Gold closed up today by $5.80 to $1635.60 Silver fell by 42 cents to $33.08. The European summit failed to settle on the Greek crisis while the Portuguese debt problem continues to hound the EU. Gold and silver were much higher in the European session but as soon as the second London fix was in, the banking cartel raided again. The high frequency traders certainly gives momentum aid to the bankers. However buying surfaced half way through the session as gold rallied to enter positive territory. Silver will trade all over the board as very few investors play the silver comex. This is why the open interest in silver is trading in such a narrow channel. I urge all of you to please do not pay attention to the silver comex price. You may wish to take advantage of the low price by obtaining physical metal. Let us head over to the comex and assess trading.
The total comex gold OI fell by 3864 contracts from 430,159 to 426,295. The front delivery month of February for gold was published today by the CME and it showed a rather high 7300 contracts standing or roughly 22.7 tonnes. This is probably a good indicator of what will eventually stand. Blythe will enter with her fiat dollars and the bankers will steal gold to repatriate gold off shore but by the end of the month, this is what should be standing. Late last night, the CME sent down 893 contracts for servicing. The next big delivery month for gold is April and here the OI rose by 16,629 contracts to 230,626 contracts as this month is the recipient for most of the rollovers. The estimated volume at the gold comex today was modest at 148,730. The confirmed volume yesterday was approximately the same if you remove the rollover purchases and sales.
The total silver comex continues to trade in a narrow band coming in today at 102,642 for a gain of 757 contracts from yesterday. The front options expiry month of February saw its OI reveal a total of 178 contracts standing or 890,000 oz. The CME sent down a total of 114 notices for servicing for 570,000 oz. In 28 days, we will have first day notice for the March silver contract. Today, the OI for this month sits at 49,030 contracts almost identical to yesterday's level of 49,053. The estimated volume at the silver comex today was 47,235 compared to the confirmed volume yesterday of 34,224.
Now let us begin with February inventory movements opening balance:
Gold | Ounces |
Withdrawals from Dealers Inventory in oz | nil |
Withdrawals from Customer Inventory in oz | 30,442 |
Deposits to the Dealer Inventory in oz | nil |
Deposits to the Customer Inventory, in oz | 32,055 |
No of oz served (contracts) today | 893 (89300) |
No of oz to be served (notices) | 6407 (640700) |
Total monthly oz gold served (contracts) so far this month | 893 (89300) |
Total accumulative withdrawal of gold from the Dealers inventory this month | nil |
Total accumulative withdrawal of gold from the Customer inventory this month | 30,442 |
Today, we had no gold enter as a deposit to the dealer and no gold was withdrawn
We had the following deposit:
1. 32,055 oz enter the HSBC vault
We had the following withdrawal from the Scotia vault:
1. 30,442 oz.
we had two adjustments:
1. 98 oz of gold leased from the dealer to the customer at HSBC
2. 101 oz of gold removed from the dealer Scotia
and 102 oz entered the customer at Scotia.
The registered gold inventory rests tonight at 2.376 million oz or 73.9 tonnes of gold.
As we mentioned above, the CME sent down a total of 893 notices or 89300 oz of gold on first day notice.
The total of contracts standing appears to be 7300 contracts or 730,000 oz of gold. Thus the amount of gold that needs to be served upon is as follows:
7300 contracts total standing - 893 contracts served = 6407 contracts to be served upon or 640,700 oz.
Thus the total number of gold oz standing in this delivery month of February is as follows:
89300 (oz already served) + 640700 (oz to be served upon by Feb28.2012) = 730,000 oz or 22.7 tonnes of gold.
end
Now let us see inventory movements for silver and deliveries for the start of the February month:
| Silver | Ounces |
| Withdrawals from Dealers Inventory | nil |
| Withdrawals fromCustomer Inventory | 433,762 (Brinks,HSBC,Scotia) |
| Deposits to theDealer Inventory | nil |
| Deposits to the Customer Inventory | 996 (Delaware) |
| No of oz served (contracts) | 114 (570,000 oz) |
| No of oz to be served (notices) | 64 (320,000 oz) |
| Total monthly oz silver served (contracts) | 114 (570,000 oz) |
| Total accumulative withdrawal of silver from the Dealersinventory this month | nil |
| Total accumulative withdrawal of silver from the Customer inventory this month | 433,762 |
There were no silver deposits to the dealer and no silver withdrawals by the dealer.
We had the following customer deposit:
996 oz into Delaware
we had the following withdrawal by the customer:
1. 400,493 oz (Brinks)
2. 2003 oz (HSBC)
3. 31,236 oz (Scotia)
we had two adjustments;
1. There was another lease of 4935 oz from the dealer to the customer at HSBC
2. a tiny 1 oz of silver added to the customer at Scotia.
The registered silver remains at 36.52 million oz
The total of all silver rests tonight at 128.67 million oz.
The CME reported that the OI standing for the first of February is 178 contracts. A total of 114 notices were served late last night for 570,000 oz. To obtain what is left to be served upon, I take the OI standing
178 and subtract out this morning's deliveries (114) which leaves us with 64 notices or 320,000 oz left to be served upon.
Thus the total number of silver oz standing in this non delivery month is as follows:
570,000 oz (served) + 320,000 oz (to be served upon ) = 890,000 oz
my bet will be that this level increases as the month progresses as many physical entities are struggling to get supplies. Let us see how this plays out.
end.
Let us now proceed to our ETF's SLV and GLD and then our physical gold and silver funds:
Sprott and Central Fund of Canada.
The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.
Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.
Jan 31. 2012:
Total Gold in Trust
Tonnes:1,271.09
Ounces:40,866,777.14
Value US$:71,245,734,720.99
JAN 30.2012
TOTAL GOLD IN TRUST
Tonnes:1,271.09
Ounces:40,866,777.14
Value US$:70,633,511,714.31
Sprott and Central Fund of Canada.
The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.
Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.
Jan 31. 2012:
Total Gold in Trust
Tonnes:1,271.09
Ounces:40,866,777.14
Value US$:71,245,734,720.99
JAN 30.2012
TOTAL GOLD IN TRUST
Tonnes:1,271.09
Ounces:40,866,777.14
Value US$:70,633,511,714.31
Sprott and Central Fund of Canada.
The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.
Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.
Jan 31. 2012:
Total Gold in Trust
Tonnes:1,271.09
Ounces:40,866,777.14
Value US$:71,245,734,720.99
JAN 30.2012
TOTAL GOLD IN TRUST
Tonnes:1,271.09
Ounces:40,866,777.14
Value US$:70,633,511,714.31
we neither gained nor lost any gold at the GLD today. ( I take the data as of 6 pm
est)
And now for silver Jan 31 2012:
Ounces of Silver in Trust 308,935,049.700 Tonnes of Silver in Trust 
9,608.95
Jan 20.2012:
Ounces of Silver in Trust 305,776,244.700 Tonnes of Silver in Trust 9,510.70
we gained 3.159 million oz silver today in the SLV. This has been the first addition in almost 2 weeks.
end.
And now for our premiums to NAV for the funds I follow:
we neither gained nor lost any gold at the GLD today. ( I take the data as of 6 pm
est)
And now for silver Jan 31 2012:
Ounces of Silver in Trust 308,935,049.700 Tonnes of Silver in Trust 9,608.95
Jan 20.2012:
Ounces of Silver in Trust 305,776,244.700 Tonnes of Silver in Trust 9,510.70
we gained 3.159 million oz silver today in the SLV. This has been the first addition in almost 2 weeks.
end.
And now for our premiums to NAV for the funds I follow:
we neither gained nor lost any gold at the GLD today. ( I take the data as of 6 pm
est)
est)
And now for silver Jan 31 2012:
Jan 20.2012:
| Ounces of Silver in Trust | 308,935,049.700 |
| Tonnes of Silver in Trust | 9,608.95 |
Jan 20.2012:
| Ounces of Silver in Trust | 305,776,244.700 |
| Tonnes of Silver in Trust | 9,510.70 |
we gained 3.159 million oz silver today in the SLV. This has been the first addition in almost 2 weeks.
end.
And now for our premiums to NAV for the funds I follow:
1. Central Fund of Canada: traded to a positive 3.6 percent to NAV in usa funds and a positive 3.3% to NAV for Cdn funds. ( Jan 31 2012.).2. Sprott silver fund (PSLV): Premium to NAV fell to 8.32.% to NAV Jan 31 2012:
3. Sprott gold fund (PHYS): premium to NAV fell to 3.47% positive to NAV Jan 31. 2012).
It is great to see that the Sprott silver fund has returned to a decent premium.Also notice that the central fund of Canada is also returning to a good premium to NAV.
The Sprott gold premium fell due to Sprott going after more gold.
1. Central Fund of Canada: traded to a positive 3.6 percent to NAV in usa funds and a positive 3.3% to NAV for Cdn funds. ( Jan 31 2012.).2. Sprott silver fund (PSLV): Premium to NAV fell to 8.32.% to NAV Jan 31 2012:
3. Sprott gold fund (PHYS): premium to NAV fell to 3.47% positive to NAV Jan 31. 2012).
It is great to see that the Sprott silver fund has returned to a decent premium.Also notice that the central fund of Canada is also returning to a good premium to NAV.
The Sprott gold premium fell due to Sprott going after more gold.
1. Central Fund of Canada: traded to a positive 3.6 percent to NAV in usa funds and a positive 3.3% to NAV for Cdn funds. ( Jan 31 2012.).
2. Sprott silver fund (PSLV): Premium to NAV fell to 8.32.% to NAV Jan 31 2012:
3. Sprott gold fund (PHYS): premium to NAV fell to 3.47% positive to NAV Jan 31. 2012).
3. Sprott gold fund (PHYS): premium to NAV fell to 3.47% positive to NAV Jan 31. 2012).
It is great to see that the Sprott silver fund has returned to a decent premium.
Also notice that the central fund of Canada is also returning to a good premium to NAV.
The Sprott gold premium fell due to Sprott going after more gold.
The Sprott gold premium fell due to Sprott going after more gold.
end
Now let us see some of the major stories which will effect the price of gold and silver. The first big story comes from Venezuela:
Venezuela received its last shipment of gold, 14 tonnes which arrived by plane. Earlier this month Chavez stated that he would keep 15 tonnes of gold for "financial transactions" outside the country. Today the central banker to Venezuela announced that 50 tonnes will be kept in a foreign institution. No doubt that would be the Bank of England. The B. of E held 99 tonnes originally for Venezuela. It looks like the B. of E coughed up 40 tonnes of gold to repatriate Venezuela's gold.
(courtesy Bloomberg).
Venezuela Receives Last Shipment of Repatriated Gold Bars
By Nathan Crooks - Jan 30, 2012 7:08 PM ET
Venezuela today received the last shipment of gold bars in an operation that repatriated 160 tons of the South American country’s reserves of the metal held abroad, said Nelson Merentes, president of the country’s central bank.
Fourteen tons of gold arrived at the Caracas airport today on a flight from Europe, Merentes said. The gold bars were transported in a caravan, broadcast on state television, to vaults at the central bank where street banners proclaimed “Mission Complete.”
“In two months, we’ve brought 160 tons of gold valued at around $9 billion back to Venezuela,” Merentes said on state television from the Caracas airport. “Today marks the last day of the mission.”
President Hugo Chavez in August ordered the central bank to repatriate the country’s gold reserves as a safeguard against instability in financial markets. The South American country, which has the 15th-largest holdings in the world, according to the World Gold Council, held 211 tons of its 365 tons of gold reserves in U.S., European and Canadian banks as of August.
Venezuela will leave about 15 percent of its reserves, or around 50 tons, outside of Venezuela for financial transactions, Merentes said today. He said on Jan. 3 that the country would leave 15 tons of gold in banks outside the country.
A central bank report released in August showed that Venezuela held gold reserves with theBank of England, JPMorgan Chase & Co., Barclays Plc and Standard Chartered Plc among other banks.
“This was the largest type of operation to transport this type of metal in the last fifteen years,” said Merentes. “The repatriation of our gold was an act of financial prudence and sovereignty.”
To contact the reporter on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net
To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net
end.
Zero hedge discusses the Venezuela repatriation with Sprott's announcement that he is going after gold for his gold fund PHYS:
(courtesy zero hedge)
Venezuela Completes Repatriation Of 160 Tons Of Gold, Gold At 2012 Highs
Slowly but surely, ever more physical gold is being removed from circulation in conventional channels. Yesterday, it was Sprott who a week after doing a follow on offering in his PSLV ETF (i.e., adding more physical), reported that he was going to buy an as of yet undisclosed amount of gold for PHYS. This came just as Venezuela completed the rapatriation of its gold from European vaults, which means that it is substantially ahead of all of its other international peers who confidently continue to hold their gold stashed away in vaults situated primarily in London and NY. From Bloomberg: "Venezuela today received the last shipment of gold bars in an operation that repatriated 160 tons of the South American country’s reserves of the metal held abroad, said Nelson Merentes, president of the country’s central bank. Fourteen tons of gold arrived at the Caracas airport today on a flight from Europe, Merentes said. The gold bars were transported in a caravan, broadcast on state television, to vaults at the central bank where street banners proclaimed “Mission Complete.”" So now that the defections in the golden game theory equilibrium have commenced, the question is: who is next?
More:
“In two months, we’ve brought 160 tons of gold valued at around $9 billion back to Venezuela,” Merentes said on state television from the Caracas airport. “Today marks the last day of the mission.”
President Hugo Chavez in August ordered the central bank to repatriate the country’s gold reserves as a safeguard against instability in financial markets. The South American country, which has the 15th-largest holdings in the world, according to the World Gold Council, held 211 tons of its 365 tons of gold reserves in U.S., European and Canadian banks as of August.
Venezuela will leave about 15 percent of its reserves, or around 50 tons, outside of Venezuela for financial transactions, Merentes said today. He said on Jan. 3 that the country would leave 15 tons of gold in banks outside the country.
A central bank report released in August showed that Venezuela held gold reserves with the Bank of England, JPMorgan Chase & Co., Barclays Plc and Standard Chartered Plc among other banks.
“This was the largest type of operation to transport this type of metal in the last fifteen years,” said Merentes. “The repatriation of our gold was an act of financial prudence and sovereignty.”
How peculiar: a central banker really doing the prudent thing and betting on his own hard assets. And in Venezuela of all places.
Gold spikes on this, and other, news to $1745 - fresh 2012 highs, and about $170 below all time highs.
In this report, Syrians seeing their currency plunge in value are now flocking to purchase gold:
(courtesy, Michael Peel/ London's Financial times
Syrians buy up gold as currency plunges
By Michael Peel in Damascus
Rasha, a young Syrian accountant, got married six months ago and now spends her entire $300 monthly pay on just one thing: gold.She and her husband live off his earnings and put hers into a precious metal that seems to them the safest piggy bank as the country’s political troubles deepen and its currency plunges.
"I realised gold’s value because of the crisis," she said, adding that she is now thinking of using a $1,000 cash wedding gift to buy a gold bar. " I advise you to buy gold to save your money: it’s very good for you."
Beneath the wedding necklaces cascading from the shop windows in Damascus’s jewellery souk, the piles of tiny tablets of unworked so-called "neutral gold" show that stories like Rasha’s have become increasingly common during Syria’s ten-month uprising. These one troy ounce Swiss bars, etched with a motif of a beautiful woman with coins pouring from her long coiled hair, are a beguiling currency to people in a country with a historic love of gold and a present-day fear about the future.
"Customers are buying ounces, pounds, blocks of gold," said a gold merchant who asked to be identified as Abu Sami and claimed he saw a 30-fold spike in demand at the start of the crisis. "They are not looking for artistically made gold – only for pure gold."Other gold traders agreed sales of neutral gold shot up after protests in a number of cities and towns last year were followed by a lethal crackdown by the authorities and worsening violence that has left an estimated 5,000 or more people dead. The regime of President Bashar al-Assad says it is fighting an insurrection by armed terrorist gangs, and points to the emergence of militarised elements in the opposition as a justification for what it terms a "security solution" to the crisis.
Some gold traders say that while a number of savers have already changed their money into gold, new – albeit more modest – demand is still being triggered by fresh bouts of worry linked to political events. Elie, a merchant in the old city, said that – having sold 350g of neutral gold two weeks ago – he offloaded a further 400g last Monday alone, after the Arab League demanded Mr Assad hand power to a government of national unity.
"It all depends on the news," he said, in an interview punctuated by calls from potential customers. "Not only the political news but the economic news too."
Syrians’ latest yearning for gold is a deepening of longstanding habits of keeping savings from their cash-based economy in a visible, durable and portable form. Some people link this to both an aesthetic liking for the metal and to past periods of political uncertainty in a country that is at the heart of the Middle East and has endured the boots of Romans, Christian crusaders and Ottomans over the centuries.
A further driver to the recent enthusiasm for neutral gold has been the plunge in the Syrian pound from 45 to the dollar to over 70 on the black market, which has led people to seek assets linked to hard currency, including dollars themselves. No one – including the Damascus goldsmith workers’ syndicate – offers official data on how much demand for gold has increased but government figures accept that hoarding is going on.
"Yes, its happening, not widescale but its happening," said Mohamed Nedal Alchaar, economy minister, in an interview last week. "Its scary to buy gold today because prices are unstable to start with."
Mr Alchaar’s remarks hint at the potential for a nasty ending for the crisis gold bugs. Merchants insist the trend isn’t great for them because the profit margins on neutral gold are small and demand for worked jewellery has fallen at the same time.
One shopkeeper, who asked not to be named, picked out a 75,000 Syrian pound gold and zirconium necklace and commented ruefully that the craft was worth as much as the gold. "In the old time, people used to buy six or seven rings for wedding ceremonies," he said. "Now they are buying only one or two."
As for customers, they can do little but try to stay optimistic that the international gold price rise seen during the Syrian uprising – from about $1,400 a troy ounce in mid-March to about $1,730 a troy ounce now – doesn’t go into reverse.
"Gold never loses its value," insisted Rasha, adding with a wry laugh: "It never goes down – ever."Copyright The Financial Times Limited 2012. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
http://www.ft.com/intl/cms/s/0/3941741c-481f-11e1-a4e5-00144feabdc0.html#axzz1l2ZVKYHX
-END-
January sales of American silver eagles has now surpassed 6 million oz.
The USA through its mines produces around 35million oz. If you include Canada's production of 20 million oz we have a total of 55 million oz of production between these two nations. Canada maples leafs have sales of around 25 million oz of silver, with the USA at around 40 million oz, so together with the USA we have 65 million oz of sales against production of 55 million oz. Thus the USA/Canada must import at least 10 million oz to serve the Mints, the Comex in the USA , jewellers and hoarders:
courtesy USA MIN data:
end
I want all of you to listen to the following Jim Sinclair tape with respect to the Independent Swaps and Dealer Association and its power (the ISDA).
The entire 30 minutes is devoted to this subject, something that I have been trying to convey to you. The ISDA basically determines whether a credit event as occurred and this association is controlled by the 5 major banks. What is also scary is that these 5 major USA banks has underwritten 97% of all the credit default swaps on sovereigns and on major equities.
Obviously, these banks cannot payout if a credit default has been determined and so they will basically state that a voluntary haircut is not an event. This causes players who bought the insurance to default due to the fact that they bought the sovereigns with the CDS as backup.
Now they get a haircut on the bonds with no CDS payout which will bring them down like MFGlobal. The USA will provide many liquidity into the system to prevent contagion. The 5 major banks have been declaring profits on the massive credit default swaps underwritten.
This is why the Greek situation is so important.
(courtesy Jim Sinclair and the Ellis Martin Report)
January 30, 2012, at 10:05 pm
by Jim Sinclair in the category Ellis Martin Report |
Print This Post | 
Email This Post
by Jim Sinclair in the category Ellis Martin Report |
Print This Post | Email This PostDear CIGAs,
The following interview with Ellis Martin of www.EllisMartinReport.com covers in detail the impending undeclared default of 5 major US banks this week by the International Swaps and Derivatives Association.
This even has the potential to cause a second financial crisis that would require significant financial intervention. If you have time to spare, listen to this interview. If you don’t have time to spare, listen to it anyway.
January 30, 2012, at 7:37 pm
by Jim Sinclair in the category Ellis Martin Report | Print This Post | Email This Post
by Jim Sinclair in the category Ellis Martin Report |
Print This Post | Email This PostMy Dear Friends,
I was interviewed today concerning the most powerful body in the financial world that now holds in its hands the near future of all markets, from currencies to commodities, based on a single edict to be given.
The interview is being processed and should be posted here later this evening.
This organization supersedes all governments and central banks today in terms of the financial power they edict. This organization can have a greater impact on your pocketbook than the FASB did when they killed "true value" accounting.
This body is made up of the key players of the five largest banks in the USA and other countries. This body by their actions this week will guarantee QE to infinity.
This is relevant to all your assets, yes all. If you have the time listen to it please. If you don’t have the time listen to it please. If you don’t listen to it do not blame me when all hell breaks loose six months from now.
Not one word about this body was on the airwaves today, yet this group by a simple decision rules the financial plant. They will be making this edict in just a few days. They have to do it again this year. It is then that you know what will hit the fan.
I feel this is it for jsmineset.com tonight. I do not want to write another word and detract from the revelations you will hear.
Your financial future, even if you have never heard of them, is in this organization’s hands. Check in later for the interview. If you don’t check in your finances might just check out.
Please remember you have been informed of this impending edict as a service to the community.
Respectfully,
Jim
Jim
for the audio portion see www.jsmineset.com
scroll down to Ellis Martin interview.
or www.ellismartinreport.com
Dave from Denver discusses the Jim Sinclair audio on the ISDA subject:
Tuesday, January 31, 2012
So Be It
"Fiat:" an arbitrary decree or pronouncement, especially by a person or group of persons having absolute authority to enforce it: The king ruled by fiat - dictionary.com
The big topic of discussion in the cyberworld today was an interview with Jim Sinclair, who discussed an imminent ruling by ISDA - the board of OTC derivatives rules and enforcement - which would pronounce that any massive haircut in value taken by Greek bondholders would not constitute an event of default. This is not new information, as it was reported as far back as October that ISDA would make this declaration once the a Greek restructuring occurred. And it will occur despite the poker game going on, because if Greece defaults, then ISDA will have its fiat powers stripped by market forces when Greek sovereign paper goes offered without any bid (i.e. worthless). You can hear Sinclair's interview at http://www.jsmineset.com/
What bothered me was that Sinclair made ISDA sound like some dark, mysterious force out there that was largely hidden but imbued with supernatural powers. ISDA has been around forever. I used ISDA documents when we would engage in high yield bond swaps with funds like Harvard Investments in order to hide positions from the back office risk Nazis at year-end. It was de rigeur back then. It's rampant beyond control now.
The problem with ISDA is that it is governed by the same banks that stand to benefit the most from ISDA rule declarations: the big banks that have been declared by fiat as "too big to fail" by Team Bernanke/Obama (really, just Team Bernanke, but Obama reads the script off the teleprompter like a good circus animal).
So, in the Greek bond situation, what you have is a situation where big hedge funds and money market funds have loaded up the boat with short term Greek sovereign paper at high yields (and Italian/Spanish/Portuguese, etc), and bought OTC derivative credit default protection in the even of default. The way this works, if Greece is unable repay its bonds at a minimum of some small discount to face value, or if Greece defaults outright, the issuer of the credit derivative - the big bank in most cases - has to make the investor whole. On $10's of billions in Greek debt with credit protection issued, it can get expensive for the big banks.
To make matters even more interesting, there has been been outright speculation on Greek debt in which a hedge fund will bet on a Greek default by buying a fancy derivative from a big bank such that the hedge fund doesn't even have to own any bonds and it will still get paid. It's like buying a put option on a stock betting it will go down without actually owning the stock. Again, in the event that Greece has to "restructure" its debt at 30-50 cents on the dollar, or outright defaults, the big banks would have to cough up $10's of billions in "default insurance" payments.
But there's a way around this. It's called rule by fiat (see the above definition of "fiat"). Since the banks control the rules and procedures of ISDA, if they determine that a Greek restructuring which requires a 50-70% haircut on the debt held by investors is not really a "default" event, so be it. The Greek bond investor will be coerced into receiving a new bond that will be in the range of 30-50% of the face value of the original bond, thereby getting hammered on its investment, and the big bank who got paid a handsome premium to underwrite default insurance on that paper will get to keep the money it was paid and it will not have to make obligatory restorative payments to the investor. Isn't it good to be King in a completely fiat system?
The problem with the fiat currency and financial system is that eventually it turns into one giant Ponzi scheme. The politically/socially correct term for this would be "a fractional banking and financial system." It's a system based on "full faith and trust." When the trustworthiness of this system starts to fade, investors will start to move "fiat" money into hard asset currency - that is, gold and silver, the world's oldest and most trustworthy hard asset currency. It's happening now, only it's a lot more prevalent in the eastern hemisphere countries like China, Russia and India. In our own backyard, Venezuela demonstrated this movement by recalling nearly 100% of its sovereign gold that was being "safeguarded" by big banks in NY, London and Zurich: LINK Hugo Chavez, love him or hate him, is one smart hombre.
Gold and silver are on the cusp of another big explosive move higher. James Turk in his latest commentary on King World News said it best:
What bothered me was that Sinclair made ISDA sound like some dark, mysterious force out there that was largely hidden but imbued with supernatural powers. ISDA has been around forever. I used ISDA documents when we would engage in high yield bond swaps with funds like Harvard Investments in order to hide positions from the back office risk Nazis at year-end. It was de rigeur back then. It's rampant beyond control now.
The problem with ISDA is that it is governed by the same banks that stand to benefit the most from ISDA rule declarations: the big banks that have been declared by fiat as "too big to fail" by Team Bernanke/Obama (really, just Team Bernanke, but Obama reads the script off the teleprompter like a good circus animal).
So, in the Greek bond situation, what you have is a situation where big hedge funds and money market funds have loaded up the boat with short term Greek sovereign paper at high yields (and Italian/Spanish/Portuguese, etc), and bought OTC derivative credit default protection in the even of default. The way this works, if Greece is unable repay its bonds at a minimum of some small discount to face value, or if Greece defaults outright, the issuer of the credit derivative - the big bank in most cases - has to make the investor whole. On $10's of billions in Greek debt with credit protection issued, it can get expensive for the big banks.
To make matters even more interesting, there has been been outright speculation on Greek debt in which a hedge fund will bet on a Greek default by buying a fancy derivative from a big bank such that the hedge fund doesn't even have to own any bonds and it will still get paid. It's like buying a put option on a stock betting it will go down without actually owning the stock. Again, in the event that Greece has to "restructure" its debt at 30-50 cents on the dollar, or outright defaults, the big banks would have to cough up $10's of billions in "default insurance" payments.
But there's a way around this. It's called rule by fiat (see the above definition of "fiat"). Since the banks control the rules and procedures of ISDA, if they determine that a Greek restructuring which requires a 50-70% haircut on the debt held by investors is not really a "default" event, so be it. The Greek bond investor will be coerced into receiving a new bond that will be in the range of 30-50% of the face value of the original bond, thereby getting hammered on its investment, and the big bank who got paid a handsome premium to underwrite default insurance on that paper will get to keep the money it was paid and it will not have to make obligatory restorative payments to the investor. Isn't it good to be King in a completely fiat system?
The problem with the fiat currency and financial system is that eventually it turns into one giant Ponzi scheme. The politically/socially correct term for this would be "a fractional banking and financial system." It's a system based on "full faith and trust." When the trustworthiness of this system starts to fade, investors will start to move "fiat" money into hard asset currency - that is, gold and silver, the world's oldest and most trustworthy hard asset currency. It's happening now, only it's a lot more prevalent in the eastern hemisphere countries like China, Russia and India. In our own backyard, Venezuela demonstrated this movement by recalling nearly 100% of its sovereign gold that was being "safeguarded" by big banks in NY, London and Zurich: LINK Hugo Chavez, love him or hate him, is one smart hombre.
Gold and silver are on the cusp of another big explosive move higher. James Turk in his latest commentary on King World News said it best:
Regarding gold, I don’t think people realize that gold could explode from current levels. I think the potential for explosion is there and what you are going to see is not only silver on the move, but you will also see gold smash through the $2,000 level
Here's the LINK. If you don't understand why Turk makes these comments, re-read my commentary above. If you still don't understand why, so be it. Unfortunately, by the time the masses understand this, gold and silver will likely be too high in terms of fiat currency price for them to buy enough to matter. It is what it is...
end
(courtesy Bloomberg)
EU Nears Greek Confrontation Amid Fiscal Pact
By James G. Neuger and Jonathan Stearns - Jan 31, 2012 3:50 AM ET
European governments moved toward a confrontation over a second rescue package for Greece, just as a dimming fiscal outlook inPortugal opened a new front in the debt crisis.
Bargaining with Greece over a debt writedown and its economic management came as European Union leaders signed off on key planks of the strategy to end the financial crisis. They agreed to accelerate the setup of a full-time 500 billion-euro ($659 billion) rescue fund and endorsed a German-inspired deficit-control treaty. Stocks and the euro rose.
Euro leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole and German Chancellor Angela Merkel voicing frustration with the Athens government’s failure to carry out an economic makeover.
“Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”
The summit was the 16th in the two years since the Greek debt emergency provoked a Europe-wide drama, leading to unprecedented aid packages for Greece, Ireland and Portugal and shattering European faith that the common currency was indestructible.
After the gathering of leaders, EU President Herman Van Rompuyconvened a smaller group, including Greek Prime Minister Lucas Papademos and European Central Bank Executive Board member Joerg Asmussen, to weigh the next steps on Greece.
‘On Track’
Van Rompuy spoke of the need “to put the current program back on track” and said finance ministers will try to hammer out the follow-up plan -- in the works since July -- in coming days. Greece is counting on aid to meet a 14.5 billion-euro bond payment on March 20 to escape default.
“The timeline is tight, but we are absolutely focused on the target of bringing the negotiations to a successful conclusion by the end of the week,” Papademos told reporters at 1:30 a.m. today.
The Euro Stoxx 50 Index advanced as much as 0.9 percent today and the euro strengthened 0.3 percent to $1.3180 at 9:35 a.m. in Brussels, its sixth gain in seven days.
Yet, Papademos said “some difficulties” beset the debt- swap talks and hinted that donor governments may have to put up more money.
Merkel’s comments indicated that governments are loath to boost an October offer of 130 billion euros of loans in a second package, forcing investors to absorb net-present-value losses on Greek bonds that go beyond the 69 percent now on the table.
Greek Feuds
In turn, Greece’s feuding political parties face pressure to deliver more savings and to verify in writing that the austerity program will be carried out, no matter who wins elections to replace Papademos’s interim Cabinet.
Germany’s proposal for an EU-appointed overseer of the Greek budget prompted consternation in Athens and led to a rejection by other European governments that warned against stigmatizing Greece.
“Greece is a sovereign nation and must enact the promises it’s made,” said French President Nicolas Sarkozy. “Surveillance of Greece’s progress is normal, but there was never any question of putting Greece under guardianship.”
Investors were seized by fresh doubts about the economic health of Portugal. Concern that the EU would break a promise not to restructure Portugal’s debt pushed 10-year yields up by 2.17 percentage points to 17.39 percent yesterday, a euro-era record. The bonds rebounded today, sending the yield down to 16.89 percent.
‘Sustainable’ Portugal
Portugal’s debt has been judged “perfectly sustainable” by the EU and International Monetary Fund, Prime Minister Pedro Passos Coelhosaid. Asked if there is a risk of writedowns on Portuguese bonds, he said: “No, there is not.”
The Greek standoff and Portugal’s tottering market punctured the start-of-year crisis respite that had been nourished by 489 billion euros in three-year loans infused by the ECB into the banking system.
ECB loans enabled most bond markets to withstand the impact of credit rating downgrades by Standard & Poor’s. Ten-year yields in Italy, with debt estimated at 120.5 percent of gross domestic product in 2011, last week dipped below 6 percent for the first time since Dec. 6.
Italian Cash
While Italian yields went back up to 6.09 percent yesterday, the government stockpiled cash for the year’s biggest bond redemption by selling 7.5 billion euros of debt, close to its maximum target. The yield was 6.02 percent today.
Leaders completed the fiscal-discipline treaty, which speeds sanctions on high-deficit states and requires euro countries to anchor balanced-budget rules in national law. Eight countries outside the euro backed the pact, which was shunned by Britain and the Czech Republic.
ECB President Mario Draghi said the fiscal compact “certainly will strengthen confidence in the euro area,” calling it “the first step toward the fiscal union.”
One potential hiccup emerged when Sarkozy said that ratification of the fiscal treaty in France will likely be delayed until after elections in April and May that polls show he will lose. The front-runner, Socialist Francois Hollande, has vowed to renegotiate the treaty, saying it is biased toward austerity and would put an additional squeeze on the economy.
With an eye toward Ireland, Germany pushed through provisions that only countries ratifying the fiscal compact will be eligible for aid from the permanent bailout fund, the European Stability Mechanism, now set to go into operation on July 1, a year ahead of schedule.
Bond Clauses
The permanent fund requires governments to put collective action clauses into new bond issues as of January 2013, five months later than previously planned. The clauses are common in U.S. and U.K. law, enabling a debt restructuring to go ahead by a vote of a supermajority of bondholders, denying a veto right to solitary investors.
“Collective action clauses shall be included, as of 1 January 2013, in all new euro area government securities, with maturity above one year, in a way which ensures that their legal impact is identical,” according to the text.
While the clauses leave the door open for restructurings, the fund’s statutes deem write-offs “exceptional” and subject to IMF standards, the text says. It tones down language on “private sector involvement” -- code for forcing bondholders to take losses on governments that fall too deeply into debt.
Leaders sidestepped mounting pressure to raise the ceiling on rescue lending from 500 billion euros once the permanent fund goes on line, sticking with plans to handle that question at the next summit on March 1-2.
Luxembourg Prime Minister Jean-Claude Juncker, Europe’s longest-serving leader and the head of the panel of euro finance ministers, summed up two years of crisis-fighting: “If I wasn’t optimistic you could have reported about my suicide months ago.”
To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Jonathan Stearns in Brussels at jstearns2@bloomberg.net
end.
From the UKTelegraph//author, James Kirkup
We’re on the brink, warns Greece ahead of EU summit
9:50PM GMT 29 Jan 2012
613 CommentsLucas Papademos said that unless the country’s international backers agreed to a new bail-out, Greece would be unable to pay off its loans and be forced out of the eurozone.
EU leaders will meet in Brussels tonight amid growing concern that Greece will fail to implement the austerity measures its international backers are demanding as a condition of the latest package of financial support. Without that bail-out, Greece will be unable to repay €15 billion of loans due in March.
Amid doubts about Greek willingness to cut spending and raise taxes, Germany has suggested that a European commissioner should take effective control of Greek fiscal policy to ensure the country accepts austerity. Evangelos Venizelos, the Greek finance minister, rejected that plan, saying it would undermine Greece’s “national identity and dignity”.
Philipp Rösler, the German economy minister, insisted that some external control over Greek policies had to be considered. “If the Greeks fail to do this themselves, the leadership and monitoring must come in a stronger way from outside, for example via the EU,” he said.
Iain Duncan Smith, the Work and Pensions Secretary, suggested that the German plan was a threat to European democracy.
end.
Now it looks like the new coupon will fall from 4% down to 3.6%. This makes the recovery
expected to around 21 cents, exactly where the bond is trading right now. The bond holders
would rather wait for litigation than to expect this deal:
(zero hedge)
Greece Releases New Proposal With Even Greater Losses To
Creditors
The most recent addition to the "I am Jack's complete lack of surprise" pile comes from Reuters, which reports that the latest out of Greece is a proposal for even greater cuts for creditors than previously expected. From Reuters: "Greece's private sector creditors could take a loss of more than 70 percent in a planned debt swap, Finance Minister Evangelos Venizelos said on Tuesday. "There is a very serious discussion based on new facts. We are talking about a PSI much greater than the original," he told lawmakers, referring to private sector involvement in the deal. "We are talking about a haircut on the net present value exceeding 70 percent," he said."
What this means, simply, is that when calculating the NPV of the post-reorg bond, the Yield to Maturity is now less than 30%, and thus is likely going to have a cash coupon of about 3.6%. This is relevant because as is known, one component of the creditor recovery is receipt of EFSF bill in lieu of cash to the tune of 15 cents of notional, and the balance, at least until this point, would have been a 35% yielding piece of post-reorg paper (for a 50 cent total cut as agreed upon in the October bailout). That was the case when the cash coupon was 4%. Going forward, and assuming a 3.6% cash coupon, the return on this fresh start debt drops substantially. Needless to say, creditors will almost certainly balk at this, because when it comes to calculating real yield, most are expecting a roughly 90% recovery at best on the EFSF strip (as every fund will scramble to dump their paper), so 14 cents on the total, and then funds are also hoping for at least 1 year of current yield, i.e., cash coupon. It becomes iffy around the 2 year mark, as it is a roughly 90% probability that Greece will file for bankruptcy yet again just after the first coupon is paid, at least according to hedge fund return calculations. It also means that nobody gives a rats ass about the IRR (as nobody expect to get post-reorg bond principal at maturity), and all are solely concerned with what the cash coupon will be that they can collect for one, max two years.
Which explains why at 14 cents + 3.6 + 3.6 or 21.2, which is where Greek paper trades currently, there is absolutely no upside for creditors, and the only real upside option is to hold out for sovereign debt litigation, where the recovery could be as high as par. Expect no deal to come out of this, despite what the IFF, which now likely represents just Deutsche Bank and SocGen, says. So much for that upper hand.
end
restructuring stalls:
(courtesy zero hedge)
Greece Calls Crisis Meeting As Debt Talks Stall
- European Union
- Eurozone
- Fail
- Greece
- Gross Domestic Product
- International Monetary Fund
- Moral Hazard
- Nominal GDP
- Unemployment
No sooner have the supposedly close (and yet so far away) Greek debt negotiations increased haircuts but addeddesperate incentives such as GDP Warrants, then The Guardian is reporting that Greek PM Papademos is calling crisis meetings with Greek political party leaders as tensions are clearly growing between Greeks and their EU overlords/partners. The 'increasingly intransigent' negotiating team sent by Brussels is demanding even more severe austerity measures before sanctioning the new bailout funds. The incredulity at the complete mis-communication and increasing bifurcation is nowhere more clear than the divergence between FinMin Venizelos saying "We are one step [away]. I would say it is a formality away from finalizing (the debt relief agreement)," and the disbelief by Greek MPs that "The troika doesn't appear to be willing to accept any concessions whatsoever on reducing the minimum wage and scrapping bonuses," said the government aide. "No political party is willing to move either, saying wage cuts are a red line they are simply not going to cross. You tell me how this is going to be resolved. We have no idea and we're very
worried."
worried."
Greek officials launched a vociferous behind the scenes attack on European Union and International Monetary Fund negotiators as talks in Athens over the country's mounting debts appeared to stall.
Prime minister Lucas Papademos told aides that a crisis meeting of party leaders would be called as early as Thursday to thrash out a response to an increasingly intransigent negotiating team sent by Brussels, which is demanding severe austerity measures before sanctioning a further €130bn (£109bn) of bailout funds.
...
"We understand how difficult it is for MPs who are now faced with the hard option of voting through another round of austerity measures but the stakes are very high and one of our greatest concerns is that they don't understand just how high they are."
...
However, finance minister Evangelos Venizelos put on a brave face publicly and said that he believed an agreement on the debt swap was close. "We are one step [away]. I would say it is a formality away from finalizing (the debt relief agreement)," Venizelos told a news conference...
"The troika doesn't appear to be willing to accept any concessions whatsoever on reducing the minimum wage and scrapping bonuses," said the government aide. "No political party is willing to move either, saying wage cuts are a red line they are simply not going to cross. You tell me how this is going to be resolved. We have no idea and we're very worried."
The deadlock in Athens followed poor unemployment data for the eurozone that revealed a widening split between the continent's rich north and indebted south....
For more on GDP warrants and their lack of market acceptance (and concerns), there is an interesting article here on GDP-index bonds (albeit perhaps a little naive in its trust of government statistics) and here on valuation of GDP warrants - not that it matters as these incentivization schemes are simply bound to fail given the dispersion of bondholders and everything we have said before.
The literature has claimed that GDP-Linked-Warrants (GLWs) would provide opportunities to share growth risks between the issuer and the holder; however,the literature has also suggested that there might be moral hazard issues in the context of debt overhang, where the issuer country may lose incentives for promoting growth policies.Despite these moral hazard problems, some have argued that, under asymmetric information, debt payments should be linked to the issuer’s GDP in order to facilitate debt-service relief. Experience has shown that the poor design and low quality of statistics have been major problems in the history of GLWs.
GDP Warrants and GDP-Index Bonds - Investors’ concerns
In this section, we discuss potential obstacles (real and perceived) to a wider introduction of GDP-indexed bonds and examine these obstacles and the ways in which they could be overcome.
In this section, we discuss potential obstacles (real and perceived) to a wider introduction of GDP-indexed bonds and examine these obstacles and the ways in which they could be overcome.
To understand the main obstacles, we rely on the existing literature,13 on interviews with investors and other market actors,14 and on discussions in the expert group meeting held at the United Nations in October 2005 (United Nations, 2005a).
The three main concerns identified were:
- Uncertainty about potential misreporting of GDP data.
- Uncertainty about sufficient liquidity of GDP-linked bonds.
- Concerns regarding the difficulties in pricing GDP-linked bonds.
The main issue in this case would be the first - Accurate reporting of GDP growth data
Not only is this a relatively important concern for market participants and investors, it is also one which international institutions and national Governments can do much to overcome. The concern can be decomposed into (a)inaccuracies in measurement of relevant variables, such as nominal GDP and the GDP deflator; and (b) deliberate tampering by debtor country authorities with a view to lowering debt servicing.
Not only is this a relatively important concern for market participants and investors, it is also one which international institutions and national Governments can do much to overcome. The concern can be decomposed into (a)inaccuracies in measurement of relevant variables, such as nominal GDP and the GDP deflator; and (b) deliberate tampering by debtor country authorities with a view to lowering debt servicing.
Now it is France's turn to lower its growth outlook. How on earth are they going to fund the
Greek/Portugal/Ireland, Italy and Spain bailouts?
(courtesy Dow Jones newswires/Fox news/
France Slashes Growth Outlook
Published January 30, 2012
Dow Jones Newswires
PARIS – The French government slashed its 2012 growth forecast by half Monday but insisted it won't have to unleash another round of austerity, steering clear of an exercise that would further hurt President Nicolas Sarkozy's chances of reelection this year.
Prime Minister Francois Fillon said gross domestic product will rise only 0.5% in 2012, instead of the 1% previously forecast. The lower growth will cost the government about EUR5 billion in tax receipts, but the government expects to make that up, partly through lower interest rates on its debt.
The government also believes it finished 2011 with a smaller deficit than anticipated, around 5.4% of GDP instead of 5.7%.
The cut was widely expected, especially after Germany cut its 2012 growth forecast to 0.7% from 1% earlier this month. Both countries have been hit hard by a slowdown stemming from the region's debt crisis.
"The efforts of this government and French people, as well as a very cautious budget, allows us to change the foundations of the budget without asking for extra efforts from French people," Fillon said.
The euro zone's largest economy after Germany, France is targeting a deficit of 4.5% of GDP this year.
Sarkozy has already pushed through about EUR19 billion in tax increases and spending cuts since the end of August. The measures have cost him support, and he now is trailing Socialist candidate Francois Hollande in polls with three months to go before elections.
Further pressure was added earlier this month when Standard & Poor's ratings services stripped France of its hallowed triple-A rating. National statistics bureau Insee now sees the French economy as in the second quarter of a two-quarter recession.
Sarkozy didn't mention the lower outlook Sunday evening when he took to airways to announce a tax overhaul aimed at making French production more competitive. The plan calls for cutting payroll taxes and raising the value-added tax, a measure sure to displease consumers.
"Growth should start up again in France and Europe before the end of the first half," Fillon said, praising the European Central Bank for last month's unprecedented provision of emergency cash to banks.
Fillon also defended the government's decision to undertake reforms in an election year.
"The violence of the crisis, the commitments we have made to the euro zone and the degradation of the economic situation make it impossible and derisory to mark a pause in implementing reforms," Fillon said.
Copyright © 2012 Dow Jones Newswires
Read more: http://www.foxbusiness.com/news/2012/01/30/france-slashes-growth-outlook/#ixzz1l2elh1YA
end
France opposes Germany overseeing Greek fiscal policy:
(courtesy zero hedge)
(courtesy zero hedge)
Good Gendarme: Recently Downgraded France Opposes German Demands For Greek "Tutelage"
Whowouldathunk it - beggars can be choosers. The country which just slashed its economic outlook, and which depends on GermAAAn capital and goodwill to preserve its well-being in the Eurozone, has just decided to pull a good gendarme to Germany's bad [insert the blank] and has voiced its opposition to German demands stripping Greece of its fiscal sovereignty.
- SARKOZY REJECTS GREECE CEDING BUDGET MANAGEMENT TO EU
- SARKOZY SAYS NO QUESTION OF PUTTING GREECE `UNDER TUTELAGE'
- SARKOZY SAYS EU TAKEOVER OF GREECE WOULD NOT BE REASONABLE, "DEMOCRATIC"
Nice try Sarko: somehow we fail to see how FraAAnce's opinion is even remotely relevant in future European decision making at this point. But an admirable attempt by the future ex-president to go for the solidarity bonus points.
end
Submitted by Tyler Durden on 01/31/2012 09:20 -0500
House prices continue to deteriorate. Remember that housing is used as collateral for our banks.
For the 7th consecutive month, house prices falter and the prices are lowest since 2003.:
(courtesy zero hedge)
No Housing Bottom: Home Prices Decline For 7th Consecutive
Month, Lowest Since 2003
The November Case Shiller is out and while not surprising to most, some of those calling for a near-term housing bottom may be advised to reassess (for the 5th year in a row). According to the Top 20 City index composite, prices declined in 17 of 20 MSAs, with gains posted only in Phoenix, Denver and Minneapolis. At 137.52, the Seasonally Adjusted composite dropped to the lowest since February 2003, and is now a third lower than the housing peak in April 2006. Yet the worst news is that, even with a 2 month delay, the housing drop accelerated into the end of the year, and the sequential drop of 0.7% was the biggest decline since March 2011. Which means that except for that errant spike in home prices in April 2011, we have now seen 18 consecutive months of housing price declines since that "rebound" in late 2009. "Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall," David Blitzer, chairman of the index committee at Standard & Poor's, said in a statement. "The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand." Yet just like in Europe, the improvement is coming. Aaaaany minute now.
end
Not all is well with the big Deutsche Bank as many lawsuits have been filed. Financial regulators have demanded the bank to quantity the potential loses:
(courtesy der Spiegel)
01/30/2012 03:02 PM
Litigation Risks
Deutsche Bank Faces a Series of Damaging Lawsuits
SPIEGEL ONLINE 2012
The transition of power at Germany's largest bank is being overshadowed by the fallout from dubious deals in the US made at a time when incoming co-CEO Anshu Jain was head of investment banking. The bank faces a number of lawsuits, and the compensation claims are so large that regulators have asked Deutsche Bank to quantify them.
Financial regulators have asked Deutsche Bank to disclose the total risk it faces from a number of lawsuits brought by investors in its products who lost money in the 2008 financial crisis, SPIEGEL has learned.
Authorities appear to be concerned about the many lawsuits pending against Germany's biggest bank. At a meeting with management board members of Deutsche Bank in New York in October, regulators from Germany, the US and Britain demanded that the bank submit a report on the open US lawsuits and the compensation claims linked to them.
The lawsuits are overshadowing the transition of power at Deutsche Bank from outgoing CEO Josef Ackermann to the two new co-chief executives, Indian-born Anshu Jain, the head of the investment banking division, and Jürgen Fitschen, the head of Germany operations, in the coming weeks.
The litigation includes a $1 billion claim from the US government which has filed a lawsuit alleging that Deutsche Bank and its subsidiary Mortgage IT wrongfully obtained state credit guarantees. In addition, the Federal Housing Finance Agency is suing the Frankfurt-based bank, as is the Teachers Insurance and Annuity Association.
A further lawsuit has been brought by German lender IKB, which was rescued by German state-owned development bank KfW with a capital injection of €8 billion in 2007.
Accusations of Fraud
IKB is demanding $439 million in compensation from Deutsche Bank in the US in connection with real estate deals in the form of so-called Collaterized Debt Obligations (CDOs), SPIEGEL has learned. In the years leading up to the 2008 financial crisis, Deutsche Bank created financial products based on US mortgages that rapidly lost value and plunged many investors into financial trouble.
These investors included IKB. Investment funds set up by IKB under the name of Loreley Financing to purchase the securities launched a lawsuit in the US in October accusing Deutsche Bank of fraud.
If the lawsuit succeeds, KfW would get most of the money. KfW said in a statement: "We are very interested in measures that can lead to a reduction of the losses resulting from this."
The bank said it regarded the legal moves underway in the US as appropriate due to "erroneous assurances and the failure to disclose conflicts of interest as part of the structuring of and marketing of structured securities (CDOs)."
Meanwhile, the US Securities and Exchange Commission is also investigating Deutsche Bank, SPIEGEL reports. According to financial regulatory sources, the bank launched one CDO transaction called "START" in which it allegedly allowed the hedge fund of US speculator John Paulson to choose junk mortgage securities against which he could speculate -- without the other investors knowing about it.
Goldman Sachs settled a suit with the SEC in a similar case for $550 million, SPIEGEL reported.
SPIEGEL/cro
end
The next big bankruptcy, Sears will enter the morgue shortly:
Sears Plunges As CIT Reins In Loans (Again)
Submitted by Tyler Durden on 01/31/2012 10:54 -0500
While so many were hoping for the siren-call of private-equity or perhaps a reverse-merger MBO with RadioShack, CIT has once again managed to pour well-risk-managed-credit-extension cold water on Sears short-squeeze. SHLD is down 6% followingReuters reports (via The Orlando Sentinel) that CIT will again stop providing loans to suppliers of Sears Holdings as the lender/factor awaits further information of the company's health. Volume picked up dramatically as the stock fell and we note that SRAC (the more active 5Y CDS contract) is leaking wider but has surged around 400bps (to 1800bps) in the last week (as the stock has been treading water off its spike squeeze highs on 1/23).
NEW YORK (Reuters) - CIT Group Inc will again stop providing loans to suppliers of Sears Holdings Corp after Tuesday as the business lender awaits more information on the retailer's financial health, two retail sources told Reuters on Monday.
CIT is keeping the operator of Sears department stores and the Kmart discount chain on a tight leash, the sources said, after the company posted 18 straight quarters of sales declines.
Sears is scheduled to report annual results on February 23, when Chairman Edward Lampert typically publishes a letter to shareholders. The hedge fund manager is Sears' largest shareholder and owns directly and through related entities about 59 percent of the retailer.
CIT and other finance companies, known in the industry as factors, provide short-term loans to manufacturers while they are waiting to be paid by those receiving their goods or services. CIT's payables represented less than 5 percent of inventories, Sears has said in the past.
If lenders like CIT refuse to finance Sears' suppliers, it could force the retailer to draw on its line of credit to pay for goods up front. If too many vendors seek prepayment, banks could be pressured and cut back on lines of credit for Sears, making it harder for the company to buy inventory.
CIT, run by Wall Street executive John Thain, had initially halted loans to Sears suppliers in early January, just weeks after the company posted dismal holiday sales numbers and said it would close as many as 120 stores.
It now seems like that was a temporary arrangement.
"People are recognizing that they don't have to be in harm's way and really go out on the limb when there is so much other business out there that they would deem to be of real quality," said one of the sources, who has learned that CIT is not writing any new business for Sears after Tuesday, January 31.
CIT spokesman Curt Ritter said on Monday it does not comment on specific customers. Sears declined to comment.
One source said that no other factoring company has changed terms for suppliers who ship to Sears.
end
The first Friday of every month we get the jobs numbers and this is a highly anticipated number. I will try and give
a huge negative adjustment. Here is Art Cashin explaining in simple language the meaning of the Birth/Death
plug (after you lost your job death, you become an entrepreneur and give birth to many jobs)
(courtesy Art Cashin of CNBC and zero hedge)
Art Cashin Explains Why Several Hundred Thousand Jobs Are About To "Vaporize"
Two days ago we learned that when MF Global goes bankrupt, billions in cash can just "vaporize" (no, really - see here, and of course, in the passive voice. can't say something like Jon Corzine vaporized $1.2+ billion in client money now can we). Next we have Art Cashin explain why it is that the US economy is about to see several hundred thousand jobs "vaporize" as well. Perhaps "vaporize" should be the motto of the current Administration: confidence "vaporized", hope "vaporized", and "evaporation" you can believe in, as it condenses on the teleprompter...
From Art Cashin UBS Financial Services:
Disappointing Jobs - While everyone seems to debating what the non-farm payroll numb will be Friday, a few are looking toward the annual revisions in the much debated Birth/Death model.
As you probably recall, it does not refer to the birth or death of humans. The badly named model refers to the birth and death of businesses. Each January the BLS revises the number, usually vaporizing thousands of jobs.
We were going to try and calculate the likely revision, but our sharp-eyed friend over at Bloomberg, Rich Yamarone, as usual, beat us to it. Here’s what he wrote in his Notepad column recently:
The Net Birth/Death (NBD) statistic adjustment – an adjustment the BLS uses to account for job creation or loss with respect to births and deaths of businesses – is always the weakest during January. Over the last five years the NBD for January has averaged -335k. [January 2011: -339k, January 2010: -427k, January2009: -356k, January 2008: -378k, January2007: -175k.]
So, if past is prologue, we could see three or four hundred thousand jobs vanish. Nothing like a dependable indicator.
Banks set to double crisis loans from ECB
By Patrick Jenkins and David Oakley in London and Ralph Atkins in FrankfurtFinancial TimesJanuary 30, 2012 10:11 pm