapidly escalated the changes in everything. There will be huge opportunities in future internet startups, as well as existing companies. We have only seen the beginning of what is possible here with Facebook for example, or the incomparable Google.

PCs are now a couple of hundred dollars. Internet bandwidth is still exploding, meaning more and more people can view online videos or you name it.

But, in the meantime, the changes are scary. What the world is going to do with perhaps 20 pct of the world working population being either unemployed or underemployed is a scary question. Insurrections and wars usually result.

Nevertheless, we at Prudent Squirrel are still looking for opportunities, such as the tech field for investors. We are still cautions right now due to risk of a major stock correction. But we have plans for investors in the future that have real possibilities!

The Prudent Squirrel newsletter is our financial and gold commentary. Subscribers get 44 newsletters a year on Sundays, and also mid week email alerts as needed. The alerts include quick notification of important financial news developments by email. Subscribers tell us that the alerts alone are worth subscribing for.

We have also made a number of good calls on big currency swings, such as with the USD, the Euro and the Yen, and we called the USD rally that started in November.

We invite you to stop by and have a look.


Christopher Laird

Editor in Chief

Copyright 2010

Disclaimer: Chris Laird is not an investment advisor/professional. This article, and the PrudentSquirrel newsletter and alerts, are general market commentary only. They are not intended as specific advice. You should talk to your own investment professionals for specific advice. Information here is deemed reliable but should be verified by you if you think it's important.




This morning we got this from China that they are raising interest rates by 25 basis points in their attempt to contain inflation.  Seems that inflation is rampant throughout the world:


courtesy of and the writer Wu Loh from China.


China Raises Interest Rates by 25 Basis Points in Bid to Curb Inflation  


Dec 25, 10:19

- Dec 25, 2010

 People's Bank of China governor Zhou Xiaochuan said in Washington on Oct. 10. It may take two years for the inflation rate to fall below 3 percent, from a 22-month high of 3.5 percent in August. 

China raised interest rates for the second time in just over two months after consumer prices jumped the most in 28 months and the government forecast “relatively high” inflation in the first half of 2011. 

The benchmark one-year lending rate will rise by 25 basis points to 5.81 percent and the one-year deposit rate will climb by the same amount to 2.75 percent, effective tomorrow, the People’s Bank of China said in a one-sentence statement on its website today. 

Bank lending and a higher-than-forecast trade surplus have pumped more cash into an economy already awash with money. Today’s rate increase may not be the last as Premier Wen Jiabao shifts the nation’s monetary policy to a tighter stance and focuses on slowing gains in property and inflation that are making it harder for families to buy homes and pay for food. 

“This demonstrates how determined the government is to control inflation,” said Wang Qing, a Hong Kong-based economist with Morgan Stanley. “Interest rates on medium and long-term loans are adjusted by banks at the beginning of every year so by raising rates now, this will have a much greater tightening effect than it would have in January.”





David Rosenberg through the National post has given a great commentary on threats to the economy. (courtesy National Post)


David Rosenberg on the huge threats facing the economy

Read more:



The best articulator of the bear case, David Rosenberg of Gluskin-Sheff, summarizes all of the risks facing the market in one paragraph:

Market sentiment is as overly optimistic now as it was pessimistic at the July- August lows.  Eurozone fiscal deflationary shock.  Anti-inflation policy restraint in emerging Asia.  Widespread cutbacks at the state and local government level.  Debt ceiling issue triggers major rounds of market volatility.  Tax breaks that are temporary tend to have marginal economic impact with few multiplier impacts, hence GDP revisions will likely be to the downside post-Q1.  Another downleg in home prices undercuts confidence and spending (with around two years’ supply of total vacant inventory backlog).

Got that?

Click here to see Rosenberg's expanded list of market risks >



please click on Rosenberg's expanded list of market risks.  You will see for the first time Canadian problems. (

Canadians are not immune to the global mess)





This video on our famous cartoon characters continue exposing the fraud at the "JPMorgue"  and the "Ben Bernake"

The details provided are terrific and accurate.  (thanks to and all the gang for their production of this) has left a new comment on your post "Open interest in silver continues to rise/troubles...":

Merry Christmas. I will be releasing Part 2 of Silver Manipulation Explained tomorrow afternoon right before Santa sets sail. Enjoy.

Posted by to Harvey Organ's - The Daily Gold & Silver Report







My goodness, look what is going on in Denmark.  I guess liberties are being thrown away to protect our banker fraudsters: (courtesy of zero Hedge)


Guest Post: Legislation Proposed To Criminalize Calls For A "Run On The Bank"

Tyler Durden's picture


Legislation proposed to criminalise calls for a "run on the bank"

There's something going on in the Netherlands:

Calling for a "bank run" in public will possibly become a criminal offense. Ministers Opstelten of Security and De Jager of Finance are preparing a proposal for a new law.

They want to be able to penalize people who are openly calling for a "bank run" a maximum of 4 years or a fine of 19.000 euro. According to the ministers a bank run can seriously endanger a bank.

The ministers say that the collapse of a bank in case of a "bank run" is a question of hours instead of days, since a call for this can be spread fast, using prestent methods of communication. Banks cannot defend themselves from this, and thus must acquire protection under the criminal law, is their thought.

DSB: Reason for the tightened methods is the demise of the DSB Bank. Account holders took out 600 million euro from their accounts in this bank, after the call of Pieter Lakeman, of the Foundation "Hypotheekleed" (Motgage suffering).

The bank run was the initiation of the bankruptcy of the bank of Dirk Scheringa.

What happened to the DSB Bank then?

The behaviour of the president of De Nederlandse Bank (our State bank, our "FED"), Noud Wellink, was part of the reason for the bankruptcy in 2008 of the DSB bank. Politicians called for his (voluntary) resignation, since it became widely known that he acted wrongly, by putting the DSB bank under suspicion in public, in name of the Nederlandsche Bank, and by allowing a banking license in the first place. (at least, that is the official message, it was very clear that the reputation of the DSB was tarnished by the Central Bank) The president of the DSB, Dirk Scheringa fell for the bait and took out his own money. Later he put it back, but by then, it was too late; by then, the warning was issued, and the run had begun.
This criminalisation of the "run on the bank" existed as plan (Scheltema Commission who investigated this) already after the DSB demise. (concluding in june 2010)

Financial Activism.

As of late, there's been several campaigns to mobilise the "silent majority" into a more active stance against taking on private debt and risk, of private banks.
Notably, the "run on the bank" as proposed by french football player Eric Cantona, as well as the "Buy silver, crash JP Morgan Bank" initiated by agent provocateur Max Keiser, are examples of "financial activism". The purpose of these actions is to break the stranglehold of banks that speculated and lost (and are basically insolvent) over society itself, which is, at least in the Netherlands, very sound. There's political resistance (of aforementioned Minister De Jager) to "pay for debt of other countries". At least those are his words.

Making such acts of "financial activism" illegal is unconstitutional in the Netherlands.
(art. 1.7 freedom of speech, art. 1.9 freedom of protest)

Of course the overleveraged position of banks, and their key role in the present Fiat currency system is the cause of this vulnerabillity. This should have been adressed, not the wish of the savers to take out their own money, and warning others. That is the elephant in the room; that banks here aren't necesserally in a worse shape than anywhere else, but are extending their risk to society at large, because they're engaged in both speculation, and in handling the day-to-day financial affairs of corporations and individuals.

Drs. Jasper Blom of the UvA (University of Amsterdam) stated in a publication that the Basel Accord, to stipulate rules for banks to restrict risk, have been "watered down", and that essentially nothing has changed since 2008. Politicians are, according to him, uninterested, and unconcerned, while it is their responsibillity.

Is this important?

Yes, the positition of the Netherlands in the international banking cartel is very important. Moreover the position of the Netherlands is very important to the american government, as can be seen by the latest Wikileaks cables.

The controller of the dutch stockmarket, the Euronext is owned (since 2006) by the NYSE !

And: "In 2009, the Netherlands was the largest destination for United States direct foreign investment, with 13.4% of the total. This made the United States the largest direct foreign investor in the Netherlands. Vice versa, the Netherlands was the ninth-largest direct foreign investor in the United States in 2009. In 2008, however, the Netherlands was the largest direct foreign investor in the United States."

So, with this move, the dutch government wants to protect it's banking system, at the cost of the liberty of individuals. A dangerous course of action.




I sent this story on the declining Baltic Dry Index to you on Wednesday.  The Baltic Dry Index is an index which relates to costs to ship dry goods (not oil)

throughout the world through the shipping lanes.  The rate is what is charged by ships to move commodities from A to B.  When activity is slow, the rate drops, and when activity is strong, it is difficult to a get a ship and thus costs rise.  I will repeat this story to you the huge drop in the Baltic Dry Index and its significance will be borne out in the reply to this story:


Harvey this is a reply I received from a friend in Europe to forwarding this on ...

The Baltic indicators are real. It WILL get much worse. Hundreds of tankers and ship are sitting rotting off Gibraltar without charters. Next year will get much worse. Only LNG tankers are strong. Freight is a disaster. Ships are running at a loss now. The world is full of distressed Ship Sellers.
It will all get worse as economies cut back. Watch the dips then. I recently stood on the Gibraltar rock and looked down at disaster. Its like Pearl Harbour. A real mess. “

On 10-12-22 10:19 PM, "Harvey Organ" <> wrote:

Baltic Dry Free Fall Accelerates
Submitted by Tyler Durden <>  on 12/22/2010 09:35 -0500
·        Baltic Dry <>

Last week, we pointed out when the BDIY dipped below 2000 for the first time since August. In the next three days, the index slide has accelerated and after dropping 3% just overnight, is back to 1830, just 130 points away from the 2010 lows printed in July. And while the index topped in early September following a brief and uninspired climb, it has since been a one way downward pointing slope. Whether the BDIY is a leading indicator to anything is debatable: some believe it is a completely irrelevant indicator. Others disagree. A very strong case for the former camp was made last week by Nordea which demonstrated, in its chart of the week <> , the average speed of its vessel fleet. One thing is certain: for whatever reason, demand for trans-Pacific cargo shipments is once again plunging.
Your rating: None Average: 5 (6 votes)




For those of you who are coin collectors, the usa has now been authorized to mint Palladium coins

like the Russians:  here is this story:  (courtesy of


PALLALIUM DEMAND INCREASES: American Palladium Eagle Coins  


Dec 25, 11:31

A new bill was signed into law last week that will authorize the United States Mint to produce American Palladium Eagle coins in three versions: bullion for investors, and proof and uncirculated for collectors.

The American Eagle Palladium Bullion Coin Act of 2010 was introduced by Congressman Denny Rehberg on September 22, 2010. It passed in the Senate on December 1, 2010. President Obama signed the Act into law (Public Law 111-303) on December 14, 2010.



Well that about does it for today.  I will give my comprehensive review on the comex gold and silver on Monday,

when we get the COT report and the inventory movements plus delivery notices.


I wish you a very Merry Christmas...and a very safe and enjoyable holiday weekend.


I will see you on Monday


Thursday, December 23, 2010

Open interest in silver continues to rise/troubles in major USA cities

Good evening Ladies and Gentlemen:


Tonight will be a little shorter than normal as everyone is getting reading for Christmas.  I will report on Saturday providing enough data has been sent my way.


Gold closed today down by $6.80 to 1380.00.  Silver fell by 6 cents to $29.31.  The banking cartel decided en masse to raid when they saw the open interest levels in both gold and silver but it was the open interest on silver than really floored these guys.  They knew they were in deep trouble when they saw the released figures.  So without further ado, here is today's comex results.


First gold:


The total gold comex open interest rose by 2065 contracts despite yesterday's raid.  The final reading today which is basis yesterday was 584198.  The front delivery month of December saw its open interest fall from 447 to 384 for a fall of 63 contracts.  Since gold had 65 deliveries yesterday, most of the fall in open interest was due to the actual deliveries.  The estimated volume today was a rather subdued 81,968 contracts as many are away.  The confirmed volume yesterday was a rather low 71,724 contracts.


Now for silver:


The total open interest on the silver comex floored our bankers as I mentioned above.  The open interest rose from 133,135 to 133,994 for a gain of 859 contracts.  Many expected a big drop and it just did not materialize.  The estimated volume today was a very low 26933 contracts and the confirmed volume yesterday was a very very low 27,128,

It seems the bankers might be a little loathe to supply paper silver on the short end.


Here is a chart for Dec 23.2010 on deliveries and inventory changes at the comex:



Withdrawals from Dealers Inventory 

Zero oz

Withdrawals from customer Inventory 

zero oz

Deposits to the dealer Inventory

 Zero oz

Deposits to the customer Inventory

Zero ooz

No of oz served  (contracts50


No of notices to be served..269



Withdrawals from Dealers Inventory 

zero oz

Withdrawals from customer Inventory 

 994 oz

Deposits to the dealer Inventory

  zero oz

Deposits to the customer Inventory


No of oz served (contracts  40


No of oz to be served 319


 Let us start with silver:

We have seen turmoil almost every day for the past several months.  It looks like a truce was sounded due to the Christmas holiday where both sides decided to give each other a holiday cheer and refrain from battling each other!!.  They will resume fighting next week.  We saw zero oz enter in both the customer category and dealer side.  We saw no withdrawals on silver for both customer and dealer!!.  In other words no activity except for a 9970 oz leaving the dealer to the customer in an apparent lease repayments or some other prior liability and this silver was returned to its proper receptacle.

The comex folk notified us that 50 notices were served upon our longs for a total of 250,000 oz of silver.  The total number of notices sent down so far this month total 1608 for a grand total of 8,040,000 oz of silver.  To obtain what is left to be served upon, I take the open interest in December silver at 291 and subtract yesterday's deliveries  at 22 to give us a total of 269 notices left for servicing or  1,345,000 oz.

Thus the total number of silver oz standing in this delivery month is as follows:  8,040,000 + 1,345,000 oz =  9,385,000 oz.   (Yesterday's total was about 8.8 million so we gained back 585,000 oz and thus our missing 1/2 million oz of silver is back.  The comex folk always play games  near the end of the month as they are having a tough time trying to find physical metal)

Now for gold;

Again no activity inside a comex vault. The only event was a withdrawal of 994 oz of gold from a customer.  This customer could not wait until after Christmas to remove his metal. The comex folk notified us that 40 delivery notices were sent down for a total of 4000 oz of gold.  The number of notices sent down so far this month total 11055 or 1,105,500 oz of gold. To obtain what is left, I take the open interest for December at  384 and subtract 65 delivery notices for a total of  319 notices left for servicing. (31900 oz)

Thus the total number of gold oz standing in this delivery  month is as follows:
1,105,500 (oz already served) + 31900 oz (to be served)  =  1,137,400 oz ( we lost about 5000 oz from yesterday)

In summary then, the silver situation looks pretty dire for our bankers.  They have still to find 1.345 million oz of silver by the conclusion of December. They need 31,900 oz of gold or approximately 1 tonne to satisfy the longs.  I will be following this development for you as the delivery month of December concludes.


Herein is the ETF story for today:

  Today the GLD lost another huge amount of gold from its inventory ie. 3.65 tonnes (yesterday's total was 1288.62)

 Total Gold in Trust

Tonnes: 1,284.97


Value US$:


 With physical demand reaching scorching levels globally, the contraction in inventory at the GLD is difficult to fathom!!!


Surprisingly, the folk at the SLV  decided to remain pat again .    The  total number of oz remains at   350,550,455.00

Total number of tonnes:    10,903.3 Wednesday night closing level.


Notice the difference between the GLD and SLV.. GLD inventory has been liquidated but silver remains constant.




Our ETF's that we follow still command a decent positive to NAV.

The Sprott silver fund PSLV has recorded a slight fall in its positive to NAV to 10.24%

The Sprott gold fund PHYS has been updated just now to  2.83%

The central fund of Canada which represents equal parts of physical silver and gold registered a positive to NAV of 8.9% 


The Sprott silver fund lowered a bit in its premium to NAV but the other two rose.  As long as we see huge premiums to NAV on all of these funds, I know we have scarcity of metal.





And now for the big economic stories of the day:


The first story is from Reuters and this is an eye opener. Their short term 7 day swap interest rates rose dramatically  today from 4.2% to 5.7%

This signifies that China is going through massive inflation and they are having a tough time controlling it.  They must raise their yuan value to curtail inflation.

Here is this big story from Reuters:


China money market rates jump, may delay tightening

*Benchmark 7-day repo rate spikes 149 basis points 
* Fund squeeze may delay PBOC tightening up to February
* IRS, bond yields largely stable

SHANGHAI, Dec 23 (Reuters) - China's benchmark money market rate jumped 149 basis points to a fresh more than two-year high on Thursday, as traders cited an acute shortage of funds after a slew of official tightening steps.

The weighted average seven-day government bond repurchase rate rose to 5.6789 percent at 0400 GMT from 4.1868 percent at the close on Wednesday, after having repeatedly hit more than two-year highs since late November.

Traders said the money market squeeze was unprecedented since the seven-day repo rate became China's benchmark for short-term liquidity conditions in the early 2000s, except on a few occasions during mega equity initial public offerings (IPOs).

Such a crunch might force the People's Bank of China to delay its much anticipated further tightening steps until at least early February when a cash demand peak during the Lunar New Year is over, traders said.

The market gives clear signs of these expectations. The weighted average 21-day, one-month and two-month repo rates all jumped several dozens of basis points to reflect anticipated liquidity shortage ahead of and right after the Lunar Near year.

"A prolonged liquidity crunch like this will disrupt normal corporate funding activities," said a trader at a state-owned bank. "Market conditions will cap the the scope for the PBOC to tighten further either via RRR or rate hikes for weeks."…



Bart Chilton was on CNBC last night and he was adamant that large players must not manipulate markets. Here is the video for you  to see in case you missed yesterday's TV broadcast.





Here is John Williams on the latest releases from the government.  I trust this man's data over the governments:


Jim Sinclair’s Commentary

John Williams of as compared to the glee of many talking heads for 2011.

- Automobile Orders Sink for Fourth Month 
- Annualized GDP Growth at 2.6%, GDI Growth at 1.1% 
- Housing Crisis Appears to Be Intensifying 
- Year-to-Year Decline in Home Sales Is Meaningful Even after Netting out Year-Ago Tax Credit Spikes

Little Holiday Cheer in This Week’s Numbers 
The average consumer remains liquidity-impaired, and that means there is no hope for any significant economic rebound in the months ahead.  New orders for automobiles (in durable goods) have fallen for four straight months.  Housing starts have begun to turn down anew, and home sales are showing meaningful annual declines, even with last year’s tax-credit-driven sales boosts backed out.  The GDP should turn down again, shortly, as the double-dip recession takes clear hold.  Payrolls and industrial production — allowing for revisions coming early in 2011 — appear already to have peaked or turned down anew as of the August to October 2010 period.  Retail sales — also subject to significant revisions — should begin to show outright monthly declines, net of inflation, in the months ahead.  This will be detailed in next week’s Commentary, which will address the outlook for 2011, a year that should be one of the most treacherous and unstable ever seen for the U.S. economy, systemic solvency and financial markets.  The general outlook as discussed inSpecial Commentary No. 333, however, has not changed.





This is the big story of the day:  (courtesy Jim Sinclair):


16 US Cities Facing Bankruptcy If They Don’t Make Deep Cuts In 2011 
Gus Lubin and Leah Goldman | Dec. 21, 2010, 1:32 PM

2011 will be the year of the municipal default. At least that’s what analysts like Meredith Whitney predict, as do bond investors that have been fleeing the muni market.

There are many reasons to be worried. First, the expiration of Build America Bonds will make it harder for cities to raise funds.

Second, city revenues are crashing and keep getting worse. Property taxes haven’t reflected the total damage from the housing crash. High joblessness is cutting into city revenues, while increasing costs for services.

The next default could be a major city like Detroit, or it could be one of hundreds of small cities that are on the brink. Did we leave off your ailing city? Let us know in the comments.






Fitch has finally lowered the boom on Hungary as they downgraded the sovereign debt today: (courtesy of Reuters and Jim Sinclair )


Fitch downgrades Hungary as parlt votes on 2011 budget 
Thu Dec 23, 2010 7:37am EST 
By Gergely Szakacs and Krisztina Than

BUDAPEST, Dec 23 (Reuters) – Fitch cut Hungary’s long term foreign currency credit rating by one notch to BBB- with a negative outlook on Thursday, warning that the lack of a coherent medium-term fiscal strategy undermined confidence in fiscal sustainability.

The downgrade came just as Hungarian lawmakers prepared to approve the 2011 budget that cuts the deficit with one-off revenues, leaving markets hoping more reforms due in February will finally put the country on a sustainable fiscal path.

The 2011 budget targets a deficit below 3 percent of gross domestic product for the first time since Hungary joined the European Union in 2004, making it a top performer in the 27-member bloc.

But to do so it will rake in temporary taxes, including heavy new levies on profitable foreign businesses, and tap up to $14 billion of private pension savings, putting it on a potential collision course with markets and voters.

"The new Fidesz government… has set out fiscal plans that go in the wrong direction for further fiscal consolidation. Conversely, these plans could worsen the underlying medium-term budget outlook by around 4pp of GDP over 2011-2012," Fitch said.

Fitch warned that a failure to implement credible medium-term fiscal consolidation measures that restore public finances to a sustainable course could lead to a downgrade.







 I pointed this out to you yesterday that China is willing to loan massive amounts of euros to sovereign Euro countries.  They have swapped their usa dollars for euros and then bought the sovereign debt with their newly acquired euros:  (courtesy Jim Sinclair)


China extends help to tackle euro crisis 
By Jamil Anderlini in Beijing and Peter Spiegel in Brussels

China has promised to take further “concerted action” to support European financial stabilisation, including continuing to buy the bonds of countries at the centre of the sovereign debt crisis, according to senior European officials.

The officials, who declined to be named, said Wang Qishan, a Chinese vice-premier, had given assurances that China would step up support for European stabilisation efforts “if necessary”. Mr Wang made the pledge during the third annual China-EU High Level Economic and Trade Dialogue, held in Beijing on Tuesday.

In comments reported by state media, Mr Wang said China supported measures taken by the EU and the International Monetary Fund to stabilise the eurozone, but gave little detail of what form such backing would take.

Beijing has emerged as one of the more enthusiastic backers of distressed European sovereign debt in recent months.

During a trip to Portugal last month, Hu Jintao, China’s president, said Beijing would take “concrete measures” to help the country, which officials signalled would include bond purchases.

A month earlier, Wen Jiabao, China’s prime minister, said in Athens that Beijing would purchase Greek bonds and increase foreign investment in the country.



and this article on the same subject:


bonds and increase foreign investment in the country.


Fresh humiliation for eurozone as China says it will bail out debt-ridden nations 
By Daily Mail Reporter 
Last updated at 8:12 PM on 23rd December 2010

China has said it is willing to bail out debt-ridden countries in the euro zone using its $2.7trillion overseas investment fund.

In a fresh humiliation for Europe, Foreign Ministry spokesman Jiang Yu said it was one of the most important areas for China’s foreign exchange investments.

The country has already approached struggling European countries with financial aid, including offering to buy Greece’s debt in October and promising to buy $4billion of Portuguese government debt.

Today Portugal had its credit rating downgraded by the Fitch Ratings agency amid mounting concerns over the country’s ability to raise money in the markets to finance its hefty borrowings.

Fitch said it was reducing its rating on the country’s debt by one notch to A+ from AA- and warned that further downgrades may be in the offing by maintaining its negative outlook.





I am going to leave you with this story on the plight of one town near Mobile Alabama that has basically defaulted on its obligations. This is courtesy of Jim Sinclair and the New York Times.


Alabama Town’s Failed Pension Is a Warning 
Published: December 22, 2010

PRICHARD, Ala. — This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.

Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.

Since then, Nettie Banks, 68, a retired Prichard police and fire dispatcher, has filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.

Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.”

The situation in Prichard is extremely unusual — the city has sought bankruptcy protection twice — but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow.



I want to wish everyone a very Merry Christmas.  May all your wishes for the coming new year turn true.

I will report on Saturday providing the data is sent down.

all the best



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