Saturday, June 18, 2011

Crunch time for Greece/Gold and silver rise/strange developments in silver deliveries

Good morning Ladies and Gentlemen:

As is my custom, let me introduce to you two new entrants to the hall of banking shame ,McIntosh State
Bank based in Jackson, Georgia and the First Commercial Bank of Tampa Bay as the FDIC sought their demise and closed them last night.  We have had 47 new members this
year into the banking morgue.  Special thanks to the Associated Press for this report:

Regulators shut small banks in Georgia, Florida
WASHINGTON (AP) — Regulators on Friday shut down small banks in Georgia and Florida, lifting to 47 the number of U.S. bank failures this year in the wake of economic distress and mounting soured loans.
The pace of closures has slowed, however, as the economy improves and banks work their way through the bad debt. By this time last year, regulators had closed 83 banks.
The Federal Deposit Insurance Corp. seized McIntosh State Bank, based in Jackson, Ga., with $339.9 million in assets and $324.4 million in deposits. The agency also shuttered First Commercial Bank of Tampa Bay, in Tampa, Fla., with $98.6 million in assets and $92.6 million in deposits.
Hamilton State Bank, based in Hoschton, Ga., agreed to assume the assets and deposits of McIntosh State Bank. In addition, the FDIC and Hamilton State Bank agreed to share losses on $242.1 million of McIntosh State Bank's loans and other assets.
Stonegate Bank, based in Fort Lauderdale, Fla., is assuming the assets and deposits of First Commercial Bank of Tampa Bay.
The failure of McIntosh State Bank is expected to cost the deposit insurance fund $80 million. That of First Commercial Bank of Tampa Bay is expected to cost $28.5 million.
Georgia and Florida have been among the hardest-hit states for bank failures.
Sixteen banks were shuttered in Georgia last year. The shutdown of McIntosh State Bank brought to 13 the number of bank failures in the state this year. Regulators closed 29 banks in Florida last year. First Commercial Bank of Tampa Bay is the sixth Florida lender shut down this year.
California and Illinois also have seen large numbers of bank failures.
In 2010 regulators seized 157 banks, the most in a year since the savings-and-loan crisis two decades ago.
The FDIC has said that 2010 likely would mark the peak for bank failures.
There were 140 bank failures in 2009, costing the insurance fund about $36 billion. The failures last year cost around $21 billion, a lower price tag because the banks that failed in 2010 were smaller on average. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three were closed in 2007.
From 2008 through 2010, bank failures cost the fund $76.8 billion. The deposit insurance fund fell into the red in 2009. With failures slowing, its deficit narrowed in the first quarter of this year and stood at about $1 billion as of March 31.
The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014.
Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted last July.
The number of banks on the FDIC's confidential "problem" list edged up to 888 in the January-March quarter from 884 as of Dec. 31. The 888 troubled banks is the highest number since 1993, during the savings-and-loan crisis. But that doesn't mean the pace of bank failures is likely to accelerate again because, historically, only 19 percent of the banks on the "problem" list actually fail.

Gold finished the comex session yesterday at $1538.60 for a gain of $9.30.  Silver also had a good day rising by 19 cents to $35.74.  In the access market here are the closing prices:

Gold: $1540.00
Silver: $35.90
The banking cartel decided to leave gold and silver alone as the stock market equities were doing fine. Friday night saw options expire at 4 pm. 
The total gold comex OI fell by 2643 contracts from 503,732 to 501,089.  The drop was to be expected as Thursday's raid frightened a few longs to pitch their contracts.  The front delivery month of June saw its OI fall from 1283 to 1l99 for a drop of 84 contracts.  We had 82 delivery notices on Thursday so almost all of the drop was due to those deliveries and we lost a tiny 2 contracts to cash settlements.  The next big front month on the comex is August and here the OI rose from 332,533 to 333,082.  This is rather strange as we got a total drop in all months on the gold comex.  The estimated volume on Friday was on the tame side at 120,749.  The confirmed volume on Thursday was a little better at 128,611.  There were no switches (roll overs) into other future months.

In silver:  The total open interest  (OI) continues to shrink marginally despite the high price of silver. Friday saw the OI fall from 118,545 to 117811 for a drop of 734 contracts despite the massive raid.  It looks to me like silver is in very strong hands and nothing will shake the silver leaves from the silver tree.  All eyes will be on the front month of July and I will follow this for you.  The new OI for July marginally fell from 40,024 to 37,925.  The contraction is going at a smaller pace that usual and this is causing consternation among banking folk.  The estimated volume yesterday was not bad at 66,010.  The confirmed volume on Thursday was also pretty good at 63,258.

Here is the chart for 6/18/2011 regarding deliveries and inventory changes at the comex. 

Withdrawals from Dealers Inventory
Withdrawals fromCustomer Inventory
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
 89,098 oz

No of oz served (contracts)  today
26600 (266)
No of oz to be served  (notices)
 93300 oz (933)
Total monthly oz gold served (contracts) so far this month
 575100 (5751)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

Let us begin with gold.  Again we witnessed no gold enter the dealer as a deposit.
There was no withdrawals by the dealer.
The only entry may be a little ominous:
A deposit of a huge 89,098 oz into JPMorgan's customer vault.
There were no adjustments.
The comex folk notified us that a total of 266 notices were filed for 26600 oz of gold. The total number
of gold notices filed so far this month total 5751 for 575100 oz of gold. To obtain what is left to be
served upon, I take the June OI (1199) and subtract out Friday's deliveries (266) which leaves me with
933 or 93300 oz left to be served upon.
Thus the total number of gold oz standing in this delivery month is as follows:
575,100 oz (served)  +  93300 (oz to be served) =  668,400 oz or 20.79 tonnes. We lost 200 oz from Thursday.

And now for silver:

Withdrawals from Dealers Inventory
Withdrawals from Customer Inventory
 993 ( Delaware ) 
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
 661,017 (Scotia, Delaware)
No of oz served (contracts)  today
zero  (0)
No of oz to be served  (notices)
50,000  (10)
Total monthly oz silver served (contracts) so far this month
1,820,000  (364)
Total accumulative withdrawal of silver from the Dealers inventory this month
1,202,585 oz
Total accumulative withdrawal of silver from the Customer Inventory this month.

First of all, again we must report that no silver entered the dealer as a deposit.
The customer however received the following silver deposits:
1. Scotia customer in a Scotia vault:  657,023 oz
2. Delaware customer in a Delaware vault:  3994 oz
total deposit:  661,017 oz
There was a tiny withdrawal of 993 oz from a Delaware vault. There were no adjustments.
And now for some strange stuff:
For the 4th straight day the comex folk notifies us that there were zero notices for delivery on Friday and thus
the total number of delivery notices served so far this month remain at 364 for 1,820,000 oz of silver.
To obtain what is left to be served, I take the OI standing for June (10) and subtract out Friday's deliveries (0)
which leaves me with 10 notices to be served or 50,000 oz.
Thus the total number of silver oz standing in this non delivery month is as follows:
1,820,000 (oz already served)  +  50,000 (oz to be served)  = 1,870,000 oz
(the same as Thursday).
It is quite strange that we have not had zero number of silver notices filed for 4 straight days.They gain nothing by conserving their silver as July will be a huge delivery month for the comex. Maybe these final 10 contract holders refuse to accept paper SLV and have demanded that the silver they are standing for will be removed from all registered silver vaults.

I have checked on the intent to deliver for Monday  (the actual deliveries will be on Tuesday) and here are the totals:
Gold:  49 notices
Silver:  zero again.
Very strange indeed for silver.


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.

First GLD inventory changes:  June 18.2011 :

Total Gold in Trust

Tonnes: 1,209.14
Value US$:

Total Gold in Trust:

June 16.2011
Tonnes: 1,200.05
Value US$:

Total Gold in Trust: June 15.2011

Tonnes: 1,200.05
Value US$:


we gained a huge 9.09 tonnes of paper gold. This gold moved from one cubby hole at the Bank of England to another belonging to the GLD.
The GLD folk swaps this gold for cash and the Bank of England can reswap this gold back at any time of their choosing.

Now let us see inventory movements in the SLV:
June 18.2011:

Ounces of Silver in Trust309,486,239.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,626
June 16.2011:
Ounces of Silver in Trust309,924,987.600
Tonnes of Silver in Trust Tonnes of Silver in Trust9,639.74
we lost another 438,000 oz of paper silver

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

1. Central Fund of Canada: it is trading at a negative  0.9% to NAV in usa funds and negative 0.9% in NAV for Cdn funds.
    June 18.2011
2. Sprott silver fund  (PSLV):  Premium to NAV rose  to 14.76% positive NAV (June 18 .2011
3. Sprott gold fund (PHYS): premium to NAV rose slightly to a positive 4.31 to NAV  (June18.2011).


Friday night saw the release of the Commitment of traders report on both silver and gold:
First the Gold COT:
Posted Friday, 17 June 2011 | Share this article | Source:

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, June 14, 2011

Please remember that all COT reports are from Tuesday night to Tuesday.
In the gold COT, those large speculators that were long, lightened up a bit on their total contracts to the tune of 4124 contracts.
Those large speculators that have been short, decided to add to those positions and are very sorry for their folly.
Those commercials that are long gold and are close to the physical scene added 2995 contracts to their longs.
And those commercials that are always short gold like JPMorgan and HSBC, covered a huge 7300 contracts.
In the small spec category, those specs that have been long succumbed to the raids and pitched 3363 of their 
long contracts.
Those small specs that have been short gold covered a tiny 121 contracts.
This report is very bullish for gold as we the commercials covering their gold shorts with gold rising.

Let us now see the silver COT:

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, June 14, 2011

 My goodness, I have never seen such a tranquil report. There was hardly any movement.
Those large specs that have been long in silver for quite a while added a tiny 500 contracts to their longs.
Those large specs that have been short silver added a small 912 contracts to their shorts.These guys are not happy this weekend.
Those commercials that have been close to the physical scene and long in silver added 1133 positions to their longs. 
And are perennial favourites:  our banking commercials that are always short:  these guys added a small 1029 positions to their shorts.
Forget about the small specs as they were blown out on the massive raid in May.
The report in silver is also bullish as the commercials are leery to supply too much comex paper.
Let us now see the big stories of the day.
Greece is without a doubt the big story.  The fact that Germany has decided to join forces  with France and back down on its demand, kind of tells the story that French banks are more exposed to a Greek default than reported.  To me it seems that a Greek default itself will create a Lehman moment.  This will be before contagion strikes.
Here is a little background on the Greek debt situation.
In the first bailout of Greece in 2010, the total GDP of Greece was around 180 billion euros and their debt reached 210 billion euros for a debt/GDP ratio of 120%. Goldman Sachs orchestrated some hidden derivatives in 2000 which exposed the nation to billions of euros lost on the bet.
The IMF, EU and the ECB (Troica) came up with an initial 110 billion euro package to bail out this nation. We postulated that when these funds would run out they would need another bailout and here we are today.
This year the total debt is around 300 billion euros with a GDP stagnating around the same 180 billion mark.  Thus the total debt to GDP is a staggering 160%.  The IMF has still now released the last of its commitment:  12 billion euros. 
The entire world is fixated on this 12 billion euros lone, stating that Greece can mend itself somewhat if this money was advanced.  The problem here is that 18 billion euros of notes are due in
August:  (see zero hedge below)

Greek Math: €12 Billion In, €18.2 Billion Out... And That's IF The Impossible Happens

Tyler Durden's picture

Here is a simple summary of the Greek bailout math explained with just 2 numbers. First, the country has to do the impossible. As Citi's Jurgen Michels summarizes: "Once the whole new cabinet is announced, parliamentary discussions ahead of the vote of confidence will probably  start on Sunday, with the vote actually taking place next week on Tuesday evening. Even if the new government manages to pass the vote of confidence, it will still have to submit to Parliament the new austerity package for approval, probably sometime later next week or the week thereafter. This will be key for the smooth disbursement of the next tranche of EU/IMF loans, of €12bn." In other words, the Greek government has to pass 2 near-Sysiphean tasks before it can even hope to sniff the IMF's €12 billion in rescue funding. That's number 1. Number 2 comes from the chart below, which shows the debt and interest payments through August. This number is €18.2 billion. This number does not include the billions in deficit spending that will also have to be funded somehow over and above debt paydown. Ergo, the math for a viable Greece is as follows: €12BN > €18.2BN  + X. Simply said, unless somehow Greece discovers how to tax its citizens and actually record net revenue in July, the best the ECB can hope for before it has to mark its tens of billions in Greek bonds to about 45 cents on the dollar, is one month. So will someone please explain to us why again the EUR is up today? Actually the only possible reason is that Europe is now pricing in the fact that China will be the de facto owner of at least 2 European countries by this time next year, however not in an Asset Purchase Transaction but Stock, whereby China also acquires the liabilities. Which in turn may explain why Russia's just announced minutes ago that China may turn into "zone of risk" for the global economy.
Your rating: None Average: 4.9 (8 

The EU plan on how to skirt the debt problem.  (courtesy Bloomberg):

EU to Discuss Greek Plan That Skirts Default Risk

European finance ministers meet tomorrow to hammer out a new Greek bailout package watertight enough to avoid triggering a default that German Chancellor Angela Merkel said would be uncontrollable.
Officials must figure out how to design a package that will encourage investors to roll over expiring Greek debt after Merkel yesterday ended a standoff with the European Central Bank over restructuring the country’s debt load. Talks will start at 6 p.m. in Luxembourg and continue the next day. EU leaders meet on June 23-24.
“Now comes the tricky part,” said Tullia Bucco, an economist at Unicredit Global Research in Milan. “This proposal is fraught with difficulties in identifying ways to provide banks with incentives to rollover their bonds. Any deterioration in bond conditions via new coupons below market rates would be seen by rating agencies as the trigger of a credit event.”
Stocks, bonds and the euro jumped yesterday after Merkel ended a feud with the ECB that roiled markets. Highlighting the risks still facing the euro region, Greek Prime Minister George Papandreou must win a parliamentary confidence vote next week that could delay Greece’s next round of austerity and Moody’s Investors Service said late yesterday it may cut its Aa2 rating on Italy’s sovereign debt.

Lehman Experience

Merkel said today in Berlin that policy makers must make sure the Greek crisis doesn’t infect the rest of the euro region and spark a new global financial crisis.
“We all lived through Lehman Brothers,” she told a meeting of activists from her ruling Christian Democrat party. “I don’t want another such threat to emanate from Europe. We wouldn’t be able to control an insolvency.”
Luxembourg Prime Minister Jean-Claude Juncker, who chairs tomorrow’s talks, says a new Greek plan will have to be rubberstamped by the ECB.
“If we made a move that would be rejected by the ECB, by the rating agencies and therefore the financial markets, we risk setting the euro area aflame,” La Libre Belgique quoted Juncker as saying in an interview published today.
The risk is that any pact will still be classified as a form of default by rating companies, effectively cutting Greek banks off from emergency ECB funding. Fitch Ratings said June 15 that a rollover would prompt it to cut Greece’s sovereign rating to “restricted default.” The bonds themselves would still avoid default and be left at “a low non-investment grade probably in the region of CCC,” it said.

Collateral Incentive

The debt is currently graded B+ at Fitch. Standard & Poor’s on June 13 cut its rating on Greece by three levels to CCC, branding it with the world’s lowest debt grade.
EU officials have discussed incentives for investors to reinvest the proceeds of their maturing bonds into new debt, according to people familiar with the situation. They include giving investors preferred status, higher coupon payments or collateral as inducements to buy bonds replacing Greek debt maturing between 2012 and 2014, they said.
The yield on Greece’s two-year bond, which topped 30 percent for the first time on June 16, fell 90 basis points to 28.79 percent yesterday. The signs of flexibility from Germany sent the euro up as much as 1 percent to $1.4339.
Spanish Prime Minister Jose Luis Rodriguez Zapatero said in St. Petersburg today that he expects EU leaders to make a “political commitment” to Greece next week.
Merkel said yesterday she was now willing to accept that the so-called Vienna initiative of 2009, which encouraged creditors to roll over expiring bonds, could be a model for private-investor participation in the new aid package.

Greek Reshuffle

That marked a reversal from the position set out by her finance minister, Wolfgang Schaeuble, who had insisted that Greek bond maturities be extended by seven years. The approach met ECB resistance and led to credit-rating company warnings that the move was tantamount to default, stalling efforts to craft an aid package.
Officials will meet two days after Papandreou announced a Cabinet reshuffle that included replacing Finance Minister George Papaconstantinou in a bid to get rebelling allies to back the 78 billion-euro ($112 billion) austerity plan that the EU and IMF have made a condition for new aid.
Papandreou named Evangelos Venizelos, his defense minister and a former rival for leadership of the ruling Socialist party, to replace Papaconstantinou.
Papandreou then called for a vote of confidence in his new government, which will probably be held the evening of June 21 after three days of debate.

Merkel Push

Merkel is nevertheless still pushing for private investors to play a “substantial” role in any new package, without specifying what that would look like.
“Let us try to get together a substantial contribution in this participation of private creditors,” she said today. “But we don’t do this on the street, we don’t do this in press conferences, we do this in serious talks with those making the contribution.”
European estimates put Greece’s 2012-14 financing gap at as much as 170 billion euros. It would be filled by about 45 billion euros of loans, plus 57 billion euros in unspent aid from the 2010 bailout, roughly 30 billion euros in asset- sale proceeds and about 30 billion euros from creditors.
To contact the reporters on this story: Tony Czuczka in Berlin at
To contact the editors responsible for this story: James Hertling at


Alan Greenspan weighed in and stated that a Greek default would be catastrophic for the USA:

Greenspan: The 'almost certain' Greece default could cause US double-dip

  • Story by: by Nyree Stewart
  • Magazine: InvestmentAdviser
  • Published Friday , June 17, 2011
A default by Greece could drive the US back into recession, according to the former Federal Reserve chairman Alan Greenspan.
In an interview with Bloomberg Mr Greenspan said the "chances of Greece not defaulting are very small".
His comments came as Greece’s prime minister George Papandreou's failed to win support for more austerity measures to help address its debt problems.
Mr Greenspan told Bloomberg the chances of Greece defaulting are now "so high that you almost have to say there’s no way out," which could put pressure on some US banks.
He argued Greece's debt crisis had the potential to push the US into another recession, as without it the probability of a recession "is quite low".
"There's no momentum in the system that suggests to me that we are about to go into a double-dip," he said. Mr Greenspan said the US's debt issue is becoming "horrendously dangerous" and said that he doubts lawmakers have another year or two to solve it.
He added that the US recovery is being hindered by apprehension among businesses over the long term outlook, and claimed there is nothing more for the Fed policymakers to do.
His comments come as traders feared Greece could become Europe's "Lehman's moment".
Neil Mackinnon, an economist at VTB Capital in London and a former Treasury official, told the Daily Telegraph: "The probability of a eurozone Lehman moment is increasing. The markets have moved from simply pricing in a high probability of a Greek debt default to looking at a scenario of it becoming disorderly and of contagion spreading to other economies like Portugal, like Ireland, and maybe Spain, Italy and Belgium."
Mr Greenspan was once credited as "the greatest central banker who ever lived" but has since been blamed for contributing to the US financial crisis by keeping interest rates low for too long. Mr Greenspan founded consulting firm Greenspan Associates after leaving the Federal Reserve.

And what are Greek depositors doing with their euros?  You can see the massive exodus of euros
enter Switzerland as they  convert their troubled euros into  Swiss francs:  ( special thanks to zero hedge)

Wondering How Big Greek Deposits Outflows Are? Just Follow The EURCHF

Tyler Durden's picture

In the past we have repeatedly observed that in order to get an instantaneous appreciation of which direction all too critical Greek bank deposits held by the public are headed (hint: out), instead of waiting for delayed NBG data, one needs to only look at the EURCHF. As the chart below shows, the correlation between the two is essentially one. Which means that should this pair continue dropping to parity, in addition to making life for Swiss exporters a living hell and for Hungarian mortgage holders unbearable, that Greek banks will literally become hollow shells whose only lifeblood - depositor cash - is no longer there. And the more severe the lack of confidence in the outcome, the greater the outflow, the higher the likelihood of a disastrous bank run that wipes out the Greek banking system. Welcome to Catch 22 for the centrally planned, monetary union generation.
Chart courtesy of @Schaefdogschaef

Monday and Tuesday will be critical days for Greece and we will watch this closely for you.
Moody's decided to scare the living daylights out of investors with this:

Moody's Puts Italy's Aa2 Rating On Downgrade Review, EUR Slides, And A Bonus Report From SocGen: "How Vulnerable Is Italy?"

Tyler Durden's picture

Trust Moody's to come up with the Friday afternoon bomb. EURUSD slides on the news, which sends the 100% correlated stocks plunging.
Full text from Moody's:
Frankfurt am Main, June 17, 2011 -- Moody's Investors Service has today placed Italy's Aa2 local and foreign currency government bond ratings on review for possible downgrade, while affirming its short-term ratings at Prime-1.

The main drivers that prompted the rating review are:
(1) Economic growth challenges due to macroeconomic structural weaknesses and a likely rise in interest rates over time;
(2) Implementation risks surrounding the fiscal consolidation plans that are required to reduce Italy's stock of debt and keep it at affordable levels; and
(3) Risks posed by changing funding conditions for European sovereigns with high levels of debt.
Moody's review will evaluate the weight of these growing risks in light of the country's high rating but also relative to some credit-strengthening trends that have been observed in recent years and are expected over the coming years, such as improved fiscal governance, lower budget deficits and a modest economic recovery.

First, the Italian economy faces growth challenges in an environment characterized by long-term structural impediments to growth and potentially rising interest rates. Structural economic weaknesses -- mainly low productivity and important labour and product market rigidities -- have been a major impediment to growth in the last decade and continue to hinder the economy's recovery from the severe recession it experienced in 2009. Italy has so far only recovered a fraction of the nearly seven percentage points in GDP that it lost during the global crisis, despite low interest rates, which are likely to rise in the medium term. Growth prospects for the Italian economy in the coming years will be a crucial factor that will determine the government's revenues and the achievement of fiscal consolidation targets.
Second, there are implementation risks to the fiscal consolidation plans that are required to reduce Italy's stock of public debt to more affordable levels. Against a backdrop of rising interest rates and weak economic growth, the government may find it difficult to generate the primary surpluses that are needed to place the public debt-to-GDP ratio and the interest burden on a solid downward trend. The adoption of additional conservative fiscal policies may prove more difficult in the near future because the current government's electoral support is weakening, with the government facing challenges in gaining public approval for its policies. For example, the government's recent energy and water supply proposals were rejected by popular vote.
Third, the fragile market sentiment that continues to surround European sovereigns with high levels of debt poses additional risks for Italy. The continued stability of market demand for Italy's debt is uncertain at current yields. Although future policy actions within the euro area could reduce investors' concerns and stabilize funding costs, the opposite is also possible. In any event, going forward, investors appear likely to differentiate more among euro area sovereign borrowers than they did prior to the financial crisis, to the disadvantage of euro area countries with higher-than-average debt burdens, like Italy.

Moody's review of Italy's sovereign rating will focus on the growth prospects for the Italian economy in coming years, and particularly the prospects for a removal of important structural bottlenecks that could hinder a stronger economic recovery in the medium term. The review will also examine the government's ability to achieve ambitious fiscal consolidation targets and to implement further plans to generate substantial primary surpluses in the medium term. This will include an analysis of the vulnerability of the Italian government debt trajectory to a rise in risk premia, as well as the options for the government to react. The government's new fiscal plan, which is expected to be announced shortly, will be considered during the review.
In addition, any broader developments across the euro area, in particular with regard to the resolution of the euro area debt crisis and its impact on funding costs, could be important determinants of the outcome of Moody's rating review

Moody's last rating action affecting Italy was implemented on 15 May 2002, when the rating agency upgraded Italy's Aa3 government bond ratings to Aa2 with a stable outlook. The rating action prior to that was taken on 3 July 1996, when the rating agency upgraded Italy's A1 government bond ratings to Aa3.

And now that the topic of Italy is so critical, here is SocGen's recent must read: "How Vulnerable is Italy"
How Vulnerable is Italy

Last night Goldman Sachs delivered this commentary hoping not to many would see:
the economy is faltering badly!!!

courtesy zero hedge

Another Friday Night Dose Of Squid Humiliation: Goldman Lowers Q2 GDP From 3% to 2%

Tyler Durden's picture

It is Friday night, which means that any bad and self-discrediting news from Goldman Sachs are due any minute. Sure enough, the squid does not disappoint: "Following another dose of disappointing economic data, we have cut our Q2 growth estimate to 2% (annualized) from 3%. We also have issued a preliminary forecast for the manufacturing ISM in June of 52.0. At this point, we still expect a bounceback in Q3 and beyond, but will need to see significant improvement in the data over the next few weeks to maintain that view." Zero Hedge's own ISM outlook is for a 48 print. And as we will comment on later, as JPM's Michael Feroli demonstrates, the fate of the economic pick up in Q3 is all up to car sales surging by about 58% on an annualized basis as predicted by IHS. Good luck with that. As we said yesterday, we expect Goldman to lower its H2 outlook to under 2% within a month, most likely following the next ISM miss and the disappointing NFP report due out in 2 weeks.
Full mea culpa, and we have at this point lost track how many in a row this is, from Goldman's economic team which has now lost all credibility.
Sizing the Fed’s “Zone of Inaction”
Following another dose of disappointing economic data, we have cut our Q2 growth estimate to 2% (annualized) from 3%. We also have issued a preliminary forecast for the manufacturing ISM in June of 52.0. At this point, we still expect a bounceback in Q3 and beyond, but will need to see significant improvement in the data over the next few weeks to maintain that view.
The deterioration in economic activity, on its own, would call for fresh monetary easing. Meanwhile, however, inflation has continued to run above our (and the Fed’s) estimates. In the latest installment of bad news on this front, the CPI excluding food and energy rose 0.29% in May.
The Federal Open Market Committee is therefore stuck between a rock (slow growth) and a hard place (higher inflation). We expect Chairman Bernanke to indicate at next Wednesday’s FOMC press conference that there is little prospect of either monetary tightening or monetary easing anytime soon.
We formalize the idea that the “zone of inaction” is wide by returning to our estimated Taylor rule analysis. Given our current forecasts, the rule implies that the appropriate federal funds rate is -0.6%, which seems broadly consistent with the Fed’s stand-pat stance. If this is correct, we would need to see about a ¾-percentage-point decline in the unemployment rate forecast or a ½-point increase in the inflation forecast for the rule to project any monetary tightening (including an announcement of asset run-off).
However, Fed officials seem even further away from renewed easing. Our analysis implies that it would take a 1¼-point increase in the unemployment rate forecast or a 1-point drop in the inflation forecast for additional easing moves.
More Deterioration in the Growth-Inflation Mix
The past week brought another dose of discouraging data on economic activity, especially in the manufacturing surveys for early June. Our rolling monthly MAP surprise score—a measure of data surprises—continued to decline, while our Current Activity Indicator (CAI) failed to regain momentum (Exhibit 1). Despite some encouraging signs of stability in the “hard” data, we have therefore shaved our second-quarter GDP estimate further to just 2% (annualized), from 3% previously.
The main fresh negative was a sharp decline in the New York and Philadelphia Fed surveys of monthly manufacturing activity in June. The Philadelphia Fed index fell to -7.7 in June from +3.9 in May, mirroring the drop in the New York Empire State index reported the day before to -7.8 in June from +11.0 in May. The Philly Fed reading is the lowest since May 2009. The sub-indexes of the report offered no silver lining, as the indexes for new orders, shipments and employment all declined. As the Japanese supply chain distortion in the auto sector can likely only explain some of this weakness, the disappointing surveys point to some downside risk to our expectation that the economy will accelerate into Q3. Based on these surveys and other information, our preliminary forecast for the ISM manufacturing index in June is 52.0.
On a somewhat more encouraging note, the “hard” data looked a little more stable this week. Although headline retail sales declined in May due to a further decline in the motor vehicle sector, core retail sales (excluding autos, gas and building materials) rose by 0.2% on the month. Industrial production increased slightly less than expected in May, but non-auto manufacturing output grew 0.6%, following a decline of 0.1% in the previous month. Finally, housing starts and building permits both rose in May. Although the month-on-month improvement is encouraging, overall both starts and permits show activity essentially flat at depressed levels.
Meanwhile, both consumer and producer price inflation surprised on the upside. The biggest concern from the Fed’s perspective is likely to be the sharp increase in core CPI inflation to 0.29% on the month. This print—the highest month-to-month increase since May 2006—pushed up the year-on-year core consumer price inflation rate to 1.5%. However, it is important to note that about half of the price increase in May was due to sharp gains in relatively volatile components like apparel, vehicles, and lodging away from home.
Lower Growth+Higher Inflation=No Fed Action
What are the implications of these developments for the Fed outlook? Our preferred tool for thinking about this question is our forward-looking Taylor rule, which describes how Fed officials have historically set the funds rate using their four-quarter-ahead forecasts of core PCE inflation as well as the expected unemployment gap (actual less “structural” unemployment). Moreover, we have adjusted this rule to take into account the Fed’s unconventional policies—including its “extended period” language and its asset purchase programs (“QE1” and “QE2”). Given this unconventional easing, our four-quarter-ahead forecasts for year-to-year core PCE inflation and unemployment imply that the “warranted” funds rate is -0.6%.
In this framework the FOMC pays roughly equal attention to changes in core inflation and unemployment. The weakness in activity data in recent weeks might thus broadly offset the higher inflation news in terms of their implication for the Fed’s warranted funds rate.
Sizing the “Zone of Inaction”
This framework can then be used to get a sense for how much the data flow would need to surprise—in either direction—to move Fed officials out of their comfort zone. To do so, we need to make two further assumptions.
First, we use our setup to identify a threshold above which the Fed might start to tighten. Assuming the FOMC moves in lumpy increments of 25bp, the model-implied funds rate could rise by about 100bp from its current -0.6% level before a tightening became warranted. This tightening could occur either via a hike in the funds rate or, more plausibly, via changes to the reinvestment of maturing/prepaid securities and/or the “extended period” language in the FOMC statement.
Second, we use our setup to identify a threshold for the model-implied funds rate below which the Fed might start to ease. Identifying this threshold is difficult, because it requires a view on the perceived costs of returning to unconventional easing. Prior to QE2, we estimated that because of these costs the FOMC was willing to accept a gap between the warranted and actual policy stance worth 100bps in the funds rate. Given the backlash against QE2 since then, these perceived costs might well have risen. We therefore believe that the threshold for further quantitative easing has risen, perhaps to 150bp.
Fed Unlikely to Move in Either Direction Soon
Given these assumptions and our estimated Taylor rule we can trace out by how much forecasts for core inflation and unemployment would need to change for Fed officials to move out of their “zone of inaction” (see Exhibit 2). Our framework implies that this zone is sizable and that much larger surprises—in either direction—are needed for the Fed to move.
For example, we would need to see about a ¾-percentage-point decline in the unemployment rate forecast or a ½-point increase in the year-on-year core inflation forecast for Fed officials to consider any monetary tightening (including an announcement of asset run-off). Conversely, it would take a 1¼-point increase in the unemployment rate forecast or a 1-point drop in the core inflation forecast for additional easing moves.
Our analysis therefore suggests that larger surprises than those seen in recent weeks are needed for the FOMC to move out of its zone of inaction. We conclude that the unexpected weakness in growth and uncertainty about the effect of temporary factors will keep policy and, most likely, policy communication unchanged for the foreseeable future.
The implication of this analysis for next week’s FOMC press conference is that Chairman Bernanke is likely to stay far away from indicating any changes in the policy stance. Most likely, he will be “balanced” by emphasizing both the disappointment in the activity indicators and the higher inflation data. So the press conference is unlikely to be pleasant for either the chairman or his audience.

Almost all financial commentators talked about this development from the authorities in London England:
( would like to thank all of you who saw this and sent it down to me)
Wall Street Gets Eyed in Metal Squeeze

by Tatyana Shumsky and Andrea Hotter
Friday, June 17, 2011
Goldman Sachs Group Inc. and other owners of large metals warehouses are being scrutinized by the London Metal Exchange after being accused by users like Coca-Cola Co. of restricting the amount of metal they release to customers, inflating prices.
The board of the LME met on Thursday to discuss complaints from aluminum users and market traders, who say operators of warehouses, which also include J.P. Morgan Chase & Co. and Glencore International PLC, should be forced to allow the metal out more quickly to meet demand. Aluminum prices have jumped 13% since the start of 2010 even though economic growth had been tapering off. Aluminum for delivery in three months on Thursday closed at $2,557 a metric ton on the LME, down 1.3% on the day.
Goldman, through its Metro International Trade Services unit, owns the biggest warehouse complex in the LME system, a series of 19 buildings in Detroit that house about a quarter of the aluminum stored in LME facilities.
Coca-Cola and other consumers say that Metro in particular is allowing the minimum amount of aluminum allowed by the LME—1,500 metric tons a day—to leave its facilities, and that Metro could remove much more, erasing supply bottlenecks and lowering premiums for physical delivery in the process.
Coca-Cola, which has complained to the LME, says it can take months to get the metal the company needs, even though warehouses are allowing aluminum to come in much more quickly. Warehouses, meantime, collect rent and other fees.
"The situation has been organized artificially to drive premiums up," said Dave Smith, Atlanta-based Coca-Cola's strategic procurement manager. "It takes two weeks to put aluminum in, and six months to get it out."
As a result of the complaints, the LME is considering changing its rules for warehouses, which would effectively double the minimum daily amount of metal that must be released.
"Metro has followed and will continue to follow the LME's possessive rules," said a Goldman Sachs spokesman. J.P. Morgan and Glencore declined to comment.
In recent years, major investment banks like Goldman and J.P. Morgan and commodities houses like Glencore have been snapping up warehouses around the world, turning the industry from a disperse grouping of independent operators into another arm of Wall Street. The LME has licensed about 600 warehouses around the world.
Glencore bought the metals-warehousing operations of Italian family-owned Pacorini Group and J.P. Morgan bought Henry Bath as part of its purchase of some of the commodities assets of RBS Sempra.
The transformation has raised questions about whether the investment banks, which also have big commodity-trading arms, are able to use their position as owners of warehouses to manipulate prices to their advantage.
The warehousing issue alarmed one trader enough to seek government intervention. Anthony Lipmann, managing director of metals trader Lipmann Walton & Co. Ltd., gave evidence to the U.K. House of Commons Select Committee in May 2011, raising concern about large banks and trading houses owning facilities that store other people's metal.
The banks have said they have walls between their various operations.
It also has raised questions about how they handle the materials, said Edward Meir, senior commodity analyst at MF Global. "Who's watching over situations involving whose metal is getting in and out first?" said Mr. Meir. "Who has priority?"
The U.K.'s Office of Fair Trading dismissed concerns that ownership of warehouses gives certain market players an unfair advantage, saying on Tuesday that there were no "obvious competition issues that would merit further investigation at this stage."
Goldman's Detroit warehouse holds about 1.15 million tons out of a total 4.62 million tons in LME-approved warehouses.
Since Goldman bought Metro early last year, the wait time for aluminum delivery in Detroit has increased to about seven months.
Metro charges its customers 42 cents a day for storing one metric ton of aluminum in Detroit, which is about the industry average. At 900,000 tons in the warehouses, Goldman is earning $378,000 a day on rental costs, or about $79 million in seven months.
"Warehouses are making a lot more money," said Jorge Vazquez, managing director of aluminum at Harbor Commodity Research. Goldman is "really the winner clearly, because if you want to take metal away from the location, you have to wait up to 10 months to get your metal out, and in the meantime you're paying rent."
Metro, meantime, is taking in metal. Metro also offers cash incentives to producers like Rio Tinto Alcan to store their metal in Metro's sheds for contracted periods, sometimes as much as $150 a ton, according to traders.
Once the metal is in the warehouse, the producers sell ownership to this metal on the open market. The new owner can't collect his metal for seven months because of the bottleneck. For that period, the new owner is stuck paying rent to Metro.
"The system is set up like a funnel, so you can dump large amounts of metal in the front end and only get a little out at the back end," said David Wilson, director of metals research at Société Générale SA. "It enables a situation where the rules of the warehousing system are taken advantage of."
Aside from warehouses, producers of the metal are benefiting, because they are able to charge more for their metal. Klaus Kleinfeld, chief executive of Alcoa Inc., said in an interview that supply-and-demand factors are leading prices higher.
"You can't blame the warehouses," Mr. Kleinfeld said.
U.S. aluminum sheet maker Novelis sent a letter to the LME in May "expressing concerns" about the warehousing situation, a company spokesman said.
The complaints led the LME to commission an independent study into the issue last July. That study recommended a sliding scale be adopted, rather than the fixed minimum of 1,500 tons a day. That would result in larger warehouse complexes being required to release more metal.
It effectively doubles the minimum amount required to be relinquished by Metro each day. The ruling would go into effect in April. The LME board on Thursday, however, failed to reach a consensus on the recommendations.
The LME warehousing system is designed to be the market of "last resort," meaning that industry can use it to sell excess stock in times of oversupply and as a source of material in times of extreme shortage.
But it has become the go-to market, in part because of the hefty cash incentives being offered by warehouses to store the metal.
The situation is made more aggravating for metal consumers because supply has far outweighed demand for most of the last decade, and there is more than 4.5 million metric tons of surplus metal stored in LME's warehouse system.
-- Matt Day and Liam Pleven contributed to this article.

Many of you are speculating why did the COMEX lower margins on gold with this ancient metal of Kings rising close to its zenith. Silver margins remain high despite silver lower in price

I really like James McShirley of GATA with his reasoning:
The latest reduction in margin requirements for gold is a blatant attempt to siphon speculator interest away from July silver prior to option expiration and first notice day. This is the clearest signal yet that they are on the ropes with silver delivery. At the prior spec margin of $6,751 for gold it already enjoyed leverage of 22.81 - 1, based on $1,540 gold. By decreasing margin requirements to $6,075 they have increased leverage another 11% to 25.35 - 1. This is totally irrational when you realize silver is mired in leverage of only 8.30 - 1, based on $35.85. Gold already had 315% more leverage than silver, yet by reducing gold margins further it now is a whopping 350% higher! This is even more absurd when you realize gold is only 2 1/2% off its all-time high, while silver is still 28% lower than its most recent top. Any CME talk of risk modeling is pure rubbish when leverage of 22 - 1 is increased further to 25 - 1, while silver is clamped at 8 - 1. All risk models must factor leverage ratios, and the CME has thrown that out the window in favor of protecting silver shorts.
I'm sure they think they can better control (and rig) the new spec interest coming into gold futures. There's probably at least a few hedge funds dumb enough to pull out of silver in favor of gold. After all, they can buy 3 1/2 gold future contracts for every 1 silver contract. The CME just tipped their hand BIG time IMO, and they are pulling out all stops before the end of the month. When the silver market blows up it will then be obvious to all that the CFTC was nothing more than an illusion of enforcement, and in reality a PR division of the banking cartel.

USA sentiment continues to deteriorate:  (courtesy Reuters)
US consumer sentiment worsens on economic jitters
NEW YORK, June 17 (Reuters) - U.S. consumer sentiment worsened more than expected in June on renewed concerns about the outlook for the economy, while worries about inflation eased modestly, a survey released on Friday showed.
Consumers remained pessimistic about stagnant incomes and job prospects, and their view of their own finances was largely unchanged at negative levels, the Thomson Reuters/University of Michigan survey showed.
The preliminary reading on the overall index on consumer sentiment was 71.8, down from 74.3 the month before. It was below the the median forecast of 74.0 among economists polled by Reuters.
Even so, the data gave little evidence a new downturn is underway, with most consumers believing the last recession had not yet ended, the survey found.
"The majority of consumers are as convinced today as they were two-and-a-half years ago that their incomes will not increase, and the majority anticipate that the unemployment rate will remain stuck at about its current level for the foreseeable future," survey director Richard Curtin said in a statement.
The survey's barometer of current economic conditions fell to 79.6, its lowest level since October 2010, from 81.9 in May.
The current personal finances gauge dipped to 82 from 83, while expected personal finances edged up to 107 from 106.
The survey's gauge of consumer expectations slipped to 66.8 from 69.5 and below a predicted reading of 68.6.
The survey's one-year inflation expectation fell to its lowest since February, to 4.0 percent from 4.1 percent. The survey's five-to-10-year inflation outlook was at 3.0 percent, edging up from 2.9 percent.


Dave from Denver over at his site the Golden Truth discusses how Ron Paul should address the gold at Fort Knox
and also audit the comex:  (courtesy Dave from Denver)

FRIDAY, JUNE 17, 2011

The Fed Wages Its War On Gold On Behalf Of Fraudulent Paper Money

Question:   If you were advising the Federal Reserve, what would you say are the unsolved economic problems of the day?

Milton Friedman:  One unsolved economic problem of the day is how to get rid of the Federal Reserve.   - January 1996 interview on NPR

Ron Paul has been aggressively seeking an official, independent audit of the gold that is supposedly being held at Ft. Knox on behalf of all U.S. citizens.  Such an audit has not taken place since Eisenhower was the President?   What gives there?  In the face of mounting criticism and citizen requests for this audit, why does the Treasury ignore this issue?  What does it have to hide?

At this point, anyone who looks at the Treasury financial statements is placing their "full faith" in the belief that the Government is honestly reporting its numbers.  Does anyone really believe that the economic numbers  the Government publishes on a weekly basis?  Everyone believe that the Government is telling truth about why we're spending trillions on wars in Iraq, Afghanistan and now Libya? 

The Fed has been spending millions to fight all of the recent Freedom Of Information Act requests, which have been filed so that we can see what the Fed is doing secretly with our money - especially now that most of what Fed does has a guarantee on it by the Treasury.  Most notably for me is the GATA request that we get to see what kinds of transactions the Fed has been in engaging in with OUR gold.  It is highly likely that the 8100 tonne book entry on the Treasury balance sheet is just another electronic entry on a piece of paper.  How about we get to take a look at the actual physical gold that is supposedly represented by that electronic entry?  How about we get to see if that gold has any legal encrumbrances attached to it like Federal Reserve gold swaps and leasing transactions?

An audit needs to be done and it needs to be done under the full, transparent scrutiny of all U.S. citizens who would like to watch it happen.  And of even more immediate concern, at least to me, is the drain on physical gold and silver occurring at the Comex.  It's kind of spooky the way unencumbered physical silver is being, and has been, "sucked" out of the system (Comex, SLV) over the past couple months. As much as I want to see Ron Paul force an open audit of Ft. Knox, I'd love to see an open audit of the Comex. I believe the Comex problem is the Achilles Heel of this whole mess.

It wouldn't take much to stage a run on the Comex. And when that occurs, if it turns out that the Comex is unable to make deliveries of actual physical metal and instead changes its rules and defers to cash settlement of contracts, that's when all hell will break loose.  I would then expect that GLD and SLV will head south quickly in price while the global spot price of gold and silver head for the moon.  The slight inversion in silver futures will go nearly verticle and the dollar index will go into a serious tail-spin.  But how about we just start with a simple audit of Ft. Knox? 
Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it becomes, marked: 'Account overdrawn.'  (famous speech by Francisco D'Anconia in "Atlas Shrugged"


Over at Jim Sinclair's website we have two important commentaries.  The first deals with retail sales plummeting and the second on Bill Gross sniffing the end game:
(courtesy:  James Sinclair

The first commentary:

Retail Sales Haved Rolled Over CIGA Eric
US economic growth is largely consumption driven. The charts below clearly illustrate that consumption peaked in late 2010 to early 2011. Falling consumption means slowing economic growth, and slowing economic growth means lower federal receipts while outlays remain at record levels at the federal level. In other words, cries of “save me” from an increasing number of US households and further pressure on USA, Inc.
Real or CPI-Adjusted Retail Sales (RRS) and YOY Change clip_image001
Gold-Adjusted Retail Sales (RSGLDR) and YOY Change clip_image002
Headline: US retail sales show first fall in 11 months
US retail sales fell in May for the first time in nearly a year as supply constraints curtailed sales of new cars and consumers remained generally cautious.
Separately, higher fuel costs lifted producer prices, but the increase was much slower than in recent months.
Retail sales were 0.2 per cent lower in May, the US commerce department said, following April’s revised 0.3 per cent rise. The decline was less steep than the 0.5 per cent drop expected by economists polled by Bloomberg, but was the first monthly fall in sales since June 2010. On an yearly basis, sales rose 7.7 per cent.

The second commentary on Bill Gross:
Bill Gross Smells End Game Approaching CIGA Eric
The US has been engaging in stealth default for years. For example, gold was removed from circulation and made illegal for citizens to own in 1934. Silver was removed from circulation in 1964. Also, the international gold window was closed in 1971. The stealth default, or paying debt in constant dollars, has been going on for years. Bill Gross has moved to a defensive position because he realizes the stealth default game has a finite (not infinite) duration. The movement of money speaks louder than words in this business.
Headline: The Vigilante
Why the man who runs the world’s largest mutual fund sold all his Treasury bonds
And after that? I asked Reinhart the same question I asked Bill Gross: Is the U.S. government going to default on its debt?
Like Gross, she thinks such a scenario—​which she calls “debt with drama”—is unlikely. Instead, she predicts that the United States will engage in “financial repression,” a sort of stealth default. Financial repression relies on inflation, regulation, and fancy accounting instead of forced restructurings, or outright refusal to pay. In 1932, for example, New Zealand did a “voluntary” debt swap that converted short-term debt to longer-term debt at lower interest rates. “You look at this deal and you ask yourself, ‘Why would anyone do this? It’s insane,’” says Reinhart. “And then you see that they changed the tax rules, so that if you didn’t do the swap, you’d lose a ton of money.”


Finally here is an article from Racine Wisconsin where the public are angry over cuts to school funding
and may sue:  (courtesy Jim Sinclair commentary)

Racine Unified may sue over state cuts to school funding CIGA Eric
This highly charged, still largely theoretical partisan debate will turn nonpartisan "what do we do now" panic as the consequences of turning off the liquidity spigot begin to emerge between 2012 and 2013. Tread carefully gentleman, the road to balancing the budget through fiscal austerity is mined with economic and social consequences that will make today’s high-charged, theoretical debate look like an ice cream social in comparison. Right now the battleground is Wisconsin.
Headline: Racine Unified may sue over state cuts to school funding
RACINE – The state budget passed by the legislature and awaiting Governor Walker’s signature cuts public school funding by $800 million dollars over two years. School officials in Racine say those cuts will hit the district especially hard and officials are considering legal action to rectify things.
The Superintendent of the Racine Unified School District, Dr. James Shaw, has written previous blog entries about the cuts his district would face if the budget proposal were to be passed. He indicated he thought his district would be hit hard because it is "property poor" compared to other districts of similar size and population. He cited examples like Madison, Green Bay, Kenosha, and Appleton. The blog post continued on in part to say:
"The Racine community has provided strong financial support for many years through local property taxes. The state also has a responsibility to provide financial support for the Racine Unified School District so that Racine children are provided a quality education comparable to other Wisconsin school districts."

Well that about does it for this week.
I would first like to wish all of you a grand weekend.
I would like to wish all of our fathers out there a very
happy fathers day and to all our mothers who did all
the work so that we could become fathers.

Happy fathers day

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