Saturday, August 11, 2012

China CPI rises/Corn at all time highs/Spanish 2 yr bond yields back above 4%/Spanish 10 yr bond yields and Italian yields rise again/

Good morning Ladies and Gentlemen:

Before beginning Jim Sinclair just received his tax return from the IRS and they are puzzled because of the number of dependents claimed by Mr Sinclair.  You have to love Jim:

(courtesy Jim Sinclair)
 just received my tax return for 2011 back from the IRS. It puzzles me!!! They are questioning how many dependents I claimed. I guess it was because of my response to the question: “List all dependents?”I replied: 12 million illegal immigrants; 3 million crack heads; 42 million unemployed people on food stamps, 2 million people in over 243 prisons; Half of Mexico; and 535 persons in the U.S. House and Senate.” Evidently, this was NOT an acceptable answer. I KEEP ASKING MYSELF, WHOM DID I MISS?

Gold closed up by $2.60 to $1619.70.  Silver finished the comex session down by 3 cents.
The day started with the bankers trying to hammer silver and gold.  You could tell that the raid was initially on as the bankers hit gold and silver badly in the access market Thursday night.  They continued throughout the night until the comex opened when the news came from Bill Murphy of massive purchases of physical from London.  Immediately gold and silver jumped and held their gains.  Silver was up most of the day and fell only after London was put to bed.

From Bill Murphy as to why gold and silver rose:

"Finally, the answer. HUGE buying at the PM London Fix, as it rose to $1618.50 after an AM Fix of only $1608.50. Somebody wanted a lot of physical gold and they wanted it NOW. That development is VERY constructive because that gold is not coming back on the market as spec buying can due to a Gold Cartel raid. This also explains why gold shot up so quickly, and silver remained stagnant.
Silver began to play catch up by rising to $28.39 before going back down." 

During the European session Spanish 2 yr bond yields rose above the 4% level causing much grief for Rajoy as he loses this very important funding opportunity.  Draghi jawboned the 2% yield down to low levels with the hope of a bailout.  When this fades away, the 2 yr yield gets it on the chin. Rajoy is seeing his popularity fall to 36.6% and if Spain is forced to seek a bailout, it certainly does not want to face an angry populace.
Italy also is facing higher borrowing costs.

Greece has experienced another rise in its unemployment of its youth under 24 years at 55%. Only 38% of the population have jobs in Greece as these poor souls must support the rest of the population and government.  It is basically hopeless in Greece. In comparison, the USA has an employment ratio of 58% so you get the idea of how bad it is in Greece.

China experienced its weakest industrial output since 2009 and this month saw its exports to Europe plummet by 16.2% Both Europe and China are in the midst of a deep recession.  We will go over all of these stories but first......

Let us head over to the comex and assess trading on Friday.
The comex gold open interest fell by 593 contracts as gold rose on Thursday.  So again we probably lost a few bankers along the way. The August gold contract saw its OI fall from 299 contracts from 2637 to 2338.  We had 283 notices filed on Thursday, so in essence we lost another 16 contracts or 1600 oz of gold standing. The September gold contract saw its OI fall by 45 contracts to 1415. The next official delivery month is October and that month is traditionally a very slow month as most players bypass this month and head straight into December.  The OI for October fell by 205 contracts from 28,037 to 27,832.  The estimated volume Friday was  weak at 117,902.  The confirmed volume on Thursday was also an extremely anemic 75,023.

The total silver comex OI again performs to a different drummer.  It's OI rose by 922 contracts from 124,569 to 125,491.  The gradual rise in OI in silver from its lows of 90,000 to its current level is causing our bankers nightmares as they cannot shake our silver leaves to fall from the silver tree.  The August silver month saw its OI rise by 10 contracts from 1 to 11.  Since we had 0 notices filed on Thursday, we gained a full 50,000 oz of additional silver standing.  The next delivery month is September (also a very slow month) and here the OI marginally fell from 49,665 to 48,324 as these guys rolled into December.  The estimated volume today was pretty good at 50,961.  The confirmed volume yesterday was very anemic at 33,627.

August 9-.2012   August/gold

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
13,260.135 (Scotia, )
No of oz served (contracts) today
(269)  26,900 oz 
No of oz to be served (notices)
(2069)  206,900
Total monthly oz gold served (contracts) so far this month
(7627) 762,700 oz
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 in the gold vaults on Friday.

We had only one transaction and that was in the customer account at Scotia:

i) 13,260.135 oz

we had no dealer activity and no customer withdrawal.

We had the following adjustments:

a) 100.01 oz where the dealer repaid a customer at Brinks.
b) we had a probable lease of 29,984.339 oz whereby gold left the customer and entered the dealer side of things at Scotia.

The CME notified us that we had a rather chunky delivery notice of 269 for 26900 oz of gold.
The total number of notices filed so far this month total 7627 for 762,700 oz.  To obtain what is left to be served upon, I take the OI standing for August (2338) and subtract out Friday's delivery notices (269) which leaves us with 2069 notices or 206900 oz left to be served upon our longs.  

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

762,700 oz (served)  +  206,900 oz (to be served upon)  =  969,600 oz   or 30.15 tonnes of gold.
we lost 1,600 oz of gold standing.
It looks like we will have a very impressive 30 tonnes of gold standing in August.
The registered or dealer inventory rests this weekend at 2.873 million oz or  89.36 tonnes of gold.


August 9.2012:  silver  

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 71,538.358 ( Delaware,Scotia  )
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory5,117.000 ( Delaware)
No of oz served (contracts)1  (5,000)
No of oz to be served (notices)10 (50,000)
Total monthly oz silver served (contracts)151 (755,000)
Total accumulative withdrawal of silver from the Dealers inventory this month310,045.28
Total accumulative withdrawal of silver from the Customer inventory this month2,792,148.1

We had very little activity inside the silver vaults today.

The customer received the following deposit:

1.  5,117.000oz into Delaware.

We had no dealer activity and we had the following customer withdrawal:

i) Out of Delaware:  41,033.938 oz
ii) Out of Scotia:  30,504.40 oz

total withdrawal:  71,538.358 oz

There was just one tiny adjustment whereby at HSBC a small amount of silver was leased from a customer back to a dealer  (5,152.02 oz)

The registered or dealer inventory rests tonight at 35.367 million oz
The total of all silver rests at 137.519 oz

The CME notified us that we had one notice filed on Friday and thus the total number of notices for the main stand at 151 contracts for 755,000 oz.
  To obtain what is left to be filed upon, I take the OI standing for August (11) and subtract out Friday's notices (1) which leaves us with 10 notices to be filed upon our longs or 50,000 oz

Thus the total number of silver ounces standing in August is as follows:

755,000 oz (served)  +  50,000 oz (to be served upon) =  805,000 oz
we gained 50,000 oz of additional silver on Friday.


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.

August 11.2012:

Total Gold in Trust



Value US$:65,459,473,306.63

august 9.2012:




Value US$:65,130,597,376.18

The GLD folks  added 3.21 tonnes of  gold at the GLD.

And now for silver:  

August 11.2012:

Ounces of Silver in Trust313,226,434.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,742.43

aug 9.2012:

Ounces of Silver in Trust313,226,434.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,742.43

august 8.2012:

Ounces of Silver in Trust313,226,434.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,742.43

august 7.2012:

Ounces of Silver in Trust313,226,434.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,742.43

we had no change in the silver inventories at the SLV.

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

Sprott and Central Fund of Canada. 

(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 4.0percent to NAV in usa funds and a positive 3.9%  to NAV for Cdn funds. ( Aug11-.2012)

2. Sprott silver fund (PSLV): Premium to NAV  rose to  3.17% to NAV  august 11 2012   :
3. Sprott gold fund (PHYS): premium to NAV rose smartly to    3.82% positive to NAV August 9 .2012). 

Note:  have you noticed that slowly Sprott's gold fund has been rising in positive to NAV. this weekend it rests at its high point of 3.82%. Also Sprott's silver fund is gaining some traction.  And now the Central fund of Canada is gaining in its positive to NAV.

It looks like England may have trouble in finding gold for its clients.



At 3:30 pm the CME releases the COT report which relates to us position levels of our major players.  First, let us see the gold COT.  All COT reports are from Tuesday to Tuesday
This reports is of Aug7.2012:

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, August 07, 2012

This is quite a report.

Our large speculators;

Those large speculators that have been long in gold, succumbed to the wishes of the banking cartel as they covered a rather large 8249 contracts from their long side.

Those large speculators that have been short in gold added another 2315 contracts to their short side and this weekend, they are not happy campers.

Our commercials;

Those commercials that have been long in gold pitched a rather large 6344 contracts from their long side.

Those commercials that have been perennially short in gold decided it was time to massively cover 15,938 contracts from their short side. The crooked bankers fleeced our large speculators again.

Our small specs:

Those small specs that have been long in gold, like the lay of the land and bought another 711 contracts to add to their long side and they are very happy campers.

Those small specs that have been short in gold, covered a tiny 259 contracts from their short side.

Conclusion:  hugely bullish as our bankers went net long this week.  A guess the tourniquet is getting a little tighter on Jamie Dimon and friends as they decided to cover some more of their short positions.

and now our silver COT:

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

Tuesday, August 07, 2012

By goodness, where is everybody with respect to silver?
Our large speculators:
Those large speculators that have been long in silver added another tiny 27 positions to their long side.

Those large speculators that have been short in silver are probably a little nervous about things as they decided to cover 617 contracts from their short side.

Our commercials;
Those commercials who are long in silver and are close to the physical scene added a fair size of 897 contracts to their long side.
Those commercials who have been short in silver from the beginning of time and are led by Jamie Dimon and Blythe Masters of JPMorgan added another 1387 contracts to their short side as nobody else would supply the paper.

Small Specs:
Those small specs that are long in silver liked what they saw and bought another 544 contracts to their long side.

Those small specs that have been short in silver also went more short by 698 contracts and helped the bankers by supplying the necessary paper.

Conclusion: a tiny bearish as the bankers slightly went net short. The holders of silver seem to be impervious to price as they withstand many banker raids.


And now here are some physical stories which may interest you.

First, your early Friday morning gold report from Goldcore:

Cash Out Of Gold And Send Kids To College?

Tyler Durden's picture

From GoldCore
Cash Out Of Gold And Send Kids To College?
Today's AM fix was USD 1,608.50, EUR 1,310.92, and GBP 1,030.69 per ounce.  
Yesterday’s AM fix was USD 1,612.75, EUR 1,307.46 and GBP 1,029.79 per ounce.
Gold climbed $4.90 or 0.03% in New York yesterday and closed at $1,617.70/oz. Silver fell to $27.86 then rallied and finished with a gain of 0.39%.
Gold appears to in lock down mode this week with prices trapped in an unusually narrow 1% or $15 range between $1,603/oz and $1,618/oz.
Gold Spot $/oz Daily,20 days & 20 minutes - (Bloomberg)
Support is at $1,585/oz to $1,590/oz and at $1,570/oz. Resistance is at last week’s high of $1,628/oz.
Technically, the narrowing wedge pattern suggests that a close below or above these levels could lead to rapid and sharp moves down or up.
Gold was initially flat in Asia but took a dip and has remained weak in European trading.
XAU/GBP Exchange Rate Daily  - (Bloomberg)
Gold is on track for its 2nd weekly gain – possibly due to concerns about the Chinese, US and global economy. Slowdowns in all major economies mean that it’s not really a question of if the central banks will employ fiscal stimulus packages, only when.
An indication of continuing demand, especially institutional, for gold was seen in the data from ETF Securities' which showed gold ETF holdings up a very large 216,000 ounces or 6.7 tons on Thursday.
Cash Out Of Gold And Send Kids To College?
The Financial Times published an interesting article on Wednesday by a Tokyo-based analyst with Arcus Research, Peter Tasker, entitled of 'Cash out of gold and send kids to college'.
The article is interesting as it is an articulate synopsis of those who are either negative on and or bearish on gold. It clearly shows the continuing failure to understand the importance of gold as a diversification and as financial insurance.
Tasker incorrectly states that gold is "just another financial asset, as vulnerable to the shifts of investor sentiment as an emerging market."
He conveniently ignores over 2,000 years of history showing how gold is a store of value. He also ignores recent academic research showing gold to be a hedging instrument and a safe haven asset.
Another fact unacknowledged is how gold has clearly been a store of value since the current financial and economic crisis began in 2007. Since then gold has protected people from depreciating financial assets (such as equities and noncore bonds) and from depreciating fiat currencies such as the dollar, the pound and more recently the euro. 
Further evidence that gold is not just "another financial asset" is seen in the fact that some of the largest buyers of gold bullion bars today are central banks.
They are buying physical gold bullion in order to diversify their foreign exchange holdings and to own a physical hard asset that will protect in the event of currency crises or an international monetary crisis.
That gold remains a store of value is also seen in the fact that the other most important buyers of gold in the world are store of wealth buyers in Asia and the Middle East (particularly China and India but also in Turkey, Iran, Indonesia, Thailand, Malaysia, Vietnam etc).
Millions of these buyers do not view gold as a risky "financial asset." They know through experience that gold is a store of wealth and are buying near pure gold jewellery and bullion coins and bars in order to protect against currency debasement.  
Were Peter to have a conversation with a few Spanish, Irish or Greek investors he would quickly realize why gold is not just another “risk on” asset.
Japanese, British and American investors would be wise to diversify into assets that have protected periphery European investors in recent months.
He also suggests that gold is a bubble as "the price has simply become too rich".
He makes a comparison with the "great historical bubbles", such as "Japanese stocks in the 1980s" and the "Nasdaq in the 1990s".  This comparison is simplistic and misleading as the percentage price gains in both the Nikkei and Nasdaq bubbles was orders of magnitude greater than gold's gradual rise since in 2000.
Indeed if one looks at gold's performance in an all important long term perspective (see video showing ‘Gold Undervalued From Long Term Perspective’ <3 20="20" mins="mins" seconds="seconds">), one sees that gold's gains in recent years are very sustainable and gold is merely playing catch up after the massive under performance and bear market of the 1980's and 1990's.
The Financial Times is fairly good in covering the gold market and allowing a plurality of opinion regarding gold. Every so often simplistic, unbalanced articles about gold are published.
XAU/EUR Exchange Rate Daily - (Bloomberg)
Such articles by 'experts' have the effect of confusing and misleading other journalists and the wider public and contribute to weak hands selling their gold holdings. This was seen again in recent days.
What is interesting is that such articles are often a contrarian indicator. They often come at a time of heightened negative sentiment against gold and can often mark an intermediate low in the gold price.
These articles are also a good contrarian indicator as they show that there remains a fundamental lack of knowledge about and appreciation of gold and its importance as a diversification for portfolios.
Incidentally, in the volatile year that has been 2011, gold has still outperformed many assets and seen its wealth preservation attributes shine again.
Gold has risen by 8.7% in euro terms, by 3.1% in US dollar terms and by 2.3% in sterling terms so far in 2011.
Never let the facts get in the way of a good gold bashing article.
Tasker accepts that US equities, despite being in a 12 year bull market, are still not cheap and yet he does not advise people to cash out of US equities.
Not acknowledged is the fact that only a tiny minority of investors have any allocation to gold whatsoever and therefore are not in a position to “cash out of gold” even if they were imprudent to do so.
Finally, investors and savers who have an allocation to gold will, in the coming years, be the people who can as Tasker concludes "buy a nice house, hire some workers, send your kids to college and eat big breakfasts".
That is gold's value – it is a proven store of wealth that protects people's living standards from government profligacy and financial asset and currency depreciation.
'Cash out of gold and send kids to college' can be read here.
Our video about gold as a store of value versus cash which debunks Tasker’s article can be watched here.
Cross Currency Table – (Bloomberg)

(Bloomberg) -- China Cracks Down on Extortion of Gold Exchange Members: Xinhua
Chinese police caught 10 people on suspicion of hacking computer systems and extorting 14 member companies of Hong Kong’s
Chinese Gold and Silver Exchange Society early this year, Xinhua News Agency reported yesterday, citing police in Hunan province.
?Six of the people were detained, Xinhua said
?The people are suspected of trying to extort 100,000-300,000 yuan from the member companies for allowing the companies’  websites to continue operating, according to Xinhua
For breaking news and commentary on financial markets and gold, follow us on Twitter.


Bill Haynes who certainly knows the physical markets states to Eric King that our two precious metals are now in strong hands and he asserts many now believe that the bottom has already been reached

(courtesy Kingworld news/Bill Haynes of CMI gold and silver)

Big buying appears in gold and silver, CMI's Haynes tells King World News

9:52p ET Thursday, August 9, 2012
Dear Friend of GATA and Gold:
Bill Haynes of CMI Gold and Silver in Arizona tonight tells King World News that major orders for both gold and silver are being received from "strong hands" who are convinced that the bottom in the monetary metals has been passed. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


As we shall see below, Spanish and Italian 10 yr yields rose during Thursday night.  The Spanish leader, Rajoy is seeing is popularity plummet.  If an election would be held today, we would only get 36.6% of the vote.  If Spain is to demand a bailout, this could mean a violent government overthrow especially if the M of U demands austerity. Spanish two year yields also rise which further complicates funding for Spain. Spain in the next 5 months needs to raise 40 billion euros.
From where will it get this kind of money?

Chinese imports and exports falter as this country is now in the middle of the recession and many expect a very hard landing.  Food prices escalate which worry central authorities.
Corn prices hit record levels throughout the globe  (see below)

(your overnight sentiment courtesy of zero hedge)

Overnight Sentiment: Turning

Tyler Durden's picture

The markets have been treading water over the past week, yet courtesy of the non-existent volume and the lack of sellers, VWAP algos have been levitating the S&P ever higher despite the lack of any new or credible reason for it to do so. Call it the Merkel vacation doldrums. It is so slow in Europe even Rajoy - now the gatekeeper for the next European phase of sovereign bailouts - is soaking in the sun somewhere, whether or not he may want to return to his job is another matter. As Reuters reports, his popularity is plummeting meaning the government will not survive if and when Rajoy demands a Spanish bailout: "Spanish Prime Minister Mariano Rajoy faces a cloudy return from his short summer break as his expected request for European aid in September will spur protests on the street and deepen cracks emerging in his conservative People's Party... According to an official poll released this week, if a general election were to take place now, Rajoy's People's Party would still win but would get only a 36.6 percent of the vote, down from 40.6 percent in a poll in May and 44.6 percent in the November vote." Which in turn means that Spain demanding a bailout could well mean a violent government overthrow and a follow through mimicking precisely what we saw in Greece, with the opposition party set to undo any bailout request by Rajoy (who knows all of this). In the meantime Bloomberg confirms that sentiment in Europe is resuming its turn as European markets fall led by the Spanish and Italian markets, 10yr yields in those countries rise. Chinese import & export data and French industrial production data were below estimates earlier. The euro is weaker against the dollar and commodity prices fall led by industrial metals. U.S. import price data is released later.
And once again, the primary catalyst of the sentiment shift is precisely what we warned about last week - that the longer the market prices in a Spanish bailout request, the more unlikely it is to happen. One more bank who has realized this and jumped on the ZH bandwagon is UBS. Bloomberg summarizes its most recent note on the topic which is a replica of our post from the past weekend:
  • Potential for “quite a large-scale selloff” in front end, and significant flattening of curve over next six weeks, as yields may have to rise before Spain requests aid, Justin Knight, head European rates strategist at UBS, writes in client note published Aug. 9.
  • ECB bond-buying alongside EFSF/ESM can only happen once request made; request dependent on yields likely not to be based on short-end alone
  • "Reasonable to believe" Spain would resist asking for aid until borrowing costs make it seem absolutely necessary, due to  ECB conditions
  • Spanish government needs to raise ~EU40b in bonds before year-end, implying issuance pace of about double that of year so far; sources of demand weak or non-existent
  • Risk to view is that Spain may bow to any pressure from other authorities to request aid
Expect more and more to get it with the now traditional delay. Although not for a while as most decision-makers, clueless as they may be, are on vacation for 3 more weeks.
So sit back, and enjoy the directionless market, where corn today may hit a new all time record at 8:30 am with the release of theWASDE, with the resulting food price inflation making further easing, also priced in by the market, by most central banks impossible.


Your opening Spanish 10 yr bond yield at 8:15 am est Friday:


Add to Portfolio


6.857000.01100 0.16%
As of 08:17:00 ET on 08/10/2012.


Your opening Italian 10 yr bond yield;

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


5.882000.02300 0.39%


Your early morning currency crosses and European bourses trading:

i)  Euro/USA cross at 8:15 am Friday morning  1.2264
ii) USA/Can cross .994

Bourse trading:
German DAX down 43 points or .6%
Paris CAC down 29 points or .85%
The day started as a risk is off trading day.


From Spain, the Wall Street Journal reports heightened austerity backlash.  The Andalusian Union of Workers, which represents rural labourers in Southern Spain, raided two supermarkets. Also public workers students,taxi drivers and others have taken to the streets against the Rajoy government's austerity push.

(courtesy Wall Street Journal)

Austerity backlash heats up: The WSJ discussed the heightened austerity backlash in Spain. It noted that on Tuesday, hundreds of members affiliated with the Andalusian Union of Workers (SAT), which represents mainly rural laborers in southern Spain, raided two supermarkets, taking dozens of shopping carts of food from one and forcing the other donate a similar amount the next day. The paper said that while thus far an anomaly, the raids highlight the growing frustration with the Rajoy government's austerity push. It added that public workers, students, taxi drivers and others have been taking the streets to protest on a near-daily basis, while unions are pushing for a referendum on the austerity plans and gearing up for possible nationwide strikes later this year. However, it also pointed out that while the ruling Popular Party's poll numbers have declined since the November elections, it still has a comfortable majority in parliament and the main opposition Socialist Party has been unable to gain any traction.


The following is most worrisome to the Spanish as the 2 yr Spanish bond yields rise retracing 50% of their previous gains as the yields are now back above 4%.  This makes funding for Spain extremely dangerous as they can now only resort to funding through treasury bills of 3 to 6 months.

(courtesy zero hedge)

Spanish Bonds Give Up 50% Of Gains In A Week

Tyler Durden's picture

While we have pointed out that 10Y Spanish bonds have deteriorated notably since the Euphoric moves recently, we have oft heard the stoic bulls arguing thus: but, but, but... 2Y is where the real action is and that's where the ECB will support them. Umm, sorry, even amid a dismally quiet and illiquid week which should see yields drifting lower as they roll gently down the curve, 2Y Spanish bond yields have retraced 50% of their rally from last Friday and are comfortably back above 4% once again. Perhaps, slowly but surely, the realization that for it to get better, it has to get much worse is taking hold - though obviously US equity holders have yet to get that message.

The German President of the Bundesbank is extremely worried that Draghi's plan will have disastrous consequences for Europe if they introduce Eurobond purchasing or grant the new ESM a banking license:

(courtesy Reuters)

Analysis: Weidmann tries to muffle not spike Draghi's ECB guns

FRANKFURT | Thu Aug 9, 2012 10:14am EDT

(Reuters) - Isolated but unbowed, German central bank chief Jens Weidmann is using all the soft power he can muster to stop the European Central Bank sinking into the political quagmire he fears from a new round of sovereign bond buying.
Weidmann is worried a plan ECB President Mario Draghi has hatched for the central bank to buy the sovereign bonds of Spain and Italy to lower their crippling borrowing costs would ease the pressure on those countries to put their finances right.

Such a plan also risks dragging the ECB into the business of financing governments, in which it is supposed to play no part.

Weidmann, who took the Bundesbank helm last year after his predecessor quit over a previous round of ECB bond buying, is acutely aware that he must uphold Germans' faith in the Bundesbank and the ECB, or else lose their support for the euro.

With Berlin pledging billions of euros in taxpayers' money to bail out debt-ridden euro zone countries, German voters expect the Bundesbank to act as their economic rock - and for Weidmann to play the role of "stability anchor" at the ECB.

But it is unlikely he could scupper Draghi's plan, given the German central bank is only one of 17 constituents at the ECB, albeit the first among equals.

Nor is it clear he would want to if the euro zone was pushed back to the edge of a precipice. Break-up of the currency bloc would be hugely costly to Germany and the Bundesbank.

Rather, Weidmann wants to keep the heat on indebted euro zone countries to reform and to pin as much of the burden as possible for dealing with the bloc's crisis on governments.

"His current opposition to bond-buying does not prevent the ECB from doing it, but it does signal to member states that they are still on the hook for crisis management. If the crisis were to take a turn for the worse, Weidmann would not block a greater role for the ECB provided this was done in concert with government action," said Mujtaba Rahman, analyst at political risk consultancy Eurasia Group.

One senior central banker told Reuters there was a "game of chicken" between the ECB and governments over who carries the burden for tackling the crisis, with the central bank ultimately ready to step in rather than see the currency union fall apart.

But just how far the ECB steps in is crucial.

"We could do something, with the ESM (bailout fund)," said another senior ECB policymaker, who expressed sympathy for Weidmann's position and was similarly reluctant to be drawn into a major bond-buying operation.

One of Weidmann's goals is to erect enough hurdles to any fresh bond buying in order to give him cover at home, where he faces pressure from Bundesbankers past and present and from academics led by Hans-Werner Sinn, head of the renowned Ifo research institute.

These conservative voices regularly paint any ECB action beyond inflation targeting as misadventure and a threat to the Bundesbank's role as guardian against the 1920s experience of hyperinflation that still scars the German national psyche.

Otmar Issing, one of the founding fathers of the euro and a former ECB chief economist, said on Thursday the latest plan would drag it into the political realm.

"This ultimately makes the central bank a prisoner of politics," Issing said. "This is a process that is very difficult to stop, because where do you set the limit?"

As well as retaining the public's trust, Weidmann must deal with conservative elements within the Bundesbank -- still employer to almost 10,000 people compared to 1,600 at the ECB -- who think they know better than their peers across town.

As one senior euro zone official put it: "If Weidmann can drag the Bundesbank into the euro zone era during his presidency, he will have done well."


Back in the 1990s, any one of the Bundesbank's board members could move global markets. Now Weidmann must use his guile - and leverage the domestic pressure he faces - to push his agenda.

The softly spoken 44-year-old has had some success.

After pledging on July 26 "to do whatever it takes to preserve the euro", Draghi a week later stopped short of the 'shock and awe' response markets were looking for and instead tasked three committees with exploring ideas the bank's policymakers could then decide to pursue.

In the interim, Weidmann had met Draghi one-on-one and again at last Thursday's meeting of the ECB's Governing Council, after which Draghi larded his plan with caveats and conditions.

The ECB was issuing "guidance" rather than taking a firm decision at this stage, Draghi said. It "may" undertake outright open market operations, but only if governments activated the euro zone bailout funds to buy bonds first - and even if the funds did so, ECB action would not follow automatically.

Draghi singled out Weidmann at his news conference last Thursday: "It's clear and it's known that Mr. Weidmann and the Bundesbank ... have their reservations about programs programs that envisage buying bonds."

What could have been construed as a hostile act, probably helped Weidmann show his domestic audience that he is holding back the ECB. One person who attended the policy meeting said: "My feeling is they had agreed with Weidmann on how he (Draghi) does it."

The conditions built in allowed Weidmann to express reservations rather than opposing the plan.

The Bundesbank chief has remained silent since. This is crucial to the success of any ECB plan to intervene in markets.

Any signal Weidmann might send opposing the plan would blunt its impact - as happened when his predecessor, Axel Weber, undermined the ECB's previous bond-buy plan by opposing it from the outset.


In contrast to Weidmann, the German government appears to have few reservations about Draghi's intervention.

The leaders of Germany and France swung in behind him a day after his "whatever it takes" declaration with their own vow to do all in their power to protect the euro.

Georg Streiter, deputy spokesman for the German government, said Chancellor Angela Merkel was not worried about possible threats to the independence of the ECB.

"You can assume that the government approves of everything that is currently taking place," Streiter said.

Analysts at Citigroup said the mini-standoff suited Berlin.

"They welcome the fact that the ECB is helping in the heavy lifting in order to support periphery countries, while at the same time they want to see that the ECB and the Bundesbank are keeping the German population relaxed about fears of inflation," they said.

A former top economics adviser to Merkel, Weidmann has distanced himself from her since returning last year to the Bundesbank - where he worked before moving to Berlin - to stress his central banking independence.

Even if he is in the minority, Weidmann is ready to take the time to explain his views to other policymakers on the ECB's Governing Council, rather than resign as Weber did last year in protest at the SMP.

"In my view, Weidmann is absolutely clear and strict factually, but engaging in style," said Manfred Neumann, a monetary theorist who was Weidmann's doctoral adviser and remains close to him and compares him favorably to Weber.

Weidmann projects a more modern demeanor than his predecessors. He speaks fluent English and French, held an internship with the National Bank of Rwanda, and spent a big chunk of his career away from the Bundesbank.

But his earlier years at the Bundesbank and his economics background, honed by a spell at the International Monetary Fund, ensured the German central bank's thinking is ingrained in his DNA.

"Of course Weidmann doesn't want to go down in history as the man who bust the euro," said David Marsh, author of 'The Euro: The Politics of the New Global Currency' and co-chairman of think tank OMFIF.

"But he will take his cue from (former Bundesbank chief Helmut) Schlesinger, with two powerful principles: if in doubt, go for 'stability first'; if under pressure, get German public opinion on your side, and use this as a lever over governments at home and abroad."

In a highly symbolic move, Weidmann conducted a joint interview with Schlesinger that the Bundesbank released on the eve of the ECB's meeting last week and which features prominently on its website.

Governments expect too much of the ECB, Weidmann said in the interview, adding: "If a central bank also has to work against public opinion, things get difficult."

Weidmann wants to serve out his full Bundesbank term, preferring to stay in the ECB's policymaking room and try to win over others rather than quit. A solid performance as Bundesbank chief would put him in contention to succeed Draghi.

When Juergen Stark, another German, followed Weber and resigned last year as the ECB's chief economist in protest at the bank's policies, Weidmann was only more determined to carry on in his role.

"I see no reason to follow Stark," Weidmann said. "I feel this has strengthened my conviction in the ECB to work towards monetary stability and independence of the central bank."

(Additional reporting by Eva KuehnenPaul Taylor and Noah Barkin, editing by Mike Peacock)


Is Merkel preparing Germany for a referendum and thus getting her out of her tricky situation?

(from Der Spiegel/zero hedge)

Referendum: Is Germany Preparing For The Nuclear Option?

Tyler Durden's picture

Two months ago, in the aftermath of the "surprising victory" for the Italian PM from the June 29 European summit, which the media mistakenly interpreted as successful for Monti and Rajoy, whose hijacking tactics merely led to even more European animosity and instability in a system that is beyond fragile (i.e., Europe), we proposed an entirely different explanation, namely that "Merkel's Surprising "Defeat" was Merely A Gambit For A German Referendum?" To wit: "it appears that events over the past week may have been merely a gambit for something that Schauble and Weidmann have already hinted at: a popular referendum that decides the fate of Europe once and for all, washing Merkel's hands and letting the people decide if they want the European experiment to continue or not." Turns out we were right.
From Spiegel:
Germany Considers Holding EU Referendum
The chancellor is in a tricky position at the moment, as she fails to get the euro crisis under control. Of course, the Economist's notion of a secret plan to break up the euro zone is purely fictitious. But it fits into the current debate, where more and more politicians from Germany's coalition government are talking about radical steps to solve the euro crisis.
Officially, though, Merkel's line is that she wants more Europe, not less. In the chancellor's bid to save the common currency, she is willing to go to the very limits of what is permissible under the German constitution. That was made clear by her support for the permanent euro rescue fund, the European Stability Mechanism (ESM), and her pet project, the fiscal pact. But Merkel still wants more. "We need a political union," she recently said on German public television station ARD. "That means we have to give up further competencies to Europe, step by step, in an ongoing process."
Talk of a Vote
But that will probably not work, given the limits of the German constitution, something that members of the opposition have been pointing out for some time. In the meantime, more and more people within the governing parties have been talking about holding a referendum in Germany on the European Union. Rainer Brüderle, the floor leader of the business-friendly Free Democrats, Merkel's junior coalition partner, said on Friday that there could come a point "when a referendum on Europe becomes necessary."
Horst Seehofer, head of the Christian Social Union (CSU), the Bavarian sister party to Merkel's Christian Democratic Union (CDU), has even called for several referendums. Finance MinisterWolfgang Schäuble has also talked about holding a national vote on the EU.
Such a vote could indeed be a way to get the much needed legitimacy for a transfer of national competences to Brussels. But how would it actually work in practice? SPIEGEL ONLINE presents an overview of some possibilities.
There are three conceivable options for a referendum:
1. The Voluntary Way
The German constitution, officially known as the Basic Law, does not make much mention of direct democracy. Referendums are only specifically foreseen for the case of a reorganization of Germany's territory and for the event that the Basic Law, which was originally supposed to be temporary, is superseded by a new constitution. There have been repeated calls to give the population a greater say beyond ordinary elections, especially from the opposition. In contrast to the CDU, the CSU and FDP are open to the idea.
Critics say that questions about transfers of competence or measures to save the euro are too complex. But CSU leader Seehofer considers those objections to be "pure arrogance" towards the people. In the newspaper Die Welt, Seehofer listed three areas where people should have more say. They include: the transfer of significant competencies to Brussels; the enlargement of the European Union through new member states; and German financial support for other EU states.
What is striking here is that the CSU would answer "no" to all of these questions. And the party believes that an increasingly euroskeptic German population would also say the same. But not even Seehofer himself appears to believe that the constitution would really be amended to include his proposed referendums.
2. The Forced Way
Even more likely than opening up the constitution for referendums is that it comes up for discussion as a consequence of European integration. And this, of course, would require Germans to decide on a new constitution. Article 146 of the constitution stipulates that the current constitution "shall cease to apply on the day on which a constitution freely adopted by the German people takes effect."
Indeed, Schäuble and Brüderle aren't the only ones that suspect that when the Federal Constitutional Court delivers its verdict on the fiscal pact and the ESM, it will say that the limits of the current constitution have been reached. What's more, since the official stance of almost all German political parties is that the response to the crisis should be "more Europe," a referendum seems inevitable.
At the moment, the questions of exactly what Germans would be voting on and when are just as unclear as what the court will decide. So far, there has only been vague talk about such issues as "political union," "yielded sovereignty" and "common budgetary policy." Peer Steinbrück, a former federal finance minister and leading figure in the center-left Social Democratic Party (SPD), predicts that there will be a referendum within two years, while Schäuble says five. Typically, Chancellor Merkel refuses to speculate.
Despite this guessing game, one thing is clear: Before Germans can hold a vote on the EU, the European Union has to decide what it wants. "Creating a new constitution, if necessary, can only be the absolutely final step and therefore never a 'foundation stone' in the construction of a new European statehood but, rather, always only the 'keystone,'" stressed constitutional law expert Hans-Peter Schneider in theFrankfurter Allgemeine Zeitung newspaper.
Still, getting to the keystone stage could take some time -- even if the crisis calls for determined action. Seen from this perspective, the various ideas about referendums that even the ruling coalition is throwing around right now are probably nothing more than a way to keep voters calm.
In short, the message they want to send is this: Don't worry. You will have the last word.
3. The European Way
A referendum in Germany could also be embedded within a pan-European referendum. This would theoretically have all EU member states vote on the expansion of EU powers, and on the same day.

The idea of having a common constitution for all EU states is not new. In 2004, EU heads of state and government approved a draft constitution that, among other things, would have given the European Parliament more power and limited the influence of individual member states. But after failed referendums in France and the Netherlands, the constitution idea fizzled out. Instead, leaders agreed on the Lisbon Treaty in 2007.
In order to put some teeth into EU policies aimed at better combating the financial and economic crises, there needs to be a new agreement -- or, better yet, a constitution.
A few weeks ago, European Justice Commissioner Viviane Reding said that such a constitution would have to be ratified by referendums in all EU countries. And that includes Germany.


Your closing Italian 10 year bond yield:

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


5.902000.04300 0.73%
As of 12:00:00 ET on 08/10/2012.


Mark Grant delivers his weekend review of China and Europe.
With respect to China, its industrial output was the weakest since 2009.  It's exports to Europe last month was down 16.2% as recession takes hold in both areas.

Most of Europe is in a deep recession with high unemployment.  Germany will follow shortly.
In Italy, it's borrowing costs continue to escalate .

Spain will be forced to ask for aid sending this country into turmoil as the government now has the support of only 36% of the population. If they do ask for aid, watch for Italy to ask in short order.  It will be impossible for Germany to fund both or either one of Spain or Italy.

As far as Greece is concerned, they will probably not receive its needed  40 billion euros (50 billion dollars). They will default sending the ECB into a tizzy.

Your important read for the day...

(courtesy Mark Grant/Out of the Box and Onto Wall Street)

Surveying The Landscape

Tyler Durden's picture

Via Mark E. Grant, author of Out of the Box,
Surveying the Landscape

Look around. Take a good long and hard look because the data is becoming unsettling and it is pouring in from all over the world. In China, where a hard landing was thought to have been avoided; one moment please, not so fast. China’s industrial output is now the weakest since 2009 and the latest figures represent the seventh consecutive quarter of deceleration. Most troubling is that China’s sales to Europe declined -16.2% last month which is a huge drop off and shows clearly the recession that is taking place and worsening on the Continent. Estimates for Chinese third quarter growth are being reduced on an almost daily basis and loan demand has taken a drubbing. The world’s growth engine is sputteringand there will be consequences. In the other driver of Asian growth Japan is markedly weakening. GDP expanded at 2.3% in the last quarter which was down almost 50% from the first quarter of this year. A Bloomberg survey places growth at just 1.00% for this quarter and there may be a negative number by the fourth quarter.

In Europe the situation is dramatically worsening with virtually every country in a recession with the notable exception of Germany though I predict they will join the club by the fourth quarter of this year or by the first quarter of next year. Italy just reported out their GDP at -2.5% for the second quarter and their prospects are not good with the third quarter likely to be down more than three percent in my estimation. Borrowing costs are also beginning to weigh on Italy as they have a two trillion dollar sovereign debt where their ten year is +441 to Germany and not likely to get better anytime soon. Even if you are a believer in some new ECB/ESM scheme the German courts will not opine on the ESM until September 12 and then there are still a number of countries that have not approved the plan so that any actualization of some scheme is unlikely to come before late in the third quarter or in the fourth quarter. It is an interesting side note that when Monti took office that the Italian/German ten year spread was just +78 bps so I think it can be said with accuracy that his tenure, as demonstrated by the numbers and not the hyperbole, has not been the rose garden so often praised by Germany and France. In another interesting side note Goldman reported that it had cut its holding of Italian sovereign debt by 92% and if one considers their CDS exposure they have actually gone to a position of almost one billion negative from a plus $2.4 billion position in March.

While the Prime Minister of Spain dances around and shouts at Don Quixote’s windmills I think that it is quite likely now that Spain will be forced to officially ask for aid and that it will be soon. Then I think that Italy will follow suit which will rest the funding squarely on the shoulders of Germany and France and with economies totaling just $6.33 trillion or 56% of the United States, there will be real consequences and real pain as the allocations grow for these two countries and as Greece and Portugal line up again at the till. Short term solutions and liquidity do not overcome the fundamentals in the end and paying off debt with an ever increasing mountain of more debt is a concept that historically has often proved to be a failure. I fear that Germany and France face more downgrades and the reality of Germany’s 160% debt to GDP ratio, my calculation, will begin to drive capital out of Germany as the actual numbers are appreciated and considered.

Sometime in October, if not sooner, rhetoric is going to be put aside and either another $50 billion is going to be handed to Greece or the charade will stop. The country cannot pay their debts under any scenario imagined and it is just a question if the game will go on a bit longer or not. Of one thing I am sure; it cannot go on indefinitely and when it finally does stop it will not be the “manageable” event that some European politicians contend. It is going to be one sloppy mess that will affect the ECB which will require re-capitalization, it will hit many banks in Germany and France and losses will have to be taken by the EU’s Stabilization funds if not the IMF. Everyone is campaigning for everyone else to take the losses of course and eventually someone will take them and the debts have been allowed to grow big enough so that the hits will not be insignificant. The tension is increasing in both Greece and Europe and the accusations have not been pretty and will get worse so that I think some tipping point will be found before year end. There is now too much strain for the great “Muddle” to continue much longer and as the economy in Greece continues its freefall and as the unemployment numbers spike into the Uganda latitudes; something is bound to crack. Remember that everything is fine up until the day it is not and then it is really, really unfine!

For those that think that the Fed will save the day, if not the planet, I suggest to you that you may be in for an unpleasant surprise. There is only so much they can do now and each Fed action is being met by a less and less reaction in the markets and of a shorter duration. The proposed ECB/ESM scheme will also not be that panacea thought by many in my opinion regardless of the hype broadcast out of Europe. The nations that need funding are clearly squared up with the nations that could fund and I remind each of you that those with the gold make the rules. Beggars may shout and scream and appeal to whomever and whatever might get them the money but it is not their decision to make in the end. For those that think America lives in some kind of off-the-world existence and will not be affected by all of this then I invite you back to the planet Earth. With equity volumes declining to five year lows and a range that is bound more by hopes and prayers than actual considerations of earnings or of our GDP I find if highly probable that we will break to the downside while Treasuries continue their march higher in price again as the fiscal dangers become more pronounced and appreciated.

For a kick in yield try the trups/hybrids of the British banks. The American bank and finance hybrids and trups have appreciated markedly in recent weeks while the British ones have lagged considerably. Here is a small space than can be taken advantage of now in my opinion.


Graham Summers have been a believer that Germany will leave the Euro first, then Greece.

Here is his reasoning why:

(courtesy Graham Summers/Phoenix Research Capital)

Nine Months Ago I Said Germany Would Leave the Euro... Finally the MSM is Starting to Catch On

Phoenix Capital Research's picture

Since November 16th 2011, I’ve been forecasting that when push comes to shove, Germany will opt to leave the Euro. At that time I wrote…

…everyone claims they want to support the EFSF… but no one wants to commit the money. Moreover, Germany’s constitution forbids the backing of Euro bonds… and the EFSF itself has failed to stage even a three billion Euro bond offering under] normal market conditions.

Again, the bailout game is ending. Under these conditions, I believe Germany and France will push to either:

1) Leave the EU
2) Draft legislation that allows countries to leave the Euro but remain in the EU
3) Propose kicking out the PIIGS from the Euro
Whichever one of these options Germany opts for, the Euro will collapse

~November 16 2011

Sure enough, soon after I wrote this, Germany began implementing measures to put a firewall around its financial system. I noted in this in February 2012, writing:

…Germany has put into place a contingency plan that would permit it to leave the Euro if it had to.

As a brief recap, this contingency plan consists of:

  1. Legislation that would permit Germany to leave the Euro but remain a part of the EU
  2. The revival of its Special Financial Market Stabilization Funds, or SoFFin for short, to which Germany has allocated 480€ billion Euros to in the case of a banking crisis (the fund will also permit German banks to dump their euro-zone government bonds if needed).

So Germany is ready to bail if it needs to. Meanwhile, on the other side of EU equation, Spain and Italy must be watching what’s happening in Greece and asking themselves whether they want to go through this whole process of negotiating for bailouts via austerity measures.

~February 21 2012

Now, nearly nine months after my initial forecast, this story is finally getting picked up in the mainstream media. The Economisthas a fictitious cover story about Merkel pondering how to break up the Euro. And Der Spiegel notes:

Officially, though, Merkel's line is that she wants more Europe, not less. In the chancellor's bid to save the common currency, she is willing to go to the very limits of what is permissible under the German constitution. That was made clear by her support for the permanent euro rescue fund, the European Stability Mechanism (ESM), and her pet project, the fiscal pact. But Merkel still wants more. "We need a political union," she recently said on German public television station ARD. "That means we have to give up further competencies to Europe, step by step, in an ongoing process."

Talk of a Vote

But that will probably not work, given the limits of the German constitution, something that members of the opposition have been pointing out for some time. In the meantime, more and more people within the governing parties have been talking about holding a referendum in Germany on the European Union. Rainer Brüderle, the floor leader of the business-friendly Free Democrats, Merkel's junior coalition partner, said on Friday that there could come a point "when a referendum on Europe becomes necessary."

Horst Seehofer, head of the Christian Social Union (CSU), the Bavarian sister party to Merkel's Christian Democratic Union (CDU), has even called for several referendums. Finance Minister Wolfgang Schäuble has also talked about holding a national vote on the EU.

Such a vote could indeed be a way to get the much needed legitimacy for a transfer of national competences to Brussels. But how would it actually work in practice? SPIEGEL ONLINE presents an overview of some possibilities.

There are three conceivable options for a referendum:

How exactly all of this will play is hard to say. The fact that we’ve seen hints of Germany leaving the Euro popping up in the mainstream media should be a BIG warning. Moreover, the Wall Street Journal recently noted that certain areas of Germany are once again accepting Deutsche Marks as legal tender.

Will Germany leave the Euro? I believe so. The country is already  bordering on insolvency due to nearly €1 trillion in backdoor EU bailouts (pushing Germany’s Debt to GDP to 90%). Over 69% of Germans are worried about inflation. Angela Merkel is up for re-election next year (and has gained political points anytime she played hardball with Europe) and Germany has implemented steps to place a firewall around its financial system and passed legislation allowing it to leave the Euro if need be.

None of this adds up to Germany bailing out all of Europe. Merkel has said there will not be Eurobonds for as “long as [she] lives.” And Germany doesn’t have the €5 trillion needed to backstop the PIIGS banking deposits, let alone the deposits for all of the EU.

Good Investing!

Graham Summers


We now are witnessing that 55% of Greek youths under the age of 24 are unemployed:

(courtesy Steer)

More than half young Greeks are unemployed

Greek youth unemployment figures released on Thursday (9 August) by the Hellenic Statistic Authority marked another record high at 54.9 percent in May compared to around 41 percent to the same period last year.
“It is indeed a matter of deep concern for the commission and the unprecedented level of unemployment in Greece, in particular for youth unemployment,” European Commission spokesperson Olivier Bailly told reporters in Brussels.
Bailly said the ‘troika' - the EU, European Central Bank and International Monetary Fund (IMF) - along with the Greek authorities will need to address the rising unemployment issue among its youth.
This story, filed from Brussels, showed up on the website yesterday afternoon local time...and I thank Roy Stephens for sending it. The link is here.


Your closing Spanish 10 yr bond yield:


Add to Portfolio


6.907000.06100 0.89%
As of 08/10/2012.


As many of you know, I follow the Baltic Dry Index has a good gauge of global activity. Lately this index has been plummeting as this year the index is down 55% to all time lows worse than in 2008. Today, one of the world's oldest shipping company, Stephenson Clark closed its doors today and liquidated the company.

(courtesy Bloomberg)

World’s Oldest Shipping Company Closes In Industry Slide

The world’s oldest shipping company sold its last vessel and is going out of business, according to the liquidator.
Stephenson Clarke Shipping Ltd., started in 1730, has been placed into liquidation, according to a statement from accounting firm Tait Walker. The Newcastle-Upon-Tyne, England- based shipper, which employed nine people, sold off its final vessel in July, according to the statement

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