Saturday, July 21, 2012

Valencia, Spain asks for a bailout/Egan Jones lowers credit rating of Spain to CC plus/Spanish 10 yr bond yield rises to 7.27%/Spanish Ibex falls close to 6%

Good morning Ladies and Gentlemen:

Gold closed the week up $1.00 by to $1585.00.  Silver after being whacked early, regained its composure and actually finished up on the day by 4 cents to $27.35.  The big news of the day came from Spain where it's 3rd largest city  asked for funds as it was basically broke.  The Spanish Ibex immediately proceeded to fall close to 6% and the Spanish 10 yr bond yield skyrocketed to 6.27%.  Not to be undone, the Italian 10 yr bond yield finished the day at 6.16%.  All bourses were in the red but it was Europe that had the deeper red ink.  Conditions continue to deteriorate in Europe and this was manifested with a huge fall in the Eur/USA cross finishing the day in the USA at:


The German DAX finished its session down 1.9%.  Both Paris and Lisbon both had their stock exchanges down 2.14%.  The Dow finished down 120 points or .93%. Egan Jones lowered the boom on Spain as they lowered its credit rating to CC plus from CCC-.

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

The total gold comex OI fell by 5731 contracts as gold rose on Thursday by 10.00 dollars.  The bankers were probably frightened a bit by a turn of events in Europe so they thought it was best to lighten up on their shortfall. The non official delivery month of July saw its OI fall from 17 contracts to 9 contracts for a loss of 8 .  We had 10 delivery notices filed on Thursday so in essence we gained 2 contracts or 200 oz of additional gold standing. The next big delivery month of August is a little over 1 week away with first day notice on Tuesday, July 31.2012.  On Monday night, we will get first day notices filed and on Tuesday night, I will bring to your attention the number of gold ounces that intend to stand.  However as we are witnessing lately that in official delivery months, the number of ounces standing will decline due to the antics of our bankers.  The August delivery month saw its OI fall from 165,994 to 155,776 as many rolled into October and December and some just vacated the paper arena altogether.  The world is catching on pretty fast that the comex is nothing but a rigged game. The estimated volume on Friday was very anemic at 126,092 especially with the rollovers.  The confirmed volume on Thursday was a touch higher at 156,178.

The total silver comex OI fell by a tiny 264 contracts falling from 122,590 to Friday's level of 122,326.  The front delivery month of July saw its OI fall from 127 to 126 for a loss of 1 contract.  We had exactly one notice filed for Thursday so we neither gained nor lost any silver.  The August silver month saw a slight decrease of 2 contracts down to 261.  The next big delivery month for silver is the September month and here the OI fell slightly from 61,726 down to 61,601.  The estimated volume on Friday was mediocre at 37,419.  The confirmed volume on Thursday was a touch lower at 36,257.

July 21-.2012


Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
64.30 (Manfra)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in
No of oz served (contracts) today
(0)  nil oz 
No of oz to be served (notices)
 9 (900)
Total monthly oz gold served (contracts) so far this month
(722) 72,200
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month


Not much activity on Friday in the gold vaults.

We only had one transaction and that was another tiny withdrawal from Manfra of 64.3 oz
out of the customer.  we had no adjustments.

Thus the dealer inventory rests this weekend at 2.580 million oz or 80.24 tonnes of gold.

The CME notified us that we had zero notices filed for today and thus the total number of notices remain at 722 for 72200 oz.  To obtain what is left to be served upon, I take the OI standing for July (9) and subtract out Friday's notices (0) which leaves us with 9 notices or 900 oz of gold left to be served upon our longs.

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

72,200 oz (served) +  900 oz (served)  =   73,100 oz
we gained 200 oz of additional gold standing.

and now for silver:

July 21.2012

Withdrawals from Dealers Inventory107,639.05 (Scotia)
Withdrawals from Customer Inventory971,834.78 (JPM, Scotia Delaware, HSBC,)
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory304,097.00 ( Brinks,Delaware)
No of oz served (contracts)2  (10,000)
No of oz to be served (notices) 124  (620,000)
Total monthly oz silver served (contracts)1706 (8,530,000)
Total accumulative withdrawal of silver from the Dealers inventory this month107,639.05
Total accumulative withdrawal of silver from the Customer inventory this month6,226,348.1
July 21.2012

Violent activity inside the silver vaults today.

We had the following customer deposit:

i) Into Brinks:  300,279.3oz
ii) into Delaware:  3817.70 oz

total deposit:  304,097.00 oz

we had one withdrawal from the dealer side at Scotia:

i)  107,639.05 oz

we had massive withdrawals from the customer side:

i) Out of Scotia:  54,089.13 oz
ii) Out of Delaware: 5079.37 oz
iii) Out of HSBC, 318,126.36  oz
iv) out of JPMorgan:  594,539.90 oz

total customer withdrawal:  971,834.78 oz

the dealer or registered inventory rests this weekend at 40.275 million oz
the total of all silver rests at 142.624 million oz

The CME notified us that we had only 2 notices filed for a total of 10,000 oz.  The total number of notices
filed so far this month total 1706 for 8,530,000 oz.  To obtain what is left to be served upon, I take the OI standing for July (126) and subtract out Friday's notices (2) which leaves us with 124 notices or 620,000 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;

8,530,000 oz  (served)  +  620,000 oz (to be served ) =  9,150,000 oz
exactly the same as on Thursday.


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$:63,565,972,463.21

July 19.2012:




Value US$:64,002,219,520.48

JULY 18.2012:




Value US$:64,107,741,767.80

July 17.2012:




Value US$:64,515,508,275.28

July 16.2012:




Value US$:64,699,393,011.45

On Thursday we lost a massive 9.06 tonnes of gold  from the GLD.  Last night
another 2.41 tonnes of gold were removed from the GLD vaults. It looks to me like the LBMA is robbing GLD as China is loading its boat of gold and shipping it off to Beijing.  If I was a shareholder of GLD I would be voicing my concerns to the SEC.  But then again, everything reported to them falls on deaf ears.

And now for silver:

July 21.2012:

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

July 19.2012

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

July 18.2012:

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

July 17.2012:

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

July 16.2012:

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

we neither gained nor lost any silver at the SLV today. Notice the difference between silver and gold. 

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 2.1percent to NAV in usa funds and a positive 2.4%  to NAV for Cdn funds. ( July 21-.2012)

2. Sprott silver fund (PSLV): Premium to NAV  rose to  3.26% to NAV  July 21 2012   :
3. Sprott gold fund (PHYS): premium to NAV rose to    2.91% positive to NAV July 19.2012). .

Finally, we are now starting to see premiums return to the Sprott silver fund. No doubt, in 3 to 4 weeks we will be back to previous premium levels as inventories around the world deplete in silver.  The fact that Sprott removed 250 million dollars worth of silver is a dagger to our bankers.


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 17, 2012

In our Gold COT report:

Our large speculators:

Those large speculators that have been long in gold pitched 1682 contracts from their long side.
Those large speculators that have been short in gold covered a rather large 4406 contracts.

Our commercials:

Those commercials that have been long in gold pitched a very small 829 contracts.
Those commercials that have been short in gold added a very large 5224 contracts to their short side.
Our small specs:
Those small specs that have been long in gold added another 1713 contracts to their long side
Those small specs that have been short in gold covered 1616 contracts from their short side.
slightly more bearish and thus an explanation as to why the bankers were trying to whack gold on Wednesday, Thursday and yesterday but failed.

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

Tuesday, July 17, 2012

And now for our silver COT:
It seems that the players have vacated the silver arena:

Those large specs that have been long in silver pitched a minuscule 3 contracts from their long side.
Those large specs that have been short in silver added a tiny 1123 contracts to their short side.

Those commercials that are long in silver and close to the physical scene pitched a tiny 157 contracts from their long side.
Those commercials that have been perennially short in silver and subject to the silver CFTC probe, added another 871 contracts to their short side.
Small specs:
Those small specs that have long in silver pitched a very tiny 2 contracts from their long side.
Those small specs that have been short in silver covered 2156 contracts from their short side.
it looks like the rats are leaving the ship!!

The following is a review of gold trading Thursday night from Europe and Asia with commentaries
from Goldcore.

(courtesy Goldcore)

Gold Q2, 2012 - Investment Statistics And Commentary

Tyler Durden's picture

Submitted by GoldCore
Gold Q2, 2012 - Investment Statistics And Commentary
Today's AM fix was USD 1,583.00, EUR 1,291.30, and GBP 1,007.83 per ounce.
Yesterday’s AM fix was USD 1,580.00, EUR 1,287.06 and GBP 1,009.33 per ounce.
Silver is trading at $27.07/oz, €22.22/oz and £17.32/oz. Platinum is trading at $1,418.25/oz, palladium at $577.80/oz and rhodium at $1,190/oz.
Gold rose $3.70 or 0.23% in New York yesterday and closed at $1,581.00/oz. It rose as high as $1,590/oz prior to determined selling which saw gold fall. Gold ticked higher in Asia prior to falling soon after the European open.
Gold has been trading in a range between $1,530/oz and $1,630/oz for nearly 2 months despite the Eurozone debt crisis entering its 3rd year and looking set to escalate and despite signs that the US economy is on the verge of a sharp recession.
These two factors alone mean that gold will likely resume its upward march due to continuing safe haven demand. The likelihood of further QE from the Fed will be icing on the cake for gold and silver.
US data yesterday showed factory activity shrunk in July for a 3rd consecutive month and the jobless claims rose last week.
Those who continue to put “lipstick on the pig” that is the US economy are lulling themselves and other unfortunates into another false sense of security.
“Blue skies thinking” regarding individual economies and the global economy got us into this mess and it will not get us out.
The World Gold Council have just published their commentary on gold’s price performance in various currencies, its volatility statistics and correlation to other assets in the quarter -
It provides macroeconomic context to the investment statistics published at the end of each quarter and highlights emerging themes relevant to gold’s future development.
One of their key findings is that gold will act as hedge against possible coming dollar weakness and gold will act as a "currency hedge in the international monetary system."
Key findings of the World Gold Council’s report:
Review: Key Macroeconomic Themes During Q2 2012
Gold prices declined in most currencies during the second quarter with the exception of the euro, Swiss franc and Indian rupee, in part due to a strong US dollar. Despite a 3.8% decline in Q2 to US$1,598.50/oz on the London PM fix, gold was up 4.4% during the first half of the year. Volatility remained elevated amidst a busy event-risk period. However, gold generally outperformed risk assets.
Global inflation eases but underlying trends supportive for gold: A substantial drop in energy and some agricultural commodities during the period has eased inflation pressures in many parts of the world and put downward pressure on gold prices.
Reassessing “risk-free” assets: Even assets traditionally considered safe are under pressure. German Bunds interest rates climbed in June. The Swiss franc, yen and US Treasuries are also facing issues – challenging their role as assets of last resort. Despite pressures on the price of gold, its lack of credit risk, its liquidity and hedging characteristics has made gold an attractive vehicle for long-term wealth preservation.
Correlation between gold and risk assets approaches long-term averages: Gold’s correlation to equities and other risk assets fell towards long-run average levels in Q2 helping portfolio diversification. Gold’s increased correlation to equities in Q1 was an indirect effect related to a weaker global economy coupled with a stronger US dollar.
Outlook: Emerging Macroeconomic Themes In H2 2012
Deflationary concerns in some countries provide room for further fiscal and monetary stimulus. This may lead to a further debasement of currencies through unconventional monetary policy and an increased risk of future inflation. These factors should provide support for future gold investment.
The underlying structural issues that affect the euro zone remain unresolved, despite advances in the formation of more comprehensive burden-sharing mechanisms. In such an environment of uncertainty and higher market volatility, gold will continue to be an asset that investors use to diversify risk and preserve capital.
The flight to the US dollar as a safe-haven in the first half of 2012 could be reversed. The US debt ceiling debate in Q3 and federal elections in November, followed by the necessity to confront a US$1.3tn budget deficit will prove challenging to the US dollar. With most currencies under pressure in one form or another, gold is likely to provide a hedging mechanism for investors

Cross Currency Table – (Bloomberg)
Dr. Constantin Gurdgiev, a non Executive member of theGoldCore Investment Committee, has analysed the Q2, 2012 World Gold Council data and has written a blog post that can be read here or see commentary.
He finds that the report is worth a read as it shows how gold generally outperformed risk assets and helped portfolio diversification.
He warns that safe haven government debt markets have all the hallmarks of “return-free risks” rather than “risk-free returns.”
The World Gold Council’s ‘Quarterly statistics commentary Q2 2012’ can be read here.
Dr Constantin Gurdgiev’s blog on the report including charts can be read here.

(Bloomberg) -- China Plans to Start Interbank Gold Trading on Local Market 
China is preparing to introduce an interbank gold-trading system, a move that may enable domestic banks to treat the precious metal as a more liquid asset and increase holdings.
The Shanghai Gold Exchange, the country’s biggest spot market, has been working with the China Foreign Exchange Trade System since the start of the year, Gu Wenshuo, an exchange spokesman, said today. The original plan was for the new system to be running at the end of August, Gu said by phone, adding that details are unavailable as banks are giving feedback.
China has been the largest producer since 2007, and was the biggest user after India last year. An interbank gold-trading system is part of broader reforms that Beijing aims to introduce to make the financial sector more market-driven, according to Jiang Shu, a senior analyst at Industrial Bank Co. Ltd.
“China is already very important in terms of gold production and consumption,” said Jeffrey Rhodes, global head of precious metals in Dubai at INTL FCStone Inc., a New York- based trading and brokerage firm. “If a new interbank market really does flourish, it could put the Chinese market in the mainstream and become world-class.”
Spot gold was 0.2 percent higher at $1,584.65 an ounce at 3:38 p.m. in Shanghai. The metal, which reached a record $1,921.15 in September, has rallied for 11 years on emerging- market and investment demand, as well as central-bank purchases.
Gold imports by mainland China from Hong Kong reached 314,810 kilograms in the first five months, compared with 39,607.4 kilograms a year ago, according to Bloomberg calculations based on data from the Hong Kong government.
For breaking news and commentary on financial markets and gold, follow us on Twitter.

LBMA's gold price fixing scheme about to collapse, London trader tells KWN

3p ET Friday, July 20, 2012
Dear Friend of GATA and Gold:
The London trader source of King World News reports today that the nakedness of unallocated and even some supposedly allocated positions in the London bullion market now is being discussed openly and he expects defaults resulting in cash settlement as the prices of gold and silver vault higher. He adds that demand from China is steady and that China has accumulated far more metal than is being reported. An excerpt from the interview is headlined "The LBMA Gold Price Fixing Scheme Is Over" and it's posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Jim Sinclair launches operation:  Investor's Spring Freedom against our crooked bankers.
He urges us to approach mining CEO's and tell them our concerns at what the big bankers are doing to our economy:

Investor’s Spring–Freedom!

My Dear Extended Family,
Investor’s Spring. Freedom at last!
You know that I have spent a good part of my life in an attempt to better understand the human experience looking for purpose. I would like to share with you a short conversation I had with Sai Baba in India in 1986. He said to me "What would you do if I made you a warrior?" The room was full of spiritually liberal people. I answered "make great war." There was a collective gasp by the attendees. Sai Baba said, "Right Answer, Sinclair."
Nobody wants war, but if it comes your way, and is your duty to pursue, it must be done, and done well. This war has been brought to us by those that would profit by destruction in clear violation of common commercial code.
These demons do not just short a situations based on a premise and await profit.
They pound mercilessly on the bids, seeking to depress the price.
They sell short the shares index and other funds buy as a means to get large numbers.
They immediately start dirty tricks.
They turn you in to regulatory bodies in the area of your trading and in the country of your operation on constructed nonsense.
They seek authors to write negative articles from their imagination to insult your integrity as a company not only where you work, but also where you trade.
They pay people to adopt a multitude of nicknames to post horrific lies about you personally and your company on chat boards.
They have a trading campaign to sell every instance of good news you have.
They have a trading campaign to sell your positive closes within the last 30 seconds of the trading day.
They enter orders with brokers who know what they want to happen in sizes larger than the total average daily trading to sell at the market on the close of Fridays.
They trade other exchange listed shares on the NASDAQ out of line with the listed close to skew the closing prices to the negative.
They actually paint the charts with their trading to make your situation less attractive technically.
These are only a few of the standard dirty tricks they execute in order to profit from these illegal acts to profit from the short which is the fruit of their crimes.
Their offense is violation of common commercial code. The short is simply the means of illicit profits. I do not intend to preach to you, but rather lead by example.
Your job is to get the attention first of those that are the management and directors of the companies you invest in that have been manipulated. You may have to be strong in order to accomplish this.
I am obligated in my corporate position to defend the company to the limit of my ability. I am obligated to say no, not on my watch. I am obligated to use all means, including litigation, to protect capital value on behalf of the investors. If I failed to do that I would be liable to you. This is true of every investment you have, not only precious metals shares.
Step one of "Investor’s Spring, Freedom" is to raise hell with the management and directors of your investments to take action to protect your interests from illegal and unethical activities. Tell them remedy exists in common commercial code moreso than securities laws.
I will let you know what I am doing as I do it. I will lead other companies to protect you by example.
It is up to you to do one simple thing. Wake up this bunch of brain dead office decorations, professional campers and rock hounds and get them to follow me in my march forward.


Our friends over at the web site has released the audio of the interview with Bill Murphy of GATA  with respect to his London source.  As a reminder, this London trader's views on what will happen have been 100% accurate over these past several years.  The London trader believes that silver will explode in August.
Will it be because of the CFTC ruling that will be coming?  Do not know, but something big is going to happen.


EXCLUSIVE- Bill Murphy's London Source: "Big Gold & Silver Moves Coming in August"



Overnight in Europe we witnessed the risk is off trade with all Asian and European bourses in the red.  The Euro/USA cross proceeded south and at 8 am est was trading at 1.2234. All eyes were on Spain with respect to the terms of what it will receive for its banking rescue.  If you will recall, 30 billion euros was to come by the end of July. Markets were waiting for official news on this and on new terms.  Loans will be forthcoming once stress tests on the banks in question commence.
The 10 yr Spanish bond yield again traded wider at 7.11%, with the Italian 10 year bond yield rising above the 6% level trading at 6.10%

(your overnight sentiment from Europe, courtesy zero hedge est Friday morning)

Overnight Sentiment: Europe Threatens Market Surreality Again

Tyler Durden's picture

It is a quiet session so far with risk in the Off position (for now - we have yet to see the sinusoid HFT stop triggering function which rises stocks artificially as yesterday demonstrated so very well to nobody's surprise). All eyes are once again focusing to Europe, pushing the EURUSD lower for at least a few more hours until Europe closes and the repatriation resumes.  In terms of key European events, today is the EU finance minister’s conference call on Spain today. As DB summarizes, officials are expected to approve the EU100 billion Spanish bank rescue plan however the exact size of the loan will probably only be determined in September pending the result of a bank-by-bank stress test. This will then pave way for restructuring plans for the sector in October which is broadly consistent with the timeline set out in the leaked draft MoU. At the previous meeting finance ministers agreed to first disburse EU30bn to Spain by the end of July so we will watch out for further confirmation of this today. We may also get the terms of the loan today. The conference call is expected to start at 10am GMT. What is odd is that unlike before when the mere possibility of a European catalyst was enough to push risk higher, this is no longer the case, and Spanish spreads to Bunds just hit another all time wide, with the Spanish 10 Year plunging to 7.11%, another post-summit high, this time dragging the Italian 10 Year which was at 6.10% at last check. And as explained before, the European uber pair trade means that as PIIGS yields soar, the core drops to new record, in most cases, negative nominal lows.
Will the world once again be able to ignore the once-again imploding European reality (and American: Of the 35 S&P 500 firms that reported results yesterday, about 74% of those came ahead of market consensus but only 57% of those topped sales forecasts.), and send the ES to a green close on the day? Or is today the day when reality comes back with a vengeance? Stay tuned and find out.  


Opening Spanish 10 yr yield at 8 am est:


Add to Portfolio


7.100000.08900 1.27%

Your opening Italian 10 yr bond yield:  (8 am est)

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


6.066000.06500 1.08%
As of 07:40:00 ET on 07/20/2012.


In the following video, Stratfor's Adrian Bosoni highlights the fundamental contradictions and the major flaw in the European financial crisis. We see that ECB board member Asmussen, and German minister Schaeuble both steadfastly state that there will be no money transfer without a sovereignty (fiscal) transfer. Bosoni states correctly that this is the proper way to proceed on a long term basis in order to have a robust and unified budgetary regime.  The flaw: the length of time to ratify this.  Spain, Portugal, and Greece all have very short time horizons due to their massive problems and all have asked for a delay in implementing a balancing of their budgetary deficits.  In other words, the PIIGS nations are asking for continual bailouts with the hope that they will get their act together.  

the video is a must see as it gives a terrific review of the problems facing Spain and other PIIGS nations.  This was released a few hours before the Valencia announcement.The video is 3 1/2 minutes.

(courtesy, Bosoni/Stratfor/zero hedge)

Europe's Fundamental Flaw Resurfaces

Tyler Durden's picture

"Two weeks after a summit that promised to bring solutions to the European financial crisis, the European Union has once again revealed its fundamental contradictions" is how Stratfor's Adrian Bosoni introduces a succinct clip on the reality the European leaders faced once they arrived home after that strenuous weekend of blithering. Between Asmussen and Schaeuble who have steadfastly stuck to the no-monetary-transfer-without-sovereign-transfer tack - which actually make a fair amount of sense on a long-term basis - a robust and unified budgetary regime is precisely what Europe has lacked. Unfortunately, Bosoni notes, "even in a best case scenario this could not be achieved before 2015" thanks to treaties, referenda, and ratifications. In a little over 3 minutes, the analyst outlines exactly what is holding it back and why the short-term is all they have as budgetary discipline is proving particularly difficult for the EU members to maintain (see more Spanish riots tonight). Between Spain's delays in meeting targets, Greece's 'impossible' budgetary goals, Ireland's demands for concessions, and Finland's collateral agreement with Spain, unifying anything over there seems impractical and impossible.

A must watch for the quickest summary of the state of Europe - and the best explanation of the reality to which European credit markets are cracking as opposed to the nominal price of global equities leaking higher...

Valencia Announces SOS, Needs To Tap Government LIquidity Support Just Eurogroup Accepts Spanish Bailout Plan
Tyler Durden's picture

Just as today's largely expected announcement that the Eurogroup has formally agreed to accept the Spanish bail out (details still lacking), the Spanish region of Valencia just became the second to officially demand a bailout following Catalunya's comparable announcement at the end of May, and has announced it will need to tap the government liquidity mechanism. Kneejerk reaction: EURUSD sharply lower and below 1.22 for the first time in days.
From Reuters:
Spain's heavily indebted eastern region of Valencia said on Friday it would apply for help under the government's 18 billion euro plan passed on Thursday aimed at helping regional finances.

The plan comes with strict conditionality that a region stick to its deficit cutting plans.
Concurrent with this announcement, Spain also announced an update to its deficit projections, whose details are meaningless as they will be revised adversely shortly, which confirmed that the Spanish economy continues to deteriorate at an accelerating pace.

Spanish Stocks Plunge Most In 12 Months As Egan-Jones Cuts Spain To CC+

Tyler Durden's picture

With IBEX down 6%, 10Y yields over 7.30%, 10Y spread over 610bps, and EURJPY at 12 year lows; the hits just keep coming. From Ega-Jones:
Slipping - Spain's 10 year debt is now yielding 7.18%, which is a reflection of the weakening of the economy and the credit quality of Spain. In addition to the expected austerity riots, the latest news is that Valencia and other regions will need $15B of aid, the sen. debtholders of the weak banks will be forced to take losses, and there might be some sharing of losses among all banks. An estimated decline in GDP of 1.7% (per the Economy Ministry), the 25% unemployment, the IIF's recent estimate of addl bank loan losses up to EUR260B, and possible depositor withdrawals hurt. From 2008 to 2011, Spain's debt mushroomed from EUR436B to EUR735B while its GDP declined from EUR1.09T to EUR1.07T. Social benefits are a major problem; while pmts to the govt have been more or less flat over the past four years (up EUR 3B), payments from the government have been up EUR 45B. As a result, Spain is short about EUR50B per year for social payments, EUR20B per year for interest, and an additional EUR 20B for asset growth; hence the EUR90B per annum increase in debt.

Spain will inevitably be faced with addl pmts to support a portion its banking sector and for its weaker provinces. Assets of Spain's largest two banks exceed its GDP. We are slipping our rating to "CC+"; watch for more requests for support from the banks and money creation.
via Bloomberg.

Europe Ends In A Sea Of Red

Tyler Durden's picture

Spain's broad equity index suffered its second largest single-day drop in almost 4 years and Italy also tumbled almost 5% as everything European was sold hard. EuroStoxx (the broad Dow equivalent) is down almost 3% as EURUSD dropped to two year lows, EURJPY to 12 year lows. AAA safe havens were massively bid with Germany, Denmark, and Switzerland all to new low (negative) rate closes. Core equity markets did suffer though with Germany down 2% but it was the periphery that saw the damage in credit-land with Spain 10Y closing at 7.27%, 610bps over Bunds (and 5Y CDS over 605bps). Spanish spreads are +130bps from post-Summit (and pre-Summit) and Italy +78bps, but it is the front-end of the curve that is most worrisome - Spain's 2Y is 132bps wider in the last weekEurope's VIX exploded by over 4 vols to 24%today and once again looks decidedly high relative to US VIX.
Spain and Italy surging to as bad a performance as Summit...
but it is the front-end that is a disaster! This is where all the LTRO debt is being held that was put on as part of the Sarkozy carry trade - ECB margin calls here we come!!
but while this is apples to apple-like things comparisons, the difference between credit and equity market reactions post Summit remain remarkable...(though today saw a pretty decent turnaround)...
and broadly European stocks were hammered today as hope fades...

charts: Bloomberg

The Fed will have another FOMB meeting on August 1.
It is there that they will decide on the following;

1. Do nothing
ii) Extend ZIRP to 2014
iii) Announce another QEIII of say 250- 600 billion dollars
iv)  Cut the deposit rate from 1/4% to 1/8%

Krasting believes it will be the latter and he gives his reasons why.
Also the consequences of that action.

(a must read)

Bernanke - Post Schumer Gaffe

Bruce Krasting's picture

I'm adding myself to the long list of folks who have commented on NY Senator Chuck Schumer's choice of words to Bernanke the other day:

Schumer is a political hack. He wants the Fed to do ‘something’ today that would give the economy a lift heading into the election. Chuck knows that the Legislative side can’t/won’t do a thing before November, so he begs Ben to light another monetary fire to help the Democratic cause. Chucky boy is an ass.
I doubt that Bernanke listens to the noise from Senators very often, but Chuck’s words got a lot of press. I'm wondering what Ben is thinking. Schumer has brought politics into the outcome of the August 1st Fed meeting. Whatever Ben decides to do, he will be accused of partisan politics.
There are many scenarios for the August Fed meeting:
I) Do nothing 
Arguments For:
a) The economy stinks, but it is not in a crisis. More “crisis monetary measures” are not justified.
b)  With the 10-year already at 1.5%, the Fed can’t accomplish anything by pushing rates a few basis points lower.
Arguments Against:
The election and related political considerations will absolutely tie the Feds hands after the August meeting. The next chance for the Fed to “do something” will be in late November. If Bernanke wants to buy some insurance, he has to do something in August.
II) Extend the ZIRP language past 2014
Arguments For:
I can’t think of any.
Arguments Against.
Because there is no substance to this, there is a very strong likely hood that the markets will take a few seconds, and then puke. Bernanke knows this. He doesn’t want to lay an egg.
III) QE3 – $600B LSAP targeted to Agency Mortgage Bonds
Arguments For:
a) This is what the market wants to see. Failure to do QE3 will disappoint, Ben does not want to disappoint.
b) This a is “populist” approach. Ben can say that he is doing his best to allow homeowners to ReFi and prospective buyers to get a record low rate.
Arguments Against:
a) This is an “all in bet”. Even Bernanke has been questioning the efficacy of additional QE of late.
b) Senator Shelby and Speaker Boehner will say, “The Fed is printing money to play politics!”
c) Bernanke’s critics will go wild.
d) There is absolutely no certainty that another big LSAP will do a damn thing.
IV) QE3 - $250B LSAP targeted to Agency Mortgage Bonds
Arguments For:
A small QE would create less political backlash. Ben could argue that he is being “moderate” and will, as always, be willing to do more if this modest monetary “bump” proves to be inadequate.
Arguments Against:
a) A “half a loaf” is going to fail miserably. Bernanke wants monetary policy to jack up stocks, as he thinks this creates jobs. Stocks would nose dive if this is the result. Bernanke understands this.
b) Both Blues and Reds would be upset. Schumer will be pointing at Bernanke and saying, “He didn’t do his job!” At the same time Ron Paul would be calling for Ben’s head on a platter.
V) Something Else – A cut in the deposit rate from a 1/4% to a 1/8%
Arguments For:
a) This appears to be a modest step. As such, it would be less susceptible to criticism.
b) The small change in the deposit rate would achieve something that Bernanke has been shooting for a long time.Returns on short-term money would go negative. Three and Six month Bills would certainly be negative. One-year paper would trade around flat.
c) Germany and Switzerland are already in negative territory. Other, smaller bond markets like Finland and Sweden are also in the red. For the US to follow suit would not be that big a surprise. Bernanke could blunt critics by saying he had done less than Europe - an 1/8th in the US versus 0% for the ECB.
d) The change to negative yields, (regardless of how small), will force money to move around. There are trillions in money market funds, Trillions in short term Treasury paper, and trillions more on corporate balance sheets. All of this is now going to be looking at negative returns.
e) With the first rungs of the yield curve in the bucket, the longer maturities would be dragged down. The Ten-year would move toward 1%. This result would be similar to the (hoped for) outcome of a large LSAP.
f) Bernanke could still say, “The Fed has more it could do”, as the deposit rate could be cut again (to zero) at some point.
Of these options, I believe that #V has the greatest probability of occurring.
I hope that the Fed sits tight, and does nothing. But that seems unlikely. Bernanke knows that the economy is now decelerating, and that his hands get tied after the August meeting. So“something” is more likely than “nothing”.
It’s hard to predict what might happen if Ben pushes rates into negative territory. It could end up resulting in an orderly market transition from cash, to high-risk securities like stocks and junk bonds. The virtuous cycle of higher stocks leading to higher spending and more jobs might be the result. But I doubt it.
Arguments Against:
a) The knee jerk reaction to negative rates might be positive, but in a short period of time the market will come to realize that negative rates are not going to force people (more) into dividend stocks. Quite the opposite, it will scare the crap out of them.
b) This is not good for the banks (who cares); but the financials are still a big chunk of the S&P.
c) This move will likely cause more “unwanted inflation”. If China or India is faced with negative returns on their reserves, they might be inclined to just buy commodities with the billions of cash they are sitting on. Prices of grains, beans, copper, coal and oil come to mind. Gold would be on the list as well.
d) If three-month bills went from +8bp to -7bp you might think that it wouldn't matter. The change is so small on a relative basis. I think of it as stepping off the edge of a cliff.
The entire global financial system is based on fiat money and the presumption that the money has “value” as a store of wealth. Nearly every action by the Fed over the past few years has led to the debasement of money. In the final stage, the issuers of  money debase it to the point where it is no longer desirable to hold. I see the move to negative rates across the globe as a tipping point, one that will be damn hard to reverse once undertaken.

The Hedge Fund Trail In Liborgate Gets Hotter: Mega Fund Brevan Howard Next?

Tyler Durden's picture

Two days ago we made the "missing link" connection between traders in Libor manipulating banks (all of which curiously had a hub in Singapore: something else for the media that has been about 4 years too late on this topic to focus on) and hedge funds (most of which curiously centering on the otherwise sleepy bastion of banking: Geneva, Switzerland). The immediate aftermath was the loss of trading privileges of one Michael Zrihen. We are fairly certain this is just the beginning of the hedge fund bust: when all is said and done, many more funds will have terminated traders they hired for reasons (and kickbacks) unknown over the past 2 years as Lie-bor manipulators sought to put a clean firewalled break between their old employer and current one. Because apparently sometimes the regulators are that stupid and can be confused by a simple job change. And while many have assumed (and even calculated based on completely groundless assumptions) that only BBA member banks have benefited from Libor manipulation, the reality is that hedge funds were just as complicit and benefited just as much if not more. What is worse, they took advantage of their whale client status with manipulating banks, and courtesy of Total Return Swap and other leveraged gimmicks, made far more money when they co-opted two or more banks to do their bidding. Impossible you say: hedge funds would never be so stupid. Oh very possible: we present exhibit A - Brevan Howard, a "fund, with assets of $20.8 billion as of Dec. 31, has never had a losing year and returned 14.4 percent annualized from its April 2003 inception through the end of 2008" as Bloomberg said in a made to order profile of the funds recently. Perhaps there is a very simple reason for this trading perfection: "Brevan Howard telephoned on 20 Aug 2007 to ask the defendant to change the Libor rate," according to a paper filed with the Singapore High Court cited by Bloomberg."
Here is The Telegraph with a smoking gun that was promptly buried in the avalanche of sudden media coverage in the aftermath of the Barclays Liborgate settlement.
Tan Chi Min, a former RBS trader who claims he was wrongfully dismissed by the bank after it fired him for allegedly trying to manipulate Libor - the average rate at which banks lend to each other - said he had received the request in 2007 from Brevan Howard. 

"Brevan Howard telephoned on 20 Aug 2007 to ask the defendant to change the Libor rate," according to a paper filed with the Singapore High Court cited by Bloomberg.
That one statement should be enough to send shivers into the heart of whoever may be General Counsel of Brevan Howard (and many other mega funds right now whose names will make front page appearances in the coming weeks), as it provides the banks with something that so far has been missing. Motive. Because while it may be difficult to prove that Barclays or RBS benefited from Libor manipulation, pandering to a mega client is very, very easy to prove - there is always a trace. It also makes it very easy for the prosecution to include hedge funds, which are just as hated by the general populace as big banks if not more, into what is shaping up as one perfect litigation storm (and distraction from the real culprit here: the global central bank cartel).
Telegraph goes on:
The court filing alleges RBS "received this request without objection". Brevan Howard is not a party to the lawsuit and is not being investigated or sued for any alleged wrongdoing. RBS and Brevan Howard both declined to comment.

Mr Tan claimed in his filing that Scott Nygaard, head of short-term markets finance at RBS, knew about the call from Brevan Howard. However, the filing contained no further details to support his allegations. However, he is reported to have said he would provide further evidence at a later stage.

The legal case follows Mr Tan's firing in December over allegations he had attempted to improperly influence RBS's Libor-setting staff between 2007 and 2011. Mr Tan, who worked for RBS in Singapore as head of delta trading, claims he was wrongfully dismissed by the bank.
Ah yes our old friends: the ubiquitous Delta Traders who somehow have a finger in everything from ETF trading, to gamma, to convexity trades, and now- serving as the nexus between Libor manipulation demanding clients and in house Libor fixers.
The plot just gets thicker and thicker.
Mr Tan is claiming $1.5m (£943,000) in bonuses and 3.3m RBS shares that he says the bank owes him in pay. He claims in his lawsuit that asking for changes in Libor was "common practice" among RBS traders and that the bank "took requests from clients" to alter the rate.
And there it is: "Took requests from clients" not just manipulated rates for its own interest. And this is where the universe of guilty parties explodes exponentially, and reaches not only Geneva Switzerland, but virtually every single hedge fund that had even a modest fixed income trading link over the past decade.
Watch this space closely: it will get very hot soon.

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