Saturday, June 2, 2012

Poor jobs report/USA treasury closes at 1.47%/Awful China PMI sends China into deep recession/German 2 yr bunds and Switzerland 2 yr bonds in negative territory

Good morning Ladies and Gentlemen:

The price of gold rose yesterday by a monstrous $57.90 to close the comex session at $1620.50.
Silver finished the day up 76 cents to $28.50. The banking cartel drove gold lower by $10 overnight as conditions weakened terribly in China with a poor PMI and then the final European PMI put the nail in the coffin.  The German 2 yr bund yield landed in negative territory joining Switzerland.  UK manufacturing plummeted.  The Spanish Credit Default Swaps also widened fearing a financial collapse there. If that was not bad enough, the USA delivered its jobs report and it showed a gain of only 69,000.  However if you take away the plug  B/D of 204,000 jobs we actually had a job disappearance of  135,000 jobs.  The total amount of souls seeking jobs actually increased as students leave university to seek a summer job.  The ISM numbers (manufacturing and service) released as well showed a dismal performance for the USA as
the Dow followed Europe into the toilet, down 274 points.

Let us now head over to the comex and assess trading today.

The total gold comex OI fell by 3,336 contracts on Friday from 420,245 to 416,909. However of that  total, 1204 contracts were delivered upon which lowered the OI.  Still, the bankers were able to get some of our weaker gold longs to pitch their positions to the bankers . The front delivery month of June saw its OI fall from 9171 to 5878 contracts for a loss of 3293.  It seems that some of the our longs rolled to August instead of waiting the entire month for settlement.  The next big delivery month is August and here the OI remained quite stable rising by only 221 contracts from 224,279 to 224,500.
The estimated volume on Friday was very large at 282,866 as many piled into the metal once they realized that the situation in Europe was in dire shape.  The confirmed volume on Thursday was more subdued at 193,618

The total silver comex OI is causing migraines galore to our bankers.  It increased again by a rather large 2075 contracts despite the fall in silver price.  The new OI rests this weekend at 118,102 from Thursday's level of 116,027.  No doubt we will see the midnight oil burn inside JPMorgan's castle.  They will invite their friends from Bank of America, Citibank, Goldman Sachs, and WellsFargo to join them in a "shiva" moment.  The non official delivery month of June saw its OI mysteriously rise by 15 contracts despite 24 delivery notices yesterday.  We thus gained 39 contracts or  an additional 195,000 oz of silver standing.
The big July contract is 30 days away from first notice.  Here the OI remained relatively constant at 58,617 a fall of only 25 contracts and that fall, no doubt, was the delivery notices settled upon.  The estimated volume on Friday at the silver comex was extremely high at 64,260.  The confirmed volume on Thursday was also extremely high at 51,839.  The high volume and constant OI for the upcoming delivery month is of great concern to our bankers.

June 1.2012

 opening balance for June

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
28,713.035 (JPMorgan)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in
32.15 (Brinks)
No of oz served (contracts) today
(3281)  328,100 oz
No of oz to be served (notices)
  2597  (259,700) oz
Total monthly oz gold served (contracts) so far this month
(4485) 448,500  oz
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month


We had considerable activity in the gold vaults today.
We had a very tiny deposit of 32.15 oz into Brinks.
We had no dealer deposit and no dealer withdrawal.

The customer over at JPMorgan removed 28,713.035 oz from all registered vaults.
I wonder what that is all about.

We had a wild day in the adjustment category:

1.  a large 249,521.142 oz of gold left the customer side and entered the dealer side at JPM.

2. a another large 80,252.521 oz left the customer (eligible side) and entered the dealer side at Scotia.

Thus the dealer or registered gold inventory advanced to 2.843 million oz or 88.4 tonnes of gold.
The boys are certainly preparing for some big gold removals.

The CME notified us that we had a huge 3281 notices served upon our longs and most of that supply came from JPMorgan.  ( you recall the huge adjustment yesterday whereby 109,000 oz was leased from a customer at JPM).  The number of oz served by these notices is represented by 328,100 oz.  The total number of notices filed so far this month total 4485 for 448,500 oz.  To obtain what is left to be served, I take the OI standing for June (5878) and subtract out Friday's notices (3281) which leaves us with 2597 notices or 259,700 oz.

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

448,500 oz  (served)  +  259,700 (oz to be delivered upon) =   708,200 oz or 22.02 tonnes.

we will have pretty close to this figure delivered upon for the rest of June.


June 1.2012

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory647,353.172( Delaware,Brinks)
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory1,348,614.733 oz ( Brinks,Delaware, Scotia)
No of oz served (contracts)16 (80,000)
No of oz to be served (notices) 76 (380,000)
Total monthly oz silver served (contracts)40 (200,000)
Total accumulative withdrawal of silver from the Dealers inventory this monthnil
Total accumulative withdrawal of silver from the Customer inventory this month781,284.67
For a non delivery month, we certainly had huge movements in silver.

We had no dealer activity whatsoever.

The customer received the following silver:

1. Into Brinks;  736,832,05 oz
2. Into Delaware:  7058.083 oz
3. Into Scotia: 604,724.60 oz

total deposit:  1,348,614.733 oz

we had the following withdrawal:

1. Out of Brinks;  602,775.72 oz
2. Out of Delaware:  44,577.452 oz

total withdrawal 647,353.172 oz

we had one adjustment whereby the customer in all probability leased 25,125.7 oz to the dealer  and that dealer is my good friend JPMorgan.  May they rest in pieces.

The CME notified us that we had 16 notices filed for 80,000 oz. The total number of notices filed so far this month total 40 for 200,000 oz. To obtain what is left to be filed upon, I take the OI standing for June (92) and subtract out today's delivery notices (16) which leaves us with 76 notices or 380,000 oz to served upon our longs.

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

200,000 oz (served)  +  380,000 oz (to be served upon)  =  580,000 oz


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.

June 1.2012:

Total Gold in Trust



Value US$:65,751,623,835.55

May 31.2012:




Value US$:63,604,952,987.90

May 30.2102




Value US$:62,870,525,392.06

May 29.2012:




Value US$:64,484,398,520.89

Wow! On Friday a massive 3.62 tonnes of gold entered the GLD vaults.
These guys are really good at procuring gold.


June 1. 2012  for SLV

Ounces of Silver in Trust310,035,157.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,643.17

May 31.2012:
Ounces of Silver in Trust310,035,157.500
Tonnes of Silver in TrustTonnes of Silver in Trust9,643.17

May 30.2102 

Ounces of Silver in Trust309,258,925.500
Tonnes of Silver in TrustTonnes of Silver in Trust9,619.03

May 29.2012:

Ounces of Silver in Trust310,714,438.500
Tonnes of Silver in TrustTonnes of Silver in Trust9,664.30

we neither gained nor lost any silver at the SLV.  Actually it is quite remarkable that silver rises by 76 cents, and precious metals companies rise between 6 and 8% and the silver vaults at the SLV rise by zero oz.  Go figure!!

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

1. Central Fund of Canada: traded to a positive 3.7percent to NAV in usa funds and a positive 3.8%  to NAV for Cdn funds. ( June 1.2012)

2. Sprott silver fund (PSLV): Premium to NAV  lowered to  6.37% to NAV  May 31..2012 :
3. Sprott gold fund (PHYS): premium to NAV rose to    1.56% positive to NAV May 31 2012).


Every Friday night, we get the COT report  (Commitment of Traders Report) which shows the positions held by our major players:

First the Gold COT:

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, May 29, 2012

Our large speculators:

Those large specs that have been long in gold pitched 2112 contracts from their long side.
Those large specs that have been short in gold added another large 2327 contracts to their short side.
(these guys are crying the blues tonight)

Our commercials:

those commercials that are long in gold and are close to the physical scene pitched 2542 contracts from their long side.

those commercials that are short in gold from the beginning of time, covered a massive 7431 contracts from their short side.

Our small specs:

those small specs that have been long in gold pitched a huge number for them:  2695 contracts from their long side.

those small specs that have been short in gold covered a large 2245 contracts from their short side.

Conclusion:  even more bullish than last week as the commercials continue to bail.

Silver COT Report: Futures
Large Speculators
Small Speculators
Open Interest
non reportable positions
Positions as of:

Tuesday, May 29, 2012

You can see that the silver COT is quite different in positions held than the Gold COT.

Our large speculators:

Those large speculators that are long in silver, pitched a rather large 1570 contracts to their long position
Those small speculators that are short in silver somehow did not see the tea leaves as they added '
another 720 contracts to their short side.

Our commercials;

Those commercials who are long in silver and are close to the physical scene added a very large 1270 contracts to their long side.

Those commercials who perennially have been short in silver added another  382 contracts to their short side.

No doubt the midnight oil meetings will be held with JPMorgan as chairman of the meeting and with Fed officials in full attendance. They must discuss what on earth is happening in the silver complex.

Our small specs:

The small specs that have been long in silver, added another large 835 to their long side and these guys are happy campers this weekend.

The small specs that have been short in silver, covered 516 contracts from their short side and they are relieved that they did so.

Conclusion;  slightly more bearish this week as the bankers supplied more non backed paper.  The bankers may finally be overrun.


Now let us see some of the major physical stories. Two stories originating  from the Silver Doctors webs site:

The first:

 this alert from Jim Sinclair:

"this will be the worst case financial scenario unless the Fed goes Full QE by the end of June"

I believe that they are already doing a clandestine QE through the currency swaps. However this QE is off balance sheet. Sinclair is stating that the Fed will now engage in official QE and put it on their balance sheet;

(courtesy:  Silver Doctors/Jim Sinclair)

Jim Sinclair: Worst Case Financial Scenario Unless Fed Goes Full QE by End of June

The legendary Jim Sinclair alerted email subscribers this afternoon that the financial system faces ‘the worst case economic and social scenario in 2012‘ if the Fed does not announce Full QE by the end of June.
Sinclair states the Fed is playing a game of chicken that will end disastrously without immediate massive official stimulus.

Sinclair says this is what the Fed is risking unless MASSIVE QE is unleashed by The Fed before the end of June:

(the video is from the movie Rollover in the 1970's)


and the second this very important interview with Bart Chilton with the Silver Doctors:

Bart Chilton: Silver Investigation to Conclude by September if Not Sooner

The Doc contacted CFTC Commissioner Bart Chilton this week regarding the delay by the CFTC and the SEC in enacting position limits in silver, as well as the CFTC’s silver manipulation investigation, which is now in it’s 4th year.

As the CFTC’s Commissioner’s have recently come under extreme criticism by the silver community, with long-time supporter Ted Butler finally throwing in the towel last week and calling for Chilton and Gary Gensler’s dismissal, we offered Bart the opportunity to speak with The Doc to update readers on the progress of both the silver investigation as well as the implementation of position limits.

Commissioner Chilton has deferred a live interview until the silver investigation is concluded ‘in the next 2-3 months if not sooner‘, but has allowed SilverDoctors to publish his response regarding these inquiries.

Bart Chilton: Silver Investigation to Conclude in 2-3 Months

Doc, Thank you for the invitation, but I must decline a verbal interview. As you know, I’ve spoken a lot about this (radio, television, and in the press). I’ve also answered many emails, including this one at 1:30 am.

I expect the investigation to conclude in 2-3 months, if not sooner. As you know, I can’t take an action by myself (I would have done so long ago if that were the case). It takes at least 3 of the 5 Commissioners.

What I will say is that if this matter was as simple as some writers state and many believe (large concentrated positions regularly manipulating the silver market) this would have been over years ago. It just ain’t so. These are complex global markets–with an emphasis on the global and the "s" (think foreign regulators, foreign holdings, various entities and trading partners to start off with) where things are traded and sliced and diced into physical and other myriad exotic products. These markets can sometimes be like giant shell games.

On limits, I’m hoping we and the SEC will conclude the swaps definition later this month or just after July 4th. I also hope the bankers law suit seeking to stop the rule from being implemented doesn’t have any life. It is frivolous in my opinion.

Finally, there has been a lot of action in silver markets for the past several months. We have a new individual with lots of experience (former silver trader and regulator who caught manipulation before at FERC). He, and his staff, have been looking at trades in detail each time some potential anomaly occurs. There has been more staff hours dedicated to looking at silver in the past few months than anyone would believe.

You may feel free to put this up on your site in its entirety. I was surprised when I was told you put a portion of our emails up the last time we communicated. Anything I write can logically be expected to get on the web, I get that. I just would have made sure to spell check and be more thoughtful than a simple email response if I’d known. Anyway, I guess people had a vulgar on-line party in my honor. Such is life. We do the best we can.

Thanks again for the interview offer. Perhaps when we conclude the investigation, we can talk.



This arrived late Friday night.  I guess the heat may be getting to JPMorgan:

(courtesy Wall Street Journal/GATA)

Morgan reportedly returns $600 million in MF Global customer funds

By Aaron Lucchetti
The Wall Street Journal
Friday, June 1, 2012
J.P. Morgan Chase & Co. has returned roughly $600 million that was ensnared at the bank when MF Global Holdings Ltd. collapsed in October, people familiar with the matter said.
Most of the payments haven't been disclosed publicly, and a bankruptcy trustee representing customers of the failed securities firm might pursue J.P. Morgan for as much as several hundred million dollars in additional claims, according to a person familiar with the investigation.
Still, the New York bank's payments are a sign of progress in efforts to fill the estimated $1.6 billion hole left in customer accounts at MF Global. Money recovered by the bankruptcy trustee, James Giddens, eventually will be passed along to customers, though the amount depends on the outcome of continuing legal squabbles and negotiations.

A spokesman for Mr. Giddens said in a statement that "substantive discussions" are under way with the nation's largest bank in assets for "the resolution of other claims" made on behalf of the former customers. J.P. Morgan continues to cooperate with the investigation, the spokesman added.
J.P. Morgan was one of MF Global's biggest creditors and handled many of its trades as the New York securities firm scrambled to save itself in late October. MF Global also transferred $175 million to fix an overdraft in one of the firm's accounts at the bank, according to congressional testimony.
Bank officials have said J.P. Morgan never intentionally accepted or held on to money that belonged in segregated customer accounts at MF Global. In May, the trustee announced that J.P. Morgan agreed to hand over $168 million that came from collateral held at the bank when MF Global filed for bankruptcy.
Bank officials contend that J.P. Morgan isn't holding more MF Global money, according to people familiar with the matter. Mr. Giddens hasn't reached the same conclusion and could demand additional payments, claiming that money passed through J.P. Morgan on its way elsewhere, according to a person familiar with his thinking.
If that happens, J.P. Morgan might counter that its repayments to date have exceeded $600 million, not including the losses suffered by the bank as a creditor to MF Global. While that $600 million could help lower the $1.6 billion shortfall, much of that money already had come back to MF Global before the shortfall estimate was made.
Mr. Giddens is expected to disclose in a report Monday details about where the money in customer accounts went, including the portions that are believed to have gone to J.P. Morgan.
The trustee also is expected to disclose more information about how the money went missing. It isn't clear how detailed the report will be, partly because other investigators have expressed concern that too much disclosure by Mr. Giddens could hurt their continuing probes.
MF Global moved money out of customer accounts to cover margin calls and meet other obligations. No one has been charged with wrongdoing.
Jon S. Corzine, the former MF Global chief executive, and other officials at the firm have told lawmakers that they didn't realize customer money had been tapped until employees told them the day before its bankruptcy filing about an apparent shortfall.
J.P. Morgan and MF Global had close ties. The bank facilitated trades on behalf of MF Global and in the firm's final weeks, J.P. Morgan officials spoke to Mr. Corzine and other senior MF Global executives about liquidating assets and dealing with ratings firms, according to people close to those discussions.
J.P. Morgan even considered buying MF Global, but then backed away amid questions about money transfers that came up three days before the securities firm filed for bankruptcy.
MF Global officials never provided written documentation that J.P. Morgan asked for on two transfers. The bank wanted to know if the money moves were in accordance with Commodity Futures Trading Commission rules. A J.P. Morgan lawyer later told lawmakers that the bank received verbal assurances from MF Global that the transfers were proper.
Many U.S. customers have recovered 72 cents of every $1 from their MF Global accounts. They are expected to get another eight cents per dollar soon.
The $1.6 billion shortfall also includes about $700 million stuck in the U.K. bankruptcy process and is affected by money being held back by the trustee for potential legal claims. On Friday, a U.K. court scheduled a trial for April 2013 on the trustee's issues in that country.


Art Cashin on CNBC tells Eric King that the world financial system is in chaos with mammoth bank runs.
He correctly states that gold has just been re crowned as King of the "safe havens" and has been deemed a "safe currency".

(courtesy Art Cashin/KingWorld News)

As contagion looms, gold is safe haven again, Cashin tells King World News

2:15p PT Friday, June 1, 2012
Dear Friend of GATA and Gold:
UBS market analyst Art Cashin today tells King World News that the world financial system is on the precipe of contagion and bank runs and that gold has just been converted back into a safe haven and reliable currency. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


James Turk on KingWorld News echoes Art Cashin that gold has now regained status as a safe haven currency.

Von Greyerz at King World News states that the rising gold price over the last decade has clearly beaten returns on the stock market.

(courtesy GATA/James Turk/Von Greyerz/Eric King)

Turk sees metals gaining haven status; von Greyerz says stocks already have been smashed

9:33p ET Thursday, May 31, 2012
Dear Friend of GATA and Gold:
At King World News, GoldMoney founder and GATA consultant says European money fleeing for safety is going into not just U.S. and German government bonds but also gold and silver as investors increasingly realize that the monetary metals are the only assets without counterparty risk:
And gold fund manager Egon von Greyerz argues that far from having risen over the last decade, the U.S. stock market, priced against gold, has actually been nearly wiped out:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Now let us head over to see the major paper stories which will certainly have an influence on the physical price of gold and silver.

Let us first travel over to Europe, Thursday night where we witnessed awful final PMI numbers which showed the continent contracting in both manufacturing and in their service sector.  UK manufacturing was also down pretty hard.  This provided the background for the Euro to falter.  Then from Asia during their trading session came news of the horrific fall in their PMI numbers to around 50.  China has been the engine for growth for the USA and Europe as they take our raw materials and make goods.  Their manufacturing base is faltering as demand is softening as  China is heading for a hard landing.  Also news that the Syriza Greek party is gaining in the polls certainly did not help the situation.  German 2 year bunds joined their brethren the Swiss in negative yields.  In other words, if you lend money to these nations, you must pay them for the privilege to do so.  The German 10 yr bund closed  Friday night at a yield of 1.15%. The spread on credit default swaps in Spain widened again.  The following commentary highlights the sentiment from Europe prior to USA openings and of course prior to the big jobs reports:

(courtesy zero hedge)

Overnight Sentiment: Bath Salty

Tyler Durden's picture

Just about an hour before the US non-farm payroll number is expected to print, and finally resolve the lingering question whether the Chairman will print in 3 weeks, things in Europe have gone from horrible to zombie. A series of horrendous economic reports out of Europe including record Eurozone unemployment, a confirmation of the final European PMI plunge including the second largest monthly decline on record in UK manufacturing, and various soundbites from Syriza's Tsipras, have pushed the EUR to fresh two year lows, Spanish CDS to new all time wides...

...German 2 Year bonds joining Switzerland in negative territory and finally, Bloomberg, as noted earlier, to be "testing" a placeholder for a post-Euro Drachma.  As BBG summarizes: "European markets fall, led by consumer & tech stocks with the German market underperforming. The euro falls against the dollar and German 2-yr yields drop into negative territory. Chinese manufacturing PMI data below expectations, though above the 50 level; European manufacturing PMI in line with expectations, below 50. Euro-zone unemployment met expectations and seems likely Irish voters endorsed the EU fiscal treaty. Commodities fall, led by oil & natural gas. U.S. nonfarm payrolls, unemployment data due later." In summary - all data today fits with Raoul Pal's less than optimistic presentation from yesterday.
Summary from BofA

In focus
Markets are increasingly worried about the situation in Europe. Real yields on safe havens such as US Treasuries, German bunds and UK gilts are all negative. Investors appear more concerned about getting their principal back then making a return on their money. Today's US employment report could further increase negative sentiment among investors. The market is looking for +150,000 for today's NFP figure but we are below consensus at 140,000. A bad report could send markets swooning while a strong report might renew investor hope that the US can drive global growth. We are skeptical of the US driving global growth. Our expectations are that the fiscal cliff looming at the start of 2013 will slow growth throughout the rest of this year. To read more about the fiscal cliffhanger see: US Economic Viewpoint, 30 May 2012.
Market action
More signs that the uncertainty stemming from the Euro crisis is weighing on investor sentiment. Investors are getting less bullish on stocks according to our US Equity Strategy team's Sell Side Indicator. After triggering a Buy signal last month, their measure of Wall Street bullishness on stocks declined again, marking the eighth time in ten months that the indicator has fallen. The 4.0pp decline pushed the indicator down to 50.2, its lowest level in nearly 15 years, suggesting that sell side strategists are now more bearish on equities than they were at any point during the collapse of the Tech Bubble or the recent Financial Crisis.
In Asian most equity markets finished lower with the regional MSCI Asia Pacific index shedding 1%. Japan's Nikkei lost 1.2% and the Indian Sensex slid 1.7%. The Korean Kospi fell 0.5% and the Hang Seng lost 0.4%. On the flip side the Shanghai Composite managed to finish 0.1% higher. Investors there are hoping that the weak manufacturing PMI will awaken policymakers to the country's slowdown and result in growth enhancing measures.
European equities continue to slide as worries over Spain, Greece and the future of the euro area weigh on investor sentiment. Until investors see a concrete solution to the problems plaguing the euro area, the region's equities are likely going to continue falling. In the aggregate, European equities are down 1.2%. At home, equities are set to tumble. Futures on the S&P 500 are pointing to a 1.3% lower open today.
In bondland, Treasuries are bid with the five year down 1bp, the 10-year down 2bp and the long bond down 3bp. Currently the 10-year yield is trading at 1.54%. Europe's safe havens are also bid with the German bund down 3bp to 1.16% and the UK gilt down 6bp to 1.51%.
The dollar, another safe haven, is bid as well. The DXY index is up 0.3%. Commodity prices are lower due to the dollar’s strength. WTI crude oil is $1.50 a barrel lower. Gold is beginning to lose some of its luster as a safe haven for investors. Today the yellow metal is down $7.55 an ounce to $1,552.92. Since September, gold is down over $347 an ounce.
Today’s events
The economic calendar is crowded today. Kicking things off will be the May employment report at 8:30 am. We expect non-farm payrolls to increase 140,000 in May, leaving the three month moving average to slow to 128,000. To read a full preview see the Payroll Preview section below.
Also at 8:30 am, we have the April personal income and outlay report. We expect personal income and spending to increase 0.2% in April. Job growth was sluggish in April and wages were flat, which does not bode well for compensation growth. On the spending side, core retail sales increased 0.4% but auto sales slipped lower. Moreover, a decrease in prices should translate to slower nominal spending. We look for headline PCE to decline 0.16% in April, leaving real consumer spending up 0.3%.
At 10:00 am, we have the April construction spending report and the May ISM manufacturing survey. Construction spending is likely to increase 0.6% in April, following a 0.1% increase in March. Meanwhile, we expect the ISM Manufacturing Index to moderate to 53.5 in May from 54.8 in April.
Throughout the day, vehicle manufacturers will be reporting on their May vehicle sales. In our view, vehicle sales are likely to reach a seasonally adjusted annualized selling rate of 14.3 million units in May.
Payroll preview
We expect non-farm payrolls to increase 140,000 in May, leaving the three month moving average to slow to 128,000. This is a marked deceleration from the three month average gain of 252,000 from December through February. As we have been arguing for some time, we believe this swing can largely be explained by the abnormally warm weather in the winter. This is obvious in construction jobs, but other sectors such as leisure/hospitality and retail trade exhibited some seasonal volatility. We suspect that job growth in these three sectors will remain soft in May. We expect the government to shed 10,000 jobs in May as state and local governments as well as the federal government continue to reduce headcount. This means private payrolls will be up 150,000.
The household survey, which provides the estimate for the unemployment rate, has been particularly noisy lately. Starting in the fall of last year through February, the household survey showed job gains of an average of 385,000 a month. Despite these gains, the participation rate continued to edge lower, pushing down the unemployment rate. Job growth started to reverse in March, with a contraction in both March and April. While we do not expect another decline in jobs in April, the household measure of employment is likely to look soft. In addition, the labor force participation rate could tick up modestly to reverse some of the recent sharp declines. This would push the unemployment rate up to 8.2% from 8.1% last month (unrounded last month 8.098%).
With slow job growth and high unemployment, we expect wages to remain soft. We forecast average hourly earnings to only increase 0.1% mom in May after unchanged earnings in April. This would translate to a tepid 1.7% yoy gain. We expect the workweek to hold at 34.5 in May. The good news for payrolls is that hours worked have returned to pre-recession levels, which means that businesses can no longer rely on increasing hours of the current workforce to meet greater demand; they will have to hire. Businesses have responded by hiring a disproportionate number of temporary and part-time workers, reflecting the uncertain nature of this recovery.


The big news of the day yesterday was the big miss on the jobs number.  They were expecting 150,000  of jobs gains and instead only 69,000.  However, the boys did another great job of fabricating employment by the addition of 204,000 souls through the magic of Birth/Death model.  For those of you who are newcomers  here is the definition of the B/D:

Death  =  a poor soul who lost his job

Birth:  =  the bureau believes that everyone who lost a jobs becomes an entrepreneur and hires others to help in a new business.

thus instead of the jobs number declining by the "death" at one individual;'s job, it increases the employed number  "birth" due the American entrepreneurial spirit.  The death of a job spawns a new business with many employed.

In this latest jobs report the unemployment rate rose because many students have finished school and are looking for summer jobs.  This raises the total of employable souls by 522,000 .

(here is zero hedge on the jobs report)

NFP Huge Miss At 69,000 On Expectations Of 150,000; Unemployment Rate 8.2%

Tyler Durden's picture

And we have NEW QE liftoff, just as we predicted yesterday: "That the ADP would miss today's expectations of 150K is no surprise: after all as we have been explaining for a while, the only way the Fed will have a green light to proceed with NEW QE if it so chooses at the June 19-20 meeting, is if the economic data suddenly turn horrendous. Which means tomorrow's NFP data is make or break: in fact, as far as markets are concerned, the worse the better - should a -1,000,000 NFP print come in, stocks will soar." It may take a little while for the realization to soak in. The actual number of +69,000 was a massive miss to both the expectation of 150,000, and the whisper number 100,000, and a drop from the massively revised April 77K, which was 115K before. And that is with a 204,000 addition from Birth Death. Just a total disaster for Obama who has decided to sacrifice the perception of an improving economy just so he can give Bernanke a green light to goose the stock market.
3rd monthly miss in a row...

A 4-sigma miss to expectations...

From the report, which was, simply said, ghastly.
Total nonfarm payroll employment changed little in May (+69,000), following a similar change in April (+77,000). In comparison, the average monthly gain was 226,000 in the first quarter of the year. In May, employment rose in health care, transportation and warehousing, and wholesale trade, while construction lost jobs. (See table B-1.)

Health care employment continued to increase in May (+33,000). Within the industry, employment in ambulatory health care services, which includes offices of physicians and outpatient care centers, rose by 23,000 over the month. Over the year, health care employment has risen by 340,000.

Transportation and warehousing added 36,000 jobs over the month. Employment gains in transit and ground passenger transportation (+20,000) and in couriers and messengers (+5,000) followed job losses in those industries in April. Employment in both industries has shown little net change over the year. In May, truck transportation added 7,000 jobs.

Employment in wholesale trade rose by 16,000 over the month. Since reaching an employment low in May 2010, this industry has added 184,000 jobs.

Manufacturing employment continued to trend up in May (+12,000) following a similar change in April (+9,000). Job gains averaged 41,000 per month in the first quarter of this year. In May, employment rose in fabricated metal products (+6,000) and in primary metals (+4,000). Since its most recent low in January 2010, manufacturing employment has increased by 495,000.

Construction employment declined by 28,000 in May, with job losses occurring in specialty trade contractors (-18,000) and in heavy and civil engineering construction (-11,000). Since reaching a low in January 2011, employment in construction has shown little  change on net.

Employment in professional and business services was essentially unchanged in May. Since the most recent low point in September 2009, employment in this industry has grown by 1.4 million. In May, job losses in accounting and bookkeeping services (-14,000) and in services to buildings and dwellings (-14,000) were offset by small gains elsewhere in the industry.

Employment in other major industries, including mining and logging, retail trade, information, financial activities, leisure and hospitality, and government, changed  little in May.

The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour to 34.4 hours in May. The manufacturing workweek declined by 0.3 hour to 40.5 hours, and factory overtime declined by 0.1 hour to 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours. (See tables B-2 and B-7.)
Remember when we were warning about seasonal adjustments? Well they work both ways. May is the first month of the year in which seasonal adjustment subtract from the unadjusted number. Sure enough: 718,000 jobs were statistically removed from the unadjusted Establishment Survey number, which actually increased by 789,000 in May.

The only silver lining: people out of the labor force declined by 522,000 in May.


The Dow Jones newswires describe the jobs report as ugly and believes that the Fed will reignite Fed stimulus.  The 10 yr treasury bond finished the day at a record low 1.47%

(courtesy Dow Jones)

DJ FED WATCH: Ugly Jobs Report Reignites Fed Stimulus Speculation
Fri Jun 01 10:36:30 2012 EDT
--Bad May jobs data put talk of Fed action back on table
--NY Fed boss points to unemployment rate as key barometer
--Expect Fed officials to take time endorsing new action
NEW YORK (Dow Jones)--The disappointing turn in the May jobs data puts the idea the Federal Reserve will have to act again squarely back on the table.
This marks a significant reversal from the remarks made by officials over the last couple of months. Indeed, as economic data improved at the start of the year, even the central bankers most inclined to offer additional economic aid began to back away from advocating more action. But now, with May's weak 69,000 job gain and rise in the unemployment rate to 8.2% from 8.1% a month ago, the trend is no longer the Fed's friend…

The following is another big number to be released by Government.  After the jobs report we got the ISM number and it was abysmal. The ISM manufacturing print came in at 53.5 down from 54.8.  This shows the economy is in contraction mode!!

SM Miss Add To Economic Collapse Woes: 5 ISM Sub-Indices In Contraction Territory

Tyler Durden's picture

Just in case someone did not get the earlier BLS-doctored message, the final two economic indicators of the day just printed and were... drumroll... misses. Because remember: not only the 1%ers but the 99ers have to be begging Bernanke to print. And so he will: ISM Manufacturing prints at 53.5, down from 54.8, and expectations of 53.8. Prices Paid plunge by 13.5, but the kicker: 5 out of the ISM's 10 sub indices are now in contraction territory.. And the cherry on top: Construction Spending unchanged from an upward revised 0.3 to 0.3, obviously, missing expectations of a jump to 0.4. Looking forward to the Tim Geithner Op-Ed: "Welcome to the recession."
ISM Prices Paid Index - huge miss and biggest drop in 7 months.

The ISM Table: note the sub 50 prints.

Oddly enough, prices paid plunges and yet...
Commodities Up in Price
Aluminum; Copper; Electrical Components; Guar; Natural Gas; Plastic
Components* (3); Plastic Resins* (4); and Transportation Costs* (2).
And the always handy respondents:
  • "Business has been trending moderately higher since the beginning of
    the year. [We] anticipate 5 percent to 7 percent growth for the year."
    (Chemical Products)
  • "Sales were stronger than expected; customers are waiting until the last minute to place orders." (Machinery)
  • "We are having the best year in sales volume and profit since mid-2008." (Fabricated Metal Products)
  • "Business seems to be holding steady." (Miscellaneous Manufacturing)
  • "We had modest growth across most of our businesses, with stable raw
    materials [prices] and improved schedules and efficiency in our
    operations." (Textile Mills)
  • "Business is lower than forecast for Q2 2012." (Computer & Electronic Products)
  • "We are seeing overall steady improvements, month over month and year over year." (Apparel, Leather & Allied Products)
  • "Business is steady." (Food, Beverage & Tobacco Products)
  • "While not quite as busy as last month, production is steady and year over year still much better." (Transportation Equipment)
  • "Business continues to be up in general." (Furniture & Related Products)

Over in Greece, the following will not go over to well.  It seems the regulator is calling for emergency measures to avoid an entire electrical and gas meltdown:

(courtesy zero hedge)

Greece Faces Electric Meltdown

Tyler Durden's picture

Maybe the electrician-in-chief can send them some of those unused Solyndra solar panels?
From Reuters:
Greece's power regulator RAE told Reuters on Friday it was calling an emergency meeting next week to avert a collapse of the debt-stricken country's electricity and natural gas system.

"RAE is taking crisis initiatives throughout next week to avert the collapse of the natural gas and electricity system," the regulator's chief Nikos Vasilakos told Reuters.

RAE took the decision after receiving a letter from Greece's natural gas company DEPA, which threatened to cut supplies to electricity producers if they failed to settle their arrears with the company
Or, as they call it in Greece, Friday.


Over in China late Thursday night, China released its PMI number (Purchaser's Management Index) and it was also abysmal.  It plunged the most in 2 1/2 years.  This number represents China's manufacturing level as this  reading was an astonishingly low 50.4 down from 53.4 last month.  A level below 50 is contraction.
China is  supposedly the engine for growth in the west as raw materials head to China who manufacture the goods that the West needs.  This data suggests the west is in some serious problems.  China has now caught a bad cold.  Europe and the USA has caught pneumonia:

(courtesy zero hedge)

China PMI Plunges Most In 28 Months, Reverts To HSBC's Reality

Tyler Durden's picture

Color us not stunned at all. China's Manufacturing PMI finally reverted to the reality that HSBC's Manufacturing PMI has been arguing for and fell for the first time in six months. The drop is the largest since February 2010. While still above 50 (though the lowest level of expansion in five months), or 50.4 technically, down from 53.4, and missing expectations of 52.0, it seems another engine of global growth just sputtered finally - as the real impact of a European depression and fiscally challenged US hit home.
And as a reminder, here is why unless "Europe is fixed" and quite soon, the situation will first get worse before it gets much worse:

Eric Sprott: The Real Banking Crisis, Part II

Tyler Durden's picture

From Eric Sprott and David Baker of Sprott Asset Management
The Real Banking Crisis, Part II
Here we go again. Back in July 2011 we wrote an article entitled"The Real Banking Crisis Part i" where we discussed the increasing instability of the Eurozone banks suffering from depositor bank runs. Since that time (and two LTRO infusions and numerous bailouts later), Eurozone banks, as represented by the Euro Stoxx Banks Index, have fallen more than 50% from their July 2011 levels and are now in the midst of yet another breakdown led by the abysmal situation currently unfolding in Greece and Spain. As Sprott emphasizes in great detail: "we have now reached our "Minsky Moment" where new debt can no longer we added to old debt.  The economy spirals out of control.

(courtesy Eric Sprott/David Baker/Sprott asset Management)

Source: Bloomberg
On Wednesday, May 16th, it was reported that Greek depositors withdrew as much as €1.2 billion from their local Greek banks on the preceding Monday and Tuesday alone, representing 0.75% of total deposits.1 Reports suggest that as much as €700 million was withdrawn the week before. Greek depositors have now withdrawn €3 billion from their banking system since the country's elections on May 6th, seemingly emptying what was left of the liquidity remaining within the Greek banking system.2According to Reuters, the Greek banks had already collectively borrowed €73.4 billion from the ECB and €54 billion from the Bank of Greece as of the end of January 2012 - which is equivalent to approximately 77% of the Greek banking system's €165 billion in household and business deposits held at the end of March.3 The recent escalation in withdrawals has forced the Greek banks to draw on an €18 billion emergency fund (released on May 28th), which if depleted, will leave the country with a cushion of a mere €3 billion.4 It's now down to the wire. Greece is essentially €21 billion away from a complete banking collapse, or alternatively, another large-scale bailout from the European Central Bank (ECB).
The way this is unfolding probably doesn't surprise anyone, but the time it has taken for the remaining Greek depositors to withdraw their money is certainly perplexing to us. Official records suggest that the Greek banks only lost a third of their deposits between January 2010 and March 2012, which begs the question of why the Greek banks have had to borrow so much capital from the ECB in the meantime.5 Nonetheless, we are finally past the tipping point where Greek depositors have had enough, and the past two weeks have perfectly illustrated how quickly a determined bank run can propel a country back into crisis mode. The numbers above suggest there really isn't much of a banking system left in Greece at all, and at this point no sane person or corporation would willingly continue to hold deposits within a Greek bank unless they had no other choice.
The fact remains that here we are, in May 2012, and Greece is right back in the exact same predicament it was in before its March 2012 bailout. Before the bailout, Greece had approximately €368 billion of debt outstanding, and its government bond yields were trading above 35%.6 On March 9th, the authorities arranged for private investors to forgive more than €100 billion of that debt, and launched a €130 billion rescue package that prompted Nicolas Sarkozy to exclaim that the Greek debt crisis had finally been solved.7 Today, a mere two months later, Greece is back up to almost €400 billion in total debt outstanding (more than it had pre-bailout), and its sovereign bond yields are back above 29%. It's as if the March bailout never happened… and if you remember, that lauded Greek bailout back in March represented the largest sovereign restructuring in history. It is now safe to assume that that record will be surpassed in short order. It's either that, or Greece is out of the Eurozone and back on the drachma - hence the renewed bank run among Greek depositors.
Meanwhile, in Spain, bank depositors have been pulling money out of the recently nationalized Bankia bank, which is the fourth largest bank in the country. Depositors reportedly withdrew €1 billion during the week of May 7th alone, prompting shares of Bankia to fall 29% in one day.8 The Bankia run coincided with Moody's issuance of a sweeping downgrade of 16 Spanish banks, a move that was prompted over concerns related to the Spanish banks' €300+ billion exposure to domestic real estate loans, half of which are believed to be delinquent.9 The Spanish authorities were quick to deny the Bankia run, with Fernando JimĂ©nez Latorre, secretary of state for the economy stating, "It is not true that there has been an exit of deposits at this time from Bankia… there is no concern about a possible flight of deposits, as there is no reason for it."10 Funny then that the Spanish government had to promptly launch a €9 billion bailout for Bankia the following Wednesday, May 24th, an amount which has since increased to a total of €19 billion to fund the ailing bank.11 Deny, deny some more… panic, inject capital - this is the typical government approach to bank runs, but the bailouts are happening faster now, and the numbers are getting larger.
The recent bank runs in Greece and Spain are part of a broader trend that has been building for months now. Foreign depositors in the peripheral EU countries are understandably nervous and have been steadily lowering their exposure to Eurozone sovereign debt. According to JPMorgan analysts, approximately €200 billion of Italian government bonds and €80 billion of Spanish bonds have been sold by foreign investors over the past nine months, representing more than 10% of each market.12The same can be said for foreign deposits in those countries. Citi's credit strategist Matt King recently reported that, "in Greece, Ireland, and Portugal, foreign deposits have fallen by an average of 52%, and foreign government bond holdings by an average of 33%, from their peaks."13 Spain and Italy are not immune either, with Spain having suffered €100 billion in outflows since the middle of last year (certainly more now), and Italy having lost €230 billion, representing roughly 15% of its GDP.14
As we've stated before, no matter what happens in the Eurozone, the absolute worst case scenario for the authorities is a bank run. It terrifies all involved, because they can spiral out of control faster than governments can react to stop them, save for the most Draconian measures. They also prompt banks to liquidate whatever assets they can, revealing the truth about what their "assets" are actually worth. In this environment, no one wants to find out what the market will really pay for them. We're seeing this now in Spain, where according to Bloomberg, "Many Spanish banks are avoiding property sales so they don't have to "mark to market" valuations. Instead, they're giving developers new loans to pay debt coming due to prevent defaults."15 Sound familiar? We're now at the point where a bank run in one Eurozone country could quickly seize up the entire system - not just in Greece or Spain, but throughout the entire Eurozone and beyond. Greek and Spanish banks are just like all the others; they operate with leverage ratios averaging 25x their equity capital. They are all so overleveraged that it takes very little in deposit withdrawals to cause instantaneous liquidity issues. This is why we'll likely see another ECB-induced printing program announced (with a new abbreviation, hopefully) before a broader bank run can take root. The Eurozone authorities simply cannot risk the consequences of bank runs in countries like Spain, Portugal or Italy, which are far too big to bailout for the over-stretched ECB. It's not about Greece staying or leaving the European Union anymore, it's about the bailout ability of European banking system to survive the impact of massive money transfers.
Nothing is really being solved here, and everyone knows it. We're essentially in the same place we were when the crisis erupted back in 2010, only now there's more total debt outstanding. Bank of Canada Governor Mark Carney remarked in a December 2011 speech that "the global Minsky moment has arrived", and it's now plain for all to see.16 The "Minsky moment" refers to the work of Hyman Minsky, a deceased American economist who developed theories on how debt accumulation eventually leads to financial crises. You don't have to be an economist to understand the crux of Minsky's theories. As an economy grows it takes on increasing amounts of debt. The point eventually comes when the cost of servicing that debt can no longer be met by that economy's productive capacity - that's the Minsky Moment, and we're watching it play out all over the world today. When Greek bond yields spiked back in February 2012, bond investors looking at the country's €368 billion of debt outstanding, its population of 11 million people, and its nominal GDP of $312 billion realized that it couldn't possibly work. There was no way Greece could pay the interest on its debt load. There was no way the bond market could keep pretending everything was ok, like it currently does with the UK, US and Japan… for now.
Greece clearly needs another large-scale bailout, and we think they'll get one. Greece's exit from the Eurozone represents a Lehman-like scenario to the global banking system - why wait to see what carnage it will unleash? It's always easier to print money, and printing another couple €100 billion is nothing compared to the trillions that have been printed since last November. Where this will get tense, however, is when the market acknowledges the Minsky moment in a larger EU economy, like Spain or Italy. As we go to print, Spanish bond yields are now trading back above 6.5%, signaling the market's non-confidence in the country's ability to back-stop its own banking system. Spain has a population of 47 million, a GDP of roughly $1.3 trillion, national debt of roughly $1.1 trillion, debt owed to the ECB and various bailout funds totaling €643 billion, and now, a banking system that also appears close to collapsing.17 Their Minsky Moment has already arrived, and it's simply a matter now of how the market will react to it, and how long it takes the ECB to come to Spain's rescue.
Without a doubt, the most counterintuitive aspect of the Greece/Eurozone debacle has been its impact on the price of gold. Gold is now back below $1600 for the third time since August 2011; each time has coincided with severe banking stress within Greece and the broader Eurozone. Some pundits have suggested that various European banks are selling gold to raise liquidity, and this would make sense if the Eurozone banks had gold to sell, but we cannot find any evidence of large physical sellers out of Europe. Also, ever since the unlimited US-dollar SWAP agreement was launched in November 2011, USD liquidity has not been the key issue in Europe - rising sovereign bond yields and deposit withdrawals have. On the contrary, the selling pressure in gold once again appears to be expressed primarily through the futures markets, which are highly levered and rarely involve any physical transactions involving actual bullion. The futures market sell-off also appears to be waning now, since the European banking crisis has provided central banks with a politically-palatable excuse to take action if it deteriorates any further.
The recent gold price has been particularly frustrating given the continuation of bullish demand trends out of China. China posted another record Hong Kong gold import number in March of 62.9 tonnes. Gold imports into China have now totaled 135.5 metric tonnes between January and March 2012, representing a 600% increase over the same period last year.18 We don't have to connect the dots here - China is stockpiling the precious metal while investors in the West scratch their heads wondering why the spot price is so low.
Source: UBS, Bloomberg
Non-G6 central banks have also continued to accumulate physical gold, with the latest reports revealing another 70 tonnes of gold purchases completed in March and April by the central banks of Philippines, Turkey, Mexico, Kazakhstan, Ukraine and Sri Lanka.19 We won't bore you with the exercise of annualizing those numbers and comparing them to the annual global mine supply, but suffice it to say that the fundamentals still remain firmly intact. It's now simply a matter of improving sentiment towards gold in the West, and if the current banking crisis in Europe gets any worse, or if we see another large-scale policy response, it will likely happen on its own accord.
Although the last eight months have not played out the way we would have expected for gold, they have played out the way we envisioned for the banks. The question now is how long this can go on for, and how long gold can remain under pressure in a banking crisis that has the potential to spread beyond Greece and Spain? So much now rests on the policy responses fashioned by the US Fed and ECB, and just as much also rests on what's left of European citizens' confidence in their local banking institutions. Neither of these things can be precisely measured or predicted, but we continue to firmly believe that depositors in Greece and Spain will choose gold over drachmas or pesetas if they have the foresight and are given the freedom to act accordingly. The number one reason we have always believed gold should be owned, and why we believe it will go higher, is people's growing distrust of the banking system - and we are now there. We will wait and see how the summer develops, and keep our attention firmly focused of the second phase of the bank run now spreading across southern Europe. 


The European mess has now witnessed the USA involved for fear that a Greek and Spain default will throw Europe into a financial vortex and that may have a devastating effect on the USA.
Obama and Timmy are involved in trying to persuade Europe to proceed with a Eurobond issue, something of which Germany will never agree.

(courtesy Reuters/ Stella Dawson)

U.S. shuttle diplomacy seeks to pull Europe back from brink

By Stella Dawson

WASHINGTON | Thu May 31, 2012 11:27pm EDT
(Reuters) - The Obama administration is engaged in a fresh round of shuttle diplomacy to nudge European Union leaders into decisive action to prevent Europe's widening crisis from undermining the U.S. and global recoveries.
Officials in Washington believe the U.S. banking system is in sound enough shape, but they know from the collapse of Lehman Brothers in 2008 and the Asia crisis a decade earlier that financial crises have a nasty habit of delivering massive shocks they cannot anticipate and that ricochet worldwide.
The message to EU politicians from U.S. Treasury and International Monetary Fund officials hopscotching among European capitals and holding meetings in Washington is two-fold: recapitalize your financial system quickly to stabilize banks, and then lay out a clear plan for the political future of monetary union.
The officials fear that a messy Greek exit from the euro zone or a bank run in Spain or Italy could unleash unknown consequences, weakening an already tepid U.S. recovery just months before Obama faces a tight U.S. presidential election.
U.S. officials are tight lipped on specifics of their advice to Europe. But international financial officials and experts in Washington who are in regular contact with the IMF and the U.S. Treasury said there is a sense here that time is running out for Europe.
"They're saying - Whatever you do, fix it, and this time fix it right," said one financial industry official.
This urgency was echoed in Brussels on Thursday when Europe's highest ranking finance officials, European Central Bank President Mario Draghi and European Commissioner for Economic and Monetary Affairs Olli Rehn, issued blunt warnings that EU politicians must act boldly, or risk collapse of monetary union.
Spain too is pulling no punches. "It's about the future of the euro," Deputy Prime Minister Soraya Saenz de Santamaria told Reuters in an interview on Wednesday.Spain has become the new focal point of the euro zone debt crisis. Its banks face 184 billion euros in losses and Madrid has botched attempts to shore them up while it struggles to rein in its budget deficit. Markets have taken fright, pushing yields on Spanish government debt ever closer to 7 percent, the level that forced Greece, Ireland and Portugal into EU/IMF bailouts.
Saenz was making the rounds in Washington on Thursday. IMF Managing Director Christine Lagarde sent assurances that there were no plans afoot or any Spanish request for IMF financial support. Rather the focus of Saenz's talks appear to be on how to persuade Brussels to inject capital directly into its banks, an issue she said she had discussed with U.S. Treasury Secretary Timothy Geithner.
For months, U.S. officials have been telling their European counterparts that recapitalizing banks directly with federal money was an effective strategy it used to stabilize the U.S. banking system in the 2007-2009 financial crisis. The IMF in April called for direct EU capital injections.
Germany has balked at the EU shouldering any more liabilities, aware that as Europe's largest economy, it would foot the bill. But the alternative that U.S. and IMF officials paint, deep recession and monetary collapse, could persuade them otherwise.
Time is clearly running short.
Money has rushed out of stocks globally and into the safety of U.S. Treasuries, pushing yields this week to historic lows, and the euro currency has tumbled over 7 percent against the dollar in the past month in a flight to safety.
Investors have lost confidence that EU leaders can muster the political will to fix two fatal flaws in monetary union - no centralized banking authority to prevent a bank run and no central fiscal authority to backstop banks or countries.
Without these powers, the message coming from Washington is that a single market and a single currency will remain vulnerable, and that no amount of fiscal austerity, the preferred medicine from Germany, can save monetary union.
"The day of reckoning is arriving," said one Washington insider with deep experience in international finance.
After the G8 summit in Camp David two weeks ago, U.S. President Barack Obama hailed a broad consensus among European leaders around a four-pronged strategy for resolving the European debt crisis.
In perhaps the clearest path laid out publicly to date, he said Europe must recapitalize its banks; adopt a growth strategy to reinvigorate their economies; provide monetary support to help countries like Spain, Italy and Greece implement tough austerity measures; and continue with fiscal discipline.
Since EU leaders returned home, however, there has been little visible progress. A high-profile dinner in Brussels last week to discuss the path forward delivered no tangible results. Meanwhile the banking crisis in Spain has escalated.
No wonder markets have turned volatile, said Hung Tran, deputy managing director of the Institute of International Finance, the lobby for major banks which negotiated the EU/Greek debt restructuring.
"What is needed now is for leaders to agree on basics steps. They need to use the European Stability Mechanism (its new bailout fund) to recapitalize the Spanish banks. If that happens, it could calm market conditions," Tran said.
Obama held a conference call on Wednesday with Germany, France and Italy to follow up on the G8 talks. And U.S. Treasury Under Secretary for International Affairs Lael Brainard is visiting Athens, Frankfurt, Madrid, Berlin and Paris this week in a pre-planned trip to offer U.S. advice on the crisis.
"We are there largely because this is a very active, live debate and people who are navigating their way through an extraordinarily complex range of challenges want us there," Brainard told Reuters in an interview this month.
In Athens, her message was stern. She told Greek parties running in fresh elections on June 17 that Greece faces no choice but to make the difficult economic reforms laid out in its EU/IMF bailout package, or its financing will be cut off, according to political and financial sources in Athens and Washington.
If Greece runs out of money, it would be forced to quit the euro, unleashing huge market uncertainties.
Such a deep crisis might prove the catalyst for Europe to make big political changes needed to save monetary union, Washington insiders say. However, the shockwave would be substantial, and something the White House, Treasury and Federal Reserve would rather avoid.
In a foretaste of what could come, JP Morgan estimated on Thursday that since March alone, Europe's problems have spooked investors to the extent that stocks have fallen six percent, wiping out $1 trillion in U.S. household wealth. This loss of buying power, plus a stronger U.S. dollar, which hurts exports, has shaved roughly half a percentage point from U.S. GDP growth this year, it said.
"If the euro zone continues to unravel, not only will it have serious consequences for the euro zone, but it will have serious and even severe consequences for the entire global economy, including the United States," former Treasury Secretary Robert Rubin told the Council on Foreign Relations this week.


Mark Grant perhaps one of the best financial analysts out there that "gets it" with respect to the dire financial shape of Europe.  He is now stating that we are entering a huge battle between France and Germany or putting it in another way: the socialists on one side and the true capitalists on the other side.  The socialists from the peripheral nations (plus France) wants the capitalists to spend their riches on the poorer nations for the sake of Europe.  This will lower the standard of living for the capitalists ( Germany, Austria, Finland, Denmark) and raise the standard of living for the socialists.  This will never happen as Germany and fellow capitalists will leave the euro.

Next question:  what happens if Greece and Germany leave the euro at the same time?

Greece is forced out because funding has stopped and Germany leaves because they no longer can support funding for Spain and Italy.  Interesting times!!

From Mark Grant, author of Out Of The Box 

Gear Up!

Carry the battle to them. Don't let them bring it to you. Put them on the defensive and don't ever apologize for anything.”

                                        -My fellow Missourian, Harry S. Truman

“Gear up!” That is what I say to you this morning. Open your closet door, drag out the flak jacket from 2009, lace up your boots, unlock your guns, bring out the ammo and get ready to go at it one more time because the placid fields of Verdun, long silent, finds the Germans and the French at it once again and we are all about to be dragged back into it; like it or not. There is quite serious business afoot and, just like in war, the political statements made are nothing more than propaganda to mislead the enemy and the enemy is YOU.
“A good battle plan that you act on today can be better than a perfect one tomorrow.”

                                         -General George S. Patton

YOU are the portfolio managers and overseers of capital that the European politicians want to mis-direct, assure in the politest of terms and provide a constant barrage of made-up data to in the hope, and now in the last-ditch hope, that you will not abandon their playing field and withdraw your money. Some of the money in Europe cannot find another home because it is coerced or forced or beholden to Europe through a variety of spider webs concocted by various nations and the European Union. That money, then, is locked up and cannot withdraw. The money that can be withdrawn though is fleeing now as the dangers grow with the passing hours and the denials of various governments, the IMF and the EU and the pitch of the denials only enforce my rational fear that various crises have, in fact, spun out of control. Having lived through and predicted the calamities in Greece, Ireland, Portugal I hear the distinct echoes of days past right before the Falls of Empire  that are rebounding off the mountain peaks once again. Listen! Hold your ear to the breeze and you too may hear the screams of anguish; the faint calls to battle.

“The bugle-call to arms again sounded in my war-trained ear, the bayonets gleamed, the sabers clashed, and the Prussian helmets and the eagles of France stood face to face on the borders of the Rhine.”

                                          -Clara Barton

Just because you can only vaguely hear the battle nor see the encampments does not mean that that the fight has not begun. It is the socialist countries on the left and the austerity bastion, the countries with money, on the right and they are locked in the push and shove of dominance. The have-nots want the riches of the haves to be employed and the nations with higher standards of living do not wish to give up their place in the world order to support the weaker nations and to see their standards of living decreased by the process. The European Central Bank is caught in the middle and yesterday’s pleas by Draghi represent the squeeze of the vise grips in which they are caught. The ECB has been forced to accept collateral, securitizations that have a value of pennies while other claims are made but loans are now coming due and not being paid, Real Estate values have plunged in many countries and are not being recognized and the assets on the books of the ECB are nowhere near what is being publically touted and Mr. Draghi is more than well aware of the implications and consequences and is screaming out into the void in frustration. It may not be yet that the financial markets in Europe are locked-up but I can assure you that the political markets are already locked-up as no one wants to admit anything or take the hits necessary to bring the valuations back from fantasy land to the land of reality where the actual cannot be denied.
It is to be, as I have stated many times before, Treasuries up, equities down, the Dollar up against the Euro, credit spreads out and risk off, off and off. Counterparty risk must be assessed again and again and don’t just look at the bed sheets but peer under the bed with a real seriousness of purpose. Just because there is no place to hide, and there is not, does not mean that preparation is not called for once again. Greece, Spain, Portugal and Italy are all worsening infections and the diagnosis, having been wrongly made, and mostly being ignored out of the fear of having to use the prescription, will lead to the wrong medicine and the medicine being wrongly applied.

“I call to mind the navy great
That the Greeks brought to Troye town,
And how the boistous winds did beat
Their ships, and rent their sails adown;
Till Agamemnon's daughter's blood
Appeased the gods that them withstood”

                                          -Henry Howard, Earl of Surrey

This came out late Friday night as Egan Jones downgrades Italy to B+ from  BB and the outlook negative.  The markets are Monday are not going to be happy campers especially after the performance of the Dow on Friday with an ugly jobs report:

(Dow Jones newswires)

Egan-Jones Downgrades Italy To B+ From BB; Outlook Negative

By Michael Casey 
NEW YORK (Dow Jones)--Ratings firm Egan-Jones on Friday downgraded Italy's country rating to B+ from BB, a company representative said.
The firm also left the outlook on Italy's rating at "negative."
The move comes amid mounting concerns over the risk of financial contagion in heavily indebted member countries of the euro zone, especially in Spain. It also follows Egan-Jones's move Tuesday cutting Spain's rating two notches to B from BB-. It was the third time in a month that the firm had cut Spain's rating.

-By Michael Casey, Dow Jones Newswires; 212-416-2209;


The closing Italian 10 yr bond yield:

Italy Govt Bonds 10 Year Gross Yield

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5.739000.15600 2.65%


The closing Spanish 10 yr bond yield:


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6.530000.03100 0.47%
As of 06/01/2012.


The closing stock market price for JPMorgan:

JPMorgan Chase & Co. (NYSE)‎

31.93 -1.22‎ (-3.68%‎) 
Jun 1 4:01pm ET - Disclaimer
31.89‎ -0.04‎ (-0.13%‎)  After Hours
Open: 32.41
High: 32.65
Low: 31.77
Volume: 50,473,313
Avg Vol: 50,041,000
Mkt Cap: 121.55B


The USA debt has now increased by another 54 billion usa to 15.77 trillion.
The debt ceiling is 16.4 trillion.  The USA is generally adding 125 billion dollars per month which will put the debate for raising the ceiling at the end of October.  If Timmy decides to borrow from Federal pensions so it would not interfere with the election, then it will be up to a lame duck session to deal with it. That would require front row seats:

(courtesy zero hedge)

US Debt Soars By $54 Billion Overnight, Closes May At Record $15,770,685,085,364.10

Tyler Durden's picture

There was one thing that the Roller-Upper-Of-Sleeves-In-Chief forgot to mention in his 1 pm rehearsed oratory today: the highlighted number below. And certainly the chart below showing the relative change in US GDP and debt. Since we can only assume the president was too busy pontificating on other very important things, we are happy to fill in the hole.
As of May 31:
Source: DTS
And the bigger picture:

Fed Will Likely Weigh Rosengren’s Call For Stimulus

Federal Reserve policy makers this month will consider joining Boston Fed President Eric Rosengren’s call for renewed stimulus after a report today showed unemployment rose to 8.2 percent in May, economists said.
Rosengren said the Fed should further its full-employment mandate and extend beyond June a program known as Operation Twist, which lengthens the average duration of bonds on its balance sheet. He spoke before the Labor Department today said the U.S. added 69,000 jobs in May, the fewest in a year, pushing the yield on 10-year Treasury notes to a record low.

“The May report does significantly raise the odds of further easing from the Fed,” said Dean Maki, chief U.S. economist at Barclays Plc in New York and a former Fed economist. “There will be a case made at the June meeting for easing.”
By calling for new stimulus, Rosengren aligned with the view of Chicago Fed President Charles Evans. Any setback in the job market is also a chief concern of Chairman Ben S. Bernanke, who said in April the Fed may provide more accommodation should unemployment fail to make “sufficient progress towards its longer-run normal level.” Fed policy makers plan to meet June 19-20.
Today’s employment report “does change the game, certainly in terms of Operation Twist,” said John Silvia, chief economist at Wells Fargo & Co. in Charlotte, North Carolina. “Because the slowdown in the economy has been fairly rapid compared to what they expected, they’ll go ahead and extend Operation Twist.”

Stocks Slump

The yield on the 10-year Treasury note fell below 1.5 percent for the first time to 1.46 percent as of 3:22 p.m. in New York, from 1.56 percent yesterday. The yield fell to as low as 1.4387 percent. The Standard & Poor’s 500 Index fell 2.3 percent to 1,279.25.
Rosengren said low interest rates are not a barrier to further Fed action, and that more easing could help reduce the borrowing costs for types of debt other than Treasuries, including mortgages.
Paul Ashworth, chief U.S. economist for Capital Economics in Toronto, said further Fed stimulus may spur stocks by encouraging investors to seek higher-yielding assets.
“It’s not just about whether it’s going to drive Treasury yields lower, it’s about whether it can provide a boost to other riskier asset classes, including equities,” Ashworth said.

Balance Sheet

The central bank started Operation Twist in September to reduce longer-term interest rates without expanding its balance sheet. Under the program, the Fed sold $400 billion of Treasury securities with maturities of three years or less and used the proceeds to buy $400 billion of Treasuries with maturities of six years or more.
The Fed’s leadership will probably detail its outlook next week, with Vice Chairman Janet Yellenscheduled to speak on monetary policy in Boston on June 6 and Bernanke planning to testify before Congress on the economy on June 7.
The Fed has two options should it decide to take further action with its balance sheet, saidStuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. It could renew Operation Twist by selling more of its short-term debt and buying more longer-term securities, or it could buy more bonds in a third round of quantitative easing.
Rosengren said in a Bloomberg News interview that he would support the option of extending Operation Twist at the Fed’s June meeting. Another round of quantitative easing would be an option if the Fed wanted to do something “more substantial,” he said.

‘Promote Growth’

“If you were looking for something that would promote growth but didn’t have an impact on our balance sheet, then certainly extending the maturity extension program would be a viable way forward,” Rosengren said. Such a move “would be a positive step that would provide some additional support to the economy and hopefully promote somewhat more rapid growth overall.”
Signs of weakness in the U.S. economy, and the debt crisis in Europe, also have increased the odds the Fed will ease further, Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. inNew York, said in a note.
“The loss of momentum in the domestic economy and the gathering global storm raise the likelihood of further policy easing at the next meeting,” he said.
The economy has not had two consecutive months of jobs growth under 100,000 since July and August of 2011, a period that prompted the Fed to begin Operation Twist.
“It’s close to a game-changing report,” said Capital Economics’ Ashworth. “We’re not quite at that level of desperation as last summer, but we’re getting pretty close, particularly when you think about the deterioration elsewhere in the world.”
To help reduce unemployment and spur the economy, the Fed cut its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities in two rounds of large-scale asset purchases.
To contact the reporters on this story: Joshua Zumbrun in Washington
Jeff Kearns in Washington at


Jim Sinclair responds to Rosengren's stimulus proposal:

(courtesy Jim Sinclair)

The Fed Is Playing With Fire

Dear CIGAs,
QE to infinity is for certain. About that there is no question whatsoever. It cannot be avoided.
Operation twist is a damn joke stimulation wise. At this point in time it is a dark joke.
The Fed is playing with something worse than fire. That fire is posted in a video today on This video references a worldwide financial crisis that if it starts cannot be stopped by any power on the planet.
They are already easing up on the rhetoric. The Fed will downright panic as the world’s economies go from slow to dropping out of sight. That is what is on the plate tonight, this night, right here and now.
Safety only exists in gold bullion and in the outrageously depressed good gold shares now shorted out of sight.


I will leave you this weekend, with this great report from Wolf Richter on the jobs numbers.  It is self explanatory:

(courtesy Wolf Richter)

Squeezing The Fed From Both Sides

The ugly jobs report gave Mitt Romney’s campaign what it had been waiting for: a huge boost. And they’re out making hay. Romney called it "devastating news for American workers and American families.” An army of Republican talking heads swarmed over the land and pounded President Obama with the jobs report. And just as Republicans see victory edge closer, shrill voices are now calling for the Fed to launch the next round of quantitative easing.
On Thursday, Romney, in California to rake in the big bucks with a series of high-dollar fundraisers, took some time out for a news conference in Fremont, in front of a weedy property dominated by a shuttered office building. Parched hills in the background. “Solyndra” a sign said. The company isn’t famous for its special thin-film solar cells that proved to be uncompetitive, but for the scandal surrounding the $535 million in federal loan guarantees it had received as part of the stimulus package. It was one of the ballyhooed "green tech" outfits that were going to revolutionize the American industrial scene, create gazillions of "green jobs," and conquer the world.
“A symbol of a serious conflict of interest," Romney called it as he recapped the sordid affair, one of the worst debacles, though not the only one, of the stimulus bonanza, which, if I recall correctly, had been a bipartisan concoction. When Solyndra went bankrupt, taxpayers had to pay off the loans that the government had guaranteed. The promised green jobs remained elusive.
And there certainly weren’t any signs of them in the jobs report (BLS PDF). Instead of the 165,000 jobs that the Wall Street hype machine had proffered, a mere 69,000 jobs were created in May—corroborating recent data of a wobbly economy. And worse: the April number was whacked down from the original and already disappointing 115,000 to 77,000 and the March number was trimmed from 154,000 to 143,000. The recent trend looks awful:

The headline unemployment rate ticked up a notch to 8.2%, and U-6, the broadest measure that includes the underemployed and those marginally attached to the labor force, ticked up three notches to 14.8%. While the Employment-Population Ratio improved a smidgen to 58.6%, it depicts better than anything else the tragedy of the American employment scene. 

After World War II until 1975, the Employment-Population Ratio bounced between 55% and 58%. As women entered the workforce in greater numbers, it edged up; and after the recession of 1983, it went on a bull run that peaked in April 2000 at 64.7%. Then it declined. Whatever the reason. Outsourcing, innovation, off-shoring, tax laws, technological progress, corporate shortsightedness, cheaper labor elsewhere. When the housing and construction bubble took off in 2004, it recovered a bit, but in 2006, it all fell apart. Since the jobs crash of the Great Recession, the ratio has remained close to the lows last seen in 1984.
And this, despite years of gyrations by the Fed as it printed trillions of dollars and inflicted its zero-interest-rate policy on savers, bondholders, and pension funds, thus creating an era of financial repression where investing in relatively safe instruments produces a guaranteed loss after inflation. These policies have led to capital misallocation and outright capital destruction: for a fiasco that has burned through untold billions of borrowed dollars and that is now coming to a head, read....  The Natural Gas Massacre Gets Bloodier.
The policies have also created epic bubbles in bonds and commodities, plenty of inflation for the middle class, and an enormous amount of wealth for those who benefitted from them ... but alas, they haven’t created a lot of jobs.
As Romney is trying to use the deteriorating jobs picture as a crowbar to dislodge Obama from the Oval Office, an opposing effort is gaining momentum, namely dousing the land with more Quantitative Easing. On Thursday, Boston Fed President Eric Rosengren spelled out the Fed’s options, from extending Operation Twist to purchasing mortgaged backed securities. So the yield on the 10-year Treasury note plunged to 1.46%, unthinkably low not long ago. Japan comes to mind. But QE3, even in modest form, would be perceived as helping Obama cling to his job. And this would put the Fed on collision course with every Republican.
Don’t we live in interesting times? And now, to top it off, the strongest and toughest creature out there, and maybe the smartest one, that no one has been able to subdue yet.... The Inexplicable American Consumer Has Hit a Wall.

I guess it is time to say goodbye for today.
I wish you all to have a grand weekend and I will see 
you Monday night.

all the best


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