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 28. 2012:
Total Gold in Trust
Tonnes:1,271.09
Ounces:40,866,777.14
Value US$:70,513,224,606.52
Jan 27.2012
TOTAL GOLD IN TRUST
Tonnes:1,261.11
Ounces:40,546,014.10
Value US$:70,000,898,214.51
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 28. 2012:
Total Gold in Trust
Tonnes:1,271.09
Ounces:40,866,777.14
Value US$:70,513,224,606.52
Jan 27.2012
TOTAL GOLD IN TRUST
Tonnes:1,261.11
Ounces:40,546,014.10
Value US$:70,000,898,214.51
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 28. 2012:
Total Gold in Trust
Tonnes:1,271.09
Ounces:40,866,777.14
Value US$:70,513,224,606.52
Jan 27.2012
TOTAL GOLD IN TRUST
Tonnes:1,261.11
Ounces:40,546,014.10
Value US$:70,000,898,214.51
we gained another 9.98 tonnes of gold into the GLD. The employees of the Bank of England again had a very busy today.
And now for silver Jan 28 2012:
Ounces of Silver in Trust 305,776,244.700 Tonnes of Silver in Trust 
9,510.70
Jan 26.2012
Ounces of Silver in Trust 305,776,244.700 Tonnes of Silver in Trust 9,510.70
we neither gained nor lost any silver today in the SLV.Again very strange with the huge activity in the price of silver last week, then on all this week and yet no additions whatsoever. Strange!
end.
And now for our premiums to NAV for the funds I follow:
we gained another 9.98 tonnes of gold into the GLD. The employees of the Bank of England again had a very busy today.
And now for silver Jan 28 2012:
Ounces of Silver in Trust 305,776,244.700 Tonnes of Silver in Trust 9,510.70
Jan 26.2012
Ounces of Silver in Trust 305,776,244.700 Tonnes of Silver in Trust 9,510.70
we neither gained nor lost any silver today in the SLV.Again very strange with the huge activity in the price of silver last week, then on all this week and yet no additions whatsoever. Strange!
end.
And now for our premiums to NAV for the funds I follow:
we gained another 9.98 tonnes of gold into the GLD. The employees of the Bank of England again had a very busy today.
And now for silver Jan 28 2012:
Jan 26.2012
| Ounces of Silver in Trust | 305,776,244.700 |
| Tonnes of Silver in Trust | 9,510.70 |
Jan 26.2012
| Ounces of Silver in Trust | 305,776,244.700 |
| Tonnes of Silver in Trust | 9,510.70 |
we neither gained nor lost any silver today in the SLV.
Again very strange with the huge activity in the price of silver last week, then on all this week and yet no additions whatsoever. Strange!
end.
And now for our premiums to NAV for the funds I follow:
1. Central Fund of Canada: traded to a positive 5.1 percent to NAV in usa funds and a positive 5.6% to NAV for Cdn funds. ( Jan 28 2012.).2. Sprott silver fund (PSLV): Premium to NAV rose to 7.13.% to NAV Jan 28 2012:
3. Sprott gold fund (PHYS): premium to NAV remained constant at 5.03% positive to NAV Jan 26. 2012).
It seems that Sprott funds are being punished as they try and obtain the 8.5 million oz of silver that is in scarce supply. However their premium to NAV rose a bit these past few days. Very shortly the premium to NAV will return to previous levels with the silver Sprott. Also notice that finally the Central Fund of Canada has returned to normal premiums to NAV.
end.
Friday night we receive the COT report and here we see position levels by the major players. Let us see what we can glean from the report. First the gold COT:
Gold COT Report - Futures Large Speculators Commercial Total Long Short Spreading Long Short Long Short 173,479 31,256 29,518 164,048 343,816 367,045 404,590 Change from Prior Reporting Period 6,106 -88 -4,543 -8,643 -1,851 -7,080 -6,482 Traders 171 59 82 52 46 263 157
Small Speculators
Long Short Open Interest
59,987 22,442 427,032
1,274 676 -5,806
non reportable positions Change from the previous reporting period
COT Gold Report - Positions as of Tuesday, January 24, 2012
The Large Speculators:
Those large speculators that have been long in gold guessed correctly as they added a huge 6106 contracts to their long side and are very very happy campers today.
Those large speculators that have been short in gold covered a very tiny 88 contracts.They are not happy with their high short position.
Our Commercials:
The commercials that are close to the physical scene and are generally long in gold somehow got blindsided with the Fed announcement that ZIRP is to continue to maybe 2015, as they pitched a huge 8643 contracts from their long side.
Those commercials that have been perennially short in gold with the likes of JPMorgan and company, covered only a tiny 1,851 contracts. They were blindsided also by the speed of gold's rise.
Our small specs:
The small speculators that have been long in gold correctly saw the lay of the land as they added a rather large for them 1274 contracts.
The small speculators that have been short in gold somehow got it wrong and added 676 contracts.
Conclusion:a would say neutral. The large specs are certainly pouring in but the commercials went more net short. Remember that this report is from Tuesday the 17th of January to the 24th of January. The FOMC announcement was on Wednesday. Thus the more important COT report will be next week.
The Silver COT:
Silver COT Report - Futures Large Speculators Commercial Total Long Short Spreading Long Short Long Short 27,051 10,934 20,520 35,283 60,304 82,854 91,758 842 -1,882 1,292 -3,746 893 -1,612 303 Traders 68 36 43 35 42 126 101
Small Speculators
Long Short Open Interest
20,171 11,267 103,025
969 -946 -643
non reportable positions Change from the previous reporting period
COT Silver Report - Positions as of Tuesday, January 24, 2012
Our large speculators:
Those large speculators that have been long in silver for quite some time correctly saw the rise in silver as they added 842 contracts to their long side.
Those large speculators that have been short in silver were certainly spooked by the depth of silver's rise last week as they covered a rather large 1882 contracts from their short side.
Our commercials:
Those commercials that have been close to the silver scene and are long in silver pitched a rather large 3,746 contracts.
Those commercials who have been perennially short in silver and subject to the CFTC probe and class action lawsuits are thoroughly annoyed this weekend as they added another 893 contracts to their short side.
Our small specs:
The small specs that have been long in silver are very happy campers today as they added a rather large for them, 969 contracts.
The small specs that have been short in silver covered a high, 946 contracts.
Conclusion: a little bearish as the commercials dug in their heals and provided the silver paper. However the more important COT report will be next week.
end
Now let us see some of the big news which shape the paper price of gold and silver.First, let's see what is happening inside Greece. Wolf Richter of www.testosteronepit.com gives a good account as to which group have been buying the Greek bonds now. Interestingly it is the "dumb money"..the retail investor who generally get it wrong as the banks are selling like crazy. Thus it looks like Greece will go into a disorderly default:
Abysmal news for Greek Bonds and Debt Swap Negotiations
Submitted by testosteronepit on 01/27/2012 22:04 -0500
Once again, hope is pervading the media that an agreement might be reached between the Greek government and private sector investors on a debt swap, maybe even this weekend, though everyone is hobnobbing at the World Economic Forum in Davos where all sorts of things have already been said and leaked between drinks. EU Finance Commissioner Olli Rehn was the bearer of the good news: the 50% haircut, though now judged insufficient by practically everyone, appears to be in the can, and the only remaining thing left to fight over is everything else, including the trivial matters of coupon rate and maturity.So we follow Rehn into hopefulness. We've been hearing forever that large vulture hedge funds, which were holding these bonds by the shipload, essentially blocked the debt swap negotiations as they were hoping to push Greece into default, which would then finally be declared a “credit event” that would trigger CDS payouts. Then more recently we read practically everywherethat almost the opposite was true, that the largest such funds actually spurned Greek bonds, and that some had gone through the unusual trouble of outright denying involvement. And now the Frankfurter Allgemeine suddenly, coup de théâtre, knowsthat hedge funds aren't even at the negotiating table because their participation is so inconsequential.It appears they have figured out that waiting for a "credit event" that would trigger a CDS payout is like waiting for Godot. So then, who are these private investors who hold about €206 billion of these crappy bonds? Well, the usual banks and financial institutions, and ... German retail investors. The dumb money is moving in.The Stuttgart bourse is Germany's leading exchange for derivative products and bonds, including euro sovereign bonds. It handles 60% of the transactions by individual German investors. And Greek sovereign bonds are suddenly trading like there is no tomorrow. Oh, wait.... There is no tomorrow? At any rate, trading volume in these bonds has more than doubled since mid-December and is now second among all European sovereign bonds. Only German Bunds trade at a higher volume.Bonds due in March make up 80% of the trading volume. The lure: they’re “cheap.” They go for 39 cents on the euro, down from 50 cents on the euro at the end of December, after a spike. So they’re volatile, and volatility leaves room for hope. Bonds due in May are trading below 30 cents on the euro.These investors are throwing the dice. Left to its own devices, Greece will not be able to redeem these bonds when they mature in March or May. Whatever they're worth afterwards will be significantly less than what they are worth now, if Argentina is any guide.If there is an agreement with private sector bondholders, and if there is sufficient participation, and if the debt swap actually takes place, then these bonds may turn into a profitable investment. But those are big ifs. One thing is for sure, which leaves little room for hope: the smart money was selling them those bonds.Speaking of smart money: read.... Bribery, Kickbacks, and Money Laundering at the Austrian National Bank.
end
Early on Friday morning, Wolf Richter describes the Greek and Portuguese scene:
Here he describes the holders of bonds with credit default swaps will likely hold onto their bonds and cash out with par. The short dated owners will also hold on, hoping to score better by getting par equal to the ECB who will not partake in the deal as they are not part of the PSI. The anger that the private bond holders are put in a subordinate position is not weighing too good on the deal .
For those who think that only Greece will fail guess again. Yesterday night, the Portuguese 5 yr bond yield closed at 16.7%. The two yr yield is also rising even though LTRO exists for it.
Thus Portugal will fail as well:
(courtesy Wolf Richter/www.testosteronepit.com)
Greece, Portugal, And LTRO
Submitted by Tyler Durden on 01/27/2012 08:26 -0500
- Bond
- CDS
- default
- European Central Bank
- France
- Germany
- Greece
- Gross Domestic Product
- Insurance Companies
- International Monetary Fund
- Portugal
Via Peter Tchir of TF Market Advisors,While we wait to see what happens with the Greek debt negotiations, here is a useful update from Bloomberg.There are a couple of things about the article I find most useful. The first is that they seem less afraid of triggering a Credit Event and some even think it could be a good thing. We have been arguing that for months and months.This article estimates that only about €100 billion of Greek bonds are actually in hands that will follow the IIF recommendations. It is only an estimate, and doesn’t mean that some non IIF members won’t go along, but it also doesn’t ensure that even all the IIF members will.The negotiations are getting tricky (actually they have always been tricky, it’s just that until recently no one was actually negotiating). The IMF seems insistent that they won’t provide new money without a high participation rate in an exchange with worse terms than many thought. There are questions about whether the ECB should participate or not.I have seen a range of estimates of what price the “new bonds” would trade at. Even assuming 100% participation for the €206 billion of bonds held by non-priority entities the Greek debt situation will be bad. The goal of 120% Debt to GDP in 2020 seems a long way off especially as the economy seems to be getting worse rather than better. Even with the plan, debt to gdp would rise again to well above 120% before it begins the theoretical decline to 120%. About the highest price estimate I’ve seen for new bonds (with principal protection from the EFSF) is about 75% of par. The lowest is about 25%. The more bonds that are exchanged, the higher the value should be, but realistically I think something around 50% to 60% of par is about right.So, if you own €100 million of Greek bonds, you will exchange them for €50 million of new bonds, that will likely have a value of about €25 million. Depending on which bonds you own, you could sell those bonds in the market today for about €25 million. What you are getting if you agree to the deal is becoming clear, so investors need to compare that to what they might get if they don’t agree.Basis package holders will continue to want to hold out. This is a small group, I’m guessing only about $2 billion (total Net CDS is down to only $3.2 billion). The value of the CDS contract (currently 63 points up front) will decrease with a high participation rate. The basis package holders will want to hold onto their bonds, as deciding to exchange and holding on to the CDS is likely a losing proposition.Short dated bond holders (next 6 months) will be tempted not to exchange. If a deal gets announced and the IMF gives the next slug of money, it will be awkward for them to go ahead with “selective default” where they pay the ECB and other “public” holders out at par but not banks, insurance companies, and hedge funds.The ECB’s Greek bond holdings are very interesting. They are adamant that they won’t participate. That has been the line all along, but I’m sure they aren’t happy that the IMF is pushing. It does raise some questions about the SMP. Bonds held by the ECB as part of the SMP have no special protections and are not legally nor structurally senior, yet they are being treated that way. This effective subordination of non ECB holders may weigh on the back of investor minds. Until now, the ECB’s purchases of bonds have been rewarded by the market with increased risk taking, but if every purchase is subordinating non ECB held debt, the enthusiasm may decrease as you have to balance the benefits of the ECB purchases with the fact that you are being crammed down. If the ECB takes a loss it could be done in a constructive way (immediate support from Germany, France, and others, to provide fresh injections into the ECB with no complaints), or the losses could be taken in some bizarre fashion with off-market trades to the EFSF or a lot of bickering from politicians about why they shouldn’t provide support for ECB losses.Portugal and the LTROThe Portuguese debt problem is much smaller than that of Greece, but it should be attracting more attention. The entire EU community has stated over and over that Portugal is not Greece, and PSI is going to be unique to Greece. They can say that, but clearly the market doesn’t believe it.
There are a couple of key points that this graph highlights. The fact that the 5 year bonds hit a new low is important. The market is clearly not buying into the rhetoric that only Greece will default (or haircut, or PSI, or restructure, or whatever euphemism they want to use).Separately, this graph may be the best example of what LTRO has done. There were 3 earlier summits or announcements or grand plans. In each case, the 2 year bonds and 5 year bonds moved relatively in line. They both jumped higher, then leaked lower. That seems to have changed with LTRO. The 2 year bonds (covered by the LTRO maturity) performed much better than the 5 year bond. We didn’t see the 5 year bond participate in the rally to the same extent that the 2 year did. That would make sense as there was less selling pressure if not outright purchases on the back of LTRO. But now, the 2 year is starting to follow the 5 year down. Even LTRO is not enough to keep the 2 year bonds propped up.The 5 year Portuguese bond shows that the market has no faith that Greece will be a unique situation, and the 2 year bond is showing that LTRO may be useful, but it doesn’t trump actual risk. Watch both of these closely.
end
Portuguese 10 yr bond yield:
Snapshot
SUMMARY ONE-YEAR CHART INTERACTIVE CHART Value 15.22 
Change (%) Open 15.26 High 15.41 Low 14.80
end
And to confirm the above we get the following from the UK "Foreign office sources" which state that Merkel believes Greece will default on its debt:
(courtesy zero hedge/BBC?Andrew Bell)
Endgame Begins - UK "Foreign Office Sources Say Merkel Now Thinks Greece Will Default"
Submitted by Tyler Durden on 01/27/2012 19:01 -0500
Courtesy of the BBC's Andrew Neil, on the back of the previously noted formal annexation demand of Greece by Germany:
Of course, this is what we, and everyone else whose frontal lobe has not bee hijacked by the status quo, said back in January 2010...JP Morgan and Morgan Stanley better pray they are right when they say they are 100% insulated from contagion, because we are all about to find out.
end
Late last night we got this from Greek newspapers and Reuters:
(courtesy zero hedge/Reuters)
The Silent Anschluss: Germany Formally Requests That Greece Hand Over Its Fiscal Independence
Submitted by Tyler Durden on 01/27/2012 15:39 -0500
Update 2: the first local headlines are coming in now, from Spiegel: Griechenland soll Kontrolle über Haushalt abgeben(loosely Greece must give up domestic control), andKathimerini: Germany proposes Greece relinquish some fiscal powers, sources sayUpdate: Formal Greek annexation order attached.It was tried previously (several times) under "slightly different" circumstances, and failed. Yet when it comes to taking over a country without spilling even one drop of blood, and converting its citizens into debt slaves, Germany's Merkel may have just succeeded where so many of her predecessors failed. According to a Reuters exclusive, "Germany is pushing for Greece to relinquish control over its budget policy to European institutions [ZH: read ze Germans] as part of discussions over a second rescue package, a European source told Reuters on Friday." Reuters add: "There are internal discussions within the Euro group and proposals, one of which comes from Germany, on how to constructively treat country aid programs that are continuously off track, whether this can simply be ignored or whether we say that's enough," the source said.' So while the great distraction that is the Charles Dallara "negotiation" with Hedge Funds continues (as its outcome is irrelevant: a Greece default is assured at this point), the real development once again was behind the scenes where Germany was cleanly and clinically taking over Greece. Because while today it is the fiscal apparatus, tomorrow it is the legislative. As for the executive: who cares. At that point Goldman will merely appoint one of its retired partners as Greek president and Greece will become the first 21st century German, pardon, European colony. But at least it will have its precious euro. We can't wait until Greek citizens find out about this quiet coup.More from Reuters:The source added that under the proposals European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy.
"This could be carried out even more stringently through external expertise," the source said.
The German demands for greater control over Greek budget policy comes amid intense talks to finalize a second 130-billion euro rescue package for Greece, which has repeatedly failed to meet the fiscal targets set out for it by its international lenders.
It is likely to spark a strong reaction in Athens ahead of elections expected to take place in April.
"Strong reaction?" Is that the politically correct parlance for "civil war" these days? We must be out of the loop on that one...The specific language that strips Greece of its sovereignty and which will be plastered over every front page in the Greek media tomorrow:Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service.
The new surveillance and institutional approach should be formulated in the MoU as follows: “In the case of non-compliance, confirmed by the ECB, IMF and EU COM, a new budget commissioner appointed by the Eurogroup would help implementing reforms. The commissioner will have broad surveillance competences over public expenditure and a veto right against budget decisions not in line with the set budgetary targets and the rule giving priority to debt service.” Greece has to ensure that the new surveillance mechanism is fully enshrined in national law, preferably through constitutional amendment.
And here is the full formal pre-annexation order:
Bruce Krasting does a great commentary on the LTRO using interviews with Joseph Ackermannchairman and CEO of Deutsche Bank to explain its perils:
(courtesy Bruce Krasting/zero hedge)
Deutche Bank's Ackermann on the LTRO
Over in Italy it seems that this nation does not like austerity as disruptions in trade arrive in Sicily:
1. Central Fund of Canada: traded to a positive 5.1 percent to NAV in usa funds and a positive 5.6% to NAV for Cdn funds. ( Jan 28 2012.).2. Sprott silver fund (PSLV): Premium to NAV rose to 7.13.% to NAV Jan 28 2012:
3. Sprott gold fund (PHYS): premium to NAV remained constant at 5.03% positive to NAV Jan 26. 2012).
It seems that Sprott funds are being punished as they try and obtain the 8.5 million oz of silver that is in scarce supply. However their premium to NAV rose a bit these past few days. Very shortly the premium to NAV will return to previous levels with the silver Sprott. Also notice that finally the Central Fund of Canada has returned to normal premiums to NAV.
end.
Friday night we receive the COT report and here we see position levels by the major players. Let us see what we can glean from the report. First the gold COT:
Gold COT Report - Futures Large Speculators Commercial Total Long Short Spreading Long Short Long Short 173,479 31,256 29,518 164,048 343,816 367,045 404,590 Change from Prior Reporting Period 6,106 -88 -4,543 -8,643 -1,851 -7,080 -6,482 Traders 171 59 82 52 46 263 157
Small Speculators
Long Short Open Interest
59,987 22,442 427,032
1,274 676 -5,806
non reportable positions Change from the previous reporting period
COT Gold Report - Positions as of Tuesday, January 24, 2012
The Large Speculators:
Those large speculators that have been long in gold guessed correctly as they added a huge 6106 contracts to their long side and are very very happy campers today.
Those large speculators that have been short in gold covered a very tiny 88 contracts.They are not happy with their high short position.
Our Commercials:
The commercials that are close to the physical scene and are generally long in gold somehow got blindsided with the Fed announcement that ZIRP is to continue to maybe 2015, as they pitched a huge 8643 contracts from their long side.
Those commercials that have been perennially short in gold with the likes of JPMorgan and company, covered only a tiny 1,851 contracts. They were blindsided also by the speed of gold's rise.
Our small specs:
The small speculators that have been long in gold correctly saw the lay of the land as they added a rather large for them 1274 contracts.
The small speculators that have been short in gold somehow got it wrong and added 676 contracts.
Conclusion:a would say neutral. The large specs are certainly pouring in but the commercials went more net short. Remember that this report is from Tuesday the 17th of January to the 24th of January. The FOMC announcement was on Wednesday. Thus the more important COT report will be next week.
The Silver COT:
Silver COT Report - Futures Large Speculators Commercial Total Long Short Spreading Long Short Long Short 27,051 10,934 20,520 35,283 60,304 82,854 91,758 842 -1,882 1,292 -3,746 893 -1,612 303 Traders 68 36 43 35 42 126 101
Small Speculators
Long Short Open Interest
20,171 11,267 103,025
969 -946 -643
non reportable positions Change from the previous reporting period
COT Silver Report - Positions as of Tuesday, January 24, 2012
Our large speculators:
Those large speculators that have been long in silver for quite some time correctly saw the rise in silver as they added 842 contracts to their long side.
Those large speculators that have been short in silver were certainly spooked by the depth of silver's rise last week as they covered a rather large 1882 contracts from their short side.
Our commercials:
Those commercials that have been close to the silver scene and are long in silver pitched a rather large 3,746 contracts.
Those commercials who have been perennially short in silver and subject to the CFTC probe and class action lawsuits are thoroughly annoyed this weekend as they added another 893 contracts to their short side.
Our small specs:
The small specs that have been long in silver are very happy campers today as they added a rather large for them, 969 contracts.
The small specs that have been short in silver covered a high, 946 contracts.
Conclusion: a little bearish as the commercials dug in their heals and provided the silver paper. However the more important COT report will be next week.
end
Now let us see some of the big news which shape the paper price of gold and silver.First, let's see what is happening inside Greece. Wolf Richter of www.testosteronepit.com gives a good account as to which group have been buying the Greek bonds now. Interestingly it is the "dumb money"..the retail investor who generally get it wrong as the banks are selling like crazy. Thus it looks like Greece will go into a disorderly default:
Abysmal news for Greek Bonds and Debt Swap Negotiations
Submitted by testosteronepit on 01/27/2012 22:04 -0500
Once again, hope is pervading the media that an agreement might be reached between the Greek government and private sector investors on a debt swap, maybe even this weekend, though everyone is hobnobbing at the World Economic Forum in Davos where all sorts of things have already been said and leaked between drinks. EU Finance Commissioner Olli Rehn was the bearer of the good news: the 50% haircut, though now judged insufficient by practically everyone, appears to be in the can, and the only remaining thing left to fight over is everything else, including the trivial matters of coupon rate and maturity.So we follow Rehn into hopefulness. We've been hearing forever that large vulture hedge funds, which were holding these bonds by the shipload, essentially blocked the debt swap negotiations as they were hoping to push Greece into default, which would then finally be declared a “credit event” that would trigger CDS payouts. Then more recently we read practically everywherethat almost the opposite was true, that the largest such funds actually spurned Greek bonds, and that some had gone through the unusual trouble of outright denying involvement. And now the Frankfurter Allgemeine suddenly, coup de théâtre, knowsthat hedge funds aren't even at the negotiating table because their participation is so inconsequential.It appears they have figured out that waiting for a "credit event" that would trigger a CDS payout is like waiting for Godot. So then, who are these private investors who hold about €206 billion of these crappy bonds? Well, the usual banks and financial institutions, and ... German retail investors. The dumb money is moving in.The Stuttgart bourse is Germany's leading exchange for derivative products and bonds, including euro sovereign bonds. It handles 60% of the transactions by individual German investors. And Greek sovereign bonds are suddenly trading like there is no tomorrow. Oh, wait.... There is no tomorrow? At any rate, trading volume in these bonds has more than doubled since mid-December and is now second among all European sovereign bonds. Only German Bunds trade at a higher volume.Bonds due in March make up 80% of the trading volume. The lure: they’re “cheap.” They go for 39 cents on the euro, down from 50 cents on the euro at the end of December, after a spike. So they’re volatile, and volatility leaves room for hope. Bonds due in May are trading below 30 cents on the euro.These investors are throwing the dice. Left to its own devices, Greece will not be able to redeem these bonds when they mature in March or May. Whatever they're worth afterwards will be significantly less than what they are worth now, if Argentina is any guide.If there is an agreement with private sector bondholders, and if there is sufficient participation, and if the debt swap actually takes place, then these bonds may turn into a profitable investment. But those are big ifs. One thing is for sure, which leaves little room for hope: the smart money was selling them those bonds.Speaking of smart money: read.... Bribery, Kickbacks, and Money Laundering at the Austrian National Bank.
end
Early on Friday morning, Wolf Richter describes the Greek and Portuguese scene:
Here he describes the holders of bonds with credit default swaps will likely hold onto their bonds and cash out with par. The short dated owners will also hold on, hoping to score better by getting par equal to the ECB who will not partake in the deal as they are not part of the PSI. The anger that the private bond holders are put in a subordinate position is not weighing too good on the deal .
For those who think that only Greece will fail guess again. Yesterday night, the Portuguese 5 yr bond yield closed at 16.7%. The two yr yield is also rising even though LTRO exists for it.
Thus Portugal will fail as well:
(courtesy Wolf Richter/www.testosteronepit.com)
Greece, Portugal, And LTRO
Submitted by Tyler Durden on 01/27/2012 08:26 -0500
- Bond
- CDS
- default
- European Central Bank
- France
- Germany
- Greece
- Gross Domestic Product
- Insurance Companies
- International Monetary Fund
- Portugal
Via Peter Tchir of TF Market Advisors,While we wait to see what happens with the Greek debt negotiations, here is a useful update from Bloomberg.There are a couple of things about the article I find most useful. The first is that they seem less afraid of triggering a Credit Event and some even think it could be a good thing. We have been arguing that for months and months.This article estimates that only about €100 billion of Greek bonds are actually in hands that will follow the IIF recommendations. It is only an estimate, and doesn’t mean that some non IIF members won’t go along, but it also doesn’t ensure that even all the IIF members will.The negotiations are getting tricky (actually they have always been tricky, it’s just that until recently no one was actually negotiating). The IMF seems insistent that they won’t provide new money without a high participation rate in an exchange with worse terms than many thought. There are questions about whether the ECB should participate or not.I have seen a range of estimates of what price the “new bonds” would trade at. Even assuming 100% participation for the €206 billion of bonds held by non-priority entities the Greek debt situation will be bad. The goal of 120% Debt to GDP in 2020 seems a long way off especially as the economy seems to be getting worse rather than better. Even with the plan, debt to gdp would rise again to well above 120% before it begins the theoretical decline to 120%. About the highest price estimate I’ve seen for new bonds (with principal protection from the EFSF) is about 75% of par. The lowest is about 25%. The more bonds that are exchanged, the higher the value should be, but realistically I think something around 50% to 60% of par is about right.So, if you own €100 million of Greek bonds, you will exchange them for €50 million of new bonds, that will likely have a value of about €25 million. Depending on which bonds you own, you could sell those bonds in the market today for about €25 million. What you are getting if you agree to the deal is becoming clear, so investors need to compare that to what they might get if they don’t agree.Basis package holders will continue to want to hold out. This is a small group, I’m guessing only about $2 billion (total Net CDS is down to only $3.2 billion). The value of the CDS contract (currently 63 points up front) will decrease with a high participation rate. The basis package holders will want to hold onto their bonds, as deciding to exchange and holding on to the CDS is likely a losing proposition.Short dated bond holders (next 6 months) will be tempted not to exchange. If a deal gets announced and the IMF gives the next slug of money, it will be awkward for them to go ahead with “selective default” where they pay the ECB and other “public” holders out at par but not banks, insurance companies, and hedge funds.The ECB’s Greek bond holdings are very interesting. They are adamant that they won’t participate. That has been the line all along, but I’m sure they aren’t happy that the IMF is pushing. It does raise some questions about the SMP. Bonds held by the ECB as part of the SMP have no special protections and are not legally nor structurally senior, yet they are being treated that way. This effective subordination of non ECB holders may weigh on the back of investor minds. Until now, the ECB’s purchases of bonds have been rewarded by the market with increased risk taking, but if every purchase is subordinating non ECB held debt, the enthusiasm may decrease as you have to balance the benefits of the ECB purchases with the fact that you are being crammed down. If the ECB takes a loss it could be done in a constructive way (immediate support from Germany, France, and others, to provide fresh injections into the ECB with no complaints), or the losses could be taken in some bizarre fashion with off-market trades to the EFSF or a lot of bickering from politicians about why they shouldn’t provide support for ECB losses.Portugal and the LTROThe Portuguese debt problem is much smaller than that of Greece, but it should be attracting more attention. The entire EU community has stated over and over that Portugal is not Greece, and PSI is going to be unique to Greece. They can say that, but clearly the market doesn’t believe it.There are a couple of key points that this graph highlights. The fact that the 5 year bonds hit a new low is important. The market is clearly not buying into the rhetoric that only Greece will default (or haircut, or PSI, or restructure, or whatever euphemism they want to use).Separately, this graph may be the best example of what LTRO has done. There were 3 earlier summits or announcements or grand plans. In each case, the 2 year bonds and 5 year bonds moved relatively in line. They both jumped higher, then leaked lower. That seems to have changed with LTRO. The 2 year bonds (covered by the LTRO maturity) performed much better than the 5 year bond. We didn’t see the 5 year bond participate in the rally to the same extent that the 2 year did. That would make sense as there was less selling pressure if not outright purchases on the back of LTRO. But now, the 2 year is starting to follow the 5 year down. Even LTRO is not enough to keep the 2 year bonds propped up.The 5 year Portuguese bond shows that the market has no faith that Greece will be a unique situation, and the 2 year bond is showing that LTRO may be useful, but it doesn’t trump actual risk. Watch both of these closely.
end
Portuguese 10 yr bond yield:
Snapshot
SUMMARY ONE-YEAR CHART INTERACTIVE CHART Value 15.22 Change (%) Open 15.26 High 15.41 Low 14.80
end
And to confirm the above we get the following from the UK "Foreign office sources" which state that Merkel believes Greece will default on its debt:
(courtesy zero hedge/BBC?Andrew Bell)
Endgame Begins - UK "Foreign Office Sources Say Merkel Now Thinks Greece Will Default"
Submitted by Tyler Durden on 01/27/2012 19:01 -0500
Courtesy of the BBC's Andrew Neil, on the back of the previously noted formal annexation demand of Greece by Germany:Of course, this is what we, and everyone else whose frontal lobe has not bee hijacked by the status quo, said back in January 2010...JP Morgan and Morgan Stanley better pray they are right when they say they are 100% insulated from contagion, because we are all about to find out.
end
Late last night we got this from Greek newspapers and Reuters:
(courtesy zero hedge/Reuters)
The Silent Anschluss: Germany Formally Requests That Greece Hand Over Its Fiscal Independence
Submitted by Tyler Durden on 01/27/2012 15:39 -0500
Update 2: the first local headlines are coming in now, from Spiegel: Griechenland soll Kontrolle über Haushalt abgeben(loosely Greece must give up domestic control), andKathimerini: Germany proposes Greece relinquish some fiscal powers, sources sayUpdate: Formal Greek annexation order attached.It was tried previously (several times) under "slightly different" circumstances, and failed. Yet when it comes to taking over a country without spilling even one drop of blood, and converting its citizens into debt slaves, Germany's Merkel may have just succeeded where so many of her predecessors failed. According to a Reuters exclusive, "Germany is pushing for Greece to relinquish control over its budget policy to European institutions [ZH: read ze Germans] as part of discussions over a second rescue package, a European source told Reuters on Friday." Reuters add: "There are internal discussions within the Euro group and proposals, one of which comes from Germany, on how to constructively treat country aid programs that are continuously off track, whether this can simply be ignored or whether we say that's enough," the source said.' So while the great distraction that is the Charles Dallara "negotiation" with Hedge Funds continues (as its outcome is irrelevant: a Greece default is assured at this point), the real development once again was behind the scenes where Germany was cleanly and clinically taking over Greece. Because while today it is the fiscal apparatus, tomorrow it is the legislative. As for the executive: who cares. At that point Goldman will merely appoint one of its retired partners as Greek president and Greece will become the first 21st century German, pardon, European colony. But at least it will have its precious euro. We can't wait until Greek citizens find out about this quiet coup.More from Reuters:The source added that under the proposals European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy.
"This could be carried out even more stringently through external expertise," the source said.
The German demands for greater control over Greek budget policy comes amid intense talks to finalize a second 130-billion euro rescue package for Greece, which has repeatedly failed to meet the fiscal targets set out for it by its international lenders.
It is likely to spark a strong reaction in Athens ahead of elections expected to take place in April.
"Strong reaction?" Is that the politically correct parlance for "civil war" these days? We must be out of the loop on that one...The specific language that strips Greece of its sovereignty and which will be plastered over every front page in the Greek media tomorrow:Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service.
The new surveillance and institutional approach should be formulated in the MoU as follows: “In the case of non-compliance, confirmed by the ECB, IMF and EU COM, a new budget commissioner appointed by the Eurogroup would help implementing reforms. The commissioner will have broad surveillance competences over public expenditure and a veto right against budget decisions not in line with the set budgetary targets and the rule giving priority to debt service.” Greece has to ensure that the new surveillance mechanism is fully enshrined in national law, preferably through constitutional amendment.
And here is the full formal pre-annexation order:
Bruce Krasting does a great commentary on the LTRO using interviews with Joseph Ackermannchairman and CEO of Deutsche Bank to explain its perils:
(courtesy Bruce Krasting/zero hedge)
Deutche Bank's Ackermann on the LTRO
Over in Italy it seems that this nation does not like austerity as disruptions in trade arrive in Sicily:
1. Central Fund of Canada: traded to a positive 5.1 percent to NAV in usa funds and a positive 5.6% to NAV for Cdn funds. ( Jan 28 2012.).
2. Sprott silver fund (PSLV): Premium to NAV rose to 7.13.% to NAV Jan 28 2012:
3. Sprott gold fund (PHYS): premium to NAV remained constant at 5.03% positive to NAV Jan 26. 2012).
It seems that Sprott funds are being punished as they try and obtain the 8.5 million oz of silver that is in scarce supply. However their premium to NAV rose a bit these past few days. Very shortly the premium to NAV will return to previous levels with the silver Sprott. Also notice that finally the Central Fund of Canada has returned to normal premiums to NAV.
3. Sprott gold fund (PHYS): premium to NAV remained constant at 5.03% positive to NAV Jan 26. 2012).
It seems that Sprott funds are being punished as they try and obtain the 8.5 million oz of silver that is in scarce supply. However their premium to NAV rose a bit these past few days. Very shortly the premium to NAV will return to previous levels with the silver Sprott. Also notice that finally the Central Fund of Canada has returned to normal premiums to NAV.
end.
Friday night we receive the COT report and here we see position levels by the major players. Let us see what we can glean from the report. First the gold COT:
Gold COT Report - Futures | ||||||
Large Speculators | Commercial | Total | ||||
Long | Short | Spreading | Long | Short | Long | Short |
173,479 | 31,256 | 29,518 | 164,048 | 343,816 | 367,045 | 404,590 |
Change from Prior Reporting Period | ||||||
6,106 | -88 | -4,543 | -8,643 | -1,851 | -7,080 | -6,482 |
Traders | ||||||
171 | 59 | 82 | 52 | 46 | 263 | 157 |
Small Speculators | ||||||
Long | Short | Open Interest | ||||
59,987 | 22,442 | 427,032 | ||||
1,274 | 676 | -5,806 | ||||
non reportable positions | Change from the previous reporting period | |||||
COT Gold Report - Positions as of | Tuesday, January 24, 2012 | |||||
The Large Speculators:
Those large speculators that have been long in gold guessed correctly as they added a huge 6106 contracts to their long side and are very very happy campers today.
Those large speculators that have been short in gold covered a very tiny 88 contracts.
They are not happy with their high short position.
Our Commercials:
The commercials that are close to the physical scene and are generally long in gold somehow got blindsided with the Fed announcement that ZIRP is to continue to maybe 2015, as they pitched a huge 8643 contracts from their long side.
Those commercials that have been perennially short in gold with the likes of JPMorgan and company, covered only a tiny 1,851 contracts. They were blindsided also by the speed of gold's rise.
Our small specs:
The small speculators that have been long in gold correctly saw the lay of the land as they added a rather large for them 1274 contracts.
The small speculators that have been short in gold somehow got it wrong and added 676 contracts.
Conclusion:a would say neutral. The large specs are certainly pouring in but the commercials went more net short. Remember that this report is from Tuesday the 17th of January to the 24th of January. The FOMC announcement was on Wednesday. Thus the more important COT report will be next week.
The Silver COT:
Silver COT Report - Futures | ||||||
Large Speculators | Commercial | Total | ||||
Long | Short | Spreading | Long | Short | Long | Short |
27,051 | 10,934 | 20,520 | 35,283 | 60,304 | 82,854 | 91,758 |
842 | -1,882 | 1,292 | -3,746 | 893 | -1,612 | 303 |
Traders | ||||||
68 | 36 | 43 | 35 | 42 | 126 | 101 |
Small Speculators | ||||||
Long | Short | Open Interest | ||||
20,171 | 11,267 | 103,025 | ||||
969 | -946 | -643 | ||||
non reportable positions | Change from the previous reporting period | |||||
COT Silver Report - Positions as of | Tuesday, January 24, 2012 | |||||
Our large speculators:
Those large speculators that have been long in silver for quite some time correctly saw the rise in silver as they added 842 contracts to their long side.
Those large speculators that have been short in silver were certainly spooked by the depth of silver's rise last week as they covered a rather large 1882 contracts from their short side.
Our commercials:
Those commercials that have been close to the silver scene and are long in silver pitched a rather large 3,746 contracts.
Those commercials who have been perennially short in silver and subject to the CFTC probe and class action lawsuits are thoroughly annoyed this weekend as they added another 893 contracts to their short side.
Our small specs:
The small specs that have been long in silver are very happy campers today as they added a rather large for them, 969 contracts.
The small specs that have been short in silver covered a high, 946 contracts.
Conclusion: a little bearish as the commercials dug in their heals and provided the silver paper. However the more important COT report will be next week.
endNow let us see some of the big news which shape the paper price of gold and silver.
First, let's see what is happening inside Greece. Wolf Richter of www.testosteronepit.com gives a good account as to which group have been buying the Greek bonds now. Interestingly it is the "dumb money"..the retail investor who generally get it wrong as the banks are selling like crazy. Thus it looks like Greece will go into a disorderly default:
Abysmal news for Greek Bonds and Debt Swap Negotiations
Once again, hope is pervading the media that an agreement might be reached between the Greek government and private sector investors on a debt swap, maybe even this weekend, though everyone is hobnobbing at the World Economic Forum in Davos where all sorts of things have already been said and leaked between drinks. EU Finance Commissioner Olli Rehn was the bearer of the good news: the 50% haircut, though now judged insufficient by practically everyone, appears to be in the can, and the only remaining thing left to fight over is everything else, including the trivial matters of coupon rate and maturity.
So we follow Rehn into hopefulness. We've been hearing forever that large vulture hedge funds, which were holding these bonds by the shipload, essentially blocked the debt swap negotiations as they were hoping to push Greece into default, which would then finally be declared a “credit event” that would trigger CDS payouts. Then more recently we read practically everywherethat almost the opposite was true, that the largest such funds actually spurned Greek bonds, and that some had gone through the unusual trouble of outright denying involvement. And now the Frankfurter Allgemeine suddenly, coup de théâtre, knowsthat hedge funds aren't even at the negotiating table because their participation is so inconsequential.
It appears they have figured out that waiting for a "credit event" that would trigger a CDS payout is like waiting for Godot. So then, who are these private investors who hold about €206 billion of these crappy bonds? Well, the usual banks and financial institutions, and ... German retail investors. The dumb money is moving in.
The Stuttgart bourse is Germany's leading exchange for derivative products and bonds, including euro sovereign bonds. It handles 60% of the transactions by individual German investors. And Greek sovereign bonds are suddenly trading like there is no tomorrow. Oh, wait.... There is no tomorrow? At any rate, trading volume in these bonds has more than doubled since mid-December and is now second among all European sovereign bonds. Only German Bunds trade at a higher volume.
Bonds due in March make up 80% of the trading volume. The lure: they’re “cheap.” They go for 39 cents on the euro, down from 50 cents on the euro at the end of December, after a spike. So they’re volatile, and volatility leaves room for hope. Bonds due in May are trading below 30 cents on the euro.
These investors are throwing the dice. Left to its own devices, Greece will not be able to redeem these bonds when they mature in March or May. Whatever they're worth afterwards will be significantly less than what they are worth now, if Argentina is any guide.
If there is an agreement with private sector bondholders, and if there is sufficient participation, and if the debt swap actually takes place, then these bonds may turn into a profitable investment. But those are big ifs. One thing is for sure, which leaves little room for hope: the smart money was selling them those bonds.
Speaking of smart money: read.... Bribery, Kickbacks, and Money Laundering at the Austrian National Bank.
end
Early on Friday morning, Wolf Richter describes the Greek and Portuguese scene:
Here he describes the holders of bonds with credit default swaps will likely hold onto their bonds and cash out with par. The short dated owners will also hold on, hoping to score better by getting par equal to the ECB who will not partake in the deal as they are not part of the PSI. The anger that the private bond holders are put in a subordinate position is not weighing too good on the deal .
For those who think that only Greece will fail guess again. Yesterday night, the Portuguese 5 yr bond yield closed at 16.7%. The two yr yield is also rising even though LTRO exists for it.
Thus Portugal will fail as well:
(courtesy Wolf Richter/www.testosteronepit.com)
Greece, Portugal, And LTRO
- Bond
- CDS
- default
- European Central Bank
- France
- Germany
- Greece
- Gross Domestic Product
- Insurance Companies
- International Monetary Fund
- Portugal
Via Peter Tchir of TF Market Advisors,
While we wait to see what happens with the Greek debt negotiations, here is a useful update from Bloomberg.
There are a couple of things about the article I find most useful. The first is that they seem less afraid of triggering a Credit Event and some even think it could be a good thing. We have been arguing that for months and months.
This article estimates that only about €100 billion of Greek bonds are actually in hands that will follow the IIF recommendations. It is only an estimate, and doesn’t mean that some non IIF members won’t go along, but it also doesn’t ensure that even all the IIF members will.
The negotiations are getting tricky (actually they have always been tricky, it’s just that until recently no one was actually negotiating). The IMF seems insistent that they won’t provide new money without a high participation rate in an exchange with worse terms than many thought. There are questions about whether the ECB should participate or not.
I have seen a range of estimates of what price the “new bonds” would trade at. Even assuming 100% participation for the €206 billion of bonds held by non-priority entities the Greek debt situation will be bad. The goal of 120% Debt to GDP in 2020 seems a long way off especially as the economy seems to be getting worse rather than better. Even with the plan, debt to gdp would rise again to well above 120% before it begins the theoretical decline to 120%. About the highest price estimate I’ve seen for new bonds (with principal protection from the EFSF) is about 75% of par. The lowest is about 25%. The more bonds that are exchanged, the higher the value should be, but realistically I think something around 50% to 60% of par is about right.
So, if you own €100 million of Greek bonds, you will exchange them for €50 million of new bonds, that will likely have a value of about €25 million. Depending on which bonds you own, you could sell those bonds in the market today for about €25 million. What you are getting if you agree to the deal is becoming clear, so investors need to compare that to what they might get if they don’t agree.
Basis package holders will continue to want to hold out. This is a small group, I’m guessing only about $2 billion (total Net CDS is down to only $3.2 billion). The value of the CDS contract (currently 63 points up front) will decrease with a high participation rate. The basis package holders will want to hold onto their bonds, as deciding to exchange and holding on to the CDS is likely a losing proposition.
Short dated bond holders (next 6 months) will be tempted not to exchange. If a deal gets announced and the IMF gives the next slug of money, it will be awkward for them to go ahead with “selective default” where they pay the ECB and other “public” holders out at par but not banks, insurance companies, and hedge funds.
The ECB’s Greek bond holdings are very interesting. They are adamant that they won’t participate. That has been the line all along, but I’m sure they aren’t happy that the IMF is pushing. It does raise some questions about the SMP. Bonds held by the ECB as part of the SMP have no special protections and are not legally nor structurally senior, yet they are being treated that way. This effective subordination of non ECB holders may weigh on the back of investor minds. Until now, the ECB’s purchases of bonds have been rewarded by the market with increased risk taking, but if every purchase is subordinating non ECB held debt, the enthusiasm may decrease as you have to balance the benefits of the ECB purchases with the fact that you are being crammed down. If the ECB takes a loss it could be done in a constructive way (immediate support from Germany, France, and others, to provide fresh injections into the ECB with no complaints), or the losses could be taken in some bizarre fashion with off-market trades to the EFSF or a lot of bickering from politicians about why they shouldn’t provide support for ECB losses.
Portugal and the LTRO
The Portuguese debt problem is much smaller than that of Greece, but it should be attracting more attention. The entire EU community has stated over and over that Portugal is not Greece, and PSI is going to be unique to Greece. They can say that, but clearly the market doesn’t believe it.
There are a couple of key points that this graph highlights. The fact that the 5 year bonds hit a new low is important. The market is clearly not buying into the rhetoric that only Greece will default (or haircut, or PSI, or restructure, or whatever euphemism they want to use).
Separately, this graph may be the best example of what LTRO has done. There were 3 earlier summits or announcements or grand plans. In each case, the 2 year bonds and 5 year bonds moved relatively in line. They both jumped higher, then leaked lower. That seems to have changed with LTRO. The 2 year bonds (covered by the LTRO maturity) performed much better than the 5 year bond. We didn’t see the 5 year bond participate in the rally to the same extent that the 2 year did. That would make sense as there was less selling pressure if not outright purchases on the back of LTRO. But now, the 2 year is starting to follow the 5 year down. Even LTRO is not enough to keep the 2 year bonds propped up.
The 5 year Portuguese bond shows that the market has no faith that Greece will be a unique situation, and the 2 year bond is showing that LTRO may be useful, but it doesn’t trump actual risk. Watch both of these closely.
end
Portuguese 10 yr bond yield:
Snapshot
| SUMMARY | ONE-YEAR CHART INTERACTIVE CHART | ||
|---|---|---|---|
| Value | 15.22 | ||
| Change | (%) | ||
| Open | 15.26 | ||
| High | 15.41 | ||
| Low | 14.80 | ||
end
And to confirm the above we get the following from the UK "Foreign office sources" which state that Merkel believes Greece will default on its debt:
(courtesy zero hedge/BBC?Andrew Bell)
Endgame Begins - UK "Foreign Office Sources Say Merkel Now Thinks Greece Will Default"
Courtesy of the BBC's Andrew Neil, on the back of the previously noted formal annexation demand of Greece by Germany:
Of course, this is what we, and everyone else whose frontal lobe has not bee hijacked by the status quo, said back in January 2010...
JP Morgan and Morgan Stanley better pray they are right when they say they are 100% insulated from contagion, because we are all about to find out.
end
Late last night we got this from Greek newspapers and Reuters:
(courtesy zero hedge/Reuters)
The Silent Anschluss: Germany Formally Requests That Greece Hand Over Its Fiscal Independence
Update 2: the first local headlines are coming in now, from Spiegel: Griechenland soll Kontrolle über Haushalt abgeben(loosely Greece must give up domestic control), andKathimerini: Germany proposes Greece relinquish some fiscal powers, sources say
Update: Formal Greek annexation order attached.
It was tried previously (several times) under "slightly different" circumstances, and failed. Yet when it comes to taking over a country without spilling even one drop of blood, and converting its citizens into debt slaves, Germany's Merkel may have just succeeded where so many of her predecessors failed. According to a Reuters exclusive, "Germany is pushing for Greece to relinquish control over its budget policy to European institutions [ZH: read ze Germans] as part of discussions over a second rescue package, a European source told Reuters on Friday." Reuters add: "There are internal discussions within the Euro group and proposals, one of which comes from Germany, on how to constructively treat country aid programs that are continuously off track, whether this can simply be ignored or whether we say that's enough," the source said.' So while the great distraction that is the Charles Dallara "negotiation" with Hedge Funds continues (as its outcome is irrelevant: a Greece default is assured at this point), the real development once again was behind the scenes where Germany was cleanly and clinically taking over Greece. Because while today it is the fiscal apparatus, tomorrow it is the legislative. As for the executive: who cares. At that point Goldman will merely appoint one of its retired partners as Greek president and Greece will become the first 21st century German, pardon, European colony. But at least it will have its precious euro. We can't wait until Greek citizens find out about this quiet coup.
More from Reuters:
The source added that under the proposals European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy.
"This could be carried out even more stringently through external expertise," the source said.
The German demands for greater control over Greek budget policy comes amid intense talks to finalize a second 130-billion euro rescue package for Greece, which has repeatedly failed to meet the fiscal targets set out for it by its international lenders.
It is likely to spark a strong reaction in Athens ahead of elections expected to take place in April.
"Strong reaction?" Is that the politically correct parlance for "civil war" these days? We must be out of the loop on that one...
The specific language that strips Greece of its sovereignty and which will be plastered over every front page in the Greek media tomorrow:
Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service.
The new surveillance and institutional approach should be formulated in the MoU as follows: “In the case of non-compliance, confirmed by the ECB, IMF and EU COM, a new budget commissioner appointed by the Eurogroup would help implementing reforms. The commissioner will have broad surveillance competences over public expenditure and a veto right against budget decisions not in line with the set budgetary targets and the rule giving priority to debt service.” Greece has to ensure that the new surveillance mechanism is fully enshrined in national law, preferably through constitutional amendment.
And here is the full formal pre-annexation order:
Bruce Krasting does a great commentary on the LTRO using interviews with Joseph Ackermann
chairman and CEO of Deutsche Bank to explain its perils:
(courtesy Bruce Krasting/zero hedge)
Deutche Bank's Ackermann on the LTRO
Over in Italy it seems that this nation does not like austerity as disruptions in trade arrive in Sicily:
WEDNESDAY, JANUARY 25, 2012 AT 8:01PM
[Editor's Note: The following is from TDV's Correspondent in Italy, Alexander Jousse]
This past week has been a very turbulent time for Italy. And it wasn't just the grounding of the Concordia cruise ship by a playboy captain; but the grounding of the country by Euro-technocrat usurper Darth Monti, trying to impress his Keynesian buddies with his latest attempts to ‘Save Italy’!
This week saw the launch of a popular uprising in Sicily, by a group known as the‘Movimento dei Forconi’ or ‘Pitchfork Movement’. This is not an uprising of self absorbed youth who want more government handouts; but of producers who are being pushed into poverty by government taxes and regulation. The organizers are middle aged and older; this is significant, as most power and wealth is held by this generation and they have now drawn a line in the sand.
On the 16th of January these protesters began "Operazione Vespri Siciliani", a blockade of the Island of Sicily. Within two days the transportation of all goods was stopped. Over the next week, nothing entered or exited Sicily. This was no mean feat given that Sicily is not a small Island; it has a population of over five million people and a surface area of 25,711 km2.
These are some of their demands:
- The arrest of all corrupt politicians.
- To reduce the number of parliamentarians
- To remove the provincial bureaucracy, as most of these politicians have been there for over forty years.
- To drastically cut the salaries and privileges of parliamentarians and senators
- To restrict politicians two only two terms in office
Not one of Darth Monti’s “austerity” measures has touched the political caste; in fact in classic Italian style, the press has dug up some very dirty scandals concerning two of his fellow tax-feeders.
The trigger for these events was the vampire state sinking it’s fangs deeper into the already hampered Italian economy; a vicious tax was added to petrol, diesel and other energy sources in December.
Though agriculture contributes only 2.5% of GDP, in the southern regions of Basilicata, Calabria, and Molise, agriculture accounts for just over 20 percent of local employment. Many goods are transported by road, and as the cost of transport went through the roof within the time frame of just a few weeks, it destroyed the farmer's tight margins. Why work when the state steals most of your profits?
To further understand the rage, despair and humiliation it is necessary to know some Sicilian history. As Jeff says, it’s all been done before.
In the year 1282 the War of the Sicilian Vespers was fought by the Sicilians against the French aristocracy that ruled Sicily at the time. This uprising was ignited by excessive taxation and mismanagement by the French. Fast forward to 1859; Sicily was part of the Kingdom of Two Sicilies. At the time it was the richest kingdom in the Mediterranean and its capitol Napoli was one of the most renowned and cultured cities in the world. Then in 1860, The House of Savoy, rulers of the Kingdom of Italy, decided to liberate the south from their ‘brutal’ oppressors. The newly “liberated” soon realized that they were tax slaves to yet another foreign power. This necessitated the stationing of 200,000 troops in the south to prevent further rebellions. One could say that this occupation still exists today, as no Italian troops are ever garrisoned in their home regions.
After a hundred and fifty years the south is still suffering the effects of this occupation, but now the roles have been reversed; the wealth of the north is confiscated by Rome to bribe subsidise the corrupt politicians of the south. This is one of the reasons why Lega Nord is so popular in the North.
It will be interesting to see what happens next, as the protests are soon moving to Rome. This is not necessarily a positive move, as every political movement (eg. Lega Nord) that has gone onto Rome, has been bought off and betrayed their ideals. Over the past week, the establishment, including the unions have been deeply humiliated and lost a lot of credibility. There has been very little media coverage; the news still has to breach the international mainstream media (MSM) ‘Firewall’.
As Italy falls deeper into depression, the establishment will lose further credibility; regional movements such as the Forconi will multiply, putting further pressure on the State. This could well be the beginning of the end for the Italian state as Darth Monti’s taxes push more people unto the street.
For those who want to follow this story, you can use #Forconi hashtag on twitter. There are a few English speaking writers who are reporting from Sicily.
Alexander JousseBio: Alexander Jousse has been an anarcho-capitalist for eight years, learning through Lew Rockwell, Murray Rothbard, Ludwig von Mises and Stefan Molyneux. But most importantly thinking, observing and asking questions. Alexander has lived in Italy for the last six years.
Jeff Berwickend.
In Iran, it seems that this nation has turned the tables on the West as they will halt all crude exports to Europe. Europe will scramble as Iran has already agreed to supply China and Japan with its oil:
(courtesy zero hedge)
Iran Turns Embargo Tables: To Pass Law Halting All Crude Exports To Europe
- China
- Crude
- Free Money
- Global Economy
- Greece
- India
- International Monetary Fund
- Iran
- Italy
- Saudi Arabia
- SocGen
In what is likely a long overdue move, Iran has finally decided to give Europe a harsh lesson in game theory. Instead of letting Euro-area politicians score brownie points at its expense by threatening to halt imports and cut off the Iranian economy, the Iranian government will instead propose a bill calling for animmediate halt to oil deliveries to Europe. The move, with most reports citing the Iranian news agency Mehr, has come about in response to the EU agreement to impose sanctions against Iran, which were announced earlier this week. And why not? After all if Europe is indeed serious, sooner or later Iran will be cut off but in the meantime experience significant policy uncertainty, which is precisely what the flipflops on the ground need. The one thing that Europe, however is forgetting, is that all that whopping 0.8 Mb/d in imports will simply find a new buyer.Quickly.
So with China, India and Russia already having bilateral agreements with Iran in place, we are confident that said buyer will have a contract signed, sealed and delivered within an hour of the proposed bill's passage. Furthermore, as SocGen speculated, the fact that Europe will be even more bottlenecked in its crude supplies (good luck Saudi Arabia with that imaginary excess capacity), and which just may force the IEA to release some more of that strategic petroleum reserve (and thus give JPM some more free money on the replenishment arbitrage) will send Brent to $125-150 - something which Iran will be delighted by. That is of course unless some "experts" discover that Iran may or may not have a complete arsenal of shark with fricking nuclear warheads attached to their heads (despite what Paneta has already said) which gives the US the green light for a full blown incursion, which in turn will send oil over $200, and the world economy into a global coordinated re-depression.
From Spiegel:
"If this bill is passed, the government will be forced to stop selling oil to Europe before the actual implementation of their sanctions," said Emad Hosseini, spokesman for the Iranian parliament's energy commission, reportedly said. The bill is set to become law on Sunday.
The EU sanctions allow for oil deliveries from Iran until July 1. Any pre-empting of this timescale by Tehran could prove problematic for countries like Italy, Greece and Spain, who would need to urgently find new suppliers.
China, meanwhile, a major importer of Iranian oil, has also criticized the EU sanctions. The Xinhua news agency quoted the Chinese Foreign Ministry on Thursday as saying: "To blindly pressure and impose sanctions on Iran are not constructive approaches."
Many members of the EU are now heavily dependent on Iranian oil. Some 500,000 barrels arrive in Europe every day from Iran, with southern European countries consuming most of it. Greece is the most exposed, receiving a third of all its oil imports from Iran, but Italy too depends on Iran for 13 percent of its oil needs. If this source were to dry up abruptly, the economic conditions in the two struggling countries could become even worse.
Already on Wednesday, the International Monetary Fund (IMF) warned of the economic consequences of the EU's planned embargo. Stopping deliveries from the world's fifth largest producer could drive up the price of oil by 20 to 30 percent.
Perhaps instead of doing its best at crippling the world energy markets, and crushing the global economy, Europe should stick to bailing itself out, and other activities in which it has extensive experience.
end
Late in the day the French firm Fitch downgraded the following sovereigns:
Italy, Spain, Belgium, Slovenia, and Cyprus and outlook for Ireland negative.
Notice that they did not touch their host country France.
(courtesy zero hedge)
Fitch Gives Europe Not So High Five, Downgrades 5 Countries... But Not France
- Belgium
- Credit Conditions
- default
- European Central Bank
- Eurozone
- Fitch
- France
- Greece
- International Monetary Fund
- Ireland
- Italy
- Monetary Policy
- Portugal
- ratings
- Recession
- recovery
- Reserve Currency
- Sovereigns
- Volatility
Festive Friday fun:
- FITCH TAKES RATING ACTIONS ON SIX EUROZONE SOVEREIGNS
- ITALY LT IDR CUT TO A- FROM A+ BY FITCH
- SPAIN ST IDR DOWNGRADED TO F1 FROM F1+ BY FITCH
- IRELAND L-T IDR AFFIRMED BY FITCH; OUTLOOK NEGATIVE
- BELGIUM LT IDR CUT TO AA FROM AA+ BY FITCH
- SLOVENIA LT IDR CUT TO A FROM AA- BY FITCH
- CYPRUS LT IDR CUT TO BBB- FROM BBB BY FITCH, OUTLOOK NEGATIVE
And some sheer brilliance from Fitch:
- In Fitch's opinion, the eurozone crisis will only be resolved as and when there is broad economic recovery.
And just as EUR shorts were starting to sweat bullets. Naturally no downgrade of France. French Fitch won't downgrade France. In other news, Fitch's Italian office is about to be sacked by an errant roving vandal tribe (or so the local Police will claim).
Full release:
FITCH TAKES RATING ACTIONS ON SIX EUROZONE SOVEREIGNS
Fitch Ratings-London-27 January 2012: Fitch Ratings has today concluded its review of the six eurozone sovereigns it placed on Rating Watch Negative (RWN) on 16 December 2011.
The rating actions on the long-term (LT) and short-term (ST) Issuer Default Ratings (IDRs) are as follows:
-Belgium LT IDR downgraded to 'AA' from 'AA+'; Negative Outlook; ST IDR affirmed at 'F1+'
-Cyprus LT IDR downgraded to 'BBB-' from 'BBB'; Negative Outlook; ST IDR affirmed at 'F3'
-Ireland LT IDR affirmed at 'BBB+'; Negative Outlook; ST IDR affirmed at 'F2'
-Italy LT IDR downgraded to 'A-' from 'A+'; Negative Outlook; ST IDR downgraded to 'F2' from 'F1'
-Slovenia LT IDR downgraded to 'A' from 'AA-'; Negative Outlook; ST IDR downgraded to 'F1' from 'F1+'
- Spain LT IDR downgraded 'A' from 'AA-'; Negative Outlook; ST IDR downgraded to 'F1' from 'F1+'
All the ratings have been removed from RWN, with the Negative Outlook on all six countries indicating a slightly greater than 50% chance of a downgrade over a two-year time horizon. The eurozone 'AAA' country ceiling has been affirmed for all six sovereigns. All senior unsecured issues of the six countries are affirmed in line with the new rating levels above. The ratings of guaranteed issuance by National Asset Management Ltd. are affirmed at 'BBB+' and 'F2' in line with the Irish IDRs.
As outlined in its rating review press release of 16 December 2011, Fitch has now considered both systemic and country-specific factors for these six sovereigns. As a result, the agency has reduced the score it assigns to capture financing flexibility in its assessment of the credit profiles of eurozone sovereigns that have large fiscal financing needs and significant financial/economic imbalances.
Moreover, rising "home bias" in the allocation of capital, the divergence in monetary and credit conditions across the eurozone, and near-term economic outlook highlight the greater vulnerability to monetary as well as financing shocks faced by these sovereign governments. Consequently, these sovereigns do not, in Fitch's view, accrue the full benefits of the euro's reserve currency status. The net impact of this revision under Fitch's sovereign rating methodology is to lower the long-term ratings of the affected sovereigns by one notch.
This one-notch revision was applied to Belgium, Italy, Slovenia and Spain, but not to Cyprus and Ireland, where their loss of market access had already been demonstrated by their need for official/bilateral support and is already reflected in their low investment-grade ratings. The downgrade for Cyprus, and the additional one-notch cuts for Italy, Spain and Slovenia (ie a total of two notches for each) reflect country-specific concerns primarily related to the banking sector in Cyprus and Slovenia; an adverse shift in the interest-rate growth differential and hence public debt dynamics in Italy; and a significantly worsened fiscal and economic outlook in Spain. A more detailed rating rationale can be found in six separate country specific press releases also being published shortly.
Overall, today's rating actions balance the marked deterioration in the economic outlook with both the substantive policy initiatives at the national level to address macro-financial and fiscal imbalances, and the initial success of the ECB's three-year Long-Term Refinancing Operation in easing near-term sovereign and bank funding pressures. Nonetheless, the intensification of the eurozone crisis in the latter half of last year undermined the effectiveness of ECB monetary policy and highlighted the financing risks faced by eurozone sovereign governments in the absence of a credible financial firewall against contagion and self-fulfilling liquidity crises.
Fitch recognises the significant commitments made at the 9-10 December and previous EU Summits to enhance economic policy coordination so as to prevent a recurrence of the severe macro-financial imbalances that arose in the euro's first decade, as well as efforts to create a long-term framework for fiscal stability over the medium to long term. Fitch also anticipates that European leaders will make good on these commitments in the forthcoming 30 January summit. In addition, the decision to bring forward the creation of the European Stability Mechanism and increase the resources of the IMF, if implemented effectively, is a step towards enhancing the capacity of the eurozone to absorb adverse shocks, such as a disorderly Greek default, although such a shock is not the agency's expectation.
In Fitch's opinion, the eurozone crisis will only be resolved as and when there is broad economic recovery. It is evident that further substantial reforms of the governance of the eurozone will be required to secure economic and financial stability, including greater fiscal integration.
As previously noted, in the absence of greater clarity on the ultimate structure of a fundamentally reformed eurozone, the gradualist approach adopted by politicians to systemic reform will continue to be punctuated by episodes of severe financial volatility, entailing a significant economic and financial cost that erodes sovereign creditworthiness. It also means that a 'break-up' of the eurozone cannot be wholly discounted, although in Fitch's opinion the risk of such an outcome remains small. Fitch will continue to adopt a balanced and incremental approach to the rating of eurozone sovereign governments in recognition of the unprecedented nature of the systemic crisis and heightened uncertainty over the economic outlook for the region.
The Negative Outlooks on eight eurozone countries (the six sovereigns in this review along with 'AAA'-rated France and 'BB+'-rated Portugal) primarily reflect the risk that the crisis could intensify further. A deeper and more prolonged economic recession than currently anticipated would undermine political support for, and public acceptance of, fiscal austerity and structural reform. It would also have the potential to weaken the commitment of the economically and fiscally strongest eurozone countries, and the ECB, to providing necessary support to eurozone peers.
Fitch currently views that the sovereign credit profiles of the remaining eurozone sovereign governments (with the exception of 'CCC'-rated Greece, which has no Outlook assigned) continue to warrant Stable Outlooks, though each will be subject to active review through the course of the year. Fitch will consider on a country-by-country basis the extent to which the risks associated with the crisis, as well as the limitations on monetary and financial flexibility within the eurozone revealed by the crisis, may impact their long-term sovereign credit profiles
Fitch Ratings-London-27 January 2012: Fitch Ratings has today concluded its review of the six eurozone sovereigns it placed on Rating Watch Negative (RWN) on 16 December 2011.
The rating actions on the long-term (LT) and short-term (ST) Issuer Default Ratings (IDRs) are as follows:
-Belgium LT IDR downgraded to 'AA' from 'AA+'; Negative Outlook; ST IDR affirmed at 'F1+'
-Cyprus LT IDR downgraded to 'BBB-' from 'BBB'; Negative Outlook; ST IDR affirmed at 'F3'
-Ireland LT IDR affirmed at 'BBB+'; Negative Outlook; ST IDR affirmed at 'F2'
-Italy LT IDR downgraded to 'A-' from 'A+'; Negative Outlook; ST IDR downgraded to 'F2' from 'F1'
-Slovenia LT IDR downgraded to 'A' from 'AA-'; Negative Outlook; ST IDR downgraded to 'F1' from 'F1+'
- Spain LT IDR downgraded 'A' from 'AA-'; Negative Outlook; ST IDR downgraded to 'F1' from 'F1+'
All the ratings have been removed from RWN, with the Negative Outlook on all six countries indicating a slightly greater than 50% chance of a downgrade over a two-year time horizon. The eurozone 'AAA' country ceiling has been affirmed for all six sovereigns. All senior unsecured issues of the six countries are affirmed in line with the new rating levels above. The ratings of guaranteed issuance by National Asset Management Ltd. are affirmed at 'BBB+' and 'F2' in line with the Irish IDRs.
As outlined in its rating review press release of 16 December 2011, Fitch has now considered both systemic and country-specific factors for these six sovereigns. As a result, the agency has reduced the score it assigns to capture financing flexibility in its assessment of the credit profiles of eurozone sovereigns that have large fiscal financing needs and significant financial/economic imbalances.
Moreover, rising "home bias" in the allocation of capital, the divergence in monetary and credit conditions across the eurozone, and near-term economic outlook highlight the greater vulnerability to monetary as well as financing shocks faced by these sovereign governments. Consequently, these sovereigns do not, in Fitch's view, accrue the full benefits of the euro's reserve currency status. The net impact of this revision under Fitch's sovereign rating methodology is to lower the long-term ratings of the affected sovereigns by one notch.
This one-notch revision was applied to Belgium, Italy, Slovenia and Spain, but not to Cyprus and Ireland, where their loss of market access had already been demonstrated by their need for official/bilateral support and is already reflected in their low investment-grade ratings. The downgrade for Cyprus, and the additional one-notch cuts for Italy, Spain and Slovenia (ie a total of two notches for each) reflect country-specific concerns primarily related to the banking sector in Cyprus and Slovenia; an adverse shift in the interest-rate growth differential and hence public debt dynamics in Italy; and a significantly worsened fiscal and economic outlook in Spain. A more detailed rating rationale can be found in six separate country specific press releases also being published shortly.
Overall, today's rating actions balance the marked deterioration in the economic outlook with both the substantive policy initiatives at the national level to address macro-financial and fiscal imbalances, and the initial success of the ECB's three-year Long-Term Refinancing Operation in easing near-term sovereign and bank funding pressures. Nonetheless, the intensification of the eurozone crisis in the latter half of last year undermined the effectiveness of ECB monetary policy and highlighted the financing risks faced by eurozone sovereign governments in the absence of a credible financial firewall against contagion and self-fulfilling liquidity crises.
Fitch recognises the significant commitments made at the 9-10 December and previous EU Summits to enhance economic policy coordination so as to prevent a recurrence of the severe macro-financial imbalances that arose in the euro's first decade, as well as efforts to create a long-term framework for fiscal stability over the medium to long term. Fitch also anticipates that European leaders will make good on these commitments in the forthcoming 30 January summit. In addition, the decision to bring forward the creation of the European Stability Mechanism and increase the resources of the IMF, if implemented effectively, is a step towards enhancing the capacity of the eurozone to absorb adverse shocks, such as a disorderly Greek default, although such a shock is not the agency's expectation.
In Fitch's opinion, the eurozone crisis will only be resolved as and when there is broad economic recovery. It is evident that further substantial reforms of the governance of the eurozone will be required to secure economic and financial stability, including greater fiscal integration.
As previously noted, in the absence of greater clarity on the ultimate structure of a fundamentally reformed eurozone, the gradualist approach adopted by politicians to systemic reform will continue to be punctuated by episodes of severe financial volatility, entailing a significant economic and financial cost that erodes sovereign creditworthiness. It also means that a 'break-up' of the eurozone cannot be wholly discounted, although in Fitch's opinion the risk of such an outcome remains small. Fitch will continue to adopt a balanced and incremental approach to the rating of eurozone sovereign governments in recognition of the unprecedented nature of the systemic crisis and heightened uncertainty over the economic outlook for the region.
The Negative Outlooks on eight eurozone countries (the six sovereigns in this review along with 'AAA'-rated France and 'BB+'-rated Portugal) primarily reflect the risk that the crisis could intensify further. A deeper and more prolonged economic recession than currently anticipated would undermine political support for, and public acceptance of, fiscal austerity and structural reform. It would also have the potential to weaken the commitment of the economically and fiscally strongest eurozone countries, and the ECB, to providing necessary support to eurozone peers.
Fitch currently views that the sovereign credit profiles of the remaining eurozone sovereign governments (with the exception of 'CCC'-rated Greece, which has no Outlook assigned) continue to warrant Stable Outlooks, though each will be subject to active review through the course of the year. Fitch will consider on a country-by-country basis the extent to which the risks associated with the crisis, as well as the limitations on monetary and financial flexibility within the eurozone revealed by the crisis, may impact their long-term sovereign credit profiles
Fitch downgrades credit ratings of 5 eurozone nations including Italy, Spain, Belgium Friday, January 27, 10:30 AM
LONDON — U.S. ratings agency Fitch says it is downgrading the credit ratings for five European nations including leading economic heavyweights Italy and Spain.
The agency on Friday lowered credit ratings for the five nations by one notch and placed a negative outlook on all of them, as well as on Ireland. Those nations downgraded included Belgium, Cyprus, Italy, Slovenia and Spain.
Italy went down to A- credit rating while Spain was downgraded to A. Ireland’s BBB+ rating was affirmed but it also received a negative outlook.
Fitch Ratings blamed the revisions on “the marked deterioration in the economic outlook” in Europe and “the absence of a credible financial firewall against contagion and self-fulfilling liquidity crises.”
end
Spainish unemployment rises to a huge 22.9%. This nation is in serious trouble:
Spanish Unemployment Rises to 15-Year High of 22.9%: Economy
By Emma Ross-Thomas
(See EXT4 for more on Europe’s debt crisis.)
Jan. 27 (Bloomberg) -- Spain’s unemployment rate rose to 22.9 percent, the highest in 15 years, increasing pressure on Prime Minister Mariano Rajoy to deliver on his election pledge to create jobs in a shrinking economy.
The unemployment rate rose in the fourth quarter from 21.5 percent in the previous three months, the National Statistics Institute in Madrid said today. That’s more than twice the euro- region average and exceeds the median estimate of 22.2 percent in a Bloomberg survey of seven analysts.
Unemployment “is the main source of vulnerability of the Spanish economy and this is something that we hope to start to fix in the short term,” Economy Minister Luis de Guindos said today on Bloomberg Television in Davos, Switzerland. “We have to take a lot of decisions because there are some things that don’t work properly in the labor market in Spain.”
Spain is home to a third of the euro region’s unemployed, according to the European Union’s statistics office, which estimates that half of young Spaniards are out of work. The People’s Party government, which won the Nov. 20 election after a campaign focused on jobs, has promised to overhaul labor and wage rules in the next two weeks to prompt companies to hire.
The gloomy labor news comes as Rajoy prepares to attend a Jan. 30 European Union summit that will focus on reviving the region’s economy. EU Economic and Monetary Affairs Commissioner Olli Rehn said on Jan. 24 that a “moderate recession” is indicated in the first half as governments impose austerity measures to trim deficits and reduce their debt loads.
Austerity Measures
The Spanish economy contracted 0.3 percent in the fourth quarter, the Bank of Spain estimated on Jan. 23, and may shrink 1.5 percent this year, pushing the unemployment rate to 23.4 percent.
“In this environment it’s questionable whether massively increasing austerity measures is the right thing to do,” Ben May, a European economist at Capital Economics in London, said by telephone. “The key thing for the southern European economies, the only way you’re going to see growth, is if they aren’t forced to tighten fiscal policy significantly.”
The economic news from Europe isn’t all bad. Italy sold 11 billion euros ($14.5 billion) of Treasury bills today, meeting its target. The Rome-based Treasury sold 8 billion euros of 182- day bills at 1.969 percent, the lowest since May and down from 3.251 percent at the last auction of similar-maturity securities on Dec. 28.
U.S. Growth
This continued a streak of successful short-term debt sales by Italy, Portugal, Spain, France and Belgium, smoothed by 489 billion euros disbursed by the European Central Bank in unlimited three-year loans to euro-region banks.
European struggles to boost growth while governments cut spending contrasted with the U.S., where the economy probably expanded in the fourth quarter at the fastest pace of 2011 as consumer spending picked up and companies rebuilt stockpiles, economists said before a report today.
Gross domestic product grew at a 3 percent annual pace after advancing 1.8 percent in the previous three months, according to the median forecast of 79 economists surveyed by Bloomberg News. Household purchases, which account for about 70 percent of the economy, may have climbed 2.4 percent, the survey showed.
‘Long Slog’
“Confidence picked up to the point where consumers were in a better mood to spend, but not splurge,” said Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto. “This is a marked improvement from the growth we saw in the past four quarters. It’s a long slog, but we’re gradually improving.”
In Asia, Japan’s retail sales grew at the fastest pace in more than a year as a rebound in consumer spending propped up an economy reeling from the March earthquake and a deepening export slump.
Retail sales rose 2.5 percent in December from a year earlier, the Trade Ministry said in Tokyo today, the biggest advance since August 2010 and exceeding the 2.1 percent median forecast of 17 economists surveyed by Bloomberg News.
“Consumers are gradually regaining their appetite,” said Yoshimasa Maruyama, chief economist in Tokyo at Itochu Corp. “But we can’t rule out the possibility that declines in exports and production due to the global economic slowdown will weaken employment and incomes.”
--With assistance from John Fraher and Maryam Nemazee in Davos, Andy Sharp and Keiko Ujikane in Tokyo, Alex Kowalski in Washington Harumi Ichikura in London. Editors: Patrick G. Henry, James Hertling
To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
The big story yesterday was the big miss on the GDP number. It came in at a growth rate of 2.8% but in the number was a huge increase in the inventory levels. If you take ex inventories the GDP growth is .9% per annum. Thus the Federal debt is growing at 10% and GDP is growing at say 1%. The USA is also on a collision course of default:
(courtesy zero hedge)
Q4 GDP Misses Estimates, Inventory Stockpiling Accounts For 1.9% Of 2.8% Q4 US Economic Growth
The US economy grew at a 2.8% annualized pace in the supposedly blistering fourth quarter, yet the number was a disappointment not only in that it missed estimates of 3.0% (and far higher whisper numbers) but when one looks at the components, where a whopping 1.94% of the upside was attributable to a rise in inventories as restocking took place. And as everyone knows in this day and age a spike in inventories only leads to sub-cost dumping a few months later. In other words, the economy grew at a 0.8% pace ex inventories. Yet for all intents and purposes, this is considered "growth." Personal consumption was also weaker than expected coming in at 2.0% on estimates of 2.4%. Perhaps the only silver lining was Core PCE which came at 1.1% on expectations of 0.9%, however as discussed extensively before, this was driven by an unsustainable surge in credit-binge spending, primarily for iStore trinkets, and is hardly sustainable especially as the US Savings Rate fell to 3.7% in the fourth quarter, the lowest since Q4 2007. In other words Joe Sixpack is living large, especially since Joe Sixpack no longer has to pay his mortgage. Unfortunately this is a collision course with every economic principle and the next taxpayer funded bank bailout is only a matter of time. Bottom line: the artificial economic pick up is over and Q1 will see inventories actually detract from GDP: as a reminder Q1 2011 GDP subtracted 1.8% points from the final 0.4% GDP, and that was following only a 0.9% inventory rise in the preceding quarter, Q4 2010. And that is not even mentioning the tight fiscal situation no longer being a benefit to growth. Oh yes, and gas is no longer falling. And not to even mention that the GDP deflator mysteriously imploded from 2.6% to 0.4%: that's odd - not even edible ipads seem to be coming down in price. Which means that using a reslitic deflator would have resulted in virtually no GDP growth. To paraphrase Lester Burnham, "It's all downhill from here."
Finally a chart of the GDP Price Index. It just printed the third lowest since 1963.
Jim Sinclair’s Commentary
John Williams from ShadowStats.com has the latest stats you need to be aware of.
- Net of Involuntary Inventory Build-Up, GDP Growth Was 0.8% Instead of 2.8%
- Durable Goods Orders and New Home Sales Still Show Stagnation
- Fed’s New PCE Inflation Target Is Inconsistent with Plans for Ongoing Easing
- Durable Goods Orders and New Home Sales Still Show Stagnation
- Fed’s New PCE Inflation Target Is Inconsistent with Plans for Ongoing Easing
No. 415: Fourth-Quarter GDP, December Durable Goods and Home Sales
http://www.shadowstats.com
http://www.shadowstats.com
Jim Sinclair’s Commentary
The crisis at the rating agencies, according to JB Slear, our gold and silver delivery man, is that the rating agencies are running out of countries to downgrade. They might consider Upper Slovolia, the Vatican and maybe their own debt.
Tim Geithner Added To List Of Gold Bugs' Best Friends
- Ben Bernanke
- Ben Bernanke
- Debt Ceiling
- Gold Bugs
- Gross Domestic Product
- New Debt Issuance
- Tim Geithner
Yesterday we asked rhetorically if Ben Bernanke has become the gold bug's best friend courtesy of his FOMC announcement which led to a surge in gold, and a kneejerk whimper in stocks, which has now been completely wiped out courtesy of a subpar GDP number. Today we note that it is not only the Fed, but the US Treasury, and specifically the ravenous Mr. Geithner, who just got a green light to issue another $1.2 trillion in debt, and bring total debt to $16.4 trillion, which would still be 107% of today's GDP (which we don't see growing much if at all over the next year), that can be added to the list of best Goldbug friends. As the chart below demonstrates quite vividly, in addition to global and local monetary expansion, the price of gold tends to correlate quite well with the US debt ceiling. Which means that per yesterday's Senate 52-44 vote authorizing Timmy to go hog wild (which in turn means that Bernanke will have to step in and monetize much of this new debt issuance), the price of gold just got a green light for at least $250 in upside - the implied price just got raised to $1960. Of course, anyone who thinks the US will stop issuing debt there needs a brain MRI stat. Thank you Senate. And thank you Timmy. And, of course, thank you Ben.
Debt Ceiling 101, Santelli Sounds Off
In an effort to reach the angry mob, CNBC's Rick Santelli goes all Sesame Street on the numbers behind the US Debt Ceiling Rise. Focusing for two minutes on what this practically means for every man, woman, child, and politician, the shouting Chicagoan points out that when the US breaches this new limit then the world's entire population will be on the hook for $2,346 each (and $52,409 per US person).
Goldman On GDP: Warns Of Q1 Weakness; Autos Added 0.3% To GDP
Submitted by Tyler Durden on 01/27/2012 10:04 -0500
When commenting earlier on the GDP number we noted that the sellside brigade is about to start coming out with Q1 GDP "warnings" now that inventories will likely subtract between 0.5% and 1% from growth in the current quarter. Sure enough here is Goldman with the first warning saying that "The composition of growth was slightly negative for the Q1 outlook, in our view." That's not surprising. What is is that also according to Goldman, the auto sector contributed 0.3% to the overall GDP number. Which means that ex inventories and autos (sold courtesy of NINJA loans provided by Uncle Sam as discussed extensively every month with the release of the Fed's Consumer Credit number), the US economy grew a meaningless 0.5%!And this in the quarter when the US economy was supposed to be on a tear. We are now fairly concerned that there is an outright chance of economic contraction in Q1.
From Goldman:
BOTTOM LINE: Q4 GDP growth slightly worse than expected. Compared to our forecasts, details showed more inventory growth, less consumer spending and less business investment.
MAIN POINTS:
1. Real GDP increased by 2.8% (annualized) in Q4, a bit weaker than the consensus had expected. The composition of growth was slightly negative for the Q1 outlook, in our view.Growth in domestic final sales--GDP less inventories and net trade--was just +0.9%, in contrast to our expectations for +2.0%. The weakness reflected: (1) slightly weaker than expected consumer spending of +2.0%; (2) weaker than expected business fixed investment, reflecting a 7.2% decline in structures investment; and (3) a 12.5% contraction in federal government spending on national defense. National defense spending tends to be volatile, and we would therefore discount this component as a signal about the near-term growth outlook.The misses on consumer spending and business investment are arguably more meaningful.
1. Real GDP increased by 2.8% (annualized) in Q4, a bit weaker than the consensus had expected. The composition of growth was slightly negative for the Q1 outlook, in our view.Growth in domestic final sales--GDP less inventories and net trade--was just +0.9%, in contrast to our expectations for +2.0%. The weakness reflected: (1) slightly weaker than expected consumer spending of +2.0%; (2) weaker than expected business fixed investment, reflecting a 7.2% decline in structures investment; and (3) a 12.5% contraction in federal government spending on national defense. National defense spending tends to be volatile, and we would therefore discount this component as a signal about the near-term growth outlook.The misses on consumer spending and business investment are arguably more meaningful.
2. Among the other details, inventories increased by $56bn during the quarter, adding 1.9 percentage points (pp) to GDP growth--much more than we had expected. In contrast, net exports actually subtracted 0.1pp from growth. We had forecast a positive contribution from net trade of +0.5pp. GDP excluding motor vehicles increased by 2.5%, implying that the rebound in the auto sector added 0.3pp to growth.
3. The GDP price index increased by just 0.4% (annualized) in Q4, far below consensus expectations for a 1.9% increase. Nominal GDP growth was therefore quite soft at just +3.2%. The core PCE price index rose by 1.1%, slightly above consensus forecasts.
4 comments:
Gold: 41737.30
YEAH!!! I'm buying that private jet now! LOL... Might want to swap the 4 for a $... cheers for a great blog.
Thank you Harvey!
Kids, better buy that phyzz and PSLV while you still can. When the JPM 100-1 silver ponzi scheme blows up, and it will, silver will be known as unobtanium. When it hits $400, $33 will be a distant memory. Silver will be the Apple of this decade.
Selling physical siler rounds - 1 T.O. replica of 1933 $20 Gold piece in .999 fine Ag with insrciption on back of DFR (Department Federal Reserve) made by Silvertowne Mint (my die). 100 coins minimum.....example of buying 1,000 coins is $2 over spot plus postage. Contact Frederick Ellis, Reno, NV 702-421-8337 for brochure.
A better place to obtain re- inforcing links would be from brother john's blog roll.
Re-hashing Tyler's submittals is getting tiresome.
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