Saturday, April 14, 2012

Spain Credit Default Swaps Skyrocket/Spanish 10 yr yields at 5.98%/Italian 10 yr yield 5.47%

Good morning Ladies and Gentlemen:

Gold closed down: by $19.70 to $1658.00 with silver falling by $1.13 to $31.38.  As I explained to you on Thursday, the bankers will never allow an outside reversal to signal a strong advance for our precious metals.
They always raid following this rare event. Early Friday morning, Spanish and Italian bonds rose in yield with word that the ECB supplied a massive 75 billion euros to our Spanish banks in aid equal to what was supplied to Italian banks a week earlier.  Credit default swaps rose to signify the huge risks to our sovereigns Italy and Spain.  With the rising yields on Spanish bonds rising to 5.98%, the collateral to the ECB has now been damaged and thus no doubt these banks received margin calls.  It seems that good collateral is now non existent .Last yesterday, we received news that in a poll, the French opposition leader, Hollande increased his lead over Sarkozy with the elections scheduled to begin during the last week of April in a run off with the final vote in May. The election is key to Europe's plan of bailouts as Hollande is strictly against support for other PIIGS nations. A Hollande victory will alienate Germany and this will probably force Germany to leave the Euro. We have 2 other critical elections that are scheduled:

1. the Greek election scheduled for May 6.2012:
2. the Irish referendum (not scheduled yet)

The Greek elections have both of the major parties, the Pasok (centre left) and the conservative New Democratic party (center right) that supported the bailout have less than 40% of the vote. The remaining parties are on both side of the political spectrum including communist parties and they all are against the bailout.  This will throw Greece into further chaos as nothing will be done to correct their problems.
The correct course of action is to default on all debt and start all over again like Iceland.

2.  The Irish referendum.  The vote will be on the current membership in the Euro.  A negative vote
will probably negate the bailout of the banks.  Even though Ireland loves the Euro they may be forced to leave it. The correct course of action for Ireland is to default of their huge 300 plus billion euros of debt
and start all over again.

  Let us now head over to the comex and assess the trading damage today and also to look at the positions of our various players with the COT report.

The total gold comex open interest rose by 2957 contracts to 403,233 from 400,233.  We had our second outside day reversal on Thursday in 3 days so the increase in OI is quite understandable.  It is also understandable that the bankers used this opportunity to fleece these newbie longs.  I guess these investors never learn that the paper comex is nothing but a crooked casino.  The front delivery month of April saw its OI fall 304 contracts from 3165 to 2861 with only 95 delivery notices filed on Thursday.  We thus had another 209 contracts probably settled through cash settlements.  The next big official delivery month for
gold is June, and here the OI rose by 1991 contracts from 227,074 to 229,065.  It was here that our new longs got annihilated for the umpteenth time. The  volume was of great concern to the CME in that despite the raid only 99,786 was estimated to have take place today.  The confirmed volume Thursday, the day of the outside day reversal came it much better at 162,589.

The total silver comex open interest rose again by 2262 contracts to rest the weekend at 117,210 from Thursday's level of 114,948.  Our bankers do not like seeing the OI rise in silver as this represents a potential for many to take delivery.  This is also a signal for them to raid the precious metals complex as silver is becoming quite bothersome to them.  The front delivery month of April saw its OI rise from 14 to 138 contracts for a gain of 124 contracts despite zero delivery notices on Thursday.  We will probably see big delivery notices on Monday for silver as our bankers badly need some silver in other jurisdictions. The next big official delivery month (next official front delivery month) is May and here the OI remained surprisingly stable at 44,869 dropping by only 126 contracts.  One would expect a gradual contraction of OI as we get closer and closer to first day notice.  The estimated volume at the silver comex Friday was on the low side coming in at 45,244 compared to the higher volume on Thursday at 56,886.  I guess our players did not fall for the ploy by the CME in that they lowered silver margins trying to sucker in players.  The announcement had no effect on investors.  It looks to me like our CME have single handedly destroyed their business with criminal activities like the MF Global affair/Refco  and the constant raids orchestrated by the bankers.

 April 14.2012:

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
Deposits to the Dealer Inventory in oz

Deposits to the Customer Inventory, in
No of oz served (contracts) today
(1040)  104,000oz
No of oz to be served (notices)
Total monthly oz gold served (contracts) so far this month
(3675) 367,500
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

Today we had very little activity inside the gold vaults today. We had no gold enter the dealer as a deposit
No gold was withdrawn by the dealer. The only transaction was a tiny 32.15 oz removed from the customer at Manfra.

The total registered or dealer gold rests at 2.449 million oz of gold or 76.17 tonnes

The crooked CME announced today that we had a chunky 1040 contracts served upon our longs for a total of 104000 oz of gold.  The total number of notices filed so far this month total 3675 for 367500 oz.
To obtain what is left to be served, I take the OI standing for April (2861) and subtract out Friday's delivery notices (1040) which leaves us with 1821 notices left to be served upon or 182100 oz.

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

367,500 oz (served)  +  182,100 (oz to be served upon)  =  551,421 oz or 17.15 tonnes of gold
we lost 20900 oz of gold through probable cash settlements.


April 14.2012

Withdrawals from Dealers Inventory5,207.51(Brinks)
Withdrawals from Customer Inventory264,415.548 (Brinks, HSBC,Scotia,)
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory1,255,060.25 (HSBC, JPM)
No of oz served (contracts)0 (zero)
No of oz to be served (notices) 138(690,000)
Total monthly oz silver served (contracts)173 (865,000 )
Total accumulative withdrawal of silver from the Dealers inventory this month1,192,854.3
Total accumulative withdrawal of silver from the Customer inventory this month 2,237,936.7
Again we had considerable activity inside the silver vaults today.
The dealer had no silver deposit today.
The customer received the following deposit:

1. Into HSBC:  625,060.25 (HSBC)
2. Into JPM:    630,000.000 (JPM)   *looks to me highly suspicious.  my bet just a paper deposit.

total deposit:  1,255,060.25 oz

we had the following dealer withdrawal from Brinks:  5207.51

we had the following customer withdrawal:

1. Out of Brinks:  101,699.668
2. Out of HSBC;  4935.36 oz
3. Out of Scotia:  157,780.52

total withdrawal by the customer;  264,415.548 oz
we had one adjustment of 102.17 oz added to Scotia.

The total dealer inventory of silver rests this weekend at 29.27 million oz
The total of all silver inventory rests at 141.594 million oz.

The CME announced again for the 4th straight days zero notices for delivery and thus the total number of notices remain at 173 for 865,000 oz.  To obtain what is left to be served, I take the OI standing for April (138) and subtract out Friday's delivery notices  (zero) which leaves us with 138 notices or 690,000 oz left to be served upon.

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

865,000 (oz served )  + 690,000 (oz to be served upon)  =  1,555,000 oz
we gained 124 contracts or 620,000 oz standing.


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.

April 14:2012

Total Gold in Trust



Value US$:68,897,950,186.12

April 12.2012

Total Gold in Trust



Value US$:68,981,406,309.01

april 11.2012



Value US$:68,547,968,771.55

we neither gained nor lost any gold at the GLD


And now for silver April  14  2012:

Ounces of Silver in Trust308,370,469.900
Tonnes of Silver in Trust Tonnes of Silver in Trust9,591.39

April 12.2012:

Ounces of Silver in Trust309,487,042.900
Tonnes of Silver in Trust Tonnes of Silver in Trust9,626.12

we lost another 1,117,000 oz of silver from the SLV vaults.
These oz no doubt are leaving England heading for nations of Eastern persuasion.



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

1. Central Fund of Canada: traded to a positive 2.2percent to NAV in usa funds and a positive 2.4% to NAV for Cdn funds. ( april 14,.2012)

2. Sprott silver fund (PSLV): Premium to NAV  rose slightly   to  5.43% to NAV  April 14.2012 :
3. Sprott gold fund (PHYS): premium to NAV rose to  2.37% positive to NAV April 14 2012). 


At 3:30 yesterday we received the COT on gold and silver.  Let us see what we can glean from that report on how the players positions will determine next week's action

First the gold COT report: the report is from Tuesday April 3 to Tuesday April 10

Gold COT Report - Futures
Large Speculators
Change from Prior Reporting Period

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, April 10, 2012

Our large speculators:

Those large speculators that have been long in gold surrendered to the bankers by giving up a rather large 4596 contracts from their long side.

Those large speculators that have been short in gold added a small 596 contracts to their short side.

Our commercials:

very weird...

those commercials that are long in gold and are close to the physical scene pitched a huge 7648 contracts from their long side.

those commercials that have been short in gold decided that the time was right to cover their shorts to the tune of a massive 14,063 contracts.

Our small specs:

those small specs that have been long in gold liked the lay of the land in gold so they added 1306 contracts to their long side.

those small specs that have been short in gold, added a rather large 2609 contracts to their short side and provided much of the necessary paper.

Conclusion: it was quite unusual to see the commercials both reduce their long side in gold together with covering their short side.  However coupled with reduced longs with respect to the speculators one must conclude a 3rd straight bullish COT report for gold.  On top of this, the volume at the COT has been reduced as well as the open interest.  Thus the longs that remain seem to be resolute in their conviction.

Now for the silver COT:

Silver COT Report - Futures
Large Speculators

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Silver Report - Positions as of
Tuesday, April 10, 2012

Our large speculators:

Those large speculators that have been long in silver pitched a small 1088 contracts from their long side.
Those large speculators that have been short in silver added a tiny 781 contracts to their short side.

Our commercials:

Those commercials that have been long in silver and are close to the physical scene added 2257 contracts to their long side.  (Note the difference between silver and gold COT with the commercials)

Those commercials that have been perennially short in silver and are subject to the silver probe by the CFTC
covered a small 2693 contracts from their shorts.

Our small specs:

those small specs that have been long in silver had enough and pitched 1856 contracts from their long side
those small specs that have been short in silver added another 1225 contracts to their shorts.

Conclusion: much more bullish that last week. The commercials on a net basis are covering their shortfall.


Dan Norcini delivers a message to us on the Algos that have gone berserk:

(courtesy Dan Norcini/Jim Sinclair)

Algorithms Gone Wild – Again, And Again, And Again

Dear CIGAs,
What more is left to say at this point other than the fact that the hedge fund computers and their damnable algorithms have destroyed the integrity of the US futures markets. The sheer size, extent, ferocity and volatility of the moves that these pestilential computers are creating have rendered these markets basically useless for what they originally came into being for, namely, risk management for commercial entities.
Price swings of this magnitude are blowing up hedged positions put on by commercials and other end users/merchants/processors, etc. While margins are reduced for legitimate hedgers, they still must meet any and all margin calls on any hedged position, whether that is a long position or a short position. Some will say that all they need to do is to buy or sell the corresponding physical commodity and while simultaneously lifting the hedge. That might work fine on paper but in the real world it is a fabrication.
A cattle feedlot, a grain elevator owner/operator, a cocoa processor, a cotton mill, etc, may or may not have the actual product ready to sell as it is still maturing or growing in the field or may not be ready yet to actually buy the product but they might have hedges in place while they are waiting. So much for their hedges in this sort of idiotically insane trading environment. Their hedges are getting blasted to kingdom come but they must maintain the thing if it moves against them meaning that they need cash to meet any and all margin calls.
At some point, the cost of doing so, with hedge fund running prices all over the damn planet on a daily basis, is no longer feasible.
I am predicting here and now that unless something is done to corral these hedge funds, the futures market is going to become useless as a risk management tool for non-speculative entities.
Take a look at the following CCI chart (it might as well be copper or silver for that matter) and look at the extent of the daily price swings. Tuesday saw a big sell off across the sector as traders feared European debt woes and that brought about the RISK OFF trades. Commodities were dumped, the Dollar was bid higher and up went the bonds. The next day was relatively tame by comparison as traders were hesitant to do much of anything. Thursday saw the entire losses of the previous two days erased as Fed Governor Dudleys’ comments were interpreted as making the case for another round of QE forthcoming sooner rather than later.
Today, news hit that Chinas’ growth had slowed in the first quarter to a "pitiful" 8.1%. Yep, such a debacle ( if we could get half of that over here, a lot of our fiscal budget woes and our unemployment problem would actually get better). I am of course being sarcastic but once again the hedge funds and their mindless machines dumped everything in sight since we all know that no one needs to eat when growth is slowing down now do they? The result, YEP – all of the Dudley rally went down in flames with the market right back where it ended Tuesday.
Maybe we all should just go the hell to sleep and wake up in a year and see if the chart has actually gone anywhere besides up and down like a stinking yo-yo.


Jim Sinclair states that so far globally, 17 trillion dollars have been used to rescue banks from derivative problems and other losses.  These rescue monies have done nothing to revive the economy.  He states that another 17 trillion is coming as more derivative losses will be sustained.
The interview is below and the radio interview will be released some time today:

(courtesy KingWorldNews/Jim Sinclair/GATA)

'Jawboning' and 'intervention' aim to hold gold at $1,650, Sinclair says
Submitted by cpowell on 05:46AM ET Friday, April 13, 2012. Section: Daily Dispatches
8:40p ET Friday, April 13, 2012
Dear Friend of GATA and Gold:
Gold advocate, mining entrepreneur, and trader Jim Sinclair tells King World News that "quantitative easing" is for rescuing banks sunk by derivatives, not for reviving the economy; that it will double and then go to infinity; and that central banks are using "tremendous jawboning and market intervention" to hold gold around $1,650. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


For those of you who think that they can seek haven in the Swiss currency guess again:

(courtesy Dr Jeffrey Lewis/

Frustrated Safe Haven Swiss Franc Investors May Soon Turn to Precious Metals

-- Posted Friday, 13 April 2012 | Share this article | Source:
By Dr. Jeffrey Lewis

The resurgence of concerns over the long term solvency of debt laden Eurozone countries like Greece, Spain, Portugal, Italy and Ireland has led to refreshed selling of the Euro against the other major currencies since early April. 

Although the market in EUR/USD now seems to have stabilized just over the psychological 1.3000 level, deep questions remain among international investors as to whether the European Central Bank or ECB will be able to manage the ongoing European debt crisis over the coming few years without the trade bloc disintegrating or the common currency being further devalued by the forex market.

Furthermore, investors worried over the ECB’s recent notable balance sheet expansion, which has reportedly grown by roughly 30 percent since current ECB President Mario Draghi took over last November, have returned to buying the Swiss Franc as a relative safe haven for their investment funds.

Swiss Franc No Longer Convertible Into Gold

Nevertheless, two key factors have substantially diminished the Swiss Franc’s historic status as a safe haven currency with relatively low inflation. The first and primary factor is that the Swiss Franc is no longer convertible into gold, having been the last major paper currency to leave the Gold Standard after a referendum on the issue took effect on May 1st of 2000.

Switzerland’s 40 percent gold reserve requirement was also suspended at that time, and the country’s gold reserves subsequently fell sharply to only 20 percent by 2005. Switzerland had adopted the Gold Standard in the late 1870’s until convertibility was suspended in 1914. Its currency was then devalued before returning to the standard in the 1920’s.

SNB Deliberately Weakens Swiss Franc by Forex Market Intervention

The second factor is that Swiss National Bank officials shocked the forex market when they indicated that they intend to defend the 1.2000 level in EUR/CHF against all speculative attacks, with an “unlimited” supply of currency. This new policy was announced when the cross had been recovering after having dipped as low as the 1.0063 level last August.

To perform this herculean feat of central bank manipulation, which sent EUR/CHF rocketing almost eight big figures higher in one single dramatic day last September, it seems the SNB will be just printing more money, thereby diluting the value of their currency even further.

This well publicized currency market intervention had a similar effect on the Swiss Franc as the highly problematic quantitative easing policies employed other central banks, like the Federal Reserve, the Bank of England, the ECB and the Bank of Japan, which have consistently weakened their respective currencies at the expense of hard currencies like the precious metals.

Metals Look Better as Market Retests SNB’s 1.2000 Intervention Point in EUR/CHF

Since the beginning of April, the forex market has tested the Swiss National Bank’s resolve to defend the 1.2000 level in EUR/CHF on two separate occasions, with the market falling as far as 1.2034 on April 5th and then falling below the intervention level to hit a low of 1.1997 on April 6th.

Although the EUR/CHF market has subsequently recovered slightly to trade as high as 1.2032 by April 11th, it has remained at low levels, indicating that investors are still willing to dump their Euros for the ever less valuable Swiss Francs being printed by the SNB.

Egon von Greyerz, the founder and managing partner of Switzerland’s Matterhorn Asset Management, was recently quoted by King World News as saying that, “The problem is that Switzerland is expanding its balance sheet like every other central bank.”

Furthermore, his view was that precious metals are probably in the process of finding a medium term bottom, saying that, “Very soon, these investors will realize that the only protection is to buy gold.” 

"In addition to running a busy medical practice, Dr. Jeffrey Lewis is the editor and publisher of, where he provides practical information for precious metals investors".

Now let us see some of the major stories of the day which will have an effect on the physical price of gold and silver.

If you will recall, last week we presented to you charts on the Italian banks need for Euros and that banking
support had risen to an astonishing accumulative 270 Euros.  Last week's chart also showed Spain at the previous 152 Euro support  for February (as March was not published yet).  This morning we received Spain and my goodness, it went parabolic with another 75 billion euros added to the 152 billion for an accumulative 227 billion euros.  The addition of support for Spain of 75 billion euros matched exactly the support for Italy the previous week namely 75 billion euros. The CDS  on Spain(Credit Default Swaps) rose to 491 just 2 shy of their record high last November or just before the LTRO was introduced.  The Spanish 10 yr yield rose to 5.98% closing in on the dangerous 6% level.  These yields are now 418% higher than comparable Bunds.  The contagion bug spread to Italy which saw its 10 yr yield rise to 5.52%. We now have the reason that all bourses are in the red today as Spanish banks exist solely due to the courtesy of the ECB.

(courtesy zero hedge)

Spain CDS Surges Just Shy Of Record As Spanish Bank ECB Borrowings Go Parabolic

Tyler Durden's picture

On Easter Friday we presented the parabolic egg that Italy laid in March in the form of Italian bank borrowings from the ECB, which had surged by a record €75 billion to €270 billion from €195 in one month. Of course, since the US market was closed and everyone was preoccupied with the ugly NFP report, nobody paid much attention. Today, however, everyone is paying attention as Italy's counterpart in the unsalvageable periphery - Spain, just posted its monthly consolidated Eurosystem borrowings update for March. And if last week's Italian data was the Easter egg, today's parabola is the Friday the 13th funny, because Spain bank borrowings from the ECB in March soared by... €75 billion, or precisely the same amount as Italy, to €227.6 billion, the highest ever, and a 50% increase over the €152 billion in February. The result: Spain CDS touching 491 bps according to CMA, just 2 bps shy of the November all time wides. Other securities impacted: 10 Year Spanish yield + 10 bps to 5.92%, and a spread over bunds now well into the 400 bps, or 418 bps to be precise. Italy is also catching the contagious bug, with its own 10 year starting to grind wider yet again, now at 5.47%. We have the feeling as more wake up this morning, that this latest glaring confirmation that the PIIGS banks now exist solely courtesy of the ECB, will not be liked by many.
Spain bank borrowings from ECB:
And Spain and Italy bank borrowings from ECB:


The record close on CDS for Spain:

Spain CDS On Track For Record Close

Tyler Durden's picture

Spanish CDS, at 493bps, have just pushed above their previous record wide closing levels (though remain a few bps below their record intraday wides at 499bps from 11/17/11). The Spanish bond market, which we have numerous times indicated does not reflect the economic realities since it is so dominated by LTRO-buying and government reach-arounds, remain 45bps off their record wide spreads to Bunds. BBVA (430bps) and Santander (415bps) are also close to their record wides back in late November as their stock prices plummet.

Chart: Bloomberg


Spanish 10 yr bond yields at closing Friday night:

(courtesy Bloomberg)


Add to Portfolio


5.977000.15700 2.70%
As of 04/13/2012.


Italian bonds finished Friday night at its highest yield so far this year at 5.52%

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


5.523000.11700 2.16%
As of 04/13/2012.

Spain is scrambling this morning as word got out on the huge amount of euros supplied by the ECB for support. As Rajoy states: a bailout is impossible for Spain because of its size.

Also Greek unemployment rose to 21.8% revealing the damage austerity is doing to this nation.  They would be better off by defaulting on all debt and starting all over again.

It is interesting that Lagarde of the IMF is calling for greater firewalls, cash that will be difficult with all nations having trouble raising money.

(courtesy Louise Armistead/UKTelegraph)

Spanish bailout 'impossible' for eurozone, says prime minister Mariano Rajoy

The eurozone is not equipped to bail out Spain, the country's prime minister Mariano Rajoy has admitted, as global traders continued to punish the nation's stocks and bonds.

Mr Rajoy said it was "not possible to rescue Spain" but insisted his country did not need a Greek-style international bail-out anyway.
"To talk about a bail-out for Spain at the moment makes no sense," he told reporters. "Spain is not going to be rescued; it's not possible to rescue Spain, there's no intention to, it's not necessary and therefore it's not going to be rescued."
Despite his comments, the Madrid bourse fell and the yields on the country's benchmark bonds remained stubbornly high. While other European markets soared on Thursday following strong gains in America, Spain's Ibex index lost 0.5pc.
Politicians in Rome tried to counter the markets' view that Italy was in the same predicament as Spain.
Vittorio Grilli, Italy's deputy finance minister, said "markets are very nervous" but added: "We cannot talk about a derby between Italy and Spain."
Italy managed to raise €4.88bn (£4.03bn) at a bond auction but only by paying a markedly higher price. The bulk of the bonds - €2.88bn - were sold at a yield of 3.89pc, up from 2.76pc at an auction on March 14.
Analysts at Bank of America Merrill Lynch said: "Although Spain and Italy face very different economic and fiscal issues, their yields are largely moving in tandem."
Meanwhile, the Greek unemployment rate rose to 21.8pc, according to fresh figures from the national statistics office. During 2011, the average annual jobless rate soared to 17.7pc from 12.5pc the year before, revealing the toll of the crisis and resulting austerity measures that have seen one-in-10 jobs destroyed. One-in-five Greeks is now jobless, including 50.8pc of those aged under 25. The rate is twice as high as the eurozone average.
Christine Lagarde, the boss of the International Monetary Fund (IMF), also warned that Europe's rescue mechanisms were not enough to restore confidence to global markets but said the IMF could provide a "global firewall".
Speaking in Washington on Thursday, Ms Lagarde, who is seeking to raise $500bn (£313.4bn) in extra funds for the IMF from the G20, warned risks to the global economy "remain high; the situation fragile".
"We need a broader approach – and a stronger global firewall – if we are to push back this crisis. The IMF can help. But to be as effective as possible, we need to increase our resources."


Note how quickly the ECB is turning Spain into a Greece.  In Greece the private sector took the brunt of the restricted default as the ECB delayed their haircut on bonds owned by them.  Now private holders of Spanish sovereign debt are worried that they will receive the same treatment as subordination reins supreme:

(courtesy zero hedge)

How The ECB Is Turning Spain Into Greece

Tyler Durden's picture

As Spanish CDS surge and bonds shrug off the very recent gloss of a 'successful' Italian debt auction, the sad reality we pointed out this morning is the increasing dependence between Spanish banks, the sovereign's ability to borrow, and the ECB. As ING  strategist Padhraic Garvey notes this morning, the bulk of the LTRO2 proceeds were taken down by Italian (26%) and Spanish (36% of the total) and the latter is even more dramatic given the considerably smaller size of Spanish banking assets relative to Italy. The hollowing out of the Spanish banking system, via encumbrance (ECB liquidity now accounts for 8.6% of all Spanish banking assets), is a very high number - on par with Greek, Irish, and Portuguese levels around 10% where their systems are now fully dependent on the ECB for the viability of their banks. His bottom line, Spain is not looking good here and while plenty of chatter focuses on the ECB's ability to use its SMP (whose longer-term effectiveness is reduced due to scale at EUR214bn representing just 3% of Eurozone GDP), consider what happened in Greece! The ECB did not take a Greek haircut and so the greater the amount of Greek debt the ECB bought, the greater the eventual haircut the private sector was forced to take. By definition, every Spanish bond that the ECB buys in its SMP program increases the default risk that private sector holders are left with. Only outright QE, a promise not to default and a willingness to expand the ECBs balance sheet with ownership of the entire stock of Spanish debt if necessary (in the extreme) would be enough to cause a material positive effect from ECB intervention but it is clear from the massive compression in German yields (and weakness in Spain) that the market remains nervous amid an ongoing preference for core. Of course the cycle of crisis, as BNP noted, from crisis to complacency is becoming more chaotic and less sustainable.

ECB dilemma / Bank liquidity
Latest central bank data (which comes out with a lag) shows that the 2nd 3yr LTRO was dominated by Spanish and Italian banks. Specifically we estimate that Spanish banks took down 36% and Italian banks took down 26% of the total. The larger takedown of Spanish banks here is significant as the size of its banking assets are lower than those of Italy, hence in proportional terms Spanish banks have shown the greatest need for 3yr LTRO cash.
On an on-going basis Spanish banks now take down some 316bn of ECB liquidity, which represents 8.6% of its banking assets. This is a very high number. By way of comparison Greek, Irish and Portuguese banks take down some 10% to 12% of their banking assets in ECB liquidity, and these systems are basically fully dependent on the ECB for the viability of their banks. Spanish banks are not far behind on this metric. The next worst are Italian banks with the liquidity takedown of 6.5% of their banking assets.
Bottom line, Spain is not looking good here. There has also been a warning shot aimed at Ireland from the ECB's Asmussen, who asserts that the current amount of liquidity support extended by the ECB and through ELA (additional liquidity support through the Irish Central Bank) "needs to be substantially reduced over time". He also warns that Ireland should be very careful on any deviation from the original promissory notes agreement, suggesting that any restructuring here should be preceded by reduced bank reliance on emergency liquidity assistance.
At the other extreme, Dutch banks take down a mere 0.4% of their banking assets in ECB liquidity, and latest data show German banks taking liquidity to the equivalent of 0.6% of their assets. We estimate that German banks took down 8% of the 2nd LTRO while the Dutch take down was significantly small. The French need for ECB liquidity is higher, with total ECB takedown running at 147bn, which represents 1.7% of its banking assets, and we estimate that French banks took down 12% of the 2nd 3yr LTRO.
In the past three weeks there has been evidence that the beneficial effects of the two 3yr LTROs are largely behind us, with spreads under widening pressure again. In the meantime there has been no evidence of ECB bond buying through its SMP program. While the SMP may be resumed and would have a positive impact, it could ultimately risk making things worse. Why? Consider what happened in Greece. The ECB did not take a Greek haircut. So greater is the amount of Greek bonds that the ECB bought, the greater was the size of the private sector haircut required in order to get to the 120% medium-term debt/GDP target.
A baseline assumption is that the same could happen in the future i.e. if there had to be, say a Spanish, restructuring (albeit unlikely) at some point in the future that the ECB would not share in the pain. By definition then, every Spanish bond that the ECB buys in its SMP program increases the default risk that private sector holders are left with. The SMP program has survived the Greek default event because the ECB did not take a haircut, but that action in itself has impaired the effectiveness of the SMP. Only outright QE, a promise not to default and a willingness to expand the ECBs balance sheet with ownership of the entire stock of Spanish debt if necessary (in the extreme) would be enough to cause a material positive effect from ECB intervention.
A more positive gloss has taken hold in the past few days, coinciding with Italy getting paper into the market yesterday amid a strong convergence theme for peripheral spreads to core. However, the fact that 2yr Schatz trade close to a single digit and that the 5yr area is trading so rich to the curve tells us that this market remains very nervous amid an ongoing preference for core.


Early Friday morning saw massive rallies in Rome against Monti's new austerity measures namely the new pension reform which extends by two years when seniors can receive their pension.  You can see from the stories the hardship that will be create for various citizens.
Italy will approach Spain shortly as both of these nations spin out of control

(courtesy Bloomberg)

Italians Rally in Rome Against Monti’s Pension-Revamp Gap

taly’s main labor unions took to the streets of Rome today to protest Prime Minister Mario Monti’s pension-system overhaul, saying it traps hundreds of thousands of workers in a legal limbo without retirement pay.
Maria Dinelli is one such person. When she left Alitalia SpA (AZA) in 2008, her early-retirement deal with the airline provided jobless benefits until her pension payments begin in 2015. Now, under the reform that raised the retirement age, Dinelli won’t get the payments until 2017, leaving her stuck in a two-year gap without any income.
Italy's Prime Minister Mario Monti. Photographer: Ed Jones/Pool via Bloomberg
“I’ll be without a salary or pension for two full years before the retirement age, and will have to put money aside,” Dinelli, 58, said in a Bloomberg Television interview in Rome. “You were told you had guarantees, then you lose it all because a new government takes power and changes the rules.”
Monti’s pension plan was part of a $26 billion austerity package passed in January to fight the sovereign crisis by putting Italy’s debt, the second highest in Europe after Greece, on a downward trajectory from next year. Monti followed with measures to open closed professions, reduce bureaucracy and ease firing rules that helped bring down the country’s bond yields from near euro-era highs when he took power in November.

Rome Rally

Tens of thousands of people marched through the streets of central Rome this morning before a rally where union leaders criticized the government for underestimating the extent of the problem. Last night the Labor Ministry said there are 65,000 Italians who may be left without support between when they leave work and when their pension kick in as the higher retirement age delays their payout. Unions say the figure is about five times that amount.
“We weren’t impressed by the government’s statement,” Raffaele Bonanni, head of the CISL union, told the crowd in Rome’s Piazza dei Santi Apostoli. “The labor minister is acting like an ostrich, sticking her head in the sand because she doesn’t want to look in the faces of the hundreds of thousands of people here today seeking clarity.”
The Labor Ministry “is studying ways” to assist some workers who signed collective agreements that provided them with jobless benefits for the period until their pensions start, the ministry said, according to the e-mailed statement.

‘Just Ghosts’

The ministry’s figures contrast with those of CGIL, which estimates 300,000 workers have been left in the lurch by Monti’s overhaul, according to Claudio Di Berardino, head of the union in the Lazio region. “If these figures were correct, then we’d have to say that the thousands of workers who’ve turned to the union for help are not real and just ghosts,” Vera Lamonica, a CGIL leader, said in an e-mail. “The government is playing with fire.”
Mauro Nori, head of pension agency INPS, told the Senate Labor Committee on April 11 that the group totals at least 130,000. Providing assistance to such workers could “require additional resources of about 10 billion euros ($13 billion),” Roberto Pessi, a labor law professor at Rome’s Luiss University, said in an interview. He estimated the group may total as many as 450,000 workers.
Besides raising the pension age and penalizing early retirement, the reform based the system on contributions rather than salary and ended inflation indexation for larger pensions. The overhaul means that younger workers will collect smaller pensions than their parents.

Starvation-Level Pensions

The plan, which Monti has called “cutting edge,” was part of his efforts to shore up public finances to boost economic growth, which has trailed the euro-region average for more than a decade. Italians are chaffing under the effects of the austerity package, which apart from lower pensions, brought higher taxes and record gasoline prices that have reached almost 2 euros a liter, or $10.50 a gallon. The resulting slump in consumer demand helped push the economy into its fourth recession since 2001.
“An overhaul of the pension system was unavoidable because the old scheme was too generous compared to the country’s possibilities and the European standards,” Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London, said by phone. “That said, the protest of these workers may be a harbinger of future social tensions. I don’t think younger workers have really realized they will have starvation- level pensions.”

Gaps Covered

While the Labor Ministry is looking into ways to help some workers left in limbo, the pension overhaul included financing “adequate to cover all needs without requiring recourse to further resources,” according to last night’s statement.
Labor Minister Elsa Fornero, author of the pension changes and the jobs-market shakeup, said on April 3 that experts from the government and INPS will come up with a solution by June 30.
“I can’t rule out that the government will resort to a wealth tax,” said Pessi, the labor law professor. “So far, the government hasn’t used a heavy hand with the richest taxpayers, partly to avoid negative consequences as far as foreign investments are concerned, but now I think it’s about time for those who have more to contribute to the needs of the country.”
Back in her Rome apartment, Dinelli looks at bookshelves full of guides to countries such as China, India and Australia.
“After working for so many years, I’d have liked to spend money the way I wanted, maybe traveling or enjoying some peace of mind,” she said. “I think people in my situation have lost faith in our institutions.”
To contact the reporter on this story: Lorenzo Totaro in Rome at
To contact the editor responsible for this story: Craig Stirling at


This is what happens when you have major cuts to GDP in austere measures as social unrest climbs and this can set off far greater harm to the economy:

(courtesy zero hedge/ Voth

Austerity, Social Unrest, And Europe's 'Lose-Lose' Proposition

Tyler Durden's picture

The link between government spending cuts and social unrest is highly non-linear and extremely troublesome. We first noted the must-read quantification of the relationship between so-called CHAOS of social unrest and spending cuts back in early January and this brief lecture reiterates some of the frightening conclusions. Critically, small spending cuts impact social unrest in very marginal ways but once the cuts begin to rise to 2-3% of GDP then the probability of considerable and painful social unrest becomes much higher. As Hans-Joachim Voth points out in this INET lecture, analogizing between a burning cigarette as a catalyst for a forest fire in an arid landscape, he suggests the rapid build up of combustible material caused by austerity (youth unemployment in Spain perhaps?) could be inflamed by a seemingly small catalyst that would otherwise be ignored in general (a poor immigrant being shot or motorist murdered in a bad part of town) when spending cuts are at the extremes we see across Europe currently. The frightening reality of the non-economic, real social costs of the Troika's handiwork look set to be tested going forward as the link between periods of very heavy unrest (clusters of rioting for instance) and austerity is very strong. His findings on the post-chaos fiscal policies, (what does the government do once social unrest explodes) are perhaps more worrisome in that governments will immediately withdraw from austerity patterns which leads to some tough game-theoretical perspectives on the endgame in Europe in a 'lose-lose proposition' for austerity as the uncertainty shock of these events cause dramatic drops in Industrial Production.

to see the tape:  see zero


Here is a small blurb on the  French elections:


Polls show Sarkozy's comeback bid in trouble: Reuters noted that the latest French presidential election polls show that the modest gains made by French President Sarkozy over the last month have started to evaporate. A CSA poll showed Socialist Francois Hollande winning the 6-May second round with 57% of the vote, while a BVA poll had Hollande winning the runoff with 54%, up 2% from a previous survey. In addition, an LH2 poll showed Hollande taking 55% of the vote in the decider round.

Shame on Egan Jones.  This week they had the audacity to lower the credit rating on the USA and then to boot they lowered the ratings on our heroes JPMorgan.  What were they thinking?

Egan Jones Downgrades JPMorgan

Tyler Durden's picture

The iconoclastic rating agency, and fully recognized NRSRO to the dismay of some tabloids, which just refuses to play by the status quo rules, and which downgraded the US for the second time last Friday, to be followed soon by other rating agencies as soon as US debt crosses the $16.4 trillion threshold in a few short months, has just done the even more unthinkable and downgraded Fed boss JPMorgan from AA- to A+.
Synopsis: Reliance on prop trading and inv bkg income remain. LLR declines (down $1.7B QoQ and $3.87B YoY) offset DVA losses in the investment bank. Wholesale loans were up 23% YoY and 2% QoQ. Middle Mkt, Cmml Term, Corp Client and Cmml Real Estate lending increased by 9%, 2%, 16% and 19% YoY. Middle Mkt and Corp lending was up 2% and 3% QoQ respectively, while Cmml Term, and Cmml Real Estate lending were down 2%, and 9% respectively. Card and consumer loans were down 2% and 5% YoY respectively (down 5% and 1% QoQ respectively). Non accruals are up 14% QoQ due to weakness in JPM's student loan portfolio. Reserve coverage is good and capital is adequate. We believe JPM will experience further weakness in its retail portfolio due to a softening economy. We are downgrading.
Full report here.

"People don't want to hear solutions, they want to change the dialogue. Bait & switch so we get more worried about what people pay, what's fair. You know how my kids opportunities are affected by how many millionaires there are? You know what I see is going to affect their opportunity? $15.6 TRILLION!"

I cannot wait until the debt ceiling debate begins and the ceiling is raised again:
So in case you missed it, here it is:

Your rating: None Ave


I will leave you today with two great  commentaries.  The first is by Wolf Richter on the fight over subsidies for the nuclear power industry.  Ever since the Japanese nuclear disaster, Germany has shied away from this nuclear power.
France is up to its gills in nuclear facilities as the sovereign owns the major nuclear power companies and they are in trouble financially with their overbuilding of supply.
a must read...
(courtesy Wolf Richter/

Suddenly A Nasty Fight over Subsidies for Nukes in Europe

testosteronepit's picture

Wolf Richter
The meltdowns at Fukushima Number 1 that have caused so much havoc have also paralyzed Japan’s nuclear power industry. The last of its 54 reactors will be taken off line in May for scheduled maintenance, but none has been restarted due to local resistance. “Deindustrialization” is gripping the power-starved country. TEPCO, owner of the Fukushima plant, is being bailed out with trillions of yen in taxpayer money, or rather in debt that Japan has to issue even as it’s sinking deeper into a fiscal quagmire. Meanwhile, new revelations seeped out about the nuclear industry’s controlling relationship with the government: conspiracies had squashed stiffer regulations. Japan Inc. at work. Five years later, the people of Fukushima paid the price. For that fiasco, the emails that documented it, its deadly and ongoing impact, and the anger it caused, read....A Revolt, the Quiet Japanese Way.
And now, halfway around the world, in the European Union, nuclear power industries are also lining up to suck at the teat of the taxpayer, but ingeniously not taxpayers in their own countries, at least not directly, but taxpayers in othercountries. Turns out, France, the UK, Poland, and the Czech Republic, which are all planning or building nuclear power plants, are pressuring the European Union to open up the spigot.
This emerged when the German daily Süddeutsche Zeitungobtained letters the four had sent to Brussels in preparation for the meeting of the European economics and energy ministers later next week. Their goal: get the EU to reclassify nuclear energy as low-emission technology, a heavily subsidized category that includes solar and wind power; it would make nuclear power eligible for the same subsidies. Their argument: Europe's commitment to shift to low-emission power generation by 2050 would have to be “technology neutral.”
If the four countries succeed, the EU could subsidize not only construction of nuclear power plants but also the sale of their electricity to the tune of billions of euros—to be paid by all taxpayers in the EU via the EU budget, 20% of which falls upon German taxpayers. Alas, it’s precisely Germany that has decided to exit nuclear power.
After a decade of tergiversations about shifting from fossil and nuclear power to renewables, Germany reacted to the Fukushima disaster with lightning speed. Within three months, it revoked the licenses of 7 of its 17 nuclear power plants and then voted to exit nuclear power altogether by 2022, a very expensive undertaking. Hence, efforts to get German taxpayers to subsidize nuclear power in other countries aren’t going to go over very well.
France, on the other hand, is up to its neck in nuclear power: nearly 80% of its electricity production derives from it, part of which it exports to its neighbors. The government owns 85% of EDF, the utility in charge of the 58 reactors, and 78.9% of Areva, an industrial conglomerate focused on nuclear power. Both have run into difficulties. One of their costliest problems is the advanced EPR (European Pressurized Reactor), started in 2006, that is now mired in economic and political trouble, after huge cost overruns, technical difficulties, and endless delays. So EU subsidies would be one heck of a bailout.
The UK is planning 4 nuclear power plants, but construction hasn't begun as no one is eager to plow billions of pounds into a technology whose future is in question. But a hefty European subsidy would change that.
“The Trojan horse of nuclear states," is what Tobias Münchmeyer, a German energy expert at Greenpeace, called the reclassification of nuclear power. And he exhorted his government not to fall for it. It might end up shifting subsidies from sacrosanct renewable energies to nukes.
Ah yes, the ancient problem of subsidies. Bureaucrats and officials choose winners and losers and hand taxpayers the bill. In the jungle of EU regulations and subsidies, this fight could get nasty. So far, reactions have been muted. EU Energy Commissioner Günther Oettinger would listen to the positions of the member states, he said. Officials in the German government declined to comment. In France, a spokesperson for Industry Minister Eric Besson came out swinging. "There is no French initiative in this direction," he said, and "no coordination with other countries." Clearly, EU political maneuvering has started.
Ironically, while the European energy ministers will hash this out in Brussels later next week, the finance chiefs and central bankers of the G-20 will have their own shindig in Washington DC. At issue is money. Bailout money for the Eurozone. Spain is on the horizon, amounts are skyrocketing, and ... “We certainly need more resources,” explained IMF Managing Director Christine Lagarde. For that mindboggling debacle—the most bankrupt countries being pushed to bail out other bankrupt countries at the expense of taxpayers everywhere—read.... An IMF Absurdity.


And I will conclude by commentary with this Jim Willie paper.
Note that Willie emphasizes that QE never ended as the USA perpetuated the quantitative easing by
purchasing its bonds with swap money.  He highlights the many points that I have raised over the past several years:
1. the abandonment of the USA in international trade.
2. Germany preparing to leave the Euro
3. Spain and their balance sheet problems
4. the flooding of Europe and the USA with paper threatening the world with a hyperinflationary depression.

Jim Willie CB                        12 April 2012

home: Golden Jackass website
subscribe: Hat Trick Letter
Jim Willie CB is the editor of the "HAT TRICK LETTER"

What an incredibly complex confusing and treacherous month. It can be safely said that 80% of the activity is almost totally kept from the public. The financial system is breaking in an accelerated fashion. Compare to some grisly horror movie where a man is strapped in a chair. The more he moves, the tighter the bindings pull on his gasping throat and pressed nether stones. The most significant two factors at work are the Iran sanctions and their powerful backfire, and the futile efforts in Europe to stem the banking center collapse. The anti-USDollar federation that spans widely across the globe is gathering strong momentum. Financial aggression is being met by financial alternative development. As Greece moved off the daily news fabrication factory, the reality of a collapse in Spain and Italy has moved to the front center of observations. Meanwhile, the American nitwits continue to argue over Quantitative Easing when it never stopped, and in fact, went global under their noses. The US news machine, dominated by the syndicate, churns out absurdities after more nonsensical bites on an economic recovery. The subprime loan machinery has ramped up. The retail factor does not tell of strength, but of weakness. Spending on consumption does not indicate strength, but a path to ruin still not well recognized. The gap between reality and reports is diverging.
Back at the gold desk, another cartel member kill is in progress. A string of UBS-type gold arena deaths is the biggest untold story of the new decade. The UBS rogue trader story was a total fabrication, written and staged to conceal the removal of all UBS gold from their reserves inventory. They are a dead gold player. The gold community, even LeMetropole Cafe and GATA, appears to be missing the coalition kills taken place in sequence with each paper gold ambush. If the cartel wishes to drive down the paper gold price, then they must deal with the consequences of having one more cartel member bank offered on the physical altar in a death sacrifice. They are vulnerable from sovereign bond positions and weak currency positions. In the margin call vise, they must forfeit their gold, but in a long slow process as truly enormous physical gold orders are being filled over a pyramid of prices lower than the cartel bank wishes. Details are scanty, but the trail can be followed to some extent by false stories to cover the damaging tracks. The press did a wretched job in checking the facts on the UBS rogue story. The loss was over $6 billion. The trades were all approved at VP level. The trap was laid and UBS entered with both feet, the consequence for which was being expelled from the gold arena, probably forever, in a total loss of its gold bullion. No wonder the press did not report the actual story. It would have been a monster bull story for gold. If Barclays or Royal Bank of Scotland or Bank of America were having their golden blood removed on a table, with straps in place for directors of their gold desks, and hot pokers applied by coalition forces to extract their gold, the outcome dictated by incredibly insolvency and margin call vulnerability, the effect on the gold market would be magnificent. Such events are in progress in my opinion, based on some juicy information feeds. Rather than divulge the entire details of the cartel kill, the coalition prefers to move to the next victim in the Wall Street & London cesspool of finance.
What follows will not be presented in great detail. That is saved for the Hat Trick Letter reports, where research has come across magnificent events in progress. As the calm spreads like a fog over the financial sphere, the level of risk rises. As the phony recovery stories propagate like a disease from the host, the level of risk rises. As the US political race takes center stage and the stakes increase, the level of risk rises. Events are catapulting in a loose coordination that is very difficult to observe, except for the quicksand in Spain.


The subprime cancer has returned. The struggle to revive the credit engines has drawn the weaker elements into the room. Banks wish to lend more. While few players qualify for loan approval and partnership grants, the banks themselves have never been more insolvent. Without the FASB accounting largesse and generosity, all large US banks would be declared insolvent and prepared for liquidation proceedings. The junk bond warning lights are flashing. The movement to even remain standing still has come with greater risk assumed and embraced.
The anti-USDollar forces gather strength. The emerging nations had been making numerous significant bilateral agreements a month ago. The Iran oil deals had dictated some degree of innovation in payment systems in response. The sanctions forced their hands. Additional sanctions like usage of SWIFT bank systems as a weapon, threatening usage in Europe, resulted in a flash point. The BRICS nations, led by China, appear to be on the verge of launching a rival SWIFT bank procedure that might be critical in trade settlement. It is likely to be outside the US$ setting.

Prepare for the possibly sudden cardiac arrest event to the Petro-Dollar. In April 2010, a major conference took place in Abu Dhabi among Arab royals. They arrived in unmarked jets, over 200 strong in number. They struck important accords, including the reliance upon Russia and China in the security role for the protectorate. In essence, the Saudis worked to replace the United States in the protection racket that has endured since the 1973 embargo, manifested in trade surplus recycling, even as the Germans worked to establish the Eastern Alliance. If a new SWIFT system comes, then the foundation will be set to walk away slowly from the Petro-Dollar. Few see the pieces coming together. The impact on the USEconomy would be something between a wrecking ball and catastrophic.
China prepares to wrest control of the USDollar, for the stacks of reserves held outside the US boundaries. This is history in the making. If a Chinese USDollar is launched, and trades independently of the domestic USDollar, then it is Third World curtain time for the United States. The practical effect would be rampant price inflation from a devalued domestic Dollar. It would be rampant shortages, since the restated Dollar would not be a favored piece of paper, not with tremendous economic weakness, absent industry, insolvent banks, ruined states, bond fraud charges in every nook & cranny, war cost impact, and the big storm cloud of the runaway USGovt deficits which could tack on another $200 billion in March. The path is clear, which begins with over 50% in external held debt, then lost sovereignty, then foreign voices influencing key decisions, then wearing down the muscle mass of tools like the IMF and World Bank, and finally lost control of the global reserve currency. Never in history has a nation had control of its currency wrested by another nation. The reaction process by foreign entities to the USFed and USDept Treasury abuses to the USDollar in hyper monetary inflation have wrought vengeance at worst and survival tactics at best.
Germany has made preparations to leave the Euro currency union. The more accurate statement should be that Germany is preparing to take the Euro ball out of the park, to improve it, to sign new free agency team members, and to leave the Southern European nations to fend for themselves in a sandlot. The Latin remnant will be essentially bagholders left with the gristle, fat, and toxic matter of the Euro currency itself. What they hold onto will be devalued in a fast moving storm. The risk to Germany will be the opposite. They must sign up enough new trade partners so that whatever new currency (Nordic Euro, New Marc, Euro Mark) is not a victim of its own success. A fast rising new currency would inflict damage on the German export trade. Numerous financial safety nets have been created and loaded, designed to aid large German banks. Some might fail.
Spain is on the verge of rejecting the austerity measures and maybe the Euro currency. Refusal to swallow the poison pill might have some benefits, like not pulling the rug from under the economy in vast spending cuts. But the reality bites hard, as the Spanish Govt Bond yield will revisit its old high levels. Funding problems will become acute. Think NO WAY OUT. The 23% jobless rate in Spain is written like an unusual figure in the West, but it equals the United States. The US simply has better liars in the economic trenches and more thorough press control. The strain in Spain will likely rain chaos on the bond plains, sufficient to cause their leaders to show disdain for remaining within the strained Euro domain.

The USFed and Euro Central Bank are guilty of $5 trillion in paper binges in the last several months alone. The US Federal Reserve and the European Central Banks are operating like desperate siamese twins in the frantic rescue attempt to prevent a Western banking system collapse. ECB head Draghi might have expressed reluctance to trade in bad PIGS debt paper, but he has been the champion in EUR 3.1 trillion in window activity over just the last six months. Notice nothing is fixed despite the massive effort that has been no more than glorified paper mache application. It is a futile battle akin to the task of Sisyphus, who was forced to push a stone uphill, but every time he rested, it rolled back down the hill. Since the central bank paper merchants can only apply paper bandages to the paper wounds, the rotten limbs and appendages cannot distinguish between the old rot and the new fester that begins immediately upon treatment. Nothing is fixed, no remedy in place, none even attempted, nor is recognition of the problem part of the debate.
The US financial markets have become an abandoned playground left to the High Frequency Trading freaks and their cadre of corrupt video game ilk. Volume is way down on the NYSE. Fund outflows are magnificent for stocks, as the public aint so dumb after all. ETF-type congames are losing their appeal. As the LTRO effect wanes from central bank paper shell games played at windows, the financial markets are experiencing a vast low pressure zone. The windows will eventually all be shattered.
The US housing market is permanently destroyed. The Jackass has played word games since 2007 calling for a two-year decline. But my call has been repeated every year. Let the forecast be made in more plain terms. The US housing market will never come back. Its decline will go hand in hand with the deterioration of the USEconomy and lead the nation on the path to a USGovt debt default, accompanied by over 25 individual State defaults (called another name in legal parlance). The foreclosure parade is unending. The delinquencies mount unabated. The decline in home prices puts new household ranks into negative equity territory, exactly as Greenspan warned a year ago. What irony that the chief architect also acted as the Cassandra in warning. The banks refuse to liquidate, since doing so would expose their insolvent ruin and inflict even more deadly downdrafts in home prices, as well as expose the vast corruption among bonds, from false property titles to duplicate title usage to outright bond counterfeit, even to raids by past presidents.
The hidden factor in the systemic ruin was the China card played in the last decade. The decision to send US factories to Asia, starting in the 1980 decade with Intel to the PacRim, followed by a climax to China in the 2010 decade, will serve as the basis of a chapter in history that led to the US systemic ruin. The gold card was played within the Most Favored Nation status deal granted in 1999, since the Rubin team ran out of US gold, ran out of European gold, and needed fresh gold meat. The Chinese committed their gold hoard and promised to recycle trade surplus, just like the Saudis did with oil money. The Gold Carry Trade began but did not end with Fort Knox raids. The carry trade is the singlemost financial factor that pushed the nation to ruin. Nothing backs the USGovt debts, not with an empty Fort Knox, never to be audited, the home of nerve gas storage if truth be told. The deep storage gold on the USGovt balance sheets does not fool many people anymore, the subject of ridicule. The US is insolvent without collateral, facing a margin call, soon to lose control over its own currency. American life savings are at risk, while pensions have been gutted, but the sirens are silenced.


Since October, the pressure has been squarely on the US and EU central bankers to print money, to direct it to insolvent giant banks, and to prevent a collapse. They reacted to sovereign bond pressures. But at the same time they had to exert extreme force on the gold market, so it did not reflect the extreme debasement of money itself. Thus the huge naked short ambushes of gold. But during these past six months, a new coalition has emerged to exact a heavy cost on the gold cartel. They will lose one additional cartel member to the gold war battlefield with each and every illicit paper ambush. A big order is being filled in the last two weeks, a very big order, at a low price, by brute force. The result will be another dead cartel member. Its completion will be followed by another nice price rise. Whether the cartel is willing to lose another member bank afterwards as the cost of yet another paper ambush, hard to know. But the unshakable fact is that the global monetary system is being ruined. The confidence in sovereign bonds is at rock bottom. In Europe it is more clearly in the open, but in the US it is more hidden, as the safe haven ruse plays on.
Somehow a $200 billion single month deficit for the USGovt credit card line does not juxtapose well with any claim of being a safe haven, no more than a metal flagpole is during a lightning storm. The biggest buyers of the USTreasury Bonds are the USFed and its handy printing press, used and abused frantically and at high volume speeds. Distrust of the monetary system will bring about the rise of a new system, backed by gold. However, the old system cannot be permitted to fall unless and until the new system is ready, in place, and fully wired. That day is coming soon. The signposts are in place, the painted messages legible.

I wish you all a grand weekend
and I will see you Monday evening

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