Saturday, May 21, 2011

Gold rebounds solidly/silver follows gold's lead/S and P downgrades French bank Agricole

Good morning Ladies and Gentlemen:

As is my custom on Saturday, let me introduce to you the latest 3 entrants into the banking morgue:

courtesy of PressTV:

Three more U.S. banks have failed, bringing this year's total number of bank failures to 43.

The Georgia Department of Banking and Finance closed Atlantic Southern Bank of Macon, which had $741.9 million in total assets and $707.6 million in deposits; and First Georgia Banking Company ofFranklin, which had $731 million in assets and $702.2 million in deposits.

The Federal Deposit Insurance Corp. was appointed receiver and sold both institutions to CertusBank, NA, of EasleyS.C.

State regulators also shut down Summit Bank of BurlingtonWash., which had $142.7 million in total assets and $131.6 million in deposits. The FDIC was appointed receiver and sold the failed bank's deposits for a 0.75% premium to Columbia State Bank of TacomaWash. The Street


According to the Federal Deposit Insurance Corporation (FDIC), nearly 340 banks have been seized by the government since 2008. The total number of bank failures in 2011 has so far been 43, compared to 157 in 2010, 140 in 2009, 25 in 2008 and just 3 in 2007. FDIC

More than 10 percent of U.S.'s 7,760 banks still are in financial trouble. Raw Story

The Federal Reserve's two rounds of asset purchases total $2.3 trillion, including a 600-billion-dollar stimulus. This is the last stimulus of its kind following the previous 1.7-trillion dollar bond purchase by the Fed in 2009. Bloomberg

Many economists believe the U.S. bailout plan will stoke inflation and make it more difficult to get out of the economic crisis. Curious Capitalist

Friday was option's expiry day and as expected the bankers showed up with their fat little fingers on the sell buttons on both gold and silver.  Massive non backed paper was supplied with one little problem for our bankers--very large buyers took on those giants and overpowered them with huge purchases. 
The net result on Friday had gold finishing the comex session at $1508.80 up $16.60.  In the access market gold resumed its northerly trajectory finishing the day at $1513.50.  Silver finished the comex session at $35.08 for a gain of 16 cents whereas  in the access market it finished the day at $35.06.
Let us head over to the comex and see how trading fared yesterday:

The total comex gold open interest fell by 2038 contracts to 509,970 contracts from Thursday's reading of 512,008.  Thursday saw gold and silver hold despite the raid that everyone predicted due to option's expiry week. We must have lost a few bankers who covered some of their shorts.  The front options expiry month of May saw its OI  fall from 104 to 58 for a loss of 46 contracts.  We had 45 deliveries on Thursday so almost all of the loss was due to those deliveries and we lost only 1 contract to a reporting error or one cash settlement.  All eyes will be focused on the big June delivery month which commences on Monday, June 30 2011.  All monies must be in place on Friday the 27th  of June.  I will report to you on all events in this very important delivery month.  The June month had OI fall from 247,929 to 230,248 which is to be expected as we come closer to the first day notice.  With a week to go, the OI is very high.  The estimated volume at the gold comex yesterday was extremely high at 199,372 with some switches.  The confirmed volume on Thursday, the day of the raid was also high at 214,525.

And now for silver:

The total silver comex OI rose by 641 contracts in total contrast to gold.  The new OI reads 122,613 compared to Thursday's level of 121,972. The front delivery month of May saw its OI fall from 303 to 214 for a drop of 89 contracts.  We had 82 deliveries on Thursday, so we lost 7 contracts to cash settlements as Blythe is getting a little antsy.  She still needs to convert as much physical silver standing to cash settlements  as fast as she can.  The next big delivery month for silver is the July month and today we saw the Oi remain relatively constant at 64,023 contracts.
The estimated volume at the silver comex today was not bad at 68,936 especially when there were no switches. The confirmed volume on Thursday was also in the same ballpark at 67,517.

Here is the chart for 5/21/2011 regarding deliveries and inventory changes at the comex. This will be the start for the May comex month for gold and silver.

Withdrawals from Dealers Inventory
Withdrawals fromCustomer Inventory
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)  today
 3500    (35)
No of oz to be served  (notices)
 2300 (23)
Total monthly oz gold served (contracts) so far this month
 47100  (471)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total acculumulative withdrawal of gold from the Customer inventory this month

Let us begin with gold. In a nutshell: zero activity across the board.
We witnessed no deposits of any kind whether by dealer or customer
and no withdrawals. There were no adjustments. Strange as we are coming 
into one of the biggest delivery months of the year and we see no activity.

The comex folk notified us that we had 35 notices filed for delivery or
3500 oz of gold.  The total number of notices filed so far this total total 471
or 47100 oz. To obtain what is left to be served upon, I take the OI standing
for May  (58) and subtract out Friday's deliveries (35) which leaves us with 23 
notices or 2300 oz of gold to be served upon.

Thus the total number of gold ounces standing in this non delivery month of May
is as follows:

47100 oz (served) +  2300 (oz to be served) =  49400 oz or 1.536 tonnes.
On Thursday we had a reading of: 49,500 oz so we lost 100 oz of gold.
I would like to point out that the accumulative withdrawal of gold by the dealer so far this month remains at 1812 oz.  How on earth are these guys settling with no withdrawals from the dealer?

And now for silver:

Here is the chart for today on the silver movements;


Withdrawals from Dealers Inventory
5081 oz (Brinks.)
Withdrawals from Customer Inventory
66,983 (Scotia,HSBC,Delaware)
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
51,827 (Scotia,Delaware)
No of oz served (contracts)  today
10,000  (2)
No of oz to be served  (notices)
1,060,000  (212)
Total monthly oz silver served (contracts) so far this month
2,565,000  (513)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal of silver from the Customer Inventory this month.

Let us begin:  

We still see no silver enter the dealer in the form of a deposit. The dealer did have a withdrawal of 5081 oz.  However the customer was very busy:

In the deposit category we had these transactions:

1. 48,851 oz enter the Scotia vault.
2. 2,976 oz enter the Delaware vault

total customer deposit:  51,827 oz

There was quite a bit of activity by the customer in the withdrawal category:

1. 24,951 oz leaves a Scotia vault
2. 41,030 oz leaves a HSBC vault
3. 1002 oz leaves a Delaware vault

total withdrawal by the customer:  66,983 oz
Net withdrawal by the customer: 15,156 oz

There was a tiny adjustment whereby 5,126 oz is transferred out of the dealer
and enter the customer in payment of a prior arrangement.

The comex officials notified us that only 2 notices were sent down for delivery
for a total of 10,000 oz.  The total number of notices sent down so far this month
totals 513 for a total of 2,565,000 oz. To obtain what is left to be served, I take
the OI standing for May (214) and subtract out Friday's deliveries (2) which leaves
me with 212 notices or 1,060,000 oz left to be served upon.

Thus the total number of silver oz standing in this delivery month is as follows:
2,565,000 oz (served) +  1,060,000 oz (to be served upon) =   3,625,000 oz.
Yesterday we had a reading of :  3,660,000 oz so we lost 35,000 oz or 12 contracts to cash
The new "official" dealer inventory in silver declines to 32.178 million oz.

Every Saturday, I will also give you the intent to deliver on Monday.  The comex posts this late
in the evening.
In gold, the intent on delivery for Monday is 35 contracts.
In silver, the boys could not find any silver as it is zero.


Let us head over to our ETF's

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.

First GLD inventory changes:  May 21.2011 : 

Total Gold in Trust

Tonnes: 1,201.95
Value US$:

Total Gold in Trust:

May 19.2011
Tonnes: 1,191.34
Value US$:

Total Gold in Trust: May 18

Tonnes: 1,191.34
Value US$:

Our GLD inventory increased by a whopping 10 tonnes of gold. I guess investors
were seeking gold on Friday and this forced the custodians to "buy" 10 tons of gold and place it in their inventory.  In reality, the gold moved from the B. of England's cubby hole to the GLD cubby hole in a swap arrangement. The Bank swaps this gold for cash.  The Bank can reswap this gold at any time they wish. When the music stops, it is shareholders of the GLD that will suffer.

Now let us see inventory movements in the SLV:

May 21.2011:

Ounces of Silver in Trust326,399,527.900
Tonnes of Silver in Trust Tonnes of Silver in Trust10,152.16


Net Asset Value
as of 5/20/2011
  • $-0.93
  • -2.67%

May 19.2011  inventory:

Ounces of Silver in Trust328,057,626.300
Tonnes of Silver in Trust

 Tonnes of Silver in TrustMay 18.2011:

Ounces of Silver in Trust335,860,490.300
Tonnes of Silver in Trust Tonnes of Silver in Trust10,446.43

we lost another massive 16.58 million oz of silver from the SLV. It is almost impossible to move that quantity of inventory in one day.It is a terrible shame that Mary Schapiro of the SEC ignores our calls of fraud in this vehicle.  Please, stay away from buying this crap piece of paper.  You are better off with the Central Fund of Canada and Sprott's PSLV silver fund.

Starting today, I am also going to give you the "Net asset value" of the SLV fund and its discount to NAV. The fund has a discount of 2.67% and has a" net asset value" of $33.94 per oz of silver   

Let us head over to our closed physical funds that we follow: the Central Fund of Canada and Sprott's gold and silver funds:

1. Central Fund of Canada: it is trading at a negative 0.8% in usa funds and negative 0.9% for Cdn funds.
    May 19.2011
2. Sprott silver fund  (PSLV):  Premium to NAV rose to 17.57% positive NAV May 21.2011
3. Sprott gold fund (PHYS): premium to NAV rose to a positive 2.37% to NAV  (May 21.2011)

It is quite clear that the bankers are picking on Central Fund of Canada. They are no doubt angry at the management for buying physical silver and gold for their fund. Let them try and pick on Eric Sprott.  He will bury them.


Let us head over to the latest COT report and see what we can glean from it.

Here is the official report courtesy of

First the GOLD COT:

Gold COT Report - Futures
Large Speculators
Change from Prior Reporting Period

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, May 17, 2011

In gold, those large speculators that have been long in gold sold a massive 13,554 from their long positions and were thus fooled out of those positions by our nasty bankers.
Those speculators that were short gold used the opportunity to cover 1818 contracts of their short positions.

And now for our commercials:

Those commercials that have been long gold and are close to the physical scene added a whopping 10,695 contracts to their longs.
And those commercials that have been perennially short gold like JPMorgan and HSBC
covered a smallish 3,937 contracts with the raid they orchestrated.
The small specs that have been long gold covered a large 4,187 contracts in gold.
Those that have been short used the opportunity of the raid to cover 1,291 contracts.

This COT report is extremely bullish for gold as we see the commercials enter the long side and cover the best they could on the short side.  The fundamentals have never looked so good on gold.

Let us see how silver shapes up:

Silver COT Report - Futures
Large Speculators

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Silver Report - Positions as of
Tuesday, May 17, 2011

In the large speculator category, we saw that those that have been long in silver lighted up a bit to the tune of 3303 contracts.  
Those large speculators that have been short silver decided in their great wisdom to add to those short positions to the tune of 2748 contracts and are crying this weekend.

In the commercial category:
Those large commercials that are close to the physical scene added 2816 contracts  to their long positions.
And now for our famous commercials that are short silver like JPMorgan;  these guys used the opportunity to cover a fair sized: 4503 contracts. 

In the small spec category:
The small specs that have been long silver pitched 2262 contracts from their long positions.
I guess they got intimidated by the bankers folly.
The small specs that have been short covered 994 contracts from their short positions.

In summary, this is also a very bullish silver report as the commercials have entered the long side of silver and covered a great number of short positions.
Silver should advance this week.


We are now heading into our 3rd year anniversary of the silver probe by the CFTC,
I would like you to read this letter to the CFTC from James McShirley a long time GATA member:

Dear Sirs and Madame:

Sirs, Madam,
As you are aware we are now approaching the third anniversary of what has become your epic CFTC investigation into silver manipulation. Additionally well over a year has passed since the CFTC hearings into silver manipulation on Mar 25th, 2010. You, and all of us, heard the damning testimony by JPM whistleblower Andrew Maguire, and further compelling testimony from William Murphy and Adrian Douglas. Obviously with so much time and effort obviously expended by the CFTC to date expectations are high to say the least. Way back on September 25th, 2008 the CFTC was quoted in the Wall Street Journal (regarding the silver manipulation investigation) as saying:
"We take the threat of manipulation in the futures and options markets very seriously, and employ a number of measures to prevent, identify, and prosecute it", said Stephen Obie, acting director of the agency's division of enforcement. (emphasis mine)
Mr. Obie implied the tools and methods at your disposal are formidable. Monitoring potential silver manipulation for the better part of 3 years should have by now produced a treasure trove of evidence. I have far more meager means to identify what I believe is blatant interference in free markets, but have observed the peculiar nature of Comex trading, although in this instance it is gold.. As I have previously mentioned you cannot look at silver alone without also including gold in any manipulation investigation. I have compiled data for the first 96 trading days for gold in 2011, which is from January 1st to May 19th. These are highly suspicious anomalies which I hope you too have identified.
Total Comex trading days: 96
Trading days above 2% gains: ZERO
Trading days with a close above 1% gains: 5 (5.2%)
Trading days with rallies stopped near 1% gains: 33 (35.4%)
Trading days with a sharp AM selloff: 84 (87.5%)
Total PM fixes at least $10 higher than AM fix: ZERO
Total PM fixes at least $5 higher than AM fix: 12 (12.5%)
Total PM fixes at least $10 lower than AM fix: 9
These trading patterns are so extreme that they are impossible in a freely traded market. As you can see gold is virtually never allowed to close above 1%, and in fact over 35% of the rallies STOP at or near 1%. Additionally there is over an 87% chance of an early Comex selloff, and also an 87% chance that the PM fix is either lower, or no higher than $5. Clearly there is a motivated short during Comex trading relentlessly "painting the tape". That someone would need deep pockets, HFT computers, and a disregard for true price discovery. With those parameters it narrows down the suspects considerably I'd say.The gold tape painting entity/entities are also likely to be the silver manipulators.
We eagerly await a CFTC ruling on silver manipulation. Three years would suggest there are serious problems. Since prevention is also one of your stated mandates you must also be concerned that the past three years have been (so far) a free pass for the concentrated silver short(s). I assume therefore that in any prosecution phase penalties will be commensurate to the damage inflicted on injured silver investors during that time. The CME clearly has had no desire to police themselves. They must be sweating bullets at what's coming out of three years of CFTC sleuthing. We await BIG things. I can't imagine handing out any wrist-slaps or exoneration at this point. If that were the case the investigation should have been wrapped up 2 1/2 years ago. To say silver investors, and the world is watching is not overstating the situation. The recent tightness of physical silver supplies are certainly cause for alarm. The increase in Comex cash settlements for silver contracts also looks like trouble could be brewing. These are classic signs of a broken price discovery system. A ruling, and as soon as possible, now seems highly appropriate.
James C. McShirley


I would like to bring you up to speed on the new appointment by Obama at the CFTC, Mr  Mark Wetjen.  He is a democrat and a lawyer and according to Bix Weir was the architect of the Frank-Dodd banking bill.  If confirmed then there should be no obstacle to the 5 commissioners voting to the affirmative on position limit.

First: the official announcement from the CFTC:

Obama Nominates Senate Aide Wetjen as CFTC Commissioner

President Barack Obama said he will nominate Mark P. Wetjen, senior policy adviser to Senate Majority LeaderHarry Reid since 2004, to become a member of the U.S. Commodity Futures Trading Commission.
Wetjen, whose nomination is subject to Senate confirmation, would replace Michael V. Dunn, a Democrat whose term expires June 19. The CFTC, which is writing derivatives regulations under the Dodd-Frank Act, currently has three Democrats including Chairman Gary Gensler and two Republican members.
“He is a true phenomenon whose profound understanding of the complexities of how the market affects consumers, taxpayers and homeowners will benefit our nation tremendously,” Reid said in a statement. “I look forward to his swift confirmation.”
Wetjen, who worked as a lawyer in private practice in Nevada and California before joining Reid’s office, received a bachelor’s degree from Creighton University in Omaha, Nebraska, and a law degree from the University of Iowa College of Law in Iowa City, according to the White House statement.
If confirmed, he will join an agency that is writing rules for the $583 trillion global over-the-counter swaps market along with the Securities and Exchange Commission. The agencies were directed to reduce risk and boost transparency after largely unregulated trades helped fuel the 2008 credit crisis that led to the bankruptcy of Lehman Brothers Holdings Inc. and bailouts for firms including American International Group Inc.
Gensler has said the agency will miss the mid-July deadline for most rules with some slated for adoption later this year. Republicans in the House of Representatives have proposed legislation to extend the deadlines until the end of 2012.

‘Crucial Moment’

“This nomination comes at a crucial moment for our economy and our financial markets,” Senate Agriculture Committee Chairman Debbie Stabenow, a Michigan Democrat, said in a statement. “CFTC Commissioners play an important role in writing the rules and making certain that those rules strengthen our markets.”
Dunn has questioned a CFTC proposal to curb speculation in commodities such as oil, wheat and natural gas that has split commissioners and prompted more than 12,000 comment letters.
“To date, CFTC staff has been unable to find any reliable economic analysis to support either the contention that excessive speculation is affecting the markets we regulate or that position limits will prevent excessive speculation,” Dunn said in a statement at a Jan. 13 CFTC meeting where he voted to propose the curbs to gather more information about the market.
Seventeen senators wrote the CFTC today urging the agency to implement the position limits.
“Congress gave the CFTC the power to rein in excessive oil speculation and the CFTC should use it,” Senator Maria Cantwell, a Washington Democrat, said in a statement released with the letter.
To contact the reporter on this story: Silla Brush in Washington at
To contact the editor responsible for this story: Lawrence Roberts at


Bix Weir comments:

Second, the "Jolly Ole Fellow" Commissioner Michael Dunn finally admitted he was WAY OVER HIS HEAD and is being replaced by Mark Wetjen. Yes, Wetjen understands the position limit issue because HE HELPED WRITE THE DODD-FRANK LAW THAT IS GOING TO END THE PROBLEM!
Now Gensler, Chilton and Wetjen (all Democrats) have a clear majority over Summers and O'Malia (all Republicans) so the vote on Dodd-Frank Laws can move forward.


As everyone is well aware, we are still many dollars short of the all time high in gold based in usa dollars.  However this is not so in the European currencies where gold in Euros is almost touching its top as is gold in English pounds.  This is very bullish for gold as the Europeans are all old school and as soon as they see new highs they pounce with both feet and do not look back.  Here is Dan Norcini talking on this very issue:

Friday, May 20, 2011

Gold very firm in terms of European Major Currencies

While US Dollar priced gold has been holding relatively firm lately, it remains well off its recent record high near $1580. That has not been the case with gold priced in terms of the major European currencies. Take a look at the following charts and note that gold is trading very close up against its record price in terms of two out of three European majors.

What this tells us is that the metal is attracting significant safe haven buying by investors out of Europe who are increasingly concerned over the unstable financial picture of some of the member nations of the EU. These sovereign debt woes continue to unnerve investors who are attracted to gold as a place to park their wealth.

I believe that this is one of the reasons that gold in US Dollar terms will not break down technically but continues to find substantial buying on dips into the lower part of its trading range. If gold does forge ahead into new highs in terms of any of these European currencies, look for US Dollar priced gold to break out of its range trade and make a run towards $1550.

While gold priced in terms of the Swiss Franc is not as strong on its chart as the two currency-priced charts above, it is still holding very firm. The Swiss Franc is still retaining some of its historical safe haven status and its relative strength against both the Euro and the Pound, and of course the Dollar, is working to keep the price of gold a bit weaker.


Yesterday we received news that S and P lowered its rating on sovereign Italy.
This nation has a very high debt to GDP ratio of 116% exactly were the USA is heading.

This is courtesy of zero hedge:

S&P Lowers Italy Outlook To Negative

Tyler Durden's picture

First Credit Agricole, now Italy....Maestro: the EUR take down orchestra is reaching the fortissimo cadenza. Next up: the glissando.
  • In our view Italy's current growth prospects are weak, and the political commitment for productivity-enhancing reforms appears to be faltering.
  • Potential political gridlock could contribute to fiscal slippage.
  • As a result, we believe Italy's prospects for reducing its general government debt have diminished.
  • We have therefore revised the rating outlook on Italy to negative, implying a one-in-three chance that the ratings could be lowered within the next 24 months.
  • We have also affirmed the 'A+/A-1+' sovereign credit ratings on Italy.
Rating Action

On May 20, 2011, Standard & Poor's Ratings Services revised its outlook on the ratings on the Republic of Italy to negative from stable to reflect its views of the heightened downside risks in the government's debt reduction plan. At the same time, Standard & Poor's affirmed its 'A+' long-term and 'A-1+' short-term sovereign credit ratings on Italy. The transfer and convertibility assessment remains at 'AAA'.


The negative ratings outlook on Italy (unsolicited rating A+/Negative/A-1+) reflects Standard & Poor's view of the increased downside risks to the Italian government's debt-reduction plan because of potentially weaker-than-expected economic growth and possible political gridlock that could contribute to fiscal slippage. The diminished growth prospects stem from what we consider to be a lack of political commitment to deregulating the labor market and introducing reforms to boost productivity. We believe measures to reduce the bottlenecks and rigidities in Italy's economy are especially important in light of Italy's limited monetary flexibility, which stems from its membership in the European Monetary Union and its limited fiscal room to maneuver because of Italy's high government debt burden.
We expect that Italy's government debt burden will remain the key rating constraint over the foreseeable future. We forecast net general government debt at 116% of GDP in 2011, up from 100% of GDP in 2007 and on par with the 1997 level. Under our analysis, the economic contraction between 2008 and 2009 has negated all of Italy's fiscal-consolidation efforts over the last decade. In our view, there is greater than a one-in-three chance that Italy will not reduce general government net debt to 113% of GDP by 2014, which is envisaged in our baseline projection.
Italy's economic recovery since the 2008-2009 contraction has been lackluster, constrained mainly by net exports. Italy's traditionally near-balanced trade deficit has widened in the past 15 months. In our view, the Italian economy's limited ability to benefit from strengthening external demand reflects low productivity growth, limited labor mobility, and a steady erosion of international competitiveness over the past decade. Although these factors have affected the Italian economy for more than a decade, their impact on growth and, consequently, debt dynamics is greater now because of intensifying competition in Italy's key export sectors, further appreciation of Italy's wage-deflated real effective exchange rate, and the risk of rising funding costs for Italy's private and public sectors.
We believe that the structural measures implemented in 2010 and those in the recently updated National Reform Plan are insufficient to boost economic growth in the medium term. In addition, we believe the increasing fragility of the current governing coalition makes the timely implementation of more significant growth-enhancing structural reforms politically more challenging. If low economic growth persists, the fiscal outcome will, in our view, likely significantly miss the government's targets and therefore may derail the debt-reduction plan laid out in its most recent Stability and Growth Program. In the longer term, we believe that growth prospects could dim further as a result of Italy's unfavorable demographic profile.
Italy's interest burden is more than 10% of government revenues in 2011, is  higher than the 'A' median of 7.5%, and is forecast to rise. Interest expense  reflects the impact of Italy's high debt burden on its public finances. On the other hand, strong household and corporate balance sheets have enabled  the government to fund itself at historically low rates, and we expect that  these low rates could facilitate a more gradual fiscal adjustment in Italy  relative to many of its southern European neighbors. Italy's corporate sector  is in a net external asset position (including outbound foreign direct  investment and equity) equal to 42% of GDP, equivalent to twice the net  external liability position of the financial sector. However, the public  sector's net external liability is high at €782 billion (50% of GDP). We also believe the Italian banking sector has recently been strengthened by  additional capital issuance and is in a stronger financial position than it  was six months ago. We do not expect the government will provide direct assistance to the Italian banking system in the near term; on the contrary, we expect most of the Tremonti Bonds, which provided four banks' Tier I capital during the 2008-2009 recession, will be repaid this year.


The negative outlook on Italy reflects Standard & Poor's view of the mainly downside risks to the government's debt-reduction plan over the 2011-2014 period, and implies a one-in-three chance that the ratings could be lowered within the next 24 months. In our view, these downside risks will primarily stem from weaker growth than our current assumption of average GDP growth of 1.3% over the 2011-2014 period. In addition, extended political gridlock could contribute to fiscal slippage.
If one or a combination of these risks materializes, Italy's general  government debt could stagnate at the current high level. In this case, we may lower the long- and short-term ratings on Italy. On the other hand, if the government manages to gather political support for the implementation of competitiveness-enhancing structural reforms, paving the way for higher economic growth and faster reduction of its debt burden, the ratings could remain at the current level.
Your rating: None Average: 5 (2 vo


Graham Summers over at Phoenix Capital has posted a commentary on why QEIII will happen immediately after QEII ends.  We would like to thank zero hedge for posting this for us:

Why the “Is QE 3 Coming?” Debate is a Moot Point Pt 2

Phoenix Capital Research's picture

This is a continuation of an essay I wrote yesterday concerning the Fed’s moves during the financial crisis. As a recap, here are those moves again:

  • The Federal Reserve cutting interest rates from 5.25-0.25% (Sept ’07-today)
  • The Bear Stearns deal/ Fed taking on $30 billion in junk mortgages (March ’08)
  • The Fed opens up various lending windows to investment banks (March ’08)
  • The SEC proposes banning short-selling on financial stocks (July ’08)
  • Hank Paulson gets a blank check for Fannie/Freddie but promises not to use it (July ’08)
  • Hank Paulson uses the blank check with Fannie/ Freddie spending $400 billion in the process (Sept ’08).
  • The Fed takes over insurance company AIG (Sept ’08) for $85 billion.
  • The Fed doles out $25 billion for the auto makers (Sept ’08)
  • The Feds kick off the $700 billion Troubled Assets Relief Program (TARP) with the Government taking stakes in private banks (Oct ’08)
  • The Fed offers to buy commercial paper (non-bank debt) from non-financial firms (Oct ’08)
  • The Fed offers $540 billion to backstop money market funds (Oct ’08)
  • The Feds agree to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
  • $40 billion more to AIG (Nov ’08)
  • Feds agree to back up $140 billion of Bank of America’s liabilities (Jan ’09)
  • Obama’s $787 Billion Stimulus (Jan ’09)
  • QE lite (August ’10)
  • QE 2 (November ’10)

I’m sure I left something out. But the above make it clear just how Ben Bernanke likes to tackle financial problems: printing money. On that note, we need to keep in mind just WHY the Fed did all of this: propping up the Big Banks and their gaping balance sheets.

The global derivatives market is completely unregulated and frankly no one knows how big it is. However, we DO know that US commercial banks alone have over $230 TRILLION in notional value derivatives on their balance sheets. Of this $230 trillion, 94%+ sits on just four banks’ balance sheets. They are:

The above chart reveals the derivatives exposure (in $ TRILLIONS) of the Fed’s darlings: the four banks that the Fed favored above all others during the 2008 disaster. As I wrote oin April 2011:

The Fed not only insured that they didn’t go under during 2008, but in fact allowed these firms to INCREASE their control of the US financial system.

Consider that JP Morgan took over Bear Stears. Bank of America took over CountryWide Financial and Merrill Lynch. Citibank and Bank of America were the only two banks to have their liabilities directly backed by the Fed ($280 billion for Citi and $180 billion for BofA).

Then there’s Goldman Sachs which was made whole from all AIG liabilities, received $13 billion in direct funding from the Fed, and was supported while ALL of its investment bank competitors either went under or were consumed by other entities, granting Goldman a virtual monopoly over the investment banking business (the firms that were merged with larger firms all laid off large portions of their employees and closed down whole segments of their business).

The ENTIRE 2008 episode was the result of the Credit Default Swap (CDS) market imploding (CDS, a type of derivatives, comprised about $50-60 trillion in value). And to claim that the Fed didn’t know why the Financial Crisis happened is a lie.

Indeed, as early as 1998, Ben Bernanke’s predecessor, Alan Greenspan, tol , soon to be chairperson of the Commodity Futures Trading Commission (CFTC), Brooksley Born, that if she pushed for regulation of the derivatives market it would implode the financial system.

Again, the Fed knew for over 10 years (possibly longer) that the derivatives market was a disaster waiting to happen. So believe me when I tell you than Ben Bernanke knew exactly what caused 2008.

Indeed, his actions make it clear just what he was fighting (a derivatives collapse) as 90% of his major moves were meant to prop up the four banks with the largest derivatives exposure.

Now, as stated before, 2008 was caused by the CDS market, which was $50-60 trillion in size. In contrast, the derivative market based on interest rates is $196 TRILLION in size.

In fact, derivatives based on interest rates represent 84% of ALL derivatives in the US.

So with that in mind, it is clear the Fed will be engaging in QE 3 and QE 4 and on and on for as long as it can. The reason? Because if the Fed loses control of the interest rate curve, it could trigger a systemic collapse that is FOUR TIMES as large as that of 2008.

So more money printing is coming. There’s no question of that.

On that note, if you’ve yet to take steps to prepare your portfolio for the coming inflationary disaster, our FREE Special Report, The Inflationary Disaster explains not only why inflation is here now, why the Fed is powerless to stop it, and three investments that absolutely EXPLODE as a result of this.

All in all its 14 pages contain a literal treasure trove of information on how to take steps to prepare AND profit from what’s to come. And it’s all 100% FREE.

To pick up your copy today, go to and click on FREE REPORTS.

Good Investing!

Graham Summers.

Here is another reason that QEIII will be upon us: (courtesy Reuters)

Two top Fed officials say easy money 
still needed

CHICAGO (Reuters) - The U.S. labor market is improving, but not at a fast enough pace to require the Federal Reserve to reverse its super-easy money any time soon, two top Fed officials said on Thursday.
The economy has "a considerable way to go" before it meets the Fed's dual mandate of full employment and price stability, New York Federal Reserve Bank President William Dudley said.
While rising headline inflation figures are "troublesome," Dudley told students in New Paltz, New York, overreacting by raising interest rates would risk "bad consequences" for economic activity and employment.
Chicago Fed President Charles Evans, who, like Dudley, is known for his dovish views on fighting inflation, echoed that sentiment in Chicago, telling a business group that still-high unemployment is keeping inflation under wraps.
Moderate economic growth will trim the unemployment rate, which was 9 percent in April, only slowly, Evans said. Inflation will crest this year at between 2 percent and 2.5 percent before returning to below the Fed's informal 2 percent target, he said.
New information, such as stronger-than-expected GDP growth or evidence that wage pressures are boosting inflation, could force the Fed to reassess its policy, Evans said.
"Contemplating such adjustments in advance will help prepare us for the eventual time when a change in the stance of monetary policy will be necessary," he said. "Despite recent improvements to the outlook, we are not yet at that point."
The Fed has kept interest rates near zero since December 2008. By June, it will have bought $2.3 trillion in long-term securities to bolster the recovery by pushing borrowing rates still lower.
Dudley and Evans, both considered among the Fed's strongest doves, said recent soft economic data is unlikely to persist, as is a recent commodity-price-driven increase in inflation.
They are both voters this year on the Fed's policy-setting committee, and their views mirror those of Chairman Ben Bernanke, who shortly after the Fed's last policy-setting meeting in April signaled he was in no hurry to tighten policy.
Evans did suggest the central bank may signal a change of heart later this year.
Asked whether the Fed could by year's end start letting maturing securities roll off its balance sheet, Evans said it "will be a point of discussion."
Any decision will depend on the pace of economic growth and the inflation outlook, he said, and doing so would only be a first step in the tightening process.
"It is not one that demands action within a timeframe after that, but I think once that begins, markets will start to wonder about what we are doing."
Other Fed officials, such as Minneapolis Fed President Narayana Kocherlakota, have made the case that interest rates should rise by year's end, given improvements in employment and inflation compared with last year.

That view appears to be in the minority.
Dallas Fed President Richard Fisher, one of the Fed's most strident inflation hawks, said on Thursday he was still not sure when might be the right time to begin pulling back on the stimulus.
High gasoline prices are dampening U.S. economic growth, he said, adding, "(The economy) is gathering steam, but robust is not a word I would use."
But Fisher, speaking in the Texas border town of McAllen, did indicate he already felt the central bank should not do any more (to stimulate the economy) and indeed, had gone a bit too far.
"We've gone from too little liquidity to too much," Fisher said.


S and P were busy campers yesterday.  The French are not happy as they downgraded the big French bank Credite Agricole yesterday because of concerns with their huge investments with Greek bonds:

Domino #2: S&P Downgrades Largest French Retail Banking Group, Credit Agricole, To A+ From AA-, Due To "Greek Exposure"

Tyler Durden's picture

Yes, banks are indeed on the hook should Greece file. Keep an eye on those Deutsche Bank puts.
From S&P:
  • On May 9, 2011, we lowered our sovereign ratings on Greece to 'B/C' from 'BB-/B' and maintained them on CreditWatch negative, reflecting rising rescheduling risk for Greece's sovereign debt.
  • We consider that French banking group Crédit Agricole (GCA) has a significant sensitivity to Greece's creditworthiness and economic prospects, primarily through subsidiary Emporiki's funding needs and exposure to local credit risk.
  • We are lowering our ratings on Crédit Agricole S.A. and its related core subsidiaries to 'A+/A-1' from 'AA-/A-1+'.
  • The stable outlook reflects our view that GCA's businesses are performing well, and that the group has a strong retained earnings capacity which would allow it to absorb possible losses from Greek exposures and build up capital at a pace, and up to a level, which we see as consistent with the 'A+' rating.
Rating Action

On May 20, 2011, Standard & Poor's Ratings Services lowered to 'A+/A-1' from  'AA-/A-1+' its long- and short-term counterparty credit ratings on French bank  Crédit Agricole S.A. and all Caisses Regionales de Crédit Agricole, core subsidiaries Crédit Agricole Corporate and Investment Bank (CACIB), CA Consumer Finance, CACEIS, Crédit Lyonnais (LCL), and Cassa di Risparmio di Parma e Piacenza SpA (Cariparma). The outlooks on all of these ratings are stable.

At the same time, we lowered the long-term counterparty credit ratings to 'A' from 'A+' on subsidiaries Banque de Financement et de Trésorerie and Agos-Ducato SpA. The outlook on both entities is stable. Under our group rating methodology, we cap the long-term ratings on both entities, which in our view benefit from extraordinary parental support, at one notch below that on their parents.


The downgrades reflect our view that reduced creditworthiness of the Greek sovereign puts pressure on GCA's financial profile, given its exposure to the troubled Greek economy, mostly through its subsidiary Emporiki Bank of Greece (not rated).

We lowered our long- and short-term sovereign credit ratings on Greece to 'B/C', from 'BB-/B' on May 9, 2011 ("Ratings On Greece Lowered To 'B/C' From 'BB-/B' On Rising Rescheduling Risk; CreditWatch Negative Maintained"). Both the long- and short-term ratings on Greece remain on CreditWatch, with negative implications. Our projections suggest that a restructuring of Greece's sovereign debt could involve an estimated 30%-50% recovery to restore Greece's government debt burden to a sustainable level.

The downgrade reflects our view that persistent deterioration of the Greek economy induces negative prospects for the local banking sector, which could translate into further material credit losses at Emporiki and/or a sharp decrease in its customer deposits. At end-March 2011, Emporiki's net customer loans exceeded €21 billion and customer deposits were close to €12 billion. We believe that under an aggravated negative scenario for Greece, GCA would be led to provide additional financial support to Emporiki, which might delay the achievement of a core capital position consistent with the 'A+' rating. The impact of a potential rescheduling of Greek sovereign debt on the Greek economy and on Emporiki would depend on how the potential rescheduling plan is organized, though.

In our view, GCA's direct exposure to Greek sovereign debt in its banking and trading books is much more limited than that resulting from Emporiki's operations. The insurance division also bears some net exposure to the Greek sovereign (the last amount publicly disclosed by the group, in May 2010, was slightly less than €400 million, net of policy-holder profit-sharing and tax). We believe that GCA would have the flexibility to absorb losses if Greek sovereign debt was restructured, even with a 30%-50% recovery.

Our ratings on Crédit Agricole S.A. don't include any explicit uplift above the group's stand-alone credit profile for potential external institution-specific support. We see GCA as having high systemic importance in France's banking sector, which we classify as supportive under our methodology.

In our view, GCA's risk profile is average. It combines relatively low-risk domestic retail banking activities in France and limited exposure to emerging markets, with riskier corporate and investment banking (CIB) business and significant exposure to the Greek economy through Emporiki.
We expect that GCA will demonstrate a resilient performance in 2011 but that  Emporiki will continue to weigh on earnings. The net income group-share for the first quarter of 2011 was a solid €1.5 billion, but still included a high €220 million in cost of risk from Emporiki. In 2010, GCA's net income group-share had already improved substantially to €3.6 billion, reflecting a 9.3% rise in revenues and a moderate increase in expenses. Credit risk was still high but 20% below the 2009 peak. In addition, the group's performance was hurt by a €1.2 billion impairment on its stake in Intesa Sanpaolo SpA (A+/Stable/A-1) after reclassification of the investment to available-for-sale financial assets from equity affiliates. We exclude this impairment from our definition of the group's core profit. Revenues from the group's ongoing CIB activities decreased 11% in 2010 to €5.7 billion after adjustments for changes in fair value of own debt and credit default swaps that CACIB bought to protect its corporate loans. This performance reflected a positive trend in the structured finance business and sluggish revenues from capital market activities. Lower losses from discontinued operations helped net CIB income to recover to €1 billion from negative figures in previous years.
GCA's liquidity and funding benefit from its ample deposit base, strong network placement capacity, and conservative risk management. The bank is also reliant on wholesale funding given the size of its consumer lending and CIB activities. Although GCA could be led to provide significant additional funding if deposit outflows at Emporiki continue or accelerate, we believe the group's large liquidity reserves could cushion negative effects.

At end-2010, Standard & Poor's estimated a risk-adjusted capital ratio for GCA at about 6% before diversification benefits and about 8% after diversification. In light of a likely increase in capital requirements under Basel III, we expect GCA to gradually strengthen its capital base up to a level more consistent with the 'A+' rating.


The stable outlook reflects our view that GCA will sustain its overall solid performance, and that CACIB will manage to deliver resilient earnings in line with the current satisfactory level. The outlook factors in our expectations that Emporiki will continue to weigh on the group's financial profile, but also that, in our view, GCA benefits from strong retained earnings capacity. This would allow it to absorb possible losses related to its operations in Greece, and to continue building up capital at a pace, and up to a level, which we see as consistent with the 'A+' rating.

We could lower the ratings if impacts stemming from the group's exposures to the troubled Greek economy go beyond our current expectations and hamper a strengthening of capitalization to the level that we expect. We could move the ratings up if the risks related to Greek sovereign creditworthiness are alleviated or become remote, if Emporiki turns around legacy asset quality and profitability concerns, and if GCA strengthens its capital position beyond our current expectations.


The IMF (DSK-less) approved a loan to the basket case Portugal:

courtesy Bloomberg:  

IMF Board Approves $36.8 Billion Loan to Portugal

The International Monetary Fund approved a 26 billion-euro ($36.8 billion) loan to Portugal as part of a joint bailout with the European Union in the latest effort to stem the region’s sovereign debt crisis.
The Washington-based institution will make 6.1 billion euros available immediately, the fund said in an e-mailed statement today. The IMF followed European officials, who on May 16 endorsed the 78-billion ($110 billion) joint package.
“The Portuguese authorities have put forward a program that is economically well-balanced and has growth and job creation at its center,” Acting Managing Director John Lipsky said in the e-mailed statement today. “It addresses the fundamental problem in Portugal - low growth - with a policy mix based on restoring competitiveness through structural reforms, ensuring a balanced fiscal consolidation path, and stabilizing the financial sector.”
The backing for Portugal comes less than two days after the resignation of Dominique Strauss-Kahn as managing director, who was indicted yesterday in New York on charges including attempted rape. French Finance Minister Christine Lagardeemerged as the leading contender to replace him, with officials including Angela Merkel arguing that a European is needed for the job because of the region’s debt woes.
The loan to Portugal has a duration of three years, the IMF said.
“The financing package is designed to allow Portugal some breathing space from borrowing in the markets while it demonstrates implementation of the policy steps needed to get the economy back on track,” the IMF said in the statement.
To contact the reporter on this story: Sandrine Rastello in Washington
To contact the editor responsible for this story: Christopher Wellisz at


Here is a story where Poland is now experiencing high inflation:
courtesy Bloomberg:

Polish Inflation to Peak Soon After Rate Rises End ‘Hysteria,’ Belka Says

Polish central bank Governor Marek Belka said inflation in the eastern European country will peak within two months and a surprise interest rate increase in May isn’t a start of “a new trajectory” in monetary tightening.
“We are really very close to the peak” of consumer-price growth, Belka said in an interview in the Kazakh capital Astana today. The rate increase wasn’t to signal “a new trajectory of interest rate increases. It’s simply that we want to implement our strategy faster.”
The central bank unexpectedly raised its benchmark seven- day rate by a quarter-point to 4.25 percent on May 11. The bank sought to pre-empt pressure on prices as consumer spending is picking up. The inflation rate rose to a 2 1/2-year high of 4.5 percent last month.
Wage growth is accelerating in Poland, the European Union’s largest eastern member which escaped a recession altogether during the credit crisis. The Polish central bank raised borrowing costs three times since January as policy makers across the globe struggle to curb inflation.
The rate move probably changed perceptions of how fast prices are going to rise and will “moderate” economic growth in Poland, Belka said. Imported inflation is also eroding the purchasing power of consumers, he said.

‘Hysteria Is Over’

Following the rate increase “we are observing a certain attenuation of inflationary expectations.” Belka said. “The hysteria is over.”
The inflation rate may drop “close” to the central bank’s target of 2.5 percent late next year, Belka said. The rate has been above the bank’s goal for seven months.
Government efforts to limit public spending may help combat inflation in the country, he said.
Even so, Belka said he has “some doubts” the government will be able to reduce the budget deficit to 2.9 percent of gross domestic product as planned next year.
The central bank took the government’s pledge “seriously” that it will implement “additional measures if necessary” to cap expenditures, he said.
To contact the reporters on this story: Agnes Lovasz in London at; Nariman Gizitdinov in Astana at
To contact the editor responsible for this story: Balazs Penz at


This is a must read for you. John Williams is a great statistician and he has worked diligently over the years to put the correct data out for us to see at his site  He charges for his services so when you get to hear from him in the clear, it is important for you to listen to his views.   He is correct as to what is going to happen in the USA,

John Williams Exclusive – Hyperinflation & US Dollar Collapse

Dear Friends,
Eric King of King World News has interviewed John Williams of Be sure to check out the entire interview linked below.
Dear CIGAs,
With so many questions surrounding the U.S. dollar and rising inflation, today King World News interviewed internationally followed John Williams of Shadowstats to get his take on the U.S. dollar, Fed and hyperinflation.  When asked about the tremendous inflation globally Williams stated, “The dollar has already been a factor for the major inflation that we are seeing now, and the weakness that we have seen in the dollar up to now has primarily been as a result of the Fed’s efforts to debase the dollar.  A weaker dollar has spiked oil prices and we are seeing the highest inflation — as the government reports it — in the last 3 years, and it’s going to get a lot worse.”


Finally, you will love this zerohedge story where the country of Zimbabwe who wishes a gold backed currency is offering its diamonds in exchange for gold.  The story is a little bizarre but Dr Gideon Gono had it right that the USA dollar will implode and what is needed is gold as the reserve currency of the world. This is the same country that printed a trillion dollar Z. banknote:

Here is this story:

A week ago we presented the idea floated by once hyperinflationary Zimbabwe, oddly jeered by most, that the country is seeking to move to a gold-backed currency, adding, somewhat surrealistically, that the "days of the US dollar as the world's reserve currency are numbered." And if anyone should know a hyperinflationary basket case, it's Zimbabwe. Well, today this bizarre story just went fuller retard, after the country announced that it may exchange diamonds for gold "so that it can have a gold-backed currency, according to a recent proposal from the governor of Zimbabwe’s central bank." Indeed we speculated previously why: "Zimbabwe, a country rich in natural resources, took so long to figure out that it was nothing but a puppet in the hands of western monetary interests." Well, others are now getting this idea - Commodity Online reports that "The country is a resource hub: It sits on gold reserves worth trillions. It has the world’s second largest reserves of platinum, has got alluvial diamonds that can fetch the nation $2 billion annually and even boasts of chrome and coal deposits." And since Zimbabwe is now fully on board this whole "pioneering" thing perhaps it should just go ahead and create the first diamond-platinum backed currency. Just don't give China and Russia ideas about floating a new reserve currency that actually has real commodity backing. What's that, you say? They are launching one soon? Oh well.
The Zimbabwean dollar is no longer in active use after it was officially suspended by the government due to hyperinflation. The United States dollar, South African rand, Botswanan pula, Pound sterling, and Euro are now used instead. The US dollar has been adopted as the official currency for all government transactions with the new power-sharing regime, says Wikipedia.

But the central bank of Zimbabwe—Reserve Bank of Zimbabwe (RBZ)—believes that the US dollar is no longer stable.

According to Dr Gideon Gono, RBZ Chief, the inflationary effects of United States’ deficit financing of its budget may impact foreign countries and would lead to a resistance of the green back as a base currency; cited

Writing in a blog in New Zimbabwe, Gilbert Muponda, an entrepreneur based out of Zimbabwe has welcomed the proposal of a gold-backed Zimbabwean currency. He has applauded the proposal of the central bank governor to sell diamonds for gold.
On the other hand, for the country to move to some semblance of a gold standard, it may wish to consider shifting form a despotic dictatorship controlled by Robert Mugabe to something a little less "centrally planned."
The government’s protectionist measures have kept the mining companies at bay. The government wants the foreign miners to sell controlling stake in ventures to local blacks, which is obviously frowned up on by all. The companies, given the uncertain situation, have refrained from investing further in expansion activities in Zimbabwe.

The country cannot access foreign credit as the ZIDERA Act passed by the United States in 2001 blocks US entities from trading with certain Zimbabwean institutions and individuals This has forced the US representatives in lending agencies like World Bank, IMF, IFC, and ADB to take a favorable stance when it comes to Zimbabwean credit requests.
That said, where there's a will there's a way. And since this story refuses to go away, it probably means that Zimbabwe will definitely give it the old college try. Once again, the question is not what happens in Zimbabwe, but elsewhere, should the experiment prove to be even remotely successful.

I guess that is all for today.  I will see you Monday night.
To all our Canadian friends,  I hope you have an enjoyable Victoria Day holiday weekend


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