Saturday, October 15, 2011

Solid Day for Gold and Silver/Dexia bailout dead in the water/Foreigners redeem massive treasuries

Good morning Ladies and Gentlemen:

Gold closed Friday afternoon at $1681.80 up $14.50.  Silver rose by 51 cents to $32.14.
The bankers are trying desperately to contain our two precious metals from rising. With the Dow rising, the fat fingers were not on the sell buttons that much.

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

The total gold comex OI fell by 3958 contracts to 436,578 from Thursday's level of 440,536.  We had a very small mini raid so we must have lost a few weaker longs.  The gold comex is certainly starting to trade like a strictly physical market.  The front delivery month of October saw its OI fall 4 contracts from 784 to 780.  We had only 1 delivery notice on Friday, so we lost 3 contracts to cash settlements.  The big December contract which will no doubt be a battle Royale between the bankers and long holders saw its OI fall by over 4000 contracts to 268,102.  The estimated volume continues to contract as players exit the crooked arena of the comex.  The estimated volume on Friday registered 85,871.  The confirmed volume on Thursday came it at 121,432.  The lighter volume certainly had an influence in the rising gold price.

The total silver comex OI rose by 1100 contracts to 101,327.  Many websites are reporting silver out at major bullion centers like the Perth Mint. The options expiry month of October saw its OI rise one contract from 125 to 126.  We had zero deliveries yesterday so we lost zero oz to cash settlements and gained 1 contract of silver standing.  The big December contract saw its OI rise from 59,580 to 60,306.  This too will be a big battleground come December.  The estimated volume was an extremely anemic 28,753 as most of our leveraged players abandoned ship.  They refuse to play with the crooks.  The confirmed volume on Thursday was also very light at 32,211.

Inventory Movements and Delivery Notices for Gold: Oct 15.2011:
 Chart for Oct. 

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
450 oz(Manfra)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
72,000  (72)
No of oz to be served (notices)
708,000  (708)
Total monthly oz gold served (contracts) so far this month
586,100 (5861)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

Again it is strange that we have seen no gold deposits into the dealer and no withdrawals by the dealer.
The only transaction was a customer withdrawal of 450 oz from Manfra.
We had no adjustments so the registered gold inventory at the gold comex remains at 2.286 million oz.

The CME notified us that we had 72 delivery notices for 7200 ounces of gold.  The total number of gold notices served so far this month total  5861 for 586100 oz.  To obtain what is left to be served, I take the OI standing (780) and subtract out Friday's deliveries (72) which leaves us with 708 notices or 70800 oz left to to be served upon.

Thus the total gold ounces standing in this delivery month is as follows;

586,100 oz (served)  +  70,800 (oz to be served)  =  656,900 oz or 20.43 tonnes of gold.
we lost 300 oz to cash settlements.

And now for silver 

First the chart:

Withdrawals from Dealers Inventorynil
Withdrawals fromCustomer Inventory306,274 (Scotia, Delaware,HSBC)
Deposits to theDealer Inventorynil
Deposits to the Customer Inventory659,309 (Delaware, JPM)
No of oz served (contracts)  nil (0)
No of oz to be served (notices)625,000 (125)
Total monthly oz silver served (contracts)2,620,000 (524)
Total accumulative withdrawal of silver from the Dealersinventory this month120,533
Total accumulative withdrawal of silver from the Customer inventory this month5,265,441

Again, no silver deposited to the dealer and no dealer withdrawal.

With respect to the customer deposits:

1.  65,167 oz into Delaware
2.  594,142 oz into JPMorgan.

total deposit:  659,309 oz

On the withdrawal side for the customer:

1.  982 oz out of Delaware
2.  253,110 oz out of HSBC
3.  52,182 oz out of Scotia

total withdrawal by the customer:  306,274 oz
we had no adjustments
The total registered silver remains at 30.97 million oz
The total of all silver rises to 106.43 million oz.

The CME notified us that again we had zero delivery notices for zero oz.
The total notices thus remain the same as Thursday at 524 for 2,620,000 oz
To obtain what is left to be served, I take the OI standing (126) and subtract out Friday deliveries (zero) which leaves us with 126 or 630,000 oz left to be served upon.

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

2,620,000 (oz served)  +  630,000 (oz to be served) =  3,250,000 oz. 
we gained 5000 oz of silver standing and lost nothing to cash settlements.


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.

Oct 15.2011:

Total Gold in Trust



Value US$:66,212,483,801.33

Oct 13.2011:




Value US$:65,344,961,693.56

we neither gained nor lost any gold oz from the GLD.

And now for the SLV for Oct 15.2011: 

Ounces of Silver in Trust320,037,236.600
Tonnes of Silver in Trust Tonnes of Silver in Trust9,954.27

Oct 13.2011;

Ounces of Silver in Trust320,037,236.600
Tonnes of Silver in Trust Tonnes of Silver in Trust9,954.27

no change in silver inventory for the SLV

1. Central Fund of Canada: traded to a positive 2.6 percent to NAV in usa funds and a positive 2.2% to NAV for Cdn funds. ( Oct 15.2011).
2. Sprott silver fund (PSLV): Premium to NAV rose to a   positive 21.44%to NAV Oct 15/2011
3. Sprott gold fund (PHYS): premium to NAV fell  to a 3.67% to NAV Oct 15.2011).

 The Sprott funds still command a great premium to NAV in silver and a positive to NAV in gold.
The shorters seem to have their way with the central fund of Canada.
Sprott's gold fund is showing great strength with its positive nAV.  


Friday evening saw the release of the COT report.

First let's discuss the gold COT which is from Tuesday, Oct 4.2011 through to closing comex time Oct 11.2011:

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, October 11, 2011

Those large specs that have been long in gold pitched a smaller number of contracts from last week to the tune of 1510 contracts.
Those large specs that have been short in gold covered 2856 contracts from their short side.

On now for our famous commercials:

Those commercials that have been long in gold and are close to the physical scene covered a very tiny 540 contracts from their long side.

Those commercials who have been short in gold from the beginning of time, added 3187 contracts to their short side.

The small specs who have been long in gold added 2962 contracts to their long side and are very happy campers this weekend.

The small specs who have been short in gold, added a tiny 581 contracts to their short side.
Summary:  I would say we are neutral in bullishness as far as the COT report with the bankers still supplying the non backed paper.

And now for the silver COT report:

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, October 11, 2011

The large speculators in silver that have been long remained resolute by dumping only 288 contracts from their long side.

Those large speculators that have been short in silver covered almost an equal amount of 336 contracts.

And now for our famous commercials:

Those commercials that have been on the long side and are close to the physical scene,
pitched a rather large, 1,994 contracts.

And our commercials who have been short from the beginning of time like JPMorgan continued on their covering ways to the tune of 89 contracts.

Small specs:  those that have been long in silver added 830 contracts to their long side and got it right.

Those small specs that have been short in silver feared the lay of the land and covered a rather large for them ,1027 contracts.

Summary:  silver continues to be more bullish from a COT standpoint.

Let us now see some of the big stories which shaped markets on Friday.

The big story was the release of the retail sales and the headline was a big increase to the tune of 1.1%.

(courtesy Reuters)

September retail sales rise on car sales

WASHINGTON (Reuters) - Retail sales rebounded in September at their fastest pace in seven months as consumers shook off some of their concerns about stock market drops and political gridlock, potentially giving new momentum to the weak economic recovery.
Sales rose 1.1 percent from a month earlier, boosted by strong auto purchases, the Commerce Department said on Friday. The reading beat the median forecast in a Reuters poll for a 0.7 percent rise. Sales growth during August was revised upward to 0.3 percent.
Consumer spending accounts for about two thirds of U.S. economic activity, and the Commerce Department data suggests growth at the end of the third quarter might have been stronger than previously thought.
Excluding autos, sales increased 0.6 percent in September, above forecasts for a 0.3 percent gain.
Sales of motor vehicles and parts rose 3.6 percent, the biggest gain since March 2010. That increase -- along with higher sales of furniture, gasoline and electronics -- made up for lower grocery store and building material sales. Spending at restaurants and bars also rose.
Consumer confidence rebounded modestly in September after dipping in early August to its lowest in more than three decades.
Confidence sank deeply over the summer when a bruising battle over the U.S. budget slammed stock prices and pushed the nation to the brink of default. Even with September's modest improvement, Americans were still more worried about the economy's outlook than at any point since 1980. The Thomson Reuters/University of Michigan's preliminary consumer sentiment survey for October will be released later on Friday and is expected to creep higher.
Stripping out sales of gasoline, autos and building materials, so-called core retail sales rose 0.6 percent in September.
Excluding the 1.2 percent rise in gasoline sales, retail sales were 1.1 percent.

John Williams of had the following headline comments on this.
You will note that his unemployment/underemployment SGS model is over 23%

The U3 is the government's own figures on unemployment.
U6 is the old format for calculating unemployment.  It adds back the many temporary unemployed who cannot find jobs and are temporarily on benefit rolls and have  failed to find work.
SGS uses U6 plus adding the permanent guys who cannot find jobs and the 99 weeks have passed without them finding work.  It also adds those working on temporary jobs or  part timers who desire a full time job.

(courtesy John Williams)

Have you ever wondered why the CPI, GDP and employment numbers run counter to your personal and business experiences? The problem lies in biased and often-manipulated government reporting.
Jim Sinclair’s Commentary
The latest from John Williams at
- The Great Downturn Deepens as Household Incomes Collapse
- September Retail Sales Gain Exaggerated by Poor-Quality Seasonal Adjustments
- Trade Deficit Still Suggests A Positive Contribution to Third-Quarter GDP

Dave from Denver comments that the retail sales is really a preliminary estimation and it involves seasonal
adjustments. As with other government figures, consider the release by the government as a total fabrication:

(courtesy:  the Golden Truth...Dave from Denver)


Don't Believe The Hype

The monthly retail sales report was released to great media hype, as the "preliminary estimated" retail sales number for September was calculated to be up 1.1% from August and exceeded the Wall Street Einstein consensus estimate. 

HOWEVER, and remember, with me "however" always surfaces when I pull up the actual data and take a closer look at it than does that babbling bald moron on CNBC.  Here's the report if you would like to peruse the numbers yourself:  LINK  Now for "however:"  First, please note that the reported headline number is a "seasonally" adjusted estimate using some fancy computer model, per the footnote to the report.  I would love to see how the model calculates these "adjustments" so we can see if they are even reasonable.  But this is a big problem with all Government economic reports.   

Let's look at a few of the notable data points that the brainless wonders on television are self-flagellating over.  Everyone is gushing about retail and auto sales.  But if you look at the second table on the above link, you'll note that by far the largest jump in sales came from the gas pump.  Has anyone noticed that despite a big drop in the price of oil, the price of gasoline seems to keep crawling higher?  I would suggest that a large component of retail sales for September came primarily from gasoline sales.  Is that good for the economy?  To be sure, it looks like auto sales jumped a bit, and that was confirmed by the recent monthly auto sales report for September which was released at the beginning of October.

"However,"  it appears to me that the increase in auto sales, especially at GM and Chrysler, are being fueled by the big increase in subprime auto loans:  LINK  Wait a minute - didn't we get into the trouble that hit in 2008 because of subprime lending?  We know that GMAC, the finance arm of GM, went bust and was taken over by the Obama Government.  It was recently reincarnated with Taxpayer money (now called "Ally") and once again jumped heavily into subprime auto lending - this time backed by YOUR money.  This is exactly why auto sales at GM and Chrysler appear to be strong.  I might also note that, per the good due diligence of, most of these auto sales end up in being shelved at dealers.  Please note that an auto manufacturer books a sale once the car is loaded on a train/truck and leaves the factory lot.  The dealer then pays for its purchase using "warehouse or floor" financing provided by...GMAC (You).  This is not an attribute of real, organic economic growth.

Now for the final fork-insertion into the hyped retail sales report, which we now know is likely overstated by "seasonal adjustments" and inflation and is skewed toward gasoline sales.  Shortly after the retail sales report, the Michigan Consumer Confidence Index was released and was substantially lower than the Einstein consensus estimate.  In fact:   "Confidence among U.S. consumers unexpectedly dropped in October as Americans’ outlooks for the economy and their finances slumped to the lowest level since 1980."  LINK 

Hmmm, that's not good.  The only remark I have to say about this is that this report further reinforces my view that the Government is overstating its retail sales estimates.  After all, does it seem likely that people are out spending an increasing amount of money that they don't have if their attitude and outlook on the economy is the lowest that it's been since 1980?  The golden truth of the matter is that the Government is stuffing GM and Chrysler auto dealers with inventory using Taxpayer money to finance the stuffing (the Government subsidizes leases and backstops Ally's subprime loans), making auto sales look better than they really are.  Moreover, it looks like most of the increase in retail sales, ex-autos, came from gasoline sales.

So for any of you who poisoned your mind by reading the calculated risk blog or watched CNBC/Bloomberg, please re-read the facts as I just presented them.  Then "here's what I wantcha all to do for me:"   celebrate the truth and Don't Believe The Hype:


As many of you know, I use the consumer sentiment number as a good gauge of economic activity as the consumer is 70% of GDP.  In a nutshell, the sentiment is lousy:

US consumer sentiment sags in Oct, expectations sour

NEW YORK Oct 14 (Reuters) - U.S. consumer sentiment unexpectedly slumped in early October as worries about declining incomes drove consumer expectations back down to the lowest level in more than 30 years, a survey released on Friday showed.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment sagged to 57.5 from 59.4 the month before. It fell short of the median forecast of 60.2 among economists polled by Reuters.
Consumers' outlook also deteriorated with the gauge of consumer expectations falling to its lowest level since May 1980 at 47.0 from 49.4. The index had fallen to this level in early September before being revised up at the end of the month.
The component has shed more than 20 points since the beginning of the year.
"Overall, the data indicate that a recessionary downturn is likely to occur," survey director Richard Curtin said in a statement.
"Even if the economy manages to avoid the formal recession designation by (The National Bureau of Economic Research), real consumer expenditures will not be strong enough to enable the more robust job growth that is needed to offset the negative grip of economic stagnation on consumer behavior."
Thirty-nine percent of consumers cited income declines as the reason why their finances have recently worsened, while 65 percent of all households expected no income increase during the year ahead. Both levels were the highest ever recorded by the survey.
The survey's barometer of current economic conditions dipped to 73.8 from 74.9.
Improvement in inflation expectations was a silver lining, with the one-year inflation expectation easing to 3.2 percent from 3.3 percent. The survey's five-to-10-year inflation outlook fell to 2.7 percent from 2.9 percent.

Globally, I look at the Baltic Dry Index to see how dry commodities are selling.
This measures the cost of moving grains and other dry goods on ships across the globe
especially to China.  We see that the index is rising so China is not dead yet:

Baltic Exchange Dry Index (BDI),
exponential average in red.
200 day exp. avr. green


Import prices are on the rise again and supports the rising BDI.
Inflation is gathering speed and we are facing major headwinds.

(courtesy Reuters)

U.S. import prices rise 0.3 pct in SeptWASHINGTON Oct 14 (Reuters) - U.S. import prices unexpectedly rose in September to post their largest gain in five months on higher fuel and food costs, according to a government report on Friday that pointed to some build-up in imported inflation pressure.
Overall import prices increased 0.3 percent, the Labor Department said, after falling 0.2 percent in August.
Economists polled by Reuters had expected prices to drop 0.3 percent last month. Import prices were up 13.4 percent in the 12 months through September.
Stripping out fuel and food costs, import prices rose 0.3 percent after increasing by the same margin in August.


I pointed out to you on Thursday a massive redemption of foreign bonds which is highlighted by this graph:

Bond Outflow suggests a monster move is rattling down the pipes. 
This is why the USA dollar has been hit hard this past week despite European problems.


The problems continue for Greece.  On Friday the government announced that its deficit for the coming year is now 15% of GDP instead of the projected 10%.  I found that this commentary
by Wolf Richter  ( to be a terrific summary as to why Greece has gotten into their mess and the massive public strikes that followed as the workers do not want to give up their lush benefits:

(courtesy Wolf Richter of

Greece's Extortion Game

testosteronepit's picture

By Wolf Richter

Civil servants of bankrupt Greece enjoy the most curious bonuses. Train engineers of the state-owned railroads, who make up to €7,000 a month, get an additional bonus for every driven kilometer. Their days off don't have 24 hours but 28 hours. Plus they receive €420 a month for hand hygiene, a bonus that other railroad workers also get. Bus drivers of the state-owned transportation firms in Athens are paid for the time they spend commuting, and if they show up on time, they're paid an extra €310 a month. Messengers for ministries get an extra €290 a month if they carry documents. Other ministerial workers get bonuses if they know how to use a PC. At the culture ministry, they get a clothing allowance. Workers at the partially privatized telecom OTE receive €25 a month for warming up company vehicles (investigation by Handelsblattarticle in German).
These bonuses are now on the chopping block that the bailout Troika (IMF, ECB, and EU) graciously placed in Greece's kitchen. After having reviewed Greece's finances for the fifth time, the Troika inspectors were satisfied—unlike the prior times when they left angry—and recommended that the next bailout installment of €8 billion ($11 billion) be released. In return, Greece must chop off ever bigger parts of its budget as it is now clear that privatizations won't produce the initially expected revenues. Still, the fiscal targets for 2011 won't be achievable. Greece's national debt of €350 billion will continue to balloon and will reach 166% of GDP by 2012. Hopeless, really.
The Troika inspectors will submit their official report at the G-20 meeting in Cannes on October 23. And the transfer will likely happen in early November. If not, Greece will go bankrupt by the end of November. However, Greek dates are in flux, like its finances. The original bankruptcy-date the Greek government brandished to extort more money was mid October. But when that didn't result in more money, Greece suddenly "found" €1.5 billion (Greece 'Finds' Treasure, Stays Solvent For Another Month).
But on the street, resistance is growing. In Athens, transportation workers, who make up part of Greece's 1.3 million civil servants, have shut down the public transportation system Thursday and Friday. Even taxis are on strike. Lawyers are on strike till October 19. Thursday, civil servants at the state-owned power company occupied its billing offices to prevent it from sending out the new electricity bills that now include a property tax—and a latent threat that if you don't pay your property tax, we'll cut off the juice. Seamen, hospital workers, and others will go on strike next week.
It's not just bonuses that are on the chopping block. Salaries of civil servants are too. And now the minimum wage caught the Troika inspectors' eyes—at €750 ($1,050) a month, it's higher than that of Spain, Portugal, and Poland, countries with a similar standard of living. To make Greece competitive, the inspectors will include a demand in their final report that the minimum wage be reduced, on the theory that it would create jobs (L'Expansionarticle in French). The reaction on the street will be interesting. But even more hardship is coming down the pike: they're going to have to pay their taxes.
"Tax fraud is a national crime, a national plague," announced finance minister Evangelos Venizelos in a speech to parliament on Friday (Zeitarticle in German). And apparently, he is trying to do something about it, maybe. An investigation by his ministry revealed that Greeks owe €37 billion ($50 billion) in back taxes. The majority, €32 billion, is owed by companies. To remedy the situation, the finance ministry will publish a list of 15,000 people who haven't paid their taxes. It identified fraudsters who owed more than €1 million. It further determined that 3,718 Greeks moved €5.5 billion out of the country during 2009 alone. Of them, 542 declared income of less than €1,000. That's just for the tax year 2009. The investigations of tax years 2010 and 2011 are ongoing. And for what it's worth, he announced that private companies would be recruited to help in the collection efforts.
Half-hearted measures at best. Publishing a list, I mean come on. And years late. They're supposed to mollify the taxpayers in Germany, France, and other Eurozone countries who will be forced to bail out the banks that got fat recklessly lending to the Greek government. American taxpayers will pay via the FMI. And the French banks are now in the hot seat. Yet...
"We don't have any doubt about the solidity of French banks," said the French government—a week after the collapse of Dexia. All eyes are now on Société Générale and BNP, which just got downgraded again. BNP is the world's largest bank with assets of $2.8 trillion, dwarfing France's $2.1 trillion economy. And they're desperately trying to sell assets to stay afloat: France's Fishy Denials as Mega-Banks Teeter.
Wolf Richter

The following zero hedge piece is interesting in that the USA who basically funds the IMF with their 17% veto has poured cold water on their expansion plans with respect to European bailouts.  This was released late last night:

At the conclusion of the zero hedge commentary Durden describes the credit default "event" which will cause without a doubt a "Lehman moment" and economic chaos (last two paragraphs):

(courtesy zero hedge)

US "Pours Cold Water" On IMF Expansion Plans, Leaves European Bailout To Europeans

Tyler Durden's picture

It is probably not too surprising that the negative news of the day, namely that the US has decided against expanding the IMF and thus leaving the European bailout to the Europeans (at least for now), was released quietly long after happy hour started on Friday. Yet that is precisely what happened after Reuters dropped a Friday night bomb that with hours before a communique is issued by the G20 in Paris, contrary to previous rumors and representation "U.S. Treasury Secretary Timothy Geithner and his Canadian and Australian counterparts poured cold water on the idea" of injecting $350 billion into the International Monetary Fund. As a reminder, the IMF expansion myth was one of the latest rumors floated today by none other than the tag team of Geithner and Liesman. It lasted less than24 hours but it served its purpose. The full on media onslaught of never ending lies has never been more acute, more relentless, and more blatant: with every central bank and trade surplussed nation all in, the very nature of the global ponzi is at risk.
From Reuters:
They (the IMF) have very substantial resources that are uncommitted," Geithner said.

German Finance Minister Wolfgang Schaeuble agreed the euro zone debt crisis was for Europe to solve, and expressed confidence that EU leaders would produce a plan at the October 23 summit that would be convincing for financial markets.

The United States is among countries keen to keep pressure on the Europeans to act more decisively to end the two-year-old debt crisis that began in Greece but has since spread to Ireland and Portugal and is lapping at Spain and Italy.

"The first priority here is for Europeans to put their own house in order," Australian Finance Minister Wayne Swan said.
The second priority is to get the world's solvent countries' future so deeply intertwined with that of the bankrupt ones, that letting Greece, and hence France, would result in a Global Assured Destruction.
G20 sources said most BRICS economies were in favor of bolstering the IMF's capital as a crisis-fighting tool.

"We have said this before and have conveyed this again, that if emerging economies and the BRICS are called upon to contribute, we can do it via the International Monetary Fund," one of the sources said. "India is open to it, China and Brazil are also okay with the idea."
The same China which on Monday had to bail out its banking sector, is somehow expected to provide billions to plus briefly an infinitely large European liquidity hole. But those billions are nowhere near as much as what the US taxpayer will have to shovel into the European money pit once Geithner's "cold water" announcement ends up steaming for a few days in a bidless stock market.
And while discussions over what form if any the expanded EFSF will take (a moot point as if a E440 billion expansion took Europe 3 months to ratify, a E3.5 billion version will certainly not be done before 2015) what seems to be increasingly under question is if the conditions of even the second Greek bailout will be satisfied.
The Franco-German crisis plan is likely to ask banks to accept bigger losses on their Greek debt than the 21 percent spelled out in a July plan for a second bailout of Athens, which now looks insufficient.

"It will be more, that's more or less certain," French Finance Minister Francois Baroin said., because the FT informs us that according to Greece itself any haircuts over 21% are out of the question:
The lead negotiator for private holders of Greek debt has said that investors are unwilling to accept greater losses on their bonds than the 21 per cent agreed in July, jeopardising eurozone plans to finalise a second Greek bail-out by the end of next week.

Charles Dallara, managing director of the Institute of International Finance, criticised European leaders on Friday for failing to allow the July deal to proceed. He said any greater losses imposed on Greek bondholders could prompt investors to sell the sovereign debt of other eurozone countries, destabilising the single currency.

We do not see that a compelling case has been made to reopen the deal,” Mr Dallara told the FT. “A deal is a deal.”

Securing a voluntary “haircut” from Greek bondholders has been the centrepiece of the second €109bn ($150bn) Greek bail-out after a German-led group of creditor countries demanded private investors bear more of the rescue burden so eurozone taxpayers would not be saddled with the entire bill, as in previous bail-outs.
So with all apologies to Mr. Baroin, his idealistic version of reality, in which CDOs magically self fund themselves, and in which Greek bond funded pension and retirement funds see 50% losses and virtually guarantee social instability and civil war, is about to fall apart.
Yet the real kicker is the following: the whole Greek "restructuring" with a bankruptcy is predicated upon the voluntary nature of the debt exchange transaction. And as we have now learned, it was voluntary up until 21%. At 21.01% it becomes involuntary... and hence triggers CDS according to even that most corrupt of deterministic organizations, ISDA.
And once there is an official Event of Default, and the multi billion CDS complex starts collapsing on itself, exposing the whole premise of "gross exposure is not net" due to bilateral netting for the lie it is, the not even the loftiest lies and the most incredible propaganda won't do anything to lift the offer in the EURUSD.

ECB Tells Belgium Not To Backstop Dexia Interbank Deposits, Says Bailout Plan May Be Against The Euro Charter

Tyler Durden's picture

If anyone is surprised that things in Europe will get massively surreal before this is all over, we suggest finding another thread. In the meantime, for the latest example of the utter chaos and "make it up as we go along" we go to the ECB which has just, in very polite terms, warned Belgium that its bailout-cum-nationalization plan may not be quite feasible. From Bloomberg: "The European Central Bank advised Belgium not to backstop Dexia SA’s interbank deposits and to avoid providing guarantees on debt maturing within three months because it risks interfering with the central bank’s monetary policy." Reading between the lines here, it means that the ECB is effectively telling national governments to not try and become their own central banks under the ECB's umbrella, which would likely result in not only in various sovereign downgrades (that is guaranteed) but in loss of conviction in the European Central Bank, something which the insolvent European continent and the insolvent hedge fund in its core, aka Jean-Claude Trichet Capital et Cie. which holds hundreds of billions of Greek bonds at par, can certainly not avoid. It gets better: "The ECB also said the planned debt guarantees for Dexia may last as long as 20 years, which is inconsistent with European Union guidelines for national support measures to be temporary in nature, according to a statement published on the Frankfurtbased central bank’s website and dated Oct. 13. Belgium sought the ECB’s opinion on draft legislation that would grant state guarantees on Dexia loans." Oops: the ECB may have just scuttled the currently envisioned Dexia bailout plan. Oh well, just like with the Greek 50% bond haircut, so here to it is now back to the drawing board.
More from Bloomberg:
Guarantees on interbank deposits “could entail substantial distortion in the various national segments of the euro-area money market by potentially increasing short-term debt issuance activity across member states,” the ECB said in the statement.
“It could also affect the transmission of monetary policy decisions.”
For those who may have already forgotten last weekend's key event, now largley forgotten and priced in, "Dexia obtained a pledge from the governments of France, Belgium and Luxembourg last week to backstop as much as 90 billion euros ($125 billion) of interbank and bond funding with maturities of as much as 10 years until 2021. The French-Belgian municipal lender, which is being broken up after concern over its European sovereign debt holdings caused short-term funding to evaporate, sought state guarantees to finance long-term assets including 95 billion euros of bonds with an average maturity of almost 13 years at the end of June."
And the ECB just said that this whole plan may be against the Eurozon'e charter.
Good work guys. One can be 100% certain the rating agencies are following this with great interest.
* S&P cuts Spain rating by one notch on weak growth: Reuters noted that S&P cut Spain's credit rating on Friday to AA- from AA, citing unemployment, tightening credit and high private-sector debt. The outlook remains negative Recall that Fitch made a similar move last week. In response to the downgrade, Spain's Treasury said in a statement that "S&P underestimates the scope of the unprecedented structural reforms undertaken, which will obviously take time to bear fruit." The article also noted that a senior official told the FT that Spain will have a "difficult" time meeting the 6% deficit target (the WSJ also has a story discussing the deficit risks).

Jim Rogers Sees Devastating Stagflation, Would Quit If He Was A Bond Portfolio Manager

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Now that we already had one notorious bond bear in the house with a late afternoon appearance by Bill Gross, who in a very polite way, apologized and said that while he may have been wrong in the short-term, he will be proven correct eventually, it is now time for the second uber-bond bear to make himself heard. In a CNBC interview with Jim Rogers, the former Quantum Fund co-founder, who back in July said he was had shorted US Treasurys, exhibited absolutely no remorse, instead reiterated a 100% conviction in his "bond short" call: "Rogers said when there is a bubble, such as the one being experienced in U.S. Treasurys, prices could go up for long periods of time. Bill Gross of Pimco, who also had a bearish view on Treasurys, threw in the towel earlier this year. But Rogers is sticking to his opinion that Treasurys will eventually fall. "Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse." The reality is that while Bill Gross has to satisfy LPs with monthly and quarterly performance statements (preferably showing a + sign instead of a -), the retired and independently wealthy Rogers has the luxury of time. And hence the core paradox at the heart of modern capital market trading: most traders who trade with other people's money end up following the crowd no matter how wrong the crowd is, as any substantial deviation from the benchmark will lead to a loss of capital (see Michael Burry) even if in the longer-term the thesis is proven not only right, but massively right. Alas, this means most have ultra-short term horizons, which works perfectly to Bernanke's advantage as he keeps on making event horizons shorter and shorter, in the process killing off any bond bears which unlike Rogers can afford to wait, and wait, and wait.
On whether the US is becoming a deflationary Japanese-style basket case:
"A difference is when Japan did that they were the largest creditor nation in the world, America is the largest debtor nation - not just in the world - but in the history of the world and the U.S. dollar has been - and is the world's reserve currency. So there are some factors that might not keep the interest rate down in the U.S.
Ok, so no deflation. What then?
The U.S. economy is likely to experience a period of stagflation worse than the 1970s, which would cause bond yields to spike, commodity bull Jim Rogers told CNBC on Friday in Singapore. Rogers said governments were lying about the inflation problem and the recent rally in Treasurys was a bubble.

"As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds - somewhere along the line we get to the point when (bond prices) go down."

Between 1974 and 1978 average inflation in the U.S. was at 8 percent, while unemployment hit a peak of 9 percent in May 1975. Currently, unemployment is at 9.1 percent while CPI is at 3.8 percent.
"This time is never different" and why the mother of all stagflations is coming soon:
Rogers believes inflation will get much worse this time because, he
said, in the 1970s only the Fed was printing money, whereas now many
global central banks have been easing monetary policy.
So yes: he will be right eventually... But what about in the interim?
"Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse."

For now though Rogers is playing it safe and avoiding bonds. Instead, he's betting on stagflation by being long commodities and currencies (such as the Chinese yuan) and shorting stocks.
Rogers even has some career advice for up and coming bond mavens:
"I wouldn't advise anybody to buy bonds, I would advise you to sell bonds," he said. "If I were a bond portfolio manager, I would get another job."
Ok, well, make that anti advice.
As to where the money will be made...
"In the 70s you didn't make much money in stocks, you made fortunes owning commodities," Rogers added.

Guest Post: You Don’t Need A PhD In Economics– You Just Need To Understand Basic Arithmetic

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Submitted by Simon Black of Sovereign Man
You Don’t Need A PhD In Economics– You Just Need To Understand Basic Arithmetic
We recently received a note from a German journalist writing for a national paper there. He asked, “Simon, German politicians swear to support the well-being of the German people. Given this, what would you advise the German government about the euro– keep saving it? Or let everything fail regardless of the consequences?”
Europe and the United States have much in common in that their sovereign debt problems are really quite simple to understand. You don’t need a PhD in economics– you just need to understand basic arithmetic.
In the US, for example, the government does not collect enough tax revenue to cover even the most basic services that society deems sacrosanct: defense [offense], social security, and Medicare.
In 2010, the federal government collected $2.2 trillion in tax revenue and spent north of $2.5 trillion just on those three programs– already $300 billion in the hole. Everything else– the post office, Homeland Security, the FAA, the FDIC, even the light bill at the White House– is funded by debt.
That includes the most peculiar debt-funded item– interest on the debt. The US government has to borrow money just to pay interest on the money it has already borrowed. This is unsustainable, it’s simple arithmetic.
Europe’s problems can also be explained as simply. Greece effectively has no money, and its only access to capital is continued bailouts. There are four options for the country being discussed:
1) Austerity. Not only is this politically unpopular, it causes social unrest. People won’t stand for it… nor will they be able to pay enough police officers to beat them back with batons. The populist uprising will squash any meaningful austerity plan.
2) “Grow its way out”. Not possible. When you count public and private debt together (roughly 260% of GDP), Greece is spending roughly 15% of its entire GDP just on interest payments. That’s an incredibly high barrier to growth.
3) Inflation. Ordinarily, governments would just print their way out… but this isn’t even possible right now because Greece doesn’t control its own printing press.
4) Default. Result? Set off a chain reaction of banking failures and a derivatives meltdown. Utter financial carnage. Nobody wants to see this.
Germany is particularly focused on #4. Many German banks would suffer or fail as a result of a Greek default, sending a terrible ripple throughout the economy.
It’s understandable that politicians want to avoid this scenario and are willing to pay a high price to do it. Hence the bailouts. But they’re completely ignoring the fact that the other options (growth, inflation, austerity) aren’t even possible.
If German politicians are really sworn to support the well-being of their citizens, the best thing they can do is look everyone in the eye and say, “Buckle up, people, we’re about to swallow a nasty pill… better we get it over with now than drag it out for years.”
The same goes for the United States.
All of these countries have seen the face of disaster before; there’s not a single nation on this planet that hasn’t been through a terrible period in its history. People suffer. They survive. And then they move on.
On a brighter note, we received a comment from reader Seneka who wrote, “I just spent 3-months living in South America. Mostly Argentina with some time in Chile.
Words that come to mind to describe Chile? Clean, advanced, polite, friendly, orderly. It is a world away from its neighbors.”
I couldn’t agree more. Look, no place is perfect. Chile has its problems too. But of all the places I’ve been to in the world (more than 100 countries on 6 continents), there are few places in the same ballpark when it comes to a free, civilized, advanced society with plenty of opportunity for all.

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