The Can Is Reaching the End of the Alley/10 yr European bond yields rise/Italian over 7% again/

Good evening Ladies and Gentlemen:

Gold closed today up $6.60 to finish the comex session at $1619.00.  Silver also finished higher by 20 cents at $27.27.  During the early hours within the Euro trading period, gold rose to its zenith at $1626 exactly at the first morning gold London fix and then the bankers went to work knocking gold all the way down to below 1600.00 dollars.  However that was short lived as physical buyers came out of the woodwork buying gold as the European debt contagion was catching fire.  I will discuss all of these facts with you today.  I consider the various commentaries today critical in understanding the mess within Europe.

Right now gold  in the access market here are the prices for gold and silver:

gold:  $1621.00
silver: $29.19

Today we have a plethora of news for you to digest as we plow through the mine fields discovering the eventual price of gold and silver.  Let us head over to the comex and assess trading, inventory movements and amounts of metal standing for delivery.

The total gold comex OI fell by 2054 contracts today as the banking cartel put on a lame attack.
Tonight's new gold OI stands at 421,221 which is very low considering the relatively high price of gold today.   The front options expiry month of January saw its OI rise by 15 contracts despite 2 deliveries yesterday.  Thus we gained 17 contracts or 1700 oz of gold ounces standing and lost nothing to cash settlements. The front delivery month of February saw its OI fall quite precipitously to 224,763 from 234,311.  We are now starting to see the remaining paper players roll into a future month.  The estimated volume at the gold comex today was very good at 172,582.  The confirmed volume yesterday was also very high at 184,043 contracts.

The total silver comex OI fell by 1413 contracts to rest tonight at 105,688.  It seems that the OI around 105,000 is stable and in strong hands.  The front options expiry month of January saw its OI fall from 78 to 62 for a loss of 18 contracts.  We had 59 delivery notices yesterday so we again gained more silver ounces standing and lost nothing to cash settlements.  The next front delivery month of March saw its OI fall 1571 contracts to rest tonight at 57,220.  We got some early rollovers.  The estimated volume at the silver comex continues to be weak coming in at 37,623.  The confirmed volume yesterday was also weak at 38,679.

Inventory Movements and Delivery Notices for Gold: Jan 5 2012:

Gold	Ounces
Withdrawals from Dealers Inventory in oz	3999 (Brinks)
Withdrawals from Customer Inventory in oz	553 (HSBCManfra)
Deposits to the Dealer Inventory in oz	nil
Deposits to the Customer Inventory, in oz	36,023 (HSBC, Scotia)
No of oz served (contracts) today	26 (2600)
No of oz to be served (notices)	28  (2800)
Total monthly oz gold served (contracts) so far this month	966  (96600)
Total accumulative withdrawal of gold from the Dealers inventory this month	3999
Total accumulative withdrawal of gold from the Customer inventory this month	127,625

Again we got no gold enter as a deposit to the dealer.  However we did see 3999 oz of gold leave the dealer Brinks.

We had the following customer deposit:

1. A huge 32,023 oz enter the HSBC vaults  (.99 tonnes of gold)
2. another exactly round deposit of 4,000 oz into Scotia.  (suspicious)

total deposit:  36,023 oz.

We had the following customer withdrawal:

168 oz from HSBC
385 oz from Manfra.

total withdrawal:  553 oz.

We had a tiny 101 oz of gold adjusted from the customer to the dealer in a probable lease arrangement.

Thus the total registered gold at the dealer lowers to 2.527 million oz or 78.6 tonnes of gold.

The CME notified us that today we had 26 notices filed or 2600 oz of gold.
The total number of gold notices filed so far this month total 966 or 96,600 oz of gold.
To obtain what is left to be filed, I take the OI standing (54) and subtract out today's deliveries (26)
which leaves us with 28 notices or 2,800 oz of gold to be served upon.

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

96,600  (oz served)  +  2,800 oz (to be served upon) =  99,400 oz or 3.09 tonnes of gold.

If we add the delivery month of December with the two non delivery months of Nov and January
we have 73.77 tonnes of gold standing against a dealer inventory of 78.6 tonnes or 93.8%.

And now for silver 

 the chart: January 5 2012:

Month of January now commences:

Silver	Ounces
Withdrawals from Dealers Inventory	nil
Withdrawals fromCustomer Inventory	nil
Deposits to theDealer Inventory	nil
Deposits to the Customer Inventory	2,019,161 (HSBC,Brinks,)
No of oz served (contracts)	42  (210,000)
No of oz to be served (notices)	20  (100,000)
Total monthly oz silver served (contracts)	422  (2,110,000)
Total accumulative withdrawal of silver from the Dealersinventory this month	268,115
Total accumulative withdrawal of silver from the Customer inventory this month	1,486,425

It is very difficult to assess what is going on inside silver vaults as we are witnessing massive amounts enter the customer as deposits.

Today we had no dealer activity and the only activity whatsoever was the big deposit into the customer:

1. Into Brinks:  273,423 oz
2. Into HSBC  1,745,768 oz

total deposit:  2,019,161 oz.

We had no adjustments.
So the registered silver remains at 34.83 million oz
And the total of all silver rises to 121.12 million oz.

The CME notified us that we had 42 delivery notices filed for 210,000 oz of silver.
The total number of silver notices filed so far this month totals 422 for 2,110,000 oz of silver.
To obtain what is left to be filed, I take the OI standing for January (62) and subtract out today's delivery notices  (42) which leaves us with 20 delivery notices to be served upon or 100,000 oz.

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

2,110,000 oz  (served)  +  100,000 (oz served) =  2,210,000 oz.
we gained 85,000 oz of additional silver standing.

The delivery notices for both gold and silver are unsually high for a generally low physical delivery for January.

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.

Jan 5:2012:

Total Gold in Trust

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:64,468,299,322.87

Jan 4.2011

TOTAL GOLD IN TRUST

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:65,033,703,571.12

JAN 3.2012

TOTAL GOLD IN TRUST

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:64,429,378,970.13

   

Dec 31.2011

TOTAL GOLD IN TRUST

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:63,484,275,822.93

Dec 29.2011:

TOTAL GOLD IN TRUST

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:61,730,367,104.89

We lost zero oz of gold from the GLD.  It is very strange that for the past several days   we saw gold whacked in price and yet no gold left.  On Friday we saw gold rise and yet inventory remained constant. Tuesday a big gain and again no gold enters its vault. Wednesday, another big rise in gold and still no gold enters.
Today, another rise and still no gold enters the GLD vaults.

And now for silver Jan 5 2012: 

Ounces of Silver in Trust	306,942,851.100
Tonnes of Silver in Trust	9,546.99

Jan 4.2012:

Ounces of Silver in Trust	308,833,295.500
Tonnes of Silver in Trust	9,605.79

Jan 3.2012:

Ounces of Silver in Trust	308,833,295.500
Tonnes of Silver in Trust	9,605.79

we finally had movement from the SLV and even though silver has advanced from $27.00 to around $29.30, the boys liquidated today 1.891 million oz of silver. No doubt this silver was needed badly in other jurisdictions.

end

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

1. Central Fund of Canada: traded to a positive 2.6 percent to NAV in usa funds and a positive 2.9% to NAV for Cdn funds. ( Jan 5 2012.).

2. Sprott silver fund (PSLV): Premium to NAV rose big time   to  28.98% to NAV  Jan 5. 2012  wow
3. Sprott gold fund (PHYS): premium to NAV rose  to a 5.54% positive to NAV Jan 5. 2012).  wow

.It looks like many saw the parody clip yesterday whereby Jamie Dimon blew a gasket that Eric Sprott was on the prowl looking for silver.


just take a look at the premium in silver...28.98%.


and take a closer look at the premium in gold...5.54%


physical metal is starting to distance itself from paper.

Here are some of the big stories of today which will shape the price of gold and silver.
The following is an update on the situation within Greece.  The final time line has now been set as there is no kicking the can down the alley anymore.  They have until the end of March to get their austere measures in place.  However the unions are saying no. Yesterday the tax collectors and doctors were on strike.

(courtesy zero hedge)

The Can Kicking Is Ending - Key Upcoming Dates For Europe's Patient Zero

Submitted by Tyler Durden on 01/04/2012 18:33 -0500

• Creditors
 
• default
 
• European Central Bank
 
• Eurozone
 
• Greece
• International Monetary Fund
 
• Recession
 
• SocGen

When it comes to the markets one can easily ignore the fact that the world is one big ponzi and things, as we know them, are coming to an end as long as the can can be kicked down the street at least one more time. In other words, without a hard deadline, there is nothing that can force change upon a system already in motion, no matter how self-destructive. Unfortunately, the clock in Europe is ticking as a deadline approaches, and somewhat poetically, the place where it all started is where it may end. In March Greece faces a redemption cliff: if by then the €130 billion promised to it by the Troika as per the July 21 second bailout, is not delivered, it is game over - first for Greece which will default, then for the ECB, which will be forced to write down holdings of Greek bonds, in effect wiping out its equity and credibility, and lastly, for the Euro, which will see a core member leaving (in)voluntarily.

As the WSJ reported today, "Greece faces the risk of a disorderly default in March if it doesn't complete negotiations for the country's second bailout starting later this month, Prime Minister Lucas Papademos said Wednesday." The problem is that "the stakes are rising as Greece pushes the sensitive issue of reducing private-sector salaries, under pressure from creditors to quicken reforms. Private-sector labor union GSEE said the government has instructed them to start discussions with employers on ways to reduce costs. GSEE General Secretary Nikolaos Kioutsikos said the talks will run until the start of February and cover lowering the minimum salary and reducing annual pay by up two months. As Papademos told us, there are no barriers to these cuts," he told reporters. GSEE rejects any talk of pay cuts and will propose ways to lower other costs and protect jobs." In other words, the dormant Syntagma riot cam will very likely see serious action quite soon, only this time there is no can kicking, something which G-Pap knows too well, and is why he formally resigned from politics earlier today. So while the market drifts ever higher of some blissful "decoupling" from something, here is SocGen with the key events for Europe's Patient Zero, which is almost guaranteed to not be a part of the Eurozone by the end of the year.

Greece: to leave or not to leave? Key dates ahead

We have said for some time now that should any country leave the eurozone, it would be a political decision. This is still true. However, Greece faces a crucial agenda over the coming weeks with key dates that could tip the scales.

Troika to visit Athens on 16 January. The Troika will make yet another trip to Athens mid-January to start new negotiations on the new funding programme and to review the economic and fiscal situation. It may reiterate that Greece has to speed up its efforts to implement its austerity programme, keeping the pressure on the Greek government. However, should discussions surrounding PSI continue, the Troika is quite unlikely to veto further aid to Greece.

PSI agreement by the end of January. First, Greece and the IIF said they must reach an agreement on PSI by the end of the month. The IIF has  been quite optimistic over the past few days, saying that progress has been made. However, no agreement has yet been reached. It must be based on the terms of the 26/27 October EU Summit, which means a 50% haircut on a voluntary basis. This is supposed to reduce public debt  by EUR100bn. Greece would like a bigger haircut, especially as the country is sinking deeper into recession and the economic outlook is not  bright. However, a bigger haircut seems quite unlikely at this point.

Big redemptions by the end of March. An agreement over PSI is a key condition for the EU/IMF to deliver the EUR110bn promised in July and confirmed in October.  Greece will need this package if it wants to meet its first large GGB redemption of 2012 at the end of March.

Greek elections in April. Lastly the Greeks will go to the polls in April, a tough test for the Greek government against the backdrop of social  pressure and as Greece slips deeper into recession. PM Papademos will have to convince the Greeks that current austerity measures, and perhaps more ahead, are necessary for a brighter outlook at the end of the day...

All in all, much like the past two years for Greece, 2012 has shot off at top speed and it will have to clear all the key event hurdles if it wants to  remain a eurozone member. The Greek PM clearly envisages a pessimistic scenario: let’s hope this is meant to keep up the pressure and force key decision-makers to take concrete measures as well as implement them.

For now, market participants remain in a wait-and-see stance: 2Y and 10Y GGB yields are trading slightly off recent record levels of 156% and 36%, respectively, (currently at 134% and 34.88%, respectively). A 50% haircut has now been largely priced-in. However, Greece is still not immune to a more severe scenario.

end.

Early this morning the Euro broke the 1.29 level and it has been trading in the 1.28 handle all day.
The Italian10 yr bonds cracked above the 7% level again. The largest bank in Italy, UniCredit
had its stock halted 4 times as the stock plummeted on the huge discount in the rights offering.
Belgium bonds rose above 4.5% again in yield

(courtesy zero hedge)

Euro Slumps To 15 Month Lows As BTPs Crack 7% Yield

Submitted by Tyler Durden on 01/05/2012 04:45 -0500

• Consumer Confidence
 
• Copper
 
• Deutsche Bank
 
• European Central Bank
• France
 
• Sovereigns
 
• Unemployment

With plenty of time left until France unleashes its supply (and a dismal consumer confidence print earlier), there is a plethora of notable market moves: Unicredit is halted down 7.9% (seems to be the culprit for the initial risk-off turn in Europe), butDeutsche Bank is down over 5% on liquidity problem rumors,EURUSD traded under 1.2850 at its lowest level since September 2010, 10Y Italian bonds have pushed well above 7% yields and 510bps spread to Bunds as Unemployment rises to 8.6%, Belgian 10Y yields are over 4.5% - highest in 3 weeks, and the rest of European Sovereigns are all leaking wider (near wides of the year). Risk assets (CONTEXT) broadly are under pressure but ES (the S&P 500 e-mini futures contract) is holding off yesterday's early morning lows for now. Commodities are all dropping fast with Gold (actually outperforming in this slide) back at $1615, Oil at $102.50, and Copper approaching $340. Treasuries are bid but trading in line with Bunds' movements so far in general. Some chatter of ECB buying in the last few minutes is stabilizing things a little here.

EURUSD touches 15 month low

Sovereign spreads are wider across the board - some chatter of ECB buying in the last few minutes is stabilizing things a little.

CONTEXT, the broad risk asset proxy, was pointing to weakness after the US day session close and ES has pulled to it and resynced. It appears we are holding at these levels for now as we face up to France's auctions within the hour.

Charts: Bloomberg and Capital Context.

end




Here are the official Bloomberg yields for the major sovereigns in trouble;

Italian 10 yr bond yield:

Snapshot

SUMMARY			ONE-YEAR CHART INTERACTIVE CHART
Value	7.03
Change	0.094 (1.349%)
Open	6.95
High	7.07
Low	6.93

 Spanish 10 yr bond yield:

Value	5.57
Change	0.136 (2.501%)
Open	5.44
High	5.57
Low	5.43

end.

Belgium 10 yr bond yield:

Snapshot

SUMMARY			ONE-YEAR CHART INTERACTIVE CHART
Value	4.53
Change	0.150 (3.421%)
Open	4.38
High	4.54
Low	4.37

end

This morning we had a failed French auction as they failed to sell the max projected.  The Bid to Cover ratio was abysmal.

(courtesy zero hedge)

French Auction Fails To Sell Max Projected As Bid-To-Cover Plunges

Submitted by Tyler Durden on 01/05/2012 05:13 -0500

• Bond
 
• France

French 10Y bond spreads had widened almost 50% (from 100bps to 149bps) in the last week of trading ahead of this critical auction and the EURUSD is over 200pips lower. The auction results are in and it is not a total disaster but the bid-to-cover dropped significantly to its lowest since October 2010 and they missed their maximum target.

*FRANCE SELLS TOTAL EU7.963B VS MAX TARGET EU8B OF BONDS

*FRANCE SELLS EUR4.02 BLN 3.25% 2021 BONDS; YLD 3.29%

*FRANCE SELLS EUR690 MLN 4.25% 2023 BONDS; YLD 3.5%

*FRANCE SELLS EUR1.088 BLN 4.75% 2035 BONDS; YLD 3.96%

*FRANCE SELLS EUR2.165 BLN 4.5% 2041 BONDS; YLD 3.97%

*FRANCE SELLS 2021 BONDS AT AVE. YIELD 3.29% VS 3.18% DEC. 1

*FRANCE 2041 BOND BID-TO-COVER 1.82 VS 2.26 AT DEC. 1 SALE

*FRANCE 2021 BOND BID-TO-COVER 1.64 VS 3.05 AT DEC. 1 SALE

EURUSD is leaking a little lower and 10Y French spreads are widening modestly but the initial reaction is unimpressive for now.

French Auction results:

French 10Y auction Bid-to-Cover:

French 10Y Bond spreads:

EURUSD is moving down to new lows of the day now:

Charts: Bloomberg

end

Here is the closing yield on the French 10 yr bond yields:

French 10 yr bond yields:

Snapshot

SUMMARY			ONE-YEAR CHART INTERACTIVE CHART
Value	3.34
Change	0.031 (0.936%)
Open	3.34
High	3.38
Low	3.30

end

Austrian 10 yr bond yield with the background of Hungary in trouble:

It is climbing!!

Snapshot

SUMMARY			ONE-YEAR CHART INTERACTIVE CHART
Value	3.29
Change	0.034 (1.038%)
Open	3.28
High	3.31
Low	3.27

end.


Hungary yields soar as credit default swaps hit a record.  Their bill auction failed as the 1 yr treasury bill rate
rose to 10%. If Hungary goes so does Austria as this sovereign nation has been the biggest provider of credit to Hungary over these past several years.  Most house mortgages are based in euros and the financing came from Austrian banks.


(courtesy zero hedge)

Hungarian Yields Soar, CDS Hits Record As Bill Auction Fails

Submitted by Tyler Durden on 01/05/2012 07:50 -0500

• Bond
 
• CDS
 
• Credit-Default Swaps
 
• default
 
• European Central Bank
• Eurozone
 
• Hungary
 
• International Monetary Fund
 
• Royal Bank of Scotland

Less than a week after a fully failed 3 Year Hungarian bond auction (in which all bids were rejected by the government) sent Hungarian yields surging on December 29, things have gone from bad to worse culminating with today's 1 Year Bill auction which sold just HUF 35 billion ($140 million) in 1 year bills at a staggering 9.96%, a surge of over 2% compared to the yield for the same maturity debt sold just on December 22. To say that this is unsustainable is an understatement. Alas, with the IMF and EU out of the bailout picture following Hungary's refusal to yield to demands to make its central bank a puppet of the state, ironically categorized by Europe as concerns of central bank "independence" it is likely that Hungary will see far more pain in the coming days as the ECB is certainly not going to be buying Hungarian debt - after all it has its hands full already with those other collapsing Eurozone countries. And punctuating the new year comfort are Hungarian CDS levels which just soared to new records over 750 bps. It is only a matter of time before ISDA decrees that any and every Hungarian default event will be fully voluntary thereby collapsing this latest default protection house of cards.

Hungarian CDS:

More from Bloomberg:

The government sold 35 billion forint ($140 million) in one-year bills, 10 billion forint less than the planned amount, data from the Debt Management Agency on Bloomberg show. The average yield rose to 9.96 percent, the highest since April 2009, from 7.91 percent at the last sale of the same-maturity debt on Dec. 22. The EU and the IMF broke off aid talks last month as the government prepared legislation that threatened to undermine the independence of the central bank. Hungary needs a deal as soon as possible to help maintain market financing and is ready to discuss the conditions, Tamas Fellegi, the minister assigned to lead the talks, told reporters today.

“Fellegi’s comments are aimed at providing reassurance, but I think the market will adopt a seeing-is-believing approach,” Timothy Ash, a London-based economist at Royal Bank of Scotland Group Plc, said in an e-mailed comment. “Market trust in this administration is now at rock bottom levels.” Hungary, the EU’s most-indebted eastern member, received its second sovereign-credit downgrade to junk last month when Standard & Poor’s followed Moody’s Investors Service in taking the country out of the investment-grade category on Dec. 21.

The cost of insuring Hungarian bonds using credit-default swaps climbed to a record 751.6 basis points from 650 basis points on Jan. 3, data provider CMA said. The benchmark BUX stock index fell 2.9 percent today as OTP Bank Nyrt., the country’s largest lender, sank 3.5 percent and Mol Nyrt., the biggest refiner, declined 3.3 percent.Hungary, which became the first EU country to receive an IMF-led bailout in 2008, shunned fresh aid in 2010 when Viktor Orban took over as prime minister. Orban reversed his policy last year when the state started struggling to raise funds at debt auctions and the forint plummeted.

Hungary’s 10-year government bonds fell, lifting the yield 13 basis points to 10.959 percent, the highest since April 2009.

And some trading desk color:

HUNGARY HAS DOMINATED THE ATTENTION HERE THIS MORNING IN
LONDON. THE MARKET OPENED EXTREMELY WEAK (CDS OPENED AT 720/750).  THE FIRST TRADE WAS UP AT 755, PAYING ON,
WHICH WAS +40BPS. THERE WAS THEN A PRESS CONFERENCE WHERE MINISTER FINEGELLI
DECLARED HUNGARY WANTS AN IMF DEAL ASAP FOR THE MARKET AND THAT THE SOVEREIGN
WOULD MAKE A "HUGE EFFORT" TO CUT DEBT. BONDS RALLIED A BIT AS THE
CURRENCY CAME BACK FROM 323.67 TO 321.82. AFTER, HOWEVER, BBG REPORTED THAT
HUNGARY FAILED TO RAISE PLANNED AMOUNT OF DEBT IN A LOCAL T-BILL ACUTION. THE
AVERAGE YIELD ON THIS AUCTION WENT TO 9.96% FROM 7.91% AT THE LAST SALE OF THE
SAME MATURITY ON DEC 22.

end.


In this Bloomberg article, the author states that Italy and Spain  have avoided temporarily a funding crisis as
as the LTRO  financing by the ECB has helped avert a funding crisis.  However the massive printing of euros
spells hyperinflation down the road in short order:


(courtesy Bloomberg)

ECB Cash Averts ‘Funding Crisis’ for Italy, Spain

Q

By Anchalee Worrachate - Jan 5, 2012 5:39 AM ET

The European Central Bank’s unprecedented cash injection is easing borrowing costs for Italy, Spain and Belgium, compensating for the lack of a solution to the debt crisis and the risk of recession.

Two-year Italian yields (GBTPGR2) have dropped by 50 basis points and Belgian notes of the same maturity have declined by 22 basis points since Dec. 21, when the ECB supplied banks with 489 billion euros ($636 billion) of three-year loans. Short-dated Italian and Spanish debt outperformed AAA rated German and Dutch securities during that period.

“Short-term borrowing costs have come down significantly and that certainly helps to buy time,” said Jens Nordvig, managing director of currency research at Nomura Holdings Inc. in New York. “Six weeks ago, it looked as if there was going to be an imminent funding crisis, but that’s averted by the ECB’s money injection.”

The ECB, led by President Mario Draghi, cut its key interest rate (EURR002W) last month for the second time in a quarter and offered unlimited three-year cash at 1 percent to persuade banks, saddled with deteriorating assets including bonds from so-called peripheral Europe, to keep providing credit to the region. Some of that money is probably being invested in sovereign debt, said Fabrizio Fiorini, who helps oversee $8 billion as chief investment officer at Aletti Gestielle SGR SpA in Milan.

Recycled Cash

Italian notes maturing within three years handed investors a 0.56 percent gain since Dec. 21, beating a 0.14 percent return from German debt and a 0.2 percent advance for Finnish securities, bond indexes compiled Bank of America Merrill Lynch show. Spanish notes returned 0.78 percent. The Stoxx Europe 600 Index (SXXP) has risen 5.6 percent since the ECB allotted the funds.

“Some of the cash and the liquidity the ECB has provided is likely to be recycled into peripheral debt,” Fiorini said. “This should allow Italy and Spain to raise money at lower borrowing costs, at least in the first quarter.”

Italy sold 9 billion euros of bills on Dec. 28 at about half the rate of the previous sale in November. It auctioned bonds due March 2022 the next day at an average yield of 6.98 percent, down from the 7.56 percent it paid at a Nov. 29 sale.

Belgium, whose credit rating was cut two steps by Moody’s Investors Service on Dec. 16, raised more money than planned at a Jan. 3 debt sale as borrowing costs fell to the lowest level in 18 months. It sold 2.44 billion euros of three- and six-month treasury bills, compared with a target of 2.2 billion euros.

Recession Risk

The European Commission cut its 2012 growth forecast by more than half to 0.5 percent in November, while Luxembourg Prime MinisterJean-Claude Juncker said yesterday that the region is “on the brink of a recession of which one doesn’t yet know its scope.” The euro posted its first back-to-back annual losses against the dollar in a decade last year.

Standard & Poor’s said Dec. 15 that it was reviewing the credit ratings of 15 euro nations for a possible downgrade, including AAA rated Germany and France, citing “systemic stress in the euro zone.”

France sold 7.96 billion euros of bond maturing in 2021, 2023, 2035 and 2041 today, with borrowing costs rising in its first auction of the year. The debt maturing in 2021 was sold at an average yield of 3.29 percent, up from 3.18 percent in the previous auction on Dec. 1.

With European leaders failing to come up with what German Chancellor Angela Merkeldescribed as a “big-bang” solution to the crisis, the ECB has taken unprecedented steps to prevent the crisis from spreading. The 489 billion euros it lent to 523 banks last month exceeded the median estimate of 293 billion euros in a Bloomberg News survey of economists. The central bank will offer a second three-year loan on Feb. 28. A report last month showed its balance sheet swelled to a record 2.73 trillion euros on increased lending.

Danger Zone

The central bank has also bought bonds to curb rising yields. Italy’s 10-year borrowing cost topped 7 percent in November, the level that prompted Greece, Portugal and Ireland to seek bailouts, and has been stuck at about 6.9 percent this week.

At 4.57 percent, Italy’s two-year funding cost is below its six-month average of 4.69 percent, and down from more than 7.66 percent on Nov. 25. Spanish two-year yields of 3.48 percent have dropped from more than 6 percent six weeks ago.

“If you look at short-dated Italian or Spanish bonds, there is some evidence that the money from the ECB is being used to buy these bonds,” said Mohit Kumar, head of European fixed- income strategy at Deutsche Bank AG in London. “The ECB’s role is crucial in containing the crisis. It may have constraints it needs to think of, but it’s not without policy tools.”

To contact the reporter on this story: Anchalee Worrachate in London ataworrachate@bloomberg.net

end

Today in Europe bourses were in the red due to the high Italian 10 yr bond, the 4 halts in Unicredit
and the rise in yields in Spain, Belgium and Portugal:

(courtesy Bloomberg)

Stocks, Euro Decline on Debt Crisis Concern

Q

By Stephen Kirkland and Lynn Thomasson - Jan 5, 2012 7:29 AM ET

 Stocks and the euro declined on concern Europe will struggle to contain the debt crisis as borrowing costs rose at sales of securities by France and Hungary. U.S. futures dropped, signaling the Standard & Poor’s 500 Index will retreat for the first time this year.

The Stoxx Europe 600 Index (SXXP) lost 0.8 percent at 7:25 a.m. in New York as UniCredit SpA, Italy’s biggest bank, tumbled for a second day. S&P 500 futures slid 0.7 percent. The euro weakened 0.9 percent to $1.2827, and French 10-year bond yields rose five basis points. Hungary’s forint sank 0.6 percent to 322.66 against the euro.

Greek Prime Minister Lucas Papademos said yesterday deeper cuts in incomes and an accord on foreign aid are the only way for the country to avert economic collapse and a “disorderly default.” France sold 10-year bonds at an average yield of 3.29 percent, up from 3.18 percent in December, and Hungary’s one- year bill yield climbed to the highest level since 2009. The U.S. service industry probably grew last month and jobless claims fell last week, economists said before reports today.

“We expect the euro-zone recession to deepen early in the year and for European financial-market pressures to remain intense in the next few months,” said Dominic Wilson, chief market economist at Goldman Sachs Group Inc. in Frankfurt.

The decline in the Stoxx 600 extended yesterday’s 0.6 percent drop. UniCredit slid 12 percent to the lowest level since 1992 after yesterday plunging 15 percent on plans to sell shares in a rights offer at a 43 percent discount.

Banks Decline

Societe Generale SA retreated 3.9 percent as the French bank said it plans to cut about 1,580 jobs at its corporate and investment banking unit. Banco Comercial Portugues SA and Banco Espirito Santo SA lost more than 7 percent in Lisbon.

The decline in S&P 500 futures indicated the U.S. equities gauge will drop for the first time this year. The Institute for Supply Management’s non-manufacturing index, due for release at 10 a.m. New York time, rose to 53 in December from 52 the previous month, according to a Bloomberg survey of economists. Fifty is the dividing line between expansion and contraction in the services gauge.

A separate release may show the number of applications for jobless benefits fell last week. The data comes before tomorrow’s payrolls report from the Labor Department, which is forecast to show the U.S. economy generated 150,000 jobs last month, according to an economist survey.

Aid Talks

Hungary’s BUX Index (BUX) fell 2.6 percent, taking its three-day decline to 5.8 percent. The average yield on Hungarian 12-month bills jumped to 9.96 percent from 7.91 percent at the last sale of the same maturity on Dec. 22, according to auction results on the state debt management agency’s Bloomberg page. Poland’s WIG20 Index lost 2 percent, and the Czech PX sank 2.5 percent.

Russia’s Micex Index slipped 0.7 percent as oil in New York fell 0.4 percent to $102.82 a barrel, the first decline in three days. The Shanghai Composite Index lost 1 percent.

The yield on France’s 10-year bond rose to 3.36 percent. The extra yield (.FRANGER) investors demand to hold French 10-year debt instead of benchmark German bunds rose 10 basis points to 149 basis points.

The European Financial Stability Facility is selling 3 billion euros ($3.9 billion) of bonds at a yield spread of almost seven times its first issue a year ago after euro-region sentiment worsened.

The bailout fund will price its February 2015 notes to yield 40 basis points more than the benchmark swap rate today, a banker involved in the deal said. That compares with the six basis-point spread it paid to sell 5 billion euros of July 2016 bonds Jan. 25, 2011, according to data compiled by Bloomberg.

The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, climbed 0.7 percent. The euro slid 0.7 percent against the yen, approaching an 11-year low, and depreciated 0.3 percent versus the pound.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net.

end

Unicredit stock today traded at an all time low. After a 10:1 reverse split, the stock is heading back to the low 1's except with billions of shares outstanding. The company is issuing 3.9 billion shares at  1.92 euros to raise 7.5 billion euros. They are issuing 2 new shares for each 1 share outstanding.  Thus the total new shares outstanding after the rights offering will be 5.85 billion shares. The company has 900 billion euros as assets.  It is the largest bank in Italy.

Snapshot 

- UniCredit SpA (UCG)

SUMMARY			INTRA-DAY INTERACTIVE CHART
Change	-0.935 (-17.267%)
Bid	4.476
Ask	4.500
Open	5.250
High	5.280
Low	4.464
52-Week Range	20.25 - 4.46
Volume	61,691,273
1-Yr Return	-71.071%

end.

Zero hedge on UniCredit  stock performance over the past two days:

(courtesy zero hedge)

Unicredit Lost 30% Of Its Market Cap In Two Days

Submitted by Tyler Durden on 01/05/2012 15:57 -0500

• Reality

When we presented the news about yesterday's UniCredit rights offering we said that "a UniCredit €7.5 billion new stock issue pricing at a whopping 43% discount to market price shows that fair value of actual demand for European banks is about half of where the artificially propped up price is." Sure enough the market appears to have taken testing this assumption to task, and in the past two days 30% of the entire market cap of UniCredit has been destroyed. And what makes this otherwise sad development for many people, who had previously been fooled by various governments in believing that asset values are fair and could thus rise when in reality everything has been distorted and manipulated beyond comprehension, simply hilarious is that not even a month ago UniCredit did a one for ten reverse stock split. At this rate another reverse stock split is imminent before next week is over. Which is to be expected: after all prices are determined on the margin and are a function of systemic liquidity, which in Europe no longer exists in free form. US readers be advised: discoveries such as this one are coming to the US very soon.

Average:

0

end

The USA has now reached the Federal debt limit and thus the boys will need to pillage

the federal pension funds before they vote to increase the debt ceiling to 16.4 trillion dollars:

(courtesy zero hedge)

Here We Go Again: US $25 Million Away From Debt Ceiling Breach

Submitted by Tyler Durden on 01/05/2012 16:07 -0500

• Debt Ceiling

It's simply amazing how quickly the US managed to hit its debt target, pardon, debt ceiling all over again...And now the Social Security Fund pillaging begins anew until Congress signs off on the latest interim debt ceiling increase.

Average:

end

Ted Butler on the shortage of physical silver:

(courtesy Ed Steer)

Silver analyst Ted Butler had his mid-week commentary for his paying subscribers yesterday and, as usual, I have a couple of free paragraphs.

"The big commercial silver shorts had a near death experience when the price approached $50 in April. They were at the end of their rope and needed to do something in a hurry. That’s why they rigged prices lower; so that they could buy and save themselves. These well-connected commercials knew, perhaps for the very first time, just how tight the silver market had become and how close we were to a profound physical shortage. The key is that the silver shortage wasn’t caused by excessive speculative buying or a bubble or a mania. The extreme tightness and near shortage in silver was as a result of the gradual and cumulative impact of normal investment buying over the past five years. There is nothing to suggest that the long term and steady silver investment buying has ended."

"Because there was no bubble or mania in silver, there was no bubble to burst. The orchestrated takedowns of the price by the big commercial interests were simply so that these commercials could buy and rid themselves of silver short positions. That’s done now. That means that the silver market is now in the best possible shape."

"What lies ahead for silver is exciting. While we have not witnessed a bubble in silver yet, we will some day. The silver story and the dynamics of the market are too compelling for an investment mania not to emerge at some point. If anything, speculative sentiment has been completely wrung out from silver, clearing the way for speculators and investors to enter the market with a vengeance. At some point, enough of the world’s industrial silver users will panic as prices climb and attempt to build physical silver inventories. This user buying, something that never kicked in during the run to $50 will create a silver shortage, the likes of which never witnessed before. It seems that the big commercial interests have come to learn the real silver story and they appear to want no part of the short side again. The major pressure of selling has passed...and the way seems clear for higher prices. By the time the next chapter in the silver story plays o ut, $50 could look cheap."

I don't have quite as many stories for you today...but a lot of them are about gold and silver, so I hope you have to time to read them all.

Today Dennis Gartman admitted his folly with respect to gold.

I wish the whole world would stop listening to this total moron:

(courtesy Chris Powell of GATA/GoldSeek.com)

Gartman admits a bad call on gold, but that's not GATA's grievance By: Chris Powell, Secretary/Treasurer, GATA

-- Posted Thursday, 5 January 2012 | Share this article | Source: GoldSeek.com Dear Friend of GATA and Gold: Canada's National Post reports today that commodity market letter writer Dennis Gartman has admitted a mistake in his gold trading advice and has concluded that gold's bull market continues after all. While it's always encouraging to find that experts can admit mistakes, as only people who admit mistakes can be trusted, GATA's objective isn't to identify mistaken market calls in the monetary metals markets. Yes, the logic of GATA's premise argues for steadily higher prices in the medium and longer terms. Our premise is that the monetary metals markets are highly manipulated at the direction of Western central banks, and that this manipulation is achieved through short positions taken by investment banks that can be covered only with central bank dishoarding or cash assistance, if at all. But if they succeed in keeping investors ignorant of their manipulations and interventions, central banks may keep monetary metals prices well below free-market prices indefinitely. In any case, until those manipulations and interventions stop, only those who have inside knowledge of central bank interventional plans -- insiders like the big investment houses that often function openly as central bank agents and double as monetary metals market manipulators -- could be right in the gold market as traders all the time. No, apart from the market manipulation itself, what GATA finds objectionable are the denial of that manipulation in the face of all the documentation we have collected and published since our founding in 1999 -- http://www.gata.org/taxonomy/term/21 -- and the suggestion that the deceit and theft behind that manipulation don't matter. In recent years Gartman occasionally has acknowledged the possibility of surreptitious intervention by central banks or their agents in the gold market, even as he has delighted in noting his disdain for gold bugs. As he has more or less conceded our main point, that disdain doesn't bother us. Besides, we're not so much gold bugs as free-market and government transparency bugs. And if free markets and government transparency are ever accomplished and investors are able to see past the hologram markets created by central banks, the whole world will turn into gold bugs and become quite able to fend for itself. The National Post report on Gartman's admission of error is appended. CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc

end.

Zero hedge on the above buffoon:

(courtesy zero hedge)

Gartman Flip Flops Again, Now Sees Bull Market For Gold: Time To Sell Everything?

Submitted by Tyler Durden on 01/05/2012 14:03 -0500

• Bear Market
 
• Dennis Gartman
 
• Exchange Traded Fund

Confirming once again that anyone who subscribes to newsletters looking for guidance on market inflection points, trend, and momentum deserves to lose every last penny, is the just released mea culpa from "world renowned economist" and lately even more renowned flip-flopper Dennis Gartman who has just admitted that his call from December 13, which stated that "gold is in the "beginnings of a real bear market" and conveniently mocked right here, may have been, well, wrong.Financial Post, which apparently is one of the subscribers to said newsletter, reports that "In his daily investment letter Thursday, Mr. Gartman officially  reversed his outlook for gold, saying he now views the precious metal as being in a bull market. The new position follows a month where Mr. Gartman was the subject of some high-profile name calling from fellow investment letter writer, Peter Grandich. Mr. Grandich called Mr. Gartman “one of the Three Stooges” of gold forecasting after the latter declared that gold was officially in a bear market (if you’re wondering, the other two accused of being in that trio are Jeff Christian of CPM Group and Jon Nadler of Kitco)." Frankly there is no point to devolve to name calling - those who are not familiar with Gartman need but take one look at the performance of his ETF since inception - suffice it to say that with Gartman now flip flopping to the long side, it is likely time to get the hell out of dodge.

More:

Mr. Gartman’s reversal comes as he has failed to buy back gold below the price he sold it at a few weeks ago. He said that now that gold priced in euros has taken out its previous interim high, he sees the metal returning to a bull market.

“The bear run that began in August has now officially ended, for the string of lower lows and lower highs is over,” he said in his Gartman Letter. “This does not help us in hoping for/expecting/indeed demanding some weakness into which to buy, but it does give us “permission” to become officially bullish once again.”

...

For what it’s worth, Mr. Gartman admitted his call on gold was a bad one.

“We sold gold rather properly several weeks ago; we failed miserably, however, to buy it back for although our intent was clear late last week as we said it was our intention soon to re-buy that which we had sold, we’ve failed to do so,” he said.

There is only one sure thing that will come out of this laughable incident: absolutely nothing, and likely as soon as tomorrow we will see Gartman back on CNBC giving people advice about what to do with their money.

end

The CMA has now officially stated that Greek bondholders will only recover 20% of value.

They will lose 80%.  They also stated that bond holders in Eastman Kodak will lose 76%:

(courtesy zero hedge)

CMA Now Officially Assumes 20% Recovery In Greek Default - Time To Change Sovereign Debt Risk Management Defaults?

Submitted by Tyler Durden on 01/05/2012 15:18 -0500

• CDS
 
• default
 
• Eurozone
 
• Greece
 
• None
 
• recovery
 
• Risk Management
• Sovereign Debt
 
• Sovereign Default
 
• Sovereigns

One of the ironclad assumptions in CDS trading was that recovery assumptions, especially on sovereign bonds, would be 40% of par come hell or high water. This key variable, which drives various other downstream implied data points, was never really touched as most i) had never really experienced a freefall sovereign default and ii) 40% recovery on sovereign bonds seemed more than fair. Obviously with Greek bonds already trading in the 20s this assumption was substantially challenged, although the methodology for all intents and purposes remained at 40%. No more - according to CMA, the default recovery on Greece is now 20%. So how long before both this number is adjusted, before recovery assumptions for all sovereigns are adjusted lower, and before all existing risk model have to be scrapped and redone with this new assumption which would impact how trillions in cash is allocated across the board. Of course, none of this will happen - after all what happens in Greece stays in Greece. In fact since America can decouple from the outside world, it now also appears that Greece can decouple from within the Eurozone, even though it has to be inthe eurozone for there to be a Eurozone. We may go as suggesting that the word of the year 2012 will be "decoupling", even though as everyone knows, decoupling does not exist: thank you 60 years of globalization, $100 trillion in cross-held debt, and a $1 quadrillion interlinked derivatives framework.

As GGB cheapest-to-deliver bonds already trade sub-20

Source: Bloomberg

end

Rumours surfaced today that the White House was going to have a massive re-finance on all of those ill-fated mortgages put on during the past 5-6 years.  That rumour caused the banking index to rise and Bank of America was up 8% on that rumour.

Well this rumour as now been now proven as false by the White House.

Zero hedge describes in detail the problems facing Bank of America with all of those
mortgage putbacks from other financial firms onto BAC

(courtesy zero hedge)

Mass Home Refinancing Rumor Rejected, And Why Even If It Was True It Would Not Help BAC

Submitted by Tyler Durden on 01/05/2012 16:39 -0500

• After Hours
 
• BAC
 
• Bank Index
 
• Bear Stearns
 
• MF Global
 
• None
• President Obama
 
• White House

Looking for a reason why the surge of BAC has been abruptly halted after hours? Look no further - as predicted earlier, when we commented on the periodic reincarnation of the always false global refi rumor which served among other things to push BAC higher by almost 10%, the rumor was found to be false... all over again. In other words no refi, no benefit to TBTF, and all of today's gains are based on what Bloomberg noted was a report issued yesterday by a Jaret Seiberg, who until recently was an employee of MF Global, and has since been acquired with his entire Washington Research Group by none other than Guggenheim partners, which just happens to be run by former Bear Stearns exec Alan Scwhartz. From Bloomberg, here is the official denial (which came literally seconds after market close):

• White House Has No Plan for Mass Home Refinancing, Person Says

Incidentally, even if the rumor was true, here is JMP explaining why it would have no real impact on Bank of America

Bank of America (BAC, $6.28, Market Perform):  Market Overly Optimistic About the Impact of a Hypothetical $1 Tril. Refinance Program, in Our View

Shares of BAC were up 8% today as rumors swirled that President Obama may enact a $1 trillion refinance program.  Granted, BAC shares were trading at a big discount to book (0.4x), and the investment community--now with several months of runway--seems to be going "risk on". But the big upward move on this news seems more a grasp for "validation", and we don't believe it will stick.

We must point out that BAC is up big, while JPM and Citi are only up with the broader bank index.  This suggests that the market is focused on the mortgage-loss exposure specifically as this is uniquely troubling at BAC.  Were the market focused on the big potential one-time benefits of mortgage production fees (in our view, the lone positive), they would all be up big, but this is not the case.  Meanwhile, servicing revenue should obviously be a zero-sum game.

Thus, we focus our discussion on the loss exposure.  The key risk to BAC is the looming threat of material mortgage putbacks (reps and warranties).  These are not new losses but losses already locked in and incurred by others that are merely redistributed to BAC retroactively via the legal system.  No refinance program will undo these losses for which, in most cases, the foreclosure has been completed.

As for the matter of avoiding new losses by saving currently wobbly homeowners, we question the efficiacy of a refinance program when the key issue is jobs--where the homeowner has no income nor liquid asset buffer, a lower payment isn't going to matter.  More generally, as we have seen with prior attempts, these programs are more about kicking the can down the road, so it's more about delaying future losses than avoiding them altogether.

Many homeowners could already materially lower their payment (or avoid a looming balloon) via refinancing but can't do so because of the LTV.  Thus, we presume any big refinance program would have to include the U.S. government providing mortgage insurance to the lenders/investors, which creates incremental risk for the U.S.

We will leave it to the political analysts to opine about whether or not President Obama can even get away with enacting a $1 trillion program that incurs large amounts of financial risk to the U.S. government.  Our view is that, even if this comes to pass, the impact on BAC's putback risk is negligible, so the stock continues to deserve a steep discount and today's move is likely to prove fleeting.

It is time is say goodnight and I will catch up with you on the weekend,
early Saturday morning.

all the best
Harvey