Saturday, September 1, 2012

Youth unemployment skyrocket in Europe/Bernanke may officially turn to QE III on its books/ Gold and silver skyrocket on first day notice/ all bourses rise on QE III hopes/

Good morning Ladies and Gentlemen:

Gold and silver both skyrocketed today boosted by hopes of official QEIII on the books of both the ECB and the USA.  The price of gold finished the comex session at $1684.90 up a huge $31.40.  Silver also responded in kind rising by $1.00 to $31.37.  The bankers were supplying the short paper to those paper players wishing to get in on the action.

In the access market, the prices of both metals continued to shine:

gold finished at :$1691.60 (a further $7.00 rise)
silver finished at $31.74 (a further 34 cent rise).

The bankers initially raided silver and gold in Europe trading but the physical demand certainly outweighed the paper shorts and thus our illustrious heroes had to retreat to higher ground.  As I and many other commentators have mentioned, September is going to be a very interesting month in the precious metals.

Just look at what was written over at Lemetropolecafe last night:

(from Bill Murphy of Lemetropole cafe on silver deliveries as relayed to him from a silver trader getting his silver):

*Then today I received a phone call from a sophisticated Café member who is in the gold/silver business. This person asked me about a client who was having trouble getting his $5 million silver order delivered. He is getting one excuse after another why he is not getting his physical silver. The question to me was about the manufacturing dates these days for silver being delivered … meaning that what is delivered are current date bars … because there just isn’t any silver around in size to be delivered. SMOKE is everywhere. It is billowing and is advertising the coming silver fire.

Let us head over to the comex and assess trading today.
The total gold comex OI rose by quite a margin Friday to the tune of 1770 contracts from 422,751 to 424,521 as the bankers continue to supply the necessary short paper.  The front September gold contract saw its OI rise by 20 contracts to 741.  The next active gold contract is October and here the OI fell marginally by 849 contracts from 31,528 down to 30,679.  I will now start to report on the key December gold contract as it is the largest and most important gold month in the gold calender.  On Friday,  its OI rose by 2643 contracts from 276,729 up to 279,372.  Remember that all OI results are 24 hours back in time. The bankers know the OI figures but we do not and it gives the house a much bigger advantage. The estimated volume today was very good for a change at 173,953 compared to Thursday's lacklustre level of 102,956.

The total silver comex OI fell dramatically by 2006 contracts from 118,929 down to 116,923.  Either  certain players refused to play the paper games anymore and bailed or some bankers are scared out of their minds in silver, we do not know.  No matter what, the real story, the truth of the matter, is that those who left the silver arena on the long side are not happy campers this morning. The front September silver OI fell from 6474 down to 2575 and thus the latter number generally gives us a first glimpse as to what will stand for September and this is a rather good level of 12,875,000 oz standing.  After Blythe gets busy with some cash settlements, we will probably see in the month's conclusion over 10 million oz stand.  The next non active delivery month is October and here the OI rose by 4 contracts to 174. The very big December contract saw it's OI rise to an absolutely astounding OI of 76,146 a rise of 1946 contracts from Thursday. Will this month be the battle of Waterloo for our bankers and long players?  The estimated volume on Friday was excellent at 53,903. The volume on Thursday came in at 54,811 which is basically on par with Friday as we had about 12000 contracts of rollovers.

Sept 1-.2012   Sept/gold  beginning figures

Withdrawals from Dealers Inventory in oz
59,999.765 (Scotia)
Withdrawals from Customer Inventory in oz
63,875.41 (HSBC,Scotia)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
(590) 59000oz
No of oz to be served (notices)
(2283) 228,300 oz
Total monthly oz gold served (contracts) so far this month
(590)  59000 oz
Total accumulative withdrawal of gold from the Dealers inventory this month
59,999.765 oz
Total accumulative withdrawal of gold from the Customer inventory this month

 A wild day at the gold vaults today.

It seems that the dealer Scotia is still fooling around with that  59 million oz of gold.  On Friday, 59,999.765 oz of dealer gold was withdrawn from Scotia and 59,884.09 oz landed in the customer account of HSBC.

Thus the official deposit for Friday:

1) Into HSBC 59,884.09 oz (coming from dealer at Scotia)

And now the withdrawals;

From the customer side of things:

i) 63,775.80 oz leaves HSBC outright.
ii) 99.61 oz leaves Scotia

total customer withdrawal:

63,875.41 oz

we then had that famous withdrawal of 59,999.765 oz from the dealer at Scotia.

we had two adjustments;

i) 11,462.84 oz leave the dealer at JPMorgan and land at the customer at JPM
ii) 297 oz leave the customer at HSBC and enter the dealer.

With all of those changes, we have the dealer inventory rest this weekend at 2.711 million oz or 84.3 tonnes of gold

The CME group late Thursday night reported that we had 590 notices served upon our September longs to the tune of 59000 oz of gold.  The total number of notices served thus far this month is still 590 contracts.
To obtain what is left to be served upon, I take the OI standing for September (741) and subtract out Friday delivery notices (first day notice or 590 contracts) which leaves us with 151 notices or 15100 oz left to be served upon our longs.

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

59,000 oz (served)  +  15100 oz to be served upon  =  74,100 oz (2.305 tonnes)
this is a very good showing for gold in a non active month.


September 1  opening balance to include first day notice. 

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 342,439.42 (Scotia,Brinks)
Deposits to the Dealer Inventory598,565.41 Brinks
Deposits to the Customer Inventory303,410,42 (Brinks)
No of oz served (contracts)292  (1,460,000 oz)
No of oz to be served (notices)2283 (11,415,000) oz
Total monthly oz silver served (contracts)292 (1,460,000)
Total accumulative withdrawal of silver from the Dealers inventory this month310,045.28
Total accumulative withdrawal of silver from the Customer inventory this month7,133,665.8

Another busy day at the silver vaults.

The dealer brinks received the following silver metal:

i) 598,565.41 oz

The customer at Brinks received the following silver metal:

i) 303,410,42 oz

The customer withdrawal was as follows;

i) 312,671.89 oz from Brinks
ii) 33,767.53 oz from Scotia

total customer withdrawal:  346,439.42 oz

we had two adjustments and they were absolutely dandies:

i) from the customer at Brinks into the dealer at Brinks a massive 2,462,746.59 oz was transferred and this obviously will be used in the September settling process.

ii) 441,637.96 oz leaves the dealer at jPMorgan and re enters the customer account as a former liability repaid.

Tonight we have the following silver inventories:

registered or dealer inventory rests at 39.258 million oz
the total of all silver rests at 140.95 million oz.

the CME reported a very tiny 292 notices served on first day notice for 1,460,000.  The total number of notices for the month is thus 292.  To obtain what is left to be served upon, I take the OI standing for September (2575) and subtract out Friday's first day notices (292) which leaves us with a rather huge 2283 or 11,415,000 left to be served upon our longs.

Thus the total number of silver ounces standing in this active delivery month of September is as follows:

1,460,000 oz (served)  +  11,415,000 oz (to be served upon)  =  12,875,000oz
Blythe Masters will have here work cut out for her this month!!


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.

Sept 1.2012:

Total Gold in Trust



Value US$:68,320,247,670.39

aug 30.2012:




Value US$:68,818,506,065.75

aug 29.2012:




Value US$:68,798,528,533.88

aug 28.2012:




Value US$:69,130,954,917.13

today we neither lost nor gained any gold into the GLD

And now for silver:

Sept 1.2012:

Ounces of Silver in Trust312,548,119.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,721.33

Aug 30;2012:

Ounces of Silver in Trust312,548,119.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,721.33

August 29.2012:

Ounces of Silver in Trust313,904,839.800
Tonnes of Silver in Trust Tonnes of Silver in Trust9,763.53

we neither gained nor lost any silver at the slv.
Strange!! we had a very big rise in price and yet no silver and no gold were added to their respective vaults.


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 8.6percent to NAV in usa funds and a positive 8.6%  to NAV for Cdn funds. ( Sept 1-.2012)

2. Sprott silver fund (PSLV): Premium to NAV  rose nicely to  4.26% to NAV  Sept 12012   :
3. Sprott gold fund (PHYS): premium to NAV rose a bit  to 5.64% positive to NAV Sept 1 .2012). 

Note:  have you noticed that slowly Sprott's gold fund has been rising in positive to NAV. today it rests at  5.64%. .  Even now the Central fund of Canada is gaining big time in its positive to NAV. as we now see CEF at a positive 8.6% in usa and 8.6% in Canadian. Even the Sprott silver fund is almost back to a normal positive to NAV with its premium this weekend at 4.26%. Investors are seeking out physical supplies.  

It looks like England may have trouble in finding gold and silver for its clients.
It is worth watching the premium for gold at the Sprott funds which is a good indicator of shortage as investors bid up the premiums.


At 3:30 pm Friday, the CME release the COT or Commitment of Traders Report which tells us positions held by our major players.

Let us head over and see the gold COT report first:

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 28, 2012

Oh my goodness. What a report!!!

Please remember that this report is of Tuesday Aug 21 through to Tuesday Aug 28.  We miss the last 3 days of the rise in gold and silver.

Our large speculators:

Those large speculators that are long in gold loved the lay of the land and mustered another 23,900 contracts to their long side.

Those large speculators that were short in gold also saw the tea leaves and they covered 3909 contracts from their short side.

Our famous commercials;

Those commercials that are close to the physical scene and are long in gold added a tiny 1,147 contracts to their long side.

Those commercials that are perennially short in gold, sounded the alarm to its other members to supply all and necessary paper to the tune of a whopping 33,549 addition to their short contracts.  Our regulators are too busy doing other things to notice this criminal activity.

Our small specs:

Those small specs that are long in gold like their senior brothers (the large specs) added a good amount of 4501 contracts to their long side.

Those small specs that were short in gold covered a tiny 94 contracts.

Conclusion:  criminal activity is all I can say as the commercials continued to supply gold contracts in huge numbers.  They are having a weekend retreat meeting to decide how they are going to handle the coming week in gold. They went net short a monstrous 32,402 contracts!!!

Now let us see silver:

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

Tuesday, August 28, 2012

Our large speculators:

Those large specs that have been long in silver also loved the lay of the land and loaded the boat with a huge 4501 contracts.

Those large specs that have been short in silver also saw the light and covered a huge 3376 contracts from their short side.

Our famous commercials:

Those commercials that have been close to the physical scene and are long in silver pitched an amazing 5107 contracts from their long side.

Those commercials that have been perennially short in silver and subject to the CFTC probe, added 990 contracts to their short side.

Our small specs:

Those small specs that have been long in silver somehow did not see the tea leaves as they covered a rather 2532 contracts from their long side.

Those small specs that have been short in silver did see the tea leaves and covered a large 1191 contracts from their short side.

Conclusion:  the bankers continue to go net short in silver and thus bearish from a bankers standpoint.
It seems that the market is quite confused. Notice the huge difference between gold and silver as to how our major bankers are playing their respective metal positions!!


Here are the following key physical stories that you may find of interest.  Should countries issue bonds backed by gold?  That would be great, except for one small little detail..they have already leased out all of their gold..

regardless of this, eurozone folks are now talking about gold as a key feature in their reserves.

(courtesy Gillian Tett of London's Financial times)

Gillian Tett: Time for eurozone to reach for the gold reserves?

Unless the gold collateral was moved out of the vaults of the sovereign borrowers vault and into the vaults of the lenders, this idea would be just another government scam, especially insofar as the supposed gold of the anticipated borrowers probably already has been sold, swapped, leased, and hypothecated into oblivion anyway.
* * *
Time for Eurozone to Reach for the Gold Reserves?
By Gillian Tett
Financial Times, London
Thursday, August 30, 2012
Is it time for some eurozone governments to start selling that metaphorical family silver? Or, more specifically look at their all-too-real gold reserves, to find a solution to Europe's crisis?
That is a question which has recently been buzzing around in some policy making and investing circles. For as autumn looms, it is clear that the eurozone remains under profound stress. However, it is also unclear whether the European Central Bank -- let alone the eurozone politicians -- will really be able to do anything soon to ease market fears and lower those borrowing costs.
Thus, as unease builds, the World Gold Council -- or the body that represents the gold industry -- has recently lobbed a new idea into the fray: It thinks it is time for eurozone governments to start using gold in a creative manner, particularly in places such as Italy, to cut those interest rates.

The issue at stake revolves around the estimated 10,000 tonnes of gold reserves that are held by eurozone governments. According to the council, "It is well known that some of the countries most affected by the crisis, including Portugal and Italy, are responsible for a significant proportion of these assets."
Unsurprisingly, this situation has prompted some to suggest that governments should sell some of that gold. The value of gold has soared in the last few years, and if there were ever a time that eurozone countries needed an unexpected windfall -- say, to pay interest on bonds -- it would be now.
But the gold council, for its part, insists this would be a mistake. For quite apart from the fact that a massive dump of gold would dampen the price, eurozone debt woes are now so large that gold sales would only scratch the surface of the problem. Or as the council notes: "The gold holdings of the crisis-hit eurozone countries (Portugal, Spain, Greece, Ireland, and Italy) represent only 3.3 per cent of the combined outstanding debt of their central governments."
Thus it favours an alternative idea: Instead eurozone countries should essentially securitise part of that gold, by issuing government bonds that are backed by gold. This could be done in a simple manner; or it could be structured to include tranches of different risks. Either way, the key point is that gold would be used to provide additional security for bonds -- and thus reassure investors who do not trust eurozone government balance sheets anymore.
"Using only a portion of those gold reserves as collateral could significantly reduce the rate at which each of these [periphery] countries could issue debt," the council argues, pointing out that this scheme has been employed on a few occasions in history before. In the 1970s, for example, Italy and Portugal used their gold reserves as collateral to get loans from the Bundesbank, the Bank for International Settlements, and other creditors. More recently, India raised a loan from Japan, which it backed with gold.
So is there any chance this idea could fly?
Don't hold your breath, or not soon. Personally -- and leaving aside the gold council's self-serving interest in pushing the scheme -- I think that the concept of gold-backed bonds certainly is worth debating. While gold-backed bonds would not be a full-blown solution, it could help in some respects.
But there is little sign that the idea has garnered any serious support from policy makers thus far. Even if eurozone leaders embraced the idea, there would be some big legal obstacles; most notably, much of the gold is held by central banks, not treasuries.
Nevertheless, if nothing else, investors should take note of the debate as an interesting straw in the wind. A decade ago it seemed utterly old-fashioned to ever suggest that any investor -- or institution -- would post gold as a collateral; in the era of cyber finance, securities such as treasury bonds tended to rule. But in recent months groups such as a LCH.Clearnet, Intercontinental Exchange, and the Chicago Mercantile Exchange have increasingly started to accept gold as collateral for margin requirements for derivatives trades. And earlier this summer the Basel Committee on Banking Supervision issued a discussion paper that suggested that gold should be one of six items used as collateral for margin requirements for non-centrally cleared derivatives trades, alongside items such as treasury bonds.
This does not add up to a revolution, let alone the type of step toward gold-backed finance -- or a gold standard -- that gold bugs (and some American Republican Party members) would love to see. But it does suggest that a slow evolution of attitudes is underway – not so much in terms of the desirability of gold per se, but the increasingly undesirability and riskiness of other supposedly "safe" assets, such as government bonds. That pattern is unlikely to change soon, especially as markets wait to see what the ECB might unveil on September 6.


On Friday's gold rise:

(courtesy Adrian Ash of the bullionvault)

Quanticipation in the Gold Price

By: Adrian Ash, BullionVault

-- Posted Friday, 31 August 2012 | Share this article | Source:

Will he, won't he? Either way, gold says more QE is coming in due course regardless...

SO HERE'S a turn-up for the gold price.

Today saw gold priced in Dollars – and everything else – rising afterdisappointment over new quantitative easing from the US Federal Reserve.

Maybe Ben Bernanke's 
much-awaited speech at the annual Jackson Hole shindig for central bankers wasn't so disappointing after all. Certainly the Wall Street Journal seems to think that, and its own inhouse "Fed wire" journalist Jon Hilsenrath to boot! But if today's speech was a promise, it fell a long way short of matching 2010's big event. Back then, Bernanke made the imminent launch of QE2 plain. Whereas the financial media's first-rush response today was headlined "Bernanke: No more easing, for now".

So maybe the gold market's just got its mojo back. Or perhaps this week's anticipation – the same anticipation we've seen for times this summer – merely put the gold price on hold, as the buying already under way took pause.
As you can see, the gold price hit a classic bout of the doldrums in summer 2012. And within that $100 trading range, you can see quanticipation – the anticipation of quantitative easing – blowing a hot breeze first this way and then that.

Starting in May, gold priced in Dollars has risen on any and every "hint" of fresh money printing in the US, only to slip back when the Fed then disappoints. "Will he? Won't he?" All financial markets have been trying to guess the answer. But you can most clearly see it in the price of gold – that most sensitive asset to monetary policy. Because buying gold is always a vote of "no confidence" in central banks. Selling it means you think the Fed has got on top of its job.

And today, post-Jackson Hole, gold has now done something it's failed to do every time previous this summer. It rose despite Ben Bernanke's damp squib of a speech. So perhaps the bullion market has finally shrugged its shoulders and accepted that – whatever the Fed says – it will choose to pull the big lever marked "More Money" sooner or later.

Market-timing be damned? Quanticipation might now be driving the gold price regardless of Fed jaw-boning. The all-too typical autumn rally in gold looks very much in train either way.

Adrian Ash

Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012


And now for our paper stories which should play a major role in the price of our precious metals silver and gold:

The first biggy is the continual battle between Weidmann of the Bundesbank and Mario Draghi.  
As zero hedge and other commentators like Wolf Richter and Mark Grant explain:

1.Eurobonds, a fiscal union or a political union is pure fantasy.

2. Germany and other Periphery nations in Europe will not pay for the folly of the PIIGS nations

3. Germany prevents the monetization of debt (QE)

4. Even German opposition parties are opposed to the funding by the ESM through direct purchases or giving the ECB a banking license.

The conflict has only started as Draghi really want to help his own country Italy and cannot because of the threat of Germany Finland, Austria and the Netherlands who want no part of lowering their standard of living:

(a very important post from Friday..courtesy zero hedge)

Guest Post: The End Of ECB Rate Cuts Or Draghi Against Weidmann To Be Continued...

Tyler Durden's picture

Submitted by George Dorgan of SNBCHF blog,
Even in the unlikely case of a fiscal union, the conflict “Draghi against Weidmann”, between the ECB and the Bundesbank will continue for years. The ECB mandate and many european inflation figures do not allow for excessive ECB rate cuts or for state financing via the printing press, but Draghi wants to help his struggling home country.

Draghi vs. Weidmann

For anybody who had read our posts on the euro crisis in the last months, the recent discussion between Draghi andWeidmann was no surprise.

These were our ideas:

The conflict between the ECB and the Bundesbank has only started

The conflict between the ECB (and the periphery and France) on one hand and the Bundesbank (plus the central banks of the Netherlands, Austria, Finland), on the other, has intensified. Bloomberg’s view recently tried to convince their readers that Weidmann is acting alone and that his opinion contradicts Merkel’s one. The latter is clearly not the case.
Bloomberg even called the Bundesbank to put up or to shut up.

Weidmann decided not to shut up but to put up:
Weidmann: ’Too Close to State Financing Via the Money Press’  (Der Spiegel)
Juergen Stark, the former ECB chief economist, piled on the German resistance in the Handelsblatt on Tuesday, saying the ECB is out of her mandate when she finances states and she would ultimately no longer be able to deliver stable prices.
Draghi answered to the critics:
Draghi Hits Back At German Criticism Of ECB Bond Plan (Bloomberg)
Like always Bloomberg claims that “Chancellor Angela Merkel … signaled broad support for ECB bond buying. One should remember that Merkel often only talks, but others like Weidmann act.

Austria, Netherlands & Finland have strong Anti-Euro oppositions, Germany not yet

The sentiment against the euro is stronger in the Netherlands, where for the first time left-wing parties oppose the euro and this probably with success. Together with the right-wing Freedom party of Geerd Wilders, anti-euro parties might achieve 35%.
In Austria the business man Frank Stronach initiated a libertarian anti-euro movement. This adds another party to the already existing right-wring anti-euro FPÖ and BZÖ, who count already now about 20-25% of votes.
The ani-euro party True Finns achieved 19% in the 2011 elections. Even if they did not join the government, their opposition puts pressure on the finnish government. The continous Finnish demand for collateral at any bailout makes this obvious.
Given this strong opposition in other countries, it is clear that Weidmann is not alone to oppose the ECB decisions.

Bloomberg should remember that Merkel wants be reelected in autumn 2013:
  • More than half of Germans want Greece to leave the euro. Many politicians of Merkel’s party want these German votes and utter these ideas in public.
  • Germans do not want a banking union, therefore the German opposition is against it (see point 20 here). Merkel would be stupid to leave this critics to the opposition and risk her re-election.
  • 51% of Germans think that Germany is better off without the euro.
A strong German anti-euro party does not exist because the conservative Merkel is able to control these anti-euro politicians inside her coalition. On the other side she must do compromises with them.

Dividing the ECB into doves and hawks

Bloomberg is correctly saying that Germany does not have more votes in the ECB governing council than other countries, each vote of the governing council counts as one equal vote.
However the ECB does not have a dual mandate like the Fed.  The target of the ECB mandate is ONLY price stability, defined as 2% harmonized consumer price inflation (HICP). As opposed to the Fed, there is a one clear quantitative target of (close to) 2%. Therefore it is not a majority that decides, like Bloomberg suggested, but a clear and simple number. If she decides to cut rates even if inflation is over 2% then she must have good reasons that inflation will go down under 2%. Otherwise she violates her mandate, even if “legitimized” by a majority decision.
The following is the current composition of the ECB governing council. There are three groups:
  • “Doves” or pro europeans from the countries who profit of european institutions (like Belgium and Luxembourg)
  • Central bankers from countries with higher inflation and low debt, they will need higher rates. They tend to be hawks, even if their countries take profit of EU adhesion funds.
  • The ones from countries without structural problems who finance the other ones (via ESM or ECB bond buying), the “hawks.”

Members of the governing council (as of January 2012)
Members of countries with structural problems, “doves”,
or strong pro-European

Countries with higher inflation,
low debt, rather hawks when inflation picks 
Countries without structural problems, “hawks” 
Mario Draghi, ECB president,
Ignazio Visco (both Italy)
Jozef Makúch (Slovakia): 3.8% inflationPeter Praet, Executive board (chief economist)
Vítor Constâncio, ECB vice pres.
Carlos Costa (both Portugal),
Ardo Hansson (Estonia): 4.1% infl.Jörg Asmussen, Executive board
Luc Coene (Belgium)Josef Bonnici (Malta): 3.8% inflationEwald Nowotny (Austria)
Georgios Provopoulos (Greece)N,N., member of the executive boardJens Weidmann (Germany)
Benoît Cœuré, Executive board,
Christian Noyer (both France)
Erkki Liikanen (Finland)
Yves Mersch (Luxembourg)Klaas Knot (Netherlands)
Marko Kranjec (Slovenia)
Patrick Honohan (Ireland)
Luis Maria Linde (Spain)
Panicos Demetriades (Cyprus)

Further ECB Rate Cuts not be expected

When Draghi cut rates recently, his argument was that HICP inflation would fall under 2%. Looking at the details of the HICPs, we can see that the recent ECB rate cut was close to contradicting the ECB mandate, only the majority of doves might have helped him to sustain this risky decision.
Draghi can be happy that the low German inflation (1.9%) pushed down total inflation in the Euro zone. His home country Italy had 3.6% inflation, a number clearly out of the ECB price stability mandate of 2% !

Euro zone CPI inflation (Source Eurostat)

The HICP baskets of many Southern and Eastern European countries have heavy weights in food, energy and other consumption goods, because these countries are poorer than e.g. United States, Germany, Japan or Switzerland. For China this point is even stronger, therefore economists regularly speak of Chinese “food inflation”.
A (slowly) recovering US and demand from developing economies put upwards pressure on oil and food prices. This and higher German and Northern and Eastern European wages might prevent that total HICP inflation moves under the threshold levels of 2%, whereas disinflation will reign in Spain and soon in Italy for a couple of years.
This means that there is no room for further ECB rate cuts. On the contrary, in December 2012, one year after the cheap oil and food prices of end 2011 , deflationary tendencies might wash out on YoY basis, and the ECB will need to hike rates again.
And Bloomberg and Draghi will shut up again.


It seems that the French are unhappy with Hollande and its new tax increases that he is contemplating on solving France's big deficits:

(courtesy Bloomberg)

Hollande’s Business Policies Faulted By French Corporate Leaders

French corporate leaders criticized Socialist President Francois Hollande’s government for policies they say hurt companies already battered by a slowing economy and decades of business-unfriendly practices.
“Each week, steps voted in parliament are slowing public and private actions,” Guillaume Poitrinal, chief executive officer of Unibail-Rodamco SE (UL)Europe’s largest publicly traded property owner, said yesterday at a conference organized by the French employers’ group Medef on the outskirts of Paris. “We have a frenzy of regulations. In an accelerating world, we need more flexibility for companies, more flexibility on labor, and we need quicker public action.”
Francois Hollande, France's president. Photographer: Andrew Harrer/Bloomberg
France Telecom SA CEO Stephane Richard said at the conference yesterday, “It’s not the public sector that’s going to create jobs in the years to come, it is companies.” Photographer: Balint Porneczi/Bloomberg
Finance Minister Pierre Moscovici said, “Competitiveness isn’t a dirty word.” Photographer: Balint Porneczi/Bloomberg
Entrepreneurs and executives say businesses are being squeezed by higher corporate taxes and more stringent policies as Hollande’s government struggles to keep its pledge to cut the budget deficit. The move comes as the government faces an economy that hasn’t grown in three quarters, joblessness at a 13-year high and a record trade deficit.
“We’re suffering from this backdrop which is becoming more and more constraining,” said Air Liquide SA (AI) CEO Benoit Potier. “We need a stabilization of the regulatory framework, we need to invest in education and training, broadly speaking we need a pro-business climate to grow.”
Hollande, who won office this year on campaign promises of social justice and countering Europe’s sovereign debt crisis with growth, is being forced to address corporate complaints that labor laws are too restrictive, wage costs and social charges too high and corporate taxes too steep.

‘Tax Champions’

“French companies are the most taxed in Europe; we’re the champions of corporate taxes,” Laurence Parisot, the head of Medef, said in a Bloomberg Television interview. “This is a major issue for us. Also, social laws are so complex, our companies are not able to adapt to changes in the world.”
Hollande has proposed increasing taxes for big companies to 35 percent and cuts for small and medium-sized businesses; a 75 percent levy on incomes above 1 million euros a year and special taxes on banks and oil companies. The French parliament put into effect this month a tax on financial transactions.
The president has also pledged to repeal 29 billion euros of tax breaks over the next five years. He wants to increase the total tax level -- payroll and profits -- to 46.9 percent in 2017 from 45.1 percent in 2012.
At a conference last month in Aix-en-Provence, Louis Gallois, former chief executive officer of European Aeronautic, Defence & Space Co. (EAD) and the government’s point person on competitiveness advocated a cut in corporate taxes and charges.

Labor Costs

“We need to create a competitiveness shock,” he said, calling for cuts in taxes and social charges of as much as 50 billion euros ($62 billion). “It has to be quite massive.”
France has the euro area’s second-highest unit cost of labor after Belgium, according to an April 2012 Eurostat report. Its cost of 34.20 euros an hour compares with Germany’s 30.10 euros,Italy’s 26.80 euros and 20.60 euros for Spain.
The expense has made companies reluctant to hire, while the economic slowdown has left almost 3 million people jobless.
Companies also say one of the biggest obstacles to hiring is the “Code du Travail,” a 3,200-page labor rulebook that decrees everything from job classifications to leave for training to the ability to fire.
“It’s not the public sector that’s going to create jobs in the years to come, it is companies,” Stephane Richard, CEO of France Telecom SA (FTE), said at the conference yesterday. “Making the environment conducive to business is key. Employment is the most urgent of the urgent subjects.”

Funding Woes

In the absence of such policies, even France’s coveted welfare system is in danger, said Unibail-Rodamco’s Poitrinal.
“The welfare system won’t survive without greater flexibility and quicker public action.”
The government’s policies need to make investing in companies more appealing, said Jean-Louis Chaussade, CEO of Suez Environnement (SEV), Europe’s second-biggest waste company.
“We must give companies funds to allow them to develop,” he said. “Small shareholders are being hammered. Dividends are hammered, and we’re going to push savings into risk-free passbooks, which isn’t the way to go. To create jobs in France, we need French companies, hence we need capital.”
On the industrial front, companies question the government’s plans to cut the share of nuclear energy in the country’s electricity production. Nuclear energy provides more than three quarters of French power production and helps keep the country’s electricity prices among the lowest in Europe.

Government Reassurance

“Nuclear energy is clearly less expensive for us,” Cie. de Saint Gobain (SGO) Chief Executive Officer Pierre-Andre de Chalendar said in November.
Energy Minister Delphine Batho defended the government’s plan at the conference yesterday, saying, “we will lower the proportion of nuclear in electricity production. We won’t get out of nuclear because we will need it for a long time but at the same time we need to diversify our sources. We can keep nuclear jobs and add jobs in solar and wind.”
Finance Minister Pierre Moscovici and Labor Minister Michel Sapin also sought to reassure businesses.
“Competitiveness isn’t a dirty word,” Moscovici said as he pledged to set up a framework favorable to investment and innovation. “Government services must also work in a quicker and simpler way.”
He said the 2013 budget to be presented in the week of Sept. 24 will have measures for companies. He also said social spending can’t be covered entirely by payroll taxes, promising to address the issue next year.
France needs rules that “allow companies to adapt,” Sapin said in a Bloomberg TV interview, adding that he’s discussing adaptability with companies. It’s about the “ability of companies to adapt to a changing world, changing technology and economic shocks.”
To contact the reporters on this story: Francois de Beaupuy in Paris; Tara Patel in Paris at; Mark Deen in Paris at
To contact the editor responsible for this story: Vidya Root at


Overnight, economic reports throughout Europe were horrible with the likes of a rising unemployment level, plunging retail sales in Germany Spain and Greece (see article below Stagnation...)  and the fury between Weidmann and the ECB  (see above).  With all of that conflict, one would have suspected the Eur/usa cross to plummet to 1.23.  Nope at 7 am Friday morning here are your early morning crosses:

Euro/USA $1.2581
USA/Japan:  78.56
USA/Can:  .9901

your early Friday morning bourse results:

FTSE: up 38.5 points or .67%
Paris CAC: up a huge 44.5 points or 1.3%
German DAX: up a huge 86.83 points or 1.25%

and the Spanish IBEX: up 121 points or 1.68%

yet both Spanish and Italian 10 year bond yields rose again signifying the risks inherent to both countries:


Add to Portfolio


6.687000.09300 1.41%
As of 07:01:00 ET on 08/31/2012


Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


5.791000.00400 0.07%
As of 07:01:00 ET on 08/31/2012.

( courtesy zero hedge on overnight sentiment early Friday morning trading from Europe)

Overnight Recap And Today's Key Events

Tyler Durden's picture

Following a series of bad economic news (Eurozone unemployment, rising inflation, plunging retail sales in Germany, Spain and Greece) out of Europe, and the usual sound and fury out of the ECB signifying nothing (was there finally news that Weidmann and/or the Buba are endorsing anything Draghi is doing - instead of seeking to potentially quit his post leaving the ECB in limbo? No? Then stop flashing red headlines which are completely irrelevant), the EURUSD has decided to go on its usual countersensical stop hunt higher in hopes an algo or two will push it even higher on nothing but momentum, with has one purpose only: to allow the pair enough of a buffer so that when it does fall after the J-Hole disappointment, it has more room to drop. And as European newsflow fades into the periphery, everyone is once again focusing on Wyoming where Bernanke is now broadly expected to do absolutely nothing. What else are market participants focusing on? Here is the full ist courtesy of Bloomberg daybook.
  • Treasuries decline before Bernanke’s Jackson Hole speech, scheduled for 10am New York time; 10-yr yields lead curve higher.
  • Economists and strategists don’t expect the Fed chairman to signal imminent policy moves
  • Euro-area unemployment rose to a record 11.3% in July and inflation quickened more than economists forecast as rising energy costs threaten to deepen the economic slump
  • The Bundesbank declined to be drawn on whether President Jens Weidmann considered resigning over the ECB’s plan to resume bond purchases, as tension between the two institutions mounts
  • ECB Executive Board member Joerg Asmussen said the IMF should be involved in setting conditions for countries applying for bond-buying aid from Europe’s bailout fund
  • The ECB would have the sole power to grant banking licenses under proposals to give the central bank supervisory powers and build a euro-area banking union, a EU official said
  • JPM economist Malcolm Barr expects ECB to implement “soft cap” on front-end yields, where purchases establish range wherein ECB resistance to higher yields becomes progressively stronger
  • French corporate leaders criticized Socialist President Francois Hollande’s government for policies they say hurt companies already battered by a slowing economy and decades of business-unfriendly practices
  • Mitt Romney accepted the Republican presidential nomination and reached out to disaffected supporters of President Barack Obama, framing the election as a choice between two visions of the role of government in America
  • Clint Eastwood said U.S. unemployment is a “national disgrace” and that the Obama administration isn’t “strong enough” in dealing with 23m unemployed
  • The ECB is using Europa, a figure from Greek mythology, improve security on new euro banknotes, four people familiar with the design said
  • EUR/USD gains, touching 100-DMA at $1.2584.  German bunds decline while Spanish and Italian 10-yrs gain. Peripheral
    spreads tighten. European stocks and U.S. equity-index futures rise. Crude gains
  • Credit steady amid a dearth of new issuance, with Markit IG at 103bps, Markit HY at 544bps
WHAT TO WATCH: (All times New York) Economic Data
  • 9:45 am: Chicago Purchasing Managers, Aug., est. 53.5 (prior 53.7)
  • 9:55 am: University of Michigan Sentiment, Aug. final, est. 73.6 (prior 73.6)
  • 10:00 am: Factory Orders, July, est. 2.0% (prior -0.5%)
  • TBA: NAPM-Milwaukee, Aug. (prior 46.7) Central Banks
  • 10:00 am: Fed’s Bernanke speaks at Jackson Hole conference
  • 11:55 am: BOE’s Haldane on financial stability at Jackson Hole
  • 1:15 pm: BOE’s Posen on monetary policy at Jackson Hole


European unemployment hits record levels.  Inflation rises way above expectations:

(courtesy zero hedge)

Stagflation: Eurozone Unemployment Hits Record High As Inflation Rises Above Expectations

Tyler Durden's picture

Spot the divergence in the chart below, which compares the unemployment rate in the Eurozone and in the US.
In July European unemployment rose to 11.3% - a record post-Euro rate, and the highest since 1990 for the constituent countries. While this was in line with estimates, what surprised the market, and has sent the EUR paradoxically higher (paradoxically, because all a continent in stagflation, which Europe by now most certainly is, is to have its currency rise just when it needs to export more goods, in the process entrenching its economic plight even further) is that inflation in August picked up from 2.4% to 2.6%, beating expectations of a 2.5% increase, allowing the European misery index to stand head and shoulders above the rest of the world.
From Bloomberg:
Euro-area unemployment rose to a record and inflation quickened more than economists forecast as rising energy costs threaten to deepen the economic slump.

The jobless rate in the economy of the 17 nations using the euro was 11.3 percent in July, the same as in June after that month’s figure was revised higher, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. Inflation accelerated to 2.6 percent in August from 2.4 percent in the prior month, an initial estimate showed in a separate report. That’s faster than the 2.5 percent median forecast of 31 economists in a Bloomberg survey.

A 12.4 percent surge in crude-oil prices over the past two months is leaving consumers and companies with less money to spend just as governments seek ways to contain the debt crisis. European economic confidence dropped more than economists forecast to a three-year low in August and German unemployment increased for a fifth month, adding to signs the euro-area economy continued to shrink in the third quarter.

“The whole euro zone is undergoing negative growth developments,” Don Smith, a London-based economist at ICAP Plc, told Ken Prewitt on Bloomberg Radio yesterday. “The sense is that increasingly the euro-zone crisis is bearing down on countries in northern Europe and Germany in particular and this is really forcing officials’ hands toward coming up with a firm solution.”
And while the economy continues imploding, the ECB, like a true headless chicken, is scrambling to release one after another more and more meaningless rumor, which does nothing to restore credibility to the Goldman-headed money printing institution (which can't even do that without a German green light), and instead of attempting to halt the rise of inflation, or do anything about unemployment which month after month rises ever higher, is instead desperate to continue herding cats, and do everything to delay the inevitable exit of Greece, and soon thereafter many others, from the world's most artificial construct.


The truth behind the European numbers.  Not only do they not calculate contingent liabilities in the debt figures, the actual numbers are false.

(an important read courtesy of Mark Grant)

Relying Upon The European Numbers

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,
The Numbers
Our business revolves around the understanding of numbers and decisions based upon them. There is gaff, hype and fluff in great abundance, no doubt, but in the end the numbers generally tell a more accurate story. Most of us have been schooled to perform various analysis on the data presented and to draw conclusions from them but if the figures are inaccurate then, as the computer Geeks say, it is “garbage in and garbage out.”
Recently I have uncovered the fact that Spain, since 2000, has engaged in “dynamic provisioning.” This is well documented in a World Bank Report by Jesus Saurina who was the Director of the Financial Stability Department of the Bank of Spain. His paper is an academic one and makes the argument for the use of this process which is actually an admission that the books of the Spanish banks, and I would guess also the sovereign nation of Spain, have been manipulated on the basis of procyclicality. It is an interesting argument that he makes but my take is that it is little more than an academic justification for providing inaccurate data when it suits the bank or the country.
You may recall the two European bank stress tests. The first one was faulty as the data was manipulated and the second one was faulty because the methodology was manipulated. You may also remember that the Spanish banks were stated to be in good health, that Dexia was declared one of the safest banks in Europe and that the banks of Greece passed the tests with flying colors. The passage of time and the oft dreaded face of reality has proven my accusations of the time correct and it is pretty tough to argue with the actual results.
I have examined, in some detail, the actual debt of a number of European countries where only the use of simple addition and then division was employed. All that I did was count what Europe did not wish to count which were the actual liabilities, including the contingent ones, of the various nations. My work was exactly what is applied to any corporation in America which included derivative contracts, guarantees of other entities and so forth. My methodology was simple and applied the standard accounting practices of the United States to the sovereign nations of Europe. Material deviations in these practices in America would result in charges of Fraud while they are the accepted norm in Europe for the sovereign countries.
The resident institutions in the world where one thinks that accurate data may be found for Europe are Eurostat and the Bank for International Settlements. I have gone to the websites often to uncover data or to ferret out liabilities of various sorts. I have always accepted the numbers provided by these two institutions at face value but I am beginning to think this was a mistake. Spain and her official admission of “dynamic provisioning” has raised all kinds of questions in my mind and has unsettled my belief in the data provided by Europe to such an extent that I have been forced to totally re-examine the numbers that these two institutions have provided.
It is now quite apparent that the numbers for all of the Spanish banks, all of them, are inaccurate if American standards are applied. I also wonder aloud if the same is not true for the Italian Banks, the French banks as the experience of audits by the IMF has taught us that the figures for the Greek banks, the Portuguese banks and the Irish banks were not exactly Kosher. I find myself further forced to ponder whether the numbers for Spain, Italy and France also have been left to the imagination as Spain is trying every known strategy to avoid the Troika from coming in and examining the books. It may well be that the EU or the ECB could bury what may be found but it would be awfully tough for the IMF to hide any material breaches. Even when considering the IMF however, certain questions are raised. Their projections for Europe and each and every country in Europe have been wrong, dead wrong and far too optimistic. There is such a strong pattern here than I wonder if it is the methodology employed by the IMF or that the data provided by the European nations has been more fantasy than reality. Either option would provide a reason why the projections have been so incorrect and it may not be just one option or the other; but both.
I fear that the data given to us by Europe is erroneous. I know that in the case of the liabilities for the sovereign nations that it is wrong on the basis of the methodology employed. I know that the debt to GDP ratios are inaccurate because of what is not counted. I further know that contingent liabilities often become real liabilities as proven time and time again, that guarantees of bank debt, as in the case of Bankia in Spain or Dexia in Belgium, can become liabilities of the country if the bank falls by the wayside, that regional debt in many European countries is the responsibility of the sovereign, that nationally guaranteed derivative contracts, as in the case of Italy with $211 billion of such contracts, can get called upon as in the recent payment to Morgan Stanley. On a macro basis for Europe I am now forced to stop and wonder just what I am looking at and then realize that many of the financial calculations made and stamped with official by some country or the Press are exactly as stated by the Geeks; “Garbage in and Garbage out.”
A careful reading of the methodology utilized at Eurostat and the Bank for International Settlements reveals what I suspected; they accept the data from each country in Europe prima facie; nothing is checked or audited.Whatever is presented is accepted as fact. Consequently if a country, any country, has engaged in fairy tale arithmetic to protect their own national interests the financial calculations for any given nation and for Europe as a whole are inaccurate and no reliance can or should be made based upon their figures. We know, for certain, that Spain purposefully engages in fantasy accounting and so we know that we cannot rely upon their figures. This then would explain why Europe is in such trouble because if the data is not truthful then the truth, as most often happens, leaks out from underneath that which is hidden and provides the outcomes that the Europeans have tried so hard to avoid. I have wondered, many have wondered, why the crisis in Europe is so severe and I believe that I have found the answer; we have been staring at numbers that are not real and, whatever the real numbers are, they are providing the consequences that result from their actuality.

European Stocks Explode Higher As Spanish Bonds Implode

Tyler Durden's picture

Sigh. Spain's IBEX gained over 3%; Italy's MIB gained over 2%; and all but the UK's FTSE equity index ended very nicely green today (all jerked higher by Spain's comments on their bad-bank and then Bernanke's cover). However, European Government Bonds (EGBs) failed dismally. Spain's 10Y spread to bunds ended the week 46bps wider and Italy 15bps wider and while some point to the short-end as evidence that all is well, Spain saw modest weakness in the 2Y today post Bernanke (though Italy rallied). The curve steepening was dramatic to say the least as the market appearsd to be increasingly assuming the ECB will monetize short-dated govvies - our own view - consider what the implied forward financing costs are given these steep curves as clearly noone trusts this as a solution and will merely subordinate the entire market. Spain 2s10s curve is now at its steepest on record at 328bps! and this is not helping:
But buy stocks...

Spain 10Y spreads now wider than when Draghi 'promised'...

leaving the Spain 2s10s curve at all-time record steeps... sustainable? consider what forward funding costs are implied by this...

and credit did not follow stocks higher in the late-day...

and maybe this correlation will re-assert... (Spanish Bond risk - red - inverted against US equities (green)

Chart: Bloomberg


Your closing Spanish 10 year yield:


Add to Portfolio


6.857000.26300 3.99%


And now what to expect this coming week in Europe with the following two commentaries from zero hedge

(courtesy zero hedge)

Mission Intractable: ECB Bond-Buying Plan-For-A-Plan Will Self-Destruct In 24 Hours

Tyler Durden's picture

Have no fear; Europe closed and equities leaked so a quick series of European comments are more than required... Bankia, check! Bank backstops, check! ECB Bond-Buying Plan...
So no real idea what they are actually going to do. However!
Nothing new here - and that is why the market is entirely unimpressed...
Bear in mind Morgan Stanley's view of the ECB's meeting next week:
We don’t believe that the conditions for the ECB to start buying government bonds are likely to be met already at the upcoming Governing Council meeting on September 6.

Clearly, the ECB will aim to decide on the parameters of the bond purchase programme at the meeting – even though we doubt that the ECB would start buying on the day or that it will be sharing the full details of the programme with us and the markets at the press conference. Instead, we would expect Mario Draghi to stay vague on the exact shape of the purchase programme for several reasons:
  • First, the ECB tends to never pre-commit to any specific policy action and will like to keep its discretion.
  • Second, the nature of the programme itself is likely to be controversial on the Councilwhere there is likely to be a significant minority of sceptical members.
  • Third, the technical difficulties in determining the exact dose of what is likely to be a powerful, albeit also highly addictive, drug are a serious obstacle to speedy action.
Hence, Eurosystem staff might need more time to prepare and Council members more time to seek a compromise that ideally all (or at least almost all) Council members can support. At the same time, we would expect ECB President Draghi to stress the ECB’s determination “to do all it takes”. Any indication that the purchase programme is capped in size from the start would likely be viewed negatively by markets, we think.

The ECB 'Compromise' Cheat-Sheet

Tyler Durden's picture

With Bernanke leaving the door open, but not pre-committing, in a check-raise to Draghi next week, market focus remains almost exclusively on the bond-buying program to support Spain.Credit Suisse expects markets to be mildly disappointed by Draghi's words and deeds as they question how far he can go, and in terms of near-term market moves, how much is said at next week's meeting versus said at later occasions or indicated through actions (e.g. once Spain asks for help). Draghi has already started to manage expectations with his Die Zeit comments (pitched at the German populous) but in order to get a handle on what the various scenarios are - and what the implications could be - here is Credit Suisse's matrix of compromise.

Credit Suisse: Analysing the ECB scenarios
Exhibit 6 below shows the main scenarios we consider possible. Our central scenario is the Compromise Scenario where the ECB cuts the Repo Rate to 50bp, keeps the Deposit Rate at 0% and revises the collateral framework. We expect little new material information on the front end SMP bond buying program. To us, this will underwhelm market expectations and will lead to a modest rally in core markets.

But the fact that the ECB meeting may well disappoint on bond purchases at this meeting does not change our constructive view on 1y Spain and Italy. In fact, any disappointment-led widening in 1y Spain would ultimately provide an opportunity to add to longs in 1y (and longer if it is clear that there will be buying) bonds; i.e., the commitment to do something is clear enough, it’s just a question of timing.
In developing these scenarios, there are three main axes to consider. We delve into these in more detail below:
  • Front-end bond buying: the degree of detail we get next week will determine the tone of the market in the near term. The question of seniority remains key.
  • Revision to the collateral framework: we are expecting changes to the collateral framework. Reducing haircuts will effectively act as a Repo rate cut.
  • Policy rate cuts: we do not expect negative Deposit Rate in the near future. We expect the ECB to cut the Repo rate by 25bp to 0.5%.
Disappointment. Under this scenario, the ECB does not provide any new material information on the front-end bond buying program. The ECB does not cut the Repo Rate but only announces the revised collateral framework. We expect the lack of detail on the bond buying to support a rally led by the Bund. The front end can sell off (5-10bp) as the market readjusts expectations for a Repo Rate cut. Spain and Italy 2-3y are likely to underperform in this scenario.
Compromise. Our most likely scenario. We expect little or no new information on bond buying. We expect a modest rally in core markets and wider peripheral spreads. To us any sell off in the front ends of Italy and Spain are a buying opportunity as we expect the ECB to reinforce their willingness and ability to address current market fragmentation.
Positive. In this scenario, we expect a meaningful revision to the collateral framework, and specific details on the maturity and countries that will be included in the front-end bond buying program. We would also expect the ECB to convincingly address the issue of seniority of bond purchases. To us that would be positive for the periphery. We expect tighter soft core and peripheral spreads. German yields would shift higher. We wouldposition for this scenario by being short core yields.
Extremely positive. The least likely outcome. This scenario involves revision to the collateral framework that is immediately positive to the periphery (e.g. reducing haircuts on government bonds to a flat structure). The ECB cuts the Repo rate to 50bp and keeps the Deposit rate unchanged at 0%. Additionally, the ECB announces yield caps on the SMP program and addresses the seniority question convincingly. The immediate reaction is expected to be bearish steepening of the German 5s10s curve and tighter ASW, soft core and peripheral spreads.

Ben's J-Hole Speech: Goldman's Take

Tyler Durden's picture

Ben's prepared remarks went off embargo at 10:00 am Eastern. The text (just the body, excluding appendices) had 4,549 words, 254 commas and 173 periods. It took Goldman 40 minutes to read it, write a 579 word response, proofread, get it through compliance, and shoot it to all clients. Now that'sefficiency. The title? "Bernanke Makes Case for Effectiveness of Unconventional Easing" of course, even though the real shocker in the speech was that Bernanke for the first time as far as we recall admitted that the sentiment that QE is not working may result in a Catch 22 where every incremental and larger QE episode has diminishing returns (just as we have been warning for years). 
Here is the full Goldman's pret-a-portersender response:
Bernanke Makes Case for Effectiveness of Unconventional Easing
Fed Chairman Bernanke's Jackson Hole speech makes the case for unconventional monetary easing--in particular, balance sheet and communication policies--as an effective tool, even if the "hurdle is higher" for the use of such policies. In a dovish conclusion, he notes the poor state of the labor market as a "grave concern".
1. Fed Chairman Bernanke's keynote speech at the annual Jackson Hole conference reviewed monetary policy during the crisis, described the methods of action of balance sheet tools and communication (guidance) policies, and reviewed the potential costs of asset purchases. In conclusion, Bernanke emphasized that unconventional easing can be an effective tool of monetary policy and highlighted the still-weak state of the US labor market as a "grave concern".
2. Bernanke began his speech with a discussion of policies during the crisis; while the details of what occurred here are well known, this section was noteworthy for a frank admission that given the "limited historical experience" with nontraditional monetary easing, policymakers "have been in the process of learning by doing".
3. Bernanke discussed the ways in which balance sheet policies can affect the economy--focusing on the imperfect substitutability of assets and the consequent ability for reductions in the supply of a given asset to affect its price/yield; he also noted the signaling effect of such policies and the potential for them to aid the functioning of distressed markets. He cited research showing that asset purchases lower Treasury, MBS, and corporate bond yields, and noted "a study using the Board's FRB/US model of the economy found that, as of 2012, the first two rounds of LSAPs may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred", though with the caveat that "It is likely that the crisis and the recession have attenuated some of the normal transmission channels of monetary policy relative to what is assumed in the models". As for rate guidance, Bernanke defended the current forward guidance as "broadly consistent with prescriptions coming from a range of standard benchmarks" but went on to note its influence on market expectations and say that "a number of considerations also argue for planning to keep rates low for a longer time than implied by policy rules developed during more normal periods."
4. Bernanke reviewed the potential costs of nontraditional policy in more detail than previously. For asset purchases, these included 1) possible impairment of market functioning, 2) public/market concern about the Fed's "ability to exit smoothly from its accommodative policies", 3) risks to financial stability as lower rates push investors to search for yield in riskier assets, 4) financial losses for the Fed on its securities holdings if rates rise sharply. He summed up by saying "the hurdle for using nontraditional policies should be higher" but that "we should not rule out the further use of such policies if economic conditions warrant."
5. The speech concluded with the near-term outlook--held back in Bernanke's view by a slow recovery in housing, government fiscal drag, and financial market stress (particularly because of the Euro area crisis). The final note was dovish, with Bernanke emphasizing that "we must not lose sight of the daunting economic challenges that confront our nation" and professing "grave concern" with the weak labor market and the potential structural damage that could result from persistently high unemployment.
California is trying to tackle the public pension shortfall.  Union leaders are very upset as new employees must work two years longer for less benefits. They state that this violates collective bargaining rights. The savings will reduce the state's unfunded pension liability.

UPDATE 3-California leaders strike public pension reform deal

Related News

Tue Aug 28, 2012 11:59pm EDT

* Pensions for new employees less generous

* Savings will reduce state's unfunded pension liability
* Unions outraged, say violates collective bargaining rights
LOS ANGELES, Aug 28 (Reuters) - California Governor Jerry Brown and lawmakers have reached a deal to raise public employees' retirement ages, have them pay more into their pension accounts, and cap retirement payments in a vast overhaul of the state's pension system that he says will save $30 billion.
Union leaders panned the deal between Brown and fellow Democrats who control the legislature and hope to drum up support for his tax measure on the November ballot by showing voters they can tackle big challenges.
California faces a huge liability for funding the nation's largest public pension system, but other states and cities also have enormous pension funding gaps and will be watching the state closely.
Brown did not get everything he wanted from lawmakers, such as a hybrid plan that would funnel some contributions into 401(k)-style accounts, and some of the deal's measures will not affect current employees.
But Brown told a news event in Los Angeles that the changes would ensure the state's pension system would be sustainable.
"We have lived beyond our means," he said. "The chickens are coming home to roost and this is just one in a series of countermeasures that will be required over the next decade."
The legislature's Democratic leaders plan for the full state Senate and Assembly to vote on the changes on Friday, the last day of the legislature's session for this year.
Democrats have enough votes on their own to approve the plan, which is based on proposals made by Brown last year. The legislature's Republican minority endorsed his proposals.
The package of reforms includes provisions that will require new state and local government workers to split payments to pension accounts at least evenly with their employers.
Local governments using the state's pension fund to manage retirement accounts could impose higher payments from employees if they are unable to negotiate the 50-50 split in five years.
New employees must work two additional years to get maximum benefits after retirement. Formulas used to calculate pensions for new employees will be changed, making them less generous.
Government employers will be given more flexibility in crafting pension plans and new rules will be put in place to prevent inflated pension payments.
Additionally, savings to the state from employees paying more toward their pensions will be used to reduce its unfunded pension liability.
"Anything that reduces the state's unfunded pension obligation would be a good thing," said Steven Zimmermann, Western Region managing director at Standard & Poor's Ratings Services.
Democrats in a conference committee of both legislative chambers approved the deal 4-0 late on Tuesday. The two Republicans on the committee abstained, protesting lack of time to study the measures, and labor groups were stunned.
"We are outraged that a Democratic governor and Democratic legislature are taking a wrecking ball to retirement security for teachers, firefighters, school employees, and police officers," said Dave Low, chairman of Californians for Retirement Security, which represents 1.5 million public employees and retirees.
Outside the state building where Brown unveiled the agreement, union activists said the deal unfairly bypassed collective bargaining rights.
"Labor did not have input on this and we are very, very concerned on what this will mean for rank-and-file workers," said Barbara Maynard, also with Californians for Retirement Security.
Brown has lobbied lawmakers for a pension package since last year and has said that putting changes into law is critical for helping convince voters to support his November tax measure.
If voters reject the measure, California will need to cut more spending, including more than $5 billion from popular education programs, to keep its books balanced. The measure would increase the state sales tax to 7.5 percent from 7.25 percent for four years and raise income taxes on Californians making more than $250,000 a year for seven years.
"Pension reform is just a big issue for folks these days," said Larry Gerston, a political scientist at San Jose State University. "This helps build his credibility."


An amusing commentary from Charles Hug Smith:

Guest Post: The Real Reverse Robin Hood: Ben Bernanke And His Merry Band Of Thieves

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Away from the stifling media crush, staid Ben Bernanke is dashing Reverse Robin Hood, lackey pawn of the Neofeudalist Financial Lords who shamelessly steals from the poor to give to the parasitic super-rich.
Amidst electioneering chatter about a "reverse Robin Hood" who steals from the poor to give to the rich, it's important to identify the real Reverse Robin Hood: Ben Bernanke and his Merry Band of Thieves, a.k.a. the Federal Reserve. It's especially appropriate to reveal Ben as the real Reverse Robin Hood today, as the Chairman is as omnipresent in the media as Big Brother due to the Cargo-Cult confab in Jackson Hole, Wyoming.
Please answer the following questions before launching a rousing defense of the All-Powerful Fed and its chairman:
1. What is the nominal yield on your savings account, thanks to the Fed's zero-interest rate policy (ZIRP)? (Answer: 0.25%)
2. What is the inflation-adjusted yield on your savings account?(Answer: - 2.25%)
3. What is the rate of interest the Fed charges banks for "free money"? (Answer: 0%)
4. What is the average interest rate for bank-issued credit cards? (Answer: 14.52%)
5. What is the interest rate for student loans? (Answer: 6.8%, and 7.9% or 8.5% for PLUS loans)
6. Does the Fed pay interest on the funds banks have borrowed from the Fed for 0% and then deposited with the Fed?(Answer: yes)
7. Exactly how has the average American worker benefited from the Fed's policies? (Answer: interest on credit cards has declined from 19.9% to 14.52%, if the worker has outstanding credit, which few of the bottom 90% do.)Theoretically, workers could re-finance their homes at lower interest rates, but the vast majority are either underwater or no longer qualify. Ben and the Merry Thieves love pulling Catch 22.
8. How has the average parasitic Neofeudalist Financial Lord benefited from the Fed's "rob the poor to give to the rich" policies? (Answer: Handsomely. The top 1%'s income and net worth has soared as Ben and his Merry Band of Thieves have stripmined interest income from the poor and pension funds and diverted it to the rich.)

9. Have the Fed's Reverse Robin Hood policies narrowed income disparity in the U.S.? (Answer: no--income disparity has widened further as a result of Fed goosing of risk assets.)
10. How many of the nation's 14.5 million unemployed have gotten jobs as a result of Fed policies who would not have gotten a job if the Fed had been abolished in 2009? (Answer: unknown, but the best guess is 17, including Bennie the part-time janitor, with a statistical error of + or - 17.)
11. How does Ben the Reverse Robin Hood justify his thievery?(Answer: he doesn't. Officially sanctioned propaganda casts him in the role of selfless do-gooder, protecting saintly Neofeudalist Financial Lords from restless debt-serfs.)
Listen up, debt-serfs, you have it good here on the manor estate. You get three squares of greasy fast-food or heavily processed faux-food a day, and if Reverse Robin Hood and his Merry Band of Thieves is ripping you off it's for a good reason: the predatory Neofeudalist Financial Lords need the money more than you do, as they have a lot of political bribes to pay: it's an election year, and the bribes are getting increasingly costly. Poor things, we're sure you understand. Now go back to work or watching entertainment (or "news," heh) and leave the Lords alone.


Ring The Bell: Treasury Debt Now Over $16 Trillion - A Modest Proposal

Behind every small business, there’s a story worth knowing.  All the corner shops in our towns and cities, the restaurants, cleaners, gyms, hair salons, hardware stores – these didn’t come out of nowhere.  A lot of heart goes into each one.  And if small businesspeople say they made it on their own, all they are saying is that nobody else worked seven days a week in their place.  Nobody showed up in their place to open the door at five in the morning.  Nobody did their thinking, and worrying, and sweating for them.  After all that work, and in a bad economy, it sure doesn’t help to hear from their president that government gets the credit.  What they deserve to hear is the truth: Yes, you did build that. - Paul Ryan, Republican VP Candidate, RNC Speech
I just want to preface that my using that passage from Ryan's speech last night in no way is an endorsement of the Romney/Ryan ticket for the Presidency.  In fact, as I've stated on this blog previously, I firmly believe the best way to get real change in this country is if no one shows up to vote on election day, which would de facto invalidate our Government.

People accuse me of being unpatriotic and ungrateful for not voting.  But, au contraire, I would argue that anyone who does vote is affirming and legitimizing an illegitimate system.  Our Governmental system bears no resemblance to the system ratified and put in place by the Constitution and our "elected" officials - nearly every one of them - is either a complete fraud (Obama) or thoroughly corrupt.

Moving along, I wanted to point out that as of Tuesday's debt issuance by the Government, our national Treasury debt officially exceeds $16 trillion.  The debt ceiling limit put in place in 2010 is $16.394 trillion.  It was lifted to this level at the end of January 2012.  At this rate of new debt issuance, roughly $114 billion per month, the Government will exceed its legal debt limit by the beginning of December.  And please keep in mind that there is off-balance-sheet Government guaranteed debt in the form of Fannie Mae, Freddie Mac, FHA and General Motors.  That extra $8-10 trillion gets conveniently left out of everyone's discussion.  But not mine.

Furthermore,  a report was released earlier this week showing that the 50 individual States collectively have over $4 trillion in outstanding bonds, unfunded pension commitments and budget gaps:  LINK If you add that to the debt that is an obligation of the U.S. Treasury (vs. all the "legacy" liabilities like under-funded Federal pensions, social security, medicare, etc), you have around $30 Trillion in Federal and State direct debt.  That's about 200% of GDP.  That ratio makes Greece and Spain look like "gold standard" countries.

When will this debt/dollar bubble finally burst?  Anyone's guess is as good as mine, but mathematically this can not go on much longer.  Either the Government has to shut everything down except the functions provided in the Constitution or the Fed has to crank up the printing press in a major way.  I will say that anyone who owns Treasury bonds, from the Chinese Central Bank to the lowliest American retiree, is a complete idiot.  I'd rather own a big bag of shit.  At least I can sell the bag of shit for use as crop fertilizer.

Circling back to my endorsement of that particular passage from Ryan's speech last night (honestly, that was actually the only part I heard as I had clicked on to CNN randomly and there it was.  It was also the first time I've heard Ryan give a speech - his voice makes him sound like a high-pitched pin-head - it's bad enough that he looks like Pee Wee Herman), it was clearly a massive missile fired at Obama's comment that American business owners owe their success to the Government.  I don't think anything I've heard Obama say has pissed me off more than that.   Obama owes his "success" to the Government and to all the socialist programs put in place like Affirmative Action which have enabled Obama throughout his life.

Obama has been a lifelong beneficiary of public spending and the public payroll.   In fact, Obama has made more than enough money off of his book deals to live comfortably and I have this modest proposal:  Obama should be the first person on Capitol Hill who gives up his Taxpayer and debt-financed salary plus benefits in order to help solve our catastrophic debt problem .  And he should step forward as a leader and call on all members of Congress who have personal wealth to give up their Congressional pay and benefits.  I think as public servants this is the least they all can do.


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