Saturday, March 10, 2012

Greek credit default swaps triggered/Gold and silver reverse after jobs release/USA trade deficit increases.

Good morning Ladies and Gentlemen:


Before commencing, I would like to introduce to you our newest morgue member who succumbed last
night:

New City Bank of Chicago Illinois.


Gold closed up $12.80 to $1710.90 whereas silver rose by 45 cents to 34.18.
Early this morning we were greeted with news of a "successful" PSI of 85.5% of the Greek law bonds.
However only 69% of the British law bonds were tendered setting up the stage for lawsuits striving for accelerated payments. No doubt other PIIGS nations are watching attentively and they too will ask for considerable haircuts to their debt.  Portugal is for sure next and many of their bonds are based on English law.  Yesterday morning we saw the release of the NON FARM Payrolls and it "added" 229,000 jobs.
However on closer look, 1/2  of the jobs increase was of a part time nature and of lower paying jobs like flipping hamburgers and again we witnessed another 91,000 jobs added by the phony B/D plug. As soon as the jobs report was released, the bankers had their fat little fingers on the sell buttons of gold and silver.  They knocked gold all the way down to $1677 with silver falling suit to $33.11.  However when Greece announced that it was going to initiate the CAC clauses, then everything reversed with gold and silver rising finishing the day nicely in positive territory.   All of these will be dealt with in detail but first let us travel over to the comex and see assess trading.

The total comex gold OI rose by 3803 contracts as gold had a good day rising by $14.00.  The front non delivery month of March was its OI rise from 49 to 289 contracts for a gain of 240 contracts.  We had 8 deliveries on Thursday so we gained a total of 248 contracts or 24800 additional gold oz standing.  The next delivery month is April which is 3 weeks away from first day notice.  Here the front month marginally fell by 3849 contracts from 209,896 to 206,047 as some of the longs here rolled into the second biggest delivery month for gold:  June.  The estimated volume on Friday was quite large coming in at 220,337 compared to Thursday's confirmed volume of 194,731.  It looks like extra volume arrived on the scene with the announcement of a forced CAC in Greece.

The total silver comex OI fell marginally by 347 contracts even though silver rose by 19 cents on Thursday.
I believe that this level of OI will be the new norm and the channel rise and fall in silver will be tiny from here.
The front delivery month for a change saw its OI rise by 9 contracts even though we had 0 deliveries on Thursday.  So for the first time this month we saw no cash settlements and 45,000 ounces of additional silver stand for delivery.  The next front month for silver is May and here the OI fell by 580 contracts from 58,023 to 57,433.  I think that the bankers are not amused that they could not shake any more silver leaves from the tree.  The estimated volume Friday was quite large coming in at 62,662 compared to Thursday's confirmed volume of 43,729.  New silver longs also entered the scene once the CAC was triggered and announced officially.

Let us begin with March inventory movements  in Gold


 gold ounces standing in March 10 :















Gold
Ounces
Withdrawals from Dealers Inventory in oz
nil
Withdrawals from Customer Inventory in oz
64,332 (Scotia,Manfra) 
Deposits to the Dealer Inventory in oz

5,000 (Brinks)
Deposits to the Customer Inventory, in oz
24,453  (Scotia)
No of oz served (contracts) today
(50) 5000
No of oz to be served (notices)
(239) 23,900
Total monthly oz gold served (contracts) so far this month
(673) 67,300
Total accumulative withdrawal of gold from the Dealers inventory this month
  nil
Total accumulative withdrawal of gold from the Customer inventory this month

145,304


We had considerable activity inside the gold vaults on Friday.
We another of those impossible deposits of exactly 5,000 oz into the Brink vaults.  It seems that
most deposits of this kind "arrive" at Brinks.  Maybe our 2 experts can explain this physical phenomenon
since most bars of are odd in nature such as 399 oz or 402 oz etc.  To see exactly 5000 oz that should immediately raise the red flag that this is a paper transaction.

The customer had a 24,453 oz deposit into the Scotia vault.

On the withdrawal side we saw no withdrawal from the dealer.
However we had the following withdrawal by the customer:

1.  Out of Manfra  32 oz.
2.  Out of Scotia:  64,300 oz (exactly 2.000 tonnes)

total withdrawal  64,332 oz.

the second withdrawal again is very suspicious as you just do not get exact amounts of physical leaving.

we had 3 adjustments and all of these were gold leaving the dealer and entering the customer:

1.  1499 oz leaving the Delaware dealer.
2. 784 oz leaving the HSBC dealer
3.  9704 oz leaving JPM dealer.

The total registered gold at the comex vaults now sits at 2.464 million oz or 76.64 tonnes of gold.

The CME notified us that we had 50 notices filed for 5000 oz of gold.  The total number of gold notices filed so far this month total 673 for 67300 oz.  To obtain what is left to be filed upon, I take the OI for March at (289) and subtract out  Friday's deliveries (50) which leaves us with 239 notices or 23900 oz left to be served upon.


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

67300 oz (served)  +  23900 oz (to be served upon)  =  91,200 oz or 2.83 tonnes of gold.

end



the silver chart for March:    March 10/2012:








Silver
Ounces
Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory135,393 (Brinks, Delaware, HSBC)
Deposits to the Dealer Inventory596,899 (Brinks)
Deposits to the Customer Inventorynil
No of oz served (contracts)1 (5,000 oz)
No of oz to be served (notices) 483 (2,415,000)
Total monthly oz silver served (contracts)1133 (5,665,000 )
Total accumulative withdrawal of silver from the Dealers inventory this month3,231,423
Total accumulative withdrawal of silver from the Customer inventory this month 1,041,461


We had a fair amount of activity inside the silver vaults on Friday.
The dealer received 596,899 oz inside the Brinks vault and all of that stayed as we did not receive any
withdrawal notice from the dealer brinks.  The customer received no silver deposit.

The dealer did not have any silver withdrawal but the customer had the following:

1.  Out of Brinks:  31,317 oz
2. Out of Delaware:  2999 oz
2.  Out of HSBC :  101,097 oz

total withdrawal from the customer;   135,393 oz
There were no adjustments

The total registered silver rises to 34.43 million oz.
The total of all silver rises to 130,93 million oz.

The CME notified us that we had one measly contract served upon for a total of 5,000 oz.
(with the addition of 596,899 oz of silver into Brinks one would have thought we should have greater than one silver contract served upon).   The total number of notices served upon so far this month total 1133 contracts or 5,665,000 oz.  To obtain what is left to be served upon, I take the OI standing for March (484) and subtract out Friday deliveries (1) which leaves us with 483 notices or 2,415,000 oz.

Thus the total number of silver ounces standing in this delivery month of March is as follows:

5,665,000 oz (served)  +  2,415,000 oz (to be served upon)  =   8,080,000
we gained 45,000 oz of additional silver on Friday.

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.



March 10.2012


Total Gold in Trust

Tonnes:1,293.68

Ounces:41,592,971.14

Value US$:70,153,868,155.10





March 8.2012



TOTAL GOLD IN TRUST

Tonnes:1,293.68

Ounces:41,592,971.14

:

Value US$:70,258,617,300.28









surprisingly again for the 6th straight day no changes in gold levels
at the GLD.






 






end






And now for silver March 10 2012:


Ounces of Silver in Trust313,895,682.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,763.25



March 8.2012



Ounces of Silver in Trust313,895,682.000
Tonnes of Silver in TrustTonnes of Silver in Trust9,763.25



March 7.2012

Ounces of Silver in Trust 313,895,682.000
Tonnes of Silver in TrustTonnes of Silver in Trust9,763.25










no changes in inventory levels at the SLV.








   


end



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



1. Central Fund of Canada: traded to a positive 6.2-percent to NAV in usa funds and a positive 6.2% to NAV for Cdn funds. ( March 10 2012)

2. Sprott silver fund (PSLV): Premium to NAV  fell slightly today  to  7.15% to NAV  March 10.2012 :
3. Sprott gold fund (PHYS): premium to NAV rose slightly to  3.64% positive to NAV March 10. 2012). 



end.


Friday night saw the release of an important COT report. let us see the new position levels of our major players and how they impacted the price of gold and silver.  


First the gold COT:





Gold COT Report - Futures
Large Speculators
Commercial
Total
Long
Short
Spreading
Long
Short
Long
Short
198,112
34,847
33,759
152,969
353,177
384,840
421,783
Change from Prior Reporting Period
-32,938
-2,983
1,198
7,908
-37,235
-23,832
-39,020
Traders
178
68
83
44
52
262
168


Small Speculators




Long
Short
Open Interest



58,409
21,466
443,249



-11,963
3,225
-35,795



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, March 06, 2012



As you can see, the raid certainly did its job on our large specs.


Those large specs that have been long, got annihilated as they coughed up a monstrous 32,938  contracts.
Those large specs that have been short in gold covered a tiny 2,983 of their short positions.


Our commercials;


The commercials were have been long in gold and are close to the physical scene increased their longs by a huge 7,908 contracts.  (these may also be the short bankers who buy a long which would be the same as them covering their shorts).


And now for our famous commercials who have been short in gold from the beginning of time:  they covered a monstrous 37,235 contracts.


Our small specs:
those small specs that have been long in gold coughed up a huge 11,963 contracts.
those small specs that have been short in gold somehow saw the raid coming and added 
3225 contracts to their short side.


Conclusion:  you have your crime scene.  The large specs and small specs were blown out of the water and the commercial banks once again fleeced them.
The COT report is now very bullish but please do not play with these crooks as they will again see the opportunity to raid.  The regulators are allowing this nonsense to continue probably with the knowledge that the massive supply of non backed gold paper is official
or orchestrated by the USA government themselves.


And now the silver COT:



Silver COT Report - Futures
Large Speculators
Commercial
Total
Long
Short
Spreading
Long
Short
Long
Short
30,635
7,443
21,500
36,329
72,125
88,464
101,068
-7,377
-566
1,628
2,527
-6,270
-3,222
-5,208
Traders
65
26
35
34
44
118
90

Small Speculators




Long
Short
Open Interest



22,559
9,955
111,023



-1,621
365
-4,843



non reportable positions
Change from the previous reporting period

COT Silver Report - Positions as of
Tuesday, March 06, 2012



the Large Specs:

Our large specs that have been long in silver pitched 7377 contracts from their long side.
I was quite surprised that the loss of long contracts was this low.

Our large specs that have been short in silver somehow increased their short position by 566 contracts.

Our commercials:

Those commercials that are long in silver and close to the physical scene added a rather large 2,527 contracts. (This addition to longs could also be our short bankers who decided to buy a future long instead of covering his short side)

Those commercials who have been short from the beginning of time and our subject to the criminal probe
e.g. JPMorgan, covered 6270 contracts from their short side.

Our small specs;

Those large specs that have been long in silver pitched a rather large 1621 contracts from their long side.
Those large specs that have been short in silver added a tiny 365 contracts to their short side.

Conclusion:
we are now very bullish in silver.  However please to do not play the comex against the crooked bankers.
They fleeced the large specs and small specs and covered quite a large hunk of their short positions.

end.




I will try and give an  outline of the PSI bond swap and what to expect with respect to the triggering of credit default swaps on the Greek restricted default.  The articles on this will follow.


In a nutshell, with respect to the original Greek law bonds, 152 billion euros out of 177 billion euros were
voluntarily exchanged.  The remainder will be CAC'd ( about 25 billion euros worth of those bonds). This, as you will see below triggered a credit default swap on those bonds. An auction will determine the amount of loses to the underwriters of those credit default swaps. Peter Tchir believes that even though the gross credit default swaps are in the neighbourhood of 75 billion dollars, the net is only 3.2 billion dollars.  He feels that many banks had time to prepare for this and thus the payments should be orderly in the same fashion as the Lehman default which had 5.2 billion dollars of credit default swaps.  On the other hand Jim Sinclair believes that the 3.2 billion figure is only the amount told to the OCC, the comptroller of the USA currency which is only interested in derivatives underwritten by USA banks.  The credit default swaps underwritten by foreign non consolidated subsidiaries of USA banks are not included in the OCC data but are included in the BIS data. Jim Sinclair believes the losses will be enormous and  the only way that the counterparties could pay is if the USA initiated swaps with Europe.  Dollars would flow to Europe ( the ECB) and then these dollars would flow first to the underwriter banks and then to the winners. If this occurs, no doubt we will witness the start of massive inflation.  Hyperinflation will kick in once Portugal seeks money in September along with Spain.

Greece had a total of 206 billion euros of PSI ( private sector involvement) bonds .The bond swap removed a little less than 53% of these obligations and thus cut 107 billion euros from their official public debt.
The EU orchestrated a firewall of loans to help Greece. The concerted effort by these bankers, as they introduced retroactive CAC clauses, and swapped bonds in order not to be CAC'd, certainly causes one to wonder that Sinclair is the correct one and the credit default swaps will cause a disorderly mess. The amount
of euros pledged by various players to rescue Greece is 130 billion euros which is the amount stated in the second bailout figures. Thus the new bailout adds 130 billion - 107 billion or 23 additional billion euros to their official debt.  It does not reduce it. As not all the bonds are tendered, the 107 billion euros of reduction is now only 105.5 billion euros and Greece must find the additional 1.5 billion euros with more austerity.
With more adjustments downwards on their GDP falling to 7.5% this quarter, the task seems hopeless and we are seeing this in the new Greek bonds trading on a "when issued basis" at 15 cents on the dollar.
Most believe that Greece will not be able to make the first payment on those bonds with a coupon rate of 2.0% comes due in one year.

The pension funds which have around 30 billion euros of Greek bonds have not been addressed.
You can imagine huge social unrest when the citizens find out that they have lost their pensions.

The amount of money slated for the Greek banks are around 25 billion euros but the losses were greater.
On top of this many wealthy have removed their euros from Greek banks and moved them north to Switzerland knowing that eventually these euros will be forced into their new currency the drachma. The banks are in need of 40- 45 billion euros to replenish losses from the haircut and the bank runs by depositors.

The IMF have promised only 17 billion euros to save Greece but the ECB and ESFS have demanded
more.  The IMF have stated that they need greater firewalls before they commit more money.  The IMF is  funded by the USA to the tune of 17%. I am not sure that the ECB/EFSF has the necessary 130 billion euros to fund to Greece.

We had a grand total of 29 billion euros worth of English law- Greek bonds one of which is the railway bonds we talked about yesterday which had a clause in them that can accelerate the default of all bonds.  However leaving that aside, we had 20 billion euros of English originated bonds  participate in the bond exchange and thus  9 billion euros did not participate.  They will be given an extension up to March 23.2012 to decide whether they wish to participate.  The Greek government stated that there will be not enough money to pay them off. If you include the CAC from the Greek Law bonds plus the voluntary participation from the rest we had 95.6% of the total bonds eligible for the bond swap.  The new bonds are trading on a "when issued basis" as 15 cents on the dollar.  The total package for these players is around 22 cents on the dollar all in and thus a 78% haircut.

Now that you have the background, here all the more important articles on the Greek default.



Here is the original statement from Greece on the PSI as outlined by Tyler Durden of zero hedge

(courtesy zero hedge)



Greece Issues Statement On PSI, Says €172 Billion Of Bonds Tendered In Swap, Will Enact CACs, ISDA To Meet At 1pm To Find If CDS Trigger

Tyler Durden's picture





The biggest sovereign debt restructuring in history is now, well, history. The headlines are finally come in:
  • GREECE ISSUES STATEMENT ON DEBT SWAP
  • GREECE COMPLETES DEBT SWAP
  • GREECE SAYS EU172 BLN OF BONDS TENDERED IN SWAP
  • GREECE GETS TENDERS, CONSENTS FROM HOLDERS OF 85.8%
  • GREECE SAYS 69% OF NON-GREEK LAW BONDHOLDERS PARTICIPATED
We learn that €152 of the €177 billion in Greek law bonds have tendered, which is 85.8%This means that €25 billion in Greek law bonds have not - these are the hedge funds that could not be Steven Rattnered into participating, and will now sue Greece for par recoveries.This is also the number that ISDA will look at today to determine if, in conjunction with the CAC, means a credit event has occurred.
And yes, the CACs are coming, as is the Credit Event finding:
  • GREECE SAYS WILL AMEND TERMS OF GREEK LAW BONDS FOR ALL HOLDERS
As a reminder from February 24:




Finally, as we have said all along, it is the UK-law bonds that are the fulcrum security here:
  • GREECE TO EXTEND NON-GREEK LAW BOND OFFER PERIOD TO MARCH 23
And here is Veni:
«On behalf of the Republic, I wish to express my appreciation to all of our creditors who have supported our ambitious program of reform and adjustment and who have shared the sacrifices of the Greek people in this historic endeavour. With the support of our official sector and private creditors, Greece will continue implementing the measures needed to achieve the fiscal adjustments and structural reforms to which it has committed, and that will return Greece to a path of sustainable growth. Our invitations to offer to exchange, and submit consents with respect to, foreign law governed will remain open until 23 March 2012, after which there will be no further opportunity for creditors holding those instruments to benefit from the package of EFSF notes, co-financing and GDP linked securities which form an important and integral part of our invitations.»
Full release:  see  www.zerohedge.com


end.



Immediately after the release of the PSI bond swap, Greece then issued a revised 4th quarter stat on their GDP. It was not good as instead of falling by 7% (year over year), it fell 7.5%.  Now Greece has additional problems as they must get to minus 1% growth for 2013.  That means that Greece must grow 8.5% year over year from here despite the huge cuts and massive public layoffs coupled with major strikes.
It seems that the Greeks just do not want to work.  This will be an impossible task:

(zero hedge)





The Bad News Begins: Greek Q4 GDP Slide Revised Downward From -7.0% To -7.5%

Tyler Durden's picture





Not even 6 hours after the PSI exchange offer details, and already the true Greek problem rears its head. Because it is not the crushing debt coupon that is the primary threat to Greece: cutting the cash coupon from infinity to 2.6% is welcome, but utterly meaningless if the debt load is still intolerable (as a reminder, just the Troika DIP is about 130% of Greek GDP, meaning all junior debt is worthless as confirmed by the trading price of the New Greek debt in the 15 cents on the euro region). No - the true threat to the Greek economy is that nobody wants to work anymore. Sure enough, the previously reported -7.0% contraction in Q4 GDP has just been revised to -7.5%. From Reuters: "Greece's gross domestic product (GDP) contracted by 7.5 percent year-on-year in the fourth quarter of 2011, the country's statistics office said on Friday based on seasonally unadjusted provisional estimates. The contraction, which followed a 5.0 percent GDP decline in the previous quarter, was deeper than a previous Feb. flash estimate of -7.0 percent." And one can be absolutely certain that this number will be revised far further lower when all is said and done. Also, with recently released Greek PSI data coming at an all time low, we wish Greece the best of luck in achieving that -1.0% GDP growth in 2013 as per the IMF's downside case. Finally, this explains why the NEW Greek debt is trading with an implied redefault probability of 98%.
Here is how Greek GDP looks by quarter in 2011:
Q1: -8.0%; Q2: -7.3%; Q3: -5.0%; and Q4: -7.5%

end


Peter Tchir comments on the large gross credit default swaps (75 billion euros).  He states that the netting down to 3.2 billion euros should not cause a problem but we must wait and see.  However the real risk is that of Portugal upon which all eyes will begin to focus on.  As Ambrose Evans Pritchard writes in the UKTelegraph, Portuguese 10 yr bonds have risen in yield, coupled with a declining economy due to austerity measures.  In September these guys are next: in line for a handout, followed by Ireland and Spain.

Here is Peter's comments

(Peter Tchir)



Greek Creditors Don't Get the Courtesy of a Reach-Around

Tyler Durden's picture





From Peter Tchir of TF Market Advisors
Greek Creditors Don't Get the Courtesy of a Reach-Around
Only in Greece, can you wipe out €100 billion of debt, and have the new debt that replaces it trade at 20% of face value. 
So 85.8% of Greek law bonds “participated”.  The government intends to use the Collective Action Clause to force the holdouts to participate.  It is unclear if the government has actually used the clause already, or just intends to.  Once they use the CAC, that will be a Credit Event for the CDS.
English law bonds saw participation less than 70%.  The deadline has been extended until March 23rd.  As discussed all along, the English Law bonds gave some protection to holders and that clearly gave them the confidence to hold out.  Given the Event of Default covenants, and the right to accelerate, some bondholders may push to accelerate after the Greek law bonds get CAC’d.
The market now knows that the PSI will be “successful” and a massive amount of debt will be wiped out, but the new bonds are being quoted “when and if issued” at prices ranging from the high teens to mid twenties.   Why are the new bonds so weak? SUBORDINATION
These new bonds may show up as senior unsecured obligations of Greece, but they are incredibly subordinated.  Bondholders just gave up claims on 50% of their debt.  While the EFSF may (or may not) have the same terms with Greece in their role as co-financer, the rest of the Troika debt is senior.  On March 20th, the ECB and other “protected” entities, are due to receive €4,352,195,000.  Yes, they are releasing some money to Greece, but mostly so it can pay the protected holders their money on March 20th.  Protected entities hold over 30%  of that issue and expect to get paid par.  Real world people can get t-shirts, my central bank got par, and all I got are these EFSF notes and some real low coupon subordinated debt.  It looks like the package is worth about 22 points, which shows how efficient the market is, since that is where bonds have been trading for awhile.
The GDP notes could be interesting depending on how they pay out.  Any economy that can drop 7.5% in a quarter is likely to have a couple dead cat bounces off a low base.  So long as there is no “high water” mark on the GDP notes they might trade like free options on any good quarter, though I expect we will have seen another restructuring before too long as the debt isn’t sustainable, and more and more is held by “protected class” lenders.
For the CDS, once a Credit Event is declared (which it will be) the market might get concerned about the large Gross amount outstanding – it shouldn’t.
More important is going to be the realization that Portugal and Ireland may want similar deals, and why not give them the deals, since the EU now knows they can make banks do whatever they tell them.
Spain is likely to be its own special case and seems to be just waiting for a catalyst to move wider again.  Italy feels far more stable.
The next round of weakness is when bondholders will have to be aware of just how subordinated they are.  Any bonds held by the ECB directly have to be treated as senior to regular bonds.  Any bonds held as collateral for various lending programs will add to pressure as the ECB will have to make margin calls (I don’t think even Draghi can change that requirement easily).




Tyler Durden responds to Peter Tchir's comments:

And from Zero Hedge, since so far everything is proceeding just as predicted back in January, we urge anyone who has not read it yet, to peruse Subordination 101: A Walk Thru For Sovereign Bond Markets In A Post-Greek Default World
In other news, we are taking bets on whether Greece will make even one of the "new" 2.6% cash coupon payments before itredefaults. Our money is on absolutely no.



end

At 4:30 pm, the ISDA announced that a credit event has occurred and an auction will occur in 30 days and payments to the "winners" will commence.

(courtesy Bloomberg)

Greece Deal Triggers $3 Billion in Default Swaps, ISDA Says
March 9 (Bloomberg) -- Greece’s use of collective action clauses forcing investors to take losses under its debt restructuring triggers payouts on $3 billion of default insurance, the International Swaps & Derivatives Association said.
A total 4,323 credit-default swap contracts may now be settled after ISDA’s determinations committee ruled the use of CACs is a restructuring credit event, according to a statement distributed today by Business Wire. Before the ruling, Greek swaps rose to a record $7.68 million in advance and $100,000 annually to insure $10 million of debt for five years.
Swaps traders will hold an “expedited” auction March 19 to “maximize” the number of bonds that can be used to set payout amounts on the contracts, New York-based ISDA said on the committee’s website today. Auctions, which set a recovery value on the underlying bonds, typically are held about a month after credit events are triggered.
A swaps trigger “raises the question of which country is next and which banks are most exposed,” Hank Calenti, a bank analysts at Societe Generale SA in London, wrote in a note. “Less than six months ago we had the head of the ECB exhorting that there must be no credit event on Greece,” he wrote.
Confidence Boost
A settlement may bolster confidence in the $257 billion government-debt insurance market after Greece’s restructuring tested the viability of default swaps as a hedge. Greece reached its target for participation in the debt restructuring after using CACs to force the hand of holdouts, with investors in 95.7 percent of the bonds taking part.
Policy makers including former European Central Bank President Jean-Claude Trichet opposed payouts on Greek credit- default swaps on concern traders would be encouraged to bet against failing nations and worsen the region’s debt crisis.
“It’s important to keep investor confidence in this instrument as it will affect the ability of sovereigns to issue bonds,” according to Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam, who said the decision will “restore confidence” in the market. “If you want to attract investor demand, you have to offer them an instrument that will allow them to hedge exposure, and CDS is the best instrument for that.”
Swaps Stigma
While policy makers had hoped to achieve debt sustainability in Europe’s most indebted nations without triggering default swaps, political determination to avoid the stigma of a credit event waned as Greece struggled to meet the terms of its bailout. Standard & Poor’s downgraded the nation to selective default on Feb. 27 after the government retroactively inserted CACs into bond terms.
“I’ve been surprised throughout at the strong desire not to trigger CDS,” said Elisabeth Afseth, a fixed income analyst at Investec Bank Plc in London. “This should be good for anyone seeking protection elsewhere, such as Spain or Italy.”
Credit-default swaps on Greece now cover $3.16 billion of debt, down from about $6 billion last year, according to the Depository Trust & Clearing Corp. That compares with a swaps settlement of $5.2 billion on Lehman Brothers Holdings Inc. in 2008.
While there were concerns at that time about a daisy chain of losses if counterparties failed to meet their commitments, the settlement of swaps guaranteeing debt of Lehman, as well as Fannie Mae and Freddie Mac, were “orderly” and caused no major disruptions for the market, according to regulators.
Restructuring
Swaps on western European governments can pay out on a credit event triggered by failure to pay, restructuring or a moratorium on payments. A restructuring event can be caused by a reduction in principal or interest, postponement or deferral of payments or a change in the ranking or currency of obligations, according to ISDA rules. Any of these changes must result from deterioration in creditworthiness, apply to multiple investors and be binding on all holders.
The determinations committee which decides whether a credit event has occurred consists of representatives from 15 dealers and investors. The group, which includes Deutsche Bank AG, Pacific Investment Management Co. and Morgan Stanley, rules after a request is made by a market participant.
In a restructuring credit event investors have the right to choose whether to settle their default swap contracts.
To contact the reporter on this story: Abigail Moses in London atamoses5@bloomberg.ne



end

Jim Sinclair is interviewed by Eric King on the issue of these credit default swaps.
Sinclair certainly is well versed in the derivative field. He believes that the net 3.2 billion of credit default swaps is that which is reported to the OCC.  He states that foreign non consolidated subsidiary of
a USA bank does not report to the OCC but directly to the BIS.  And the BIS reports that total derivatives are in excess of 700 trillion dollars and under report that figure by 50%.  If the total gross credit default swaps are much greater than the reported 75 billion then we will have a catastrophe on our hands.
We must now wait and see how this plays out:

(courtesy Jim Sinclair and Kingworld news)

this is very important.





Greek 'credit event' cost will be so much higher, Sinclair tells King World News

 Section: 
7:06p ET Friday, March 9, 2012
Dear Friend of GATA and Gold:
Trader and mining entrepreneur Jim Sinclair tells King World News tonight that the Greek "credit event" will cost much more than the official figure of $3.5 billion in credit default swaps, probably in the trillions. He suspects that it could require the rescue of eight international banks, with enormous inflationary consequences. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


end


You can listen to Jim here:


“Mr. Gold” – Jim Sinclair – Exclusive on Metallwoche

**Courtesy of Metallwoche.de**
Dear CIGAs,
What only a few have realised so far…
It is a great pleasure for us to have once again Jim Sinclair in our show on Metallwoche again. „Mister Gold himself“ with 50 years of experience as a trader and investorhas a very straight view when it comes to financial markets. Jim sees developments which only a few have realised so far. In this interview Jim talks about the lesser demand for US Dollars in international trade settlements. It is still a quite but important development in 2012 which could start accelerating towards June.
Furthermore we talk about the upcoming event in Greece, the ISDA, Derivatives, CDS and Iran barred from using SWIFT. Last but not least Jim offers some of his views on the future changes and developments in the mining business and how investors can benefit from this. Welcome to Metallwoche International!



Open Europe raises many valid points on this 'Pyrrhic victory' for the bankers and thus sowing the seeds for political and economic destruction:

1. At the start of 2012, the total number of Greek bonds held in private hands was about 64%  with 32% held by the ECB/EFSF and IMF or in other words taxpayer backed institutions.

2. The new Greek bond deal now puts the taxpayer backed institutions holding 85% of the bonds (by 2015)
and the private holders only 15%.

3.  This puts Greece in a greater risk for the taxpayers than before and thus sows the seeds for destruction of the European economy.

4. Greek banks have taken substantial losses and must be recapitalized. Also in June stricter Basel III
will be enforced. However of the total 93.7 billion euros that are pledged to be coming, only 23 billion is heading for the Greek banks. With the huge haircuts that Greek bonds incurred with the PSI they will need anywhere from 36 to 45 billion euros.  Where will this money come from?

5. The Greek Pension plans had a total of 30 billion euros and they participated in the haircut.  These funds
held many citizens wealth and if the plan can not retrieve its lost "haircut" you can imagine the social revolt that this will entail.

plus many more unsettled questions.

the following is an important post for all to read:

(courtesy OPEN EUROPE/zero hedge)


OpenEurope Verdict On Greek PSI - Pyrrhic Victory Sowing Seeds Of A Political And Economic Crisis In Europe

Tyler Durden's picture



Minutes ago we presented Goldman's twisted and conflicted take on Greece in a post PSI world. Needless to say, virtually everything goldman says is to be faded. Which is why not surprisingly, the next analysis, a far more accurate and realistic one, does precisely that. In a just released report from Europe think tank OpenEurope, the conclusion is far less optimistic: "The deal sets the eurozone up for a political row involving Triple-A countries. At the start of this year, 36% of Greece’s debt was held by taxpayer-backed institutions (ECB, IMF, EFSF). By 2015, following the voluntary restructuring and the second bailout, the share could increase to as much as 85%,meaning that Greece’s debt will be overwhelmingly owned by eurozone taxpayers – putting them at risk of large losses under a future defaultThis deal may have sown the seeds of a major political and economic crisis at the heart of Europe, which in the medium and long term further threatens the stability of the eurozone."
From OpenEurope (pdf version)
A small step forward, but the Greek restructuring deal could prove to be a pyrrhic victory
Open Europe has responded to the agreement between the Greek government and its private creditors which laid out how much and under what format the country’s massive €360bn debt burden should be written down. The deal involved private sector bondholders agreeing to a 53.5% nominal write-down, while so-called Collective Action Clauses (CACs) will be used meaning that Greece is now technically in a state of default – precisely what EU leaders have spent two years trying to avoid. While marking a small step forward, Open Europe notes that the deal is unlikely to save Greece, and that the country is still on course for a full default in three years’ time, if not sooner.
Open Europe’s Head of Economic Research Raoul Ruparel said,
“With the use of CACs Greece has entered a coercive restructuring or default – something which Greece and the eurozone have spent two years trying to avoid. While the financial markets can handle the triggering of CDS that this will entail, at some point serious questions need to be asked over the amount of time and money which policymakers have wasted on what has ultimately amounted to a failed policy. Instead, Greece should have undergone a full restructuring combined with a series of pro-growth measures.”
“There will be plenty of optimism in the corridors of power around the eurozone today, some of it justified – Greece has avoided a chaotic and unpredictable meltdown. However, this deal could end up being a pyrrhic victory: the debt relief for Greece is far too small which means that another default could be around the corner, while the austerity targets are wholly unrealistic and kill off growth prospects. Furthermore, Greece’s debt will end up being almost completely owned by eurozone taxpayers and by exempting official taxpayer-backed institutions from the write-down, the deal has created a distorted, two-tier bond market.”
Breaking down the key figures
Greek law bonds (Total €177bn) – voluntary participation 85.8% (€152bn) – with CACs 100% (€177bn)
Foreign law bonds (Total €29bn) – voluntary participation 69% (€20bn) – CACs unknown (to be settled by 11 April)
Total private sector involvement (PSI) participation so far– with CACs 95.6% (€197bn)
Total level of nominal write-down achieved so far – €105.4bn (This is short of the €107bn assumed under the EU/IMF/ECB troika debt sustainability analysis, meaning that more foreign law bondholders will have to participate or not be repaid).
Money needed to push PSI through - €93.7bn
‘PSI LM Facility’ (Bond sweeteners for private creditors) - €30 billion
Bond Interest Facility (EFSF bonds to pay off accrued interest) - €5.7 billion
Bank Recapitalisation Facility - €23 billion
ECB Credit Enhancement Facility - €35 billion
Under this scenario Greece is getting a €105.4bn write down, but taking on at least €58.7bn in new debt straight away. The EFSF, the eurozone bailout fund, is also taking on a further €35bn (by issuing additional bonds) to ensure Greek banks can still borrow from the ECB.[1]
What will this deal mean for Greece and the eurozone?
  • The debt write-down offered to Greece is far too small to allow Greece any chance of recovery. Of the total amount (€282.2bn) that is entailed in the various measures now on the table to save Greece – through the bailouts and the ECB – only €159.5bn, or 57% will actually go to Greece itself. The rest will go to banks and other bondholders.
  • The use of CACs will almost certainly trigger the pay-out of Credit Default Swaps (CDS) in relation to Greek debt. Despite the opacity and secrecy surrounding the CDS market, there is little evidence to suggest that financial markets will be unable to cope with paying out on Greek CDS. Sellers of CDS have had plenty of time to prepare for this eventuality. Any who are not fully prepared or cannot bear the cost were likely taking irresponsible risks or have much deeper solvency problems.
  • Greek banks have taken substantial losses. These banks will be recapitalised, but ‘only’ by €23bn. In contrast, to meet the 9% capital requirements set by the European Banking Authority, Greek banks could need between €36bn and €46bn. It is unclear if further money will be forthcoming, but valid questions will continue to be asked about state of Greek banks.
  • For the most part, Greek pension funds (which held around €30bn in Greek debt) have seen their assets reduced significantly. Some public sector pension funds did refuse to take part voluntarily. But they are likely to be forced to do so by the CACs. Importantly, it is unclear where Greek pension funds will recover their money from – the political fallout of having to cut pensions would only add to social unrest.
  • The Greek government’s threat to default on the remaining foreign law bonds – held by bondholders who have refused to take part in the voluntary restructuring, hoping to be paid out in full – seems credible. However, since most of Greek debt will now be in the form of new bonds and EU/ECB/IMF loans (which do not have cross default clauses related to the old foreign law bonds), Greece can default on these old bonds without being judged in default generally or on the rest of its debt.[2]
  • The upcoming Greek elections at the end of April mean that the future of the second bailout package is still uncertain. The two main parties, New Democracy and Pasok, have been losing ground to both far-left and far-right parties. The hope is that these two leading parties will be able to form a coalition government with a clear majority in parliament. Even if they do not win the majority of votes, they may still have a majority of the seats due to the electoral structure in Greece. Even so, it will be a close run election and without a strong majority in parliament, every future vote on new austerity measures, of which there will be many, will be a hard fought battle – not conducive to political stability.
  • Under recent proposals, the total level of budget cuts Greece is expected to undergo stands at a massive 20% of GDP by 2013. Historically, no country has ever gone through such a large level of fiscal consolidation – successful or otherwise – especially without the option of currency devaluation. For example, the extensive fiscal consolidation seen in Ireland during the 1980s and 1990s totalled ‘only’ 10.6%.
  • Athens is highly unlikely to meet its debt targets by 2020. This means that combined with the poor growth prospects due to continuous austerity, Greece will almost inevitably need either another bailout in three years’ time, or be forced to default on its outstanding debt.
  • In parallel, the deal sets the eurozone up for a political row involving Triple-A countries. At the start of this year, 36% of Greece’s debt was held by taxpayer-backed institutions (ECB, IMF, EFSF). By 2015, following the voluntary restructuring and the second bailout, the share could increase to as much as 85%, meaning that Greece’s debt will be overwhelmingly owned by eurozone taxpayers – putting them at risk of large losses under a future default.
  • Therefore, this deal may have sown the seeds of a major political and economic crisis at the heart of Europe, which in the medium and long term further threatens the stability of the eurozone.


end

The following Wolf Richter offering is terrific has it highlights the huge number of businesses shut down, the high youth unemployment, the non payment of pharmaceuticals and thus a massive shortage of medication to hospitals and to pharmacies.

And Greece can grow under these conditions?

Special thanks to Wolf for this commentary:

(courtesy Wolf Richter/www.testosteronepit.com)



“A harder Default To Come”

testosteronepit's picture





Wolf Richter   www.testosteronepit.com
“We owed it to our children and grandchildren to rid them of the burden of this debt,” said Greek Finance Minister Evangelos Venizelos about the bond swap that had just whacked private sector investors with a 72% loss. While everyone other than the bondholders was applauding, the drumbeat of Greece’s economic horror show continued in its relentless manner.
In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector ... shows that resistance is waning,” saidVasilis Korkidis, president of the National Confederation of Hellenic Commerce. “We must continue the battle of daily survival and keep our shops open,” he pleaded—while fourth quarter GDP was being revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008.
Unemployment is veering toward disaster. The overall rate of 21% in December, announced Thursday, was horrid enough, but youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!
No economy can service a gargantuan—and rapidly growing—mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.
Yet, forcing down the deficit is one of the many conditions that the bailout Troika of EU, ECB, and IMF have imposed on Greece. And: "If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone," said Luxembourg’s Finance Minister Luc Frieden. All of these conditions. Then he added the crucial words: "The impact on other countries now will be less important than a year ago." Read.... Firewalls In Place, Markets ready: Greece Can Go To Heck.
Under pressure to cut its healthcare budget, the government reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece, while out-of-money state-owned insurers delay payments to pharmacies and hospitals, which then can’t pay their wholesalers for the medications they do get. In return, wholesalers turn off the spigot. And the system locks up.
Even Health Minister Andreas Loverdos conceded that there were shortages, but that they were limited to lower-priced medications. Of the 500 most common drugs, 243 have disappeared from the shelves, including antibiotics and drugs for treating diabetes and hypertension. The Panhellenic Association of Women with Breast Cancer, for example, received many complaints from patients who claim they weren't treated due to lack of oncology drugs. And the world’s largest pharmaceutical companies are worried that Greece and some other countries might not be able to pay them at all.
A bright spot: tourism. In 2011, receipts rose by 9.5% over prior year as the Arab Spring had scared tourists away from destinations such as Egypt and Tunisia. In July, receipts jumped 14.4% and in October 15%. Alas, in December they declined 4.9%. And that reversal has now infected 2012. Tourist arrivals so far this year are down 10.7% in Athens and 6.7% for the country. Its last growth industry has hit the skids, too.
With unemployment climbing, production and consumption tanking, businesses shutting down, and tourism nose-diving, there is only one way for tax revenues: down. Budget deficits will be worse than promised. Greece’s debt—now largely to taxpayers of other countries—will continue to balloon. The standard of living of the vast majority of Greeks will get slammed, though the elite that are negotiating these deals will do just fine.
“We still don’t have a solution for Greece, so there will be a harder default to come,” predicted Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. Yet, in a bitter irony, Germany—the country where tax dodging is a national sport—has decided to send 160 employees of its Ministry of Finance to Athens to fix against all odds the tax collection system, a debacle that will endear the already reviled Germans even more to the Greeks. Read.... Final Spasm: Greco-Teutonic Wrestling.


end


Ambrose Evans Pritchard now focuses on Portugal.  This nation had a deficit of 8% of GDP this year and its official debt to GDP will rise to 118% this year.  However if you couple this with 10% of state owned debt the Debt to GDP will be 128%.  This is unsustainable.  If you include all private debts then Portugal has total debt to GDP of 360%.  Greece had 260% total debt per GDP.  With 10 yr bonds trading at a yield of 13.2%, the market is telling us that  Portugal is next in line for a bailout.

(courtesy Ambrose Evans Pirtchard/UKTelegraph)


Legal skull-duggery in Greece may doom Portugal

Europe has ring-fenced Greece's debt crisis for now but its escalating recourse to legal legerdemain has shattered the trust of global bond markets and may ultimately expose Portugal, Spain, and Italy to greater dangerBy Ambrose Evans-Pritchard
8:59PM GMT 08 Mar 201
"The rule of law has been treated with contempt," said Marc Ostwald from Monument Securities. "This will lead to litigation for the next ten years. It has become a massive impediment for long-term investors, and people will now be very wary about Portugal."


At the start of the crisis EU leaders declared it unthinkable that any eurozone state should require debt relief, let alone default. Each pledge was breached, and the haircut imposed on banks, insurers, and pension funds ratcheted up to 75pc.
Last month the European Central Bank exercised its droit du seigneur, exempting itself from loses on Greek bonds. The instant effect was to concentrate more loss on other bondholders. "This has set a major precedent," said Marchel Alexandrovich from Jefferies Fixed Income. "It does not matter how often the EU authorities repeat that Greece is a 'one-off' case, nobody in the markets believes them."
The ECB holds €220bn (£185bn) of Greek, Portuguese, Irish, Spanish, and Italian bonds. Its handling of Greece implicitly subordinates private creditors in each country. All have slipped a notch down the pecking order.
The Greek parliament's retroactive law last month to insert collective action clauses (CACs) into its bonds to coerce creditor hold-outs has added a fresh twist. These CAC's are likely to be activated over coming days. Use of retroactive laws to change contracts is anathema in credit markets.

This might not matter too much if Greece were really a "one-off" case but markets are afraid that Portugal will tip into the same downward spiral as austerity starts to bite.
Citigroup expects the economy to contract by 5.7pc this year, warning that bondholders may face a 50pc haircut by the end of the year. Portugal's €78bn loan package from the EU-IMF Troika is already large enough to crowd out private creditors, reducing them to ever more junior status.
EU leaders said last June that "Greece is unique" and promises that haircuts would "not be replicated in Portugal". They have since pledged that the EU's new bail-out (ESM) fund will not have protected status.
Portugal has been praised by the International Monetary Fund for grasping the nettle of reform, but the IMF's own figures show that public debt may reach 118pc of GDP next year. The debts of state-owned bodies add another 10pc.
Combined public and private debt is 360pc of GDP, 100 percentage points above Greece. This is a huge burden on a shrinking economic base. Its current account deficit was still 8pc of GDP last year, much like Greece. Both countries are overvalued by 20pc on a real effective exchange rate, though Portugal has barely begun to cut unit labour costs.
Dimitris Drakopoulos from Nomura said Portugal relied on "fiscal engineering" last year to massage deficit figures, raiding 3.5pc of GDP from private pension funds.
Matters will come to a head soon. The IMF must decide by September whether Portugal needs more money and debt relief. If Portugal now spirals into a Grecian vortex, large haircuts loom. This time EU leaders will have to accept that their own taxpayers will suffer losses - avoided until now - or violate their pledge.
Bondholders are not waiting to learn whether Europe will keep its word this time. There has been no rally in Portuguese debt since the ECB flooded banks with €1 trillion. Ten-year yields are stuck at 13.2pc. Return to market access is a distant dream.
The risk for Europe is that investors will charge a "political risk" premium to invest in any EMU country subject to EU legal whim. The greater risk is that Euroland's crisis rumbles on as fiscal contraction in Italy and Spain plays havoc with debt dynamics, and reforms come much to late to close the North-South trade gap.
Europe's handling of Greece has guaranteed that global funds will rush for Club Med exits at the first sign of trouble. The next spasm of the debt crisis will that much dangerous if it ever comes. As the saying goes: Hell hath no fury like an abused bondholder.
This is a good piece from AEP. This points out that the Greek "deal" will make it harder to persuade investors to hold other sovereign EU bonds and make any future haircuts tougher to achieve willingly
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9132216/L
egal-skull-duggery-in-Greece-may-doom-Portugal.html

-END-




Japan for the first time has seen their trade sector enter into a deficit, due primarily due to the nuclear accident last year.  With debt to GDP rising above the 200% level, if this nation run out of room to kick the can any further?

(courtesy zero hedge)

Has Japan Run Out Of Cans To Kick?

Tyler Durden's picture





Japan's Trade and Current Account imbalances appear to be hitting some kind of terminal velocity and while neither JGBs nor CDS seem to reflect the ensuing chaotic recognition that perhaps the can that has been so faithfully kicked down the "Nishi-no-michi" or the West Road may have plunged over the lip of Mount Fuji (conjuring images of Mordor), FX markets recent and abrupt weakness brought on by yet more printing (a topic we discussed in great detail recently as the chosen heretical method du decade) may well be coming face to face with reality. We assume Azumi is faithfully watching these market moves but we wonder at what point the quasi-intentional weakening of local currencies flares into a full-blown currency war - and instead of merely encouraging simpleton FX-carry strategies chasing momentum and leverage - quickly becomes the hyperinflationary super nova that many have been waiting for over the last decade. Dismal demographics aside, we wonder how long before Koo prescribes yet more of the same medicine for this constant state of deflation and at what point does inverted-Apple-looking charts for Trade and Current Account balances become simply too hot to handle...
The Japan trade balance has tipped into extreme freefall...

As has the Current Account balance...
And the absolute basis (purple line) between CDS and JGBs remains notably above any of its peers reflecting more of the possibility of a hyperinflationary or devaluation 'event'than Greece-like default given its currency-manufacturer status as opposed to its currency-user status (a la Greece)...
The basis (5Y 83bps) above is all the more shocking (almost triple the bond yield) when considered in relative terms - i.e. compared as a ratio to the extreme low yields of JGBs (5Y 29bps!! and 10Y charted below)...
so perhaps the recent 'crash' in USDJPY, catching up to FX vol risk-reversals (a measure of the FX options market's implicit skew to bullish or bearish sentiment) is the start of bigger things...

or is it simply yet another false alert on the road to Mordor for Japanese Central Bankers?
Charts: Bloomberg


end

The USA jobs rteports showed a big increase but it was mainly due to temporary help and a big jump in the B/D plug:

here is the official release from Dow Jones



DJ US Feb Payrolls +227K; Unemployment Remains 8.3%



Fri Mar 09 08:30:50 2012 EST


WASHINGTON (Dow Jones)--U.S. job creation remained solid in February and was stronger in previous months than initially thought, marking one of the economy's best stretches of the nearly three-year-old recovery.
Jobs outside of agriculture grew by 227,000 last month, the Labor Department said Friday. Meanwhile, employers added 284,000 jobs in January--roughly 40,000 higher than an initial estimate--and job creation was also revised higher for December.
Overall, the economy has added an average 245,000 jobs over the past three months--more than double the pace of job creation between May and November.
The unemployment rate, obtained by a separate survey of U.S. households, remained at 8.3%, as both hiring and the number of job seekers increased.
The economy has defied economists' expectations of slower job growth to start 2012. Economists surveyed by Dow Jones Newswires had forecast a gain of 213,000 in payrolls and for the jobless rate to remain at 8.3% for February.
Private companies again fueled the growth, adding 233,000 jobs in February, the Labor Department said. That more than offset 6,000 job cuts by government.
Job growth came from a variety of sectors. Professional and business services, healthcare, and leisure and hospitality industries had the largest increases. Manufacturing employment rose by 31,000. Construction employment remained unchanged.
The report comes ahead of next week's meeting of Federal Reserve policy makers. The strong job growth raises questions for the Federal Reserve, where officials have been surprised that the unemployment rate has fallen so quickly recently given the recovery's lackluster pace. If growth or inflation pick up much, officials seem unlikely to launch a bond-buying program because the economy might not need the extra help or because doing more could spur higher inflation.
In another positive sign, wages increased. Average hourly earnings ticked up 3 cents to $23.31. Still, wages were only up 1.9% from a year ago, not enough to keep up with inflation.
Also, a broader measure of unemployment--which includes job seekers as well as those stuck in part-time jobs--clicked down to 14.9% from 15.1%.

end


Dave from Denver on the phony jobs report:

(courtesy Dave from Denver)



Dave from Denver…


Friday, March 9, 2012




But Do The "Estimates" Make Sense?




"Americans are feeling wealthier now, they're borrowing more money now(Some dope on Good Morning America)

There's no doubt the the second part of that statement is true. The latest consumer credit report showed that consumer debt rose substantially in January. The source was primarily credit cards and non-revolving credit - student loans and [Government-subsidized] auto loans. Can't find a job? Enroll at the University of Phoenix and get a robo-stamped student loan. Then the Government can remove you from the labor force statistics and a reduce the number of people not working or in the labor force. The debt to personal income ratio is rising quickly again. It's even worse if you remove Government transfer payments from the personal income LINK. Does it make sense to make that particular adjustment? Yes, because that's taking money from your pocket and giving it to someone who feebly qualifies for Government assistance. We know the Government is borrowing more and more everyday - at an accelerating rate. The Government spending deficit hit an all-time record in February:

The Congressional Budget Office predicts a federal budget deficit of $223 billion for February, 2011, the largest monthly budget deficit ever recorded, according to theWashington Times.

We know the BLS payroll is - to be blunt - a complete fraud. But do the manipulated results even make sense? We saw in 2008 and 2009 that several monthly reports would show increases in financial sector and construction workers, despite the fact that Wall Street and the construction/housing market went into a freefall.

What about the numbers being reported to today? To begin with, the birth/death model, which "models" theoretical employment based on estimates of new businesses started vs. new businesses closed. Anyone know anyone who is starting a new business? I know of quite a few who are closing down their businesses, many of them directly correlated with basic economy activity (construction, retail, etc). Today the birth/death "adjustment" added 91k to the payroll report. Does this make any sense?

Let's see the categories where the Government claims there was job growth. Professional and business services added 82,000 jobs in February - 
BUT just over half of the increase occurred in temporary help services (+45,000). In financial analyst lingo, this is a very low quality statistic in terms of analyzing the strength of the statistic. Hired someone to help you close down your business? We'll call it "jobs gains." But the overall number does not make sense either. We know that on an real inflation-adjusted basis, the economy is declining. This category of jobs represents the "feeder" sector of the economy, which "feeds" off of growth of "host" businesses. I'm sorry, but this number is not reliably justified.

How about "Heath care and social assistance." In this category employment was estimated to have risen by 61,000. In one sense, this does make sense. Per the above Govt record spending deficit, we know that Government spending is hitting new records. Healthcare and social assistance businesses are "private sector businesses" primarily funded by the Government (medicare, medicaid, social security disability, etc). This employment growth, to the extent that it's real, is of very low quality because it requires record spending deficits and record Government debt issuance to sustain. It's not low quality - it's disastrous.

How about the job growth in manufacturing? Is it bona fide and does it make sense? Metal fabrication and transportation jobs added 19k of the 31k BLS-reported jobs. If it's true, this would primarily be from the auto industry, which is being subsidized with Government money, especially the loans and leases financing the "sales." Last month the nationwide dealer inventory hit a new all-time high. These are cars that are shipped from the manufacturer to the dealers but reported as auto sales. The money for financing this inventory and GM and Chrysler is coming from Government supported financing. The cars that do actually get sold to end users are primarily financed with Government subsidized loans and leases.

I think everyone gets the idea with this. Here's the report if you would like to look at the details:
LINK
The employment number is not only manipulated to the point outright fraud, but the manipulated results just do not make sense to anyone dissecting them with thought and rationality (which excludes the shit for brains on CNBC).




Here is the release of the trade deficit which increased due to high imports of oil.
Goldman Sachs immediately lowered first quarter GDP estimates to 1.8%

(courtesy Dow Jones)



DJ US Jan Trade Deficit Expands To 3-Year High
Fri Mar 09 08:30:15 2012 EST




WASHINGTON (Dow Jones)--The U.S. trade deficit expanded in January to its highest level in more than three years as exports to China and the debt-beleaguered euro zone plunged.
The U.S. deficit in international trade of goods and services rose 4.3% to $52.57 billion from $50.42 billion the month before, the Commerce Department said Friday. The December trade gap was originally reported as $48.80 billion.
The January deficit was larger than Wall Street expectations, with economists surveyed by Dow Jones Newswires having predicted a $48.4 billion gap.
The trade deficit with China surged 12.5% to $26.02 billion in January. Exports to the U.S.'s No. 2 trading partner fell 13.8% to $8.37 billion, while imports increased 4.7% to $34.40 billion. New data out of China shows the country's economy slowing more than expected, particularly as demand from Europe has fallen in the wake of its debt crisis.
The trade gap with the euro zone narrowed by nearly 11% to $7.61 billion as exports fell by $1.32 billion, but imports decreased by $2.23 billion.
The expanding trade gap with China will likely continue to fuel political action in Washington. Although Beijing has raised the value of the yuan against the dollar by around 40% since 2005, its currency is still deemed undervalued and an unfair competitive advantage by many U.S. businesses. And despite a measured uptick in trade filings against China, U.S. firms are also urging the Obama administration to take a more aggressive stance against a number of Beijing's economic and trade policies. The U.S. Senate early this week unanimously passed a bill allowing the Commerce Department to continue to apply nearly $5 billion in tariffs on imports, particularly those from China.
Friday's report showed that the average price of imported crude oil, a major driver of the trade deficit, fell slightly by 32 cents a barrel to $103.81 a barrel in January. The overall tab for crude imports was $28.10 billion, from $29.05 billion the month before. The U.S. paid $36.06 billion for all types of energy-related imports, up from $35.47 billion in December.
The real, or inflation-adjusted deficit, which economists use to measure the impact of trade on GDP, widened to $49.11 billion in January from $48.29 billion the month before.
January saw a record-high level of imports of goods in services, with expansions across the board, to a total of $233.37 billion. Imports of food, feed and beverages, capital goods, and autos and parts all recorded historical highs.
U.S. exports also rose, led by record levels for services, capital goods, and autos and parts. Total sales of goods and services abroad reached $180.81 billion.
The U.S. also registered an expanding deficit with major trade partner Canada, rising nearly 24% to $4.80 billion, the highest since October 2008. The trade gap with Japan fell by 5.4% to $6.19 billion while the deficit with Mexico decreased 14.3% to $4.24 billion.


end


I am going to leave you with this commentary from Graham Summers on QEIII and that
it will not be forthcoming next week.  

The one question he does not answer is this:  who is buying all of the USA deficit which is projected at 1.2 trillion dollars this year?

Certainly not Japan  Not Europe, they are embroiled in their own troubles.
And China is selling their dollar hoard. 
Just food for thought.

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(courtesy Graham Summers/Phoenix Capital Research)




The Fed Cannot and Will Not Be Unleashing QE 3 Next Week...

Phoenix Capital Research's picture






QE 3 isn’t coming folks. The Hilsenrath article a few days ago was just a leak to prop the market higher. And it falls well within the Fed’s latest scheme: to prop the market up verbally rather than actually engaging in monetary policy.

Going back to July 2011, the Fed has largely resorted to verbalor symbolic intervention rather actual monetary action. In terms of actual actions, since that time the Fed has:

  1. Promised to extend its Zero Interest Rate Policy (ZIRP) through late 2014.
  2. Had various Fed officials promise that the Fed was ready to “act” anytime the market took a dive.

#1 is completely and totally meaningless. ZIRP is a trap and it’s a trap that the Fed cannot escape for three reasons:

  1. US commercial banks are sitting on over $200 TRILLION in interest rate based derivatives.

  1. In 2011, the US made $454 BILLION in interest payments. And that’s with interest rates at or near 0%. According to the Congressional Budget Office, the estimated interest that will be due on the US’s debt load by 2015 will be $533 billion: an amount equal to 1/3 of all federal income taxes collected that year (assuming the economy grows). Imagine what happens if rates rise.

  1. US Corporations currently owe $7.3 trillion in debt (an amount equal to roughly half of the US’s GDP). Any rise in interest rates means corporate payouts increasing dramatically and corporate profits shrinking.

So promising to extend ZIRP is ultimately pointless. It’s the same thing as saying “I promise to keep breathing until I die.” The Fed has to and will maintain ZIRP until the financial system implodes and interest rates soar as investors demand reasonable rates of return in exchange for the risk they take for investing in various bonds.

As for the Fed’s secondary policy (verbal intervention whenever the markets roll over) it is Chicago Fed President Charles Evans who clamors most for more easing.

           
Is QE3 Right Around The Corner?
(August 30 2011)

So much for no QE3, at least if Charles Evans gets his way.
Chicago Federal Reserve President Charles Evans was on CNBC just a few minutes ago, and comments from Evans made it sure seem like an additional round of quantitative easing is on its way.


Bernanke Managed Expectations Like A Champ: QE3 Is Around The Corner
 (November 2 2011)

Dissent, though, jumped from hawks to doves as Chicago Fed President Charles Evans wanted more accommodation; along with a reference to lower inflation, these two suggest Bernanke has managed to save his last bullet, and will probably bring out the quantitative easing in coming months.


Federal Reserve Could be Laying the Groundwork for QE3
(December 6 2011)

Chicago Fed President Charles Evans gave a speech at Ball State on December 5, and within it he detailed some of the actions that the Fed could take to support its dual mandate of promoting maximum employment and fostering price stability. Although Evans did not specifically mention asset purchases, he said that without action the Fed could fail both parts of its dual mandate.


Evans is the President for the Chicago Fed. Chicago is the second largest financial center in the US (after NY). So this guy is simply pushing for his “constituents” in calling for more monetary accommodations from the Fed. He is, in a sense, playing “good cop” for his cronies in the financial industry while other more rural based Fed Presidents (Kansas, Dallas) play “bad cop” saying there should be no more easing and that the Fed might even need to raise rates.

Indeed, compare Evans’ statements with those of Dallas Fed President Ken Fisher from a recent speech in Texas.

I am personally perplexed by the continued preoccupation, bordering upon fetish, that Wall Street exhibits regarding the potential for further monetary accommodation—the so-called QE3, or third round of quantitative easing. The Federal Reserve has over $1.6 trillion of U.S. Treasury securities and almost $848 billion in mortgage-backed securities on its balance sheet. When we purchased those securities, we injected money into the system. Most of that money and more has accumulated on the sidelines: More than $1.5 trillion in excess reserves sit on deposit at the 12 Federal Reserve banks, including the Dallas Fed, for which we pay private banks a measly 25 basis points in interest. A copious amount is being harbored by nondepository financial institutions, and another $2 trillion is sitting in the cash coffers of nonfinancial businesses.

Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery, rescuing the economy from the Financial Panic of 2008–09, and then kept the medication in the financial bloodstream to ensure recovery. I personally see no need to administer additional doses unless the patient goes into postoperative decline. I would suggest to you that, if the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage.


It’s clear here that Evans, a financial center Fed President is the Wall Street “good cop” while Fisher, a Dallas based Fed President is the “bad cop.” One pushes for the market to rally, the other tries to cool inflationary expectations.

And yet, for all this talk and hype, QE 3 is nowhere to be found. And it won’t be showing up anytime soon unless a full-scale Crisis hits. The reason for this is that the political landscape in the US has changed dramatically with the Fed becoming more and more politically toxic: GOP Presidential candidates began taking swipes at the Fed early on in the candidacy race and it became increasingly clear that the Fed would be one of the primary political issues for the 2012 Presidential election.

As a result of this, the Fed (with the exception of those Presidents who represent financial centers, namely Evans for Chicago and Dudley for New York) began to shift into damage control mode.

This included:

  1. Suing Goldman Sachs (the firm considered to have the closest ties to the Fed) so as to distance itself from its Wall Street darlings
  2. Shifting the blame for the Financial Crisis as well as the terrible state of the US’s finances onto Congress’s shoulders
  3. Launching a PR campaign to portray Ben Bernanke as an all around good guy (opening the Fed to Q&A sessions with the press, staging town hall meetings with the public, and getting editorials written in the Wall Street Journal on how Bernanke is just an ordinary guy like the rest of us).

In light of this, it is clear that that the bar for QE 3 had been raised dramatically. As a result, since early autumn 2011, I’ve been writing that the Fed would NOT unleash QE 3 without a Crisis hitting first.

So don’t bank on QE hitting next week. Which means… the Fedwill disappoint, and we will get a market correction. All the macro and technical signs point towards something bad coming this way. The red flags are literally everywhere. And judging by the significance of them, we could very well be heading into a full-scale Crisis.


Good Investing!

Graham Summers.


end

It is time to say goodbye until Monday night

all the best

Harvey

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