Record Deposits at ECB?Hungary CDS hit record levels/Italy and Spanish bonds rise again

Good evening Ladies and Gentlemen:

Gold closed today at $1612.00 for a gain of $12.30.  Silver fell by 46 cents to $29.07 falling in sympathy with the drop of bourses in Europe.  The Dow recovered late in the day.  Today we witnessed the Euro deposits at the central banks climb to record levels as the banks shun the carry trade of LTRO.  Actually it is a carry trade in reverse as the banks have to pay 1% for the privilege of lending the euros back every night. The banks are using this money for cover many cracks in their armour as well as a funding vehicle to get their tier one assets above 9%. They receive only .25% credit on overnight money redeposited back to the central bank.

Let us head over to the comex and assess trading, inventory movements, delivery notices and amount of physical metal standing.

The total gold comex OI rose by 4104 contracts to 423,275 which is probably in line with expectations as yesterday we saw a galloping bull advance the cause of gold.  The front options expiry month of January saw its OI fall from 126 to 36 for a loss of 90 contracts.  We had 86 delivery notices yesterday so we lost a tiny 4 contracts to cash settlements.  The next big delivery month is February and here the OI rose by about 1700 contracts to close at 235,889.  The estimated volume today was better than lately, coming in at 158,000.  The confirmed volume yesterday was very weak at 131,541.  The comex volume contraction is certainly having an effect on CME business.

The total silver comex OI rose from 105,669 to 107,101 for a gain of 1432 contracts. The silver OI has been rising in silver steadily for the past several days. The front delivery month of January saw its OI fall from 130 to 78 for a loss of 52 contracts.  We had 82 delivery notices yesterday so we gained our 30 contracts lost or 150,000 oz of additional silver standing.  The next big delivery month is March and here the OI lowered slightly from 59,262 to 58,791.  The estimated volume continues to be weak as today it registered 33,132.  The confirmed volume yesterday was better at 40,795.

Inventory Movements and Delivery Notices for Gold: Jan 4 2012:

Gold	Ounces
Withdrawals from Dealers Inventory in oz	nil
Withdrawals from Customer Inventory in oz	8179 (HSBC)
Deposits to the Dealer Inventory in oz	nil
Deposits to the Customer Inventory, in oz	nil
No of oz served (contracts) today	2 (200)
No of oz to be served (notices)	34  (3400)
Total monthly oz gold served (contracts) so far this month	940  (94000)
Total accumulative withdrawal of gold from the Dealers inventory this month	nil
Total accumulative withdrawal of gold from the Customer inventory this month	127,072

It looks to me like the inventory movements are corrupted just like the delivery notices.

We had no gold deposit to the dealer and no gold withdrawal by the dealer.

We had this very very strange customer withdrawal of gold:

1.  Out of HSBC vault, 8179 oz.

why strange?  we had the identical withdrawal of the same amount yesterday from the same vault!

we had one adjustment whereby 303 oz was leased from the dealer to the customer.
The registered gold (dealer gold) rests tonight at 2.530 million oz or 78.7 tonnes of gold.

The CME reported to us that we received only 2 notices today for 200 oz of gold.
The total number of notices filed so far this month total 940 for 94000 oz.
To obtain what is left to be served, I take the OI standing (36) and subtract out today's deliveries (2)
which leaves us with 34 or 3400 oz left to be served upon.

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

94000 (oz served) +  3400 ( oz to be served) =   97,400 oz or 3.02 tonnes of gold.

we lost 400 oz to cash settlements.

And now for silver 

 the chart: January 4 2012:

Month of January now commences:

Silver	Ounces
Withdrawals from Dealers Inventory	nil
Withdrawals fromCustomer Inventory	300,062  (Brinks)
Deposits to theDealer Inventory	nil
Deposits to the Customer Inventory	2,379,923 (HSBC,Brinks, Scotia)
No of oz served (contracts)	59  (295,000)
No of oz to be served (notices)	19  (95,000)
Total monthly oz silver served (contracts)	380  (1,900,000)
Total accumulative withdrawal of silver from the Dealersinventory this month	268,115
Total accumulative withdrawal of silver from the Customer inventory this month	1,486,425

Again the data looks corrupted to me. We had no silver enter the dealer and no silver left as a customer
withdrawal.

We had the following customer deposit:

1.  Into Brinks:  599,781
2.  Into HSBC:  582,852 **
3.  Into Scotia  1,197,290 oz .

total deposit:  2,379,923 oz

Now please go back to my commentary on yesterday and you will see the same customer
deposit of silver into HSBC namely 582,852 oz.

On the customer withdrawal side:

1.  300,062 oz of silver out of Brinks.

(yesterday Brinks had a withdrawal of 300,798 oz which is close to the above).

I strongly believe now that the entire inventory movements are corrupted as we are dealing with so much paper their heads are swimming.
We had no adjustments.
Thus the registered silver rests tonight at 34.83 million oz
The total of all silver (eligible and dealer) rests at 119.1
where is all this silver coming from?



The CME notified us that we had 59 notices filed for 295,000 oz of silver.
The total number of notices filed so far this month total 380 for 1,900,000 oz.
To obtain what is left to be served upon, I take the OI standing  (78) and subtract out today's
deliveries (59) leaving us with 19 deliveries left to be served upon or 95,000 oz

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

1,900,000 (oz served)  +  95,000 (0z to be served)  =  1,995,000 oz
we gained 150,000 additional oz of silver standing and lost nothing to cash settlements.'

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 4:2012:

Total Gold in Trust

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:65,033,703,571.12

Jan 3.2012

TOTAL GOLD IN TRUST

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:64,429,378,970.13

   

Dec 31.2011

TOTAL GOLD IN TRUST

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:63,484,275,822.93

Dec 29.2011:

TOTAL GOLD IN TRUST

Tonnes:1,254.57

Ounces:40,335,690.64

Value US$:61,730,367,104.89

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

Strange operation!!

And now for silver Jan 4 2012: 

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

Jan 3.2012:

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

Dec 31.2011:

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

 Dec 29.2011:

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

Dec 27.2011

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

we lost zero silver ounces at the SLV. Again this is very strange as we has witnessed silver beaten to a pulp in the last week down to around 27.00 dollars and then it rises big time to $29.07 and still no silver enters their vaults.

Again a very strange operation!!

end

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

1. Central Fund of Canada: traded to a positive 1.6 percent to NAV in usa funds and a positive 1.5% to NAV for Cdn funds. ( Jan 4 2012.).

2. Sprott silver fund (PSLV): Premium to NAV fell slightly   to  24.35% to NAV  Jan 3. 2012
3. Sprott gold fund (PHYS): premium to NAV rose slightly to a 4.91% positive to NAV Jan 3. 2012).

The Sprott fund premiums have not been released yet.  As soon as they are set, I will update this commentary.

end.

Before heading over to see the big stories which shape gold and silver,

GATA has released this account whereby journalist Lars Schall has been attempting to ask

the NY Fed/ESF and the Bundesbank whether they engaged in gold swaps.  You will find the letters quite entertaining.  The Feds have not responded:

(courtesy Lars Schall, GATA) 

Lars Schall: An exercise in futility -- Thank you for contacting the New York Fed

Submitted by cpowell on Wed, 2012-01-04 04:34. Section: Daily Dispatches

11:26p ET Tuesday, January 3, 2012

Dear Friend of GATA and Gold:

The German journalist Lars Schall tonight recounts his recent futile efforts to get the central banking and treasury agencies of the U.S. government to answer questions about their likely involvement with the gold reserves of Germany and about their involvement in the gold market generally. If only mainstream financial journalists had the same interest in the issue and the stamina to challenge the unaccountability. In any case Schall's efforts add to the evidence that the U.S. government and the German government have many gold secrets. Schall's commentary is headlined "An Exercise in Futility: Thank You for Contacting the New York Fed" and it's posted at his Internet site here:

http://www.larsschall.com/2012/01/04/an-exercise-in-futility-thank-you-f...

CHRIS POWELL, Secretary/Treasurer

end

This next commentary is a terrific accounting of the silver metal as to production in both Canada and
the USA and how Silver Maples are exceeding production in each country.  In other words, each country must now import silver from England or elsewhere to make their coinage.

you will enjoy this article;

(courtesy Steve D'Angelo/GoldSeek.com/SilverSeek.com)

Silver Sales Up As Supply Slips

Steve St. Angelo

 |

January 4, 2012 - 11:32am

For the first time in history, Silver Eagle & Maple Leaf sales will surpass domestic silver production in the U.S. and Canada in 2011

The demand for American Silver Eagles and Canadian Maple Leaf coins has increased tremendously over the past several years.  2011 will be the first year in which official coin sales will surpass domestic silver production in both countries.

Even though each country has seen declines in their domestic silver production over the past decade, U.S. silver production declined a whopping 30% yoy (year over year) in October.  According to the USGS in their most recent Silver Mineral Industry Survey, silver production fell to 81,400 kilograms in October— compared to 117,000 kilograms the same time last year.

 

As of October this year, the United States has produced 923,000 kilograms or 923 metric tonnes of silver.  This number will change as revisions are made, but currently U.S. silver production is down 15% compared to the first ten months of 2010.  At this rate, the U.S. will produce an estimated 35 million ounces of silver this year. This is significant, as production will yield less than the approximate 40 million ounces of American Silver Eagle sales for 2011.

American Silver Eagle Sales Overtake Total U.S. Silver Production in 2011

Here we can see that U.S. silver production has declined 50% since its high of 70 million ounces in 1997.  In 1997 American Silver Eagle sales were 3.6 million, which accounted for only 5% of domestic silver production.  Contrasted to today, Silver Eagle sales are estimated to reach 40 million while domestic mine supply will decline to 35 million ounces in 2011.  Thus, American Silver Eagle sales will be 114% of the total U.S. silver supply in 2011… what a difference in 14 years.  This trend is also taking place in the country’s northern neighbor.

Canadian Maple Leaf Sales Outperform Silver Eagles in Percentage Growth

Canadian silver production has declined 57% from its recent high in 2002 at 44.1 million oz to an estimated 18.6 million oz this year.  According to the Royal Canadian Mint’s 2003 Annual Report (and including figures from previous years), there were only 576,196 Silver Maple Leaf coins sold in 2002— making up about 1.3% of the total Canadian domestic silver production.

In 2011, this figure is estimated to reach approximately 22.5 million Silver Maple Leaf (SML) sales or almost 30% higher than its previous year’s total of 17.9 million.  In comparison, 2011 American Silver Eagle sales are estimated to increase only five million sales over last year’s figures— or a 15% increase.

In the graph below we can see just how apparent this change of domestic silver supply vs. SML demand has become in the past several years:

 

The figure of 22.5 million SMLs for 2011 was estimated from the data obtained from the Royal Canadian Mint’s Third Quarter Report Fiscal 2011:

Sales of Silver Maple Leaf (SML) coins jumped to 6.1 million ounces during the quarter from 4.5 million ounces in the same period in 2010….During the 39 weeks to October 1, 2011, sales of SML coins increased by 56.1% to 17.8 million ounces.

If we consider that American Silver Eagle sales have declined in November, it would be appropriate to conclude that Silver Maple Leaf sales did as well.  Assuming that fourth quarter SML sales would be approximately five million (as expressed in current trends) it would give us a figure of 22.8 million oz in 2011… rounded down to 22.5 mil oz to be conservative.

If these figures are correct and the Royal Canadian Mint does sell 22.5 million Silver Maple Leaf coins in 2011, it will be at a rate of 121% of their domestic silver production.  2011 will be the first year in which both the U.S. and Canada will sell more Silver Eagles & Maples than what is available from their respective silver mining supplies.

Does the U.S. Mint Have to Use Domestic Silver Mine Supply for its Silver Eagle Production?

There has been a great deal of discussion on the internet on whether or not the U.S. Mint is by law forced to use domestic silver production for their minting of American Silver Eagles.  I have spoken with Michael White at the Office of Public Affairs at the U.S. Mint concerning this issue.  Mr. White provided me the link to Senate Bill S. 2954, passed into law in 2002, which allows the U.S. Mint to purchase silver on the open market to produce American Silver Eagles.  Wikipedia has also documented this below:

Program extension, 2002

The authorizing legislation for the American Silver Eagle bullion program stipulated that the silver used to mint the coins be acquired from the Defense National Stockpile with the intent to deplete the stockpile's silver holdings slowly over several years. By 2002, it became apparent that the stockpile would be depleted and that further legislation would be required for the program to continue. On June 6, 2002, Senator Harry Reid (D-Nevada) introduced bill S. 2594, "Support of American Eagle Silver Bullion Program Act," "to authorize the Secretary of the Treasury to purchase silver on the open market when the silver stockpile is depleted." The bill was passed by the Senate on June 21 and by the House on June 27 and signed into law (Pub.L. 107-201, 116 Stat. 736) by President Bush on July 23, 2002.

http://en.wikipedia.org/wiki/American_Silver_Eagle

If it were true that domestic silver was required to mint these coins, the U.S. Mint would have only produced approximately 35 million oz of Silver Eagles in 2011— instead of the supposed 40 million currently estimated.  This is also true for the Royal Canadian Mint as it is now producing more Silver Maples than it can supply through Canada’s own domestic silver production. 

Even though the U.S. and Canada produce more Silver Eagles and Maples than their domestic mine supplies, neither country has regarded this as a problem because they each have enough imported silver to meet all of their industrial and investment demands.  However, this situation may change in the future as the global economy worsens and each country loses further trust in their respective fiat currencies.

The Myth Behind the So-called Silver Surplus

The investing public has been led to believe that the world is now producing a surplus of silver.  This so-called surplus was provided by information put forth by GFMS.  According to GFMS and its World Silver Surveys, there has been an annual global deficit of silver since 2003.  In 2004 the world hit its first small surplus and has continued to grow.   In 2010, the surplus was 175.4 million ounces.

To get its annual supply-deficit figure, GFMS uses a certain equation:

(Mine Production + Silver Scrap) – (Fabrication - Coin & Medal) = Surplus- Deficit

If we plug in 2010’s figures this is the result:

(735.9 + 215) = 950.9 – (878.8 - 101.3) = 775.5 = +175.4

GFMS has decided that coin and medal demand should not be included in the Fabrication total but rather as a form of bullion supply.   So the higher the coin and medal demand, the more it adds to the so-called silver surplus.  The majority of this category of “Coin & Medal” consists of official government coins that are in high demand and are not of the type that would be sold for melt and recycled back into scrap supply.  If we look at the chart below, we can see how GFMS has created this so-called silver surplus:

 

101.3 million of those 175.4 million oz of so-called surplus came from coin & medal demand in 2010.  I find it interesting that GFMS has decided to treat the “Coin & Medal Category” (the majority of which are coins not readily available for melt and recycle) as supply rather than demand, but allow silver scrap from recycled fabrication to be used as a form of supply. 

If we think about it for a minute, the whole idea of a surplus as expressed by GFMS is nothing more than an accounting gimmick.  In 2010, there was 215 million oz of silver scrap added to the total supply.  A large portion of this amount came from recycling silver from industrial scrap.  Every year a certain amount of silver supply goes into industrial fabrication and of that amount, a percentage gets recycled into silver scrap which becomes supply in the following years.

Ask yourself this question… what would be considered more of future supply?  Would it be comprised of official government coins that are in high demand and held for many years for their investment potential or a percentage of recycled silver from industrial fabrication?  Even if investors sell Silver Eagles or Silver Maples back to a dealer, that dealer normally resells these coins back to other investors.  These coins are the least likely to be melted and recycled.

Even if we were to go by the GFMS and their silver surplus vs. deficit figures, there is another interesting trend taking place.  As coin and investment demand has risen, so has the price of silver.  During the years attributed to a silver deficit, the price of silver remained relatively flat.  As the so-called surplus has increased, so has the price of silver.  Either way, silver investment is pushing the price of silver higher. 

There have been several analysts who have stated that future silver surpluses will keep a lid on the price of silver.  Here we can see that this is not the case at all. On the contrary, it has been due to investment demand that both the price of silver and the so-called surplus supply have grown.

The Coming Paradigm Shift in Silver

This is the subject of my next article which will be out shortly.  The paper-backed situation in the world’s economies and financial system is grim.  Silver should be priced at a level several times higher than it presently trading.  Too many investors are becoming hypnotized by the technical analysis.  However, technical analysis is a valuable tool in a FREE MARKET.  Unfortunately, the markets and the silver charts are being manipulated while analysts who recreate these charts in their articles may not realize that they are actually helping the manipulators do their work by legitimizing its function on the internet’s financial websites. 

Even though supply and demand factors contribute to the price of silver, it will be the shift in psychology that will propel the price of silver towards the heavens.  This psychology has been slowing changing as the graphs above reveal an interesting trend taking place in the U.S. and Canada.  In 2002 both countries produced 87.5 million oz of silver and sold 11 million Silver Eagles and Maple Leaf coins.  These coins sales accounted for 12.6% of U.S. and Canadian silver production.

In 2011, just nine years later, the U.S. and Canada are estimated to mine only 53.6 million oz of silver combined, while their total Silver Eagle and Maple Leaf coin sales are to surpass approximately 62.5 million.  Thus, their coin sales are 16% greater than their total domestic silver mine supplies.

Investors in increasing numbers over the years have been buying physical silver. While this number is growing, it is still a fraction of a fraction of the country’s population.  Even though 40 million Silver Eagles were sold in 2011, this accounts for one coin for every eight Americans. 

The Great Stampede in Silver is yet to come.

UPDATE:  Since the completion of this article, the U.S. Mint has updated its 2011 American Silver Eagle sales.  The grand total for 2011 turns out to be 39.8 million Silver Eagles sales while the month of January 2012 starts off with a whopping 3,197,000 sales on the first business day of the year.   This is speculation on my part, but instead of updating the Silver Eagle figures during the last few days of 2011(as it normally does on a more regular basis), the U.S. Mint decided to dump all the remaining sales onto January 2012.

Steve St. Angelo.

end.

Ted Butler on the massive silver hit over the latter part of December:

(courtesy Ted Butler/Ed Steer:)

Silver Analyst Ted Butler posted his commentary to his paying subscribers on Saturday...and here are a couple of free paragraphs...

"In Wednesday’s article I described the latest 35% price smash since September and how it was solely attributed to the deliberate speculative selling tripped off by the commercials that resulted in the commercial buying of at least 33,000 net contracts (165 million ounces). This is such an extraordinarily large amount as to defy comparison with any other commodity (save perhaps gold). At the equivalent of 22% of the world annual silver mine production, it is so large that it would be impossible for any group to buy such a net futures equivalent position in any other commodity. That’s because anyone trying to buy an equivalent futures position in copper, crude oil or corn of 22% of world production, would need to buy more than the current total open interest in any of those markets."

"That the commercial crooks were able to pull it off in silver...and with prices falling 35%...proves beyond a doubt that the COMEX futures market still dominates and controls the price of real world silver. All the real producers and consumers in the world are held hostage by a handful (15 to 20) of commercial operators on the COMEX. There’s never been a clearer case of the tail wagging the dog, or of a futures market operating illegally. Contrary to commodity law, the COMEX silver futures market is setting and not discovering the true price of silver. US futures markets were designed to allow for legitimate hedging. The 165 million net silver ounces of futures contracts that changed ownership on the COMEX since September 6 had absolutely nothing to do with legitimate hedging; it was all commercial speculation and manipulation."

This morning we were greeted with this zero hedge release which shows the ECB at record deposits.
Thus the LTRO which was suppose to be used by the banks as a carry trade where the banks would buy their host nation's sovereign debt and rep the security with the ECB who would then re-supply the banks with fresh Euros.  It seems that the banks will have no part of this arrangement.  Instead they are using the funds to fill the holes in the balance sheet and also supply the necessary euros to beef up with tier one assets.

(courtesy zero hedge)

ECB Deposit Facility Usage Hits New Record

Submitted by Tyler Durden on 01/04/2012 07:40 -0500

• European Central Bank
 
• Stress Test

Not much to say here that has not been said daily for the past 2 weeks: the ECB's Deposit Facility use soared to a new all time high of €453 billion, and increase of €7 billion overnight and higher than, well, ever. The conclusions here are well known - there was no seasonality to the year end spike (because it is now next year), and the LTRO cash is not being used, as pessimistically expected here first. When the next LTRO prices on February 29, expect this number to peak at around €700 billion. And so LTRO by LTRO, the ECB will prefund the entire roughly €2-3 trillion capitalization shortfall in European banks but not before the 3rd 2012 European bank stress test tells us banks only need €0.69 billion in capital (and Dexia is fine despite its bankruptcy).

end

Today we had a decent bund auction but in the aftermath Hungary credit default swaps soared to record levels indicating this sovereign country is in deep trouble. A failure by Hungary whacks Austria to pieces. Italy;s Unicredit needed a 48% DISCOUNT to current price to raise 7.5 billion euros. Spanish yields rose indicating problems over there.

(courtesy zero hedge)

Euro Declines After Bund Auction, Hungary CDS Soars To Record, Massive New Issue Discount In UniCredit Stock Sale

Submitted by Tyler Durden on 01/04/2012 07:07 -0500

• Bond
 
• CDS
 
• CPI
 
• European Central Bank
 
• Eurozone
 
• Failed Auction
• Germany
 
• Greece
 
• Hungary
 
• International Monetary Fund
 
• Lloyds

All eyes were on Germany this morning, where up to €5 billion in new 10 Year Bunds would hit the market, with many dreading a repeat of November's failed auction. As it turns out, the auction was a success in relative terms, with the government getting bids of €5.14 billion or more than the desired maximum - something it could not do two months ago. At the end of the day, Germany sold €4.06 billion and the resulting bid/cover ratio of 1.3 was well higher than the failed auction of November which came at  1.1, when a large amount of paper was retained and bids were not enough to cover the amount of paper on offer. Wednesday's auction is still below the average of 1.54 seen at 10-year sales in 2011 and a 19 percent retention rate is also above the 2011 average. In other words, as we suggested, the November failure has nothing to do with the Buba pushing the ECB into auction and everything to do with prevailing rates:the average yield dropped to 1.93 percent from 1.98 percent but the dwindling returns on offer due to the sharp rally in safe-haven assets as the euro zone debt crisis has intensified have led to lower than average demand at recent German auctions. And while the auction was better than expected it was still quite weak, which explains why the EURUSD is trading at overnight lows, back at around 1.2980. Not helping things is Hungary, which had a failed bond auction last week, and whose IMF rescue package is now in tatters. As a result the CDS on the country just hit an all time record 688 bps and moving much wider, while the forint dropped to record lows. As everyone knows if Hungary falls, which is now operating in a bailoutless vacuum, Austria will tumble promptly next. Next, leading to a blow out in Spanish-Bund spreads is a report in Spanish Expansion which said that Spain may request EU, IMF loans to help banks. In other words - this morning's news shows a potential risk reflaring in the European core, periphery and deep periphery which was immune until now. And finally, a UniCredit €7.5 billion new stock issue pricing at a whopping 43% discountto market price shows that fair value of actual demand for European banks is about half of where the artificially propped up price is (recall Europe still has a short selling ban)

Market summary from Bloomberg:

• S&P 500 futures down 0.26% to 1268.8
• Stoxx 600 down 0.45% to 249.93
• US 10Yr yield up 1bps to 1.95%
• German 10Yr yield up 1bps to 1.91%
• MSCI Asia Pacific up 0.97% to 116.49
• Gold spot down 0.27% to $1599.18/oz
• 9/10 sectors fall led by financials, consumer, utility stocks
• French Nov. consumer spending -0.1% vs 0.3% est.
• Eurozone final Dec. PMI composite 48.3 vs 47.9 est.
• Eurozone Dec. CPI estimate 2.8% inline with ests.
• Movers on earnings/statements: VESTAS WIND SYST -15.3% , DOMINO’S PIZZA +6.45% , NEXT PLC -3.47% , UNICREDIT SPA - 8.53%
• Other gainers: MARINE HARVEST +4.84% , QIAGEN NV +4.74% , MICRO FOCUS INTL +4.13% , NATIXIS +3.27% , RENEWABLE ENERGY   +3.13% , PREMIER OIL PLC +3.07% , EFG EUROBANK ERG +2.88%, NATL BANK GREECE +2.05%
• Other decliners: BANCO COM PORT-R -6% , BANCO ESPIRITO-R -4.99% , BANCO SANTANDER -4.73% , EDF -4.45% , GAMESA -4% , HOME RETAIL GROU -3.93% , BANCA MONTE DEI -3.87% , BANCA POP EMILIA -3.8%

Hungarian CDS:

Instant analyst reaction to Bund auction:

ACHILLEAS GEORGOLOPOULOS, STRATEGIST, LLOYDS BANK, LONDON

"It looks solid - there's nothing surprising. (The bid/cover ratio) was above one, which the market will see as a decent start for the year because the previous one in November was a shocking one. Good redemptions helped it despite a slight risk-on mood today."

MARC OSTWALD, STRATEGIST, MONUMENT SECURITIES, LONDON

"It's a lot better than last time but it's still not exactly overwhelming but that's not surprising given where yields are.

"We have to keep this in perspective. for all that Germany is actually issuing slightly less paper this year, for all that it is a safe-haven, the fact of the matter is inflation is in the high 2s still and a yield of 1.93 (percent) over 10 years doesn't get you anything in real terms."

PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE

"Much better than November's auction, but not particularly great either. Technically the auction was covered (5.14 bln euros for a 5 bln euro auction) but the average price of 100.62 in this morning's 100.58-101.08 range is not that great, coming in very close to the lows. The 5 cent tail is OK at best, but having said that, considerably better than the 14 cent tail at the previous auction."

MICHAEL LEISTER, RATE STRATEGIST, DZ BANK, FRANKFURT

"It doesn't look particularly well, just because we have just over 5 billion in bids, so nothing impressive."

"From a relative value perspective, the bond was expensive compared to the German curve. It's not a good auction, but it's not a surprise. For a good auction we need a pronounced flight to quality environment which we didn't get in the past couple of days."

DAVID SCHNAUTZ, STRATEGIST, COMMERZBANK, LONDON

"This time the auction went smoothly, supported by the fact that the street was short the bond that traded around -1 percent in repo ahead of the auction... Today's auction with a retention rate of 18.9 percent is very much back in line with 'more normal' auction results."

end
And now rioting on the streets of Hungary:
special thanks to Ed Steer:

Tens of thousands protest against Hungary government

Tens of thousands of Hungarians protested in Budapest on Monday against the government and its new Basic Law in a show of anxiety over what they see as the ruling Fidesz party’s moves to weaken democratic institutions and cement its powers.

Centre-right Fidesz, led by Prime Minister Viktor Orban, won a two-thirds majority in elections in 2010 and has rewritten a large body of law since, drawing accusations at home and abroad that it has undermined democratic checks and balances.

The Basic Law, which replaced the previous constitution as of Jan. 1, recasts rules governing many walks of life in what Fidesz calls a completion of a democratisation process that started in 1989 when communism collapsed.

Some of these changes have to do with the curbing the power Hungary's central bank. I have two stories on this. The first is a Reuters piece posted over at the france24.com website...and the second is posted at the German website spiegel.de. The link to the first story is here...and the second, here. Both are courtesy of Roy Stephens.

end


The Spanish 10 yr bond yield:  a rise of 15 basis points which is very big!!

Snapshot

SUMMARY			ONE-YEAR CHART INTERACTIVE CHART
Value	5.43
Change	0.147 (2.785%)
Open	5.29
High	5.44
Low	5.28

Italian 10 yr bond yield:  (another 2 basis points rise)

Snapshot

SUMMARY			ONE-YEAR CHART INTERACTIVE CHART
Value	6.94
Change	0.019 (0.276%)
Open	6.91
High	6.96
Low	6.87

end.


If you have been following me over the years, I have been pounding the table that the USA bond market is basically controlled 100% by the Fed.  Ron Kirby discovered this and he brought out his major piece called "the Elephant in the Room" to describe what is happening in the bond market. (you will find it in my required readings).  I pointed out to you earlier last year that the USA was already engaging in QEIII as it had no sovereign entity ready to purchase its 2 trillion dollars of deficit.
Here is Jeff Neilson describing in detail this "Maximum Fraud in USA Treasury Markets".
It has been my contention that the dollar swaps orchestrated with Europe somehow purchase the bonds and hold them overseas with those swapped dollars.
(courtesy Jeff Neilson of bullionbullcanada.com/Gold-Eagle.com) 

Maximum Fraud In U.S. Treasuries Market

Jeff Nielson
3 January 2012

Spending as much time as I do writing about the Land of Fraud, I never thought I would see myself using the phrase "maximum fraud" to describe any U.S. market. Each time Ithought I had witnessed the apex of human fraud, within a matter of weeks or perhaps months I would witness some even more extreme outrage.

One should never underestimate Federal Reserve Chairman B.S. Bernanke, however, when the subject turns to fraud and deceit. This is the same man who told the world (day after day) that the U.S. had a "Goldilocks economy", where U.S. markets and house prices would keep going up forever - at the very peak of the made-in-Wall-Street U.S. housing bubble. This is the same man who then promised the world (again and again) that the U.S. economy would experience a "soft landing" after that gigantic bubble had already burst. This is the same man who has announced more "exit strategies" than Harry Houdini - with not one of them ever materializing.

Yet even the infamous "Helicopter Ben" Bernanke has outdone himself with his latest operations in the U.S. Treasuries market. For those who missed the news, foreign central banks (the largest holders of U.S. Treasuries) have been frantically dumpingmore Treasuries onto the market over the past four weeks than at any other time in U.S. history.

Those with even the tiniest understanding of supply/demand fundamentals understand how markets operate in such situations. When there is a sudden explosion of supply, the price buyers are willing to pay for that good plummets until enough new buyers enter the market to soak-up all of that excess supply.

So how far have U.S. Treasuries prices fallen during this "panic" in the U.S. Treasuries market? Zero. To comprehend the absolute absurdity of this situation requires adding one more piece of data to our scenario: U.S. Treasuries prices are currently at their highest level in history - despite the fact that the United States has never been less solvent.

Readers need to realize how a bond market works. Prices and yields (i.e. interest rates) move in a precisely opposite/inverse manner to each other. As yield goes up, bond prices decline in a precisely proportional manner (and vice versa). Given that yield is (supposedly) a function of risk, with the U.S. economy being less solvent than at any other time in history, this implies record-low prices for U.S. Treasuries - not all-time highs.

Realizing that many ordinary investors don't understand the dynamics of the bond market, let me equate this situation to the world of equities with an analogy. Picture a hypothetical company with the world's largest market-cap, which we'll call "U.S. Treasuries Inc."

The share price of U.S. Treasuries Inc. is sitting at an all-time high (and has been there for many months), despite the fact the company is teetering on bankruptcy. Suddenly, the largest shareholders of U.S. Treasuries Inc. all start simultaneously dumping more shares than at any other time in history. Anyone with even a modicum of market experience knows the inevitable consequence of such an event: the share-price wouldcrash.

Understand what is directly implied here. For maximum supply to be dumped onto this market, while prices didn't even budge slightly from all-time highs does not merely imply "high demand". It necessarily implies infinite demand. Only where demand was literally "infinite" would we see sufficient buyers instantly materialize (at the highest prices in history) irrespective of how much new supply hit the market. And this did not simply occur over some anomalous one- or two-day period, but rather consistently for (at least) four solid weeks.

However, even if it was mathematically plausible for there to be infinite demand for U.S. Treasuries (which it is not), "infinite demand" is not a plausible explanation for what has transpired in the U.S. Treasuries market, since it is directly contradicted by other price data.

As a matter of unequivocal arithmetic, if there was infinite demand for U.S. Treasuries, yields for all maturities of U.S. Treasuries would be compressed to 0%. The fact that (even at the highest prices in history) these yields are not at 0% is absolute proof that there has never been anything close to infinite demand for U.S. Treasuries.

With that fact conclusively established, we can return to the mechanics of this market. U.S. Treasuries have plateaued at the highest prices in history. Indeed, with the yields for shorter-term maturities essentially at 0%, those Treasuries are already at theirmaximum theoretical price. Thus when we ask ourselves what would suddenly cause large numbers of new buyers to enter this market, we can answer that question with absolute certainty: significantly lower prices.

With much/most trading now assigned to the abominable trading algorithms, there is no possible scenario where near-infinite numbers of buyers for U.S. Treasuries could surface with zero decline in prices. To make these impossible parameters even more ludicrous, in the real world there are effectively zero buyers for U.S. dollar instruments - and infinite sellers.

China and Japan (two of the world's top-5 economies) just announced they are phasing-out U.S. dollars from their bilateral trade. This is merely the latest in an endless series of bilateral and multilateral deals which are incrementally (but relentlessly) removing the U.S. dollar as the world's "reserve currency".

To date, these deals have already reduced the demand for U.S. dollars by $trillions per year. To focus on just the China/Japan deal, as an elementary reality of their new commercial arrangement, both of these nations need to hold more of each other's currency - and less U.S. dollars. And this scenario is being repeated in one economy after another, all over the world.

Even beyond the fact that no other nations want any U.S. dollar instruments, we are confronted with the fact that there are no other (visible) buyers able to soak-up all these unwanted U.S. dollar instruments (including Treasuries). Most of the world's largest economies are located in Europe, and what just finished happening there? The ECB conjured roughly $1 trillion out of thin air - to "lend" all that funny-money to various EU governments (to buy-up their own bonds) so that they were not immediately bankrupted by the economic terrorism being perpetrated in their debt markets by the Wall Street Vampires.

China, the world's new economic juggernaut, has been dumping their Treasuries for over a year now. Japan's economy requires every spare yen it can muster for economic reconstruction following the horrific disasters it suffered. And in most of the rest of the world's economies governments are more likely to use extra dollars to subsidize exploding food prices (to prevent riots in the streets) rather than squandering their precious currency reserves buying worthless U.S. paper.

We have a seemingly intractable paradox here. In the real world there is essentially zero demand for U.S. Treasuries, while we have the recent transactions in the Treasuries market directly implying infinite demand. Fortunately we have the wisdom of the legendary Sherlock Holmes to guide us in resolving such intellectual quandaries:

"When you eliminate the impossible, whatever remains (no matter how improbable) must be the answer."

We have no visible buyers for U.S. Treasuries, yet seemingly infinite demand. More specifically, we have no visible sources of capital to even finance the purchase of all of those Treasuries. Thus the phantom-buyer of all of these Treasuries must be an entity capable of "manufacturing capital" - directly implying that this phantom-buyer has a printing-press at his/her disposal.

At the same time, we have B.S. Bernanke getting in front of microphones day-after-day insisting that he has ended all of his bond-buying - i.e. the latest episode of "quantitative easing". The obvious question is: can we trust anything that B.S. Bernanke says?

Could we trust him when he assured us about the U.S.'s "Goldilocks economy"? Could we trust him when he insisted again and again that the detonation of the largest asset-bubble in human history would lead to a "soft landing"? Could we trust him when (every six months or so) he announced another "exit strategy" from the serial money-printing and massive expansion of the Fed's "balance sheet"? Indeed, placing one's faith in the words of Ben Bernanke implies the same level of naivety as trusting a Goldman Sachs banker when he says "Have I got a good deal for you!"

Given that there is no other plausible buyer for U.S. Treasuries (in the entire world) than the Fed itself, and given that B.S. Bernanke is an individual whose personal credibility is somewhere below zero, what does this imply? Very simply, the Federal Reserve (and its Chairman) are secretly counterfeiting vast numbers of U.S. dollars, and then using that fraudulent "currency" to buy all these unwanted bonds and thus prop-up the Treasuries market.

Regular readers will note that this is in no way a "new accusation" which I am leveling at the Fed. Rather, this massive market fraud has been plainly visible on several other occasions - and I have identified those occasions in previous commentaries. Thus at this point it is necessary to explain "motive".

Why does the Fed sometimes tell the truth about its bond-buying, while most of the time it covers it up? To understand that we need to refer to the words of someone who claims to understand bankers better than most, former Goldman Sachs employee and head ofthe CPM Group, Jeffrey Christian.

In "The Great Gold Debate", it was Christian who revealed one of the banksters' fundamental Market Principles:

"One of the first things you know about intervention in [i.e. manipulation of]the currency markets…is that it's much more effective if people don't know what you're doing. They only see the effects you know, I mean there are reasons why people [i.e. bankers] don't want the market to see them coming…"

The motive for the Federal Reserve to secretly counterfeit $trillions of U.S. dollars in order to buy U.S. Treasuries and prop-up the market is obvious: it allows Bernanke and the Fed to engage in the ludicrous charade that both demand for U.S. Treasuries and the market itself are "strong" - when nothing could possibly be further from the truth. Given that the Fed has never been audited in its near-100 year history means that we can add "means" and "opportunity" along side the extremely obvious motive.

Indeed, there is no mystery at all as to why B.S. Bernanke would want to counterfeit U.S. currency in order to secretly buy-up Treasuries. Rather, given the Market Principle by which the bankers operate, the real question here is why would Bernanke ever actually admit what he was secretly doing - i.e. "announce" some of his quantitative easing?

Fortunately this is a question which has been answered on countless occasions, by numerous commentators. If we refer back to media literature at the time of "QE I", and even more so when "QE II" was announced, we see a plethora of commentaries which were almost identical.

These commentators were quite clear that they did not expect quantitative easing to accomplish must positive "good" - but yet they proclaimed themselves to be in favor of this policy despite its dubious potential. Why? Because they considered it absolutely crucial for "the market" to see the Fed and/or U.S. government "doing something" - and so the Fed simply announced the same manipulation of the U.S. bond market in which it had already been secretly engaging.

We thus have the one-and-only "exception" to the bankers' Market Principle that it's always best to hide their manipulation of markets: when the sheep are spooked so badly that they are reassured to be told that a market is being manipulated.

There is yet one more reason to find this latest episode of Treasuries-fraud to be especially alarming. Generally anyone engaging in such a massive, serial fraud would make efforts to disguise their actions. Yet here we have absolutely no attempt to do so.

Had the Fed's fraudsters allowed Treasuries prices to decline at least modestly during this latest panic in the U.S. bond market, then at least they could have made a semi-plausible claim that (somehow) a herd of new sheep had suddenly and miraculously shown up to buy that massive amount of unwanted bonds (at near-record prices). Instead we have a farce so utterly absurd that it should not fool anyone with the brain-power to be able to count their fingers and toes (with only a minimal number of mistakes): infinite buyers lining-up to buy worthless U.S. Treasuries at the highest prices in history - despite there being zero visible buyers in this market.

I would suggest that it is impossible to construct a more outrageous scenario, even in totally hypothetical terms. On that basis it seems entirely reasonable to dub these latest events "maximum fraud".

Jeff Nielson

www.bullionbullscanada.com

end
In this piece, David Rosenberg is paying special attention to the following 5 areas as we enter 2012:

 (David Rosenberg, Gluskin Sheff/zero hedge)

David Rosenberg On The Coming Gunfight At The OK Corral Between Mr Market And Mr Data

From Gluskin-Sheff

Less Than Meets The Eye

Some members of our investment team asked me yesterday what numbers out of the U.S. have come out soft of late. Well, here's a short list we came up with:

• Industrial production
• Core orders
• Core shipments
• Home prices (every measure)
• Real disposable income
• Real PCE for November

Keep in mind that Q3 GDP was marked down to sub-2% and I think Q4 will be around 3%. Last year's Q4 also surprised to the high side but was no predictor for the next two-three quarters. To be sure, the economy has done better than I had thought five-six months ago, but much of what "bounce" we got was a belated comeback in auto production, the sharp decline in gas prices (which I wasn't expecting) and the pullback in the savings rate which I can't see being sustained. We are creating more jobs, but in low-paying industries and losing them in high-paying government and financial sector jobs.

Hence no growth in real personal income. I see that as a problem for it means that either exports accelerate or the savings rate declines to underpin the economy going forward. U.S. home prices have sagged more than 20% annual rate in the past four months and represents a substantial wealth loss for homeowners and calls into question the degree to which home inventories have receded in terms of creating a true and durable demand-supply balance.

It is useful to compare and contrast the GDP and GDI (Gross Domestic Income) data. Earlier in 2011, the latter suggested that the surprising weakness in the former was overdone. Now the tables have turned — the "pickup" in spending is not being validated by the income data, which have all but stagnated in Q2 and Q3.

Based on the real personal income data, there is no growth in Q4 thus far and it looks as though profits, at least based on S&P 500 data fell for the first time since the recession ended 21/2 years ago. That would mean a third quarter of flattish or even negative GDI data and believe me, if this is what the more closely-watched GDP was flagging right now, the markets would be under some pressure — assuming denial was held at bay.

Okay, so to recap: We have real personal disposable income growth running at a mere +0.5% annual rate in Q4. And according to S&P 500 EPS data, corporate profits are contracting at a 3.8% annual rate for Q4. This is the first sequential decline since the fourth quarter of 2008. So at best we have a flat quarter for real GDI on our hands — for the third quarter in a row (after 0.2% at an annual rate in Q2 and Q3). Now that doesn't classify as a recession —just the next rung up that is called stagnation. This in turn explains why bonds got a heck of a lot more expensive in the past year and why it is stocks got a whole bunch cheaper. The U.S. economy, more from an income than spending perspective perhaps, is skating on some very thin ice here.

Let's do some arithmetic to help explain what has happened on the spending side.

First, since mid-2011, gasoline prices have plunged 60-cents, which is in effect an $80 billion tax cut for the household sector. The problem is that this windfall is behind us, sadly enough. Eighty billion dollars at an annual rate is akin to a 4% pay raise for the average worker in real terms. That's hardly trivial for the likes of Bob Cratchit, we can assure you.

Second, since June, the personal savings rate has plunged from 5% to 3.5%. This sort of decline over such a short time span has occurred but five times in the past 12 years. This in turn freed up $150 billion at an annual rate in real terms yet again for spending purposes.

So we have a total of $230 billion of support that temporarily bolster the consumer since the mid part of 2011.

Yet real consumer spending since June has only risen by $105 billion at an annual rate in real terms.

That means that in the absence of these dual effects — lower gas prices AND lower savings rates — we would have seen real PCE contract $125 billion or at a 3% annual rate since mid-2011 (looking at the monthly GDP estimates, there would have also been zero growth in the overall economy). Instead, real PCE managed to eke out a 2.7% annualized gain — but aided and abated by non-recurring items. Yes, employment growth has held up, but from an income standpoint, the advances in low paying retail and accommodation jobs have not compensated the losses in high paying financial sector and government employment.

Now it may be the case that prices at the pump have bottomed, but why can't the savings rate still go down? Well, if it continued to decline at the rate since June, it would be at zero by summer. That is not impossible, but it's not exactly a base case scenario either. What we do know is that in Q2 and Q3 together, the combination of weak equity markets and eroding housing values dragged down net worth by some $2.5 trillion. Now there are not a whole lot of data samples to pick from historically, but the last two times this happened, the savings rate rose in the ensuing three months.

As was the case last year, the first quarter promises to be an interesting one from a macro standpoint. The U.S. economy has indeed been dodging bullets for a good year and a half now. It might not be October 26, 1881, but something tells me we have a gunfight at the O.K. Corral on our hands this quarter between Mr. Market and Mr. Data.

end

With respect to MFGlobal here is added news as to what happened in the last days of the bankruptcy:
(courtesy Reuters)

MF Global sold assets to Goldman before collapse: sources

By Lauren Tara LaCapra and Matthew Goldstein | Reuters – 21 hrs ago

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(Reuters) - MF Global unloaded hundreds of millions of dollars' worth of securities to Goldman Sachsin the days leading up to its collapse, according to two former MF Global employees with direct knowledge of the transactions. But it did not immediately receive payment from its clearing firm and lender, JPMorgan Chase & Co , one of the sources said.

The sale of securities to Goldman occurred on October 27, just days before MF Global Holdings Ltdfiled for bankruptcy on October 31, the ex-employees said. One of the employees said the transaction was cleared with JPMorgan Chase.

At the same time MF Global, which was run by former Goldman Sachs head Jon Corzine, was selling securities to Goldman to raise badly needed cash, the futures firm was also drawing down a $1.2 billion revolving line of credit it had with JPMorgan, according to one of the former MF Global employees.

JPMorgan spokeswoman Mary Sedarat said the bank did not withold money because of the line of credit. She declined further comment on details of the transactions.

JPMorgan has fought aggressively in bankruptcy court to protect its interests, and received a lien on some of MF Global's assets in exchange for granting the firm $8 million to fund its bankruptcy costs. The lien puts JPMorgan's interests ahead of MF Global customers who have not yet received an estimated $900 million worth of money from their accounts, which remain frozen as regulators search for missing funds.

The hastily crafted transactions and the seeming inability of MF Global to recoup some of the money in the sale to Goldman may start to explain why so much money remains unaccounted for at the futures firm.

It is unclear what type of assets Goldman bought from MF Global, but the securities were worth hundreds of millions of dollars, the former employees said. The sources spoke on the condition of anonymity.

The Wall Street Journal previously reported that George Soros' fund was a buyer of securities sold by MF Global, scooping-up some of its European sovereign debt at a deep discount. Panic among investors and clients about MF Global's $6.3 billion bet on European sovereign bonds led to its demise.

Corzine, who was CEO of MF Global at the time of the collapse, headed Goldman Sachs from 1994 to 1999 before being ousted after a power struggle with co-CEO Henry Paulson.

Corzine and other top MF Global executives reached out in desperation to Goldman Sachs Group Incand JPMorgan, as well as Jefferies Group Inc Barclays Plc , Citigroup Inc , Deutsche Bank AG , Macquarie Group Ltd , State Street Corp and Wells Fargo & Co , as potential buyers in its final days as the firm teetered toward collapse, Reuters earlier reported.

(Additional reporting by David Henry; editing by Martin Howell and Andre Grenon).

end

I will conclude this commentary with this Hitler parody depicting Jamie Dimon finding out that

Eric Sprott is bypassing the comex and buying silver from the mines.  In this parody "Dimon" states that

the LTRO is failing and the whole world is now focusing on buying physical assets.

enjoy

Hitler precious metals cartel parody

(Hit replay).

335 views 

   

It is time to say goodnight
I will see you tomorrow night
Harvey.