Saturday, November 19, 2011

Margin hikes again at CME/Gold and silver rebuff attacks/Big lawsuit filed against banks on MFGlobal scandal

Good morning Ladies and Gentlemen:

Before commencing my commentary, I would like to introduce to you two new entrants into our banking morgue, having taken their last breath Friday night:

(courtesy:  the street)


Two Banks Fail; 2011 Tally at 90

WASHINGTON (TheStreet) -- Two banks were closed by regulators Friday evening, bringing this year's total number of bank failures to 90.
Both failed banks were previously included inTheStreet's third-quarter Bank Watch List ofundercapitalized institutions, based on regulatory dataprovided by SNL Financial.

Polk County Bank

The Iowa division of banking shut down Polk County Bank of Johnston, which had total assets of $91.6 million and $82.0 million in deposits.
The Federal Deposit Insurance Corp. was appointed receiver and sold the failed institution to Grinnell State Bank of Grinnell, Iowa.
The failed bank's three offices were set to reopen Saturday as branches of Grinnell State Bank.
The FDIC estimated that the cost of Polk County Bank's failure to the deposit insurance fund would be $12.0 million.

Central Progressive Bank

The Louisiana Office of Financial Institutions took over Central Progressive Bank of Lacombe, which had $383.1 million in assets and $347.7 million in deposits.
The FDIC was appointed receiver and sold the failed bank's deposits to First NBC Bank of New Orleans, which also agreed to take on $354.4 million of the failed bank's assets, with the FDIC retaining the rest for later disposition.
The failed bank's 17 branches were scheduled to reopen during normal business hours, beginning on Saturday, as First NBC Bank branches.
The FDIC estimated that the cost of Central Progressive Bank's failure to the deposit insurance fund would be $$58.1 million.

Thorough Bank Failure Coverage

Georgia leads all states with 23 bank failures this year, followed by Florida, with 12 failures, and Illinois, with nine bank closures.
All previous bank and thrift closures since the beginning of 2008 are detailed in TheStreet'sinteractive bank failure map:
The bank failure map is color-coded, with the states having the greatest number of failures highlighted in dark gray, and states with no failures in light green. By moving your mouse over a state you can see its combined 2008-2011 totals. Then click the state to open a detailed map pinpointing the locations and providing additional information for each bank failure.

end


The price of gold withstood vicious attacks by the bankers as options expiry concludes this coming Tuesday evening.  The comex closing price yesterday was $1724.90 up $4.90.  Silver refused to buckle under the weight of massive non backed cartel selling as gold's poorer cousin finished the comex session at $32.41 up 92 cents.

Let us head over to the comex and assess trading there.

The total gold comex open interest fell marginally by only 2237 despite the massive raid by the bankers yesterday.  The OI rests tonight at 466,068.  Clearly the bankers were not amused that their raid did not shake many of the gold leaves from the tree.  The front options expiry month of November saw its OI fall from 73 to 66 for a loss of 7 contracts.  We had 9 deliveries on Thursday so we gained 2 contracts of gold standing and lost nothing to cash settlements.  The big December contract saw its OI fall from 211,893 to 190,918 as many rolled out of December into February.  The estimated volume on the gold comex yesterday was average at 166,626 considering the major rolls.  The confirmed volume on Thursday's raid was huge at 270,433.  To see only a 2237 contraction on a high volume raid did not provide much comfort for our bankers shorting folly.

The total silver comex open interest ROSE  by 1200 contracts from 108,846 to 110,002. As I have mentioned to you on many occasions, our silver comex longs are solid and will not be fooled by the bankers non backed shorting paper. The front options expiry month of November saw its OI mysteriously rise by 4 contracts despite one delivery on Thursday.  We thus gained 5 contracts of silver standing for 25,000 oz. The front December contract refused to buckle despite the advancing date of first day notice.  The OI rests tonight at 34,299 whereas Thursday's level was a touch higher at 34,826.  As you can see here, none of the silver leaves left the tree. The estimated volume on Thursday was pretty good at 78,458.  The confirmed volume on Thursday was even better at 86,527. The lower price in silver was orchestrated by the bankers "not for profit sales."


Inventory Movements and Delivery Notices for Gold: Nov 19.2011:
 





Gold
Ounces
Withdrawals from Dealers Inventory in oz
nil
Withdrawals from Customer Inventory in oz
193 (HSBC)
Deposits to the Dealer Inventory in oz

nil
Deposits to the Customer Inventory, in oz
nil
No of oz served (contracts) today
40  (4000 oz)
No of oz to be served (notices)
26 (2600)
Total monthly oz gold served (contracts) so far this month
526 (52,600)
Total accumulative withdrawal of gold from the Dealers inventory this month
398
Total accumulative withdrawal of gold from the Customer inventory this month
55,509




We had little activity into the gold vaults on Friday.  The dealer had no withdrawals and no deposits.

The only transaction was a tiny withdrawal by the customer of 193 oz from HSBC.
We did have a monstrous adjustments out of JPMORGAN's vault as 399,749 oz was adjusted from the eligible account (customer) into the dealer account.  This works out to be around 12.4 tonnes of gold.
Somebody is thus expecting massive delivery notices once first day notice arrives on November 30.2011.
The registered or dealer inventory of gold rises to 2.7 million oz.

The CME notified us that we had 40 delivery notices for 4000 oz of gold.  The total number of notices filed so far this month total 526 for 52600 oz.  To obtain what is left to be served upon, I take the OI standing for November  (66) and subtract out Friday's delivery notices (40) which leaves us with 26 notices or 2600 oz.

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

52600 oz (served)  +  2600 (oz to be served)  =   55,200 oz or 1.716 tonnes of gold.
we gained 200 oz of gold standing and lost nothing to cash settlements.


And now for silver 

First the chart: November 19th


Silver
Ounces
Withdrawals from Dealers Inventory620,658 (Brinks,Scotia)
Withdrawals fromCustomer Inventory15,243 (HSBC,Scotia)
Deposits to theDealer Inventorynil
Deposits to the Customer Inventory619,643 (Brinks,Scotia)
No of oz served (contracts)4  (20,000)
No of oz to be served (notices)38  (190,000)
Total monthly oz silver served (contracts)259 (1,295,000)
Total accumulative withdrawal of silver from the Dealersinventory this month929,508
Total accumulative withdrawal of silver from the Customer inventory this month3,116,874




we had a lot of activity in the silver vaults on Friday as they prepare for first day notice.

We still did not have any silver deposits into the dealer.
The dealer however had the following withdrawals:

1.  From Brinks:  615,920 oz.
2.  From Scotia:  4738 oz

total dealer withdrawal of silver:  620,658.

The customer had the following withdrawal:

From HSBC:   4726 oz
From Scotia:   10,517

total customer withdrawal;  15,243 oz.

We had the following customer deposit of silver:

1. Into Brinks:  3723.
2. Into Scotia:  615,920 oz.

total deposit:  619,643

please note that the 615,920 oz of silver withdrawal from the dealer Brinks went into a customer vault at Scotia.  This was probably silver that was settled upon.
We also had an adjustment of 5001 oz of silver removed from the dealer and repaid to the customer.

The registered or dealer silver rests today at 32.568 million oz.
The total of all silver rests at 108.27 oz.

The CME notified us that we had 4 delivery notices for 20,000 oz.  The total number of delivery notices for the month rests at 259 for 1,295,000 oz.  To obtain what is left to be served upon, I take the OI standing for November (42) and subtract out Friday delivery notices (4) which leaves us with 38 notices or 3800 oz of silver.

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

1,295,000 (oz served)  +  180,000 (oz to be served upon) =   1,475,000 oz a gain of 25,000 oz from Thursday.

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 19.2011:


Total Gold in Trust

Tonnes:1,293.09

Ounces:41,574,071.17

Value US$:71,450,583,605.85






Nov 17.2011:




TOTAL GOLD IN TRUST

Tonnes:1,289.46

Ounces:41,457,342.31

Value US$:72,224,952,935.91





NOV 16.2011:



TOTAL GOLD IN TRUST

Tonnes:1,277.36

Ounces:41,068,240.79

Value US$:72,102,146,730.26





WE GAINED ANOTHER WHOPPING 3.6  TONNES OF GOLD yesterday.  In 3 days we have gained 15.73 tonnes of gold.

The GLD boys received this gold as a swap with the Bank of England whereby the Bank receives cash.  The swap must be rewound at the whim of the B. of E.
The shareholders of GLD will receive the same royal treatment as the owners of commodity contracts at MFGlobal. This will be a nuclear implosion!!



And now for the SLV for Nov 19;2011


Ounces of Silver in Trust312,364,613.100
Tonnes of Silver in Trust Tonnes of Silver in Trust9,715.63
Nov 17.2011:


Ounces of Silver in Trust314,553,561.600
Tonnes of Silver in Trust Tonnes of Silver in Trust9,783.71

Nov 16.2011:




Ounces of Silver in Trust314,553,561.600
Tonnes of Silver in Trust Tonnes of Silver in Trust9,783.71
Nov 15.2011:

Ounces of Silver in Trust314,553,561.600
Tonnes of Silver in Trust Tonnes of Silver in Trust9,783.71
we lost 2.189 million oz of silver from the SLV. This silver was probably raided by the operators of the SLV to suffice long holders wishing to take physical metal from the LBMA.  



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


1. Central Fund of Canada: traded to a positive 3.6 percent to NAV in usa funds and a positive  3.9% to NAV for Cdn funds. ( Nov19.2011).
2. Sprott silver fund (PSLV): Premium to NAV rose to  a   positive 15.64%to NAV Nov 19/2011
3. Sprott gold fund (PHYS): premium to NAV rose to a 2.75% positive to NAV Nov 19.2011).



Despite the raids this week, the positives to NAV held up pretty good.  I am very glad to see the NAV on the central fund of Canada remain nicely into the positives this month.  Together with the high premium on the Sprott silver, the resultant action kind of shows you that physical metal is in high demand and investors are willing to pay a premium to receive it.


end

Friday afternoon saw the release of the COT report from Tuesday Nov 8.2011 to Tuesday Nov 15.2011.
The raids occurred on Wednesday through Friday so the data will not be reflected in this report.

First the Gold COT:




Gold COT Report - Futures
Large Speculators
Commercial
Total
Long
Short
Spreading
Long
Short
Long
Short
205,417
46,203
26,282
170,594
374,757
402,293
447,242
Change from Prior Reporting Period
5,231
1,724
7,724
346
7,574
13,301
17,022
Traders
196
77
78
49
50
285
170


Small Speculators




Long
Short
Open Interest



68,197
23,248
470,490



-7,793
-11,514
5,508



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, November 15, 2011


Those large speculators that have been long in gold decided that the global financial mess was turning ugly so they decided to add massively to their holdings to the tune of  5,231 contracts.

Those large speculators that have been short in gold added a smaller 1,724 contracts to their shorts and these guys were part of the suppliers of the paper gold.

And now for our commercials:

The commercials who have been long in gold surprisingly added only a tiny 346 contracts to their long positions probably sensing like me a raid was imminent.

The commercials who have been short for an eternity and as such a large supplier of the non backed paper,
continued on their merry way by supplying  (adding) a whopping 7,574 contracts to their short side.
No wonder we had the raid during the week.

And now for our small specs:  (remember last week the small specs added a huge number of contracts to their long side)

The small specs who have been long in gold pitched a massive 7793 contracts of their longs and by golly got it right.  They pitched before the raid.

The small specs who have been short in gold covered a massive 11,514 contracts of their shorts and thus also got it right.  Very weird indeed for the small specs to win!

 Conclusion:  this was a setup for the big raid on Wednesday through Friday.  Next week we will see the damage in the COT numbers.




Silver COT Report - Futures
Large Speculators
Commercial
Total
Long
Short
Spreading
Long
Short
Long
Short
25,822
11,375
22,303
38,950
65,242
87,075
98,920
1,408
-99
4,583
-2,505
-924
3,486
3,560
Traders
64
39
45
36
43
125
107

Small Speculators




Long
Short
Open Interest



23,438
11,593
110,513



-4,814
-4,888
-1,328



non reportable positions
Change from the previous reporting period

COT Silver Report - Positions as of
Tuesday, November 15, 2011




Now for our silver COT:

Our large speculators that have been long in silver followed the lead of the large speculators in gold by adding
1,408 contracts to their long side.  They say demand rising and physical supplies basically being out of stock.
The USA mint has recorded over 4 million oz of silver sales and thus silver must be imported to supply the demand.

The large speculators that have been short in silver covered a tiny 99 contracts from their shorts.

And now for our commercials:

Those commercials that have been long in silver somehow saw a raid coming and pitched 2,505 contracts
from their long side.

Those commercials that have been short in silver (JPMorgan and cohorts and subject to the CFTC enforcement probe) covered  924 contracts from their short side.

The small specs:

Our small specs that have been long in silver, strangely received word from the heavens that silver was going to be raided and they pitched a massive 4814 contracts from their long side and profited from the gain in silver.

Look at what the small specs that have been short in silver did:

they covered a massive 4888 contracts.  They must have also received the game plan last week. No doubt these guys were also the buyers of silver contracts on Friday.

I have a sneaky feeling that the banks have set up accounts as small specs to hide what they are doing.
The small spec gold and silver story is surreal.

Conclusion:  this was also a setup for the raid.  Next week we see the damage.

end.


There are two reasons for the silver plunge this week:

The first is the Shanghai hike in silver margins to 18% which caused silver to falter in Asia on Thursday.

(courtesy zero hedge)



Silver Plunge Explained: Shanghai Hikes Silver Margins From 15% to 18%

Tyler Durden's picture





We wonder if the collapse in silver price yesterday may have been due to just a tiiiiiiny leak of the fact that overnight, the SGE announced an imminent margin hike. From Reuters: "The Shanghai Gold Exchange said it will raise margins on silver forwards to 18 percent from 15 percent from Monday if the silver contract hits its daily trade limit on settlement on Friday. The exchange said it would lift daily trade limits on silver forward contracts to 15 percent from 12 percent if the contract hits limit up or down on settlement on Friday."
And from the SGE, courtesy of Google :
On the adjustment of silver Ag (T + D) notice of the contract price limits

Given the current silver Ag (T + D) decreased by a big margin, if today silver Ag (T + D) Contract close sealed daily limit, there unilateral market, according to exchange "Shanghai Gold Exchange Risk Control Measures" relevant provisions of the today on the final liquidation, the margin increased from 15% to 18% adjustment, the next trading day (November 21) from the Ag (T + D) contract price limits adjusted from 12% to 15%.
Invites Member units to prepare well in advance of related work and customer notification.
We can only pray that the CME does not take athe hint and start hiking margins on gold and silver on price plunges. At that point one may as well be Celente when investing in paper silver.

From: James McShirley
To: Bill Murphy
Sent: Friday, November 18, 2011 12:27 PM
Subject: Gee, go figure
Bill,
Maybe even a bigger reason for gold and silver selling off is due to the CME quietly going back to full initial margin. They have returned margins to levels prior to the CME's panic MF-induced reduction. I couldn't find any notice of their decision on the CME site, but I confirmed it with my broker Rosenthal Collins. It was scaled in over 7 trading days between November 11th and November 17th. I suspect weak spec longs who took advantage of the temporary margin reduction, and not knowing when it would be reimplemented, are getting flushed. The timing for the margin hikes of course dovetails nicely with looming op. ex. and FND. It's kind of surprising that the usual sleuthing of ZH didn't catch this. Nonetheless it looks like the die is cast for gold until after next week, and maybe $1,800 will be all she wrote for 2011 if the yearly cartel percentages hold.
You also have to wonder who those damn genius small spec gold traders are that loaded their shortselling boats back up at $1,780. This is extremely unusual for such a large volume of little guys to get their timing perfect. Maybe it was some of the old MF crowd getting back on board just in time with the help of a meal culpa from JPM. Maybe those small spec shorts are now the cartel in drag.
In the meantime with farm acreage prices jumping 30% in the past 3 months we shouldn't be waiting long for the resumption of the gold bull trend.
http://www.ibj.com/midwest-farmland-value-jumps-most-since-1977-fed-says/PARAMS/article/30790
James McShirley.

end.

Many have asked me if the CFTC voted on the swaps.  I got that same answer that Bix Weir got:


Bix…
Word from the CFTC is that they will NOT be defining the word "swap" this week as suggested by Bart Chilton. When called for an explanation the CFTC spokesperson said they were "too busy with the MF Global situation to hold an official meeting".
Basically, they are too busy dealing with a problem created by their lack of regulation to implement laws meant to prevent problems BEFORE the they happen. HA!
Of course, we know the truth. The CFTC is delaying any such implementation to prolong the con game and not to CAUSE the pending global meltdown. In the end they WILL implement the laws but it will be too little too late.
This week's Road Trip will be out later today and digs deeper into the MF Global SILVER situation, the significance of the "Blue Bankruptcy", more Time Line hits and the plans to officially destroy the US Dollar by the end of THIS year.
At least life isn't boring these days!
Bix Weir




end.

We are now witnessing demand for gold at record levels. The following Dow Jones news wire story
shows that gold demand in 2011 will rise to 750 tonnes or 29%.
China produces around 340 tonnes of gold and keeps all of it.  Thus the remainder, 410 tonnes supplies its needed citizens who cash their yuan to buy gold and the official sector who adds to their reserves.  The latter we believe is adding around 20 tonnes per month of gold.  It is not official yet due to the fact that they are hiding their figures.

(courtesy Jim Sinclair/Dow Jones news wire)



Jim Sinclair’s Commentary
The price of gold will rise into the $2000s as well.
China 2011 Gold Demand Likely Rise 29% To 750 Tons

Thu Nov 17 04:10:37 2011 EST
BEIJING, Nov 17, 2011 (Dow Jones Commodities News via Comtex) —
China’s gold demand will likely rise to 800 metric tons next year, World Gold Council Far East managing director Albert Chang said Thursday.
China is the largest gold consumer in the world after India, with demand at 579.5 tons last year, according to WGC data.
(END) Dow Jones Newswires
11-17-11 0217ET
Copyright (c) 2011 Dow Jones & Company, Inc.

end.

Late last night we got word of a massive lawsuit on that famous bond issue of MFGlobal, the one where one percent yield would be added to the bond issue if Jon Corzine left MFGlobal for public office.  There are 7 banking entities named in the lawsuit and only one is not a bank holding company and thus cannot receive federal funding in an emergency.  That firm is Jeffries...

(courtesy zero hedge)




The Final Straw? Jefferies And Six Other Banks Sued For "Fraudulent" MF Global Bond Issuance

Tyler Durden's picture





Pick the odd one out of the following 7 banks, while in the process pointing out what they have in common: Bank of America Corp, Citigroup Inc, Deutsche Bank AG, Goldman Sachs
Group Inc, Jefferies Group Inc, JPMorgan Chase & Co and Royal Bank
of Scotland Group Plc. As it so happens 6 of the 7 are Bank Holding Companies, and have access to the Fed's various emergency facilities. The seventh, Jefferies, which a few years ago, boasted that it is now the largest remaining true investment bank after all its competitors had converted to BHC status, may soon regret it said that and did not join its peers. Why? For the same reason why on November 1, the day after MF Global filed for bankruptcy, we tweeted: "Here is why Jefferies is in deep doodoo" The reference of course is to the now legendary prospectus for the MF Global 6.25% notes of 2016 that had the infamous Corzine key man event: "interest rate applicable to the notes will be subject to an increase of 1.00% upon the departure of Mr. Corzine as our full time chief executive officer due to his appointment to a federal position by the President of the United States and confirmation of that appointment by the United States Senate prior to July 1, 2013." At this point the only appointment Obama may give Corzine is that of a presidential pardon for a criminal felony offense (assuming of course Corzine brings a sleeping bag to Zuccotti square: the only offense for which he may ever be arrested). Alas, Jefferies, and the 6 other banks, do not have that luxury: as of late this afternoon, all six were sued by pension funds "who said the bonds' offering prospectuses concealed problems that led to the futures brokerage's collapse." Precisely as Zero Hedge expected. And unfortunately for Jefferies, this may well be the final nail in the coffin - because while the market had punished the bank for its Exposure, the biggest unknown in the past 2 weeks was whether and when it would be sued precisely for its MF Global liability. That time is now: next up - every single entity that was impaired in part or in whole as a result of the MF Global bankruptcy will follow suit and sue the same 7 banks... of which only Jefferies does not have the benefit of an infinite backstop. 
More from Reuters:
Other defendants include several officials associated with MF Global, including former Chief Executive Jon Corzine.

Friday's lawsuit may be one of the earliest efforts for investors to recover money from relatively deep-pocketed defendants that they believe may share in responsibility for MF Global's October 31 bankruptcy.

Bank of America spokeswoman Shirley Norton, Citigroup spokeswoman Danielle Romero-Apsilos and Jefferies spokesman Richard Khaleel declined to comment. The remaining banks did not immediately respond to requests for comment.

According to the complaint, the registration statements and prospectuses for about $900 million of MF Global note offerings this year omitted how the company was using high leverage, investing heavily in risky European sovereign debt, and not properly segregating client assets from its own.

It said the seven banks helped draft the offering documents and sell the notes, collecting $21.2 million of fees, but that their "failure to conduct an adequate due diligence investigation was a substantial factor" in MF Global's collapse, as well as in defaults on the notes.

The lawsuit was brought by the IBEW Local 90 Pension Fund in Connecticut, and the Plumbers' and Pipefitters' Local #562 Pension Fund in Missouri, and seeks class-action status. 

It seeks damages for investors between February 3, 2011 and October 31, 2011 in MF Global securities, including its 1.875 percent convertible senior notes maturing in 2016, its 3.375 percent convertible senior notes maturing in 2018, and its 6.25 percent senior notes maturing in 2016.
And to everyone who may have lost money or had their capital locked up indefinitely by the bankrupt firm, which we are 100% certain will see all of its valuable assets picked off by Goldman Sachs and JP Morgan, we suggest you familiarize yourself with lawsuit IBEW Local 90 Pension Fund et al v. Corzine et al, U.S. District Court, Southern District of New York, No. 11-08401 and enjoin it. Because one person who is getting very familiar with its contents right about now is Jefferies CEO, Dick Handler.
Incidentally, if Jefferies in big trouble, our other tweet from November 1 is also true: "And if Jefferies is in trouble, so is Fried Frank, underwriter counsel on the MF Global bond:http://t.co/L5vgjzqA"
So investment banks first; law firms next...Just how high will this debacle for the current administration reach we wonder?



5
Your rating: None Average: 5 (7 v


end.

The financial crisis in Europe will escalate and create a systemic risk if three events happen with the first already upon us:

1.  A Greek default.  
2.  An Italian and Spanish bond default (sovereign default)
3.  The 3 largest French banks default as they feasted on these PIIGS debt.

The USA has a real estate problem which in turn is causing banking problems.
Europe is having a sovereign debt problem and a real estate problem which is infecting their banks.

I will every day, highlight the 10 yr bonds for these sovereign nations as the global financial mess continues.
Yesterday we got word that the ECB has been buying roughly 20 billion euros worth per week of this crap.
They intervened heavily into the bond market yesterday trying to arrest the high sovereign yields.


(courtesy zero hedge)


Rumor Rerun: EURUSD Soars On News Proposal ECB To Lend To IMF "Gaining Traction"

Tyler Durden's picture





When at first you don't succeed... At this point they aren't even trying: the main upward moving rumor yesterday, for those who have an HFT algo's memory span, was that somehow the ECB would circumvent its charter, something which was expresslydenied by every German involved, and lend directly to the IMF which in turn would lend to troubled countries. Because nobodywould see through that particular ruse.  Well the rumor is back, sending the EURUSDS a good 60 pips higher in no time almost breaching 1.36. Just to make the rumor that bit more credible, the unnamed source added some amusing details: "Germany, ECB still opposed to idea but may be willing to consider it according to sources, and if consensus forms a deal may be reached at December 9th EU summit according to sources."  And just like yesterday we expect that the official German denial will be out in seconds. In fact, it appears that today the denial came in before the actual rumor.
From Reuters:
  • GERMANY'S SCHAEUBLE-NO PRESSURE FOR ECB TO UNLEASH ALL ITS FIREPOWER TO ADDRESS CRISIS, AS THIS NOT PROVIDED FOR LEGALLY- RTRS
  • GERMANY'S SCHAEUBLE-IF WE DID DO THAT, CALM ON MARKETS WOULD LAST FOR A FEW WEEKS AT MOST - RTRS
Well, when the China white knight, pardon EFSF, pardon US bailout, pardon ECB lending to IMF rumors no longer work, it's time to start recycling. In the meantime, the chart below shows how stupid this market is. Oh well, thank you for the shorting opportunity.

5





Italian 10 yr bond:

Value6.64One-Year Chart for Italy Govt Bonds 10 Year Gross Yield (GBTPGR10:IND)
Change(%)
Open6.84
High6.95
Low


 Spanish 10 yr bond:

Snapshot

SUMMARYONE-YEAR CHART INTERACTIVE CHART
Value6.38One-Year Chart for SPANISH GOVERNMENT GENERIC BONDS - 10 YR NOTE (GSPG10YR:IND)
Change(%)
Open6.46

French 10 yr bond.

Snapshot


SUMMARYONE-YEAR CHART INTERACTIVE CHART
Value3.47One-Year Chart for France Govt Oats Btan 10 Yr Oat (GFRN10:IND)




end

This is a must article for you to read.  Here Dr Mark Mobius of Templeton describes two major problems.

1.  Derivatives underwritten by USA banks and other banks on PIIGS sovereign debt.

2.  The huge leverage orchestrated by the ECB and the Fed on their purchases of these PIIG nations.
The Fed has a leverage of 51;1 on its balance sheet.  A 2 % drop in asset value wipes them out.  You can say the same for the ECB.


(courtesy Forbes  author Addison Wiggin:)

The Next Financial Crisis will be Hellish, and
It's on its way:







There is definitely going to be another financial crisis around the corner," says hedge fund legend Mark Mobius, "because we haven't solved any of the things that caused the previous crisis."
We're raising our alert status for the next financial crisis. We already raised it last week after spreads on U.S. credit default swaps started blowing out.  We raised it again after seeing the remarks of Mr. Mobius, chief of the $50 billion emerging markets desk at Templeton Asset Management.
Speaking in Tokyo, he pointed to derivatives, the financial hairball of futures, options, and swaps in which nearly all the world's major banks are tangled up.
Estimates on the amount of derivatives out there worldwide vary. An oft-heard estimate is $600 trillion. That squares with Mobius' guess of 10 times the world's annual GDP. "Are the derivatives regulated?" asks Mobius. "No. Are you still getting growth in derivatives? Yes."
In other words, something along the lines of securitized mortgages is lurking out there, ready to trigger another crisis as in 2007-08.
What could it be? We'll offer up a good guess, one the market is discounting.
Seldom does a stock index rise so much, for so little reason, as the Dow did on the open Tuesday morning: 115 Dow points on a rumor that Greece is going to get a second bailout.
Let's step back for a moment: The Greek crisis is first and foremost about the German and French banks that were foolish enough to lend money to Greece in the first place. What sort of derivative contracts tied to Greek debt are they sitting on? What worldwide mayhem would ensue if Greece didn't pay back 100 centimes on the euro?
That's a rhetorical question, since the balance sheets of European banks are even more opaque than American ones. Whatever the actual answer, it's scary enough that the European Central Bank has refused to entertain any talk about the holders of Greek sovereign debt taking a haircut, even in the form of Greece stretching out its payments.
That was the preferred solution among German leaders. But it seems the ECB is about to get its way. Greece will likely get another bailout — 30 billion euros on top of the 110 billion euro bailout it got a year ago.
It will accomplish nothing. Going deeper into hock is never a good way to get out of debt. And at some point, this exercise in kicking the can has to stop. When it does, you get your next financial crisis.
And what of the derivatives sitting on the balance sheet of the Federal Reserve? Here's another factor behind our heightened state of alert.
"Through quantitative easing efforts alone," says Euro Pacific Capital's Michael Pento, "Ben Bernanke has added $1.8 trillion of longer-term GSE debt and mortgage-backed securities (MBS)."
Think about that for a moment. The Fed's entire balance sheet totaled around $800 billion before the 2008 crash, nearly all of it Treasuries. Now the Fed holds more than double that amount in mortgage derivatives alone, junk that the banks needed to clear off their own balance sheets.
"As the size of the Fed's balance sheet ballooned," continues Mr. Pento, "the dollar amount of capital held at the Fed has remained fairly constant. Today, the Fed has $52.5 billion of capital backing a $2.7 trillion balance sheet.
"Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30-to-1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51-to-1! If the value of their portfolio were to fall by just 2%, the Fed itself would be wiped out."
Mr. Pento's and Mr. Mobius' views line up with our own, which we laid out during interviews on our trip to China this month.

end

Graham Summers comments on the above Mark Mobius speech and other frightening events:

(courtesy Graham Summers/Phoenix Capital Research)



Something Big Is Coming... and It's Going to Be BAD

Phoenix Capital Research's picture





Something major is occuring in the markets today.

The US economy peaked in 2007. However, throughout much of 2008, the stock market continued to rally despite the economic collapse as well as the financial system imploding.

Throughout this period the credit markets jammed up and implied something VERY BAD was in the system. However, stock investors continued to pile into stocks because, well, frankly stocks always are the last to "get it."

And when stocks finally did get it... it was quite a thing.

This same environment is occurring today. Only this time the collapse is sovereign in nature: entire countries are going bust.

We have been getting MAJOR warning signs of a collapse for months now. No less than the Bank of England, the IMF, and legendary asset management firm Franklin Templeton have warned that we are facing an epic, hellish crisis.

We got the first taste of this in August when the S&P 500 literally wiped out a year's worth of gains in two weeks The only thing that brought us back from the brink at that time was the belief that the EU mess might be solvable and a coordinated intervention from the world Central Banks.

We then had a spirited rally as the Fed and central banks went "all in" to force the stock market above its 200-DMA.

This final "hurrah" has failed and the financial system is literally imploding. The EU will be broken up in the next month or so and it is highly likely Germany will back out of the Euro altogether.

Moreover, the world central banks are now totally out of ammunition. They've spent Trillions of Dollars in bailouts, abandoned accounting standards, and even moved TRILLIONs in garbage debt onto the public's balance sheet.

None of this has worked. The credit markets are jammed up just like in 2008. Italy, the third largest bond market in the world, is on the verge of default. No one wants to fund the EFSF. China is entering a hard landing and economic collapse. The US is in a clear depression.

And on and on.

This is the single most dangerous market environment of our lifetimes.  We are entering a period of massive wealth destruction. We will see bank holidays and civil unrest. We will see sovereign defaults. We will see temporary shortages in various goods and services.

So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding.
On that note, if you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on theOUR FREE REPORTS tab.

Good Investing!

Graham Summers


end

Here is a great review on the faults of the EFSF and why it is failing:

(courtesy Reuters)

The euro zone’s self-inflicted killer

By Bethany McLean
The opinions expressed are her own.
There were a lot of things that were supposed to save Europe from potential financial Armageddon. Chief among them is the EFSF, or European Financial Stability Facility.
In the spring of 2010, European finance ministers announced the facility’s formation with great fanfare. In its inaugural report, Standard & Poor’s described the EFSF as the “cornerstone of the EU’s strategy to restore financial stability to the euro zone  sovereign debt market.”  The facility itself said in an October 2011 date presentation that its mission is to “safeguard financial stability in Europe.”
That of course hasn’t happened. And the evidence suggests that the EFSF may have only exacerbated the problems.
In theory, the facility is supposed to provide a way for a country that the market perceives as weak to still borrow money on good terms. The initial idea was that instead of the financially troubled country itself trying to sell its debt to live another day, the EFSF would be the one to raise the money and lend it to the country in question. The logic was simple: country X might be shaky, but the EFSF deserved a triple-A rating.
For all of its would-be financial firepower, the EFSF isn’t much to see—it’s just an office in Luxembourg with a German-born economist CEO named Klaus Regling, who oversees a staff of about 20. Its power—and that rating—is derived from the assumption that any debt it issues is guaranteed by the members of the euro zone. Initially, each member pledged unconditionally to repay up to 120% of its share of any debt the EFSF issued. (A country’s share is determined by the amount of capital it has in the European Central Bank.)
On paper, it all sounded great. The reality is that the EFSF wasn’t meant to be an active institution; it was supposed to be a fire extinguisher behind glass: never to be used. “The EFSF has been designed to bolster investor confidence and thus contain financing costs for euro zone member states,” wrote Standard & Poors in its initial report granting the triple A rating. “ If its establishment achieves this aim, we would not expect EFSF to issue a bond itself.”  Moody’s, for its part, wrote that the EFSF “reflects the political commitment of the euro zone member states to the preservation of the euro and the European Monetary Union.” That show of commitment alone was supposed to be enough to reassure the market.
In granting the EFSF the all-important triple-A rating, the rating agencies were somewhat cautious. They weren’t willing to assume, as they did with subprime mortgages, that any subset of debt guarantees—no matter how small—made by countries that weren’t themselves triple-A rated would be worthy of the gold-plated standard. Instead, they insisted that the EFSF’s loans had to be covered by guarantees from triple-A rated countries and cash reserves that the EFSF would deduct from any money it raised before it passed those proceeds on to the borrowing country. Based on that, euro zone members initially pledged a total of 440 billion euros ($650 billion) in guarantees. However, S&P said in its initial report that the EFSF would be able to raise less than $350 billion of triple-A rated proceeds.
Of course the euro zone did break the glass: the fire extinguisher was used, first in support of Ireland, and then Portugal, and then Greece. This summer, the European Powers That Be agreed to bolster the EFSF’s lending capacity by increasing the maximum guarantee commitments of the member states to 165%, instead of 120%. That was supposed to enable the EFSF to borrow up to 452 billion euros “without putting downward pressure on its ratings,” according to S&P.
As we now know, that’s not nearly enough money to end the crisis, especially given that the EFSF’s commitments to Ireland, Greece and Portugal leave the facility with a lending capacity of just 266 billion euros, according to a recent report from Moody’s. (I found it difficult to add up where the money went.)
Hence the politicians’ latest idea: leverage the EFSF’s remaining ability to borrow. Either have the EFSF offer first-loss insurance when a country issues debt, or turn its remaining capacity into the first-loss tranche of a collateralized debt obligation, which would raise money by selling bonds to other countries like China.
Besides being undersized for the job, there’s a core structural problem with the EFSF: It is only as strong as its triple-A members—not just Germany, which according to that October 2011 EFSF presentation contributes 29% of the total value of the EFSF’s guarantees, but also France, which contributes 22%, and the Netherlands, which contributes 6%.
Some financial analysts have questioned why any European country deserves a triple-A rating, seeing as EU members can’t print their own currency to pay off their debts.  As the financial turmoil has unfolded, it’s become clear that the only EU country the market views as a bona-fide triple-A is Germany. So as much of Europe crumbles, the EFSF’s triple-A, in the eyes of the market, is supported by a lone country. As one bond market participant says, “Eventually, only the German guarantee will matter, and it isn’t big enough to cover this.”
Indeed, Germany represents less than a quarter of the EU’s GDP, and obviously the nation’s economic health is to no small degree dependent on other members of the EU buying German goods. (Such interconnectedness was the whole point of the European Union—and that helps explain why the cost to insure against a German default has more than doubled since the summer, to $93,655 a year to insure $10 million of 5-year German debt.)
Not surprisingly, the EFSF’s last 3 billion euro bond sale, onMonday, November 7, met with what Moody’s called “significantly less demand” than a similar issue last spring. The issue was originally supposed to be 5 billion euros, and the spread, relative to German debt, that was required to lure investors was over three times the spread that was needed last spring. As Moody’s wrote in its report, “the demand for the EFSF bond issuance was dampened by a lack of confidence over the credit resilience of its guarantors.” Another way to think about this is that since the strength of the EFSF is dependent on the strength of its parts, the more individual countries have to pay to raise money, the more the EFSF itself has to pay.
In fact, it’s the definition of a vicious cycle. The EFSF’s funding costs rise along with those of its guarantors, and perversely, bond market participants say that the very existence of the facility also causes its guarantors’ cost to rise. That’s because there aren’t many investors who are interested in buying European sovereign debt these days. Those who are demand a very high premium if they’re going to buy, say, Italian debt instead of EFSF debt. This is why the EFSF was going to be hurtful, rather than helpful, if it had to be used: it competes with its very creators for investment, driving spreads higher and higher. One hedge fund manager calls the EFSF  a “self-inflicted killer” of Europe’s bond markets.”
The EFSF is due to expire, and is supposed to be replaced by the European Stability Mechanism, or ESM, in mid-2013.  But the ESM looks like it’s going to have same problem the EFSF does: Its finances depend on the very same countries that it is supposed to bail out.  In other parts of the world, this isn’t called stability; this is called a Ponzi scheme.
Photo: Men climbs steps next to a share price ticker at the London Stock Exchange in the City of London.REUTERS/Andrew Winning



We are one week away from the super-committee report on how they would reduce USA spending by 1.2 trillion dollars over 10 years.

Here are three reports suggesting that they are getting nowhere and problems will be upon us on its failure:






Deficit talks shift toward blame game – CNN.comBy the CNN Wire Staff
updated 2:03 PM EST, Thu November 17, 2011
Washington (CNN) — Six days before the deadline for a deal, House leaders on Thursday blamed each other’s party for the inability of a special congressional committee to reach agreement on tax and entitlement reforms as part of a possible deficit reduction agreement.
The comments at successive news conferences by House Speaker John Boehner, R-Ohio, and Democratic leader Rep. Nancy Pelosi of California escalated the rhetoric over possible failure by the committee created as part of the debt ceiling agreement earlier this year.
Boehner expressed frustration with Democrats, saying they have refused to sign off on any deal in various stages of deficit reduction talks going back to December.
“They’re well aware of what we’re willing to do, but you can lead a horse to water but you can’t make him drink,” Boehner said, adding: “The problem we’ve had all year is getting ‘yes.’ “
He called for decisive action now, saying “it’s time to rip the band-aid off and do what needs to be done.”


and this:  (Senator Coburn is a member of the super-committee:)

courtesy zero hedge

Senator Coburn Presents "Subsidies Of The Rich And Famous"

Tyler Durden's picture





As the super-committee seems more and more likely to hit a brick-wall, we present with no comment, Senator Tom Coburn of Oklahoma's 'helpful' prose:
Dear Taxpayer,
Americans are facing tough times. Millions are still out of work. Wages remain stagnant, while health care costs, tuition, and other household cost continue to rise. Many homeowners owe more for their houses than they are worth.

With families across the country struggling to make ends meet during these economically trying times, many are left with few options so they are turning to the government – some very reluctantly – for assistance. The government safety net has been cast far and wide, with almost half of all American households now receiving some form of government assistance. But most taxpayers will be asking why when they learn who is receiving what.

From tax write-offs for gambling losses, vacation homes, and luxury yachts to subsidies for their ranches and estates, the government is subsidizing the lifestyles of the rich and famous. Multimillionaires are even receiving government checks for not working. This welfare for the well-off – costing billions of dollars a year – is being paid for with the taxes of the less fortunate, many who are working two jobs just to make ends meet, and IOUs to be paid off by future generations.

This is not an accidental loophole in the law. To the contrary, this reverse Robin Hood style of wealth redistribution is an intentional effort to get all Americans bought into a system where everyone appears to benefit.

“Everybody can have a free lunch,” explains Howard Leikert, supervisor of school nutrition programs for the Michigan Department of Education, where a new federal program is providing all students, regardless of their families’ incomes, free school meals in select areas.

But not everyone can have a free lunch. Ultimately someone must pay for each of the lunches being given away. Furthermore, not everyone needs a free lunch. The real result of serving everyone a piece of the pie is less is leftover for those truly in need.

Some economists argue “if we think that the rich are getting too much of the economic pie, then they should be taxed more.” This is no different than taking a dollar from one pocket and putting it into another in the same pair of pants. We should never demonize those who are successful. Nor should we pamper them with unnecessary welfare to create an appearance everyone is benefiting from federal programs.

Even in these difficult times, the United States remains a land of opportunity and not everyone is in need of government hand outs. The income of the wealthiest one percent of Americans hasrisen dramatically over the last decade. Yet, the federal government lavishes these millionaires with billions of dollars in giveaways and tax breaks.

The government’s social safety net, which has long existed to catch those who are down and help them get back up, is now being used as a hammock by some millionaires, some who are paying less taxes than average middle class families. Comprehensive information on the full range of government benefits enjoyed by millionaires has never been collected previously. This report provides the first such compilation. What it reveals is sheer Washington stupidity with government policies pampering the wealthy costing taxpayers billions of dollars every year.

These billions of dollars for millionaires include $74 million of unemployment checks, $316 million in farm subsidies, $89 million for preservation of ranches and estates, $9 billion of retirement checks, $75.6 million in residential energy tax credits, and $7.5 million to compensate for damages caused by emergencies to property that should have been insured. All and all, over $9.5 billion in government benefits have been paid to millionaires since 2003. Millionaires also borrowed $16 million in government backed education loans to attend college.

On average, each year, this report found thatmillionaires enjoy benefits from tax giveaways and federal grant programs totaling $30 billion. As a result, almost 1,500 millionaires paid no federal income tax in 2009. Fleecing the taxpayer while contributing nothing is not the American way.

Americans are generous and do not want to see their fellow citizens go without basic necessities. Likewise, we expect everyone to contribute and to demonstrate personal responsibility. Government policies intended to mainstream wealth redistribution are undermining these principles. The tragic irony is the wealth in these cases is trickling up rather than down the economic ladder.The cost of this largess will thus be shared by those struggling today and the next generation who will inherit $15 trillion of debt that threatens the future of the American Dream. These consequences are the results of shortsighted spending and tax policies like those outlined in this report that should be eliminated.

Sincerely,
Tom A. Coburn, M.D.
U.S. Senator

Supercommittee failure could trigger US credit downgrade, economists warn

Economists predict dire consequences if committee fails to reach agreement on how to reduce America's massive debt



Supercommittee member Chris Van Hollen
Supercommittee member Chris Van Hollen (centre) said: 'We are leaving no stone unturned, negotiations continue and we are looking to find a way'. Photograph: Chip Somodevilla/Getty Images
Economists are warning of dire consequences if US politicians fail to make progress this weekend in tense talks aimed at reducing America's massive deficit ahead of a Wednesday deadline.
The bi-partisan congressional super-committee is charged with drawing up plans for a $1.2tn reduction in the nation's deficit by the middle of next week. Failure to do so will trigger an automatic "sequester" that will make cuts of that size to defence and social welfare programmes starting in 2013. But the two sides seem far from finding a solution after clashing over tax revenues.
While Wednesday is the official deadline for the supercommittee to report back, it has until Monday to tell the Congressional Budget Office about the impact any plan they send to Congress will have on the budget.
"Time is running out. What I can say is we are leaving no stone unturned, negotiations continue and we are looking to find a way. We recognise what's at stake and we're hoping to reach an agreement," Democrat committee member Chris Van Hollen told CNN Friday.
Failure to reach an agreement on what is essentially a small reduction on the deficit – just 0.7% of gross domestic product in 2013 – could trigger another rating's agency downgrade, warned economists including Paul Ashworth, chief North American economist at Capital Economics.
"With all this pressure to reach an agreement, it really doesn't look good if they can't find a solution," said Ashworth.
He said that the US had much more serious problems that would need tackling first.
"The US is already spending 7% of GDP on Medicare and Medicaid [the government-run health schemes] and that will be up to 10-11% in the next two decades. Debt is on an unsustainable path, and if they can't reach an agreement on this, it doesn't look good for the future."
Ratings agency Standard & Poor's cited the "extremely difficult" political conditions in Washington when it made the controversial decision to downgrade its rating on US debt in August. The firm also put the US "on watch' implying further cuts could come.
Morgan Stanley analyst Christine Tan predicted earlier this month that there was now a one-in-three possibility of another downgrade.
"If the supercommittee fails to reach a $1.2tn deficit reduction deal, if such a deal relies more upon accounting changes than real deficit reduction, or if congressional action lessens the impact of the $1.2tn automatic trigger, we believe this could potentially provide S&P with a pretext to downgrade the US further from AA+ to AA," wrote Tan in a note to investors.
HSBC's chief economist, Kevin Logan, said a "procrastination" solution was now the most likely outcome, with an agreement that specifies targets for spending cuts and revenue increases but leaves the details to congressional committees.
Passing the the hard choices back to congressional committees would lead to "lengthy and heated battles over the US deficit throughout 2012, we believe. The rating agencies might be tolerant of this for a while, but failure to make clear progress could lead to downgrades of the US sovereign credit rating at some point next year," Logan said.
David Semmens, US economist at Standard Chartered, said: "I think they will be forced into action. If not the consequences will be long-lasting. Failure will further highlight the political deadlock in Washington. It's very important the the supercommittee sends a strong message to the markets that the US is getting its house in order."
Stock markets are already under pressure form the credit crisis now sweeping Europe and further signals of a lack of leadership in the US could have negative consequences for the markets, said Semmens.
One of the major sticking points facing the supercommittee is what to do with Bush-era tax cuts that are set to expire at the end of 2012. Republicans are against any agreement that does not extend current income-tax rates.
Democrats want them extended only for lower- and middle-income Americans. Extending all the Bush tax cuts would add about $3.7tn to the deficit over the next decade.
Like the automatic deficit cuts, the Bush-era tax cuts too will automatically expire unless an agreement is reached. Gus Faucher, director of macroeconomics at Moody's Analytics, said: "We will see deficit reductions whether the super committee makes an agreement or not."
He said the "level of enmity" between Republicans and Democrats did raise concern, but he expects that some agreement will be reached.

end

I will leave you with two explosive articles,the first by Ambrose Evans Pritchard where he states that China is now shying away from German debt:

(courtesy Ambrose Evans Pritchard:)
Asian Powers Spurn German Debt On EMU Chaos

Asian investors and central banks have begun to sell German bonds and pull out of the eurozone altogether for the first time since the debt crisis began, deeming EU leaders incapable of agreeing on any coherent policy.

German Bunds have already lost their status as Europe's anchor debt. The yields of non-euro Sweden are now 20 basis lower for the first time in modern history. Danish and UK yields are higher but have closed most of the gap over recent months.

By Ambrose Evans-Pritchard, International business editor
10:07PM GMT 17 Nov 2011

Andrew Roberts, rates chief at Royal Bank of Scotland, said Asia's exodus marks a dangerous inflexion point in the unfolding drama. "Japanese and Asian investors are for the first time looking at the euro project and saying `I don't like what I see at all' and fleeing the whole region.

"The question on everybody's mind in the debt markets is whether it is time to get out Germany. The European Central Bank has a €2 trillion balance sheet and if the eurozone slides into the abyss, Germany is going to be left holding the baby. We are very close to the point where markets take a close look at this, though we are there yet," he said.

Jean-Claude Juncker, Eurogroup chief, fueled the fire by warning that Germany is no longer a sound credit with debt of 82pc of GDP. "I think the level of German debt is worrying. Germany has higher debts than Spain," he said.

"It is comforting to pretend that southerners are lazy and Germans hardworking, but that is not the case," he said, slamming France and Germany for their "disastrous" handling of the crisis.

German Bunds have already lost their status as Europe's anchor debt. The yields of non-euro Sweden are now 20 basis lower for the first time in modern history. Danish and UK yields are higher but have closed most of the gap over recent months.

Bunds clearly still enjoy safe-haven status. Yields are just 1.86pc, but a pattern has begun to emerge over the last week where they no longer strengthen as much with each fresh sell-off in Italy, Spain, or France.

"Bunds are no longer reacting the same way," said Hans Redeker, currency chief at Morgan Stanley. "Until recently, if investors were selling Italian bonds, they would tend to rebalance within the eurozone by buying Bunds. But now they seem to be taking their money out of EMU altogether. US Treasury (TICS) data shows that the money is going into US Treasury bonds as the ultimate safe-haven."

Simon Derrick from the BNY Mellon said flow data show a switch by foreign investors away from Bunds and into German paper of one-year maturity or less. "It is a dramatic shift in behaviour. Although investors continue to see Germany as a safe haven, they certainly do not view it in the same way as they did even six months ago."

Traders say Asians are taking profits on Bunds and pulling out, with signs that even China's central bank is shaving holdings. Mid-east wealth funds have remained firm.

Germany's exposure to the crisis is already huge, and the strains can only get worse as the eurozone tips back into recession. The Bundesbank is so far liable for €465bn in "Target2" payments to the central banks of Club Med and Ireland for bank support. Hans Werner Sinn from the IFO Institute said this is a form of back-door eurobonds that leaves German taxpayers on the hook. "The current system is dangerous. It is prone to a gigantic build-up of external debts," he said.

The Bundesbank is final guarantor behind €180bn in bond purchases by the European Central Bank, a figure still rising fast as the ECB buys Italian and Spanish debt.

On top of this, Germany is liable for its €211bn share of Europe's EFSF rescue fund, as well the original Greek loan package. If the eurozone broke up in acrimony with a clutch of sovereign defaults and a 1930s-style slump – already a "non-negligeable risk" – the losses could push German debt towards 120pc of GDP.

Gary Jenkins from Evolution Securities said EMU contagion to Europe's core has brought the prospect of break-up into focus and raised the question of how much longer Germany can remain a safe-haven. "Any worst case scenario is likely to require at least a substantial recapitalisation of German banks and potentially guaranteeing the debt of euro area partners."

Critics say Germany is falling between two stools. It has backed EMU rescues on a sufficient scale to endanger its own credit-worthiness, without committing the nuclear firepower needed to restore confidence and eliminate default risk in Spain and Italy. It would be hard to devise a more destructive policy.

There is no change in sight yet. Chancellor Angela Merkel repeated on Thursday that Germany would not accept joint EU debt issuance or a bond-buying blitz by the ECB. "If politicians think the ECB can solve the euro's problems, they're trying to convince themselves of something that won't happen," she said.

Yet she offered no other way out of the logjam, and each day Germany is sinking a little deeper into the morass.

end

The second is very lengthy but important paper by Reggie Middleton where he discusses the financial chaos in Spain and then all of European banks.
He correctly states that individual European banks have debt greater than each individual sovereign.  This is another Icelandic "moment"


(Courtesy  zero hedge and Reggie Middleton.

press on the mauve for the entire passage. It will take you one hour to read)


I guess it is time to say goodbye for now.
I wish you all a grand weekend and I will see you Monday night.
Harvey

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