Gold and Silver rise as Risk "off"/MF Global Canada bankrupt/Turmoil continues in Italy

Good morning to you all:
Before we start, let me introduce to you our latest casualty that entered the morgue on Thursday night as the FDIC let their troops off for a long weekend:



Georgia Sees State's 23rd Bank Failure of 2010

Jim Burress (2011-11-11)

Listen Now:

ATLANTA, GA (WABE) - Regulators Thursday seized and closed Community Bank of Rockmart. 

Community Bank of Rockmart will reopen tomorrow as Century Bank of Georgia, which is based in Cartersville. 

The FDIC estimates the bank's failure will cost its Deposit Insurance Fund $14.5 million.

Like most of Georgia's failed banks, Community Bank of Rockmart fell victim to bad real estate loans, says David Oliver, senior vice president of the Georgia Banker's Association. 

"Almost all of them have been related to loans that they made to builders and developers of homes. It wasn't specifically because of their borrowers who were homeowners as individuals... it was more related to builders and developers who were providing those homes." 

The bank - just northwest of metro Atlanta - is the state's 23rd bank failure of the year. Georgia still leads the nation in bank failures since the crisis began three years ago. But, Oliver says, the state is beginning to see stability in its banks.

end



The price of gold finished the comex session at $1787.50 for a gain of $28.60.The price of silver also had a stellar day finishing at $34.67 a gain of 58 cents.The Dow also had a good day as the risk trade was on (dollar down, stock market up, euro up, gold and silver up). We need to see major trading days with gold and silver up and the Dow down as investors only seek gold/silver as save havens.  Anger is still brewing with the MFGlobal scandal as we still do not have the CME giving customers their money back.  MF Global Canada sought bankruptcy protection as the scandal crosses over into Canada.  Turmoil continues in Greece where we still do not see a leader as well as in Italy, where the resignation of Berlusconi has not been officially given.  All of these points will be presented to you but first let us travel to the comex and see how trading fared yesterday.
The total gold comex OI fell exactly 2000 contracts to 464,683 which is extremely small compared to the raid that was orchestrated by the bankers.  I promised you that minimal gold leaves will fall and that was born out yesterday.  The front options exercised month of November saw its OI fall from 38 to 35 for a loss of 3 contracts.  We had 3 delivery notices on Thursday so we neither gained nor lost any gold standing and we also had no cash settlements. The big December delivery month saw its OI fall marginally by 4561 contracts as many rolled to another future month.  We have a little over 2 weeks before first day notice which will occur on Wednesday, Nov 30.2011.The estimated volume on Friday was very low at 125,269 as the bankers provided no resistance to gold's advance.
The total silver comex OI fell by 2162 contracts yesterday.  Silver held its own on the raid as again we lost few silver leaves to the raid.  The front options expiry month of November saw its OI  fall from 82 to 83 for a loss of 9 contracts.  We had 9 delivery notices filed yesterday so we neither gained nor lost any silver ounces standing and we also had no cash settlements in silver.

Inventory Movements and Delivery Notices for Gold: Nov 12.2011:
 

Gold	Ounces
Withdrawals from Dealers Inventory in oz	nil
Withdrawals from Customer Inventory in oz	nil
Deposits to the Dealer Inventory in oz	nil
Deposits to the Customer Inventory, in oz	13,792 (Brinks,Scotia)
No of oz served (contracts) today	nil   (0 oz)
No of oz to be served (notices)	35 (3500)
Total monthly oz gold served (contracts) so far this month	434 (43,400)
Total accumulative withdrawal of gold from the Dealers inventory this month	398
Total accumulative withdrawal of gold from the Customer inventory this month	48,775

again no gold entered as a deposit to the dealer and no gold was withdrawn by the dealer. The only transaction was a deposit of gold to the customer:
Deposit to the customer:
1. Into Brinks, 10,886 oz2. Into Scotia, 2,906 oz
total deposit:  13,792 oz.  There was no adjustments .The total registered or dealer gold is now 2.3 million oz.
The CME announced that we had zero notices filed yesterday so the number of gold notices remain at 434 for 43400 oz of gold.  To obtain what is left to be served, I take the OI standing (35) and subtract out Friday deliveries (0)which leaves us with 35 notices or 3500 oz left to be served upon.
Thus the total number of gold ounces standing in this non delivery month is as follows:
43400 (oz served)  +  3500 oz to be served =  46,900 oz or 1.458 tonnes of gold.  (same as Thursday's reading)

And now for silver 

First the chart: November 12th

Silver	Ounces
Withdrawals from Dealers Inventory	nil
Withdrawals fromCustomer Inventory	150,089(Brinks,)
Deposits to theDealer Inventory	nil
Deposits to the Customer Inventory	nil
No of oz served (contracts)	36  (180,000)
No of oz to be served (notices)	37  (185,000)
Total monthly oz silver served (contracts)	252 (1,260,000)
Total accumulative withdrawal of silver from the Dealersinventory this month	308,850
Total accumulative withdrawal of silver from the Customer inventory this month	2,176,188

again no silver entered the dealer as a deposit and no silver left.
The customer received no silver as the only transaction was a withdrawal of 150,089 oz from the customer at Brinks.We also had another adjustment of 187,193 oz as the customer leased silver to the dealer.  The total registered silver rises to 32.086 million oz and the total of all silver in the vaults lowers to 107.852 million oz.
The CME notified us that we had 36 delivery notices on Friday for 180,000 oz of silver.  The total number of silver notices rises to 252.  (I accidently used 252 notices on Thursday night as they already released Friday's notices.  Thursday's total should have been 216 total notices for 1,080,000 oz)The correct number of notices filed for silver is thus 252 for 1,260,000 oz.To obtain what is left to be served, I take the OI standing (73) and subtract out Friday delivery notices (36) which leaves us with 37 notices to be served upon or 185,000 oz.
Thus the total number of silver oz served this month is as follows:
1,260,000 (served)  +  185,000 (0z to be served)  =  1,445,000 oz.
end

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.

Nov 12.2011:

Total Gold in Trust

Tonnes:1,268.67

Ounces:40,788,870.54

Value US$:72,286,804,384.93

Nov 10.2011:

TOTAL GOLD IN TRUST

Tonnes:1,268.67

Ounces:40,788,870.54

Value US$:71,594,183,614.08

we neither gained nor lost any gold at the GLD

And now for the SLV for Nov 12;2011

Ounces of Silver in Trust	314,553,561.600
Tonnes of Silver in Trust	9,783.71

Nov 10.2011:

Ounces of Silver in Trust	314,553,561.600
Tonnes of Silver in Trust	9,783.71

no additions or subtractions from the SLV.

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

1. Central Fund of Canada: traded to a positive 5.6 percent to NAV in usa funds and a positive  4.8% to NAV for Cdn funds. ( Nov12.2011).

2. Sprott silver fund (PSLV): Premium to NAV rose to a   positive 18.54%to NAV Nov 12/2011
3. Sprott gold fund (PHYS): premium to NAV lowered to a 3.09% positive to NAV Nov 12.2011).

it looks like central fund of Canada is finally seeing positives to their NAV.

The Sprott funds continue to demonstrate strong positives in silver and good NAV's with respect to gold.

Because of the Memorial day holiday, the CME did not release the COT report.  It will be released on Monday.

end

The big story of the week no doubt is the huge MFGlobal bankruptcy in which customers collateral monies have been re-deposited in some unknown entity.  MFGlobal used customer accounts to collateralize their purchases of PIIGS bonds.  When MFGlobal had a margin call and could not come up with the money, these dollars were seized with the probable counterparty being JPMorgan.  They refuse to give up these dollars as they probably say that they have proper agreements as to the collateral provided for the lending of money of MFGlobal to purchase the sovereign debt.  Nobody wants to give up their positions.  The CME should immediately replace the missing money but so far they refuse to do so.  Here is Ted Butler on this issue:

(courtesy Ted Butler)

An Unmitigated Disaster 

By: Theodore Butler

-- Posted 11 November, 2011 | Share this article | Discuss This Article - Comments: 4  Oftentimes, the significance of truly historic events is not fully appreciated at the time they occur. I think we are at one of those times with the bankruptcy of MF Global. There’s no question that the news and overall circumstances of the demise of the large commodities brokerage is widely known, but the significance of the event is not yet fully understood. While I would classify the event as an unmitigated disaster on many levels, I have hope that it might result in some long-overdue and necessary changes in the commodities regulatory structure. The disaster is that for the first time in modern financial history, the main guarantee of the clearinghouse system has completely failed its most important constituent – the customer base. The underlying promise to every participant in the futures market is that your money and open positions are safe from theft and default. This is the very glue that holds the future market together, namely, that all market participants can depend upon strict regulation and oversight to safeguard against fraud and theft. That’s what has made the US organized futures exchange system the envy of the world. Until now.  For more than a week, almost all of the 50,000 commodity customers of MF Global are in limbo as to the access and status of their funds on deposit and open positions. This is unprecedented and beyond bad. For these 50,000 customers, it’s the equivalent of discovering your bank just went out of business and there is no assurance all your funds will be returned. (In the interest of full disclosure, my background is in futures, having started as a commodity broker at Merrill Lynch some 40 years ago. But I have not traded futures for years and am no way personally involved in the MF Global mess; I’m strictly an outside observer and independent analyst). Let me cut to the chase here and pinpoint the real problem – the CME Group. I know I have continuously criticized the CME, even calling it a criminal enterprise on many occasions, but in truth I may have understated the case. Yes, I would agree that the immediate cause of the MF Global bankruptcy was MF Global itself; but what turned it into a disaster of unprecedented proportions was the CME Group. The CME Group was the front line regulator for MFG, responsible for auditing and insuring the safety of customer funds and for guaranteeing those funds in a worst case scenario. The CME failed at every turn. Not only did its auditing fail miserably, the CME failed to step up to the plate to safeguard customer funds after it was discovered that $600 million was missing. This is like a case of paying premiums for years on an insurance policy only to be denied coverage when presenting a claim for the first time. I know that the federal commodity regulator, the CFTC, has been negligent in the case of MF Global as well, but that does not mitigate the CME’s failures. Of the twin failures by the CME in the MF Global bankruptcy, clearly of more significance is its failure to stand up and guarantee that all MFG customers would be immediately made whole by the clearinghouse system run by the CME. The clearinghouse system, a consortium of financial firms whose collective finances stand behind every trade, has been the main backstop to all futures trading for many decades. It was widely understood by all market participants that if a clearing member failed, all the other clearing members and the exchange itself would step in to guarantee customer funds and prevent contract default. TheCME boasts on its web site that anywhere from $8 billion to $100 billion in protection is available in the event of a clearing member failure. If it was telling the truth, it would seem $600 million should be no problem. Instead, we all have a very big problem, thanks to the CME Group. Our financial and credit systems are based upon trust and belief. The word credit itself comes from the Latin word “credere” or to believe. What the CME Group has done by not immediately guaranteeing all MF Global customers and positions is to undermine belief in the futures market clearing system. So important is this issue that I am at a loss to explain how the CFTC hasn’t yet mandated that the CME do the right thing. And I have been somewhat dumbfounded that the analytical community and media haven’t been all over this, but there was an article in today’s NY Times that discusses the CME’s failures for the first time.  In addition, there was a well-written article on the Internet that did describe the problem and the CME’s role.  Please pay particular attention to the comments submitted on both articles. Worst of all, even MF Global customers who held no open futures positions and only cash and unencumbered assets, like registered warehouse receipts for silver, gold and other commodities, have found those assets under the control of the bankruptcy trustee. If you do own warehouse receipts on silver or other commodities that are tied up in the MF Global bankruptcy, you must run, not walk, to a securities attorney to secure your legal rights to your property. This is not a matter of what is right or wrong, as the unauthorized appropriation of private property is never correct. This is a matter of law, which sometimes is not the same as what seems right or wrong. Please don’t delay. The CME is to blame for all of this, but blame must be saved for later. If there is any good that might come from this whole sordid affair it is that it may shine the light on what needs to be done. What needs to be done is that the CME Group must be stripped of any regulatory powers it has. As I have long contended, there is a clear conflict of interest in having a for-profit entity set its own rules and regulations, especially an entity that shows nothing but contempt for its own members at large and its customers. The CME Group spends all of its energies encouraging artificial trading schemes, like High Frequency Trading, designed to increase trading fee revenue and not on market integrity and customer protection. The CME Group has just demonstrated to the world its contempt with its failure to stand behind MF Global customers even though it promised to do so beforehand. Next time you watch the CME Group commercial that runs incessantly on financial TV that proclaims how farmers and airlines come to the exchange to hedge their price risks, please keep in mind that the CME just abandoned those farmers and airline customers who were MF Global clients. One other small bonus that has emerged from this disaster is that the event has revealed as a lie all the nonsense that CME leaders have publicly proclaimed about the integrity of their markets. For the past few years, the smug and arrogant leaders of the CME have testified publicly before congress and the media about how the exchange’s clearinghouse system withstood and avoided the failures of the non-clearinghouse financial system as typified by AIG. CME officials trumpeted the advantages of it being a Self-Regulatory Organization (SRO), quite capable of handling regulatory matters without the need for further government regulation. Unfortunately, even high officials of the CFTC were apparently sucked in by the appearance of financial strength and integrity portrayed by the CME’s clearinghouse system of guarantees and the wisdom of letting it continue to regulate itself. That has now all been shown to be a lie. What good are guarantees if they are not honored when need be? What good is self-regulation if it leads to the wholesale abandonment of the customers’ financial interest? Fortunately, there is a simple remedy to the calamity of distrust growing in our market system as a result of the CME’s failures. The CFTC must immediately force or persuade the CME Group to do what it has promised and should have done on its own, namely, immediately guarantee that all customers of MF Global are made whole. Let the lawyers battle it out as to who is ultimately liable after all the customers have been made whole. That the CFTC hasn’t done this yet is bizarre. If the Commission delays longer what is now clearly a primary failure at the CME will soon become primarily a CFTC problem. We need adult supervision right now. Clearly the CME Group is not up to the task. If the CFTC doesn’t take over responsibility and force the CME to do the right thing, God help us all. Another thought in closing. The CFTC’s recent official affirmation that it is continuing its three year old silver investigation shines another spotlight on the CME.  The investigation of silver by the CFTC clearly involves the CME, as the world’s leading marketplace for silver is the COMEX, owned by the CME for the past three years. Yet the CME has never said one word about the ongoing silver investigation as it has been content to hide behind the CFTC and pretend there are no allegations of a silver manipulation. I guess that is to be expected from an entity that regulates itself. I’m purposely confining my comments to the emergency at hand. There is no change in the silver outlook. It is still a crooked market destined to go much higher in the long run. The sooner the CFTC cracks down on the CME and then addresses the silver manipulation, the sooner those higher prices will come. Ted Butler November 10, 2011 For subscription info, please go to www.butlerresearch.com end The MFGlobal bankruptcy crossed over into Canada yesterday: MF Global Canada Declared  Bankrupt The Canadian Investor Protection Fund, the investment industry’s  customer compensation agency, has obtained a bankruptcy order in the  Ontario Superior Court against MF Global Canada, the Canadian  subsidiary of MF Global Holdings which sought Chapter 11 protection  in New York last week. KPMG Inc. has been appointed as trustee  in bankruptcy for MF Global Canada. The Investment Industry  Regulatory Organization of Canada, whose dealer members support the  CIPF, had previously obtained an order requiring MF Global Canada to  cease dealings with the public. The IIROC said: “The  [bankruptcy] order is designed to ensure the fair and orderly  management of customer accounts and the financial affairs of MF  Global Canada Co.” Mr. Justice Colin Campbell of the Ontario  Superior Court of Justice granted the bankruptcy order on November 4  in the wake of protective action taken by the Securities Investor  Protection Corporation, CIPF’s counterpart in the United States.  Among its other liabilities, MF Global was exposed to about $6  billion worth of sovereign debt and had only about $1 billion in  equity. In a joint statement, the IIROC and CIPF said they  "are committed to taking available measures to protect the interests  of all MF Global Canada Co. customers and to preserve account value  in an expedited manner.”   KPMG will work in  consultation with CIPF and in collaboration with the IIROC, MF  Global Canada and third-party organizations, such as clearing  organizations and custodians, to verify all customer accounts and to  determine the financial position of the firm. The trustee’s  task has been complicated, however, by the appearance of recent  articles in the media describing the transfer of some MFGC accounts  to future commission merchants in the US. KPMG says that it  “understands that all of these transfers were subsequently reversed,  “adding that “these transfers occurred without [its] knowledge or  approval.” KPMG is in the process of confirming that all of  these client positions are recorded in the records of MFGC and says  the US custodian for these accounts has confirmed that the  collateral supporting these accounts is in its possession for the  account of MFGC. The outcome of MF Global’s Chapter 11  proceedings in the US is highly uncertain. Normally, the intended  purpose of such proceedings is to provide an opportunity to  reorganize a business, not liquidate its assets. In an  article published in Corporate Counsel Magazine and posted  on Law.com, Cassels Brock partner, Bruce Leonard,  the Chair of  the International Insolvency Institute, said that such a task is  "very difficult, and perhaps verging on impossible" for  multi-country financial entities. "I can't remember the last time a  large financial intermediary with international operations was  successfully reorganized." Leonard noted that Chapter 11  proceedings allow management to remain in place, rather than  requiring the appointment of a trustee, so they provide "a soft  landing”. In a sense, you're using Chapter 11 to slide into  oblivion." end Then late last night, the CME announced that they were going to help customers with the aid of a flush fund and a partial recovery.  The interesting development in the MF Global story came after the close on the stock market where the CME made a partial settlement to the trustee.  I believe that Bruce is wrong as the customer collateral account is segregated and does not belong to MFGlobal or can be seized. However, what is true if the customer does not get its 100 cents on the dollar back, nobody will place their money with brokerage accounts and consumer confidence will fade badly: (courtesy Bruce Krasting/zero hedge) The $300mm is in the form of a guarantee. The objective is to get the Bankruptcy Trustee to release money owed to former MF customers. From the CME release: "Though CME Clearing does not guarantee FCM-held assets, CME Group is willing to provide a $250 million financial guarantee to the trustee to give the trustee greater latitude to make an interim distribution of cash to customers now, given themonumental task he faces to sort through considerable data and claims in order to complete the MF Global liquidation and make distributions to creditors.” Some thoughts: -The amount of “missing” customer money is $600. So the CME is picking up the tab for half of the nut. . -This is a glass half full for MF customers. Yes, they are getting half their money back. But my read from this is that this other half is very much at risk. . -The CME steps up for $300 large and they don’t have to? Nobody does that. There is more to this offer than meets the eye. . -I can’t see how the CME can be held liable for MF customer losses. Therefore the money is an attempt to preserve the integrity of the exchange and to protect its members. . -It’s possible that the CME action was done with a gun to their head. Absent a fix (partial or otherwise) a systemic risk was (is) a consequence. The only one who could hold a gun in this discussion is Treasury. . -Has anyone noticed that Treasury has been silent on the MF story? I’ve been very surprised at this. It’s long since time that Geithner should have spoken publicly on this important development. The WH wants to steer clear of anything that smells like a bailout. The WH is ignoring its responsibilities. . -It’s (again) clear that there is a ton of cash sitting with the Trustee. The reason this money has not been forwarded to customers is that there is a claim against it. I can’t imagine how that can be. . -The most likely entity that is claiming the money is JPM. It’s possible that JP is acting on behalf of yet another party, but I doubt that. . -That this matter has now gone on for two weekends confirms to me that there are losses outside of MF. What shouldn’t have happened has happened. . -Early next week the Trustee will accept or reject the CME deal (I’m sure there are strings). If the Trustee does reject this (its very unusual) then there will be some fallout. If this happens, all of the customer money is at risk. . -I’ve thought from the beginning that this had the makings of a Black Swan. I’m not sure that the actions by the CME defuse the risk. . -If there is going to be a reaction (capital withdrawals from other brokers, liquidity issues in futures markets), it will be evident on Monday. . -If I had an account with a second tier broker I would take the money out. It’s easy to put it back in. It’s a disaster if you can’t take it out. . end Jessie of Jessiecrossroadscafe...comments on the MF GLobal mess: 11 November 2011 MF Global Update - Why the Puzzling Delay and Lack of Disclosure? - JPM Jumping Queue? Here is what I think and what I hear based on news and information from a variety of sources. Obviously I cannot know the exact details or all the facts. And this becomes a little more speculative than normal, but that is the consequence of the lack of information and the cover up. The facts are what the official investigation should uncover. Whether we find out what actually happened is another matter altogether. We still cannot find out who had the customer assets, which is shocking. People know who it is, but they will not say. And here is the reason why. There is a determined smokescreen that has been thrown up around this by MF Global and the financial industry…  (for full story press on jessie's blogspot) http://jessescrossroadscafe.blogspot.com/2011/11/mf-global-update-why-puzzling-delay.html ***  The problems continue for Italy, Greece and the rest of the PIIGS nations.The Euro boys have been asking help from China for financing of the EFSF to the one trillion euro mark.  In 2012, the rollovers of Debt for 4 nations is as follows: 1. Italy  307 billion euros2. Germany: 273 billion euros3. France 240 billion euros4. Spain: 132 billion euros. and new euros must be printed to pay for current deficits. It now seems that China will not participate in the rescue as they could not get concessions they so desired. Here is a great article written by Wolf Richter of testosteronepit on this subject.It is a must read: The Eurozone Turns Down Chinese Money And Quid Pro Quo Submitted by testosteronepit on 11/11/2011 23:48 -0500 China   Dumb Money   European Central Bank   European Union   Eurozone France   Germany   Gross Domestic Product   Hungary   International Monetary Fund   Italy   Reuters   World Trade   Yuan By Wolf Richter   www.testosteronepit.com For months, rumors China would use its $3.2 trillion in foreign exchange reserves to bail out the Eurozone with the stroke of a plastic pen goosed financial markets. But China has a list of demands, a veritable quid pro quo. And today the European panhandling delegation in Beijing, instead of demurely accepting those demands or offering compromises, turned them down. "A slap in the face," according to Reuters. And the Eurozone goes back to square one. It needs money to increase the firepower of its bailout fund, the EFSF, to €1 trillion. In 2012, a tsunami of debt matures. Alone the four largest countries in the Eurozone need to roll over nearly €1 trillion in debt: Italy €307 billion (19.3% of GDP); Germany €273 billion (10.6% of GDP), France €240 billion (12% of GDP), and Spain €132 billion (12.2% of GDP). Then there’s the tidal wave of new debt that will be issued to fund current deficits and bank bailouts. And the standard fallback solution of having the central bank start up the printing press and buy up sovereign bonds is complicated because the ECB is barred by treaty from doing so—though it’s already doing so. There were even speculations that Germany was planning to form a mini-Eurozone with a few select members that would follow the same fiscal policies—so powerful had the speculations become that Chancellor Angela Merkel had to step forward and deny them with great emphasis. Europe’s desperation meets Chinese eagerness. The European Union is China’s largest export market. The 27 countries with a population of over 500 million bought €282 billion in Chinese merchandise in 2010, up 18.9% from 2009. China's export machine depends on a stable Europe to thrive. And financially, China is already stuck. A quarter of its foreign exchange reserves are in euro-denominated investments. If the euro were to take a hit, China would be one of the big losers. China has already reached into its deep pockets. It invested €10 billion in the Greek shipping industry. While many merchant ships fly the Greek flag, China is a growing force in shipbuilding, and it wants to lock in its customers. In non-Eurozone Hungary, which is struggling with its own debt crisis, telecom equipment maker Huawei is building a logistics center for the European market. And China Railway Construction Corp has agreed to modernize Hungary’s rail network. China has even bought some of the bonds issued by the EFSF, according to its CEO, Klaus Regling. But China doesn’t want to be the dumb money. October 30, Zhu Guangyao, Vice Finance Minister, suggested that China would wait and see how the technical details of the fund’s proposed special investment vehicles would work out. This followed a warning by the government-owned news agency, Xinhua: China would be willing to invest in Europe on a win-win basis; the Europeans should not expect a Good Samaritan but be prepared to make concessions. Which China has floated for months: -  EU support in obtaining market-economy status at the World Trade Organization. - Removal of the arms embargo that the EU imposed after the 1989 Tiananmen Square massacre. - Better guarantees for its investments. - Greater influence at the International Monetary Fund, specifically through inclusion of the yuan in the IMF’s currency basket that underlies the Special Drawing Rights (SDR). Alas, making concessions to China is the one thing that Germany and some other less desperate European countries aren’t prepared to do. Not yet. "We're making a huge mistake if we stabilize the euro by permitting influence from an external government," said Hans-Peter Keitel, President of the Federation of German Industry (Handelsblatt). Germany, which has already surrendered its spot as the world’s number one exporter, is in no mood to cede more ground to China. And it’s fiercely resisting the temptation to offer political concessions in exchange for money. He added, “For example, we can't offer China compromises concerning intellectual property just to save the EFSF." Resistance also came from other directions, as Germans shudder at the idea of becoming too dependent on money from the communist regime. "It’s worrisome if a country that isn't a democracy obtains influence over EU members,” warned Peter Bofinger, a German economist and member of the German Council of Economic Experts. And Amnesty International fears that human rights will be moved to the back burner. Which, of course, they will be. And so the delegation had gone to China empty handed. China’s demand for greater influence at the IMF and accelerated inclusion of the yuan in the SDR, which the Chinese apparently had seen as a feasible compromise, hit a wall of resistance (Reuters). Clearly, the debt crisis isn’t deep enough yet for concessions. However, a vertigo-inducing spike in French yields or a 2,000 point drop in the DAX might change that, now that governments decide every issue with one eye on the ticker. Then Germans will be confronted with the choice of yielding to Chinese money, allowing the ECB to print unlimited amounts of money (and devalue the Euro), or invent another option, such as the mini-Eurozone that Merkel so vigorously denied or the revival of the deutschmark. Export powerhouse Germany finds itself at war—with itself....Germany at Its Rubicon. Wolf Richter    www.testosteronepit.com end Here is the next country to have their sovereign debt reduced to junk.  IfHungary is downgraded you can bet the farm that Austria which is the major supplier of credit to that part of the world will receive a downgrade.  Austria is still AAA. (courtesy zero hedge) S&P Is Second Rating Agency In One Day To Warn It Will Cut Hungary To Junk Submitted by Tyler Durden on 11/11/2011 20:39 -0500 Bond   Eastern Europe   Fitch   Germany   Hungary   Investment Grade Rating Agency   ratings Earlier today it was Fitch; now, way after the close, it is S&P's turn: the rating agency just put Hungary on junk bond watch, due an "unpredictable policy framework", and better yet, advised readers that the almost certain downgrade from Investment Grade would happen this month. Naturally, if Hungary, AAAustria is next. Then all of Eastern Europe follows quickly and Germany finds itself in a war with contagion on every single front. From S&P Republic of Hungary 'BBB-/A-3' Ratings Placed On Watch Negative Owing To The Unpredictable Policy Framework Overview In our opinion, the predictability of Hungary's policy framework continues to erode, weighing on the economy's medium-term growth prospects. As a result, we are placing the 'BBB-/A-3' foreign and local currency sovereign credit ratings on Hungary on CreditWatch with negative implications. We are also placing the 'BBB-' long-term counterparty credit rating on the National Bank of Hungary on CreditWatch with negative implications. Rating Action On Nov. 11, 2011, Standard & Poor's Ratings Services placed its 'BBB-/A-3' foreign and local currency sovereign credit ratings on the Republic of Hungary on CreditWatch with negative implications. At the same time, we placed the 'BBB-' long-term counterparty credit rating on the National Bank of Hungary on CreditWatch with negative implications. Rationale The rating action reflects our view that a more unpredictable policy environment, stemming from a weakening of oversight institutions and some budgetary revenue decisions, will have a negative effect on economic growth and government finances. The CreditWatch placement reflects our view that downside risks to Hungary's creditworthiness are increasing as the external financial and economic environment is weakening. The risks are further amplified by what we consider to be weakening institutional effectiveness, which has been undermined by changes to the constitution and the functioning of some independent institutions, such as the Fiscal Council. This is likely to have a negative impact on fiscal planning and investment activity, which we believe will continue to weigh on Hungary's medium-term growth prospects. In our view, the imposition of temporary taxes on various services sectors could constrain investment and job creation over the short term, while moves to facilitate households' prepayments of foreign-currency-denominated mortgages at concessional rates could further reduce the supply of credit to the economy. These measures will constrain growth prospects and may put the government's fiscal targets in jeopardy and could prevent a sustained reduction in general government debt levels. CreditWatch Resolution of the CreditWatch action is likely this monthpending further information from the Hungarian government regarding how it will address the ongoing economic challenges. end Goldman Sachs's Jim ONeil writes on the slowdown in China and the mess in Italy: (courtesy Jim O'Neil/Goldman Sachs and zero hedge) Goldman's Jim O'Neill On "The Most Important Thing This Week" Submitted by Tyler Durden on 11/11/2011 21:35 -0500 Bond   BRICs   China   CPI   Equity Markets   France   Germany   Goldman Sachs   goldman sachs   Goldman Sachs Asset Management   Greece Gross Domestic Product   Housing Market   Ireland   Italy   Jim O'Neill M2   Mexico   Newspaper   Nominal GDP   Portugal   Trade Balance This is Jim O'Neill in about the most pessimistic light that his genetic makeup, not to mention GSAM employment contract, will allow him: What Was the Most Important Thing This Week? So once again, what a week. To most people, there has only been one thing that has mattered, Italy. I have been conducting a small poll throughout the week as I went about my usual crazy schedule. Since Wednesday, at all the events I spoke at, I asked, “There have been two really important things that happened this week, what were they?” Italy came up immediately as the most popular first choice. In many cases, angles on the Italy issue came up as 2nd, 3rd and 4th too. For the second issue, there were a host of options, with one person amusingly suggesting the debate about whether England’s football team should be allowed to wear poppies on their shirts in the probable embarrassment against Spain this weekend. Seriously though, as only one participant answered correctly, the second important event was Chinese CPI inflation. China: The Latest Data and the BRICs. This week, we saw the usual monthly release of most of the important data in China, which again showed signs of slowing momentum in the economy. The data also showed slowing inflation and signs of a continued narrowing in the trade balance. Also important was the monetary data. While M2 showed further softening, the data also contains hints of stabilization and more high frequency signs that suggest monetary signals are shifting. While many debate whether China’s “soft landing” will allow monetary easing, at the margin, it looks as though they are already tinkering. China’s trade surplus widened over the previous month, but by a much lesser degree than expected. Moreover, with 10 months reported, the annualized trade surplus is not much over 2 pct of GDP. Exports are weaker than expected and imports are stronger. In my view, this continues what appears to be a relatively clear trend. It continues to baffle me why so many Western commentators and policymakers seem to ignore pretty strong evidence that this “global imbalance” has turned significantly for the better. The latest inflation data confirms what most forecasters have believed. Some of the pickup in Chinese inflation earlier this year was highly likely to reverse as base effects from late 2010 diminished. Together with a turnaround in some domestic food prices and the consequences of a slowing economy, Chinese inflation is heading back below 5 pct, possibly even close to 4 pct by year end, and back below in early 2012. As I have written about repeatedly since the Summer madness in markets, this development is extremely important for both China and the rest of the world. If inflation continues to ease, then the likelihood of a soft landing rises, and China will be able to achieve a shift more towards domestic consumption-led growth. As I am fond of saying to people, in 2011, the change in China’s nominal GDP in US$ will be the equivalent of creating three new Greek economies. In the context of the above question and what is important this week, I realized that, along with the other three BRIC nations, the probable change in the US$ value of their combined GDP in 2012 is likely to be close to $2 trillion. They will effectively create the equivalent of another Italy. This is what the BRIC countries can do to help the world, and especially troubled Europe, way more than any specific steps to invest in European beleaguered bonds. On Friday morning, our money market team hosted a client breakfast about China and I was joined by the head of our Chinese asset management business, Wang Yi, to lead the discussion, which turned out to be very interesting and quite broad. We discussed all the usual issues and many more. And, as I said in concluding, Yi and his team have a very exciting future ahead of them and for us. The US Appears to be Doing Just Fine Too. Another reason why I have been more sanguine than many about the European mess is my views on the US. Although the US economy has turned out to be much softer than some optimists, myself included, believed at the start of 2011, it is actually stronger than most concluded by the time the mayhem broke out in August. Amongst many useful coincident and leading indicators, this latest week’s drop in job claims to 390,000 is as good as many pieces of evidence I could cite. It seems to me that, while there is considerable focus on the budget issues, it wouldn’t take much in terms of successful policies to turn the housing market around. And, if it did, then it wouldn’t take much for people to start thinking more optimistically about the US economy. An “ok” US, together with a Chinese “soft landing,” is the key to world equity markets in my view, and it will take a lot of persistent bad news from elsewhere to avert this. Unfortunately, the Euro Area keeps trying hard to provide it. Italy and a Highly Troubling Week for EMU. For a couple of days this week, it actually felt as though Europe’s post-war project was nearing the end of the road and, as a result, emotions have been running high. For those that never believed it was a good idea, some have been expressing a mood of jubilance. For many involved in its creation, this has not been a good week. I got more caught up in the middle of this than usual as a result of a newspaper interview, where the headline distorted what I had actually said, claiming that we were predicting a break up. While this was not a fair reflection, I did say that some major issues were now on the table and needed to be recognized. The EMU, as created, has not really worked and needs to change. It is quite clear that many countries should not have been allowed to join. It is also clear that the Growth and Stability Pact has not worked. Policymakers need to be more open in at least acknowledging this, and then doing something about it. If all of this wasn’t enough of a challenge, Italy’s issues have become front and centre. Italy is no Greece. Indeed, although the BRICs can create another Italy in 2012, Italy is close to 4 times the combined size of Greece, Ireland and Portugal. Its total debt is close to 25 pct of the Euro Area GDP. Quite simply, Italy cannot be allowed to stay in the position it found itself this week. On top of this, Italy is an important historical player in creation of not just the EMU, but also the EU. Italy was the first country that I was allowed to analyze professionally some 30 years back and I have retained a lot of affection for it as a result. (I’ve not enjoyed some evenings in Milan and Turin watching United getting a good occasional lesson over those years though.) When it came to EMU in 1998, it was quite clear to me that, despite many objections, the EMU couldn’t start without Italy, primarily due to its size and the key fact that large swathes of Northern Italy are just as competitive as parts of Germany and France. This remains the case today, and it is tough to see the persistence of the EMU without Italy involved. So, while I can see the case for an EMU without some others, and despite all of Italy’s complications, I can’t see an EMU without Italy. At the same time, I can’t see Italy sustaining life with 6-7 pct 10-year bond yields. So something has to give. Let’s see what Italy brings over the weekend, and how Frankfurt, Berlin, Brussels and the rest of us all react. A Moment on Mexico. I had a pleasant diversion from all the European madness with a visit from a Mexican delegation. While they didn’t quite go as far as some Mexican policymakers and recommended that BRIC become BRIMC, they were highly intrigued about our “Growth Market” concept and, of course, the fact that we included Mexico. Listening to their views on a couple of critical issues, it added to my suspicion that the decade we have started could be a better one for Mexico than the past one. At the core of this suspicion is the issue of the RMB and Chinese competitiveness. This conversation adds to my belief that Mexico is getting back something that was lost to China in the past. And of course, a certain Chicharito is from that country, which helps… Anyway, let’s see what the next twist and turn brings. Good luck! Jim O’Neill Chairman, Goldman Sachs Asset Management end From the USA, 50% of homeowners are now underwater.  And USA confidence rose yesterday? (courtesy Jim Sinclair) Jim Sinclair’s Commentary The loss of the American Dream puts confidence in the currency on shaky ground. REPORT – Over 50% Of U.S. Homeowners Are Underwater New report shows the housing outlook is getting worse. By CNBC’s Diana Olick A new report on still falling home prices today highlights the fact that the lower those prices go, the more American borrowers fall into an negative equity position; that is, they owe more on their mortgages than their homes are worth. Many of those borrowers are already behind on their mortgage payments, and some are likely already in the foreclosure process. The rest of them are in danger of defaulting, not because they can’t pay their mortgages, but because they either won’t want to (seeing as they will never see any real appreciation in their investment) or because any change in their economic or personal situation might force them into default (change of job, divorce). While 14.6 million might seem like a lot, it’s not the real number when you consider negative equity in housing’s recovery. That’s because it doesn’t factor in "effective" negative equity, which is borrowers who have so little equity in their homes that they cannot afford to move. Consider the following from mortgage analyst Mark Hanson: On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10 percent down to buy in addition to the 6 percent Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out. Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It’s as if half the potential buyers in America died over a two-year period of time. More… end David Rosenberg on the MF Global mess, the ECB, the uSA economy and other issuesthe video is a must for you to see: David Rosenberg On The Depression, The ECB, MF Global As A Canary In The Coalmine... All With A Surprise Ending Submitted by Tyler Durden on 11/11/2011 22:27 -0500 Bear Stearns   Bond   David Rosenberg   European Central Bank Eurozone   Germany   Gross Domestic Product   Merrill   MF Global   Output Gap   Rosenberg Consuelo Mack has just released a long overdue interview with David Rosenberg, in which the former Merrill strategist is allowed to speak for 27 whole minutes without commercial interruptions of manic depressive momentum chasers cutting off his every sentence, demanding he tell them what stocks he is buying right this second! In addition to the traditional now discussion of America's depression (see attached extended walkthru by Rosie), probably the more interesting part in the interview starts at minute 11 when the conversation shifts to MF Global which to Rosie is a canary in the coalmine, and is merely the 2011 version of Bear Stearns as there is "never just one cockroach." Then the Q&A shifts to Europe, the ECB's next steps and the future of the Eurozone and Germany in particular. Mack concludes with some thoughts on what bond rates indicate about the future of the word, how the 7% output gap as a % of GDP will drive deflation (although in a vacuum: there is little accounting for the Fed's and global central bank kneejerk reaction), and how the corporation is now more powerful than the sovereign, courtesy of more pristine corporate balance sheets than those of actual countries, all of which are on the verge. Will the IBM Stellar Sphere, the Microsoft Galaxy, Planet Starbucks take over when Europe and the US finally tumble? Oh, and like a good M. Night Shyamalan movie, there is a surprising twist ending. And the associated pdf for those who wish to learn more. Rosenberg 100611 - Not Your Fathers Cycle end  Monty Guild a close friend of Jim Sinclair has brought out his commentary on many issues.  He favours the removal of weaker nations from Europe even though the bankers would be annihilated.  He talks about the high unemployment in the USA, yet highly skilled jobs gets unfilled.  Finally he talks about the demand for gold in China this year will grow to 400 tonnes.  The Chinese produce 309 tonnes per year so they will need to import huge quantities of gold to satisfy demand and increase their official reserves:   (courtesy Monty Guild) Market Commentary From Monty Guild November 11, 2011, at 3:42 pm by Monty Guild in the category Guild Investment |  Print This Post |  Email This Post It Ain’t Over Till It’s Over…And That’s Not Happening Soon Don’t expect the current crisis of budgetary deficits and spending restraints to stop any time soon. Instead, think in these realistic terms: the era of fiscal restraint and spending limits has come, and will be with us for at least ten to twenty more years. It is obvious to veteran observers that Europe and America are facing hard choices that will result in slow growth and increased suffering for the people. And for that we have our incompetent legislators – past and present – to thank. They have misused their mandates, grossly exceeded their budgets, and are loath to correct wayward behaviors. Barry Eichengreen, an economist at the University of California, summed up the situation thusly: “The U.S. and Europe have to make hard choices because of two things: slower growth and aging populations.” And Europe’s choices are harder than America’s, he adds, “Because the prospects for growth are more dubious.” If action were to be taken quickly, it is easier to see progress; if not, there appears little else ahead except decades of slow and stagnant growth, declining social safety nets, and less military influence in the world. Oh, and don’t forget to add deflation to the equation, a result of deleveraging an over-leveraged banking system. It is not hard to see our future by looking at Japan, which entered the same rut more than twenty years ago and is still stuck in it. Even the mainstream U.S. press is belatedly getting the message that we are in an era of spending limits. This reality doesn’t stop special interests doing what special interests always do: tempting congressional representatives with offers of money to support their specific area. Such money may be intended for election campaigns , but let’s not kid ourselves. It is still a form of paying for special favors. The ranks of federal, state, and local governments throughout the world are brimming with self-interested individuals. This is the reality. Moreover, most politicians are pre-eminently, emotionally, and intellectually designed to do what’s needed to get elected and re-elected but not to do the right thing for the electorate. They like to spend money today to help favored constituencies. The more cynical ones see the problem, but think along these lines: “Well, I will be gone when the crisis erupts, so…” The more naïve ones just hope for the best in the future while spending irresponsibly today. Not surprisingly, the approval ratings of politicians in the developed world are at multi-year lows. A recent New York Times/CBS News poll gave a beyond-disgraceful 9 percent approval rating to members of the U.S. Congress. Politicians in Europe and Japan wallow in a similar level of public contempt. The steady stream of lies from U.S. and European politicians continues apace. With elections on the horizon in many countries we can expect a lot more hot air and fiction. What we all knew has been reinforced by events. Politicians cannot be trusted. European Central Bank Cuts Interest Rate This week the new European Central Bank (ECB) president Mario Draghi’s first action was to cut European rates by a quarter-point to 1.25 percent. Such action is long overdue. It sent a strong signal that Mr. Draghi will be more willing to cut rates and focus on the economy instead of inflation in Europe. His predecessor, Jean Claude Trichet, raised rates twice in recent months in the face of an oncoming decline in European GDP. ECB board members unanimously supported Mr. Draghi and if the cutting continues we can expect the following results: 1) The creation of more quantitative easing (QE), meaning the printing of more money, and 2) The rate of inflation will rise in Europe. These consequences support our recommendation to own gold and emerging market equities. The change of direction for the ECB is a positive psychological underpinning for Europe, which is now admitting that the banking crisis, not inflation, is the most immediate and pressing problem, and that actions need to be taken to address this problem. New Development An even more positive late developing prospect is the fact reported in the German newspaper Handelsblatt that the largest political party in Germany, Angela Merkel’s Christian Democratic Union [CDU]  are beginning to work a clause allowing countries to exit the Euro in their platform.  The way it would work is that a Euro member that does not want to or cannot comply with the common currency rules could leave the Euro currency regime without losing membership in the European Union. Should this amendment progress from a German plan to a Europe- wide plan, it would allow any state to exit the currency area [this is not currently allowed], while still enjoying the membership benefits of being in the European Union. Any country that left the Euro currency would revert to using its own currency, which could be devalued. They would be able to issue debt and pay debt in their own currency.  Thus, their financial decisions would reflect upon them and they would not be able to demand that other members of the community lend them money or guarantee their debt. In our opinion, this approach should be implemented immediately. We believe that there is a very high probability that this alternative will be instituted via an amendment to the current Euro currency treaty. Something Wrong With This Picture? High U.S. Unemployment, Yet Many Good Jobs Go Unfilled The Society for Human Resources Management, a Virginia-based professional organization for human resources professionals, conducted a revealing survey. It showed that employers are having difficulty filling good-paying jobs at professional, managerial, and executive levels. There are numerous openings for skilled engineers, medical and IT professionals, scientists, managers, sales representatives, accountants, HR executives, drivers, administrative support staff, and customer service reps. An article summarizing this eye-opening situation appeared earlier this week in the Wall Street Journal. According to the article, professionals can qualify for many jobs simply “by upgrading their skill sets, moving to another part of the country, or just rewording their resumes.” It turns out that some parts of the U.S. are very short of workers. One example is Tulsa, Oklahoma, where the city has actually hired a specialist to retain a strong workforce. Now that’s a neat sign of life in the otherwise grave municipality condition. Tulsa, in fact, generates more than 1,500 new aerospace / aviation jobs every year. It also has gaps to be filled in healthcare, manufacturing, and other industries. According to recent statistics, about 3,450,000 jobs currently remain unfilled in the U.S.! *Wall Street Journal, "Demand is High for Skilled Job Seekers" by Julie Bennett, November 7, 2011. *Source: SHRM Photo: Getty Images/ Maximilian Stock Ltd. Corruption Rankings: Where Does Your Country Stand? Take a look at the chart below – a “bribe payer’s index” – that ranks countries according to the way their national enterprises do business abroad. We found the information, collected by Transparency International, quite fascinating. Transparency International is a global network of more than 90 national chapters with members from government, civil society, business, and the media dedicated to promoting transparency in elections, public administration, procurement and business. Please click here to see the full article. Russia and China are top bribers and bribe recipients, followed by Mexico, Indonesia, Turkey, and India. Nevertheless, executives of all countries play the game, especially when operating in the developing world. Many years of investing in global markets has reinforced our belief that country selection is a key factor, and that when evaluating the reward/risk of a country, you must always consider the corruption element. Guild Basic Needs IndexTM Guild Investment Management has long believed that the existing indices used to measure cost of living changes in the United States are inadequate and misleading. For instance, the widely quoted inflation index, the Consumer Price Index, is currently based on data collected from spending surveys given by the U.S. Bureau of Labor Statistics from approximately 14,000 urban families. In addition to basic needs, the CPI includes other expenditures, such as insurance and taxes. However, it also includes discretionary spending items such as personal care services and entertainment purchases such as the latest flat screen televisions and consumer electronics. Another point about the CPI is that the Bureau of Labor Statistics periodically alters its content, making adjustments to the weighting of the components, and smoothing seasonal patterns. Such tinkering with data, as we have mentioned over the years, usually results in an understatement of the inflation rate and creates an unreliable, misleading cost of living index. We believe a simpler index is necessary for tracking the price changes of basic needs. No such index exists. So, we have created one: the Guild Basic Needs IndexTM. The GBNI will not reflect spending patterns of one segment of the population. Rather, it will measure the changing prices of essential living expenditures. Another key differentiator between the GBNI and the government’s measures is that the components of the GBNI do not change. They are not adjusted, statistically smoothed or manipulated. The October numbers are still being compiled, however we will have a changed index in our next week’s commentary.  Please stay tuned. China News The China Securities Journal reports that China’s gold demand for 2011 is expected to reach 400 metric tons up from 270 metric tons in 2010. According to Sun Zhaoxue, chairman of the China’s Gold Association, the increase is due to rising income levels and investment demand which has boosted jewelry and bullion sales. According to Ting Lu Bank of America Merrill Lynch’s chief China economist the details of China’s inflation which fell from 6.1% annually in September to 5.5% annually in October are as follows; food price inflation fell to 11.9% from 13.4% in the previous month. Non food inflation fell to 2.7 % from 2.9% and housing costs fell to 4.4% from 5.1% year over year. In essence, many costs are falling in China and this will allow the country to fine tune their monetary policy and perhaps cut interest rates. Today it is hard to find the bears whom a year ago were calling for double digit out of control inflation and a major hard landing in China. Now that it is becoming more obvious that China will experience a soft landing and that the economic bulls have triumphed, perhaps the bears have returned to their caves to lick their wounds. Investment Focus Our primary advice to investors is to generally ignore the deafening scare and crisis screech emanating from your television screens.  The headlines and hype are meant to attract viewers. Fear and greed make good bait for attracting unsophisticated viewers, newspapers do the same. We look beyond the surface babble and stay focused on our own investment strategies. In our opinion, Europe has no choice but to eventually print money to solve its problems. The statements you commonly hear on the TV about Europe not having enough money to recapitalize its banks and bail out the sovereign debt crisis miss the point.  It is true that currently there is not enough money to solve these serious fiscal problems. Europe, however, has the power to print money and will use this power when the crisis comes to a head. At that time, Europe will create QE in a major way to keep the union alive. At Guild Investment Management, we watch Europe’s seemingly never-ending financial fits. It seems obvious to us that gold, oil, and many stocks will soar when Europe finally announces the inevitable money printing exercise to bail out European banks and sovereign nations. This expectation reinforces our long-term bullish view on gold, oil, wheat, emerging markets, and U.S. stocks. Historically, money printing boosts commodity prices, creates demand for income-producing real estate, and for the stocks of public companies that can grow. Such companies are often, but not always, producers of commodities such as foodstuffs, oil, fertilizer, or key industrial minerals. Would You Like To Join The Guild team? Would you like to join the Guild team? Are you a news hound who reads and reflects upon global social, political, financial and economic trends? Do you have a masters or PhD in economics or international affairs? Do you follow world investment markets? Do you enjoy performing economic, social, political and financial research? Can you write? If you are interested in being part of our research team, are interested in seeing your work in print, please do not hesitate to email your resume to careers@guildinvestment.com or fax it to 310-826-8611. Thank You To Our Readers It has been 40 years that we have been managing investment portfolios for clients.  We hope the newsletter serves to sharpen your investment perspectives and strategies.  Please feel free to forward our commentary to friends, family, colleagues.  To request information about Guild Investment Management services and offerings please call (310) 826-8600 or email us at guild@guildinvestment.com Our Recommendations   Date Date Appreciation/Depreciation Investment Recommended Closed in U.S. Dollars Commodity Market Recommendations       Gold 6/25/2002 Open +438.9% Oil 10/24/2011 Open +11.5% Wheat 10/24/2011 Open -1.9% Corn 4/20/2011 8/3/201 -6.3% Oil 2/11/2009 8/3/2011 +157.1% Corn 12/31/2008 3/3/2011 +81.0% Soybeans 12/31/2008 3/3/2011 +44.1% Wheat 12/31/2008 3/3/2011 +35.0% Currency Recommendations       Long       Canadian Dollar 10/24/2011 Open -1% Long       Singapore Dollar 10/24/2011 Open -1.4% Long       Canadian Dollar 9/13/2010 9/21/2011 +2.2% Long       Chinese Yuan 9/13/2010 9/21/2011 +5.8% Long       Swiss Franc 9/13/2010 9/21/2011 +12.1% Long       Brazilian Real 9/13/2010 9/1/2011 +6.4% Long       Singapore Dollar 9/13/2010 8/3/2011 +10.9% Long       Australian Dollar 9/13/2010 6/29/2011 +14.1% Long       Thai Baht 9/13/2010 6/22/2011 +6.5% Short       Japanese Yen 4/6/2011 7/27/2011 -9.7% Short       Japanese Yen 9/14/2010 10/20/2010 -3.3% Equity Market Recommendations       I Shares MSCI Emerging Market Index 10/24/2011 Open +2.5% U.S. 10/24/2011 Open +0.3% U.S. 9/14/2011 9/21/2011 -2.3% India 4/6/2011 9/21/2011 -21.6% Malaysia 6/29/2011 8/3/2011 +0.1% U.S. 6/29/2011 8/3/2011 -4.6% Japan 2/15/2011 8/3/2011 -9.5% Australia 2/15/2011 6/22/2011 -0.9% Canada 3/24/2011 6/22/2011 -7.1% Colombia 9/13/2010 6/22/2011 +2.6% Malaysia 4/6/2011 6/22/2011 +0.8% Canada 12/16/2010 3/11/2011 +7.9% U.S. 9/9/2010 3/11/2011 +18.1% South Korea 1/6/2011 3/3/2011 -2.9% Colombia 9/13/2010 2/2/2011 +3.9% China 9/13/2010 1/27/2011 +5.0% India 9/13/2010 1/6/2011 +7.9% Chile 9/13/2010 12/16/2010 +8.9% Indonesia 9/13/2010 12/16/2010 +9.5% Malaysia 9/13/2010 12/16/2010 +1.3% Peru 9/13/2010 12/16/2010 +32.2% Singapore 9/13/2010 12/16/2010 +4.8% Thailand 9/13/2010 12/16/2010 +11.9%         Bond Market Recommendations               30 YR Long Term       U.S. Treasury Bond  8/27/2010 10/20/2010 0.0% More.. end The USA Fed's deputy Chairman stated that the European crisis poses huge risks to the USA economy: (courtesy:  Dow Jones) DJ Fed's Yellen: Europe Crisis Poses 'Significant' Risks To US EconomyFri Nov 11 13:25:05 2011 EST WASHINGTON (Dow Jones)--A top U.S. Federal Reserve official Friday said European policymakers must take strong action to stabilize their economies, as she underlined the risks posed to the tenuous U.S. recovery by the ongoing financial turmoil on the other side of the Atlantic.In prepared remarks at a Chicago international banking conference, Fed Vice Chairwoman Janet Yellen said the European rescue package approved in late October shows that leaders there are determined to stem a deepening debt crisis that's recently hit Italy, the euro zone's third-largest economy. However, while the package of measures to retool Europe's bailout fund, recapitalize the continent's banks and reduce Greece's debt is a step in the right direction, Yellen said that many details of the plan remain unclear and warned the measures require "rigorous implementation." Investors around the world dumped Italian bonds this week, sparking a broad decline across global markets driven by the prospect of the world's fourth-largest borrower losing access to financing. Italian Prime Minister Silvio Berlusconi was forced to step down after dominating the country's political scene for almost two decades, becoming the latest high-profile political victim of Europe's crisis. "The continued rise in sovereign debt spreads for some countries, more generalized market volatility, and political turmoil that we have seen in recent days speak to the need for forceful action to stabilize the situation," Yellen said. Underlying the financial linkages on both sides of the Atlantic, Yellen noted that some major European banks are finding it hard to get U.S. dollar funding from money market funds. "Further intensification of financial disruptions in Europe could lead to a deterioration of financial conditions in the United States," she noted. The U.S. economy ground to a halt in the first half of the year, sparking fears of a double-dip recession. The recovery has gained some speed again since the summer, but Europe's troubles pose a threat to a still-fragile economy in which unemployment remains high. The rest of Yellen's speech was focused on the supervision of the U.S. financial sector, which was at the root of the financial crisis of 2007 and 2008 that originated over here. While efforts to develop rules in the Dodd-Frank financial law are progressing well, much remains to be done, Yellen said. She echoed remarks from Fed Board Governor Daniel Tarullo this week, who warned the U.S. needs to move forward with changes on how money-market funds work to make sure they don't act as a trigger for runs on funding markets. Fed officials are worried that investors could rush out of the $2.6 trillion money market mutual-fund industry, where millions of Americans park their savings and where the world's banks come for short-term loans. While Yellen and Tarullo didn't mention any specific case, their comments come the week that MF Global Holdings Ltd. (MFGLQ) filed for bankruptcy protection. The rapid downfall of the Wall Street securities firm, which made bad bets on European debt, reflected how interconnected and fragile the global financial system is three years after the financial crisis. -END- Over in Italy, we are waiting for the new leader, Mario Monti to be announced.The Italian debt spiral may need the intervention of the IMF.  And finally due to the rapidly changing events in Italy, the format for the EFSF is now dead and they must start again: (courtesy Financial times) Eurozone sovereign debt crisis * Italy: o Gauging the Monti momentum: The FT noted that outside of parliament, there is broad institutional support in Italy for a technical government led by former Commissioner Mario Monti. However, another FT article pointed out that while Monti has the support of the main opposition Democratic party, as well as smaller centrist parties, this is not enough to give him the majority he has demanded to lead a new government. The big are of uncertainty still seems to revolve around Berlusconi' own People of Liberty party. A Bloomberg article noted that Ansa news agency reported that following a meeting with Berlusconi on Thursday night, lawmakers in his party remain divided over whether to accept a Monti-led government or try to cobble enough support for a new People of Liberty-led government. A decision was reportedly put off until Berlusconi officially resigns following the widely expected passage this weekend of a package of structural reforms inserted as an amendment to Italy's 2012 budget law. There has been some discussion in the press that Berlusconi's party is ultimately likely to pledge its support for Monti in exchange for cabinet posts. end o Italian death spiral might draw in IMF: The FT said that the latest round of turmoil in the Italian sovereign debt markets once again raises the possibility that the IMF will be called in by the new government. The paper added that such a move would most likely mean abandoning some of the current policy stances in Europe, particularly the ECB's insistence that it will underwrite a direct bailout for Rome. The article noted that current and former policymakers say that getting the IMF involved could help the ECB overcome its deep reluctance to be viewed as a lender of last resort. The article, which discussed the idea of the ECB lending to the IMF (and the IMF then lending to Italy), went on to note that following a Wednesday meeting with German Finance Minister Schäuble, members of the German Bundestag reported that the government had not entirely scrapped the idea of pooling the Eurozone’s SDRs to boost the EFSF. end * Bailout fund: o Market volatility limits EFSF firepower: The FT cited comments from Klaus Regling, head of the EFSF, who said that this week's upheaval in Europe has made it difficult to increase the firepower of the Eurozone's €440B bailout fund to ~€1T. He noted that given that investors have fled from bonds issued by highly indebted countries, trying to entice them back by offering first-loss guarantees would now probably use up more of the fund's resources. While the EFSF now has the mandate to buy Italian sovereign debt at auction, Regling said he was hesitant to move so quickly given that he has been told to focus on the leveraging project before deploying the new powers. The article went on to cite comments from Christophe Frankel, the EFSF’s CFO, who said that the fund is likely to offer short-term bills before the end of the year. * * * * * As I mentioned to you on Thursday, many are dumping Italian bonds: (courtesy zero hedge) "Sold To You": European Banks Quietly Dumping €300 Billion In Italian Debt Submitted by Tyler Durden on 11/11/2011 13:40 -0500 Blackrock   Bond   CDS   Credit Default Swaps   Creditors   default   Dumb Money   European Central Bank   Eurozone   fixed   Germany   Greece Italy   Monetization   PIMCO   Sovereign Debt While the market is ripping today on absolutely nothing (earlier we noted the rotation of muppet X with muppet Y - this changes nothing but who cares), BTPs are soaring, and confusion is prevalent, one thing is certain: we now know who is not buying Italian bonds. As IFR reports, "European banks are planning to dump more of the €300bn they own in Italian government debt, as they seek to pre-empt a worsening of the region’s debt crisis and avoid crippling writedowns – a move that could scupper the European Central Bank’s efforts to bring down soaring yields. Still reeling from heavy losses on money they lent to Greece, lenders are keen not to make the same mistake twice.Then, under the pressure of governments and a hope that credit default swaps would protect them against heavy losses, they held on until it was too late to sell." And for our European readers who may be wondering who the dumb money will be as this tsellnami unleashes, we have one word: you. "With the ECB providing a bid for Italian bonds that might not otherwise exist, board members at some of Europe’s largest bank say now is the time to accelerate disposals. Many are also reversing long-standing policies of buying into new Italian bond issues, denying Rome an important base of support." And there you have your explanation for today's action - yet another headfake to get the idiot money foaming at the mouths while the insolvent banks quietly dump everything, sending the EURUSD once again higher as EUR repatriation resumes, this time with feeling. As a reminder, Germany has made it an explicit condition of its participation in the now irrelevant EFSF that the SMP program which is the only program currently functioning to provide secondary market support, be unwound shortly. The SMP currently has just under €200 billion in total bond holdings. Does anyone really think Germany will allow the monetization fund to increase by 150% before Merkel says something? We doubt it. But we know one party that would be delighted if the SMP were to monetize everything: PIMCO parent Allianz, which borrowed a line right out of BlackRock and told the market it is effectively an idiot, and does not reflect fundamentals. Via the FT: "Allianz insisted it was unworried by the political and financial turmoil in Italy as the insurer, Europe’s largest by market capitalisation, suffered from the impact of the eurozone crisis on its bond investments and corporate holdings. The German group – which considers Italy a “second home market”, according to Oliver Bäte, chief financial officer – has some of the biggest sovereign exposure to Italy of any non-Italian financial institution, with government bonds worth €25.6bn at the end of the third quarter, equal to more than 6 per cent of the company’s €413bn fixed income portfolio." Is it clear now why the EFSF as a €1 trillion vacuum cleaner idea came straight out of Allianz? And is it clear now who has the most to lose with the failure of the EFSF as a multifunctional Swiss Army bailout knife? If the answer is still no, here is where Allianz channels BlackRock: “We believe the market situation is completely overblown,” said Mr Bäte on Friday as Allianz announced an 80 per cent drop in third-quarter net income. “We have strong confidence in [Italy] . . that it will be able to recover its situation and regain stability.” The lies continue: Mr Bäte said Allianz was cutting exposure to government bonds “for those countries where we have a critical perspective . . . This does not apply to Italy.” As for the truth: “Our traditional buying days [of Italian bonds] are no longer,” said one board member at a European bank, one of Italy’s 10 biggest creditors, who added that the bank has also sold off previous bond purchases. “Unless there is more certainty on Italians changing direction, it will be very tough for them to find buyers.” It gets worse: “You’re better off doing it now rather than waiting,” said one investment banker who is currently working on plans for bank clients to further sell down their Italian bond holdings. “It’s better to take the losses now when everyone is expecting it rather than wait around for a default.” The ECB has been buying Italian bonds to keep down yields since August. Since then, the institution has bought about €110bn of European government debt, some of which traders say is Italian debt. Most sales have been and will be on the open market. “The market is still as liquid as hell for those that want to sell,” added a senior banker at one non-European bank. “We managed to sell off half of our holdings in one morning.” Completing the picture is the answer of who the dumb money is: Italian bonds still have one support bloc. Domestic banks appear to be holding on to their much larger holdings. As of last December, EBA stress tests showed Intesa Sanpaolo held €60bn of Italian debt. UniCredit and Banca Monte dei Paschi di Siena held €49bn and €32bn respectively. Recent results indicate that those holdings have changed little. “We will keep investing the largest part of our liquidity in Italian government bonds,” said Corrado Passera, chief executive officer at Intesa Sanpaolo, in a call with analysts this week. “We believe they provide the right yields vis-à-vis the cost. So no policy change on our side.” Still, according to the investment banker advising firms on their Italian holdings, the domestic banks’ decisions to hold on could have more to do with their inability to offload such large amounts quickly and without deep losses. Indeed, some Italian bankers seem resigned to the situation. “We feel that fears of a default are greatly overdone, but the market psychology is what it is,” added an executive board member at another large Italian bank, which is also holding onto its bonds. “Lots of players do not want to buy them. They think it is better to sell if you have the opportunity to.” Capital concerns are also preventing them from selling. “The key issue is on solvency and I think they made a mistake in requiring us to hold more capital,” said the chief executive of a mid-sized Italian bank.“To meet these levels we cannot sell too much of our sovereign debt.” So instead of selling, Italian banks are doing all they can to dodecatuple down and...buy!? Right... Thank you for putting that target sign on your back. And also thank the Consob for actually extending the short sell ban contrary to what we said yesterday. Naturally, Europe will never allow financials to be shorted ever again. Speaking of, where are those ALZ/ASSGEN CDS quotes again? Average: end Here is the 10 yr Italian bond yield; Value 6.45 Change (%) Open  Here is an update on the Italian bond scenario: Update: Italian bond yields hit 11-year high This article was produced by our sister publicationMoney Observer. By Cathy Adams | Wed, 09/11/2011 - 11:27 Italy's cost of borrowing has hit an 11-year high, as yields on 10-year bonds hit 7% on Wednesday. This marks the highest level since the euro was founded in 1999. Italy is the latest country to be rocked by fears that it could be the latest casualty of the eurozone debt crisis, with premier Silvio Berlusconi vowing to resign after budget reforms are passed. Italy, the eurozone's third-biggest economy, currently owes nearly €2 trillion (c£1.7 trillion), costing the government around €70 billion a year in interest alone. The yield on 10-year Italian government bonds has risen sharply over the past few weeks. By contrast, the yields on a 10-year German Bund were hovering around 1.8% - an almost record low. The news came as political wrangling to form a short-term unity government continued in debt-ridden Greece, after Prime Minister George Papandreou stepped down on Monday. Jason Gaywood, consultant at currency specialists HiFX, commented that it will be "difficult" to envisage Berlusconi winning the vote of confidence, adding that "the perception" of Italy's debts being paid off is looking "increasingly unlikely". "This is a damning statistic for Rome as once the interest paid by Ireland, Portugal and more recently Greece reached these dizzying levels, they all needed emergency cash bail-outs from the EU and the IMF within weeks," he said. Gaywood added that the recently-boosted European Financial Stability Fund (EFSF) simply doesn't have "enough money to fund these debts". "One thing seems certain, the death of the euro as we know it is only a matter now of when, not if." Chris Broome, director of Broome Financial Planning, said the 7% bond yield will have "potentially huge ramifications" for UK investors, savers and borrowers. "If Italy goes the same way as Greece, Portugal and Ireland then make no mistakes, the European and global economy - and markets - will go into meltdown. Borrowing rates could start rising rapidly as lenders price in the increased risk. Markets, meanwhile, could bomb, exposing pension and investment funds," he said. He added: "It's important that people start preparing now to weather what might be a considerable storm." Spread betting with Interactive Investor. Get competitive pricing on thousands of products, as well as award-winning trading software for desktop, web and mobile with our investment account. end Bloomberg on the Italian bond scenario: Italian Bonds Rise for Second Day After Senate Votes for Austerity Package Q By Paul Dobson - Nov 11, 2011 11:51 AM ET Italian bonds climbed for a second day as the nation’s Senate approved debt-reduction measures designed to shore up investor confidence and pave the way for a new government in the euro area’s third-biggest economy. The difference in yield, or spread, between Italian 10-year securities and benchmark German bunds shrank amid speculation former European Union Competition Commissioner Mario Monti will head Italy’s administration. The nation will auction up to 3 billion euros ($4.1 billion) of five-year notes on Nov. 14. French and Austrian bonds outperformed benchmark German bunds. “Italy has a good reputation for technocrat governments to sort things out,” said Alessandro Mercuri, an interest-rate strategist at Lloyds Bank Corporate Markets in London. “For the time being the market is very happy and is likely to continue tightening the spread.” The yield on 10-year Italian bonds declined 42 basis points, or 0.42 percentage point, to 6.46 percent at 4:19 p.m. London time, after dropping 36 basis points yesterday. The price of the 4.75 percent securities maturing in September 2021 advanced 2.680, or 26.80 euros per 1,000-euro face amount, to 88.365. The two-year note yield tumbled 54 basis points to 5.79 percent. The spread between Italian 10-year bonds and bunds narrowed 50 basis points to 461 basis points. Technocrat Governments Italy has a record of reaching outside the political spectrum for leaders of technical governments, who are generally given a limited term and charged with carrying out specific reforms. Bank of Italy Governor Carlo Azeglio Ciampi was called in to run a technical government in 1993 that oversaw a broad labor market agreement between employers and unions. Treasury Minister Lamberto Dini pushed through a sweeping pension reform as head of another technical government starting in 1994. The nation’s bond yields surged to the highest since the euro’s introduction in 1999 this week as Prime Minister Silvio Berlusconi came under pressure to step down and LCH Clearnet Ltd. raised margins, or deposits, for trading the securities. Berlusconi said on Nov. 8 he would resign once the budget measures were approved by parliament. Italy’s auction of debt maturing in September 2016 on Nov. 14 will be the first time the nation has offered just one security at an auction since November 2009, Jamie Searle, a fixed-income strategist at Citigroup Inc. in London, wrote in an investor report dated yesterday. ‘Failed Auction’ “The recent loss of confidence evident in the Italian bond market has increased the probability of a failed auction in the next few months,” Searle wrote. “Right now there is simply no demand.” The last time Italy sold the securities, on Oct. 13, they fetched a yield of 5.3 percent and the nation got bids for 1.34 times the 3.5 billion euros that it sold. Italy faces “no important bond redemptions” until February, giving it some breathing space to implement changes to the economy, Alessandro Giansanti, a senior interest-rate strategist at ING Groep NV in Amsterdam, wrote in an e-mailed note today. The French-German yield spread narrowed 18 basis points to 151 basis points after Standard & Poor’s corrected an erroneous message to subscribers yesterday suggesting the nation’s AAA credit rating had been cut. Bank of France Governor Christian Noyer said the French economy may stagnate in the fourth quarter, while avoiding recession, Le Figaro reported yesterday, citing an interview with the central banker. The Austrian-German spread tightened seven basis points to 149 basis points as Germany’s 10-year bond yield rose 10 basis points to 1.88 percent. The euro strengthened 1.2 percent to $1.3768 and the Stoxx Europe 600 Index of equities was 2.2 percent higher. German bunds have returned 8.9 percent this year, compared with 8.8 percent on U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Italian bonds have lost 9.3 percent, Greek securities plunged 53 percent, with French and Belgian debt little changed, the indexes show. To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net Want to save this for later? Add it to your Queue! Jim Rickarts is right on this: Germany probably can't get its gold back from U.S., Rickards tells King World News Submitted by cpowell on Fri, 2011-11-11 20:25. Section: Daily Dispatches 3:23p ET Friday, November 11, 2011 Dear Friend of GATA and Gold: Interviewed by King World News, geopolitical analyst James G. Rickards takes note of the speculation about the disposition of Germany's gold reserves and doubts that Germany ever could retrieve the portion held in the United States. An excerpt from the interview has been posted at the King World News blog here: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/11/11_J... CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. end I will leave you today with this zero hedge commentary where the EFSF cannot possibly attain its 1 trillion rescue amount of euros; (courtesy zero hedge) Europe Warns EFSF Will Not Reach €1 Trillion, EFSF Yields Remain At Record Wides Submitted by Tyler Durden on 11/11/2011 09:58 -0500 Bond   Brazil   Capital Markets   China   European Central Bank   European Union   Eurozone   Fail   France   Greece   headlines   Italy   Renaissance Reuters With the buying frenzy resuming on the lack of "headlines" out of Europe, it bears reminding that while risk on and off will be the theme of the day for a while, the entire Eurozone rescue, with the ECB refusing to participate directly, continues to be predicated on the EFSF and its ability to purchase the hundreds of billions of bonds rolling in the next 12 months from PIIGS, but mostly Italy, and now France. Which is why we are surprised that the news that the EFSF has now officially been "haircut" has not been quite noted. As Reuters reports, "political turmoil in Italy and Greece is complicating efforts to increase the firepower of the euro zone's bailout vehicle to 1 trillion euros, an official at the European Financial Stability Facility said on Friday. Euro zone countries had hoped to increase the EFSF's lending capacity by December, combining bond insurance with investment vehicles. But after the government in Athens fell and bond markets pushed Rome to the brink of a bailout that the euro zone cannot afford to give, the Luxembourg-based EFSF thinks it may be more realistic to aim for less leverage." In other words: kiss the full capacity bailout goodbye. And as the chart below shows, kiss any hope that the EFSF will be able to participate meaningfully in any European "renaissance" - while BTPs and OATs have seen some modest tightening on this "risk on" day, the yield on the EFSF has done absolutely nothing and remaind glued to record wides.  Reuters with some more on the encroaching math fail: "The political turmoil that we saw in the last 10 days probably reduces the potential for leverage, so that may be only by three to four times, instead of four to five," the EFSF source said.  Investors have shunned bonds issued by highly indebted euro zone countries and luring them back by offering insurance on losses, the centrepiece of a plan agreed in Brussels late last month, would probably use up more of the fund's resources.  After deducting the EFSF's existing emergency funding programmes, the rescue fund has 250 billion euros ($340 billion) to leverage.  The EFSF says it expects financial markets to improve as Greece appoints a new crisis cabinet and Italy votes on austerity measures demanded by the European Union, taking more dramatic action to reassure investors it can reform its economy.  But investors were already questioning how the EFSF would reach the 1 trillion euro level -- aimed at helping Italy and Spain if they were shut out of capital markets -- after the Oct. 27 agreement. The idea of raising the firepower via possible special purpose vehicles financed by sovereign wealth funds and other global investors is in some doubt because of a lack of clarity on incentives for countries such as China or Brazil to invest. Which means the ball remains in the ECB's court. And like in the US, in order to force the ECB's hand, risk has to sell off, yet the market is now pricing in intervention by both the Fed and the ECB and is sending risk ever higher in a toxic catch 22. As usual the market will need a few days to process the math.  Average: end I guess it is time to say goodbye.  I wish you all a grand weekend and I will touch base with you on Monday all the best Harvey