Saturday, September 8, 2012

Poor jobs report causes gold and silver to skyrocket/Reports from Europe on their "operation twist"

Good morning Ladies and Gentlemen:

Gold had a monstrous day on Friday closing at $1737.70, rising by $35.10 dollars on the day.  Silver joined in the fun rising by $1.02 to finish the comex session at $33.64.

In the close of the access market here are your final prices for gold and silver:

gold: $1735.30
silver:  $33.68

Gold and silver jumped due to the high expectation that official QEIII will commence shortly in the USA maybe right after the next FOMC meeting.  Jan Hatzius, the mouthpiece for the Fed hurriedly wrote a piece in the Wall Street Journal immediately after the jobs reports stating exactly that.  We will highlight the jobs report and its meaning in the body of the commentary.  Bruce Krasting has delivered an important piece from Europe that I urge you all to read very carefully.  But first ......

Let us head over to the comex and assess trading on Friday.
The total comex gold OI rose by 4598 contracts with this weekend's final reading registering 448,693 compared to Thursday's level of 444,095.  No doubt the bankers had their midnight oil meeting, Thursday night, planning to cause some raucous in gold and silver as they generally do.  However the poor payroll results nullified that in a hurry causing our bankers to retreat to higher ground.  They will regroup and try again at a time set forth by the banking cartel with government inner circle joining in on the criminal collusion.  The front Sept gold month saw its OI fall from 91 contracts to 79 for a loss of 12 contracts.  We had 16 notices filed on Thursday so we again gained in gold ounces standing.  The next active gold month is October and we are 31/2 weeks away from first day notice.  In October, we had the OI fall from 27,922 to 26,657 as the longs would rather play the more liquid and fun month of December.  Thus the fall in OI registers 1265 as half of these guys rolled into December.  The active December contract saw its OI  rise by only 680 contracts from 300,196 to 300,876.  The bankers and inner circle government higher echelon are watching this level with bated breath. The estimated volume at the gold comex on Friday registered a terrific performance at 222,559 with little switches.  The confirmed volume on Thursday was also very good at 195,295.

 The total silver comex OI continues to confound our bankers.  The silver complex OI rose marginally by 110 contracts from 119,285 to 119,395.  Obviously silver is trading different to gold as the bankers seem to loathe supplying additional paper short.  No doubt we lost quite a few bankers on Friday in both gold and silver.  The front active delivery month of September saw its OI fall from 727 contracts from 1830 to 1103.
We had 485 delivery notices filed on Thursday so we lost another 242 contracts or  1.21 million oz of silver to cash settlements.  With silver rising exponentially these past few days, the chances that these guys rolled with no cash incentives are slight. The non active silver month of October saw its OI fall by 23 contracts and presumably these guys rolled into December.  The next big active month for silver will be December and no doubt this month may play out as a "Battle of Waterloo" for our bankers as they try with added vigour defending their turf  in the paper precious metals game. The estimated volume at the silver comex on Friday registered a superb 56,702 contracts.  The confirmed volume on Thursday was even better at 58,480.

Comex gold figures for September:

Sept 8-.2012   

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
4134.57 (JPM)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
1,768.25 (HSBC)
No of oz served (contracts) today
(5) 500oz
No of oz to be served (notices)
(74) 7400 oz
Total monthly oz gold served (contracts) so far this month
(678)  67,800 oz
Total accumulative withdrawal of gold from the Dealers inventory this month
181,550.76 oz
Total accumulative withdrawal of gold from the Customer inventory this month


Very light activity inside the gold vaults on Friday.
We had no dealer activity.

The customer received the following gold deposit:

i) Into HSBC vault:  1,768.25 oz

The customer had a tiny withdrawal:

i) Out of JPM:  4,134 oz.

we had only one adjustment whereby 100.14 oz was adjusted out of the customer side of Scotia and enter the dealer side in a probably lease arrangement.

The total registered or dealer inventory rests this weekend at 2.584 million oz or 80.37 tonnes of gold.
The CME notified us that we had only 5 notices filed for 500 oz of gold.  The total number of notices
filed so far this month total 678 for 67800 oz of gold.  To obtain what is left to be filed upon, I take the OI standing for December (79) and subtract out Friday's deliveries (5) which leaves us with 74 notices or 7400 oz left to be filed upon our longs.

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

67800 oz (served)  +  7400 oz (to be served upon)  =  75,200 oz (2.34 tonnes of gold)
we gained 400 oz of additional gold standing.  This is a good performance for physical deliveries in a generally poor delivery month.


September 8 /2012 

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 30,599.80 (Scotia)
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory600,848.70  (Brinks,)
No of oz served (contracts)157  (785,000 oz)
No of oz to be served (notices)946 (4,730,000) oz
Total monthly oz silver served (contracts)990 (4,165,000)
Total accumulative withdrawal of silver from the Dealers inventory this month310,045.28
Total accumulative withdrawal of silver from the Customer inventory this month8,931,254.9
 Friday was also very quiet in the silver vaults.
We had no dealer activity.

The customer had the following silver deposit:  600,848.70 oz into Brinks
The customer had the following silver withdrawal:  30,599.80 oz.
We had one adjustment of 58,923.90 oz of silver leave the customer at Scotia and enter the dealer at Scotia.

Thus the registered or dealer silver rests this weekend at 38.431 million oz
The total of all silver rests at 141.384 million oz.

The CME notified us that we another chunky 157 notices filed on Friday for785,000 of silver.
The total number of silver notices filed so far this month total 990 for 4,950,000 oz.  To obtain what is left to be filed upon, I take the OI standing for September (1103) and subtract out Friday's delivery notices (157)
which leaves us with 946 or 4,730,000 oz 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:

4,950,000 oz (served)  +  4,730,000 oz (to be served upon)  =  9,680,000 oz
we lost another 1.21 million oz of silver to cash settlements.


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 8.2012:

Total Gold in Trust



Value US$:71,811,974,878.41

sept 6.2012:




Value US$:70,690,216,708.91

sept 5.2012:




Value US$:70,233,656,951.28

sept 4.2012:




Value US$:70,525,454,209.46

today we neither  gained nor lost any  gold into or out of the GLD.
Strange! we have had a huge run in the price of gold and these bozos have decided in their great wisdom not to add gold into their inventory.  I wonder why?

And now for silver:

Sept 8.2012:

Ounces of Silver in Trust312,962,655.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,734.23

sept 6.2012:

Ounces of Silver in Trust312,962,655.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,734.23

sept 5.2012:

Ounces of Silver in Trust310,028,547.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,642.97

sept 4.2012:

Ounces of Silver in Trust310,949,150.600
Tonnes of Silver in Trust Tonnes of Silver in Trust9,671.60

sept 1.2012:

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

Yesterday, the SLV boys decided in their great wisdom not to add any more silver into their inventory.  Silver, like gold has had a great run this week and yet hardly any silver entered.  Again I ask why not?


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 7.9percent to NAV in usa funds and a positive 7.9%  to NAV for Cdn funds. ( Sept 8 .2012)

2. Sprott silver fund (PSLV): Premium to NAV  fell slightly today  to  4.27% to NAV  Sept 8/2012   :
3. Sprott gold fund (PHYS): premium to NAV fell  to 2.61% positive to NAV Sept 8 .2012.  The reason for the fall was due to the big purchase of gold by Sprott.  The doorknob funds sold on this news. They should have been buying with reckless abandon as precious physical gold is removed from the market.

Demand for physical is very hot.

 Now we witness the Central fund of Canada  gaining big time in its positive to NAV, as we now see CEF at a positive 7.9% in usa and 7.9% in Canadian.This fund is back in premiums to it's former self and it is  about time. Even the Sprott silver fund is almost back to a normal positive to NAV with its premium this weekend at 4.27%. 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.


Friday night at 3:30 pm we get the COT report which is from Tuesday.  Last week was a dandy.  Wait until you see the latest gold COT as it surpasses last week.  Mr  CFTC regulators ahoy!! are you out there?

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, September 04, 2012

Our large speculators:

Those large speculators that have been long in gold certainly loved the lay of the land and bought another 10,265 contracts to their long side and these guys were deeply rewarded this week and are now rejoicing at their local pub.

Those large speculators that have been short in gold covered a very tiny 1708 contracts from their short side.

Generally a good performance from our large speculators.

And now for our heroes, the commercials.

Those commercials that have been long in gold and are close to the physical scene and are generally referred to Ted Butler as raptors:  added another tiny 696 contracts to their long side.

Those commercials that have been short in gold from around the time of Alexander the Great onward, saw these guys add another whopping 16,458 contracts to their short side swelling their positions to dizzying heights.  This is of concern to them as they must orchestrate some of their famous raids to lower these levels due to its inherent risk of default.

Our small specs:

The small specs that have been long in gold, like their senior cousins, the large specs, added a rather large for them , 3273 contracts to their long side.

The small specs that have been short in gold, did not like the lay of the land and covered 516 contracts from their short side.

The small specs are also rejoicing tonight.

Conclusion:  the commercials went net short another 15,762 contracts in full view of our regulators.
This is bearish as they must act forthwith to lessen their exposure or else commercial failure.

and now for our silver COT report:

Take a close look at the silver COT and you will see a remarkable difference with respect to the position levels of our major players to gold.  As I have told you on countless occasions, the bankers are loathe to supply the short paper. No wonder silver had an amazing run this week:

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

Tuesday, September 04, 2012

Our large speculators;

Those large speculators that are long in silver liked the lay of the land like their cousins in gold as they added another 2575 contracts to their long side.

Those large speculators that have been short in silver covered a good sized 1217 contracts and they are happy that they did that deed.

Our commercials;

Those commercials that were long in silver somehow did not see the tea leaves properly and they pitched a huge 5742 contracts from their long side.

Those commercials that have been short in silver also from the beginning of time, added a small 604 contracts to their short side.

Our small specs:

Those small specs that have been long in silver loved what they saw and added 1510 contracts to their long side.

Those small specs that have been short in silver covered 1044 contracts and are somewhat relieved that they did that preventing a full rout.

Conclusion: the commercials went net short by another 6346 contracts which again is bearish.  Against a big rise in silver certainly raises some concerns on the health of the banks of a possible commercial failure in silver.

I would also like to point out that the lease rates in gold ended this week all in the negative.  The bankers would lower the lease rates trying to encourages imbeciles to lease.

In silver all of the lease rates were positive probably indicating a shortage of metal to lease.


And now for some physical stories:

The Government of India continues to berate Indians for buying gold.

(courtesy The times of India/GATA)

Central banker berates Indians for preferring gold to a crappy currency

RBI Advises Against Gold Investment
From The Times of India, Mumbai
Friday, September 7, 2012
MUMBAI -- On a day gold prices touched a new high, the Reserve Bank of India urged the public against choosing gold as an asset for savings or investment.
"Because interest rates are very low, people are investing in gold. But the poor should never invest in gold, for whenever they have purchased gold, it either lands up in the temple or in the hands of the moneylender or, at most, it may be given away during a daughter's marriage," said RBI Deputy Governor K.C. Chakrabarty.

Speaking at a function that marked the eighth edition of the M.R.Pai Awards, given in memory of the founder of the All-India Bank Depositors Association, Chakrabarty said that this is one area in which the association needs to educate the public.
"How many poor people," Chakrabarty asked, "have managed to save money by buying gold? Banks are selling gold, but do they buy it back? And if they do, at what price?"
The deputy governor added that the $60 billion worth of gold India imported annually was one of the main reasons behind the current account deficit.
This is the second time that the deputy governor has spoken out against investing in gold. At an event in Delhi in July, he said that there was a need for a socio-cultural revolution to help Indians overcome their love for gold.
India is the world's largest consumer of gold and is estimated to have imported close to a thousand tonnes in 2011. Although imports have dropped following the increase in customs duty in the 2012 budget, the value of imports continues to remain high thanks to the rise in prices and the weakening rupee.
Despite the import drop, domestic gold prices continue to rule high with the yellow metal being seen as a strong hedge against inflation.


And now the big report from Goldcore on physical trading overnight in London, Thursday night.

Mainland China continues to buy massive amounts of gold.  In July they purchased 75.84 metric tonnes from their gateway, Hong Kong.  At this rate they will import close to 910 tonnes or 38.% of annual global production ex China itself.  This is double from one year ago.

Demand is now rampant in China, Russia, Turkey and Iran.  The bankers are having a tough time shorting paper when the physical demand is dwarfing paper shorts.  The LBMA must have some serious problems as most of the physical for these countries are sourced here.  The bankers will be left with a bag of paper gold against their massive shorts. We should be on the lookout for some bankers falling out of windows this weekend!!

(courtesy Golcore/trading in gold on Thursday night)

Gold Imports To China From Hong Kong Double Again On Haven Demand

-- Posted Friday, 7 September 2012 | Share this article | Source:

Today’s AM fix was USD 1,696.00, EUR 1,337.75and GBP 1,062.06 per ounce.
Yesterday’s AM fix was USD 1,708.50, EUR 1,355.09and GBP 
1,074.53 per ounce.

Cross Currency Table – (Bloomberg)

Gold climbed $6.70 or 0.4% in New York yesterday and closed at $1,700.30. Gold in euro’s also rose to near record highs prior to falls soon after the ECB interest rate and bond buying announcement.

Silver outperformed once again and surged to $32.987 and then dropped to $32.346 in early New York trade but then it recovered and finished up 1.24%.
XAU/CHF Currency – (Bloomberg)

Gold is lower in all major currencies today except the Swiss franc which has come under pressure on speculation the SNB will lift their completely unsustainable peg to the euro.

Gold rose in anticipation of the ECB embarking on another money printing exercise with a potentially unlimited bond-buying programme. There was then an element of ‘buy on the rumour and sell on the news’ as gold then saw slight falls on the well flagged announcement.

Markets rallied around Mario Draghi’s ‘bazooka’ that was able to silence the Bundesbank's Jens Weidmann and force his latest money printing exercise through.  The can has been kicked down the road and the euro will survive a bit longer.

At least until the next sovereign debt crisis develops – possibly as soon as next week, on September 12th, when the German Constitutional Court delivers their verdict regarding the 500 billion euro European Stability Mechanism (ESM).  The court is reported to be divided in its opinion.

XAU/EUR Currency – (Bloomberg)
Banker ‘Super Mario’ won this battle but the Bundesbank and the will of the German people may ultimately win the war.

Investors will watch the US nonfarm payrolls (1230 GMT) number as a clue as to whether the US Fed will launch QE3 at their policy meeting in September.

South Africa's platinum sector is still in discord as the AMCU union refused to sign a "peace deal" with Lonmin, stifling government-backed efforts to open pay talks and end a 4 week work stoppage that resulted in multiple deaths.   
G21 Gold Price  – (Bloomberg)
Gold ETF’s hit a record for the third straight day. The amount increased 1.3 metric tons, or 0.1 percent, to 2,471.97 tons, data tracked by Bloomberg showed.

Gold imports by China from Hong Kong rose in July as Chinese people renewed their buying of gold to hedge against financial market’s turmoil and weaker currencies with increasing concerns about the Chinese economy and stock and property markets.

Mainland China bought 75,842 kilograms (75.84 metric tons) of gold in July, including scrap and coins, almost double the 38,143 kilograms a year earlier, according to export data from the Census and Statistics Department of the Hong Kong government which was reported by Bloomberg.

It was the first rise in imports after three months of slightly lower imports. Shipments were a record 103,644.5 kilograms in April, according to the department. China doesn’t publish such data.

Gold shipments from Hong Kong to China surged to 458,628 kilograms (458.628 metric tonnes) in the first seven months of 2012 from 103,090 kilograms (103.09 metric tonnes) in 2011.

Exports of gold to Hong Kong from China were 30,038 kilograms in July, according to a separate Statistics Department statement, up from 27,507.5 kilograms in June.

XAU/GBP Currency – (Bloomberg)

For the week, the precious metals look set to again outperform fiat currencies with all four precious metals higher against the dollar (see G10 and Precious Metals Weekly Returns).

Gold is flat in dollars, slightly lower in euro and pound terms and slightly higher in Japanese Yen, Norwegian Krone and Swiss franc terms for the week.

All in all it was a week of consolidation for gold and further gains for the other precious metals.

G10 and Precious Metals Weekly Returns


Peak Silver Is Here – Max Keiser

For breaking news and commentary on financial markets and gold, follow us on 
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And finally Tom Fitzpatrick talks with Eric King on six charts suggesting that gold is a better investment than anything else.

also Jim Sinclair:  co-ordinated central bank monetary stimulus is taking place right now and gold will head to 3500.00

I agree with him!!

(courtesy Tom Fitzpatrick/Jim Sinclair/Kingworld news/)

Tom Fitzpatrick's charts and Jim Sinclair: Gold is the place to be

11:37a ET Friday, September 7, 2012
Dear Friend of GATA and Gold:
Market analyst Tom Fitzpatrick today gives King World News six charts suggesting that a certain yellow precious metal, long disparaged by everyone aspiring to respectability, is a far better investment than anything else. Fitzpatrick's charts and accompanying commentary are posted at the King World News blog here:
Jim Sinclair explains it at JSMineSet: Coordinated central bank monetary "stimulus" is taking place and gold is going to and through $3,500:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc

And now for the important paper stories:


Overnight China rebounded with news that government is going to spur development of roads and subways. The markets took this news with delight as the Shanghai stock exchange rose by a huge 4%, the most in over 4 months.  The Europhoria continued on into Europe with all bourses in the green as I outlined below.
The Eur/USA key currency exchange rose to 1.27 and the Canadian dollar rose to 1.019 against the USA dollar.  As we head into the jobs reports, the risk on trade has the algos going full steam. The Spanish ibex rose despite industrial production falling 5.4% far more than the projected 5.2%. German industrial production rose unexpectedly as did the UK sending the signals for a green light buying of equities throughout Europe early Friday morning.

(your overnight summary from Asia and European trading heading into NY/courtesy zero hedge)

Overnight Summary: EURophoria Continues Into Payrolls

Tyler Durden's picture

The EURophoria which commenced yesterday after the repeatedly pre-leaked Mario Draghi speech, has continued into the overnight session, this time getting a helping hand from China, whose Shanghai Composite index is up by just under 4% or the most in eight months following an announcement that The National Development & Reform Commission, China’s top planning agency, said it approved plans to build 2,018 kilometers (1,254 miles) of roads, a day after it backed plans for subway projects in 18 cities. In other words China's empty cities will still be empty but will now be connected and have even better infrastructure. Irrelevant of how the extra money has been injected, or for what ends, the stock and bond markets around the world are enjoying the news, with the EURUSD rising to 1.2700 recently, the Spanish 10 Year sliding to under 6% and the lowest since March despite Industrial Output sliding 5.4% or more than the 5.2% expected, even as German 2 year yield rise to the highest since July despite strong German trade surplusand Industrial Production data, with European equities green across the board and the EURCHF in mid-1.21 territory on louder unfounded rumors the SNB will hike the peg to 1.22/1.23. And with the European action in teh rearview mirror (more below), all eyes turn to today's key report, the August Non-Farm Payrolls.
Bloomberg's summary bulletin present another comprehensive summary:
  • Treasuries decline for fourth day, with 30-yr yields leading curve steeper; nonfarm payrolls report due at 8:30am New York time, economists forecast +130k, +142k private payrolls, unemployment rate holding at 8.3%.
  • Italian and Spanish bonds extended gains, with Spanish 10-yr yield below 6%, 2-yr falling to lowest since April. Peripheral spreads tighten as German bunds fall for sixth day
  • Barclay’s expects Spain to request “precautionary program” before EU’s Oct. 18-19 summit, which will allow ECB’s OMT to begin
  • An imminent intervention in either Spain or Italy less likely now than last month, analysts led by Nomura’s Chief European Economist Jacques Cailloux wrote in a research note
  • Industrial production unexpectedly rose in Germany; U.K.’s surged by the most in 25 years
  • Ifo Institute president Hans-Werner Sinn argues that Germany is paying more than it thinks for Greece’s fiscal recklessness and that the struggling southern European nation should long ago have left the euro zone
  • China approved plans to build 2,018 kilometers (1,254 miles) of roads, spurring the biggest stock- market rally in almost eight months
  • Barack Obama asked for a second term with a pledge to keep rebuilding a battered economy in a way that “may be harder but it leads to a better place”
  • EUR/USD extends yesterday’s gains, reaches highest since June 28. European stocks and U.S. equity-index futures higher. Energy complex gains
For those who need a full explanation of what has happened in the past 24 hours, here is DB's Jim Reid doing just that.
With the door for bond purchases now left open the ball is now back in Spain and probably Italy's court as well. Spanish PM Rajoy and Italian PM Monti have been amongst the most vocal proponents of further EU action to bring down funding costs. After hosting a meeting with Merkel at Madrid yesterday, Rajoy said that the conditions attached to a potential EU rescue weren't discussed and refused to discuss his views on the ECB's statement yesterday. But according to our European economists, negotiations are probably already underway, with Spain probably looking to limit the scope of the MoU to measures that Madrid has already decided to take in any case. Since the German government, the IMF and the EC have been publicly appreciative of Spain's efforts, finding a compromise should not be too complicated. Meanwhile, Italian PM Monti said the OMT reduces the stigma of asking for aid but reiterated that avoiding seek aid remains a priority.

The ECB's decisions yesterday saw a further decline in the funding costs of Spain and Italy. Spanish 2yr and 10yr yields were down 19bp and 39bps respectively with the 10yr (6.03%) closing at the lowest since 11 May 2012. Italy's 10yr yield declined 25bps yesterday to 5.261%, lowest since 3 April 2012. Spanish and Italian 10yr rates have fallen by 83bo and 59bp this week. The EUR/USD added +0.24% with upside perhaps being capped by the positive US data flow yesterday.

Indeed August non-manufacturing ISM rose approximately one point to 53.7 (vs 52.5 expected) mostly driven by growth in employment (53.8 vs. 49.3). Joe Lavorgna points out that in the past this indicator has been highly correlated with private sector payroll growth. On that note the August ADP employment report yesterday also topped expectations (201k vs 140k expected) whereas the latest jobless claims (365k vs 374k prior) also pointed towards continued labour market improvements.

With all that the S&P500 surged 2.04% higher to close at a YTD high of 1,432 (also the highest since May 2008). It was a strong day for all ten major S&P 500 sectors led by gains in Materials (+2.59%), Financials (+2.43%) and IT (+2.40%). The S&P 500 aside we note that the Dow, NASDAQ, and the DAX are also up +8.8%, +20.3%, and +21.5% respectively this year, at YTD highs.  Brent crude oil underperformed (-0.4%) following reports that the US government may release oil from its Strategic Petroleum Reserve.

Overnight markets are trading up, led by the Nikkei (+1.7%) and KOSPI (+2.0%). The Shanghai Composite (+3.0%) is on track for its largest one-day gain in 6 months on the back of news that China's NDRC has approved a plan to build over 2000kms of highways to help boost economic growth. The news follows announcements earlier in the week that the NDRC will approve subway projects in 18 cities across China. Fitch upgraded Korea to AA- yesterday, citing continued economic and financial stability and fiscal discipline. This follows on from Moody's upgrade last week and is adding further tightening pressure on Korea's CDS. Korea now trades 2bp inside China.

With the ECB and Draghi out of the way we are left with non-farm payrolls as the final key event for the week. A good report will perhaps add further fuel to the current risk-on mood while a sharply weaker report will probably re-ignite the QE debate. For the record the market is looking for a headline and private payrolls of +130k and +142k respectively. Unemployment is expected to hold at 8.3%. Ahead of that, we get German trade data and IP as well as UK IP and PPI. All eyes on payrolls though.


Here is the opening Spanish 10 year bond yield: (dropping dramatically in yield)


Add to Portfolio


5.751000.29200 4.84%
As of 07:26:00 ET on 09/07/2012.


Your opening Italian 10 year bond yield:

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


5.120000.16300 3.10%
As of 07:26:20 ET on 09/07/2012.


On Mario's Shock and Awe

Bruce Krasting's picture

Mario Draghi has achieved the impossible. A recap of yesterday's momentous developments:
- Mario was able to maintain "Radio-Silence" on the key elements of the plan he unfolded. As a result, he achieved tactical advantage when he unveiled his bold proposals. The global capital markets were both shocked and awed, and responded with unbridled enthusiasm.
- Draghi has presented a well thought out proposal. It addressed all of the issues that the markets and politicians were worrying about:
A) To appease the concerns of the citizens of Germany, Netherlands, Finland etc. the ECB support plan has stiff conditionality. This important step will, no doubt, assuage any concerns those citizens may have that their tax dollars might be at risk.
B) Mario was decisive. He did not fire a bazooka, he did not fire a howitzer. He fired the most powerful weapon known to a Central Banker. He said the "U" word. Unlimited market intervention was promised. With this one word, Draghi has eliminated any uncertainty on the outcome of the Euro and the EU.
C) Draghi boldly addressed the issue of subordination that has vexed the EU bond markets. The issue no longer exists. All sovereign bonds outstanding will now be treated the same in the event of default. There will be no "preference" provided to the bonds Draghi will buy in the market. Clearly, Mr. Draghi's prior experience with Goldman Sachs has paid off. His knowledge of the capital markets, and the "creativity" that comes from being an ex. Goldman banker, has given him the insight needed to eliminate the subordination issue.
D) Mario changed collateral requirements that will unglue the EU funding markets.
E) In a brilliant move, Draghi placated those old curmudgeons at the Bundesbank who have expressed concern on the inflationary front. Any bond purchases that the ECB makes, will be immediately sterilized. This single step eliminates the possibility of any inflationary consequences.
F) Taken together, the measures initiated by Draghi will allow the ECB to fulfill its promise of eliminating any impediments for monetary policy to be successfully "transmitted" to both Italy and Spain. The low interest rates in Germany will now be available to the citizens of the EU southern countries. The cheap money will fuel a broad based economic recovery.

So, do you like that rundown? That is the way the Draghi presentation is being spun by the media. More importantly, that is the way the market is "reading" the ECB actions. I think it is a complete crock-of-shit.
First off is the fact that absolutely nothing new was announced yesterday. What has been cobbled together by Super Mario is a rehash of of the SMP. Second, is that every detail of the new ECB steps was deliberately leaked to the market before Mario took the stage. How could a program that contains nothing new and and was previously disclosed, have had such a significant consequence to the capital markets? I don't get it.
A - Yes, there is conditionality to bond purchases. The condition for Spain to get support from the ECB is simple. All they have to do is get down on their knees and and beg. To get the bond market support, they will have to accept the austerity measures that Germany requires. The same measures that are now hated in Athens. It gets worse. Not only would Spain have to accept the austerity conditions from the north, the will be obligated to sign up for a full IMF bailout program.

Folks, this will not happen easily. Spaniards do not want Troika types running their government. They definitely do not want the IMF involved. There will be enormous blow-back in Spain to the draconian steps that will be demanded by the IMF. But that is nothing compared with the outrage that will happen in Italy.

B - Yes, Draghi did say the Unlimited word. And yes, that is important. The German citizens should be crapping in their pants over this. Unlimited means unlimited. Draghi can't back off on this promise, ever. He has dug himself a hole that is measured in the Trillions with this commitment. How can anyone promise "unlimited" action when there are always limits?
There will come a day when Draghi will be tested on his promise. There are two possible outcomes. (1) he lives up to his promise and the ECB absorbs a huge portion of the debts of Italy and Spain or (2) Mario blinks at the critical time, and backs off. Either way, that would be the end of the Euro system.
When Draghi said unlimited he bought the EU some time, but he made an all in bet. The consequences of an EU member leaving has now been raised dramatically. Mario has created an "all or nothing" scenario for the EU. When a member leaves, it will crash the entire system. Systemic risk in Europe has increased as a result of Marios' efforts. I don't think the markets (or the politicians) realize how high the stakes have become.
One further note on the "unlimited" issue. Mario clearly said that there is a big "but" to his promise. The obligation to purchase an unlimited amount of debt is conditional on the country involved meeting the "targets" that will be set by a Troika. We have never seen a country live up to the demands of the Troika yet. There is no reason to believe it will happen in the future. What this means is that when things really get tough in Spain, and they are unable to achieve the level of austerity demanded by the North, the ECB will stop its purchases. At that point the entire system will go up in flames. If bondholders believe that this will all work out, they will be disappointed. The bondholders that I know are not stupid. They will see through this obvious flaw.
C - I flat out don't believe Draghi when he says that any bonds purchased will become parri-passu (equal). He can say what he likes, but when the rubber meets the road, and there is a sovereign default, the restructuring will be done by by Brussels. When that happens (it will), the bond holdings of the ECB will be carved out. Private sector creditors will not be treated the same as the public sector.
As part of any bailout, Mario has insisted that the IMF will be brought in. Let me be very clear on this. The IMF is alwaysSenior to pubic holders of debt. This means that the IMF will be Senior to the ECB as to the right of repayment. Do you get this German citizens? This means that Draghi has put you on the back of the bus!
There is a reason that governments and the IMF have always been treated as senior to other creditors. These types of lenders are not in it for the return, they are forced into lending as a result of a crisis. Tax payer money is at risk when cross-border bailout loans are made. Those types of creditors should have protection over commercial lenders who made a mistake. That has been the tradition in all sovereign bailouts over the past 100 years. Mario has broken new, and very dangerous ground with this step.
D - Collateral requirements have been a sticking point for the ECB. Not any longer. With a wave of his hand, Mario has said he will accept any junk collateral that is out there. Busted mortgage loans, crappy corporate assets and un-payable sovereign debt is now going to be eligible for financing at 100% of par at a dirt cheap price.
In the end, the people in Germany will own this crap. The cost will be staggering. I can't imagine how the German politicians, the Bundesbank and the German people can allow this to happen. They are getting fleeced by a guy from Goldman who has allegiance to Italy, not Europe.
E - I wait to see if the promise to sterilize all purchases of debt is delivered on. If this is done in small amounts (under E 200Bn) I think that it could be done in a sterilized manner. But there is little chance that it can be done in the Trillions of Euros that will be required. To live up to the promise of "unlimited", Draghi will have to print money. To think there are no inflationary consequences attached to the Draghi plan is just wishful thinking, or outright lies.
F - I don't think that the objective of eliminating the impediments that have clogged up the "transmission of monetary policy" has been met with Draghi's efforts. Quite the contrary.
For the ECB to implement the new measures for a country like Spain, the first condition is that there must be a crisis in the markets that forces the government to go begging. So now we must wait for a crisis to occur. This is the environment that allows for the smooth transmission of monetary policy? I would think not.
I try to never to stand in the way of market sentiment. All of the signs point to the conclusion that the market is satisfied will what Draghi has delivered. The most conclusive evidence comes from the EURCHF market. For the first time in many months, the key cross rate is above the floor set by the Swiss National Bank. So Draghi has succeeded.
Me?, I think he has set the EU, and the rest of the world, up for a very big fall. Nothing he did will change the economics in Spain. More austerity for this country will not fix the problems, it will make the problems worse.
What Draghi did is buy some time. The only question is, "How much time?" I will guess that it will take three months before we are back in crisis mode.

When Unlimited Has Limits

Tyler Durden's picture

From Mark Grant, author of Out Of The Box
When Unlimited Has Limits
Everytime we get the next round of the “Great Cure” for Europe we get the same reaction which is a massive rally based upon the next new drug offered up by the Continent. Reality is reality and there is no denying the initial surge and hope springs eternal from the human breast and the jawboning done by Mr. Draghi has been quite effective and I acknowledge his performance. I also nod to the Southern countries in Europe that have ostensibly won this round and overcome and outvoted their neighbors that will have to fund if it gets to that. I continue to point out that under Mr. Draghi’s plan nothing will be done unless the Stabilization Funds are utilized which means that the ECB will do nothing unless the European Union agrees to it first so that the EU has a veto over any ECB action in effect but no one is paying any attention to that fact at present.
The ECB has shifted any move on their part to an approval process at the EU which will take months to be agreed upon while the ECB has tied their own hands and subjugated themselves to the EU as part of their stratagem but the markets obviously consider this to be a trivial fact. Perhaps this is why Germany has responded in such a benign manner; they know with certainty now that the ECB will do nothing unless the European Union agrees in advance and Germany can veto the entire process if it gets down to it and Germany actually now has more control over the ECB than they did in the past so that the Germans may secretly be quite pleased with the outcome. It is all games within games, a charade for the exhilarated crowd but that is Europe these days.
Nothing that has occurred has changed the financial positions of Greece, Portugal, Spain and Italy one whit but that is also not the focus of the moment. However I think it will be the focus again soon as the recession in Europe deepens and broadens and Spain and Italy both show up begging cups in hand. Then there is the German Constitutional court decision on September 12 and the decision whether to hand Greece another $50 billion or so or not. At some point the markets will figure out that the ECB just bound themselves in steel wire and that they can now do nothing without the reluctant agreement of the entire European Union where vetoes are possible and where Germany has a much greater sway but it often takes the markets awhile to figure things out and so be it. I have been here before a number of times during the European crisis and I always smile politely, nod my head and wait until the dawning of reality commences.
The Loss of Independence
In very real terms the ECB is now no longer an independent institution. The ECB has promised not to act unless the EU assents. The ECB is now totally subject to the whims of the politicians in Europe and whether the markets ignore this for the moment or not that is the truth of it. In promising redemption the ECB has also traded away its ability to act on its own and it will be interesting to see how this plays out.
The ECB Window
Maturities of 1-3 years for sovereign debt will now be viewed differently no doubt and a lot of money will be invested in the upfront years. They will be viewed as “protected maturities” with not only the backing of the sovereign nation but of the ECB as part of the credit considerations. Funding will also shift to these maturities to get a better rate but this will also cause a massive amount of roll-over in short maturities and failed auctions may occur because of the size of the short funding and the ostensibly lower interest rates that will append to these short maturities for a time. The Firewall concept obviously failed and here is the new, new plan and “unlimited” and “no cap” is only applicable if the EU agrees; otherwise it is a promise that may never be carried out or utilized but tell no one; it might upset them.
“Things are not always what they seem; the first appearance deceives many; the intelligence of a few perceives what has been carefully hidden.”

German State Of Saxony Supports Legal Action Against ECB

Tyler Durden's picture

Since there have been tens of thousands of lawsuits filed internally in Germany with its constitutional court alleging the ESM is illegal, it was only a matter of time before the Germans decided to sue the ECB as well for its "unlimited" bond buying. The time has arrived. From Bloomberg:
Perhaps all those rumors of the Bundesbank's death were, as we expected, rather exaggerated.

Draghi Acts: Is It Inflationary?

Econophile's picture

This article originally appeared on the Daily Capitalist.
The European Central Bank (ECB) has decided to bailout its bankrupt members, mainly Italy and Spain, by buying their shorter-term bonds (1 to 3 years) with newly created money. The idea is to drive down their interest rates to alleviate their debt cost burden, and to send a message to the world (the financial markets) that they stand ready to back the euro.
There is a twist here though. The European Central Bank will seek to "sterilize" the funds it injects into the economy by withdrawing an equal amount of money from the economy. They do this by offering banks one week deposit certificates at the same rate as overnight money. Thus the idea is that this will effectively render the new money inflation neutral.
The head of the Bundesbank, Jens Weidmann, was the only nay vote for this new program, termed Outright Monetary Transactions (OMT) to distinguish it from QE. He is quoted as saying OMT is “tantamount to financing governments by printing banknotes.” Shmart fellow, he. It seems the Germans are the only ones in Europe who seem to understand what money is.
Here's how sterilization works. The ECB will buy as many sovereign bonds as it sees fit to drive down short-term bond rates. It creates new money to buy these bonds from banks. The banks now hold a lot of cash equal to the ECB bond buys. At the same time the ECB will sell to the same banks one-week notes to suck up the same amount of new money it created for the bond buys. The net effect: the ECB has removed €x billion of sovereign bonds from the market. They have also removed the same amount of money from the money supply and these banks now own one-week ECB notes instead of 1 to 3 year sovereign bonds. If the ECB does this often enough it will drive interest rates down because bond investors know that they ECB stands ready, willing, and able to do this. Why fight the ECB (or the Fed)?
The obvious impact of this move will be to create joy among banks holding mainly Spanish and Italian debt. They have exchanged a risky asset for a more stable asset (ECB paper). Readers will recall that sovereign debt of any EMU country is counted as a Tier 1 asset for member banks. Thus Greek debt is equal to German Bunds in the regulators eyes. We all know that is not true and so do the banks' depositors.
Because of the ongoing recession in most of the Eurozone, lending has shrunk, so banks aren't doing much with their reserves anyway. According to this report, these banks are holding €770 billion in excess reserves. Now they will have even more reserves when the ECB get through with its open-ended OMT. These could be another €640 billion of OMT purchases and these will no doubt also end up as sterilized excess reserves.
This creates a bit of a problem. For one thing, the balance sheets of banks for purposes of calculating reserves haven't really changed by exchanging sovereign bonds for ECB notes. It is still Tier 1 capital and it will still be held as excess reserves. If loan demand kicks up, will the ECB be able to restrain its banks? We have the same problem here.
The other thing is that everyone knows that because there is no fiscal union, but only a monetary union, the Germans are the only ones with the money to finance the debt of its fellow profligate states. By giving Spain and Italy interest rate relief, the Germans are worried that their zeal for reform will wane and stick Germany with their bill. Think of it as a debt union rather than a monetary union. As Bundesbank head Weidmann said:
When the central banks of the euro area buy the sovereign bonds of individual countries, these bonds end up on the Eurosystem’s balance sheet. Ultimately, it’s the taxpayers of all other countries who are liable for that. In democracies, parliaments ought to decide on such a far-reaching mutualisation of risks, not the central banks.
Then what if Spain and Italy fail to carry out the agreed to reforms that condition the implementation of OMT? Let's say they go along with massive bond purchases and, say Italy, fails to meet its conditions to funding? Would they then liquidate their bond portfolio and let the chips fall where they may? Not likely.
As Herr Weidmann said, this kind of bailout is "too close" to central-bank financing of government deficits "with a printing press." He is right; history has shown that this is a slippery slope as the Germans should know. This program will give little lasting relief to the Eurozone's problems, and it may delay reforms as domestic political pressures could easily change the scenario. And I believe at some point they have three choices: allow countries to go bankrupt; dissolve the EMU; print money. My vote is for the latter. Of course the miracle of political and economic reform is a possibility if the Germans have their way, but don't count on it.
Despite the overwhelming evidence that money printing doesn't work, the Eurozone overlords will to do it anyway. Why do they do this? Monetary inflation is the last resort of governments who are over their heads in debt. Instead of going bankrupt (there is no way we or the overindebted Eurozone countries can repay the debt) they make the debt cheaper to pay off by inflating the money supply. It's an age-old last resort of incompetent rulers.
What will Germany do?


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Your closing Italian 10 year bond yield;

Italy Govt Bonds 10 Year Gross Yield

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As of 12:00:10 ET on 09/07/2012.

Bankrupt Cyprus And The Russian Connection

testosteronepit's picture

Wolf Richter
The Republic of Cyprus, with its 840,000 people, has been in the Eurozone for less than five years. Yet it burned through mountains of euros faster than anyone could count. Now it needs a bailout whose magnitude balloons every time someone blinks.
The financial problems came to a head last year when the markets refused to go along with the country’s profligacy. So Cyprus went begging to Russia and got a €2.5 billion loan last November. Which quickly evaporated. In June, banks began to crater. Bailout time. €2.3 billion would be required for the two largest ones. The bailout Troika, the despised austerity gang from the EU, the ECB, and the IMF, took a gander at the stuff the banks called “assets.” Costs jumped to €6 billion, plus €4 billion for a government bailout. Then rumors seeped out that the banks alone would need €9 billion, for a total of €13 billion [read..... The Ballooning Cyprus Fiasco].
In early August, a hullaballoo arose when it was leaked that Central Bank Governor Panicos Demetriades had told lawmakers of an even greater fiasco. He’d been appointed only on May 2, and when he opened the closet doors of the banks, he discovered the real mess: €12 billion would be needed for the banks—70% of the country’s shrinking €17 billion economy! Plus whatever the government would need. A total of €16 billion perhaps. 94% of GDP.
But plot twist: his predecessor, Athanasios Orphanides, lashedout at him. He’d been in office from January 1, 2008, when Cyprus acceded to the Eurozone, to May 2, 2012. During that time, he was also on the Governing Council of the ECB. He’d overseen the whole debacle, had let it happen, had encouraged it. So he accused his successor of an awful sin, namely shining some light on the banks, thus “creating the impression that our debt is unsustainable.”
Orphanides grew into that milieu in the cradle of financial shenanigans and bailouts. With his ivy-league education and a Ph.D. in economics from MIT, he worked as Senior Adviser at the Fed’s Board of Governors. And when the financial crisis erupted in the US, he left the Fed to become Governor of the Central Bank of Cyprus—to start all over again.
So now, with budget cuts taking their toll, the economy is shrinking faster than expected, warned Finance Minister Vassos Shiarly. But the ongoing bailout negotiations with the Troika “are in advanced stages,” he said. So perhaps by October, they might agree on a bailout memorandum that would require the usual medicine of painful structural reforms in return for bailout billions
But Cyprus needs the moolah now. It’s already raiding internal accounts and slowing disbursements to keep the lights on. And there’s hope. Apparently, the Russian government just approved a €5 billion loan—but not out of the goodness of its heart.
In October 2010, Russian President Dmitry Medvedev went to Cyprus to scratch the backs of Russian expats and the Cypriot elite. Cypriot President Dimitris Christofias, a communist, and educated in Russia, was there also. Turns out, the first half of that year, tiny Cyprus had been the largest foreign investor in Russia, ahead of the Netherlands, Luxembourg, and Germany.
It wasn’t Cypriot money flowing into Russia. It was Russian money flowing back. Russian companies have long established their headquarters in Cyprus to benefit from its status as a tax haven, a trend that picked up when Cyprus acceded to the EU and then the Eurozone. According to the Russian Embassy in Cyprus, via Kathimerini:
In the last five years alone, the Russian economy has seen Cypriot investments of over $52 billion, of which $41.7 billion was invested in the 2007-10 period, or 2.7 times more than German investments in Russia in the same period.
At the same time, Russians are investing in Cyprus, among them businessman Dmitry Rybolovlev who bought a 10% stake in Bank of Cyprus, which is getting bailed out. And the offshore natural gas resources have attracted a slew of Russian companies.
And all that chaos in Europe? Won’t it further demolish the US economy? Not quite. Read.... Europe Funds The Last Ponzi Game Standing, by Lee Adler.


And now for your more important USA stories.

Yesterday, the BLS released its jobs report and lo and behold the USA added only 96,000 jobs  in August far less than what was expected.  You will recall that to stay even with unemployment, the USA must engineer at least 150,000 new jobs per month as the population grows.  Not only was the report for AUGUST bad but they also scaled back the growth in the previous two months.

Most of the gain in jobs was due to their plug B/D.  For newcomers, the BLS assumes that for every job loss ( D for Death), an entrepreneur is born to create jobs  (Birth = B).  This figure is nothing but a phony.
The old method of producing unemployment for the USA (U6) showed unemployment at 14.6%.
The all important labour participation rate fell to a low of 63.5%.  This is a measure of those working plus those wishing to work divided by the entire labour pool.  It seems many poor souls have just given up looking for a job and they are not counted in the unemployment figures.

zero hedge comments on the all important jobs report:

(courtesy zero hedge)

US Added Just 96,000 Jobs In August, Far LessThan Expected; Unemployment Rate Slides To 8.1%

Tyler Durden's picture

In August, two months ahead of the presidential election ahead of which this number will be one of the most critical and talked about, the US generated just 96,000 non-farm payroll jobs, on expectations of 130K additions, and compared to the July number of 163,000, now revised to 143,000K. Private payrolls rose by a modest 103,000, much lower than the expected number of 142K, and down from July's revised 162K. -15,000 manufacturing jobs were lost, compared to the expected +10K, and sadly just a little bit short of Obama's recent promise to add 1 million manufacturing jobs by 2016. Finally, while the unemployment rate came lower (surprise, surprise: this is what appears in newspapers) at 8.1%, far lower than expectations of 8.3%, and below last month's 8.3%, the broad total underemployment rate (U-6) continues to be sticky at 14.7%. Birth Death added 87,000, up from July's 52,000. The reason for the drop in the unemployment rate: labor force participation dropped to 63.5%, down from 63.7%. Oddly enough, this report leaves the NEW QE door open, even as Obama can take the accolade for a declining unemployment rate. Win-win for everyone.
From the report:
Total nonfarm payroll employment rose by 96,000 in August. Since the beginning of this year, employment growth has averaged 139,000 per month, compared with an average  monthly gain of 153,000 in 2011. In August, employment rose in food services and drinking places, in professional and technical services, and in health care.

Employment in food services and drinking places increased by 28,000 in August and by 298,000 over the past 12 months.

Employment in professional and technical services rose in August (+27,000). Job gains occurred in computer systems design and related services (+11,000) and management and technical consulting services (+9,000).

Health care employment rose by 17,000 in August. Ambulatory health care services and hospitals added 14,000 and 6,000 jobs, respectively. From June through August, job  growth in health care averaged 15,000 per month, compared with an average monthly gain of 28,000 in the prior 12 months.

Utilities employment increased in August (+9,000). The increase reflects the return of utility workers who were off payrolls in July due to a labor-management dispute.

Within financial activities, finance and insurance added 11,000 jobs in August. Employment in wholesale trade continued to trend up. Employment in temporary help services changed little over the month and has shown little movement, on net, since February.

Manufacturing employment edged down in August (-15,000). A decline in motor vehicles and parts (-8,000) partially offset a gain in July. Auto manufacturers laid off fewer workers for factory retooling than usual in July, and fewer workers than usual were recalled in August.

Employment in other major industries, including mining and logging, construction, retail trade, transportation and warehousing, information, and government, showed little change over the month.

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in August. The manufacturing workweek declined by 0.2 hour to 40.5 hours, and factory overtime was unchanged at 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours. (See tables B-2 and B-7.)

The explanation of the Labour Participation Rate:  (at 31 year lows)

The Reason Why The Unemployment Rate Dropped: The Labor Participation Rate Is At Fresh 31 Year Lows

Tyler Durden's picture

Curious why the unemployment rate dropped from 8.3% to 8.1%, even as just 96,000 jobs were added? The labor participation rate declined from 63.7% to 63.5%, the lowest since 1982. It means that somehow in August the labor force declined by 368,000 people, which is a paradox since according to the household survey 119,000 jobs were lost in August. The combination of these two factor magically resulted in a drop in the unemployment rate.

Goldman's take on the NFP: QE probability is now over 50%

(courtesy Goldman Sachs/Jan Hatzius/zero hedge)

Goldman's Prepared NFP Kneejerk Reponse: "QE Probability Now Above 50%"

Tyler Durden's picture

The NFP number was released at 8:30 am. At 8:40 am Goldman Sachs' Jan Hatzius hit "send" on a 356-word email to clients which was checked, vetted, and given the sign off by compliance, in which the Goldman head economist read through the NFP data, and concluded that "Probability of QE3 Next Week Now Above 50%." Curious why the risk assets first dropped then soared as if stung? Because today, once again, good is great, but worse is greater. Let the global liquidity tsunami continue!
From Goldman:
BOTTOM LINE: With today’s August employment report showing a nonfarm payroll gain of 96,000 and an unemployment rate of 8.1% because of a drop in the participation rate, we expect a return to unsterilized and probably open-ended asset purchases at the September 12-13 FOMC meeting.
1. We now anticipate that the FOMC will announce a return to unsterilized asset purchases (QE3), mainly agency mortgage-backed securities but potentially including Treasury securities, at its September 12-13 FOMC meeting. We previously forecasted QE3 in December or early 2013. We continue to expect a lengthening of the FOMC’s forward guidance for the first hike in the funds rate from “late 2014” to mid-2015 or beyond.
2. While there is significant uncertainty around the details of any new program, our base case is that QE3 will be formulated as an open-ended asset purchase program of around $50 billion per month, with an end date that is not given in advance but made dependent on progress in the economic recovery. We expect the criteria set for ending the program to be formulated in qualitative terms in the FOMC statement but explained in more detail in Chairman Bernanke’s press conference and in a statement from the New York Fed. We expect Operation Twist 2 to be continued until its scheduled completion at the end of 2012.
3. The return to asset purchases at this time is not a given. It is also possible that Fed officials will limit themselves to a lengthening of the forward guidance. In that case, we believe that they would try hard to find a way to not only lengthen the guidance but make this guidance more powerful by coupling it with a statement to the effect that “…a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed.” It is even possible that the committee would adopt Chicago Fed President Evans’ proposal to signal no rate hikes until the unemployment rate has fallen to a specific level (in Evans’ version 7%) unless underlying inflation rises above a specific threshold (in Evans’ version 3%). But that is not our base case.

Real Unemployment Rate Hits 11.7% As Spread Between Reported And Propaganda Data Hits Record

Tyler Durden's picture

Today's reported unemployment rate: 8.1%. The reason: the labor "participation" dropped to a 31 year low 63.5% as reported earlier. Of course, this number is pure propaganda, and makes no sense for one simple reason: despite the economic collapse started in December 2007, the US civilian non-institutional population since then has grown by 186,000 people every month on average hitting an all time high of 243,566,000 in August. These people need a job, and the traditional shorthand is that at least 100,000 jobs have the be generated every month for the unemployment rate to merely stay flat, let along improve. So what does one get when one uses the long-term average of the past 30 or so years which happens to be 65.8%? One gets an unemployment number that is 45% higher than the reported 8.1%, or 11.7%. That is what the real unemployment rate is assuming the US labor participation rate was realistic and not manipulated by the BLS cronies and the Bank of Spain assisted Arima-X-13 seasonal adjustment models. It also means that, as the chart below shows, the spread between the real and propaganda data hit an all time record, which was to be expected two months ahead of America's banker muppetpresidential election.


Friday Comedy - Obama Show

I buy every month, and I will never, ever sell it as long as people such as Mitt Romney, Paul Ryan, Obama, Biden, Bernanke, and Geithner are in government.  I will never sell it.  Never.  - Marc Faber, Swiss Investor, King World News
I couldn't let the monthly Non-Farm Payroll Report go by without shooting it down, however an easy target it may be.  It's easier than shooting fish in a barrel, really.   At first blush on the headlines, in which the supposed number of jobs gained, 96k, badly missed the consensus expectation by 29k, I was shocked that Obama would let the BLS release a number that was that bad on the heels of his big teleprompter reading last night.  But then the unemployment rate crossed that tape at 8.1% vs. 8.3% last month and 8.3% expected.  It then occurred to me that it was a perfect number for Obama.

Perfect because the supposed jobs "growth" is slow enough to justify a lot more economic stimulus - at least from a political standpoint, certainly not from a law of economics standpoint - and the supposed decline in unemployment rate is the perfect marketing device for Obama.  Now, we know there's no such thing as a free lunch, but our Ministry of Truth (Bureau of Labor Statistics) has written a free lunch script that will be heartily consumed by many.  It so closely follows the Orwellian script, laid out by George (Eric A. Blair) in the late 1940's, that it's frightening how prophetically accurate his vision was.

Let me shed some truth on the numbers, at least on the statistical vomit thrown at us by the Obama Team.  I say this because the data sampling and mathematical calculations used to produce the report are largely accepted as being wildly inaccurate by most who have studied them with an eye for truth and accuracy rather than the goal of public perception management.

The headline number was 96k jobs added in August.  Supposedly 103k private sector jobs were added vs. 142k expected.  Of that, 87k came from the nefariously fraudulent "birth/death" model.  The durable goods manufacturing sector actually lost 17k jobs.  The number of people employed in residential construction jobs is down 20k from August 2011.  Do you really believe the reports that the housing market has bottomed?  Really?

The unemployment rate supposedly dropped to 8.1% from 8.3%.  But remember, this number is calculated using the Government's very narrow definition of "those looking for a job" divided by the total workforce.  If you can make the numerator decrease relative to the size of the denominator, or vice versa, you can statistically engineer a lower unemployment rate.  Follow that?  Here's how Team Obama engineered a lower unemployment rate:   They claim that the civilian employment workforce (the denominator) declined in size by .2%;  however, they decided that the number of unemployed declined by 2%.  Voila!  A smaller numerator relative to the change in size of the denominator!

All of the hypothetical action in the employment numbers can be found here:  LINK  The saddest part of this is that the casualty in these calculations - a casualty of which zero reporting is done by the mainstream media - is the labor force participation rate, which is the number of people working or want work as a percent of the definitional workforce.  This metric declined to 63.5% - the portrait of a tragic and catastrophic decline in the number of people who actually work in this country.

Where do the rest go?  Well, in the context of all the entitlement programs run by the Government and financed by the Taxpayers, the Chinese and the Japanese, 165 million people in this country are to some degree dependent on Government handouts to make ends meet:  LINK  Last month under Obama's stewardship, food stamp usage spiked up to a new record:  LINK  Did Barack happen to mention that metric in his full-of-bullshit speech last night?  I've discussed the Social Security disability program on this blog.  The number of people, and especially younger people, claiming disability and sponging off this program has climbed significantly under Obama.  I'm dead serious about this, about all you have to do is claim chronic head-aches that prevent you from working and you can qualify.  And I know a doctor who tells me new medicaid horror stories every time I see him.  Did Obama happen to mention that?  Finally, this one really blew my mind:  the Government announced recently that it will be giving $100 million to States in order to prevent State Governments from laying off employees:  LINK   Ummm, did Obama happen to mention that? Talk about getting paid not to work...I guess these facts didn't scroll across his teleprompter.

The reason Obama has ramped up the entitlement programs and Student Loan lending is that any new recipient of something like social security disability or a SLMA guaranteed student loan immediately gets dropped from the Labor Force metric. The amount of SLMA loans has soared to $1 trillion during the last 4 years.  This will be more defaulted debt guaranteed by the Government.  These programs enable the Government to somewhat justify showing a smaller number of unemployed and a lower unemployment rate.  The rest is statistical fairy tales told with a very Orwellian spin.  Even the Government's own U-6 report, buried in the BLS report, admits to a more realistic unemployment number of 14.7%  Newspapers and cable news shows will not report this number.  Given the bulge in the various entitlement program participation, I would bet the true unemployment number is north of 20%.   As many know, John Williams (Shadow Statistics), calculates an alternative unemployment number which is north of 20%.

The truth is that it doesn't matter whether a Republican or Democrat sits in the Oval Office. They are both the same Manchurian Candidate with a slightly different "spin" coming from the text they read off the teleprompter sitting in front of them. The only way to solve the problem is with a gold-backed currency system and a complete econmic/financial "reset." A "reset" is coming - it's just a matter of what it looks like and how violent it gets. That's the ulitmate end of this story. Until then, the only way to have a shot at seeing what the other side of this "reset" looks like with a full belly is to move as much of your paper wealth as possible into physical gold/silver (and get a gun).

Have a great weekend, it's the start of NFL football!!!!

Jon Hilsenrath as reported  in the Wall Street Journal that their is a likelihood that the Federal Reserve will launch an easing program at the conclusion of its two day meetings next weak.  Hilsenrath is the mouthpiece for the Fed so you must pay attention to what he writes:

(courtesy Jon Hilsenrath/wall Street Journal)

WSJ ANALYSIS: Jobs Report Raises Likelihood of Fed Action
Fri Sep 07 09:15:29 2012 EDT

By Jon Hilsenrath The weak jobs report increases the likelihood that the Federal Reserve will launch an easing program at the conclusion of its policy meeting next week, including a new bond-buying program.
Fed Chairman Ben Bernanke described the weak labor market as a grave problem in comments in Jackson Hole last week, a strong suggestion that he wanted to take new actions to strengthen economic growth. He also said the economic benefits of a bond-buying program exceeded the costs. Friday's jobs report was the last hurdle standing in the way of the Fed proceeding. If the data were very strong, the Fed might have held off, or decided to introduce modest measures.
The weak payroll numbers, taken together with a report by the Institute of Supply Management earlier this week which indicated a manufacturing slowdown, suggest growth in the third quarter isn't picking up.
There have been some bright spots, including strong auto sales in August. But this morning's data had a discouraging tone. Though the unemployment rate fell, the decline was driven at least in part by people leaving the labor force.
Officials have been leaning toward an open-ended bond-buying program in which the Fed holds open the possibility that it will continue to buy bonds after an initial allotment is purchased if the economy doesn't pick up. They also have been leaning toward purchasing mortgage backed securities.
The central bank could take other measures at the meeting, including offering new assurances that interest rates will remain exceptionally low beyond 2014. Another possibility, which is more controversial internally and might not happen, is a small reduction in the 0.25% interest rate that the Fed pays banks for reserves held at the central bank.


Wolf Richter weighs in on the economy and the bad jobs number.  A really great piece:

(courtesy Wolf Richter/

Calamity Economy Strikes Again, But Hope Is Back In Vogue

testosteronepit's picture

Wolf Richter
Hope was once again in vogue Thursday night in President Obama’s acceptance speech, after having gone the way of the green shoots. Hope has been swirling around the financial markets as well as the Fed keeps dangling QE3 out in front of them. And ECB President Mario Draghi injected a mega-dose of it with his bond-buying promise. It goosed the markets even more and powered them to multi-year highs.
Then came the jobs report. Only 96,000 non-farm jobs had been created—assuming that number is credible, despite the statistical cosmetic surgeries that are used to beautify it. Worse, June and July were revised lower by 41,000 jobs. The unemployment rate, which dropped from 8.3% to 8.1%, is just noise, and it remains unclear if it measures anything at all. But it will be THE number, the political number, that President Obama will focus on, and if all goes according to plan, it will obligingly drop to 7.9% before the election.
But the jobs report also contained the Employment-Population Ratio. By comparing the number of employed people to all people over sixteen, it outlines in unvarnished brutality the real employment situation. And it goes back to when dirt was young.
From 1948 through the mid-sixties, it bounced up and down between 55% and 57%. As women entered the workforce in greater numbers, it zigzagged to 64.7% in April 2000. Then it declined, with some ups and downs, to 62.9% by January 2008—and fell off a cliff. In December 2009, it hit bottom at 58.2%.
At the time, the Fed’s printing press had been running white-hot for a year. Congress was shoveling stimulus money in every direction. Federal deficits had ballooned beyond $1 trillion for the second year in a row. The new President had gotten his feet on the ground. Stock markets were rocking higher. But the employment-population ratio hit a low not seen since May 1983.
So then the magnificent jobs recovery started. And in August 2012, when our national debt blew through the $16 trillion mark, the employment-population ratio was ... 58.3%.
Just about where it was in December 2009, when the unemployment rate hovered around 10%—and now it’s 8.1%. Miracles of statistical cosmetic surgery.
It is true, I suppose, that since December 2009, quite a few jobs have been created. I can see that in San Francisco and Silicon Valley. It’s just that the population has grown at about the same pace, and the job market as seen by the average job seeker hasn’t improved much.
The graph is also a visual depiction of what the Pew Research Center calls “The Lost Decade of the Middle Class,” during which “the middle class has shrunk in size” and has “fallen backward in income and wealth.”
It’s convenient to blame President Bush for the precipitous decline of the employment-population ratio under his watch, or President Obama for the continued decline and the long stall. But Presidents don’t have a lot of power in managing the economy—Congress and the Fed are the go-to places for complaints in that department.
Purposefully overshadowed by the jobs report was Intel. After having already dialed back hopes in July, it slashed its third-quarter revenue outlook by 7.7%. Ominously, it saw weakness in the enterprise segment and in emerging markets. On Wednesday, it was FedEx that had cut its outlook due to lower shipping volumes. Last week it was the International Air Transport Association that had gored hope: in July, air-freight was 3.2% lower worldwide than last year, and 3.6% lower for North American airlines. July was also the month when bellwether UPS issued disappointing quarterly results. It appears the “recovery” has run its course.
And that despite the gargantuan stimulus of a Federal deficit that has been over $1 trillion for five years in a row—thanks to our ever so effective Congress, abetted by the Fed. But occasionally, even slick politicians accidentally say something meaningful. This time it was German Chancellor Angela Merkel who’d wondered out loud if politicians can win elections “if we don’t always spend more than we take in.”
The answer, Mrs. Merkel, at least in the US, is no. And so we’re stuck with huge deficits and our calamity economy. But then there’s always the hope that the Fed will print us more moolah so that the financial markets will rock, despite the economy [read.... Monsters With Acronyms: From A Nation of Investors To A Nation of Fed Watchers].
The US is no longer the safest place to invest, as China and India rise to superpower status, says Don Coxe, a strategic advisor to the BMO Financial Group. And financial products based on mathematical formulas are “the equivalent of mixing sewer water with tap water and claiming that because there was more tap water than sewer water in the glass, it was safe to drink.” Read the pungent interview.... “Invest in What China Needs to Buy.”


I will leave you today with our weekly wrap from Greg Hunter of

(courtesy Greg Hunter/

Weekly News Wrap-Up 9.7.12

By Greg Hunter’s 
It looks like a European financial meltdown has been pushed back.  The head of the European Central Bank (ECB), Mario Draghi, announced a massive money printing bond buying program to keep countries like Spain and Italy from financial ruin.  One Wall Street analyst called the move“Classic Banana Republic.”  The news that is not being reported is this ECB action is not a done deal.  There are plenty of EU countries that do not want to take on all this debt and money printing.  Germany is the biggest, and its High Court has yet to rule if all this bond buying is even constitutional.  Meanwhile, gold and silver are taking off in price, and they are going higher according to Bill Gross.  His nickname is the “Bond King,” and when the head of PIMCO starts touting gold instead of interest bearing bonds, you should take notice.  Tensions between the U.S. and Israel over Iran’s nuclear program have been confirmed. There was a heated confrontation between the Israeli Prime Minister and the U.S. Ambassador late last month on what to do about Iran’s nuclear program and what constitutes the Obama Administration’s “red lines.”   Iran has repeatedly said its nuclear program is for the peaceful production of energy.
There seems to be no end to the fighting in Syria.  One day this past week, 134 people were killed in the fighting.  Russia is warning the West about using al-Qaeda rebels to force regime change in Syria and how using them is “fraught with dire consequences.”  Finally, the Democratic Convention in Charlotte happened this week.  Senate candidate from Massachusetts, Elizabeth Warren, introduced Bill Clinton.  It struck me odd how Warren gave a speech that repeatedly said the system is rigged against the little guy and introduces the President that signed into law the legislation that created the “too big to fail” banks.  Join Greg Hunter for the Weekly News Wrap-Up.

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