Saturday, October 29, 2011

Already troubles brewing with new European "Deal"/gold steady/ silver rise

Good morning Ladies and Gentlemen:

Today will be very important with respect to Europe.  Take your time on all the big stories.

Gold finished the comex session at $1746.20 down 1/2 a dollar on the day. Silver refused to buckle on the day
as this poorer cousin of gold advanced 16 cents to $35.27  There are many developments at the comex that I wish to point out to you as you endeavor to purchase your physical precious metals.  Let us head over to the comex and assess trading and highlight these important points.

The total gold comex open interest fell quite sharply yesterday from 446,813 to 442,334.  With gold rising beautifully yesterday we must have scared off many of our banker shorts who used the opportunity to cover with the global financial scene in turmoil.  The October contract is now off the board completely and we will now analyze the option's exercised month of November.  Please remember that November is not a delivery month for both gold and silver, however you can receive a November contract by exercising an option and standing for delivery.  Generally this month is a very weak month for delivery of our two precious metals.  The front options exercised month of November saw its OI fall from 491 to 308 as those who did not wish to stand left by pitching their exercised options.  The 308 contracts are thus standing for metal which is surprisingly higher for November than usual.  The 308 contracts represents 30800 oz of gold or close to 1 Tonne.  All the major investors play December as this will probably represent a huge battleground pitting the longs who surely understand the global financial mess and the suppliers of the metal, the bankers, who are having trouble locating the yellow stuff.  Here the front December contract saw its OI fall from 270,742 to 265,045 and it was here that the bankers covered.  The estimated volume on Friday was on the light side to the tune of 114,409 compared to the confirmed volume on Thursday at 170,748.  The lower volume on Friday meant that the banks feared to supply many of the non backed paper.
It has been traditional for the past year for the bankers to raid gold and silver on the day before these options were exercised so as to inflict pain on those longs wishing to take delivery.  The raid initially was set for Thursday but that was ruined for the bankers as Europe announced a "plan" to bail Europe out.  The 1 trillion Euro dollars of printing scared our bankers so they abandoned their Thursday plan and initiated the attack for Friday. The bankers were met with a deluge of demand orders for physical metals around the world so again their plan was muffled and gold and silver resumed their northern trajectory after an early morning attack.

The important developments on the precious metals side of things is with silver.  The total silver open interest surprisingly and shockingly rose from 107,046 to 110,911 for a gain of almost 4000 contracts.  The silver longs have Houdini like shackles on their "feet" and" body" yet they continue to rise slowly and surely.  These new longs are not speculators but investors who know that silver has been depleted globally and they are taking on the likes of JPMorgan.  December will be quite a battleground.  The front options expiry month of November saw a posting of only 37 contracts and thus 185,000 oz are standing for delivery.  As I pointed out to you on earlier commentaries November is generally a very slow delivery month as investors prefer the big liquidity month of December.  The front December month saw its OI rise from 59,253 to 60,429 for a gain of 1200 contracts.  The rest of the OI gain occurred in all of the other delivery months in 2012 starting in March.  The estimated volume at the silver comex was subdued at 39,350 as again the bankers are rather loathe to supply the necessary paper.  The confirmed volume on Thursday, the day of the huge rise in silver saw its volume rise to 58,504 which is pretty good lately.

Inventory Movements and Delivery Notices for Gold: Oct 29.2011:
Final Chart for Oct. 

Withdrawals from Dealers Inventory in oz
4399 (Brinks)
Withdrawals from Customer Inventory in oz
Deposits to the Dealer Inventory in oz

Deposits to the Customer Inventory, in oz
13,654  (Scotia)
No of oz served (contracts) today
3  (300 oz) + 8  (800 oz)
No of oz to be served (notices)
month complete
Total monthly oz gold served (contracts) so far this month
658,100 (6581)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

Again we had no gold deposit into the dealer but we did have an withdrawal of 4,399 from Brinks. We did have a deposit of 13,654 into Scotia but that left HSBC on Thursday so it was a customer who just shifted vaults. I guess the owner of that gold did not like the articles we wrote on the shadiness of HSBC with respect to the GLD so they decided to remove the gold from there and but in a safer locale at Scotia. We had another huge adjustment of 24,958 oz from the customer to the dealer in an obvious lease arrangement.
The vault:  our enemy JPMorgan.
Also 2 oz was removed from Scotia customer as an accounting error.
The total registered gold now totals 2.293 million oz.  Strange that we had 20 tonnes of gold standing and the registered gold remains the same despite no gold entering the dealer.

We had two delivery notices filed.  The first occurred late Thursday night to the tune of 3 contracts and then the final delivery notice of  8 contracts late on Friday.  Thus the total new notices total 11 for 1100 oz of gold.  
The final number of notices filed for the month of October total 6581 and thus the final number of gold oz standing registers 658100 oz or  20.46 tonnes of gold.  Two contracts were settled for cash.

On first day notice for Monday, we had  227 notices filed for 22700 oz of gold.
The OI standing for November registers  308 for 30,800 oz.  This is so far the total number of gold oz standing but it will probably rise as more gold is required to put our fires elsewhere.

And now for silver 

First the chart:  (final for October)

Withdrawals from Dealers Inventory5244 (Scotia)
Withdrawals fromCustomer Inventory98,313 ( Scotia)
Deposits to theDealer Inventorynil
Deposits to the Customer Inventory12,003(Delaware, Scotia)
No of oz served (contracts)  30,000 (6)
No of oz to be served (notices)zero (0)  month now complete
Total monthly oz silver served (contracts)3,790,000 (758)  month now complete
Total accumulative withdrawal of silver from the Dealersinventory this month125,777
Total accumulative withdrawal of silver from the Customer inventory this month9,024,720

again, no silver entered the dealer but we did have a withdrawal from the dealer to the tune of 5244 oz from Scotia.

The customer had the following deposit transactions:

1.  Into Delaware a total of 1979 oz
2. Into Scotia a total of 10,024 oz

total deposit:  12,003 oz

On the customer withdrawal side:

a rather large 98,313 oz from Scotia.
we had a tiny 5 oz removed from Scotia as an counting error.

Thus the total registered silver lowers to 31.58 million oz
The total of all silver lowers 105.715 million oz.

The CME surprised us on Friday with an additional 6 contracts of silver filed
Someone must have been in need of metal as it seemed the month deliveries had concluded on Thursday.  The total of silver notices for the month of October
registers 758 for 3,790,000 oz and we thus gained those 6 contracts of silver standing.
This is the final number of silver oz standing.  When you see only 125,777 oz of dealer withdrawal you begin to wonder what on earth is going on with respect to actual silver deliveries.

With respect to first day notice, we had 32 notices filed for 160,000 oz.
The total number of silver oz that are initially standing is 37 contracts for  185,000 oz.

I will now summarize the beginning of the November charts for you for both gold and silver:

 Delivery Notices for Gold: :
Initial Chart for Nov. 

Withdrawals from Dealers Inventory in oz

Withdrawals from Customer Inventory in oz

Deposits to the Dealer Inventory in oz

Deposits to the Customer Inventory, in oz

No of oz served (contracts) today
22700  (227)
No of oz to be served (notices)
8100  (81)
Total monthly oz gold served (contracts) so far this month
22,700 (227)
Total accumulative withdrawal of gold from the Dealers inventory this month

Total accumulative withdrawal of gold from the Customer inventory this month

and Silver  opening chart for November:

Withdrawals from Dealers Inventory
Withdrawals fromCustomer Inventory
Deposits to theDealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)  160,000 (32)
No of oz to be served (notices)25,000  (5)
Total monthly oz silver served (contracts)160,000
Total accumulative withdrawal of silver from the Dealersinventory this month
Total accumulative withdrawal of silver from the Customer inventory this month


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 29.2011:

Total Gold in Trust



Value US$:69,586,523,040.98

Oct 27.2011:




Value US$:68,667,711,412.65

we neither lost nor gained any gold at the GLD.

And now for the SLV for Oct 29.2011

Ounces of Silver in Trust313,905,899.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,763.56
Oct 27.2011:

Ounces of Silver in Trust312,981,397.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,734.81

we gained a rather large 924,000 oz into the SLV.  This is probably a paper gain. I doubt very much if any real metal entered.


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

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 29.2011).
2. Sprott silver fund (PSLV): Premium to NAV rose to a   positive 16.72%to NAV Oct 29/2011
3. Sprott gold fund (PHYS): premium to NAV lowered  to a 1.56% to NAV Oct 29.2011).

It looks like the bankers are trying to dampen enthusiasm by shorting our two funds.


Friday afternoon we received our COT for positions held from Tuesday the 18th of October until Tuesday Oct 25.  First the gold COT report:

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 25, 2011

Our large speculators that have been long in gold perceived the world to be in shambles so they pounded the table with an increase of 6922 contracts.

Those large speculators that have been short in gold somehow did not read the tea-leaves right as they increased their shortfall by 4179 contracts.

In the commercial category:

Those commercials who are long in gold and are close to the physical scene,covered a huge 6664 contracts.

Those commercials who are perennially short in gold (JPM and cohorts)  added 2297 contracts to their short positions.

Believe it or not it was the specs that got it right this week:

Those small specs that have been long in gold added a huge  5466 contracts.  The large specs have a total of 182,146 long positions and the small specs have only 62,382 positions so the percentage gain for them is much larger. 

The small specs that have been short in gold had enough and covered  732 contracts.
I would call this report slightly to the bearish side of things.

And now for silver:

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 25, 2011

Our large speculators that have been long in silver added a rather tame 655 contracts to their longs.
Those large specs that have been short in silver covered a tiny 15 contracts from their short side.

And now for our commercials:

Those commercials that have been long in silver covered 1945 contracts.
Those commercials like JPM and cohorts that have been perennially short in silver added another 2797 contracts and thus this week are not very happy campers with the big rise in silver.

The small specs again got it right:

Those small specs that have been long in silver added a monstrous 3,624 contracts.  Many of these guys have been out of action with the drive by shooting of silver in May 2011.  Glad to have them back.

Those small specs that have been short in silver playing along with our crooked bankers, saw the light and covered  448 contracts from their short side.

On the whole, a little bearish for silver with the bankers are still supplying the non backed paper.
However we are starting to see some strong willed players enter the arena and take them on.
Ownership of real physical will win out every time.


Let us now see some of the major stories which affect the price of gold and silver.

In less than 24 hours, the world started to realize that the European "plan" was short on details.
On Thursday night, I told you that the German courts would not allow the plan to proceed due to the huge risk that German taxpayers will foot the bill.  A complaint was filed by two members of the German Parliament and these justices ruled swiftly:  

(from the Economic Times)

Europe's debt crisis strategy suffers setback

0ct 29.2011;
BERLIN: Europe's new strategy on resolving the debt crisis suffered a setback when Germany's highest court ordered a stay on the setting up of a special parliamentary fast-track committee to take speedy decisions on the allocation of funds from the euro-zone's emergency bailout facility. 

The committee was constituted earlier this week and its inaugural session was scheduled for yesterday. However, that meeting was cancelled following the court order. 

The Federal Constitutional Court in Karlsruhe issued an injunction against the 9-member parliamentary control committee on the the European Financial stability Facility (EFSF) and barred it from taking any decisions on the allocation of rescue funds until all doubts about its constitutionality are cleared. 

The court order will make future allocation of Germany's share of 211 billion euros in the bailout fund a long and weary process as the Bundestag, the lower house of parliament, will have be fully involved in taking every decision on EFSF. 

The court decision comes a day after the leaders of theEU at an emergency summit in Brussels reached a deal on a three-pronged strategy to resolve the 18-month old euro zone sovereign debt crisis, including a plan to leverage the credit guarantee capacity of the EFSF to over 1 trillion euros. 

The EU leaders had also agreed to write down 50 per cent of heavily indebted Greece's debts with the involvement of private creditors as part of a second bailout package of around 100 billion euros. 

The new package aims at bolstering the capital structure of European banks with 106 billion euros fresh capital by June next year to withstand the shock of the debt relief and future defaults by euro zone governments. 

The Bundestag special committee on the EFSF was set up earlier this month when the lower house of parliament passed a legislation on a decision by the EU leaders three months ago to increase the size of the EFSF from 260 billion euros to 440 billion euros and to give it new powers to prevent the debt crisis engulfing the entire euro zone area.


From Jim Willie's commentary last night at

the Jackass has a German banker source who has been extremely reliable and full of great vision for over three years
he provided this gem today below
the big $1.4 trillion (dollar) bailout plan (1 trillion euros) for the Euro banks might be Dead on Arrival

The real news is that Germany's highest court (Bundesgerichtshof) nailed the money door shut on Berlin today.
They issued an express court order that the 9-member Committee dealing with dishing out EU rescue fund monies is not allowed to do so. That kills de-facto any secret and behind closed door meetings, decisions, and money releases.
The judges pulled the plug and the rug on the EU politicians and Berlin. The second vote on Wednesday made this possible.
A brilliant strategy and immaculately executed battle plan. It is hilarious that the people behind this had two
opposition SPD members of the Bundestag front this court filing. As Hannibal from the A-Team would say
"I love it when a plan comes together."

Dave from Denver at his GoldenTruth blog site comments on the German supreme court ruling:


Was A Wrecking Ball Just Taken To The EU Taxpayer Bailout Agreement?

Looks like the German high court has issued an injunction on the German Parlaiment's ability to deploy taxpayer money to fund the new EFSF funding agreement.  Sourced from zerohedge quoting Spiegel Online:
Germany's Federal Constitutional Court on Friday expressed doubts about the legality of a new panel of lawmakers set up by the German parliament to reach quick decisions on the release of funds from the euro bailout mechanism, the European Financial Stability Facility (EFSF). The court issued a temporary injunction banning the nine-person committee in the Bundestag from taking any decisions on the deployment by EFSF of German taxpayer money.
Here's the direct LINK

As I commented yesterday, the "rescue agreement" has a lot of holes in it that can ultimately only be funded realistically by printing money and expropriating the Taxpayer wealth from countries that still have middle class wealth to steal and give to the banks under the guise of "saving" Greece.  It's good to see a supreme court that is still independent enough from the tentacles of banking wealth that will take a closer look at everything.  That would never happen in the United States these days...

But wait, there's more:  The Italian banks are looking a gift horse in the mouth and are lifting their leg on any new capital raising requirements.  This is absurd.  Italy, on the cusp of financial collapse, gets an offer of a free lunch from German taxpayers (and U.S. per the terms of the rescue deal via the IMF), and all they have to do is pay the tip.  Here's the article from the Financial Times LINK

This is crazier than last night's World Series game.  I wouldn't short this market, but I wouldn't bet that yesterday's EU deal gets implemented the way it was drawn up...but I would get ready for A LOT more money printing by buying as much gold as possible below $2,000/oz and as much silver as possible below $40.

This was the German public's response to the EU rescue agreement:

Courtesy of the EconomicBlog: many are starting to question the mathematics of the deal:

Does the EU bailout deal stand up to scrutiny?

Any deal was better than no deal on the night – but now critics are asking why China would want to bankroll European debt
It's a measure of how desperate the eurozone's plight has become that instead of cooing at his new baby, Nicolas Sarkozy will spend this afternoon on the phone to Beijing, trying to persuade China's president Hu Jintao to stump up some cash for the euro-bailout.
Any deal was better than no deal last night; but in the cold light of day, the question of why China would want to get involved in bankrolling the eurozone's unmanageable debts was just one of the questions emerging.
Another was the size of the bailout fund. Even assuming the participation of China and any other investors who can be persuaded to join in, and a whizzy new insurance scheme for sovereign debts, the über-EFSF will be worth €1tn (£875bn).
Angela Merkel and her colleagues are hoping that by offering insurance on new government debts from Italy, Spain and other troubled countries, they can make the fund's resources go much farther.
But that depends on private investors being confident that this insurance fund will pay out. As Karen Ward, of HSBC puts it, "is the insurance credible? If the economic circumstances arose that would mean a large sovereign is struggling to meet its commitment (either economic or political collapse), would core economies honour their commitment?"
If this insurance option doesn't work, the firepower of the EFSF may not be nearly large enough to contain the fallout from Greece's partial default.
There was also much in last night's deal to show that banks, and their mindset, still have a stranglehold on the way Europe runs its economic affairs.
In order to persuade bondholders (mainly banks) to agree to a €100bn "haircut" on the Greek debts they hold – one of the sticking points that kept the talks going late into the night – eurozone governments were forced to promise up to €30bn in sweeteners, or "credit enhancements".
It's not yet clear how these sweeteners will work, and the talks with investors over the details will go on for weeks. But the banks have effectively been able to dictate the terms, because everyone is desperate to avoid a so-called "credit event", which would trigger many billions of pounds' worth of credit default swaps and other complex bets between financial institutions, potentially destabilising the entire banking sector.
The eurocrats have also taken a leaf out of the banks' books by planning to set up a new "special purpose investment vehicle" ("spiv" for short, oh dear), as part of the rescue package. It's not yet clear exactly how it will work, but it's expected to hold some of the dodgy debts of "impaired" nations such as Portugal and Greece, and fund itself by issuing bonds to investors – including, hopefully, the Chinese.

But anyone who has seen the play Enron will find it hard not to be reminded of the raptors. Raptor was the name given by chief financial officer Andy Fastow to one of the special purpose vehicles he used to hide some of the Texas company's monster losses, represented on stage by rapacious dinosaurs which, of course, later come back to bite him.


Michael Synder of Economic Collapse writes the following piece on what the deal really means, a managed default of Greece.  He pounds the table like many of us that this will only create more problems and pick the can down the alley a few more months.  Bond yields on our PIIGS nations are rising and they will rise exponentially as the world eventually perceives what this deal really is about:

(courtesy zero hedge and Michael Synder of Economic Collapse)

Be Honest – The European Debt Deal Was Really A Greek Debt Default

ilene's picture

Once the euphoria of the initial announcement faded and as people have begun to closely examine the details of the European debt deal, they have started to realize that this "debt deal" is really just a "managed" Greek debt default.  Let's be honest - this deal is not going to solve anything.  All it does is buy Greece a few months.  Meanwhile, it is going to make the financial collapse of other nations in Europe even more likely.  Anyone that believes that the financial situation in Europe is better now than it was last week simply does not understand what is going on.  Bond yields are going to go through the roof and investors are going to start to panic.  The European Central Bank is going to have an extremely difficult time trying to keep a lid on this thing.  Instead of being a solution, the European debt deal has brought us several steps closer to a complete financial meltdown in Europe.
The big message that Europe is sending to investors is that when individual nations get into debt trouble they will be allowed to default and investors will be forced to take huge haircuts.
As this reality starts to dawn on investors, they are going to start demanding much higher returns on European bonds.
In fact, we are already starting to see this happen.
The yield on two year Spanish bonds increased by more than 6 percent today.
The yield on two year Italian bonds increased by more than 7 percent today.
So what are nations such as Italy, Spain, Portugal and Ireland going to do when it costs them much more to borrow money?
The finances of those nations could go from bad to worse very, very quickly.
When that happens, who will be the next to come asking for a haircut?
After all, if Greece was able to get a 50% haircut out of private investors, then why shouldn't Italy or Spain or Portugal ask for one as well?
According to Reuters, German Chancellor Angela Merkel is already trying to warn other members of the EU not to ask for a haircut....
Chancellor Angela Merkel said on Friday it was important to prevent others from seeking debt reductions after European Union leaders struck a deal with private banks to accept a nominal 50 percent cut on their Greek government debt holdings.
"In Europe it must be prevented that others come seeking a haircut," she said.
But investors are not stupid.  Greece was allowed to default.  If Italy or Spain or Portugal gets into serious trouble it is likely that they will be allowed to default too.
Investors like to feel safe.  They want to feel as though their investments are secure.  This Greek debt deal is a huge red flag which signals to global financial markets that there is no longer safety in European bonds.
So what is coming next?
Hold on to your seatbelts, because things are about to get interesting.
Around the globe, a lot of analysts are realizing that this European debt deal was not good news at all.  The following is a sampling of comments from prominent voices in the financial community....
*Economist Sony Kapoor: "The fact that a deal has been agreed, any deal, impresses people. Until they start de-constructing it and parts start unravelling."
*Economist Ken Rogoff: "It feels at its root to me like more of the same, where they’ve figured how to buy a couple of months"
*Neil MacKinnon of VTB Capital: "The best we can say is that the EU have engineered a temporary reprieve"
First off, let’s call this for what it is: a default on the part of Greece. Moreover it’s a default that isn’t big enough as a 50% haircut on private debt holders only lowers Greece’s total debt level by 22% or so.
Secondly, even after the haircut, Greece still has Debt to GDP levels north of 130%. And it’s expected to bring these levels to 120% by 2020.
And the IMF is giving Greece another $137 billion in loans.
So… Greece defaults… but gets $137 billion in new money (roughly what the default will wipe out) and is expected to still be insolvent in 2020.
*Max Keiser: "There will be another bailout required within six months - I guarantee it."
The people that are really getting messed over by this deal are the private investors in Greek debt.  Not only are they being forced to take a brutal 50% haircut, they are also being told that their credit default swaps are not going to pay out since this is a "voluntary" haircut.
This is completely and totally ridiculous as an article posted on Finance Addict pointed out...
We now know that private holders of Greek bonds will be “invited” (seriously–this was the word used in the EU summit statement) to take a write-down of 50%–halving the face value of the estimated $224 billion in bonds that they hold. This will help bring the Greek debt-to-GDP ratio down from 186% in 2013 to 120% by 2020. The big question–apart from how many investors they will get to go along with this, given that they couldn’t reach their target of 90% investor participation when the write-down was only going to be 21%–is whether this will trigger a CDS pay-out.
That this is even up for discussion is mind-boggling. These credit default swaps are meant to be an insurance policy in case Greece doesn’t pay the agreed upon interest and return the full principal within the agreed timeframe. If they don’t pay out when bondholders are taking a 50% hit then what’s the point?
European politicians may believe that they have "solved" something, but the truth is that what they have really done is they have pulled the rug out from under the European financial system.
Faith in European debt is going to rapidly disappear and the euro is likely to fall like a rock in the months ahead.
The financial crisis in Europe is just getting started.  2012 looks like it is going to be an extremely painful year.
Let us hope for the best, but let us also prepare for the worst. 


I love this quote from Larry Summers:

"The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending."
Larry Summers, source


This commentary from Ambrose Evans Pritchard is a dandy.  Here we see M1 collapse for Portugal down 21%.
Portugal and Spain have lost their labour competitiveness with Germany (30% differential).  Since Portugal cannot devalue, they enter the famous "Grecian Vortex".  A massive drop in M1 means the economy in Portugal is basically frozen with little activity and this portends trouble in 6 months.

(courtesy Ambrose Evans Pritchard/Daily Telegraph)

Europe's rescue euphoria threatened as Portugal enters 'Grecian vortex'

Monetary contraction in Portugal has intensified at an alarming pace and is mimicking the pattern seen in Greece before its economy spiralled out of control, raising concerns that the EU summit deal may soon washed over by fast-moving events.
Monetary contraction in Portugal has intensified at an alarming pace and is mimicking the pattern seen in Greece before its economy spiralled out of control, raising concerns that the EU summit deal may soon washed over by fast-moving events.
Data released by the European Central Bank show that real M1 deposits in Portugal have fallen at an annualised rate of 21pc over the last six months, buckling violently in September.
By Ambrose Evans-Pritchard
9:37PM BST 27 Oct 2011
London Telegraph

Data released by the European Central Bank show that real M1 deposits in Portugal have fallen at an annualised rate of 21pc over the past six months, buckling violently in September.

"Portugal appears to have entered a Grecian vortex and monetary trends have deteriorated sharply in Spain, with a decline of 8.4pc," said Simon Ward, from Henderson Global Investors. Mr Ward said the ECB must cut interest rates "immediately" and launch a full-scale blitz of quantitative easing of up to 10pc of eurozone GDP.

The M1 data - cash and current accounts - is watched by experts as a leading indicator for the economy six months to a year ahead. It has been an accurate warning signal for each stage of the crisis since 2007.

A mix of fiscal austerity and monetary tightening by the ECB earlier this year appear to have tipped the Iberian region into a downward slide. "The trends are less awful in Ireland and Italy, suggesting that both are rescuable if the ECB acts aggressively," said Mr Ward.

A shrinking money supply is dangerous for countries with a high debt stock. Portugal’s public and private debt will reach 360pc of GDP by next year, far higher than in Greece.

Premier Pedro Passos Coelho has been praised by EU leaders for sticking to austerity pledges under Portugal’s EU-IMF rescue, but the policy is pushing the country deeper into slump and playing havoc with debt dynamics.

The EU deal was not designed to deal with such a threat. The working assumption is that Greece alone is the essential problem, and that other troubles are under control or caused by jittery markets.

Officials hope that debt relief through private sector haircuts of 50pc will be enough for Greece claw its way back to viability, and that spillover effects can be contained by bank recapitalizations, raising core Tier 1 ratios to 9pc with €106bn of fresh capital.

A boost in the €440bn bail-out fund (EFSF) to €1 trillion or more - by opaque means - will supposedly create a "firewall" to rebuild market confidence and stop contagion to the rest of Club Med.

This rescue machinery may prove to be a Maginot Line if -- as many economists think -- the danger comes from within Portugal, Spain, and Italy. Like Greece, these countries have lost 30pc in labour competitiveness against Germany since the mid-1990s. That is the root of the EMU crisis. A toxic mix of fiscal tightening, higher debt costs, and now the threat of a eurozone recession risks tipping them over the edge.

The hairshirt summit ignored this dimension of the crisis. Italy was ordered to cut further, balancing its budget by 2013. The mantra was "rigorous surveillance" of budgets and "discipline". There will be laws to enforce "balanced budgets", and EU officials will have extra powers to vet economic policy.

This marks a step-change in the level of EU intrusion. Greece will be subject to a "monitoring capacity on the ground", implying a vice-regal EU presence calling the shots in Athens.

German Chancellor Angela Merkel said the goal is to create a "stability union", not a fiscal union. There will be no joint bond issuance, no shared budgets, no debt pooling, and fiscal transfers. The elevation of EU commissioner Olli Rehn to post of economic tsar does not change this.

Germany has dictated the agenda, vetoing calls to mobilize the ECB’s full firepower to halt the crisis. The Bundestag even ordered Mrs Merkel to insist on ECB withdrawal from existing bond purchases.

Jean-Luc Mélenchon, leader of the French leftist Front, said Europe is now marching to Germany’s drum and "headed for disaster", a view gaining ground across Europe’s Left.

Albert Edwards from Société Générale said the ECB will have to act, over a German veto if necessary. "The increasingly frenzied attempts of eurozone governments to persuade financial markets that they can draw a line under this crisis will ultimately fail."

"The impending threat of a euro break-up will force the ECB to begin printing money, very reluctantly joining the global QE party. The question is whether Germany will leave the eurozone in the face of such monetary debauchery," he said.

Whether the EFSF alone is up to the job of containing the euro crisis may depend on how it is constructed. The apparent plan for "first loss" insurance on bonds concentrates risk, endangering the AAA rating of France and other creditor states that anchor the fund. "It is too complex and potentially dangerous," said RBS.

Japanese investors who bought the first EFSF bonds this year under entirely different assumptions are facing big losses as the instrument loses market credibility. They are angry that the fund has metamorphosed into a high-risk monoline insurer. The fund will in any case cover only new issues of debt. This instantly degrades old debt. There will be abritrage between insured and insured countries. Market forces are being profoundly distorted.

China may participate in a special purpose fund to buttress the EFSF, but only as a quid pro quo for industrial and trade concessions. French Green leader Daniel Cohn-Bendit said Europe was making a "dangerous mistake" by going cap in hand to Beijing.

RBS said market euphoria is unlikely to last long. The precedent of de facto default in Greece - which the EU authorities once promised to prevent - will cause investors to "reprice" the sovereign debt of all vulnerable states. "The summit solves one problem by creating another. We expect the market to deteriorate and see the ECB as the only backstop," said the bank.

Europe’s leaders are betting that a reduction of red tape and a radical shake-up of the labour markets will unleash growth in Greece, Portugal, Italy and Spain, a decade hence. In the meantime, the governments of these near helpless countries must soldier on with perma-slump, and riot gear, and pray for a miracle


Part of the deal is the fact that the banks must raise over 100 billion dollars. The problem here is that they do not want to tap the shareholders for a rights offering.  They will need money from the state and thus the question of who is funding who?

(courtesy London Times/Helen Power)

Go-it-alone boast raises fear that banks will need state aid
Helen Power
27 October 2011
London Times

Europe’s biggest banks insisted yesterday that they will not tap shareholders or taxpayers to find the €106 billion required to shore up their balance sheets, raising fears that they will ultimately have to beg their governments for capital injections.

The European Banking Authority has told 90 banks that they must recapitalise their operations by next June to cushion themselves from writedowns on sovereign debt. However, the banks’ insistence that they can hoard future profits to cover their shortfalls has raised fears that some will have to seek government help as the deadline approaches in eight months — just as the governments are grappling with their own stagnating economies and new austerity programmes.

The regulator wants Spain’s banks to raise €26 billion, the Italians €15 billion, the French €9 billion and the Germans €5 billion. Britain’s banks have been told that they do not require any additional capital.

While BNP Paribas and Société Générale rushed to reassure the market that they can raise the cash by slashing dividends and retaining profits, the Bank of France warned that BNP was nursing a €2.1 billion shortfall and that Société Générale would need €3.3 billion to plug the gap. Santander of Spain and Germany’s Deutsche Bank also sought to reassure shareholders that they will not require fund-raisings to make up the shortfalls. Between them the four banks need to boost their capital reserves by €22.4 billion to meet the target of a core Tier 1 capital ratio of 9 per cent.

In a note yesterday, Goldman Sachs estimated that of the €106 billion that banks have been told to raise, they will be able to save only €34 billion through holding on to profits.
Under the deal with the EBA, banks that cannot raise the cash must turn first to private sector investors, then to their national governments and finally — as a last resort — to the European Financial Stability Facility for a loan.

“In our view this [recapitalisation deal] is likely to result in an increase of state ownership of the most affected banks in the region,” Goldman said.

But news of the recapitalisation deal helped to lift the market value of lenders 7 per cent. BNP Paribas closed up 16.92 per cent at €35.13, SocGen surged 22.54 per cent to €23 and Santander rose 7.53 per cent to €6.43. Deutsche Bank closed up 15.35 per cent at €32.79.

“I cannot imagine many investors lining up when so many uncertainties remain, therefore governments will need to bail them out with taxpayers’ money — politically difficult,” Louise Cooper, of BGC Capital Partners, said.

Italy’s Unicredit, which needs to raise €4.3 billion to meet the EBA’s capital requirements, said that it is formulating plans to raise the cash. It is thought that the Italian bank will ask its shareholders to back a rights issue. Some analysts said that the EBA deal will do little more than paper over the cracks for most banks.Others warned that banks will be forced to use money they would otherwise have lent to clients, to shore up their balance sheets.


From the UK Telegraph:
 : Eurozone sovereign debt crisis
* Holes emerge in grand bailout: The Telegraph reported that flaws have already begun to emerge in the "grand and comprehensive" package to address the Eurozone sovereign debt crisis. The article highlighted concerns from Germany's central bank surrounding plans to leverage the EFSF. Jens Weidmann, the president of the Bundesbank and a member of the ECB, said that "The way they are constructed, the leveraging instruments are not too different from those which were partly responsible for creating the crisis, because they concealed risks." The paper also said that the plan to expand the firepower of the EFSF was attacked by economists as not enough to prevent contagion from spreading to Italy and Spain. It also highlighted the continued austerity backlash in Greece.


From Jim Sinclair..just look at what our Bank of Canada governor stated on Wednesday:

(courtesy, Jim Sinclair)
Oh, oh… it must be getting VERY close to game-over time for a central banker to be telling the truth!
"The last duty of a central banker is to tell the public the truth." –Federal Reserve Board Vice Chairman Alan Blinder, Nightly Business Report, 1994
Now if only Mr. Carney would be so forthcoming about the mobilization of Canada’s Gold Reserves, or rather Canada’s lack of them!
Best Wishes,
Bank of Canada Carney: QE’s stealth effect is a weaker currency
Bank of Canada Governor Mark Carney said central banks have been less than forthcoming in admitting that one of the primary aims of quantitative easing is to weaken their foreign-exchange rates, remarks that will fuel a tense debate over the effect the Federal Reserve’s policies have had in stoking the currency war.
“The unspoken issue with quantitative easing writ large is the exchange rate channel,” Mr. Carney said Wednesday evening in New York at a conference organized by the Economist magazine.
“The one area where central banks maybe haven’t been quite as up front is (that) the fact is that when you quantitative ease, the portfolio-balance effect, which is the main transmission mechanism, operates through the exchange-rate channel, just as it does when you lower interest rates,” Mr. Carney continued. “That is part of the stimulus you get.”
With its benchmark interest rate near zero, the Fed has created dollars to buy financial assets worth about $2-trillion (U.S.) to keep downward pressure on borrowing costs. That policy also has contributed to a weaker dollar, which has been a boon for U.S. exporters — and an irritant for some U.S. trading partners, such as Brazil and South Korea, that have had to cope with rising currencies.
But Mr. Carney’s objective was not to criticize quantitative easing. He said Fed chairman Ben Bernanke “has delivered” and the heavy criticism he has received “appears unwarranted.” Mr. Carney said the Fed’s two asset purchase programs — commonly referred to as quantitative easing, or QE — have been a “net positive for Canada,” even though the loonie surged above parity with the U.S. dollar.

In the USA more jobs are being cut, this time by Whirlpool the largest appliance maker:

Jim Sinclair’s Commentary
This announcement seems to have had an impact as appliances speak so much to US basic economic conditions.
Whirlpool to cut 5,000 jobs to reduce costs By MAE ANDERSON
NEW YORK (AP) — Appliance maker Whirlpool Corp. plans to cut 5,000 jobs, about 10 percent of its workforce in North America and Europe, as it faces soft demand and higher costs for materials.
The world’s biggest appliance maker also on Friday cut its 2011 earnings outlook drastically and reported third-quarter results that missed expectations, hurt by higher costs and a slowdown in emerging markets. Shares fell 12 percent in premarket trading.
The company, whose brands include Maytag and KitchenAid, has been squeezed by soft demand since the recession and rising costs for materials such as steel and copper. Due to its size, Whirlpool’s performance provides a window on the economy because it indicates whether consumers are comfortable spending on big-ticket items.
Whirlpool has raised prices to combat higher costs, but demand for items like refrigerators and washing machines remains tight. Whirlpool is also facing discount pressure from competitors.
To offset slowing North American sales, Whirlpool has turned to emerging markets. But the company said Friday that sales have slowed there, too.
Steep costs and the dour global economy are affecting the entire appliance industry. Swedish appliance maker Electrolux said Wednesday that its third-quarter net income fell 39 percent and cut its forecast for demand in North American and Europe for the year


With the world supplying Greece with copious fiat money you would think that there would be gratitude at the plan.
Guess again:

"Adolf Merkel": Presenting The Greek Gratitude For The 50% Debt Haircut

Tyler Durden's picture

One would think that considering that their debt, or rather about 60% of it, was haircut over the past 2 days, the Greeks would be grateful to Germany who not only orchestrated this transaction over the vocal protests of her French vertically challenged counterpart, but effectively has pledged a substantial portion of German GDP to preserve not only the Greek welfare state but soon that of all the other European countries. One would be wrong.
The Mail reports:
Greeks angry at the fate of the euro are comparing the German government with the Nazis who occupied the country in the Second World War.

Newspaper cartoons have presented modern-day German officials dressed in Nazi uniform, and a street poster depicts Chancellor Angela Merkel dressed as an officer in Hitler’s regime accompanied with the words: ‘Public nuisance.’

She wears a swastika armband bearing the EU stars logo on the outside.

The backlash has been provoked by Germany’s role in driving through painful measures to stop Greece’s debt crisis from spiralling out of control
It gets worse:
Opposition parties blasted the landmark agreement, with conservatives warning it condemned the country to ‘nine more years of collapse and poverty’.

But it is the fury of ordinary Greeks which is raising eyebrows.

Greek government officials who agreed to the belt-tightening moves have been portrayed in cartoons giving the Nazi ‘Sieg Heil’ salute.

Greek finance minister Evangelos Venizelos is a regular target in the liberal daily Eleftherotypia and is often shown in cartoons making a Nazi salute.

One shows a German soldier watching over Venizelos as he barks at a Greek citizen to pay more taxes.

In another cartoon, a young Greek answers a German soldier asking why there were no names on a list of Greece’s newly formed labour reserve, saying: ‘They are empty as you exterminated the Communists, the Jews, the homosexuals, the gipsies and the crazies last time.’
And the most ominous sign is that we already are seeing animosity between ordinary people on both sides of the table, people who are part of the proverbial 99%, and who have nothing to do with the disgusting arrangements at the top whose only purpose is to enrich the already uber-rich.
And German visitors flocking to ancient tourist sites are being met with a hostile welcome from some Greeks.
If that last one isn't very concerning, re-read it enough times until it is.
And while geographical proximity between Greece and Germany may be a redeeming feature to what are already preambles to outright aggression, when will geography no longer matter: when the Greek "experiment" moves to Portugal? To Belgium? To France? Is it time to start plant more trees in the Ardennes forest?


The key to the deal for Greece is that all PIIGS countries do not ask for the same royal rescue.
The silence did not last long as Ireland reports that their GDP has to be revised downward like France.
They will also ask for a haircut similar to Greece:

(courtesy zero hedge)

The Global Moral Hazard Dawns: Merkel Says "It Must Be Prevented That Others Come Seeking A Haircut" As Ireland Cuts GDP Forecast

Tyler Durden's picture

Just about 48 hours after it was duly noted as the greatest threat to the Eurozone in the post bailout world, Germany finally grasps the enormity of what global moral hazard truly means. Aswe said before, the biggest risk facing Europe, and by that we mean undercapitlized French banks (all of them) obviously, is notGreece or what haircut is applied to the meaningless €100 billion in Greek debt when all the exclusions are accounted for. It is what happens when everyone else understands they now have a carte blanche to pull a Greece at will. And while until now we had some glimmer of hope there was a behind the scenes agreement for this glaringly obvious deterioration to not manifest itself, Merkel just opened her mouth and proved our worst fears wrong. As Reuters reports, "Chancellor Angela Merkel said on Friday it was important to prevent others from seeking debt reductions after European Union leaders struck a deal with private banks to accept a nominal 50 percent cut on their Greek government debt holdings. "In Europe it must be prevented that others come seeking a haircut," she said." Too late, Angie, far, far too late. Because, just as expected, here comes Ireland and literally a few hours ago, launched the first warning shot that will imminently lead to what will be demands to pari passu treatment with Greece. Next up: Portugal, Spain, and, of course, Italy, which however won't be faking its own economic slow down.
Ireland's government may cut at least 1 percentage point off its 2012 economic forecast, as a global slowdown curbs the country's export-led recovery, according to two people familiar with the matter.

Finance Minister Michael Noonan said last month that the country may cut its gross domestic product forecast from 2.5 percent, published on April 29. The government details its medium-term budgetary outlook on Nov. 4 and may lower the forecast, according to the people who declined to be identified because the figures haven't been finalized.

“Work is under way on the medium-term fiscal statement,” said Eoin Dorgan, a spokesman for Noonan, declining to comment on the growth forecasts.

Slowing global economic growth and Europe's debt crisis is hampering the region's recovery. French President Nicolas Sarkozy said yesterday his country's economy will grow by about 1 percent next year, as he lowered an August forecast of 1.75 percent. In Ireland, Noonan has said the government may need more than the planned 3.6 billion euros ($5.1 billion) of budget savings, though “not an awful more,” to hit its 8.6 percent fiscal deficit target.

“Ireland is showing the characteristics which are required to put the economy back on the right track,” Brian Devine, an economist at NCB Stockbrokers in Dublin, said in a note on Oct. 26. “However, one must not forget that Ireland is recovering from the largest credit and housing bubble in OECD history.”
Indeed, Ireland is just the beginning in the global race to sequester what remaining global put funds remain, a race which will end with the ECB unleashing the printer, and, as Albert Edwards predited yesterday, with Germany making a decision whether or not to leave the Eurozone.


Italy is now in trouble as its 10 yr bond breaks 6%.  And this is with the huge European purchases of Italian bonds.
Remember that the Greek problem started when their 10 yr yield on their bonds pierced 6%:

(courtesy zero hedge)

Berlusconi Battered As Bonds Break 6%

Tyler Durden's picture

Presented with little comment as we note BTPs have broken the week's low prices and are significantly off their knee-jerk response highs.  It is clear that investors don't want to be too long BTPs into a weekend which will be full of research and thinking about reality as we broke the dismal Maginot line of 6% yield. Chatter of ECB buying came and went as it is very clear that managers and traders want out. The unintended consequence of banning CDS combined with an EFSF that is both self-referencing and paradoxically weakened as majors deteriorate is certainly not helping here.

And more broadly bonds are losing value in all but the most distressed as the contagion from the periphery spreads to the core:
Charts: Bloomberg

From Ed Steer;

you have to listen to this KingWordNews interview with Chris Whalen on the
financial plight of  Bank of America:

Bank of America, Chris Whalen...and King World News

Here's a really incredible interview that Eric sent me at 3:14 a.m. Eastern time this morning, just as I was about to hit the send button on this column. I stuck it here, as it fits perfectly with the Matt Taibbi piece above. It's an absolute must listen...and the link is here.

I guess it is time to say goodbye for now

see you Monday night.


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