Saturday, July 16, 2011

Gold closes at record levels in dollars, pounds, rand and Euros.

Good morning Ladies and Gentlemen:

Even though we had options expiry on the shares yesterday, gold and silver advanced despite the blatant manipulation by the bankers. Gold finished the comex session at $1589.80 up 80 cents.  The price of silver
rebounded past the 39 dollar barrier finishing the session at $39.06 up 37 cents.

In the access market, gold and silver advanced further:

Gold:  $1594.10
Silver:  $39.27

In a nutshell, the banking cartel got stuffed.

Let us head over to the comex and see how trading fared yesterday.
The total gold comex open interest fell by 3186 contracts from 531,753 to a reading yesterday  (basis Thursday) of 528,567. We had a great day price wise with gold on Thursday so we lost a few bankers who covered some shorts at gold's lofty heights. The front options expiry month of July saw the open interest fall from 87 to 31 for a drop of 56 contracts.  We had 60 deliveries on Thursday so all of the drop was due to the deliveries and we also gained a few ounces of gold standing.  We are now a little more than two weeks to go before first day notice in the August contract. Here the OI fell from 287,096 to 273,695.  The estimated volume at the gold comex on Friday came in at a rather tame 135,012 when you factor in the switches.
The confirmed volume on Thursday was a monstrous 231,260.  It was here that the bankers supplied the massive non backed gold paper and this weekend they are sulking in their misery.

The silver comex OI fell marginally from 116,168 to 115,389 for a drop of 779 contracts.  Mysteriously the OI for the front delivery month rose from 420 to 480 for a gain of 60 contracts. We had only 6 deliveries on Thursday so we lost zero oz to cash settlements and finally we gained in some silver oz standing.  The next front month is September and here we witnessed the OI remain constant at 60,484.  The estimated volume at the silver comex was 61,055 which was quite tame.  The confirmed volume on Thursday was much better at 83,454.

Here is the chart for 7/16/2011 regarding deliveries and inventory changes at the comex. 

Withdrawals from Dealers Inventory
Withdrawals fromCustomer Inventory
132( Brinks, Manfra)
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)  today
0 (zero)
No of oz to be served  (notices)
 3100 oz (31)
Total monthly oz gold served (contracts) so far this month
 16,800 (168)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

The gold inventory movements were tiny yesterday.
We only had 132 oz of gold withdrawn from Brinks and Manfra. 
And that was it.  There were no adjustments.

The registered inventory (dealer) for gold remains at 1.58 million oz.
The comex folk notified us that zero notices were filed so the total number
of notices for the month remain at 168 for 16800 oz of gold.
To obtain what is left to be served, I take the OI standing (31) and subtract out
yesterday's deliveries (zero) which leaves me with 31 notices or 3100 oz left to be served upon.

Thus the total number of gold oz standing in this non delivery month is as follows:
16,800 oz (served)  +  3100 (oz to be served)  = 19,900 oz or .618tonnes
(we gained 400 oz standing from Thursday.

And now for silver 

First the chart:

Withdrawals from Dealers Inventory
Withdrawals from Customer Inventory
 2157 (Delaware) 
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
 601,937 (Scotia,HSBC) 
No of oz served (contracts)  today
455,000 (91)
No of oz to be served  (notices)
1,970,000  (394)
Total monthly oz silver served (contracts) so far this month
3,450,000 (690)
Total accumulative withdrawal of silver from the Dealers inventory this month
  nil oz
Total accumulative withdrawal of silver from the Customer Inventory this month.


Let us see how the silver movements fared today. Please note that for the entire month
we have had zero oz of silver withdrawn from the dealer to settle upon longs in this the biggest delivery month of the year.

The customer received a huge 596,701 oz into the Brinks warehouse.
The customer also withdrew a tiny 2157 oz from Delaware.

If you are keeping score, the net addition of silver into the comex was:  594,544 oz.
The big changes occurred due to adjustments.  There were two:

1.  9987 oz of silver leaves the customer to aid the dealer.
2.  a monstrous 552,102 oz leaves the dealer and enters the customer due to lack of an electronic warrant for a sell.

Thus the registered silver (dealer) falls to a record low of 26.81million oz
The total silver rises to 101.719 million oz. 

The comex folk notified us that a total of 91 notices were filed for 455,000 oz of silver.
The total number of notices filed so far this month total 690 or 3,450,000 oz.  To obtain what is left to be served, I take the OI standing (485) and subtract out Friday's deliveries (91) which leaves me with  394 notices left to be served or  1,970,000 oz.

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

3,450,000 oz (served)  +  1,970,000 (to be served)  =  5,420,000
we gained back the 355,000 oz we lost on Thursday.
It is very strange that we have 5.4 million oz of silver standing and not one ounce of dealer silver was withdrawn to settle upon our longs.


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:  July 16.2011 :

Total Gold in Trust

Tonnes: 1,236.01
Value US$:

Total Gold in Trust: July 14.2011:

Tonnes: 1,225.41
Value US$:

Wow! Our master magicians added 10.6 tonnes to their inventory.
Sprott Asset Management will probably take 2 months to get its 6.6 tonnes and these guys get 10.6 tonnes in a heartbeat.  My, they are so good at what they do.
In reality this is gold that moved from one cubby hole at the Bank of England to the credit to the GLD.  The GLD swapped the gold for cash.  The problem of course is that the Bank of England can unwind this swap and any time of their choosing.
The shareholders of GLD will get hosed!!

Now let us see inventory movements in the SLV:  July 16:2011

Ounces of Silver in Trust309,738,781.100
Tonnes of Silver in Trust Tonnes of Silver in Trust9,633.95

July 14.2011:

Ounces of Silver in Trust309,738,781.100
Tonnes of Silver in Trust Tonnes of Silver in Trust9,633.95

we lost zero oz of paper silver in the SLV.

1. Central Fund of Canada: it is trading at positive 4.7%  percent to NAV in usa funds and positive 4.2% in NAV for Cdn funds.  ( July 16.2011)

2. Sprott silver fund  (PSLV):  Premium to NAV rose slightly  to a  positive  19.32% to  NAV (July 16.2011
3. Sprott gold fund (PHYS): premium to NAV fell to a positive 3.12% to NAV  (July 16..2011).

Please note that the central fund of Canada had their shackles removed and are fleeing the banking cartel prison.  They are now well into the positives to NAV
The bankers are sweating bullets trying to cover the massive shorts that they put on with respect to the Central Fund of Canada.

The premiums for Sprott continue into the stratosphere  at 19.32%.
Even with a huge gold deal the premiums at Sprott gold remain firmly in the positive position at 3.12%

It is strange that Eric went for gold purchases and not silver.  Maybe the risk of a failure to deliver to him was just too great.

Let us now head over to the COT report and see what we can glean from this report which is released Friday at 3:30 pm.  It covers activity from July 5 through to July 12.

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, July 12, 2011

My goodness what a report.

Those large speculators that have been long piled more longs to the tune of a monstrous 42,626 contracts.

Those large speculators that have been short gold and are having many sleepless nights added another 2804 contracts to their short positions.

The commercials;

Those commercials that are close to the physical scene and are long in gold decided to take some profits and covered 9312 contracts.
And now for our famous commercial bankers who are perennially short gold:


Our heroes added a monstrous 32,935 contracts to their short positions.  They are meeting this weekend burning the midnight oil trying to figure out what to do!

The small specs:

Even these guys got into the mix this week.
Those small specs that have been long gold added a huge 4787 contracts to their longs and are very grateful this weekend.
However those specs that have been short gold added another 2362 contracts to their short positions and these guys are joining the bankers this weekend.

Now for 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, July 12, 2011

Those large specs that have been long in silver added another 1836 contracts to their longs and are very happy campers this weekend.
Those large specs that have been short in silver added a tiny 168 contracts to their short positions and guessed wrong.

And now for our commercials:
Those commercials that have been long in silver covered a rather large 2836 contracts.
And for our commercial banks like JPMorgan and cohorts that have been perennially short silver:

they added another 1203 contracts to their shorts.

The small specs in silver and still not in the game.

In summary:  the silver COT remains extremely bullish.
In gold;  the huge increase in banker shorts  means that a huge raid will be forthcoming.
Our regulators still do nothing on this massive fraud.


Let us now see some of the big stories of the day which will shape your investment decisions.

Yesterday we got the empire report and it was terrible as manufacturing contracted badly in the NY area: (courtesy Reuters)

NY Fed manufacturing growth contracts again in July

NEW YORK, July 15 (Reuters) - A gauge of manufacturing in New York State showed the sector unexpectedly contracted for the second month in a row as new orders worsened, the New York Federal Reserve said in a report on Friday.
The pace of decline did moderate somewhat in July from the month before, with the New York Fed's "Empire State" general business conditions index rising to minus 3.76 from minus 7.79 in June. However, it was still weaker than expected, since economists polled by Reuters had expected a reading of 4.50.
The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. In June the regional index had tumbled sharply, contracting for the first time since November 2010, but the larger national report for the month showed a modest uptick in the pace of growth.
New orders fell to minus 5.45 from minus 3.61, while shipments improved to positive 2.22 from minus 8.02.
Employment gauges worsened with the index for the number of employees at its lowest level since December 2010, falling to 1.11 from 10.20, and the average employee workweek index tumbling to minus 15.56 from minus 2.04.
The outlook for the months to come was less gloomy with the index of business conditions six months ahead rising to 32.22 from 22.45. However, the level of optimism was well below levels seen earlier this year, the report said.

Looks like QEIII will be needed with this lousy industrial output report:
(courtesy Reuters)

U.S. industrial output rises less than forecast
WASHINGTON, July 15 (Reuters) - U.S. industrial output rose modestly in June on strength in mining and utilities, but manufacturing production stagnated in part due to supply disruptions in the auto sector following a Japanese earthquake.
Industrial production climbed 0.2 percent last month, and May's slight gain was revised down to a 0.1 percent decline.
Economists polled by Reuters had been looking for a 0.3 percent increase.
Manufacturing stalled, however, according to the Federal Reserve data released on Friday. Taken as a whole, second quarter factory activity was the slowest for any quarter since the recession ended in the summer of 2009.
Capacity utilization, which gauges firms' performance relative to their full potential, was steady at 76.7 percent.
That was up 2.2 percentage points from a year earlier but 3.7 percentage points below the average from 1972 to 2010.


The consumer is 70% of GDP.  The consumer sentiment report showed the consumer is not spending:

US July consumer sentiment at worst since March 2009
NEW YORK, July 15 (Reuters) - U.S. consumer sentiment deteriorated in early July to the lowest level since March 2009 on increasing pessimism over falling income and rising unemployment, a survey released on Friday showed.
Confidence in government economic policies also curdled, the Thomson Reuters/University of Michigan survey showed. U.S. lawmakers are wrangling over a budget deal that would allow the government to raise the debt ceiling -- needed so the United States can fund its obligations next month.
The preliminary reading for the consumer sentiment index dropped to 63.8 in July from 71.5 the month before, falling far short of expectations of an increase to 72.5, according to a Reuters poll of economists.
The survey's barometer of current economic conditions fell to 76.3, the lowest since November 2009, from 82.0. The gauge of consumer expectations was also at its lowest since March 2009, tumbling to 55.8 from 64.8.
"Whenever the Expectations Index has been this low in the past, the economy has been in recession," survey director Richard Curtin said in a statement.
"Nonetheless, one month's data is insufficient to signal a renewed downturn, particularly if a last-minute agreement on the debt ceiling results in a partial restoration of confidence."
Overall, the data suggests real consumer spending in the second half of the year may be barely higher than the first half, the survey said.
The proportion of consumers that rated government economic policies as poor rose to 52 percent in early July, up from 40 percent in June.
The inflation outlook improved with the survey's one-year inflation expectation easing to 3.4 percent from 3.8. The five-to-10-year inflation outlook was at 2.8 percent from 3.0 percent.

The Fed's balance sheet ballooned again last week to 2.862 trillion dollars. (courtesy Reuters).
This is hyperinflation waiting in sheep's clothing!!

U.S. Fed balance sheet hits record size
NEW YORK, July 14 (Reuters) - The U.S. Federal Reserve's balance sheet grew to a record size in the week ended July 13 as the central bank bought more bonds in an attempt to support a fragile recovery, Fed data released on Thursday showed.
The central bank's $600 billion Treasury-buying scheme, known as QE2, ended on June 30. It now has to buy Treasuries under a program using the proceeds from maturing agency bonds and mortgage-backed securities.
The Fed's balance sheet -- a broad gauge of its lending to the financial system -- rose to $2.862 trillion in the week ended July 13 from $2.853 trillion in the week ended July 6.

As most of you know we are coming close to the deadline with the debt ceiling.
This Washington post story explains what the Government is intent on doing if no ceiling is lifted:

Debt limit: U.S. outreach to banks, investors over possible default comes up empty

Obama administration officials have been privately exploring with major banks and foreign investors whether the government could devise a way to avoid a severe disruption in financial markets if the federal debt ceiling is not raised, according to several people familiar with the matter.
Officials have discussed suspending some domestic spending in order to make payments to investors in U.S. bonds — which include domestic pension funds and the Chinese government — and possibly selling assets such as gold.

But the message back from the market has been discouraging: The failure to pay any significant obligations would scare away investors and undermine the financial system.
The market concerns were underscored late Thursday when the credit-rating agencyStandard & Poor’s announced there was a 50 percent chance it would downgrade the United States in the next three months — and perhaps as soon as the end of this month.
S&P said it was losing confidence that U.S. officials would raise the debt ceiling and also produce a plan to rein in the federal debt over the coming years. The agency said a failure to raise the debt ceiling would force the government to withhold payments to bond investors or sharply cut government spending, which could cripple the economy.
“The positions of the administration and the Republican leadership are still very far apart,” said John Chambers, S&P managing director. “The tone of the debate has made us wonder whether a compromise can be achieved.”
The Treasury discussions are part of emergency planning to deal with the fallout from a U.S. default that could occur Aug. 3 if President Obama and Congress do not strike an agreement to raise the federal limit on borrowing.
For the first time, the White House acknowledged Thursday that it had begun these preparations. Press secretary Jay Carney said that “it would be irresponsible not to” have a plan, without discussing specifics. But he said he remained confident that lawmakers would raise the limit.
The administration’s planning, described as preliminary, is picking up as markets begin to show signs of concern.
The statement by S&P followed a warning Wednesday from Moody’s Investor Services that the United States could face a downgrade if it does not raise the debt ceiling.
Also Thursday, the Chinese government, the largest investor in Treasury bonds, with more than $1 trillion in holdings, urged the United States to pay off its debts.
“We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors,” Foreign Ministry spokesman Hong Lei said at a briefing in Beijing.
One widely tracked financial indicator suggested growing concern among investors about a potential default. A type of financial insurance that investors buy to protect against default jumped 7 percent, reaching its highest point since early 2010, when the government was still shaking off the effects of the financial crisis.
Still, the expectations of a default in the next year, as measured by “credit default swaps,” remained low, at a 1-in-2,000 chance, according to Dow Jones Newswires. That compares with 1-in-5 odds that Greece, already in the throes of a massive debt crisis, will default.
The debt ceiling stands at $14.3 trillion, and the Treasury Department says it will run out of money on Aug. 2.
The department is projected to face a $20 billion shortfall on Aug. 3 and must pay back $87 billion in debt on Aug. 4. And Aug. 15, Treasury must pay $29 billion interest to bond investors.
But Treasury officials are deeply concerned they will not be able to make any of these payments if the debt ceiling is not raised.
For weeks, officials have been holding talks with the largest U.S. banks and investment firms, major U.S. asset managers, and major investors in Asia, the Middle East and Europe. Officials have been raising possible ways of preserving the United States’ pristine credit rating if the debt ceiling is not raised.
These solutions, which were first aired on Capitol Hill by Republicans skeptical of the debt limit, include making interest payments on the debt while dramatically cutting domestic spending. Another idea Treasury officials have discussed is selling U.S. assets such as gold, mortgages or student loans. Investors were all deeply skeptical of the proposed responses, people familiar with the discussions said.
Administration officials were told that a default and downgrade would scare away investors, such as pension funds and money-market funds, that can invest in only the highest-quality bonds, the people said.
And asset sales could cause chaos in the markets for those assets; speculators might bid extremely low prices to buy the assets, knowing the country desperately needs the money.
Beyond the hazard posed by leaving the debt ceiling unchanged, S&P also said a failure by the White House and Congress to come up with a compromise that trims $4 trillion from the deficit could lead to a downgrade of the credit rating. Negotiations between the White House and Congress have focused on reductions of half that size.
On Friday morning, The ECB released the results on the stress tests on European banks.
Many thought that they all will "pass".  Actually 8 big banks failed and this will further strengthen the Europeans desire to hold gold.  There is Monty Guild over at

Euro Stress Tests Great For Gold

Dear Jim,
I find myself even more bullish on gold than usual at this juncture. Although we have been bullish on gold for many years and have been very grateful for your wisdom and guidance on gold and many other areas, today I see a confluence of positive fundamental factors for gold from many regions. These are fundamental building blocks to help reach technical price objectives that you have outlined.
May I start with Europe and later write on other regions .
Although I understand that gold may have short term technical resistance at some higher levels, the fundamental background for gold and the argument for much increased demand for gold from Europe is stronger than it has been in decades.
We believe that a new wave of demand for gold is developing in Europe and will create substantial rises in price. Things look increasingly difficult for the European bond markets and European banks after the recent stress tests of European banks.
Even with very loose terms, 10 banks failed. More distressed debt will have to be sold by these and many other borderline stressed banks. Further, the paper they hold has not yet been marked down in value as it should be. This argues for further distressed debt sales. European investors seeing the problems in their banking system are opting for gold and will continue to make gold an ever larger part of their portfolios. With a de-levering and unstable banking system, any wise European will need to increase the proportion of gold in his/her personal investment portfolio. Professional investors from Europe are under even more pressure to add the stability and protection of gold to portfolios. This process of gold acquisition has been underway and we believe that it will accelerate.
In addition to holding gold and gold shares we are short European banks for those clients that sell short. We expect many more days of crisis on European sovereign debt before the euro loses some members who cannot take the pressure of remaining in the Euro and meeting the requirements for economic austerity that Germany will expect. Gold is of course the best instrument for investors to protect themselves from a decline in the value of the Euro, the Euro community and the sovereign debt crisis in that continent.
Respectfully yours,
Monty Guild


John Williams posted this on the price inflation:

Jim Sinclair’s Commentary
The latest from John Williams’
- Economy Falters as Key Indicators Put in Worst Performances
- Higher Energy Prices Create Broad Inflationary Pressures
- Despite Short-Lived Dip in Gasoline Prices June Annual Consumer Inflation Held at 32-Month High
- June’s Annual Inflation: 3.6% (CPI-U), 4.1% (CPI-W), 11.1% (SGS)
- Annual“Core” Inflation in a Steady Upside Move Since QE2

The USA announced its deficit for June and it came in as expected.
The deficit for the year will be in excess of 1.2 trillion dollars:

U.S. runs $43 billion deficit in June
Year-to-date deficit nears $1 trillion mark
By Robert Schroeder, MarketWatch
July 13, 2011, 2:26 p.m. EDT
WASHINGTON (MarketWatch) — The U.S. government ran a budget deficit of $43 billion in June, the Treasury Department reported Wednesday, pushing the year-to-date deficit close to $1 trillion.
The June deficit declined by $25 billion compared to the same month in 2010, and the $970.5 billion deficit for the first nine months of the fiscal year was $34 billion less than the deficit was in the first nine months of fiscal 2010.
The new numbers arrive as President Barack Obama and congressional leaders are trying to strike an agreement to raise the debt ceiling and cut long-term deficits. Obama’s budget projects that the deficit will hit an all-time high of $1.65 trillion this year before dropping to $1.1 trillion in 2012.
Adjusting for one-time transactions including a downward re-estimate in costs for the troubled asset relief program, the year-to-date deficit for fiscal 2011 would actually be $129 billion, or 11%, lower, Treasury said.
The government spent $293 billion in June and took in $250 billion, according to Treasury’s monthly budget statement.
The Treasury figures were about in line with an estimate released last week by the Congressional Budget Office.


This will be good for gold and silver as the refuelling of the ESF cannot be used because of the debt ceiling constraints:  (courtesy zero hedge)

Treasury To Stop Funding Its Market Manipulation Fund To Delay US Bankruptcy

Tyler Durden's picture

After pillaging the G Fund and Civil Service Retirement and Disability Fund (CSRDF), aka the Government retirement funds, Tim Geithner was just forced to resort to the final debt ceiling extension measure: suspending reinvestment in the Exchange Stabilization Fund, better known as the mechanism by which the Treasury manipulates the stock, bond and FX markets, often times indirectly (thank you Brian Sack and Citadel fat pipe) and on occasion with CIA assistance. What this means is that FX vol will likely hit unseen levels in the next several weeks as the Treasury's manipulative ways are strongly curtailed.
From the Treasury:
Update: As Previously Announced, Treasury to Employ Final Extraordinary Measure to Extend U.S. Borrowing Authority Until August 2
WASHINGTON – Today, the U.S. Department of the Treasury released the following statement from Jeffrey Goldstein, Under Secretary for Domestic Finance, regarding the use of the last of the four previously announced measures available to keep our nation under the statutory debt limit, suspension of reinvestment of the Exchange Stabilization Fund.

“Today, as previously announced, the Treasury Department will suspend reinvestment of the Exchange Stabilization Fund, the last of the measures available to keep the nation under the statutory debt limit.  In order to prevent a default on the nation’s obligations, Congress must enact a timely increase of the debt ceiling.”

The U.S. reached the debt limit on May 16, 2011, but the Treasury Department has employed three previous measures to temporarily extend our ability to meet the nation’s obligations.  Those measures, in order taken, are (1) suspending issuance of State and Local Government Series (SLGS) Treasury securities; (2) declaring a “debt issuance suspension period” of the Civil Service Retirement and Disability Fund (CSRDF); and (3) suspending reinvestment of the Government Securities Investment Fund (G Fund).

As previously stated in the May, June, and July monthly updates, taken altogether, these four extraordinary measures allow the Treasury to extend borrowing authority until August 2, 2011. 
Your rating: None Av
We had had a week full of Greek problems.  Now it is Portugal's turn:
(courtesy zero hedge)

Moody's Downgrades 7 Portuguese Banks

Tyler Durden's picture

Moody's which is already not all that loved in Portugal, is about to make some more friends after it just downgraded the 7 biggest Portuguese banks, all of which, incidentally, passed the Stress Test that nobody remembers any more.
Moody's Investors Service has today downgraded the debt ratings of seven Portuguese banks.

Today's rating actions were triggered by the downgrade of the rating of the Republic of Portugal to Ba2 from Baa1 last week.

The following banks have been downgraded:
(i) Caixa Geral de Depositos ("CGD"): long-and short-term senior unsecured debt and deposit ratings were downgraded to Ba1/Not-Prime from Baa1/Prime-2.

(ii) Banco Espirito Santo ("BES"): downgraded to Ba1/NP from Baa2/P-2.

(iii) Espirito Santo Financial Group ("ESFG"): downgraded to Ba2/NP from Baa1/P-2.

(iv) Banco Comercial Portugues ("BCP"): downgraded to Ba1/NP from Baa3/P-3.

(v) Banco BPI ("BPI"): downgraded to Baa3/P-3 from Baa2/P-2.

(vi) Banco Santander Totta ("BST"): downgraded to Baa1/P-2 from A3/P-2; BST's standalone BFSR downgraded to D+/Baa3 from C-/Baa2.

(vii) Caixa Economica Montepio Geral ("Montepio"): downgraded to Ba2/NP from Ba1/NP.

At the same time, the downgrade of the banks' debt ratings also triggered a downgrade of most of the banks' dated and junior subordinated debt and preference share ratings.

All these banks' debt, standalone and prime short-term ratings remain on review for possible downgrade, pending the finalisation of their deleveraging plans which they are currently discussing with Portuguese and European authorities.

A full list of affected ratings can be found on this link:

Separately, the ratings of the following three banks are unaffected by today's rating action:

- Banco Itau BBA International ("Itau"), rated Baa2/P-2/D+ (mapping to
Baa3 on the long-term scale).

- Banco Internacional do Funchal ("Banif"), rated Ba2/NP/D- (mapping to
Ba3 on the long-term scale).

- Banco Portugues de Negocios ("BPN"), rated B1/NP/E (mapping to Caa1 on the long-term scale)

Itau's ratings are not under review for possible downgrade, whereas the review for possible downgrade continues for Banif.


Today's rating action on Portuguese banks has been driven by the downgrade of the Republic of Portugal on July 5, 2011. (Please see "Moody's downgrades Portugal to Ba2 with a negative outlook from Baa1").

Moody's downgrade of the Republic of Portugal to Ba2 implies a weakened ability of the Portuguese government to support its banking system.
Moody's therefore assumes that the possibility of support from the government could not take a bank's rating to more than one notch above the government rating of Ba2, and that only banks with a standalone financial strength rating at or below the Republic of Portugal's Ba2 rating could therefore benefit from ongoing government support.

The banks whose debt ratings are affected by this are:

- CGD, BCP and BES (and indirectly ESFG, its holding company), whose debt ratings have been downgraded to Ba1 (Ba2 for ESFG reflecting structural subordination to its operating company BES).

- BPI, which has been downgraded to Baa3, the same level as its standalone rating (D+/Baa3).

- Montepio, whose downgrade to Ba2 is a reflection of both its lower standalone rating at D/Ba2 and of its lower systemic importance in Moody's view, as compared to CGD, BES and BCP.

Only Banif retains its current level of support, which is providing uplift for its debt rating to Ba2 from its standalone rating of D-/Ba3.

Moody's has also downgraded the BFSR of Banco Santander Totta by one notch to D+/Baa3 from C-/Baa2. While the review for downgrade referred to below will assess the wider implications of the sovereign downgrade for Portuguese banks' standalone strength, Moody's is of the opinion that the rising pressures on asset quality, profitability, liquidity and capital levels that Moody's sees as likely consequences of the government austerity measures, are limiting the standalone strength of banks to be not more than two notches above the sovereign rating of Ba2. Banco Santander Totta's debt ratings continue to incorporate two notches of support from its parent, Banco Santander S.A., (rated Aa2/ B- mapping to
A1 on the long-term rating scale; negative outlook).


All the above standalone financial strength and long-term debt ratings (including the ratings of Banif and the Prime short-term ratings of BPI and BST) remain under review for downgrade until the review of these banks' standalone financial strength rating can be concluded.

The ongoing review on all banks' standalone financial strength ratings will focus on the deleveraging plans currently under discussion between the banks and Portuguese and EU authorities and will be key to determining the banks' capital and funding strategies over the short to medium term. Moody's expects these plans to be finalised over the next couple of months, which should allow the rating agency to conclude the reviews in the first half of September.

Moody's review will also take into account the following factors, as previously highlighted in its press release of 7 July 2011: (i) the magnitude of banks' direct exposure to government debt; (ii) their exposure to risk factors that are interrelated with the sovereign's credit risk, such as market confidence and access to market funding;
(iii) the high degree of correlation between the macroeconomic factors that affect financial institutions' asset quality and the sovereign's financial health, which can be partly mitigated by geographical diversification.

The review will incorporate any further news regarding the support that is likely to be available to Portuguese banks from either the Portuguese government or other European authorities.

The ratings of BPN will be reviewed separately, once the privatisation process of the bank has been concluded. BPN's weak standalone profile at
E/Caa1 already reflects very weak credit fundamentals and is unlikely to drop further, provided that the government maintains its ongoing support for this fully government-owned entity.


Moody's has downgraded the senior subordinated debt ratings of seven banks in line with the downgrade of these banks' senior unsecured debt ratings.
Moody's has not yet removed systemic support for the senior subordinated debt issuances in Portugal, but expects to also assess this during the current review. If, at that point, Moody's assessment results in the partial or full removal of systemic support for subordinated debt, then the rating agency would consider further downgrades of this type of debt.


The one notch downgrade of junior subordinated debt of BES, BPI, Totta and Montepio -- for which no systemic support is incorporated -- to one notch below the dated subordinated debt reflects the risk differentiation between junior subordinated debt and dated subordinated debt due to the legal subordination of junior subordinated debt.

In the case of CGD, the junior subordinated debt and preference share ratings have been affected by the downgrade of the Portuguese sovereign, since Moody's incorporates support from the sovereign for all classes of debt instruments due to the parental role of the Portuguese government.
They are now notched off the Ba1 rating of CGD.

All of these ratings also remain on review for possible downgrade
Your rating: Non

Look at this story: a special meeting? Are we going to get a credit default signal?

Von Rompuy Just Tweeted A Financial Stability Meeting Will Be Held July 21: "Soft" Greek Default Coming?

Tyler Durden's picture

Herman Van Rompuy just tweeted the following:
I have decided to convene a meeting of the Euro area Heads of State or Government on Thursday, 21 July, at 12.00 in Brussels. Our agenda will be the financial stability of the Euro area as a whole and the future financing of the Greek programme. I have asked the preparatory work to be brought forward inter alia by the Finance Ministries.
Perfect timing for the announcement of a "soft" Greek default: just a day before the US debt ceiling legislative deadline. Are we going to see a major market crash next week just so everyone is reminded of what all is at stake?

Your rating: None Average: 5 (6 votes)


I will leave you with this commentary from Graham Summers who states that the current economic environment is like 2008 on steroids:  (courtesy Graham Summers, Phoenix Capital Research)

It's Going to Be 2008 on Steroids

Phoenix Capital Research's picture

The 2008 Crisis occurred when private US banks became so distrustful of one another’s balance sheet risk that interbank liquidity dried up triggering a systemic implosion in the unregulated derivatives market, particularly in Credit Default Swaps (which was a $50-60 trillion market at the time).

The Federal Reserve dealt with this situation by suspending accounting policies (permitting banks to lie about their true balance sheet risk), offering to backstop those banks with the greatest derivative exposure (JP Morgan, Bank of America, Goldman Sachs, and Citigroup), shifting trillions of dollars’ worth of toxic debt to the US balance sheet and then funneling trillions of new dollars into the banks most at risk of a derivative collapse (the banks I listed before).

In simple terms, the Fed attempted to paper over the problems of insolvency that were plaguing the large financial institutions. This scheme could have worked if the Fed had demanded that the large banks decrease their leverage, cease making the deals that created these problems and began regulating the derivatives market.

However, the Fed is run by spineless academics not financial professionals or real businesspeople. So the Fed did not implement any meaningful reform. All it did was temporarily slow the pace of systemic implosion and give Wall Street a “get out of jail free” pass.

From a philosophical perspective, the Fed removed the notion of “risk of failure” from Wall Street’s collective mind. As anyone who’s studied human behavior can tell you, without consequence for one’s actions most people will take their bad behaviors to the limit (I am not saying that there is no such thing as a principled person or one who lives a moral life… but generally speaking, most people, especially those who work on Wall Street where every move in focused on making more money, will take things to the max).

As a result of this, Wall Street went back to doing what caused the Financial Crisis in the first place: increasing leverage, fleecing clients, and paying its employees’ excessive salaries.

As a result of this, the financial system is once again overleveraged. Meanwhile, the large banks continue to be insolvent due to their gargantuan derivative exposure. Put another way, the financial system is primed for another 2008 episode. The very same issues that caused 2008 remain in place. Leverage is far too high. And the unregulated derivatives market remains a multi-hundred trillion dollar problem.

So this time around it will sovereign nations collapsing instead of just US banks. Yes, entire countries willdefault whether it be Greece, Italy, Spain, OR the US. There is no way we’ll be paying our debts off.

This in turn will kick off another 2008 episode as all the over-leveraged players (read: EVERYONE) will have to sell positions to meet margin/ redemption calls. However, this time around we’ll also see civil unrest as people lose their social safety nets (unemployment, social security, etc).

What will follow will be the equivalent of 2008 all over again, along with food shortages, civil unrest, outbreaks in crime, bank holidays, and the like. It will, in short, be like what’s going on in the Middle East today (though NATO won’t be bombing us).

If you’ve not taken steps to prepare for the coming Crisis, you can download my FREE report devoted to showing in painstaking detail how to protect yourself and your portfolio from the coming ROUND TWO of the Financial Crisis (round one wiped out $11 TRILLION in wealth).

I call it The Financial Crisis “Round Two” Survival KitAnd its 17 pages contain a wealth of information about portfolio protection, which investments to own, which to avoid, and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

Again, this is all 100% FREE. To pick up your copy today, go to and click on FREE REPORTS.

Good Investing!

Graham Summers

It is time to say goodbye for now.
I hope you all have a grand weekend and I
will see you Monday night.

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