Saturday, July 14, 2012

Moody's lowers credit on Italy to Baa3 two notches above junk/Italy's 10 yr bond yield rises above 6%/Consumer confidence in USA falls again.

Good morning Ladies and Gentlemen:

Gold closed up today to the tune of $36.70 to $1591.60. Silver followed suit rising by 20 cents to $27.34.
Late last night, Moody's lowered the boom on Italy as their credit rating falls to Baa3 two steps above junk.
Once Fitch joins the party then the Italian banks will need to fork over more collateral as their LTRO swaps are hugely underwater.  Also in the news, the CEO of Peregrine Best has been arrested.  JPMorgan before the release of earnings has stated in an 8 K filing that some traders have been involved in hiding the true value of their credit default swaps as they marked them much higher than they ought to be.  The regulators are going to have a field day as JPMorgan just threw the entire CDS market under the bus.  The JPMorgan reported on their earnings.  The loss of the CIO  ( I G 9) came in at 4.4 billion dollars but they "made" a profit by reducing their loss reserves.  Going forward JPMorgan has lost its major profit centre as the CIO will be shut down.  The fun will begin as losses on its interest rate swaps are reevaluated especially with the libor mess.  We will go over these topics and others and first let us discuss comex trading for Friday. 

 The total gold comex OI fell by a tiny 737 contracts despite the raid by the bankers.  It seems that the raids are having lesser of an effect on longs lately. The total OI complex rests this weekend at 433,320 contracts from Thursday's level of 434,057.  The front non official delivery month of July saw its OI rise by 5 contracts despite only 1 delivery.  We thus gained 6 contracts or 600 oz of additional gold ounces standing.  The next big delivery month is August which is about 2 1/2 weeks away.  Here the OI fell marginally from 187,887 to 184,334 as we get our early rollovers into October and December.  The estimated volume was quite small at 126,969 compared to the huge raid volume on Thursday at 202,048.

The total silver comex OI again differs from gold as it rose by 688 contracts despite the raid.  The OI closing level for the weekend is at 123,815 compared to Thursday's close of 123,127.  The front official delivery month of July saw its OI drop from 1720 to 1711 for a loss of 9 contracts.  We had only 2 deliveries so we lost 7 contracts or 35,000 oz of silver standing.  The non official delivery month of August saw its OI fall from 269 to 263.  The next big delivery month is September and here the OI rose by 898 contracts from 62,021 to 62,919.  The estimated volume on Friday was very weak at 26,374 compared to the raid infested 46,263 contracts on Friday.

July 14-.2012


Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
596.60 (HSBC)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in
304.76 (Brinks)
No of oz served (contracts) today
(7)  700 oz 
No of oz to be served (notices)
 17 (1700)
Total monthly oz gold served (contracts) so far this month
(700) 70,000
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

Again tiny activity inside the gold vaults on Friday.

We had one one tiny customer deposit at Brinks:  304.76 oz
We had one tiny withdrawal from HSBC:  596.60 oz .
we had no adjustments
Thus the registered or dealer inventory rests tonight at 2.579 million oz.

The CME notified us that we had 7 notices filed for 700 oz of gold  The total number of notices filed
so far this month total exactly 700 contracts or 70,000 oz.  To obtain what is left to be filed upon, I take the OI standing for July (24) and subtract out today's notices (7) which leaves us with 17 notices or 1700 oz left to be served upon our longs.  

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

70,000 oz (served)  +  1700 oz (to be served upon)  =  71,700 oz or 2.235 tonnes of gold.

and now for silver:

July 14.2012:

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory343,099.79 (Brinks,HSBC,)
Deposits to the Dealer Inventory616,012.1 (Delaware)
Deposits to the Customer Inventorynil
No of oz served (contracts)39  (195,000)
No of oz to be served (notices) 1672  (8,360,000)
Total monthly oz silver served (contracts)704 (3,520,000)
Total accumulative withdrawal of silver from the Dealers inventory this monthnil
Total accumulative withdrawal of silver from the Customer inventory this month2,321,626.7

My goodness, we had considerable silver activity to go over.

First the dealer received a big deposit over at  Delaware of 616,012.1 oz
The customer had no deposit.

The customer had the following withdrawal:

a)  1954.90 oz out of Brinks
b) 341,144.89 oz out of HSBC

total withdrawal: 343,099. 79.

wait until you see the adjustments.  We had 3 biggies:

i) 1,770,145.000 oz leaves the customer at Brinks and arrives at the dealer's account at Brinks
ii) 15,193.80 oz leaves the customer at HSBC and arrives at the dealer's account at HSBC
iii) 178,097.51 oz leaves the customer at Scotia and arrives at the dealer's account at Scotia

if you are keeping score:  1,963,436.31 oz leaves the customer and enters the dealer.
Something is going on in silver with that kind of activity.  Also note the large amounts of silver leaving the SLV vaults.  (is someone desperate for silver?)

The CME notified us that we had 39 notices filed for 195,000 oz.  The total number of notices
filed so far this month total 704 for 3,520,000 oz.  To obtain what is left to be filed upon, I take the OI standing for July (1711) and subtract out today's notices (39) which leaves us with 1672 notices or 8,360,000 oz left to be served upon our longs.

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

3,520,000 oz (served)  +  8,360,000 oz (to be served upon)  =  11,880,000 .

we lost only 7 contracts or 35,000 oz of silver probably due to cash settlements.
the delivery notices have been very small for the entire 2 week delivery period.


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.


Total Gold in Trust



Value US$:65,121,333,571.72

Total Gold in Trust

July 12.2012:



Value US$:63,519,742,341.02

we neither gained nor lost any gold at the GLD on Friday.

And now for silver:

July 14.2012:

Ounces of Silver in Trust311,756,579.900
Tonnes of Silver in Trust Tonnes of Silver in Trust9,696.71

 July 11.2012:

Ounces of Silver in Trust312,823,227.900
Tonnes of Silver in Trust Tonnes of Silver in Trust9,729.89

Ounces of Silver in Trust312,823,227.900
Tonnes of Silver in Trust Tonnes of Silver in Trust9,729.89

July 10.2012:

Ounces of Silver in Trust312,823,227.900
Tonnes of Silver in Trust Tonnes of Silver in Trust9,729.89

we lost 1.067 million oz of silver from the  SLV yesterday.
No doubt this silver landed somewhere in the comex vaults due to its frantic activity on Friday.

And now for our premiums to NAV for the funds I follow:
(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)

1. Central Fund of Canada: traded to a positive 1.7percent to NAV in usa funds and a positive 1.6%  to NAV for Cdn funds. ( July 14-.2012)

2. Sprott silver fund (PSLV): Premium to NAV  lowered to  2.56% to NAV  July 14 2012 :
3. Sprott gold fund (PHYS): premium to NAV rose  to    2.61% positive to NAV July 14.2012).

Notice the big drop in percent premium in silver.  It seems that Eric Sprott angered the boys again by going after huge amount of silver. We should all thank Eric for doing this as this is a dagger in the heart of the bankers as it takes huge amounts of silver off the table.  In one month its NAV will return to much higher positives to NAV.


Friday night saw the release of the COT report for the week ending July 10.2012:

First the gold COT report.   

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, July 10, 2012
Those speculators that are long in gold pitched a considerably high 5107 contracts.

Those speculators that have been short in gold added a rather large 5873 contracts to their short side.

and now for for commercials:

Those commercials that have been long in gold, added a monstrous 8473 contracts to their long side
Those commercials that have been short in gold covered a rather large 5398 contracts.

Our small specs:

these guys are just not in it:

those small specs that are long in gold added a tiny 95 contracts to their long side.
those small specs that have been short in gold added another 2796 contracts to their short side.


you have to admit that as far as the banking action is concerned this is hugely bullish for gold
as the net short interest in gold from the commercials lowered by a monstrous:  13,971 contracts.

and yet these guys orchestrated raids throughout the week.
strange indeed!!

and now for our silver COT:

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

Tuesday, July 10, 2012

Our large specs:

those large specs that have been long in silver pitched a very tiny 228 contracts from their long side
those large specs that have been short in silver continued to add to those positions to the tune of 696 contracts.

Our commercials:

Those commercials that have been long in silver and are close to the physical scene  added 2568 contracts to their long side.

Those commercials that have been short in silver and subject to trillions of lawsuits from all angles covered a smallish 679 contracts.

Our small specs:

Those small specs that have been long in silver added a rather large for them 1695 contracts to their long side.

Those small specs that have been short in silver covered a small 678 contracts from their short side.

Conclusion: the net commercial interests continued to lessen their net exposure by 1889 contracts and that is still very bullish.

and yet the raids continued on Wednesday and Thursday of this week.


Here are some commentaries on the physical front which might interest you.
First we have Von Greyerz telling us that the trust in paper gold will collapse and the rush for physical will commence in full blast.  This is important for you to see:

(courtesy von Greyerz.GATA/KingWorldNews)

Trust in gold paper will collapse and the gold rush will be on, von Greyerz says

3p ET Friday, July 13, 2012
Dear Friend of GATA and Gold:
Gold fund manager Egon von Greyerz today tells King World News that much gold claimed by investment banks and central banks probably doesn't exist and that eventually trust in paper gold will collapse and the market will rush into real metal. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


and finally this important paper where the FDIC is contemplating gold as a riskless asset on the balance sheet of the banks:

(courtesy James Anderson/Resource Investor)

FDIC to Classify Gold as a 0% Risk-Weighted Asset?

By James Anderson
July 13, 2012

On June 18 the Federal Deposit Insurance Corp. proposed rule changes to categorize gold as a Zero Percent Risk-Weighted, Tier 1 Asset.
This is significantly bullish for gold in the long term as this potential systemic change could drive gold demand and gold prices much higher.In light of the global financial downturn, cash and bonds have begun to lose their luster as global financial regulators have begun to recognize the implied risks behind paper assets.
In a world characterized by central bank printing binges and rampant government spending, banking regulators are quietly being forced to recognize one of the only remaining counter-party risk free assets: Gold.While cash, credit, and bonds can be produced at almost infinite rates, there are real supply limits to physical gold. Central banks know this fact and the world's central banks are now net buyers of gold.
Today it appears, with this latest proposed rule change from the FDIC, commercial and private banks may soon be following into the soundness and stability which only gold can provide.
Thus, as an individual investor, would you rather own a zero percent risk-weighted asset with limits to its supply? Or would you rather hold a bundle of cash, credit, and bonds whose supplies are beyond your control?
Massive currency printing and bond issuances to finance growing debt levels are ahead. The continued decrease in the value of paper assets over the longterm appear all but inevitable. As the global financial system begins to shift toward real money, the escalating gold bull market's rise should only quicken.
Why not front run this trend?
Why not position you and your loved ones, on the correct side of the coming wealth transfer?


Now let us see some of the more important paper stories of the day:

We start off first with the arrest of the PGF head honcho, Wasendorf Sr

PFG Head Arrested
Tyler Durden's picture

UPDATE: Suicide note details added:
While unable to successfully kill himself, it appears the CEO of PFGBest is even less successful at evading the police. As just reported,
What is probably more concerning to him now is the fact that he was not a Presidential bundler - as the Big House is definitely calling...


  Here is his suicide note and how he did it.  Please note that he has been
orchestrating this fraud for over 20 years!!!

(courtesy zero hedge)

Full PFG CEO Suicide Note

Tyler Durden's picture

"I have committed fraud. For this I feel constant and intense guilt...

The forgeries started nearly twenty years ago...

Should I go out of business or cheat...

I guess my ego was too big to admit failure..."

CEO Suicide note details:

First thing, Friday morning, JPMorgan admitted that the CIO consistently mismarked hundreds of billions in credit default swaps in an effort to increase profits. No doubt Libor plays a major part here:

(zero hedge)


JPM Admits That CIO Group Consistently Mismarked Hundreds Of Billions In CDS In Effort To Artificially Boost Profits

Tyler Durden's picture

Back on May 30 we wrote "The Second Act Of The JPM CIO Fiasco Has Arrived - Mismarking Hundreds Of Billions In Credit Default Swaps" in which we made it abundantly clear that due to the Over The Counter nature of CDS one can easily make up whatever marks one wants in order to boost the P&L impact of a given position, this is precisely  what JPM was doing in order to boost its P&L? As of moments ago this too has been proven to be the case. From a just filed very shocking 8K which takes the "Whale" saga to a whole new level. To wit: 'the recently discovered information raises questions about the integrity of the trader marks, and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio during the first quarter. As a result, the Firm is no longer confident that the trader marks used to prepare the Firm's reported first quarter results (although within the established thresholds) reflect good faith estimates of fair value at quarter end."
As a result of this, regulators who now are only 3 years behind the curve, are most likely snooping to inquire not onlyhow JPM did it (call us: we can brief you in 2 minuites), but who else has been doing this? Hint: everyone.
Because in other words, we have just discovered that the two key components of the entire CDS market: the LIBOR base and market "marks" have been bogus at best, and realistically, fraud. And one wonders why no bank ever will let CDS trade on an exchange...

On July 13, 2012, JPMorgan Chase & Co. reported that it will restate its previously-filed interim financial statements for the first quarter of 2012. The restatement will have the effect of reducing the Firm's reported net income for the 2012 first quarter by $459 million. The restatement relates to valuations of certain positions in the synthetic credit portfolio of the Firm's Chief Investment Office. The Firm's year-to-date principal transactions revenue, total net revenue and net income and the year-to-date principal transaction revenue, total net revenue and net income of the Firm's Chief Investment Office ("CIO") will remain unchanged as a result of the restatement. The Firm reached the determination to restate on July 12, 2012, following management review of the matter with the Audit Committee of the Firm's Board of Directors on the same day.

The restatement results from information that has recently come to the Firm's attention in connection with management's internal review of activities related to CIO's synthetic credit portfolio. Under Firm policy, the positions in the portfolio are to be marked at fair value, based on the traders' reasonable judgment as to the prices at which transactions could occur. As an independent check on those marks, the CIO's valuation control group ("VCG"), a finance function within CIO, verifies that the traders' marks are within pre-established price testing thresholds around external "mid-market" benchmarks and, if not, adjusts trader marks outside the relevant threshold. The thresholds consider market bid/offer spreads and are intended to establish a range of reasonable fair value estimates for each relevant position. At March 31, 2012, the trader marks, subject to the VCG verification process, formed the basis for preparing the Firm's reported first quarter results.

However, the recently discovered information raises questions about the integrity of the trader marks, and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio during the first quarter. As a result, the Firm is no longer confident that the trader marks used to prepare the Firm's reported first quarter results (although within the established thresholds) reflect good faith estimates of fair value at quarter end.

The Firm has consequently concluded that the Firm's previously-filed interim financial statements for the first quarter of 2012 should no longer be relied upon, and the Firm will be filing an amendment to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as soon as practicable, but not later than it files its Quarterly Report on Form 10-Q for the quarter ended June 30, 2012. The financial statements included in the amended Quarterly Report on Form 10-Q will reflect adjusted valuations of the positions in the synthetic credit portfolio as of March 31, 2012, based upon external "mid-market" benchmarks, adjusted for liquidity considerations. While there are a range of acceptable values for such positions, the Firm believes this approach represents an objective valuation and is reasonable under the circumstances.

As a result of the restatement, the impact of the trading losses related to the synthetic credit portfolio on the Corporate/Private Equity sector during the first quarter will increase, as noted in the table above, but this increase will serve to reduce the impact of these losses on the Corporate/Private Equity sector during the second quarter by a corresponding amount. Accordingly, as noted above, CIO's year-to-date principal transactions revenue, total net revenue and net income and the Firm's year-to-date principal transactions revenue, total net revenue and net income will remain unchanged by the restatement.

The valuation errors had an immaterial effect on the Firm's balance sheet. CIO's Value at Risk model used, as inputs, independent marks for a majority of the positions in the synthetic credit portfolio and daily trader marks related to a limited number of positions in the portfolio. The Firm believes that if CIO's VaR were re-calculated for the first quarter of 2012, the re-computed CIO VaR numbers would not be materially different from those reported in the Firm's Quarterly Report on Form 10-Q for the 2012 first quarter. At June 30, 2012, average VaR for CIO was $177 million for the quarter then-ended, and was $153 million for the six months then-ended. For the Firm, average total VaR was $201 million for the quarter ended June 30, 2012, and was $186 million for the six months ended June 30, 2012. For the same reason, the Firm believes the valuation irregularities had an immaterial impact on the Firm's risk-weighted assets. However, as a result of the restatement, the Firm's Basel I Tier I common ratio will be reduced by 4 basis points to 10.3% and its Estimated Basel III Tier I common ratio will be reduced by 3 basis points to 8.1%, at March 31, 2012.

Management has determined that a material weakness existed in the Firm's internal control over financial reporting at March 31, 2012. During the first quarter of 2012, the size and characteristics of the synthetic credit portfolio changed significantly. These changes had a negative impact on the effectiveness of CIO's internal controls over valuation of the synthetic credit portfolio. Management has taken steps to remediate the internal control deficiencies, including enhancing management oversight over valuation matters. The control deficiencies were substantially remediated by June 30, 2012.

Management's internal review of these matters is ongoing. If the Firm obtains additional information material to its periodic financial reports, it will make appropriate disclosure.

Next up: we learn that just like Lieborgate, so was everyone else doing just what JPM admitted to doing as well.  In one swoop, JPM just threw the entire Credit Default swap business model under the bus:


Here is the long awaited earnings report from JPMorgan as to losses up to June 30.2012:
They lost 4.4 billion from the CIO  (IG9 affair) but made an over all "profit" of 3.1 billion
by reducing their loan loss reserves (and a gain of .8 billion as a result of its CDS blowing up).  However from this point on, their most profitable centre the CIO is no longer there to supply profits so we wonder how JPMorgan will earn money.

Yesterday we had Lieborgate.  Today, CDSgate as JPMorgan just threw the entire market under the bus.

(courtesy zero hedge)

JPM Release Earnings: Announces $4.4 Billion CIO Loss, $3.1 Billion In "Profits" From Loan Loss Reserves, DVA

Tyler Durden's picture

In light of the just announced huge 8-K which has JPM admitting it was mismarking hundreds of billions in CDS, in effect destroying the CDS market for everyone (as we predicted 2 months ago would happen), the firm's earnings (and CIO losses) are very much irrelevant. But here they are regardless: $5 billion in Net Income, which includes a $4.4 billion in CIO losses offset by $1.0 billion from "securities gain in CIO investment securities" i.e., asset sales; also in Q2, the firm took a $2.1 billion "benefit" from reducing loan loss reserves (the usual accounting gimmick), and $0.8 billion DVA "profit" as a result of its CDS blowing up. Finally JPM also announced $0.5 billion gain on a "Bear Stearns related first loss note." In summary, expectations were for $0.76 in EPS; reported EPS Ex-DVA were $1.09, and ex-all one time gains, $0.67. In other words, JPM's bottom line is totally meaningless, as the bulk of profits are from totally garbage and meaningless numbers. The real question is how much net income is now forever gone as a result of i) the unwind of the CIO's synthetic division, aka the most profitable group at JPM, and ii) the fact that the entire firm's CDS marks were made up and will now have to reflect reality. Now, back to the main news of the day: the fact that JPM just threw the entire CDS market under the bus, and England's Lieborgate just arrived in the US courtesy of CDS-gate.
From the earnings results:
First-half 2012 net income of $9.9 billion, EPS of $2.41 and revenue of $49.6 billion not impacted by first-quarter 2012 restatement; second-quarter 2012 balance sheet and capital ratios also not impacted4
Second-quarter results included the following significant items:
  • $4.4 billion pretax loss ($0.69 per share after-tax reduction in earnings) from CIO trading losses and $1.0 billion pretax benefit ($0.16 per share after-tax increase in earnings) from securities gains in CIO's investment securities portfolio in Corporate
  • $2.1 billion pretax benefit ($0.33 per share after-tax increase in earnings) from reduced loan loss reserves, mostly mortgage and credit card
  • $0.8 billion pretax gain ($0.12 per share after-tax increase in earnings) from debit valuation adjustments ("DVA") in the Investment Bank
  • $0.5 billion pretax gain ($0.09 per share after-tax increase in earnings) reflecting expected full recovery on a Bear Stearns-related first-loss note in Corporate5
  • Substantial progress achieved in CIO
  • Significantly reduced total synthetic credit risk in CIO
  • Substantially all remaining synthetic credit positions transferred to the Investment Bank
  • Investment Bank has the expertise, capacity, trading platforms and market franchise to manage these positions
  • CIO synthetic credit group closed down
  • Conducting extensive review of CIO trading losses; CIO management completely overhauled; governance standards enhanced; believe events isolated to CIO
  • Fortress balance sheet remains strong
  • Basel I Tier 1 common1 of $130 billion, or 10.3%
  • Estimated Basel III Tier 1 common1 of 7.9%, after the impact of final Basel 2.5 rules and the Federal Reserve's recent Notice of Proposed Rulemaking
  • Strong loan loss reserves of $24 billion; Global Liquidity Reserve of $414 billion
  • JPMorgan Chase supported consumers, businesses and our communities
  • Provided $130 billion of credit3 to consumers in the first six months of 2012
  • Issued new credit cards to 3.3 million people
  • Originated over 425,000 mortgages
  • Provided nearly $10 billion of credit to U.S. small businesses in the first six months, up 35% compared with prior year
  • Provided $260 billion of credit3 to corporations in the first six months
  • Raised over $460 billion of capital for clients in the first six months
  • Nearly $29 billion of capital raised for and credit3 provided to more than 900 nonprofit and government entities in the first six months, including states, municipalities, hospitals and universities
  • Hired more than 4,000 U.S. veterans since the beginning of 2011
As the update on CIO and its residual positions:
For now, CIO will retain a portfolio of approximately $11 billion
notional amount of mark-to-market positions as an economic hedge for
certain credit exposures of the investment securities portfolio and tail
risk for the portfolio. This long protection (i.e., short credit) is
simple, transparent and easy to explain and will likely be reduced over


And from now on, JPM would not have the luxury of the CIO providing 25-30% of their net income as it is gone.  Also as the JPM treasury takes over the roll and more scrutiny on the credit default hedges and swaps, one has to guess where on earth will JPM earn much of its income?

(courtesy zero hedge)

Jamie Dimon's Quandary: Now That JPM's Internal Hedge Fund Is Gone, Where Will 25% Of Net Income Come From?

Tyler Durden's picture

Much has been said about JPM's CIO Loss (which so far has come at a little over $5 billion, just as we calculated in the hours after the original May 10 announcement). And with the so called final number out of the way, investors in JPM have breathed a sigh of relief and are stepping back into the company hopeful that a major wildcard about the firm's future has been removed. The issue, however, is that the CIO loss was neverthe question: after all JPM could easily sell debt or raise equity to plug liquidity shortfalls. The real issue is that just as we explained months before the loss was even known, the Treasury/CIO department was nothing short of the firm's unbridled hedge fund which could do whatever it chooses, and not be held accountable to anyone at least until its counterparties broke a story of an epic loss to the media. And thus the problem becomes apparent: now that every action of the CIO group is scrutinized under a microscope by everyone from management to auditors to regulators to analysts to fringe blogs, the high flying days of whale trades are forever gone. The question then is just how big was the contribution of the Treasury/CIO group, which until today was buried deep within JPM's Corporate and PE Group and not broken out. Luckily, as today's JPM Earnings Presentation (page 14) shows, CIO is now a distinct line item.
(The CIO group is also for the first time broken out as a separate line item in JPM's Financial Supplement, p. 34)
Thanks to the new breakout, reminiscent of Goldman starting to break out its own Prop Trading group some years ago, we now know exactly just how big the contribution to both revenue, but more importantly, net income was courtesy of JPM's Hedge Fund.
The result is nothing short of stunning.
As can be seen on the chart below, the CIO group accounted for whopping 31.5% of Net Income (adjusted to exclude DVA, Reserve additions or releases and one-time items) in 2009, for a just slightly less ridiculous 19.1% of adjusted Net Income in 2010, and 10% in 2011!
Of course, once Bruno Iksil got caught with his back against the wall, the CIO group blew up, and results in a Net Income loss of $2.1 billion in Q2 2012 as was reported today.
And yes, the bloodletting may be over. But something else that is also over, is CIO being a net contributor of up to 30% of Net Income. In fact, going forward, it is safe to assume that since now the Treasury group will return to its standard role of hedging the firm's other positions, it will likely have a negative contribution to net income. After all, if anything, as a result of the CIO debacle Jamie Dimon has at least learned the definition of hedging, which does not mean accounting for a whopping 30% of total net income in any one year!
And this, more than anything is what JPM would be worried about: because is between 20% and 30% of Net Income is gone on a going forward basis, then Jamie Dimon, and JPM shareholders, will have a major problem in the future: CIO generated roughly $4 billion on average per year (2009 and 2010) in the years it was a properly functioning hedge fund. This "profit center" is now gone forever.  The the Dow up 200 points, the only loser was JPM down 55 cents to $34.04.


Fortune magazine weighs in on the JPMorgan's CIO loss:

(courtesy Fortune magazine/Jim Sinclair commentary)

How Jamie Dimon hid the $6 billion loss By Stephen Gandel, senior editor July 13, 2012: 1:08 PM ET
FORTUNE — Here is perhaps the most amazing thing about JPMorgan Chase’s (JPM) $5.8 billion trading loss: Take a look at the firm’s overall results, and it’s like the London Whale’s misstep, one of the largest flubs in the history of Wall Street, never happened.
Back in mid-April, about two weeks before talk of the trading losses emerged, JPMorgan was expected to earn $1.21 a share in its second quarter. On Friday, JPMorgan reported that it had, Whale and all, earned exactly that.
How the bank appears to have offset the huge trading loss is a prime example of how complex and malleable bank profits actually are, and how much they should be believed. JPMorgan’s quarter should give fodder for accountants to talk about for some time.
"Yes, I have seen these results, but I have also seen how the sausage is made and I am worried that I might get food poisoning in the future," Mike Mayo of Credit Agricole Securities  and author of the book Exile on Wall Street told Dimon in a meeting with analysts following the bank’s earnings release.
Sure some of JPMorgan’s businesses were strong. Profits in its mortgage operations, helped by falling interest rates, rose by nearly $1.3 billion. But a good deal of JPMorgan’s earnings came from some shifting of losses and an assumption that things for the bank, and the economy in general, are about to get a good deal better. That assumption might prove right, but it could also add to losses in the future.
So how do you make a nearly $6 billion loss go away? First stop taxes. The bank said that the London Whale’s blunder cost the bank $4.4 billion in the second quarter alone. But that’s before taxes. After it pays taxes, though, JPMorgan says the loss will shrink to just over $2.7 billion, which means the bank plans to take a $1.7 billion write off from Uncle Sam. Like any loss, banks are allowed to use trading blunders to offset taxable profits elsewhere in the bank. The question is the rate. At $1.7 billion, JPMorgan is writing off roughly 38% of the loss. That’s not that out of line with the U.S. corporate tax rate, but it’s a far larger percentage of profits than most companies actually pay. Nonetheless, on taxes alone, the bank was able to shrink the London Whale’s wake to $4.1 billion.

Rob Kirby reports that libor was just a small part in the greater scheme of controlling interest rates and the price of gold in order for the Robert Rubin's policy of a strong dollar policy.  The USA dollar needed to be supported due to the vast derivative positions on the books of JPMorgan and company.  Today JPMorgan holds 70 trillion notional derivatives of which interest rate swaps represent 70% of that value.

(a very important read...courtesy Rob Kirby/GATA)

Rob Kirby: LIBOR rigging is just the tip of the iceberg

11:10a ET Friday, July 13, 2012
Dear Friend of GATA and Gold:
The rigging the LIBOR interest rate report, GATA consultant Rob Kirby of Kirby Analytics in Toronto writes today, was only a small part of the greater scheme of controlling interest rates and the price of gold and supporting the U.S. dollar with vast derivative positions on the books of investment bank JPMorganChase. Kirby's commentary is headlined "LIBOR Rigging: Tip of the Iceberg" and it's posted at GoldSeek here:
And at 24hGold here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


From Market Pulse we learn this:

Market Pulse Archives
July 13, 2012, 11:38 a.m. EDT ·
Barclays staffer told Fed of false Libor in 2008

WASHINGTON (MarketWatch) - An unidentified employee of U.K. bank Barclays PLC told the New York Federal Reserve Bank in April 2008 that the bank was filing false reports on Libor, according to documents released by the central bank on Friday. The documents show that reports of this admission were quickly circulated to the Federal Reserve Board of Governors and the Treasury Department. Then-New York Fed President Timothy Geithner briefed other U.S. agencies on the Libor problems in May 2008, the documents show. Information that there were problems with Libor started in the fall of 2007, the New York Fed said…

Late yesterday, Moody's downgraded Italy to Baa2 from A3 or two levels above junk.
That puts two major rating agencies which have put Italy below A level and we need to hear from just Fitch if it wishes to join the rest.  If Fitch does lower the boom on Italy, then expect at least 5% more collateral calls for more margin requirements on sovereign debt held by the ECB through the LTRO exchange.  Collateral is becoming scarcer by the minute.

(courtesy Moody's/zero hedge)

Moody's Downgrades Italy's To Baa2 From A3, Negative Outlook - Full Text

Tyler Durden's picture

Just like Spain before everyone took the country to a Sub-A rating, Fitch is once again the decider. S&P has Italy at BBB+, and Now Moody's just took italy under A to Baa2; only Fitch is still at A-, outlook negative. When all three rating agencies go sub A, there is a 5% ECB repo hike as we explained back in April.
From Moody's
Frankfurt am Main, July 13, 2012 -- Moody's Investors Service has today downgraded Italy's government bond rating to Baa2 from A3. The outlook remains negative. Italy's Prime-2 short-term rating has not changed.
The decision to downgrade Italy's rating reflects the following key factors:
1. Italy is more likely to experience a further sharp increase in its funding costs or the loss of market access than at the time of our rating action five months ago due to increasingly fragile market confidence, contagion risk emanating from Greece and Spain and signs of an eroding non-domestic investor base. The risk of a Greek exit from the euro has risen, the Spanish banking system will experience greater credit losses than anticipated, and Spain's own funding challenges are greater than previously recognized.
2. Italy's near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets. Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.
At the same time, Moody's notes that the sovereign's current Baa2 rating is supported by significant credit strengths relative to other euro area peripheral economies, including (1) maintenance of a primary surplus, (2) large and diverse economy that can act as an important shock absorber in the current crisis, and (3) substantial progress on the structural reforms which, if sustained in the coming years, could improve the country's competitiveness and growth potential over the medium-term.
The first key driver underlying Moody's two-notch downgrade of Italy's government bond rating is Italy's increased susceptibility to event risk. As discussed in a recent Special Comment, "European Sovereigns: Post-Summit Measures Reduce Near-Term Likelihood of Shocks, But Integration Comes at a Cost", Moody's believes that the normalisation of sovereign debt markets could take a number of years, with political event risk and the risk of sovereign defaults increasing as the crisis persists. Moreover, events in Greece have deteriorated materially since the beginning of 2012, and the probability of a Greek exit from the euro area has materially increased in recent months. Likewise, an increased likelihood that Spain might require further external support against the backdrop of economic weakness and increased vulnerability to a sudden stop in funding. In this environment, Italy's high debt levels and significant annual funding needs of €415 billion (25% of GDP) in 2012-13, as well as its diminished overseas investor base, generate increasing liquidity risk.
The 29 June euro area summit advanced the idea of allowing European Financial Stability (EFSF) and European Stability Mechanism (ESM) funds to be used to stabilise sovereign funding markets, which implicitly recognises that these tools may be necessary to sustain Italy's access to affordable credit. However, given the size of the Italian economy and the size of the government's debt load, there is a limit to the extent to which these support mechanisms can be used to backstop such a large, systemically important sovereign.However, Italy benefits from its systemic importance for the euro area, giving it leverage in the political process as reflected in the results of the 29 June euro area summit.
The second driver of today's rating action is the further deterioration in the Italian economy, which is contributing to fiscal slippage. Moody's is now expecting real GDP growth to contract by 2% in 2012, which will put further pressure on the country's ability to meet its fiscal targets, which were scaled back when the country published its Stability Programme in April. Although its goal of achieving a structural budget balance in 2013 has not changed, the government now expects to achieve a nominal balanced budget in 2015, two years later than it expected when adopting a package of fiscal adjustment measures in December 2011. More broadly,Moody's believes that Italy's fiscal goals will be challenging to achieve, particularly given the more adverse macroeconomic environment.
The current government's strong commitment to structural reforms and fiscal consolidation has moderated the downward pressure on Italy's government bond rating. Moody's recognises that the government has proposed, and is legislating, a reform programme that has the potential to materially improve Italy's longer-term growth and fiscal prospects. As part of this programme, the authorities implemented three fiscal consolidation packages, strengthened the pension system, and approved a structural balanced budget rule that will be effective from 2014 onwards. Moreover, in early July the government approved additional spending cuts in order to postpone a VAT hike that was due to take effect in October 2012, and which would have placed additional downward pressure on domestic demand.
The negative outlook reflects our view that risks to implementing these reforms remain substantial. Adding to them is the deteriorating macroeconomic environment, which increases austerity and reform fatigue among the population. The political climate, particularly as the Spring 2013 elections draw near, is also a source of implementation risk.
Italy's government debt rating could be downgraded further in the event there is additional material deterioration in the country's economic prospects or difficulties in implementing reform. A further deterioration in funding conditions as a result of new, substantial domestic economic and financial shocks from the euro area crisis would also place downward pressure on Italy's rating. Should Italy's access to public debt markets become more constrained and the country were to require external assistance, then Italy's sovereign rating could transition to substantially lower rating levels.
A successful implementation of economic reform and fiscal measures that effectively strengthen the growth prospects of the Italian economy and the government's balance sheet would be credit positive and could lead to a stable outlook. Upward pressure on Italy's rating could develop if the government's public finances were to become less vulnerable to volatile funding conditions, should that be accompanied by a reversal in the upward trajectory in public debt and the achievement of lower debt levels.
As a consequence of the rating action on the sovereign, Moody's has also lowered the maximum rating that can be assigned to a domestic issuer in Italy, including structured finance securities backed by Italian receivables, to A2 from Aaa. The lower ceiling reflects the increased risk of economic and financial dislocations. The short-term foreign currency country and deposit ceilings remain Prime-1.
Italy's new country ceiling reflects Moody's assessment that the risk of economic and financial instability in the country has increased. The weakness of the economy and the increased vulnerability to a sudden stop in funding for the sovereign constitute a substantial risk factor to other (non-government) issuers in Italy as income and access to liquidity and funding could be sharply curtailed for all classes of borrowers. Further deterioration in the financial sector cannot be excluded, which could lead to potentially severe systemic economic disruption and reduced access to credit. Finally, the ceiling reflects the risk of exit and redenomination in the unlikely event of a default by the sovereign. If the Italian government's rating were to fall further from its current Baa2 level, the country ceiling would be reassessed and likely lowered at that time.
The principal methodology used in these ratings was Sovereign Bond Ratings Methodology published in September 2008. Please see the Credit Policy page on for a copy of this methodology.


Opening 10 yr bond yield for Italy:

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


5.984000.07200 1.22%
As of 07:58:00 ET on 07/13/2012.


Add to Portfolio


6.661000.02600 0.39%
As of 08:00:00 ET on 07/13/2012.

Swiss 2Y Rates Plunge To -43bps As All Trust Is Lost

Tyler Durden's picture

A near-record single-day plunge in rates for Switzerland's 2Y interest rate has driven it to a spectacular -43.1bps this morning. The German 2Y also has cracked to record low interest rates at -5.2bps. With Gold big over $1585 also, it seems the safety trade - or escape from risk as JPM exposes the reality of the world in which we live - is dramatically on.

Chart: Bloomberg

'Anti-Goldilocks' China Data Not Enough To Move Needle

Tyler Durden's picture

A fractional miss of estimates for GDP growth (printing at +7.6% vs expectations of +7.7%) coupled with a just-as-fractional beat in Retail Sales (+13.7% YoY vs expectations of +13.4%) seems to be the perfect remedy for a global-depression-expecting and/or massive-stimulus-hungry market. GDP growth was its slowest since March 2009 but it appears the 'sell the rumor, buy the news crowd' are disappointed. S&P 500 futures popped a few pts and then faded back - remaining around +3pts for now (and EUR rallied into the number, sold off on the print and is now limping back higher). As we noted earlier, this is not the data you have been looking for - insteadfocus on hot money flows and the property popas the Chinese continue to impress with their 'data' showing the first engineered 'soft-landing' in history.

Stocks, Copper Gain On Stimulus Bets; Italy Bonds Decline

China’s gross domestic product grew a less-than-estimated 7.6 percent in the second quarter, putting pressure on policy makers to build on monetary easing and increase investment. Moody’s reduced Italy’s bond rating by two levels and reiterated its negative outlook. U.S. consumer confidence probably rose in July, economists said before a report today.

“The market knows China is slowing and we expect more easing,” said Daphne Roth, who helps oversee about $207 billion as head of Asian equity research at ABN Amro Private Banking in Singapore. “They will continue to cut rates. The shift in their engine of growth towards the consumer will take time.”

The Stoxx 600’s gain pared this week’s decline to 0.2 percent. Storebrand ASA rallied 8.8 percent as Norway’s second- largest publicly traded insurer said it plans to reduce costs and meet stricter European capital requirements without selling new shares.

More Stimulus

European stock strategists are backing away from their most-pessimistic forecasts as policy makers agree on measures to tackle the region’s debt crisis. While sticking to predictions for losses of as much as 16 percent, Morgan Stanley’s Ronan Carr raised his recommendation on European equities to neutral on July 2 and Alain Bokobza of Societe Generale SA said he has started to reduce the underweight call he’s had for at least two years. Exane BNP Paribas said investors can find bargains among companies most reliant on economic growth.
The increase in S&P 500 futures indicated the U.S. gauge will rebound from six days of losses, the longest losing streak in almost two months. JPMorgan Chase & Co. was little changed in pre-market trading after the biggest U.S. bank by assets U.S. reported a $4.4 billion trading loss in its chief investment office, more than analysts estimated, that helped drive second- quarter profit down 9 percent.
The Thomson Reuters/University of Michigan preliminary index of sentiment rose to 73.5 this month from 73.2 in June, according to the median forecast of 69 economists surveyed by Bloomberg.

Emerging Markets

The MSCI Emerging Markets Index added 0.8 percent, rebounding from a two-week low. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kongincreased 0.7 percent, the biggest one-day gain since July 3. South Korea’s Kospi Index gained 1.5 percent, Russia’s Micex rose 0.8 percent and India’s Sensex Index advanced 0.4 percent.
The yield on Italy’s three-year note fluctuated after an auction. The government sold 3.5 billion euros ($4.27 billion) of three-year notes priced to yield 4.65 percent, down from 5.3 percent at a previous auction.
The cost of insuring against an Italian default rose for a second day, with credit-default swaps on the government’s debt climbing 18 basis points to 521. Contracts on Spain increased 11 basis points to 580.
Copper advanced for a third day. European Union carbon permits for December fell 1.3 percent, the sixth consecutive decline and the longest drop since Nov. 21. The most ambitious market-based effort to control carbon emissions is being undermined by a glut of permits, amid allegations that EU ideas to tackle the surplus are being leaked prematurely. Corn climbed 1.2 percent and soybeans rose 0.8 percent.
To contact the reporters on this story: Stephen Kirkland in London at; Jason Clenfield in Tokyo at;
To contact the editor responsible for this story: Justin Carrigan at

Stocks (MXWD) rose, ending the longest run of declines since November, and copper gained as slowing growth in China fueled speculation policy makers will boost stimulus efforts. Italy’s 10-year bonds fell after Moody’s Investors Service downgraded the country’s debt.
The MSCI All-Country World Index (SXXP) added 0.3 percent at 7:15 a.m. in New York, snapping a seven-day slump. The Stoxx Europe 600 Index increased 0.7 percent, while Standard & Poor’s 500 Index futures gained 0.3 percent. Copper climbed 1.5 percent and oil jumped 1 percent. Ten-year Italian yields rose eight basis points to 5.99 percent, while German bunds advanced and U.S. Treasuries were little changed.

The rise in the Euro/USA for no reason;

The "New Normal" FX Rip

Tyler Durden's picture

This is how a completely news-less FX move looks like under the new normal, at precisely the moment when market opens. Did we say no news? Yes. 80 pips move in minutes on absolutely nothing, but an avalanche of very specific stop limit triggers. And since the EURUSD is the highest levered fulcrum security, and since shorts have piled in aggressively in the last few days, ramping the pair to the stratosphere is why risk is soaring, once again on no positive news. And now that the market move has happened, the news to explain it will come fast and furious. One wonders if all of the now unwound CIO capital has moved into JPM's most recent prop trading addition: the CFXO.


Mark Grant discusses the only way that Europe can be saved.
They must give up fiscal responsibility and monetary responsible to an independent European authority.  He outlines 6 important steps to save the system:

1. stop lying
2. shrink the banks as their assets triple the GDP of all the EU 17 nations.
3. one treasury
4. all EU parliamentarians must be more appointments
5. the judicial system must be European from the appellate courts upwards and the national
judiciaries must be recognized.
6.  and the all important:  Europe must be one more sovereignty for all various various issues.  It must be like the United States of Europe..

a must read on how to fix Europe's problems:

(courtesy Mark Grant/out of the Box and onto Wall Street)

Step-By-Step: How To Fix Europe

Tyler Durden's picture

via Mark Grant , author of Out of the Box,

It’s these changes in latitudes, changes in attitudes
Nothing remains quite the same
With all of our running and all of our cunning
If we couldn’t laugh we would all go insane

            -Jimmy Buffet, Changes in Attitudes, Changes in Latitudes

As we prepare to push off from Green Turtle Cay tomorrow morning and “Wishes Granted” heads back to Fort Lauderdale I look over the ocean and wonder what has changed since I began my journey. There is nothing quite like “messing around on boats” or those moments in the early morning before the sun tips over the horizon to consider the financial seas. After almost four decades of messing about on Wall Street I visualize the times and tides from a long perspective of having ridden the waves of both calm and storm. With record low Treasury yields it is clear that the bond markets think we are about to embark upon a difficult journey while the equity markets are still regaling in the quarters past and concentrated on the technicals of the rigging. The bond markets have read the charts and looked at the weather ahead more correctly I fear and the length of our European journey changes nothing about the difficulty of the upcoming passage.

I have been asked so many times and by so many people over the last couple of years how to fix Europe that the question is now commonplace in my thinking. Generally I am not given the time in the media to answer the question fully as they want you to explain the silver bullet in a five minute sound bite. Neither my Kansas City brain nor my Kansas City mouth can move words onto the airwaves with such rapidity. I have now had some time to ponder the concept and consequences of what has been asked and this morning I will give you the short version.

Fixing Europe-Step I

Europe has to stop lying and start telling the truth in the first instance. The data has to be real and accurate and not shaded so that investors can regain some confidence that there is some reality to the numbers presented. Europe has been much too cute in its presentation about almost everything and this needs to stop and they should proclaim a new day of openness and honesty and stop trying to fool everyone and mask the truth which has been the manner in which they have done business.

Fixing Europe-Step II

Europe needs to specifically address the problems of their banks. The banks should be shrunk so that they do not overcome the nations in Europe. The European banks are currently three times the size of the EU-17 and that position is so dangerous and so fraught with peril that it must be changed as a matter of some urgency. All of the banks should also be overseen by one authority and the regulator should be independent, tough and unforgiving in oversight and the regulations must be applicable all across Europe with absolutely no variation. No sovereign central bank should have any authority at all and the ECB should not be the regulator as it is much too political a position in Europe which is a totally different structure than the United States. One European Central Bank for fiscal and economic policy and one European regulator to police the accuracy of the data and the amount of leverage and adequacy of capital and collateral that does not waiver from one nation to the next.

Fixing Europe-Step III

There would have to be one Department of the Treasury. The national Parliaments could present budgets but the one European regulator would have to decide and have the ability to implement. Every nation would have to submit and there could be no going back.

Fixing Europe-Step IV

The people in Brussels would have to be elected by the citizens in Europe. All Parliamentary appointments would have to be stopped. They would need some kind of Congress and Senate solution but the people elected would have to be direct from the people so that all citizens had representation.

Fixing Europe-Step V

The judicial system would have to be European. From the appellate courts up everything would have to go to the European courts and all of the national judiciaries would have to be reorganized.

Fixing Europe-Step VI

Europe would have to become a country. There could be no more sovereignty for all kinds of issues and political constructs. It would have to be the country of Europe and the nations would have to become like States in America. “One nation under God and indivisible.”

The Costs of Fixing Europe

The main issues bended about in a number of significant ways would be the total and uncompromising loss of all of the nations’ sovereign status. There would be virtually no more Spain, France, Italy et al. Every nation and their cost of funding and their standard of living would have to merge at some average or mean.

So I ask Europe; are you prepared for this? Do you want this? Are you willing to pay the price for this because if you are not then I suggest you end the charade and protect your own interests before you fall down the rabbit hole that you have created by your own political and economic deceit!

Here is the closing Italian 10 yr yield showing it crossed back above the 6% level:

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


6.058000.14600 2.47%
As of 07/13/2012.


And now the closing Spanish 10 yr bond yield finishing the week at 6.66%:


Add to Portfolio


6.663000.02800 0.42%
As of 07/13/2012.

Wolf Richter with his terrific analysis, weighs in on the hopelessness of Greece's financial affairs.
Of the 300 measures that Greece was to restructure, 210 were completely ignored.  The Troika will report at the end of July and it does not paint a pretty picture.  The troika is to decide if Greece is to receive more money.  There is no doubt that none will be forthcoming  :

(courtesy Wolf Richter/

Greece Flails About, Troika Inspectors Paint “Awful Picture,” Merkel Draws A Line, German Industry & Voters Back Her

testosteronepit's picture

Wolf Richter
The new Greek finance minister, Yannis Stournaras, until recently a professor of economics at the University of Athens, hasn’t learned yet the art of extortion that is required to accomplish anything at all during negotiations with the Eurozone. And so, when he went to the meeting of Eurozone finance ministers earlier this week at the Eurogroup—which serves as political control over the common currency—he accomplished absolutely nothing. He wasn’t even able, unlike his predecessors, to get himself into the media with some wild threat about a “disorderly default” or destroying the entire Eurozone if he didn’t get what he wanted.
He had two big jobs to do: one, promote Greece’s efforts to renegotiate (“water down” is the technical term) the structural reforms that the prior government had agreed to in writing by signing the bailout memorandum; and two, push for a two-year delay of these watered-down conditions. At the same time, he’d have to make sure Greece would continue to receive the flow of bailout billions from taxpayers elsewhere.
But roundly ignored at the Eurogroup meeting, he returned empty handed to Greece. A fiasco for him. In a meeting with leaders of the three-party coalition government—the conservative New Democracy, the socialist PASOK, and the small Democratic Left— Evangelos Venizelos, PASOK leader, former finance minister, and extortionist par excellence, wasapparently furious with him and hollowed out his power. The infighting begins.
Time is running out for Greece. Completely dependent on bailout payments to keep its finances from collapsing, Greece is losing ever more support where it counts the most: in Germany. According to the latest poll, 61% of Germans reject giving Greece and other bailed out countries more time to solve their problems. They’ve had enough of the broken promises. They’ve become so bitter about the whole process that, according to another poll, 58% of Germans want their Deutsche Mark back, up from 39% in 2010.
And what had to happen, finally happened: for the first time, an important component of German industry, the German Engineering Federation (VDMA) demanded that Greece leave the Eurozone “if it cannot, or does not want to, stick to its agreements.” German industry, which has benefitted from the euro and what amounted to a bailout of its customers in other countries, had been a staunch supporter of the euro, the bailouts, and keeping the Eurozone intact. But bailout funds, such as the European Stability Mechanism (ESM), should not be used to fund structural deficits, the organization said. And so it stepped up its support for Chancellor Angela Merkel and encouraged her to hold the line on Greece.
Merkel came out swinging. She would not tolerate that the bailout memorandum that contained the agreed-upon structural reforms would be watered down though she might be willing to delay implementation by “a few weeks”—not the two years the Greek government is seeking. Her spokesman Steffen Seibert was even firmer: “Neither the content nor the time frame of the memorandum is up for debate,” he said. Greece must “make great exertions.”
But that’s precisely what has not been happening. Inspectors of the “Troika”—the EU Commission, the European Central Bank, and the International Monetary Fund, the entities that have agreed to bail out Greece under certain “conditions”—were back in Athens earlier in July to review Greece’s books, check on progress of the agreed-upon structural reforms, and meet with government officials, all in order to determine if these certain “conditions” have been met. The inspectors already expected the worst, after a three-month hiatus while Greece was embroiled in political turmoil and two elections, an interregnum during which nothing was implemented.
Apparently, it was even worse. Elements of their preliminary and still unpublished report due by the end of July seeped out: it painted an “awful picture”; of the 300 specific measures to be implemented by now, 210 were completely ignored and left by the wayside. This is the report that the Troika will use in deciding whether or not to send the next bailout tranche to Greece. And without this money, Greece will have to default and most likely exit the Eurozone.
Germany itself is embroiled in disagreement over the endless bailouts, and their two crucial future mechanisms: the ESM bailout fund and the fiscal union pact. Cobbled together after hectic summits with dog and pony shows designed to soothe edgy markets, they’re now in the hands of the German Constitutional Court—and these are the options. Read.... Will the Euro Survive This Year?
Double-checking as euro miasma leaks into the rest of the world.... What Is Copper Telling Us about the Global Economy?


The legendary Jim Sinclair:

Western World Finance Is In Deep Trouble

My Dear Friends,
I will expand on this over the summer, but as an introduction:
1. Economics are not weekly and monthly statistics. It is comprised of motion and change that determines the trend.
2. The effect of economic actions is not a static amount, for example0 QE in some determined period of time, but rather an inescapable cumulative impact due to the rate of change. Each event of stimulation requires greater effort than the previous.
3. Economic activity is either increasing at an increasing rate or it is decelerating and an increasing rate. There are no Plateaus of Prosperity or Goldilocks Economics other than in the minds of spin doctors.
4. Debt has come home to be confronted here and now. There is no normal business means of accomplishing this.
The conclusion to be outlined in many ways over the summer is clearly the Western world finance is in deep trouble. QE to infinity is the only political tool that can kick the can. Gold will trade at and above $3500 regardless of all the previous attempts to manipulate it.
Cash market buyers will prevent all attempts to color gold otherwise.

and finally in the USA funds are leaving equities and landing in the biggest bubble of them all, the bond market.  All bubbles eventually burst:

(courtesy zero hedge)

Ben Bernanke Has Created The Ultimate Bondsy Scheme

Tyler Durden's picture

Since January 2007, long-only equity funds have seen redemptions of $545 billion. In the same period bond funds have seen inflows of $630 billion. In the last few months, cumulative flows into equity funds have retraced all the way back to 1996. While every day is a QuEasy day for stocks, it seems the 'financial repression' is working as instead of getting everyone else to do the opposite of what the Fed is doing by making yields on other 'riskless' assets meaningless, all that the Fed has succeeded in doing, is getting everyone in the world to frontrun it in buying bonds. Period

Source: BofAML


Atlanta Fed President Dennis Lockhart sees that if the Fed's economic forecast and monetary policy will no longer be sustainable if the economy continues on its current path. Lockhart is a voting member in 2012 and voted in the affirmative for continuation of operation twist.

(courtesy Dow Jones newswires)

DJ Fed's Lockhart: Fed Stance 'Untenable' If Economy Does Not Pick Up

Fri Jul 13 13:00:01 2012 EDT

JACKSON, Miss.--The U.S. Federal Reserve's economic forecast and monetary policy stance will no longer be sustainable if the economy continues on its current path, Federal Reserve Bank of Atlanta President Dennis Lockhart said in prepared remarks Friday.
The central bank should be cautious in deciding to launch new programs designed to boost the economic recovery, Mr. Lockhart said Friday in remarks prepared for a speech to the Mississippi Economic Council. But the risks associated with the Fed expanding its portfolio of assets are manageable, he said, and may be needed if the economic recovery does not accelerate.
"If the economy continues on the track indicated by the most recent incoming data and information, that forecast will become untenable, as will the policy premises underlying it," Mr. Lockhart said in his remarks. His support for the Fed's current stance assumes the jobs market will see a step up by the year's end and into 2013, he said. The Atlanta Fed chief is a voting member of the Federal Open Market Committee, the central bank's policy-making arm.
Fed officials are weighing whether to take more action to support the economy and reduce the 8.2% unemployment rate. Policymakers are divided into two camps: those who support taking more action "now or before too long" and those who think the option should be "held in reserve to respond to a sharp further deterioration in the outlook," Mr. Lockhart said Friday.
Since January the Fed has said it plans to keep short-term interest rates near zero at least through late 2014. The Fed's next policy meeting is July 31-Aug. 1.
Mr. Lockhart said the Fed would be wading into "uncharted territory" if it decided to further expand its portfolio of assets and should "be undertaken very judiciously." And further stimulus from the Fed is not a "miracle cure" for the economy, he said.
"We should have modest expectations about what further action can accomplish," he said, but added, "I do not think this means monetary policy is impotent or has reached its limit."
He also dismissed concerns that the Fed would not be able to unwind its large portfolio of assets and put monetary policy on a more normal path when the time is right.
Mr. Lockhart noted that he and the Atlanta Fed economists had downgraded their official economic forecast to reflect their expectations for weaker growth and slower progress in bringing down unemployment. Economic data from the first two quarters of this year have disappointed officials and business contacts are showing less optimism, he noted.
Risks from the European debt crisis, the U.S. fiscal outlook and the possibility of a global economic slowdown are also weighing more heavily on the economic outlook, he noted.
One important question Fed officials are asking is how far the level of gross domestic product is from its potential, Mr. Lockhart said. The Congressional Budget Office has estimated the U.S. GDP is 5.5% below its potential, while others have said that difference is closer to zero, he said, putting his estimate somewhere in between. He also expressed concern that long-term unemployment could harden into structural problems.


Consumer confidence falls again as the University of Michigan preliminary reading on the overall index fell to 72.0 from 73.2 in June.  They were expecting a gain to 73.4.

(courtesy Reuters)

Consumer sentiment cools again in early July

NEW YORK | Fri Jul 13, 2012 10:04am EDT

NEW YORK (Reuters) - U.S. consumer sentiment cooled again in early July to its lowest level in seven months as Americans took a dim view of their finances and job prospects, a survey released on Friday showed.
The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment fell to 72.0 from 73.2 in June, frustrating economists' expectations for a slight gain to 73.4.
It was the lowest level since December 2011.
Only 19 percent of consumers expected to be financially better off in the coming year, the lowest proportion recorded by the survey. Americans were also gloomy about their longer-term prospects with 39 percent anticipating their situation would be better in five years.
"The greatest concern to consumers is that wage and job growth will remain depressed over the foreseeable future, and that these meager gains are likely to be further diminished in the years ahead by rising taxes and benefit cutbacks," survey director Richard Curtin said in a statement.
The gauge of consumer expectations slipped to 64.8 from 67.8, also the lowest since last December.
While there was widespread recognition of an economic slowdown, that did not have a large impact on consumers' economic outlook, and the barometer of current economic conditions rose to 83.2 from 81.5.
News of job losses was mentioned twice as frequently as job gains, the opposite of what was seen in the first six months of the year.
Americans' buying plans improved with the measure of buying conditions for vehicles and household durables rising to 131 from 125.
The one-year inflation expectation fell to its lowest level since October 2010 at 2.8 percent from 3.1 percent. The five-to-10-year inflation outlook held steady at 2.8 percent.

I will leave you this morning with this week's wrap up of events courtesy of  Greg Hunter of USAWatchDog:

Weekly News Wrap-Up 7.13.12

13 JULY 2012 12 COMMENTS
By Greg Hunter’s
It looks like things are continuing to heat up in the Middle East.  Last week, there was news that the U.S. was sending more military assets to the Persian Gulf.  This week, the buildup continues with news the U.S. is sending underwater drones to combat possible Iranian mines and their drones.  Meanwhile, in Syria, the Russians are reportedly sending a flotilla of 11 warships to the Syrian coast for maneuvers.  NATO already has ships on the Syrian coast, and surveillance flights by the alliance are increasing in the region.  This is not how you set the table for peace in the Middle East, even though the U.N. is attempting to put the East and West together to find a peaceful solution.
The Libor rate rigging scandal appears to be the biggest financial fraud in history.  Barclays bank paid a $450 million fine last week to regulators, but more than a dozen international banks, and even the U.S. and UK governments, are implicated.  $800 trillion in commerce is based on this key rate.  Avalanches of lawsuits are reportedly on the way.  Another brokerage firm has gone bust (PFGBest), and around $200 million of customer money is missing.  The FBI is investigating, but where is the FBI investigation into MF Global?  It went bust on Halloween of last year!  Former New Jersey Governor and Goldman Sachs CEO Jon Corzine ran the brokerage where $1.6 billion of customer money vanished.  What gives?
Another California city has filed for bankruptcy.  San Bernardino is the third city in a month to do so in the Golden State.  What did banking analyst Meredith Whitney say two years ago?  There were 50 to 100 major municipal bond failures coming.  It’s looking more and more like she was early but on target.  Many more cities are reportedly in financial trouble across the nation.  The Federal Reserve is worried about the economy.  That was the news that broke this week when minutes of the Fed’s June meeting were released.  Where’s the recovery?  Now, many analysts say if the Fed prints money to boost the economy, gold is heading higher.  One analyst at Merrill Lynch says it should hit $2,000 an ounce sometime next year.  Greg Hunter gives his analysis of these stories and more in the Weekly News Wrap-Up.


I hope you all have a grand weekend and I will see you Monday evening.

all the best


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