Tuesday, December 27, 2011

Japan in serious debt problems/Sears/LTRO euros heading straight back to ECB/ gold and silver raid



Dear Ladies and Gentlemen:  (amended commentary to include inventory movements)



Gold closed today at $1594.20  down $10.00 on the day.  Silver followed suit down 35 cents to $28.70
Since the MF GLobal scandal the bankers are having full control over the futures on gold/silver as volumes completely dry up. It is very strange that again for the second straight session there have been no updates on inventory movements.  The last reporting session was 22nd of December. I checked the CME bulletin and still no updates.  This is most unusual. I get the data from the Nymex daily reports
under the section of warehouse and depository stocks. The copper inventories were updated today.


In the body of the commentary we will witness that most of the LTRO euros are heading straight back to the ECB which probably indicates that one or two European banks are in trouble.

Let us head straight to the comex and see how trading fared today:

The total gold comex OI fell by 2217 contracts to 422,747.  We are seeing more evidence every day of OI and volumes drying up.  The front delivery month of December saw its OI fall 599 contracts to 138 from 737.  We had 577 deliveries on Friday so we lost 22 contracts or 2200 oz of gold standing and that may be have through cash settlements or an error in Friday reporting.  The next big delivery month is February and here the OI fell by around 1000 contracts to 244,098.  The estimated volume today was an unheard of 46,261 even though it is still the holiday season.  The confirmed volume on Friday came it at 47,497.

The total silver comex OI rose by around 100 contracts to 102,330.  The front December contract saw its OI fall from 27 to 18 for a loss of 9 contracts.  We had 4 delivery notices on Friday so we lost 5 contracts or 25,000 oz to cash settlements.  The next big delivery month is March and here the OI remained relatively constant at 56,287.  The estimated volume today at the silver comex was an anemic 11,962.  The confirmed volume on Friday was also extremely weak at 10,812.


Inventory Movements and Delivery Notices for Gold: Dec.  27 2011:


Gold
Ounces
Withdrawals from Dealers Inventory in oz
nil
Withdrawals from Customer Inventory in oz
3504
Deposits to the Dealer Inventory in oz

nil
Deposits to the Customer Inventory, in oz
nil
No of oz served (contracts) today
35  (3500)
No of oz to be served (notices)
103 (10,300 oz)
Total monthly oz gold served (contracts) so far this month
22,040 (2,204,000)
Total accumulative withdrawal of gold from the Dealers inventory this month
100 exact oz.
Total accumulative withdrawal of gold from the Customer inventory this month

297,134

We finally received inventory movements in both gold and silver around 8 pm est.  Gold had
no deposits of any kind only one withdrawal by the customer at HSBC to the tune of 3504 oz.
There were no adjustments.  However the registered inventory fell to 2.539 million oz over the holidays and I have no entry for this. This new total now represents 78.90 tonnes of gold.


The CME reported that we had 35 notices filed for 3500 oz of gold.  The total number of notices
filed so far this month total 22,40 for 2,204,000 oz.  To obtain what is left to be served upon, I take the OI standing (138) and subtract out today's deliveries (35) which leaves us with 103 notices or 10,300 oz to the served upon.

Thus the total number of gold oz standing in this delivery month of December is as follows:

2,204,000 oz (served)  +  10,300 (0z to be served)  =  2,214,300 oz. or 68.8 tonnes of gold.
we lost 2200 oz to cash settlements.

If we add the 1.77 tonnes from November we have a total of 70.57 tonnes or  89.36% of registered dealer gold.



And now for silver 

First the chart: December 27th




Silver
Ounces
Withdrawals from Dealers Inventorynil
Withdrawals fromCustomer Inventory123,810 oz(Brinks,HSBC,JPM)
Deposits to theDealer Inventorynil
Deposits to the Customer Inventory56,550 (Delaware)
No of oz served (contracts)12 (60,000)
No of oz to be served (notices)6 (30,000,)
Total monthly oz silver served (contracts)1013 (5,065,000)
Total accumulative withdrawal of silver from the Dealersinventory this month107,275
Total accumulative withdrawal of silver from the Customer inventory this month2,854,014


We finally received data at 8 pm this evening.

We had no silver deposited to the dealer and no silver was withdrawn.

We had one entry of a customer deposit to a customer at Delaware vault.

We had the following customer withdrawal:

1.  67,649 oz Brinks
2. 4760 oz HSBC
3. 51,401 oz (JPM)

total withdrawal:  123,810 oz.
we had no appreciable adjustments.
The dealer inventory in silver rests tonight at 33.97 million oz.
Somehow the total inventory of silver tonight reads at 115.29 million oz.


The CME notified us that we had 12 delivery notices filed today for 60,000 oz.
The total number of notices filed so far this month total 1013 for 5,065,000 oz.
To obtain what is left to be served upon, I take the OI standing (18) and subtract out today's
deliveries (12) which leaves us with 6 notices or 30,000 oz left to be served upon.

Thus the total number of silver oz standing in this delivery month of December is as follows:

5,065,000 (oz served) +  30,000 (oz to be served)  =  5,095,000 oz
we lost  25,000 oz to cash settlements.

end


Let us now proceed to our ETF's SLV and GLD and then our physical gold and silver funds:

Sprott and Central Fund of Canada.

The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.


Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.



Dec 27.2011:  (not updated yet)





Total Gold in Trust

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:64,817,414,391.89






Dec 24.2011:



TOTAL GOLD IN TRUST

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:64,820,248,017.49




DEC 22.2011:



TOTAL GOLD IN TRUST

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:64,780,620,752.60





WE LOST ZERO OZ IN THE GLD TODAY.





And now for silver Dec 27.2011:  (Not updated yet)





Ounces of Silver in Trust308,833,295.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,605.79


Dec 24.2011:
Ounces of Silver in Trust308,833,295.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,605.79

we lost zero silver ounces.








end



And now for our premiums to NAV for the funds I follow:


1. Central Fund of Canada: traded to a positive 1.3 percent to NAV in usa funds and a positive 1.2 % to NAV for Cdn funds. ( Dec 23.2011).
2. Sprott silver fund (PSLV): Premium to NAV fell slightly   to  21.89% to NAV  Dec 23/2011
3. Sprott gold fund (PHYS): premium to NAV rose again to a 4.97% positive to NAV Dec 23.2011).

end.








Today there are two huge papers on the plight of Japan.  The first, written by Wolf Richter of www.testosteronepit.com talks about their budgetary deficit of over 56% of revenue. Ninety five percentage of their debt is held internally in the country.  However as savings rate declines and citizens withdraw their cash, bond yields will rise and this will probably produce a financial cataclysmic event over there. Japan's main strengths over these past several decades has been their exports and savings and both are plummeting.  The interest on the debt equates to a touch greater than 50% of the budget.

In the second paper, Econmatters discusses the huge debt coming due with fewer and fewer buyers of the debt.  Both are extremely well written:

The first:

Monday:  Dec 26.2011:
The EndGame:  Japan Makes Another Move

Wolf Richter:  www.testosteronepit.com

It’s a doozie. On December 24, the cabinet approved a draft budget for fiscal 2012 whose headline numbers were horrid enough: ¥90.3 trillion ($1.173 trillion) in outlays, ¥42.3 trillion in tax revenues, and a deficit of ¥48 trillion. 49% of the outlays are to be covered by issuing bonds, a record even for Japan. But it gets worse. Accounting shenanigans gloss over the fiasco by removing two items from the general budget: the reconstruction budget of ¥3.8 trillion and pension payments of ¥2.6 trillion. When they’re included, the deficit jumps to ¥54.4 trillion.

Fiscal 2012 Draft Budget
trillion
General budget
¥  90.3
Reconstruction budget, left out of general budget
¥    3.8
Pension payments left out of general budget
¥    2.6
Total budget
¥  96.7
Estimated tax revenue
¥  42.3
Deficit to be funded by borrowing
¥ -54.4
Percent of budget to be funded by borrowing
56.2%

The Japanese government will have to borrow 56.2% of every yen it spends in 2012. But it gets even worse! Japan regularly passes “supplementary budgets” during the year—four of them in 2011, the last one on December 1 for ¥2 trillion. So there may be a few in 2012 as well, which could push borrowing requirements toward a dizzying 60% of outlays.
Despite the near-zero interest rate policy the Bank of Japan has been pursuing for years, interest expense on the debt—at 230% of GDP by far the highest in the developed world—will eat up ¥21.9 trillion in 2012, a stunning 51.8% of tax revenues! If yields on 10-year JGBs were to rise from 1% to 2%.... Better not think that way. Keeping yields near zero is simply a matter of survival.
Funding these deficits and rolling over the gargantuan debt has been made possible by the institutional setup and cohesive psychology of Japan Inc.: 95% of JGBs are held within Japan. Individuals directly or indirectly hold over 50%. Government-owned or controlled institutions hold over 40%. Among them: the Government Pension Investment Fund, the government-owned Post Bank, financial institutions the government can lean on, and the BoJ. Foreigners hold 5% for decorative purposes.
But two of the strengths of the Japanese economy that have supported the absurd deficit levels—a high savings rate and a large trade surplus—have collapsed. The savings rate is in the low single digits, and the trade surplus has turned into a ¥2.2 trillion ($29 billion) trade deficit in 2011 through November.
2011 Trade Balance in billion ¥
In November, imports grew 11.4% over a year ago, in part due to liquefied natural gas imports—up 21%. Since the Fukushima disaster, utilities have shut down reactor after reactor for scheduled maintenance but have not restarted them. Of the 54 reactors, only six are operating (one was shut down December 26, three more will be shut down in January). To make up for the shortage, utilities have revved up natural gas plants—though reductions in power consumption have also been implemented.
Exports dropped 4.5% from a year ago. Exports to China, Japan’s largest export market, declined 7.7% while imports grew 6.6%. Japan used to have a trade surplus with China. No more. The pace of offshoring is picking up, particularly in the auto and tech industries. While a weaker yen could slow down that trend, it would also drive up the cost of imports, including fossil fuels and raw materials—posing additional strains on the struggling economy.
The strategy for keeping it all glued together for a few more years? An increase in the unpopular consumption tax from the current 5% to 10%. Prime Minister Yoshihiko Noda proposed it in November. The opposition howled. Noda’s approval rating has dropped from 63% to 44.6% in the four months he has been in office (for the whole debacle of weak governments and revolving-door prime ministers, read.... Japan Inc. Plays By Its Own Rules). In pushing the consumption tax, he might run into a buzz saw. And if it passes, it will constrain consumption even further.
"Japan's budget-making processes and its reliance on public debt have reached their limits," Finance Minister Jun Azumi told a news conference on December 24, the winning understatement of the year. And what solutions did he propose? Well, pass the consumption tax “and somehow reverse the falling birthrates."
Reverse the falling birthrates? If that ever happened—doubtful in the current social climate—it would unleash a new wave of government expenditures (schools, healthcare, etc.) for two or three decades before it would generate a boom in productive and tax-paying members of society. But keeping the system glued together for that long would require a miracle. And for a finance minister to count on a miracle seems a bit silly.
Life goes on. A convoy of 20 supercars was speeding down the ChÅ«goku Expressway, entered a left-hand bend at 90–100 mph, though the posted speed limit was 50 mph. The highway was wet. And the rest was very expensive.... Superlative Supercar Pileup (incl. video).

end.

The second paper by Econmatters:


Debt Crisis 2012: Forget Europe, Check Out Japan

EconMatters's picture





The recent massive demand for ECB's LTRO (Long Term Refinancing Operation)--nearly 490 billion euro in three-year 1% loans from 523 banks--only confirmed the suspicion of some market participants that European banks are having financing issues, and that the LTRO is unlikely to flow into the Euro Zone supporting the troubled sovereign debt and economy.

In addition to the current Euro crisis which we discussed here and here, Japan, the world's third largest economy, could have its own debt crisis as early as 2012 bigger than the Euro Zone.(see graph below or at our site

Graphic Source: Awesome.good.is, 20 Dec. 2011


Japan has long been mired by an aging population, sluggish growth and deflation since an asset bubble popped in the early 1990s.  The country already has the highest debt-to-GDP ratio in the world--about 220% according to the OECD -- and a debt load projected at a record 1 quadrillion yen this fiscal year.

Based on a plan approved by the Cabinet in Tokyo on 23 Dec, the country is now looking to sell 44.2 trillion yen ($566 billion) of new bonds to fund 90.3 trillion yen ($1.16 trillion) of spending in fiscal year 2012 starting 1 April.  That will raise Japan budget’s dependence on debt to an unprecedented 49%.

According to Bloomberg, the government projects new bond issuance will surpass tax revenue for a fourth year. Receipts from levies have shrunk about a third this year after peaking at 60.1 trillion yen in 1990.  Non-tax revenues including surplus from foreign exchange reserves also halvedto 3.7 trillion yen. Social-security expenses, now at 250% of the level two decades ago, will account for 52% of general spending next year

Moreover, an April 2011 analysis by CQCA Business Research showed that "Japan has an extremely near-future tilted debt maturity timeline" (see chart below).  CQCA estimated that in 2010, Japan was able to push 105 trillion yen into the future, but concluded it is doubtful that Japan will be able to continue this.


Chart Source: CQCAbusinessresearch.com, April 2011

Indeed, as one of the major and relatively stable economies in the world, and since almost all of its debt are held internally by the Japanese citizens or business, Japan has been able to still borrow at low rates (10-year bond yield at 0.98% as of Dec. 26, 2011), partly thanks to the Euro debt crisis going on for more than two years.

So as long as Japan could keep financing a majority of its debt internally without going through the real test of the brutal bond market, the country most likely would not experience a debt crisis like the one currently festering in Europe.

But the chips seem to have stacked against Japan now.  On top of the new and re-financing needs, the Japanese government estimated that the economy will shrink 0.1% this fiscal year citing supply-chain disruptions from the earthquake and tsunami disaster in March, the strengthening of the yen and the European debt crisis.  Moreover, S&P said in November that Japan might be close to a downgrade.  After a sovereign debt downgrade to Aa3 by Moody's in August, 2011, it'd be hard pressed to think Japanese bond buyers would shrug off yet another credit downgrade.  

Burgeoning debt, coupled with the global and domestic economic slowdown, and continuing political turmoil (Japan has had three Prime Ministers in the last two years, and the current PM Noda’s popularity has fallen since he took office in September), would suggest it is unlikely that Japan could continue to self-contain its debt.

It looks like its massive debt could finally catch up with Japan in the midst the sovereign debt crisis that's making a world tour right now.  While some investors might see Japan as a bargain, it remains to be seen whether the country will continue beating the odds of a debt crisis.




In my Saturday commentary we suggested that the European banks may not engage in the carry trade but just shore up its balance sheet with the LTRO money.  Sure enough on the second day post the LTRO trade, most of the money was redeposited back into the ECB.  Thus of the net 210 billion Euro repo, a full 167 billion euros was redeposited back into the ECB.  These funds only receive .25% per annum and thus they are losing .75% per annum on the transaction.  The why do it?  Europe is insolvent!!

LTRO "Bazooka" Is Epic Disaster As Banks Scramble To Redeposit "Free Carry" Cash With ECB, Lose Money On "Inverse Carry"

Tyler Durden's picture





When on Friday we penned "And This Is Where The LTRO Money Went" we said that the final nail in the "Carry Trade" theory was that instead of using the LTRO "Bazooka" cash to collect meaningless pennies in front of a steamroller, Europe's banks turned around and deposited it right back with the ECB after the bank's deposit facility soared to a 2011 record €347 billion, €82 billion more than the day before. Today, any residual doubt of where the LTRO cash proceeds went is eliminated, as the ECB has just confirmed that what goes out of one pocket comes back in the other, as the ECB's deposit facility has just exploded to not a 2011 record, but an all time record high €412 billion, a €65 billion increase overnight, and €167 billion higher in the past two days alone, which effectively accounts for practically all of the LTRO's free €210 billion.
And to those who foolishly claim this is a seasonal year end cash parking, we present the full history of the ECB's facility usage since it exploded on the scene in 2008. P;ease go ahead and show us when in 2008, 2009 and 2010 there was a spike in year end facility usage. We have all day. But wait: there's more! In another independent confirmation that all hell is about to break loose, we just saw the 1 Year Bund drop sub zero again. As a reminder, the last time it was there was in the last days of November, just before the global central bank cartel had to come in and provide a global liquidity bailout for Europe's banks. So: back to square minus one ladies and gentlemen of an insolvent Europe?
But the biggest slap in the face of Sarkozy is that instead of banks pocketing the "guaranteed" 2-3% in carry trade between the 1% LTRO rate and the soveriegn bond yield, banks are losing 75 basis point on this inverse carry trade, where they take LTRO cash and deposit it with the ECB where it yields... 0.25%!
ECB Facility Usage (source):
And 1 Year bund yield:



end

Bond issuance in 2012 is becoming alarming as fewer and fewer uptake this debt:

Hold On Tight: European Bond Issuance In January Is About To Get Very Bumpy

Tyler Durden's picture





While someone continues to guietly push the EUR offer ever higher in the quiet holiday session, the reality is that with only 5 days to go in 2011, the holiday for Europe is ending, and "the pain"TM it about to be unleashed. All 740 billion worth of it. Because while Japan is monetizing its deficit (and having to issue more debt than it collects in taxes), and America is hot on its heels (as a reminder the US also issues roughly one dollar of debt for each dollar in taxes collected), Europe is still unsure whether it will monetize explicitly (that said, we did clear up that little bit of confusion over implicit monetization, with the ECB's balance sheet having exploded by €500 billion since June,or more than all of QE2). Unfortunately, as the following analysis from UBS indicates, it won't have much of a choice.Here are Europe's numbers: €82 billion in gross debt issuance in January, €234 billion in gross debt issuance in Q1, €740 billion in gross debt issuance in 2012. And then itreally picks up because what is largley ignored in such "roll" analyses are the hundreds of billions in debt that financials (i.e., banks) will also have to roll in 2012. In other words, the biggest risk for 2012, in our humble opinion, is that the global repo perpetual ponzi engine (where every primary dealer buys sovereign debt than promptly repos it back to its respective central bank, and courtesy of Prime Broker conduits is allowed to do so without ever encumbering its balance sheet - explained in detail hereis about to choke.
Yes, ladies and gents, the trillions and trillions in total financial, non-financial, government and household debt that are finally coming due will need to find willing hosts wherein to gestate. Alas, said hosts are rapidly disappearing, and as hard as they may try, the global central banks are failing at being willing replacements to the traditional repo ponzi mechanism. But back to the imminent surge in bond issuance of €720 billion which UBS has the following words to describe: "Given the contraction in the investor base for most Eurozone sovereigns on the back of the increased market volatility and spread widening experienced by most issuers, we expect funding conditions to be quite challenging next year. We expect the majority of the issuers to front-load supply in the first three months of the year and to bring to the market a number of new lines with large initial outstanding amounts." Sure enough, enjoy the holidays, because in January things are gonna get very rough: "we expect January to remain the busiest month despite a EUR 5bn reduction in bond redemptions from EUR 63bn in the first month of 2011 to EUR 58bn expected for January 2012. Consequently, net issuance in January is expected to be particularly heavy at EUR 24bn vs. EUR 22bn in 2011." In other words: hold on tight.
From UBS:
We expect issuance of coupon bonds in the first quarter of 2012 to decrease only slightly compared to the same period in 2011. Supply in the first quarter of 2012 is likely to total around EUR 234bn vs. EUR 242bn recorded in Q1 2011. The amount corresponds to around 32% of the  overall annual bond supply. Issuance will remain heavy in the first quarter despite an expected reduction in net borrowing by the EMU issuers in 2012 due to significantly higher first quarter redemptions which will increase from EUR 136bn in 2011 to EUR 157bn in 2012.
Given the contraction in the investor base for most Eurozone sovereigns on the back of the increased market volatility and spread widening experienced by most issuers, we expect funding conditions to be quite challenging next year. We expect the majority of the issuers to  front-load supply in the first three months of the year and to bring to the market a number of new lines with large initial outstanding amounts.
Yes, that means Q1, and specifically, January.
Of the EUR 234bn of bonds likely to be sold in Q1, around EUR 82bn will be issued in January alone. The monthly gross supply is then expected to decrease slightly to EUR 75-76bn in both February and March. The figures compare to an aggregate issuance volume of EUR 85bn, 78bn and 80bn in the first three months of 2011, respectively. As a result, we expect January to remain the busiest month despite a EUR 5bn reduction in bond redemptions from EUR 63bn in the first month of 2011 to EUR 58bn expected for January 2012. Consequently, net issuance in January is expected to be particularly heavy at EUR 24bn vs. EUR 22bn in 2011.

The increased flexibility in the funding strategies of the issuers, which aims at dealing with an expectedly challenging primary market particularly at the beginning of next year, makes it difficult to forecast the likely issuance patterns of the issuers as the reliance on funding via tap auctions of off-therun bonds will probably increase.

For an increasing number of issuers this will affect the regularity of the re-openings of benchmark bonds and consequently the timing at which new lines will be brought to the market to replace ageing issues. Also, issuance activity will likely become more dependent on changing market  conditions and on meeting investors’ demands for specific issues which are hard to forecast ex ante.

A detailed look at January, going down country by country,
Our key bond supply assumptions for January 2012 and the major issuance highlights expected during the quarter are summarized below on an issuer by issuer basis.
During the first quarter we expect further re-openings of the o-the-run 2Y, 5Y and 10Y bonds for EUR 5-6bn and we expect a new 2Y Schatz 03/14 to be launched in late February (EUR 6bn). Therefore we expect Germany’s bond issuance in January to total EUR 21bn and to decrease to about EUR 16bn in February and March.
During the quarter we also expect the launch of a new 10Y OAT most likely on Feb-2 (EUR 5.5bn). This, together with regular re-openings of the 2Y, 5Y, 10Y and longer dated benchmark issues as well as an extensive tapping activity of off-the-run bonds as in 2011 should result in a monthly supply of about EUR 18-19bn in February and March. A new 15Y line could be launched in Q2.
During the quarter we expect the launch of a new 5Y BTP in February (EUR 4-5bn). After the EUR 16- 17bn issuance volume expected in January, Italy’s supply is expected to rise to EUR 18-19bn in February and March due to the heavy bond redemptions of about EUR 26bn and 27bn expected in second and third month of the quarter.
During the quarter we expect the launch of a new 3Y Bono, most likely in February (EUR 4bn). Spanish supply is expected to average between EUR 7-9bn in the remaining months of the first quarter.
The Netherlands also announced a tap of the DSL 01/17 which has been scheduled for February 14 and a tap of the new DSL 04/15 for March 13 (EUR 3.5bn expected for each tap). In addition Holland will launch a new 10Y DSL and a new 20Y DSL in the first quarter. Given the absence of off-the-run tap auctions in the Dutch supply calendar in February and March, we expect the new 10Y DSL to be issued via DDA in late February and the new 20Y DSL to be sold via DDA in late March for a likely EUR 5-6bn each. As a result Dutch supply should total EUR 6bn in January and EUR 9.5bn and 8.5bn in February and March, respectively.
And the non-cores:
  • Belgium: We expect Belgium to launch a new 10Y OLO via syndication in January (EUR 5bn), therefore no tap auctions should be expected during the month. After this, Belgium is likely to reopen its 5Y, 10Y and 15Y benchmarks as well as off-the-run issues for an amount of around EUR 2.5bn per month.
  • Austria: We expect Austria to launch a new 30Y RAGB via syndication in January for a likely initial outstanding of EUR 4bn, replacing the old 30Y RAGB 03/37. The current 5Y, 10Y and 15Y RAGBs still have relatively small outstanding amounts of EUR 7-8bn and are therefore expected to be tapped regularly throughout the quarter, possibly in combination with small off-the-run lines with lower outstanding amounts for an average monthly volume of around EUR 1.5bn per month.
  • Finland: In the first quarter Finland may sell an additional EUR 1.5bn of the current 5Y RFGB 1.875% 04/17 which was launched in September and we also expect the launch of a longer dated issue (most likely a 10Y bond) in mid March for an expected EUR 4bn. Finland is likely to sell 2 new benchmark bonds in 2012 (one in H1 and one in H2, the latter being most likely a new 5Y bond) and to hold 4 tap auctions during the year. The 5Y bond could be re-opened further by EUR 1bn in H1 to reach a final outstanding of EUR 6.5bn while the remaining 2 taps would increase the outstanding amount of the two lines launched in 2012.
Needless to say, the biggest problem for Europe is that unlike other countries, the bulk of the issuance is not to fund net debt (thus new "growth" however Keynesians define this), but merely to roll existing debt, which does nothing for incremental ecnomic growth, but merely avoids systemic insolvency. Alas, as rates keep on creeping higher and higher, this is with 100% certainty a game that the status quo will lose.
Furthermore, with France just announcing the highest unemployment rate since 1999, the realization that newincremental debt has to be issued will dawn quite soon. Alas, with everyone already monetizing their own, the only option will be for the ECB to join the party. Which is why we are confident that the ECB will, if not so much to bail out its banks, as to provide bond demand of last resorts (also known as monetization), very soon enter the printing party. Luckily, by now we are confident all readers know what the natural hedge to a resumption of the race to the bottom is.



Sales in the USA are not too good.  Let's look at Sears with collapsing margins and the closing of many stores including its 100% owned KMart).  Here are two zero hedge commentaries on the plight of Sears:

(courtesy zero hedge)

Thanksgiving Day Massacre: Sears Slaughtered On Collapsing Margins, To Shutter Hundreds Of Stores, Provides Revolver Update

Tyler Durden's picture



That retailer Sears, aka K-Mart, just preannounced what can only be described as catastrophic Q4 results should not be a surprise to anyone: after all we have been warning ever since the "record" thanksgiving holiday that when you literally dump merchandize at stunning losses, losses will, stunningly, follow. Sure enough enter Sears. What we, however, are ourselves stunned by is that as part of its preannouncement, Sears has decided it would be prudent to provide an update on its credit facility status as well as availability. As a reminder to anyone and everyone - there is no more sure way of committing corporate suicide than openly inviting the bear raid which always appears whenever the words "revolving credit facility" and "availability" appear in the same press release. Just recall MF Global. And here, as there, we expect shorting to death to commence in 5...4...3...
Sears Holdings Corporation ("Holdings,"  "we," "us," "our," or the "Company") (Nasdaq: SHLD - News) today is providing an update on its quarter-to-date performance and planned actions to improve and accelerate the transformation of its business. 
Comparable store sales for the eight-week ("QTD") and year-to-date ("YTD") periods ended December 25, 2011 for its Kmart and Sears stores are as follows:
QTD
YTD
Kmart
-4.4%
-1.8%
Sears Domestic
-6.0%
-3.3%
Total
-5.2%
-2.6%
Kmart's quarter-to-date comparable store sales decline reflects decreases in the consumer electronics and apparel categories and lower layaway sales.  Sears Domestic's quarter-to-date sales decline was primarily driven by the consumer electronics and home appliance categories, with more than half of the decline in Sears Domestic occurring in consumer electronics.  Sears apparel sales were flat and Lands' End in Sears stores was up mid-single digits.
The combination of lower sales and continued margin pressure coupled with expense increases has led to a decline in our Adjusted EBITDA.  Accordingly, we expect that our fourth quarter consolidated Adjusted EBITDA will be less than half of last year's amount.  For reference, last year we generated $933 million of Adjusted EBITDA in the fourth quarter ( $795 million domestically and $138 million in Canada ). 
Due to our performance in 2011 we expect that we will record in the fourth quarter a non-cash charge related to a valuation allowance on certain deferred tax assets of $1.6 to $1.8 billion .  Although a valuation adjustment is recognized on these deferred tax assets, no economic loss has occurred as the underlying net operating loss carryforwards and other tax benefits remain available to reduce future taxes to the extent income is generated.  Further, we may recognize in the fourth quarter an impairment charge on some goodwill balances for as much as $0.6 billion .  These charges would be non-cash and combined are estimated to be between $1.6 and $2.4 billion . 
"Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model. These actions will better enable us to focus our investments on serving our customers and members through integrated retail – at the store, online and in the home," said Chief Executive Officer Lou D'Ambrosio.  Specific actions which we plan to take include:
  • Close 100 to 120 Kmart and Sears Full-line stores.  We expect these store closures to generate $140 to $170 million of cash as the net inventory in these stores is sold and we expect to generate additional cash proceeds from the sale or sublease of the related real estate.  Further, we intend to optimize the space allocation based on category performance in certain stores.  Final determination of the stores to be closed has not yet been made.  The list of stores closing will be posted atwww.searsmedia.com when final determination is made.
  • Excluding the effect of store closures, we currently expect to reduce 2012 peak domestic inventory by $300 million from the 2011 level of $10.2 billion at the end of the third quarter as a result of cost decreases in apparel, tighter buys and a lower inventory position at the beginning of the fiscal year.
  • Focus on improving gross profit dollars through better inventory management and more targeted pricing and promotion. 
  • Reduce our fixed costs by $100 to $200 million .
In addition to the specific store closures listed above, we will carefully evaluate store performance going forward and act opportunistically to recognize value from poor performing stores as circumstances allow.  While our past practice has been to keep marginally performing stores open while we worked to improve their performance, we no longer believe that to be the appropriate action in this environment.  We intend to accentuate our focus and resources to our better performing stores with the goal of converting their customer experience into a world-class integrated retail experience.
We currently expect the store closure and inventory reduction actions to reduce peak inventory in 2012 by $500 to $580 million and reduce our peak borrowing need by $300 to $350 million in 2012 from levels that may have resulted in 2012 without such actions. 
At December 23rd , we had $483 million of borrowings outstanding on our domestic revolving credit facility leaving us with over $2.9 billion of availability on our revolving credit facilities ( $2.1 billion on our domestic facility and $0.8 billion on our Canadian facility).  There were no borrowings outstanding last year at this time.
During the fourth quarter through December 23, 2011 , we have not repurchased any of our common shares under our share repurchase program.  As of December 23, 2011 , we had remaining authorization to repurchase $524 million of common shares under the previously approved programs.

The Chickens Have Finally Come Home To Roost At Sears

Reggie Middleton's picture





In January of 2009 (nearly three years ago, which is ironic), I went bearish on Sears due to a variety of reasons, the least of which was less than competent management (hedge fund managers don't necessarily make good department store managers), macro conditions and fundamentals sloped towards hell. Although this was initially a very profitable trade, the rip roaring bear market rally of 2009 shredded the short profits - turning them into losses if uncovered, and simutaneously disguised the many issues that we brought up in our initiail short analysis. Well, you can run but you can't hide, and the truth will ultimately rear its head. On that note...
Sears Holdings plans to close between 100 and 120 Sears and Kmart stores after poor sales during the holidays, the most crucial time of year for retailers.
In an internal memo Tuesday to employees, CEO and President Lou D'Ambrosio said that the retailer had not "generated the results we were seeking during the holiday."The closings are the latest and most visible in a long series of moves to try to fix a retailer that has struggled with falling sales and shabby stores.
Sears Holdings Corp. said it has yet to determine which stores will close but said it will post on the list online when it's compiled. Sears would not discuss how many, if any, jobs would be cut.
The news sent shares of Sears [SHLD  36.50    -9.35  (-20.39%)   ] to their lowest point in more than three years, and it was posting the biggest percentage decline in the S&P 500 Index.
Sears Holdings Corp., the retailer controlled by hedge-fund manager Edward Lampert, tumbled the most in... Sears fell (SHLD) 18 percent to $37.65 at 9: 42 a.m. in New York,...
As shoppers may realize, the retail store is at a disadvantage this year for sales activity has simply been weak. Thus,  U.S. Stores Ramp Up Bargains as Sales Lag. I discussed the effects of this on retail malls last week in The Greatest Risk To Retail Commercial Real Estate Is? Sovereign Debt! Macro Headwinds! Popping Bubbles! Busted Banks! No, It's The Internet! The kicker is the effect on Sears will be most exaggerated since it has real estate, fundamental, macro, industry induced and management issues to deal with as well as the paradigm shift towards internet shopping (which it should have been able to hedge with Sears.com and Kmart.com, alas this brings us back to the management issues, doesn't it?. BoomBustBlog subscribers, please refresh your memories by downloading the following...
 Those who don't subscriber can view the 4 page preview below.

America Maxes Out Its Credit Card Again - Treasury To Raise Debt Limit By Another $1.2 Trillion On December 30

Tyler Durden's picture





You didn't think US consumer confidence could be bought for free now did you?
  • U.S. TREASURY SAYS DEBT LIMIT TO BE RAISED BY $1.2 TRILLION
  • U.S. DEBT TO BE $100 BLN WITHIN LIMIT ON DEC. 30, TREASURY SAYS
  • STEPS FOR INCREASING DEBT LIMIT UNDER 2011 BUDGET CONTROL ACT
And the piece de resistance that 100% debt to GDP brings:
  • OBAMA ON DEC. 30 LIKELY TO ASK CONGRESS TO RAISE DEBT LIMIT
Just as we thought the circus was over if only for a few weeks...
Jim Sinclair’s Commentary
Until you feel there is a route to some cure of the Western world debt problems, gold remains the financial insurance policy that will function.
Obama to ask for debt limit hike: Treasury official
WASHINGTON (Reuters) – The White House plans to ask Congress by the end of the week for an increase in the government’s debt ceiling to allow the United States to pay its bills on time, according to a senior Treasury Department official on Tuesday.
The approval is expected to go through without a challenge, given that Congress is in recess until later in January and the request is in line with an agreement to keep the U.S. government funded into 2013.
The debt is projected to fall within $100 billion of the current cap by December 30, when the United States has $82 billion in interest on its debt and payments such as Social Security coming due. President Barack Obama is expected to ask for authority to increase the borrowing limit by $1.2 trillion, part of the spending authority that was negotiated between Congress and the White House this summer.

Biggest 2 Month Jump In Confidence Since May 09 As Housing Drops To March 03 Levels

Tyler Durden's picture





As if we needed yet further evidence of the dichotomous macro data that seems to provide as much bearish fodder as bullish decoupling confidence, today sees a near-record two-month jump in conference board confidence at the same time as S&P/Case-Shiller prints at a seasonally-adjusted 103 month low. With the Richmond Fed also missing expectations (though positive), we remain in the miasma of CONfidence uninspiring macro data as the underlying sub-indices of the conference board data show little to no shift in purchasing decisions despite some seemingly incredulous ramp in confidence that incomes will rise more than they decline in the next six months.
The 2-month percentage change in the Conference Board's headline confidence data is the second largest on record - only beaten by the jump out of the March 09 lows, expectations for a continuing trend seem extremely unlikely given previous jumps. Furthermore, this shift still leaves us below the Feb 2011 post crash highs.
All the while, house prices continue to fall - now at lows not seen since March 2003.

Charts: Bloomberg

China, Japan to Back Direct Trade of Currencies


Japan and China will promote direct trading of the yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said.
Japan will also apply to buy Chinese bonds next year, allowing the investment of renminbi that leaves China during the transactions, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday. Encouraging direct yen- yuan settlement should reduce currency risks and trading costs, the Japanese and Chinese governments said.
China is Japan’s biggest trading partner with 26.5 trillion yen ($340 billion) in two-way transactions last year, from 9.2 trillion yen a decade earlier. The pacts between the world’s second- and third-largest economies mirror attempts by fund managers to diversify as the two-year-old European debt crisis keeps global financial markets volatile.
“Given the huge size of the trade volume between Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations,” said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd.

Currency Swap

China also announced a 70 billion yuan ($11 billion) currency swap agreement with Thailand last week as part of a plan outlined in October to promote the use of the yuan in the Association of Southeast Asian Nations and establish free trade zones.
Central banks from Thailand to Nigeria plan to start buying yuan assets as slowing global growth has capped interest rates in the U.S. and Europe.
The move by China and Japan to strengthen market cooperation “benefits the ease of trade and investments between the two countries,” Chinese Foreign Ministry spokesman Hong Lei said today in Beijing. “It strengthens the region’s ability to protect against risks and deal with challenges.”
The yuan traded in Hong Kong’s offshore market gained 0.5 percent offshore last week and touched 6.3324 per dollar, the strongest level since trading started in July 2010. Its discount to the exchange rate in Shanghai narrowed to 0.1 percent, from a record 1.9 percent on Sept. 23.

Yuan Gains

The yuan gained 0.05 percent in Shanghai to 6.3330 per dollar today and was little changed at 6.3450 in Hong Kong. It strengthened 4.3 percent this year, the best-performing Asian currency excluding the yen. The currency is allowed to trade 0.5 percent on either side of that rate. The yuan is a denomination of the renminbi.
Japan exported 10.8 trillion yen to China in the year through November, and imported 12 trillion yen, according to Ministry of Finance data. The deficit with China widened to 1.2 trillion yen, from 418 billion yen in January-to-November 2010. About 60 percent of the trade transactions are settled in dollars, according to Japan’s Finance Ministry.
Finance Minister Jun Azumi said Dec. 20 buying of Chinese bonds would help reveal more information about financial markets in China. Noda said in September 2010, when he was finance minister, that Japan should be able to invest in China given that its neighbor buys Japanese debt. Japan holds $1.3 trillion of foreign-currency reserves, the world’s second largest after China’s $3.2 trillion.

Chinese Debt

Investing in Chinese debt has become easier for central banks as issuance of yuan-denominated bonds in Hong Kong more than tripled to 112 billion yuan ($18 billion) this year and institutions were granted quotas to invest onshore. Japan will start to buy “a small amount” of China’s bonds, a Japanese government official said on condition of anonymity because of the ministry’s policy, without elaborating.
China sold the second-biggest net amount of Japanese debt on record in October as the yen headed for a postwar high against the dollar and benchmark yields approached their lowest levels in a year. It cut Japanese debt by 853 billion yen, Japan’s Ministry of Finance said on Dec. 8.
Separately, the Japan Bank for International Cooperation, JGC Corp., Mizuho Corporate Bank Ltd., the Export-Import Bank of China and other Chinese companies will establish a $154 million fund to invest in environment-related businesses such as recycling and energy, the Japanese government said.
To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net.


end.
By Toru Fujioka - Dec 26, 2011 4:55 AM ET


(courtesy Bloomberg)

China clamps down on gold trading frenzy


(Reuters) - Gold exchanges in China outside of two in Shanghai are to be banned, authorities said in a statement released on Tuesday.

Gold exchanges have mushroomed across China, from the northern port city of Tianjin to Guangxi bordering Vietnam, as spot prices in the precious metal have soared to record highs and speculation has boomed.
"No local authority, institution or individual is allowed to set up gold exchanges," said the notice dated December 20 and jointly issued by the People's Bank of China, the Ministry of Public Security and other regulators.
<
The notice -- published on the central bank website (www.pbc.gov.cn) -- said the Shanghai Gold Exchange and the Shanghai Futures Exchange are enough to meet domestic investor demand for spot gold and futurestrading.
Existing exchanges or "platforms" were told to stop offering new services.
The PBOC cited lax management, irregular activities and evidence of illegality which were causing risks to emerge, as the reasons for taking the decision.
The central bank said it would lead a team to clear up the mess -- gold exchanges will be altered or closed, banks will stop providing clearing services to them; and some people will be put under police investigation, PBOC said.
An official at the Beijing Gold Exchange Centre, who declined to be identified, told Reuters over the phone that the exchange has not received any detailed instructions.
"But the talk of a crackdown has been going on for a while," he said. "Of course, this affects our business."
(Reporting by Zhou Xin and Koh Gui Qing; Editing by Nick Edwards)

end.



The following is a great commentary form Gonzalo Lira on what the collapse of MF Global means:
a run on the global banking system due to lack of confidence!

(courtesy Gonzalo Lira)

Guest Post: A Run On The Global Banking System - How Close Are We?

Tyler Durden's picture





Guest Post via Gonzalo Lira
Nine weeks after its bankruptcy, the general public still hasn’t quite realized the implications of the MF Global scandal.
My own sense is, this is the first tremor of the earthquake that’s coming to the global financial system. And how the central banks and financial regulators treated the “Systemically Important Financial Institutions” that had exposure to MF Global—to the detriment of the ordinary, blameless customer who got royally ripped off in its bankruptcy—is both the template of how the next financial crisis will be handled, and an accelerator that will make the next crisis happen that much sooner.
So first off, what happened with MF Global?
Simple: It went bankrupt—because it made bad bets on European sovereign debt, by way of leveraging positions 100-to-1. Yeah, I know: Stupid. Anyway, they went bankrupt—which in and of itself is no big deal. It’s not as if it’s the first time in history that a brokerage firm has gone bust. But to me, the big deal in this case was the way the bankruptcy was handled.
Now there are several extremely serious aspects to the MF Global case: Specifically, how their customers were shut out of their brokerage accounts for over a week following the bankruptcy, which made it impossible for those customers to sell out of their positions, and thus caused them to lose serious money; and of course how MF Global was more adept than Mandrake the Magician at making money disappear—about $1 billion, in fact, which still hasn’t turned up. These are quite serious issues which merit prolonged discussion, investigation, prosecution, and ultimately jailtime.
But for now, I want to discuss one narrow aspect of the MF Global bankruptcy: How authorities (mis)handled the bankruptcy—either willfully or out of incompetence—which allowed customer’s money to be stolen so as to make JPMorgan whole.
From this one issue, it seems clear to me that we can infer what will happen when the next financial crisis hits in the nearterm future.
Brokerage firms hold clients’ money in what are known as segregated accounts. This is the money that brokerage firms hold for when a customer makes a trade. If a brokerage firm goes bankrupt, these monies are never touched—because they never belonged to the firm, and thus are not part of its assets.
Think of segregated accounts as if they were the content in a safety deposit box: The bank owns the vault—but it doesn’t own the content of the safety deposit boxes inside the vault. If the bank goes broke, the customers who stored their jewelry and pornographic diaries in the safe deposit boxes don’t lose a thing. The bank is just a steward of those assets—just as a brokerage firm is the steward of those customers’ segregated accounts.
But when MF Global went bankrupt, these segregated accounts—that is, the content of those safe deposit boxes—were taken away from their rightful owners—that is, MF Global’s customers—and then used to pay off other creditors: That is, JPMorgan.
(The mechanics of how this was done are interesting, but insanely complicated, and ultimately not relevant to this discussion. To grossly simplify, MF Global pledged customer assets to JPMorgan, in a process known as rehypothecation—customer assets which MF Global did not have a right to. Needless to say, JPMorgan covered its ass legally. Ethically? Morally? Black as night.)
This was seriously wrong—and this is the source of the scandal: Rather than being treated as a bankruptcy of a commodities brokerage firm under subchapter IV of the Chapter 7 bankruptcy law, MF Global was treated as an equities firm (subchapter III) for the purposes of its bankruptcy.
Why does this difference of a single subchapter matter? Because in a brokerage firm bankruptcy, the customers get their money first—because after all, it’s theirs—while in an equities firm bankruptcy, the customers are at the end of the line.
In the case of MF Global, what should have happened was for all the customers to get their money first. Then everyone else—including JPMorgan—would have picked over the remaining scraps. And the monies MF Global had already pledged to JPMorgan? They call it clawback for a reason.
The Chicago Mercantile Exchange, which handled the bankruptcy, should have done this—but instead, the Merc was more concerned with making JPMorgan whole than with protecting the money that rightfully belonged to MF Global’s 40,000 customers.
Thus these 40,000 MF Global customers had their money stolen—there’s no polite way to characterize what happened. And this theft was not carried out by MF Global—it was carried out by the authorities who were charged with handling the firm’s bankruptcy.
These 40,000 customers were not Big Money types—they were farmers who had accounts to hedge their crops, individuals owning gold (like Gerald Celente—here’s his account of what happened to him)—
—in short, ordinary investors. Ordinary people—and they gotscrewed by the regulators, for the sake of protecting JPMorgan and other big fry who had exposure to MF Global.
That, in a nutshell, is what happened.
Now, what does this mean?
It means that nobody’s money is safe. It means that regulators care more about protecting the so-called “Systemically Important Financial Institutions” than about protecting Ordinary Joe investors. It means that, when crunchtime comes, central banks and government regulators will allow SIFI’s to get better, and let the Ordinary Joes get fucked.
So far, so evil—but here comes the really troubling part: It is an open secret that there are more paper-assets than there are actual assets. The markets are essentially playing musical chairs—and praying that the music never stops. Because if it ever does—that is, if there is ever a panic, where everyone decides that they want their actual asset instead of just a slip of paper—the system would crash.
And unlike with fiat currency, where a central bank can print all the liquidity it wants, you can’t print up gold bullion. You can’t print up a silo of grain. You can’t print up a tankerful of oil.
Now, question: When is there ever a panic? When is there ever a run on a financial system?
Answer: When enough participants no longer trust the system. It is the classic definition of a tipping point. It’s not that all of the participants lose faith in the system or institution. It’s not even when most of the participants lose faith: Rather, it’s when a mere some of the participants decide they no longer trust the system that a run is triggered.
And though this is completely subjective on my part—backed by no statistics except scattered anecdotal evidence—but it seems to me that MF Global has shoved us a lot closer to this theoretical run on the system.
As I write this, a lot of investors whom I know personally—who are sophisticated, wealthy, and not at all the paranoid type—are quietly pulling their money out of all brokerage firms, all banks, all equity firms. They are quietly trading out of their paper assets and going into the actual, physical asset.
Note that they’re not trading into the asset—they’re simply exchanging their paper-asset for the real thing.
Why? MF Global.
“The MF Global scandal has made it clear that the integrity of the system has disappeared,” said a good friend of mine, Tuur Demeester, who runs Macrotrends, a Dutch-language newsletter out of Brugge. “The banks are insolvent, the governments are insolvent, and all that’s left is for the people to realize what’s going on—and that will start a panic.”
He hit it on the head: Some of the more sophisticated people—like Tuur, like some of my acquaintances, (like myself, frankly)—have realized that the MF Global scandal means that there is no safety for any paper investment: The integrity of the systems has been completely shattered. If in the face of one medium-sized brokerage firm going under, the regulators will openly allow ordinary people to be ripped off for the sake of protecting the so-called “Systemically Important Financial Institutions”—in this case JPMorgan—what will happen if there is a system-wide run? What if two or three MF Globals happen simultaneously?
Will they protect the citizens’ money? Or will they protect the “Systemically Important Financial Institutions”?
I think we know the answer.
And I think we all know the answer to the question of whether there will be crisis flashpoint in the near-term future: After all, as Demeester pointed out, all the banks and all the governments are broke.
Thus it’s only a matter of time before they come for your money.
At SPG, we’ve been putting together Scenarios for other black swan events which are becoming increasingly likely: What to do if the eurozone breaks up, what to do if you have to leave America, what to do if there is an Israeli-Iranian war, what to do if there is forced dollar devaluation, and so on.
Now, because of this open kleptocracy and cronyism being shown by the financial authorities in the wake of the MF Global bankruptcy, we’ve been obliged to put together a new Scenario, devoted exclusively to preparing for a run on the markets: What to do in order to protect your assets from regulatory malfeasance, if there is a system-wide MF Global-type breakdown and a subsequent run on the entire financial system.
And there will be such a run on the system: It’s only a matter of time. In fact, the handling of the MF Global affair has sped up the timeframe for this run on the system, because the forward-edge players—such as Demeester, myself, and my other acquaintances who understand the implications of the bankruptcy—realize that the regulators will side with the banksters, and not the ordinary investors: So we are preparing accordingly.
Once there is a full-on panic, anyone with money in the system will lose at least a big chunk of it, in one of two ways, or a combination thereof:
• One, the firms—commodities brokerage firms, equity firms, investment banks and commercial banks—will not allow people to withdraw the totality of their money, and/or they will put a withdrawal cap of some sort, enforced by the central banks and other regulatory bodies. (Like they did in Argentina.)
• Two, the central banks will “provide liquidity”—that is, print money—while simultaneously declaring a banking holiday to, quote, “calm the markets”. During that bank holiday, the currency will be devalued by double digits—which will mean that your cash holdings will essentially be taxed to save the banksters—again. (Like they did in Argentina.)
Thus apart from proving that the United States really is Argentina with nukes, the MF Global bankruptcy has proven something crucial: The central banks and government regulators have completely fallen into the trap of confusing the welfare of the “Systemically Important Financial Institutions” with the welfare of the system itself. They don’t seem to realize that the SIFI’s are actors within the system—not the system itself.
We critics of the current, corrupt state of affairs also sometimes confuse the SIFI’s with the system itself, whenever we say, “The whole system is corrupt!”
But the system is not corrupt—it’s the regulators and SIFI’s who are corrupt. If nothing else, the handling of the MF Global bankruptcy has proven that, once and for all. That’s why we’re pulling out our money now—while we still can.
Because once the general public catches on to what we already know . . . oh boy.

If you’re interested, check out the SPG preview page. The various Scenarios I discussed above (”When the Euro Breaks”, ”Exit America”, ”An Israeli-Iranian War”, etc.) are currently available. The Scenario discussing how to protect assets from a system-wide run will appear on January 20.

end

As many of you know, Iran is having a 10 day war games.  On top of this, the west is increasing sanctions against Iran.  Now this:


IRAN: ‘Not A Drop Of Oil Will Pass Through The Strait’ If Sanctions Increase Robert Johnson | Dec. 27, 2011, 10:26 AM
Three days into their 10-day naval exercise, Iran announced it will shut the Strait of Hormuz and close off nearly one-third of all tanker-carried oil if sanctions against its own oil exports are enforced.
Al-Arabiya News reports Iranian Vice President Ahi Rah imi said “If sanctions are adopted against Iranian oil, not a drop of oil will pass through the Strait of Hormuz."
“We have no desire for hostilities or violence … but the West doesn’t want to go back on its plan” [to impose sanctions], he said.
The most recently imposed sanctions on Iran fell in November, which prompted the British embassy in Tehran to be stormed by militia members. But the U.S. is leading a push to restrict Iran’s oil exports, as well, which would cripple its national economy.
On December 1, the U.S. Senate sanctioned the Central Bank of Iran, a first step in limiting crude export.
Indira A.R. Lakshaman and Asijylyn at Businessweek report:
The Senate measure would give the Obama administration power to bar foreign financial institutions that do business with the central bank from having correspondent bank accounts in the U.S. If enacted, it could be much harder for foreign companies to pay for oil imports from Iran, the world’s third largest exporter of the commodity.
end

I am going to leave you with this dandy of a commentary from Gordon Long
where the author states that the real problem in Europe is a shortage of real collateral.
This has been caused by:

The  contraction of high quality collateral is basically caused by 4 major factors:
1. Wholesale lending contraction
2.  Bank Runs
3,  Massive contraction in the shadow banking system.
4. Global Investors Pulling out of their investments in Euroland.

all of the above we have discussed in detail in prior commentary.  The author puts it together for us.
The paper is long so take your time.





ECB's LTRO Won't Stop Collateral Contagion!


-- Posted Tuesday, 27 December 2011 | Share this article | Source: GoldSeek.com

(The unabridged research report can be found at GordonTLong.com.)

How long can the European media keep the EU credit implosion a secret? The disgraced former IMF Director, Demonic Strauss Kahn said on Tuesday December 12th, 2011 that No 'Firewall' Exists and Europe Has 'Only Weeks'.  Of course within minutes of this Financial Times news release which detailed his vent on EU leadership and the perilous situation in Europe, the article disappeared.
The details of the European liquidity crisis are generally reported, but for some reason no media source wants to pull the pieces together so everyone can see the magnitude and futility of the crisis. A growing Collateral Contagion is being shrouded in the apparent belief that the solution to the European Financial and Banking crisis is a grand change in Treaty governance.  Obviously the European Central Bank (ECB) was well aware of the reality, when it was forced to deploy a historic and unprecedented LTRO (Long Term Purchase Operations) on Wednesday December 21, 2011.  560 banks desperately and immediately grabbed what they could, to the tune of €489B.
The LTRO bought the EU private banks some time. It did nothing to solve the EU Sovereign Debt Crisis. After less than one week, the cash held at the ECB surged €133B to a new record €347B. Since the net LTRO was only €210B, it tells you that the EU banks not only have a cash problem, but more specifically, as ECB President Mario Draghi says : "hoarding at the ECB signals that the problem afflicting the Eurozone is not so much about the amount of liquidity but that this liquidity is not circulating around the region's banks".
I would argue that the problem short term is a shortage of real collateral and that US dollar cash, versus 'encumbered' cash flow, is now king. It is clear that the rampant advancing Collateral Contagion will quickly eat this futile attempt like ravenous wolves.  A well circulated Tweet from PIMCO bond king Bill Gross said it all: " What does LTRO stand for? 1- A shell game; 2-Cash for trash; 3 Three-card Monti; or 4. All of the above."
Here is the stark reality of what forced the ECB to offer unprecedented three year loans at absurd rates and most alarmingly, the acceptance of collateral that no other financial institutions will accept. The ECB has sacrificed its balance sheet in yet another EU "kick at the can".
1.    COLLATERAL CONTAGION: There is a cascading Collateral Contagion crisis in which secured lending, based on sound assets, has replaced unsecured lending based on future expected cash flows.
2.    WHOLESALE LENDING: Wholesale bank lending, which is a unique cornerstone of European banking, has completely frozen since the failure of Dexia and US Money Market Funds will no longer risk short term capital having learned their lesson in 2008.
3.    BANK RUNS: Bank Runs are quietly and insidiously occurring throughout the peripheral EU countries as corporate and private depositors seek safe havens for their cash holdings.
4.    SHADOW BANKING SYSTEM: The European Shadow Banking System off balance sheet and unreported leverage structures, such as SIV (Structured Investment Vehicles) is collapsing due to non performing loans which must finally be rolled nearly 3 years since the financial crisis began.
5.    GLOBAL INVESTORS PULLING SOVEREIGN EU INVESTMENTS: Net outflows from the euro-zone’s financial account reached €32.1 billion in October alone, on an unadjusted basis. The drop reflects the sale by foreign investors of €53.3 billion in euro-zone debt instruments and €6.6 billion in equities.
6.    INTERBANK LENDING: Prior to LTRO, overnight interbank lending was impaired as LIBOR, LIBOR-OIS and TED spread yields were going almost straight up on a percentage change basis.
7.    INVERTED YIELD CURVES: Prior to LTRO, yield curves in the EU peripheral countries were either inverted or nearing inversion prior to LTRO.
8.    US DOLLAR SWAPS: A shortage of US dollar denominated loans forced the US federal Reserve and other global central banks to intervene and offer what is turning out to be unlimited US dollar SWAPs for minimal interest rates and unprecedented, extended durations, not previously considered.
9.    SOVEREIGN BOND MARKET: The EU Sovereign Bond Market is being avoided by almost all Global financial institutions. The only participant are Central Banks desperate to buy more time until confidence is restored.
10. GERMAN BUND SCARE: You cannot have a currency without a risk free bond. The German Bund had become a proxy for this, but recently even the Bund has come under pressure as selling escalated in a flight from Europe.
11. YEN CARRY TRADE: The YEN Carry Trade which has been a major financing source for the EU, even prior to its inception, is being forced to unwind due to a significantly weakening Euro and the threat of a serious drop.
12. BASEL BOX: The Tier 1 Core Capital requirements have forced many banks to actually shrink lending to meet requirements. A significant withdrawal from lending in Central and Eastern Europe and many Emerging countries is now clearly seen as a direct result.
13. CREDIT DOWNGRADE ONSLAUGHT: S&P placed the long-term sovereign-debt ratings of 15 euro-zone nations, including struggling Italy and Spain, on negative watch. That typically means there is at least a 50% chance of a downgrade within 90 days. France is likely to soon lose its coveted AAA rating, which will impact the European Financial Stability Fund (EFSF) borrowing costs.
The list is even longer, but it will need to suffice for this shorter article.
The above issues suggests, minimally, an immediate  €4-8 Trillion EU problem.
The EU has no ability to solve this problem short of simply printing Euros, which unlike the US Federal Reserve, Bank of England and Bank of Japan, the ECB presently (I stress presently) refuses to do.
Let's briefly discuss a few of these so we can appreciate the seriousness of the EU problem and what lays behind a first half 2011 surge of $107 TRILLION in derivative SWAPS.
COLLATERAL CONTAGION
Collateral is the grease that oils the lending system.

Large banks typically reuse securities held by them on behalf of large institutional investors such as insurers, pension funds and hedge funds. Banks pledge the assets through various mechanisms such as the securities lending market or the repo market. It is the reuse of securities that lubricates the global financial system.
This reuse, which often cascades through the system, is referred to as "chains of collateral".  According to a recent working paper from the IMF entitled  "Velocity of Pledged Collateral: Analysis and Implications", the chains of collateral have become shorter and there has been a significant decline in the source of collateral. In fact, it is presently estimated that the overall reduction in collateral is between $4T and $5T. According to the IMF, it has been reduced from a peak in 2007 of approximately $10T to $5.8T in 2010. This is no doubt even lower when the final numbers are in for 2011, due to the collapse of European sovereign bonds.
The "turns" or velocity of the movement of this collateral has been reduced from an average of 3 times before the 2008 Lehman collapse to 2.4 times at the end of 2010.
There are a number of reasons for this which include:
1.    Significantly more collateral is being entrusted to global central banks for safe keeping,
2.    Counter party risk is now seen to be of paramount concern due to a breakdown in trust perceptions,
3.    Mounting concerns with creditworthiness of counterparties,
4.    Focus on how partners might use the collateral assigned to them,
5.    Risk manage where financial institutions are 'clipping' or taking 'haircuts' on collateral to create a 'margin of safety' and
6.    Higher core capital banking ratios and changing derivatives trading collateral requirements placed on banks.
 
There are both less and less collateral of high quality available along with a dramatically increased demand for collateral.
We have witnessed a shift from unsecured cash flows as sources of collateral to the requirement for 'secured' collateral. Triple A sovereign debt is no longer considered risk free.
As a result of the above, the transmission mechanism for monetary policy has broken down, fundamentally due to a shift in trust perceptions.
Additionally, risk has increased in the system, because risk has been transferred through new and untested instruments such as 'Liquidity Swaps' and services such as 'Collateral Transformation'.
There is now a massive demand for fresh cash in the EU in the form of €1.7T in maturing debt (ignoring interest payments). When it comes to cash 'supply' or issuance of unsecured debt, the market is now completely and totally dead.
Even as soaring debt, interest rollover and redemption demands mean huge amounts of debt have to be raised.
"Term bank funding issuance has dried up. We are concerned there has been a step change in the availability and pricing of senior unsecured funding given such elevated euro-zone uncertainty and the knock-on to assets supported by unsecured funding." Zero Hedge
In other words: there is no more debt available which is "guaranteed" simply by promises of future cash flow: investors demand asset collateralization for the simple reason that fewer and fewer believe that assets are able to generate the amount of cash represented by a conflicted underwriter syndicate.
Unfortunately, there is nowhere near enough hard assets to fund secured assets at even modest LTVs, and it will only get worse and worse as less and less cash actually goes to regenerating a rapidly depreciating and amortizing asset base.

 
WHOLESALE LENDING

The first nail in the EU coffin was the failure of Dexia, a major Belgium - French bank.  Dexia is representative of the Wholesale banking structure so prevalent across Europe. To understand the significance of Dexia, consider the following.

There are approximately $55T of banking assets in the EU. This compares to only $13T in the US.  Bank Assets in the EU are 4 times as large as the US.

In the US, debt held by the bank is smaller because retail deposits are a primary source of funds. EU banks use wholesale lending and, as a consequence, the debt held by banks is closer to 80% versus less than 20% by US banks.

Wholesale bank lending in the EU approximates $30T versus only $3T in the US, a 10 X differential.

Wholesale lending is fundamentally borrowing from money market funds and other very short term, unsecured instruments. The banks borrow short and lend long. It all works until short term money gets scarce or expensive. Both have occurred in the EU and this recently placed DEXIA into bankruptcy, forcing them to be taken over by the Belgium and French governments. The unsecured bond market fundamentally closed in the EU in Q3 2011, as fears mounted that an EU solution was not forthcoming.

Assuming $30T of loans is spread over three years, EU banks have a requirement for $800B / Month of rollover financing for wholesale lending outstanding.

Where is this money going to come from? No one is waiting around to find out as there will be cascading counterparty failures soon surfacing. Banking money in Europe is fleeing to custodial and official accounts of the ECB, the US Federal Reserve and any other central Bank willing to accept their cash. The chart below graphically shows this flight to perceived central bank safety.

The latest charts show an increase of $4.5T in a one week period.

  
BANK RUNS

BANK RUNS - Unnoticed, Insidious and Persistent

 


There are, as yet relatively unreported, insidious and persistent bank runs occurring across the EU, as money flees the GIIPS and moves to perceived havens of capital safety.

Until recently the safe havens were the EU core and more specifically Germany. That has now changed.

What has not changed is the increasing momentum of the flight of capital and depositor savings. You can't expect governments, banks or regulators to even hint at such actions. It is only through thorough analytics that you can see what is happening.

The chart to the right was put together by the Council of Foreign Relations where they felt that the level of Credit Default Swap pricing was an early indicator of what lay below the headlines. They used Ireland as a benchmark and related it to the possibilities of what might be occurring in Spain.

The second chart (below left) shows the contraction in deposits in Greece and early signs of changes in Italy. Both these charts are seriously outdated.  

The chart (below right) of plummeting Italian M1, M2 and M3 Money Supply gives a more up to date indication, but still dated.

 
  
Below is a chart of M1 (bank deposits) where all the GIIPS are compared. DEPOSITS ARE PRESENTLY FLEEING THE GIIPS AT AN ACCELERATING RATE.



SHADOW BANKING SYSTEM

As alarming as the following Shadow Banking are, it must be realized they are for only the US. We need to fully appreciate that the US was a factory producing the toxic debt that was at the center of the 2008 Financial Crisis, but the product of these factories was shipped and sold by the 'boatloads' to the EU. It is so broad based, that I wrote a number of research papers in 2010 pointing out the degree to which litigation over them was being seen quietly across Europe at ALL levels of government, which could not absorb the losses they were creating.

 
If the US Shadow banking has seen liabilities collapse by $5T, surely the EU is this and more likely a multiple larger.

 
As Bloomberg and Zero Hedge pointed out, the loosening of rules on ABS as collateral, loosening of collateral criteria for loans, going to 2-3 year loans for banks and allowing more uncovered bonds as collateral for the LTRO was driven by a European Shadow Banking system in "tatters" and imploding.

GLOBAL INVESTORS PULLING INVESTMENTS
The euro zone swung back to a current-account deficit in October after one brief month of positive inflows, as foreign investors continue to relentlessly shed European debt and stocks. The euro zone’s current account — the balance of payments between the 17-member currency bloc and the rest of the world — was a seasonally adjusted deficit of €7.5 billion in October, compared with a €2.2 billion surplus in September.

Net outflows from the euro zone’s financial account reached €32.1 billion in October, on an unadjusted basis. The drop reflects the sale by foreign investors of €53.3 billion in euro-zone debt instruments and €6.6 billion in equities.

This is collateral that is lost to being 'chained' in collateral chains.

INTERBANK LENDING
 
PARIS 12/05/11 - MERKOZY SUMMIT
  “NO HAIRCUTS”
 
INTERBANK LENDING IS NEARLY FROZEN

INVERTED YIELD CURVES
Over the last six weeks, sovereign bond yields, spreads and risk metrics have surged to unprecedented and unfundable levels.

Only recently, with the anticipation of workable solutions coming out of yet another EU Summit on December 9th, 2011 and further ECB buying, have yields fallen back somewhat.

However, the fact is alarming that yield curves across the GIIPS are now inverting.

Money is no longer available to sovereigns even in the short term at acceptable rates, as €300B of debt roll-overs alone come due across the EU.

The scare that is starting to sink in is that there may now be insufficient liquidity in the system to in fact fund rollovers and new sovereign funding requirements in the EU.

Additionally, the ECB is not seen to be injecting sufficient liquidity fast enough.

The funding requirements are also significantly US dollar denominated, which the ECB cannot address without global dollar swap arrangements with other global central banks.

As a result, a massive intervention happened on November 30th to address this urgent problem.

The intervention did not fix the yield curve inversion nor the collateral requirements to access these dollar swap funds.
CONCLUSION
It is very hard to conclude anything other than:
1- EURO BELOW 1.20: The Euro currency is exposed against most currencies and likely headed for a currency cross of less than 1.20 against the US dollar. A cross of 1.15 to 1.20 would not be a surprise. We have already seen technical 'death crosses', suggesting this is in the works as the Euro has broken below its 200 DMA in a downward trend channel.
2-
ECB LEVERAGE 471:1: The ECB borders on insolvency. It cannot monetize sovereign debt (print money for sovereign debt) by treaty law and its stake holders have insufficient assets to pledge in which to place the ECB on sound financial footing.
The ECB's balance sheet is now beyond bloated and is realistically insolvent based on the quality of its collateral.
The paid up Capital of the ECB is €5.2B as of January 2011. The Balance sheet currently approximates €2,450B. This is 471:1. Even using the pledged capital of €10.76B expected to be paid in by 2012, it is still 228:1
Considering a significant amount of the debt is of poor quality and worth significantly below its purchased price, the ECB is technically insolvent.
Even if we were to be ridiculously conservative and use €65B of GIIPS bonds bought by the ECB in 2010 and assuming only a 10% devaluation, we have €6.5B, losses which is more than the paid up capital of the ECB. The insolvency is orders of magnitude worse than this, but you get the point. The ECB cannot withstand much further stress before all of this is called into question.
The argument is always that the ECB cannot be insolvent because it can always print more Euro's. The question I would therefore raise is what is the Euro really worth then? 
Whether: YOU BUY ASSETS,
or you: LEND MONEY ON QUESTIONAL COLLATERAL & LEVERAGE,
the ECB'S BALANCE SHEET SHOWS WHAT IS REALLY GOING ON.
Is the ECB realistically solvent - The 'controlling' German and French owners are incapable of supplying more capital!!!
3- YEN CARRY TRADE -  A FORCED UNWIND:
When you appreciate that the YEN Carry trade was a huge financier of the EU and the Euro, you can appreciate why the above problems has resulted in the Euro plummeting against the YEN. This is forcing unwinding of the Carry Trade, as the currency impact losses are too large to be contained without massive adjustments in OTC SWAPS.
Is this what explains the $107 TRILLION increase in OTC Derivative SWAPS in the first half of Q1 and $88T in interest rate SWAPS alone?
 
FINANCIAL REPRESSION
Let us close by saying that it is critical that you fully appreciate that which would appear as a chaotic situation in Europe is in fact a very well crafted and executed global central bank strategy, using the macro prudential practice of Financial Repression in an attempt to achieve Global Re-Balancing and adjustments in standards of living.  I lay all this out in "Thesis 2012: Financial Repression".
 
Sign-Up 


end.


That ends today's commentary. I will see you tomorrow
Harvey

21 comments:

Anonymous said...

Thanks Harvey for keeping us informed during the slower Christmas/New Period!

themagicbusguy said...

Best regards Harvey. Hope the New Years is good to you. Did the Comex ever release the numbers from Friday?
My thanks to you and everyone who carries the fire.

Anonymous said...

CME has posted data for today's date. Go back and check it again.

SE

Harvey Organ said...

I have now updated the gold and silver inventories and movements.

All I can say is that there is some strange stuff going on inside the Comex

to wit: The last publication prior to tonight was the 22nd of December and we had 2.99 million oz of registered gold.

Tonight we have 2.539 million oz and no entry.

In silver: the total of all silver rises from 113 million oz to 115.29 million oz. I cannot find the entry.

Anonymous said...

http://www.youtube.com/watch?v=HbeBNe3Oml4 Unusual info. on amount available above ground gold/history/lawsuit: possible unfolding new financial system to replace Western-control. 80% world's available gold owned by Asians, not yet monetized in present financial system, but may soon be in new alternate system.

Anonymous said...

Dear HArvey,
I wish you had a nice christmas as well.
You wrote :
"silver Sprott premium is now back into the 20% range as physical silver is being depleted around the globe."
What is exactly this premium to Nav?
Is it the price of silver above 20% comex price?
If yes, why is it so high compared to, say, BullionVault?
If no, can you explain?

Secondly, gold is now below 1600$. Seems paper prices have difficulty to find a support, despite the large buyers mentionned at 1600$ level. I see many of your daily reports claim that this or that is extremely bullish for silver prices, yet silver is now below 30$. Why would it be more bullish now than 2 months ago?
Thanks,

carl can said...

I am to submit a report on this niche your post has been very very helpfull mesa security systems

FunkyMonkeyBoy said...

Harvey,

You've gone and done it again. You've posted the COT data provided by the criminal CME and you've stated to your readership how super bullish it is...

... And then right on que the same criminal entity has smashed the metals down. Same as the last couple of times!

I don't know if it's deliberate on your part, but the cartel are playing you like a fiddle, which in turn means that any acting on your COT overview is also slaughtered.

Knowingly, or unknowly, you've become a useful tool for the cartel.

Anonymous said...

Harvey - thanks for all you do. Two questions above FMB - would love a response as 2 key questions. SGS also notes .... "Only noteworthy stat would be that Sprott's PSLV is still a staggering 21.89% in this market. HUmmm."

Anonymous said...

FMB

You refuse to see the big picture.

The point is you shouldn't give a rats ass about the paper market other than it is CURRENTLY allowing those with some insight to purchase in relatively small quantities physical silver from dealers.

The Reality is, the banks can not keep the paper manipulation up for ever to suppress the price and some of the signs are showing this. There was an article out today about how this pressure cab be linked to even MFGlobals demise.

The problem is, your brain can not expand past today or tomorrow's price and so you are constantly crying like a little baby who needs a binky.

If you think you have proven Harvey is full of it, then just go your way. Oh yea, you want all us to spend time convincing you so you can blame us for your decisions. Please why are you really here? We can see right through you.

Anonymous said...

I am smiling as I see gold and silver being wacked. I just hope the physical market will actually allow us to buy real physical at these paper prices. So far I have not found it. Can anyone find a place I can buy gold or silver at these paper prices. If so please list it so I can buy some. I am buying all the way down!

Anonymous said...

Just like last year. Look at the charts same thing happened last year at this time.

Anonymous said...

Harvey,

There is no use posting CME gold and silver data because it is all false.

Goldman Sachs, J.P. Morgan and HSBC have unlimited money from the Fed to sell gold and silver futures contracts to oblivion.

They are making the Russians, Chinese, Arabs and anyone else look so foolish.

FunkyMonkeyBoy said...

Anonymous,

What a load of nonsense you've written. I buy physical gold and silver but it doesn't stop me thinking critically.

What I pointed out was true, every time Harvey gives HIS OPINION on the COT report as bullish the metals get a right smack down. The powers that be must laugh their ass off every time they release the COT report knowing the likes of Harvey are going to see it as bullish and then get slaughtered.

Also I've noticed that the gold and silver celebrities see the gold and silver price as the paper price when the price is going down, but as the actual price when it's storming up to $50 and $1900 an ounce. If the physical price goes down, which it has, as the 'paper' price goes down then they are essentially the same. Have the last 10 years been purely paper price gains? No. So stop acting like the paper and physical price are two different things, premiums or not, they go up and down together.

Seriously, I think the people that follow the gold and silver celebrities are first class sheep.

Swashbuckler said...

Hello everyone,

Have any of you considered the reason that precious metals is taking a hit is due to the dollars short term strength???

With Europe on fire, and the FED making many many dollar swap deals with Euro nations (as well as printing more money), this is short term bullish for the greenback (US dollar). That translates to a short term bear market for Metals.

Martin Armstrong and Larry Edelson have been calling for a short term pull back for this very reason.

People are selling metals to generate cash to ride the cash bull and hedge up other investments.

Harvey's numbers are legit, but its not Bankster raids whacking paper prices, it is simply investors fleeing metals for the short term to cash.

The bottom in metals will be late January or early February, which is when the Euro and the Dollar should really be in trouble.

Thus, in the mean time, stack physical, and be glad for the short term pull back. This is like the 2008 market crash, it will reverse and blast off after the corrections test their upward potential.

Fundamentals are still in place, and you have about a 30 day timeline, give or take a few, to buy more and then get ready to buckle up and go for a ride through the rest of 2012 into 2013.

Metals are a long term investment. Your not stacking physical to unload it in 6 to 9 months.

If you want to plan for a sure thing, talk to an undertaker. Otherwise keep the fundamentals in sight, and don't freak out about a pull back that offers a buying opportunity to those with dry powder.

Also, to ease your blood pressure, we will likely see $22-24 in silver, and $1350-1450 in gold over the next 15-40 days, before the sail catches wind and begins an upward pull.

FunkyMonkeyBoy said...

Swashbuckler,

Don't worry, every time the prices of the metals heads south the gold and silver celebrities come up with a fresh new reason for the smash in price.

The current theory (which as per usual lacks a lot of evidence) which Harvey seems to be running with presently is jim willies theory that some entity is hold the gold price at $1600 so they can buy a shed load to sell to sovereigns at $1900.

Yes I know it's best not to think too much about that theory as it soon falls apart. Like, I thought physical was neigh on impossible to get in quantity at this price or why don't sovereigns just buy at this price now direct.

All I know is that the cartel are in complete control and are using the silver gold champions like Harvey as effective tools to fleece the sheep using their completely fabricated CME data. This has become self evident.

Anonymous said...

The fact you want to be known as "funky monkey boy" tells me all I need to know. You need to grow a pair and become a man. If you don't think mf global has anything to do with what's going on then you're in the wrong business.
T

Swashbuckler said...

FMB,

With all due respect, has it registered with you that you watched Conspiracy Theory one too many times? Not every drop in the price of metal can be related to bankers whacking the prices.

All markets ebb and flow, and we are seeing a very strong US dollar rally which is suppressing metal prices and pushing people into cash.

Ask yourself how long the dollar can behave in such a manor.

The dollar can be parlayed to a cocaine addict on their death bed: it just got a shot of adrenaline and though it is surging from this short term boost (the Euro problems), complete heart failure is just around the corner.

The US is bankrupt, as is many countries around the world. The federal deficit recently rose to be greater than GDP, more going out than is coming in. That’s the point of no return for most, if not all entities.

State government agencies (the ones with positive budgets) are being bailed out with Federal stimulus project money, when that money runs dry, look out below. We are steps behind the Euro countries.

Even if the bankers are 100% responsible for the price whacks we have seem, I don't care how much the FED loans free money to JP Morgan, HSBC, etc etc, to short the metals market that train will end in a major mess as well.

I do however give you credit for raising interesting points, most importantly paper vs physical prices. They are the same, only separated by consistent premiums on physical.

The difference in physical vs paper is you actually own it, end of story. Check out those at MF that are getting 28% hair cuts on their physical held inventory by the appointed trustee. Lets not even get into the people that were fleeced due to holding paper investments in metals. Hold physical metal, or take your money to the craps table.

Anonymous said...

FMB,

That is the pattern I have noticed from some people. They say, "COT IS super bullish. Wow, look at that," and sure enough, pow, just like this morning. It's not the first time it's happened. I have used this "test of bullishness" a couple of times to gauge the best time to buy more.

As for others wondering what's happening. It's a combination of manipulation and people selling for cash to cover losses and margin calls. See, these people make money both ways, long on the way up and short on the way down. As long ALL the short numbers read anything above zero and CME reports volume, the potential for the price to fall is ALWAYS there. ALWAYS. The manipulation will end when there is NO MORE metal within CME and at COMEX. People selling for cash clearly shows that people still do not treat gold/silver as money. It's still just an asset. What we have to do is break that bad habit, going to paper cash when you freak out. It will take quite some time for that to happen.

SE

Anonymous said...

Game over for gold and silver.

The Banksters sell contracts to each other at lower prices driving down the price with unlimited Fed money.

It's over folks. Get ready for World War III, nuclear war and terrorism of all kinds. It will get so bad, anyone who is alive will wish they were dead.

FunkyMonkeyBoy said...

Anonymous,

Gold is getting smacked in the main currencies, usd, eur, gbp... So the huge smack from the $1900+ high this year cannot be solely attributed to dollar strength.

I think these gold/silver celebrities are part of the problem not the solution. If you're gonna put your opinion out there, like Harvey does with his "this is bullish", "must be cash settlements", "blythe must be having a midnight meeting tonight", type comments... You've got to be prepared to be scrutinized on the comments... Especially when any evidence is lacking.

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