Saturday, September 22, 2012

The Spanish bailout conditions revealed: Pension freeze and retirement age hike/ Greek municipality runs out of cash/ Pakistan rioting on the streets/

Good morning Ladies and Gentlemen:

Gold closed up to the tune of $8.00 to finish the week at $1775.70.  Silver on the other hand was victim of a vicious and blatant manipulation which forced it to tumble in price before finally recovering.  It finished down
5 cents to $34.57.

Gold and silver yesterday morning were on a tear when at precisely 10:50 am est (safely after the second London fix) silver was whacked from its zenith at $35.10 all the way down to $34.20.  Gold initially held still for a few minutes and then it joined it's cousin in a waterfall only to recover all of its gains and then go positive for the rest of the session. I emailed the CFTC at approximately 11 am signaling to them the blatant manipulation that was upon us. The media was looking for excuses as to why gold and silver was initially on a tear and then bang at 10:50 am est proceeded to tank.

The following story was highlighted by them:

(courtesy zero hedge)

According To The Knee-Jerk Market, South Africa Mines Silver

Tyler Durden's picture

Moments ago, a stray headline crossing Bloomberg was the catalyst for violent selling across the precious metal complex. The headline in question is this:
The reason for the puke in PMs is the goalseeked as follows: since miners are willing to negotiate wage hikes, the miner strike may soon be over. Well, they said that last week, when the Lonmin Maricana mine strike ended. All that happened next was for every other miner in South Africa to demand equitable terms, making the strike even worse than before. What it will mean, if indeed passed, is that a broad swath of PM miners will face default sooner rather than later, as they will be completely unable to pass on 20% cost surges to consumers, and many will file for bankruptcy sending capacity far lower in the long-run than currently, even with the mine strike. What is most funny, however, is the response in silver, which plunged in sympathy with gold and platinum as can be seen on the chart below.
There is one tiny detail: please point out in the table below of the world's largest 20 producers of silver, just where is South Africa.
We can wait.
Actually don't bother: it's not there. All that is there is a hearsay goalseeked flawed justification to enact a sell off of what everyone, even Ray Dalio, except for the Chairsatan and the Octogenarian of Omaha of course, now realizes will be the only money left once global QEternity is over and done with.


There is only one problem with the South Africa story and that is the fact that South Africa produces hardly any silver so the miner's agreement should have no effect on the silver metal's price.

The real reason for the attack:

I will bet that the rise in silver for the past few weeks have been monstrous and probably set off huge internal derivative losses on JPMorgan's books. The margin calls were probably coming fast and furious and thus a reason for the massive raid.  It failed again as demand for physical metals is simply overpowering the commercial paper shorting. JPMorgan will have another of those weekend retreat meetings trying to figure out next how to escape from their massive shortfall dilemma.

In other news, we finally get to hear the conditions for the Spanish bailout and it will not be pretty for them.  Part of the reforms are the raising of the retirement age as well as pension freezing. The citizens will not like this and we will for sure see rioting on the streets.  Also a  Greek municipality ran out of cash as they could not pay their workers.  The Arab fall continues with rioting on the streets of Pakistan.  As for QEIII, many stories are provided to you showing what devastation will strike us.  We will go over all of these stories but first.....

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

The total comex gold OI rose by 1108 contracts from 481,999 up to a new multi-year high of 483,107 as the bankers fearlessly supplied the non backed gold paper to our eager speculator funds.  The non active September contract saw it's OI fall from 47 to 28 for a loss of 19 contracts.  We had 13 delivery notices on Friday so we lost 6 contracts or 600 oz of gold standing.  We are exactly one week away from first day notice  (Sept 28.2012). The active October contract saw its OI marginally decline by only 785 contracts from 22,576 to 21,791.  October is generally a very poor delivery month. It seems that all eyes will be focused on the big December contract month where the OI rose by 315 contracts from 333,772 up to 334,087 contracts.  The estimated volume at the gold comex on Friday was very good at 186,968.  The confirmed volume on Thursday was fair at 156,080.

The total silver OI continues to baffle our bankers.  On Friday, the OI rose by another 761 contracts to a new multi year high of 126,769 contracts from Thursday's level of 126,008.  The bankers are frightened that the OI refuses to contract during raids as long speculators seem intent on playing with the crooks. The active September contract saw its OI rise by 15 contracts from 480 to 495.  We had 3 delivery notices filed on Thursday so in essence we gained 18 contracts or an additional 90,000 oz of silver is standing. The October contract saw it's OI rise by 6 contracts to 203. The big December contract saw it's OI rise by 1090 contracts from 80,920 up to 82,010. The high OI in December is of great concern to our bankers.
The estimated volume at the silver comex on Friday came in very high at 61,896 with the confirmed volume on Thursday  at 49,421.

Comex gold figures for September:

Sept 22-.2012   

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
71,359.768 (HSBC)
Deposits to the Dealer Inventory in oz
2999.80 (Brinks)
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
(2) 200  oz
No of oz to be served (notices)
(26) 2600 oz
Total monthly oz gold served (contracts) so far this month
(737)  73,700 oz
Total accumulative withdrawal of gold from the Dealers inventory this month
246,685.32 oz
Total accumulative withdrawal of gold from the Customer inventory this month


Today, we had sizable activity inside the gold vaults today.
 we had the following  dealer deposit 

1. Into Brinks:  2,999.80 oz

we had no customer deposit.

We had the following customer withdrawal:

i) out of HSBC:  71,359.768 oz

we had no adjustments.
Thus the dealer inventory rests this weekend at 2.523 million oz or 78.38 tonnes of gold.

The CME reported that we had only 2 delivery notices for 200 oz of gold. The total number of notices filed so far this month total 737 for 73,700 oz.  To obtain what is left to be served upon, I take the OI standing for September (28) and subtract out Friday's delivery notices (2) which leaves us with 26 notices or 2600 oz of gold to be served upon our anxious longs.

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

73700 oz (served)  +  2600 oz (to be served upon) =  76,300 oz or 2.373 tonnes of gold.  We lost 600 oz of gold standing. 


September 22/2012 

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 1,516,525.783(HSBC, Brinks)
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory627,405.411 (Delaware)
No of oz served (contracts)0  (zero)
No of oz to be served (notices)495 (2,475,000) oz
Total monthly oz silver served (contracts)1335 (6,675,000)
Total accumulative withdrawal of silver from the Dealers inventory this month870,607.9
Total accumulative withdrawal of silver from the Customer inventory this month14,017,751.8

Again, we had considerable activity inside the silver vaults today.
However we had no dealer deposit and no dealer withdrawal.

The customer had the following deposit:

i) 627,405.411 oz into Delaware

We had the following customer withdrawal:

i) Out of Brinks:  111,619.10
ii) Out of HSBC:  1,404,906.683 oz (HSBC)

total withdrawal:  1,516,525.783 oz

note: everyday we see massive movements of silver out of registered comex vaults.

we had no adjustments.
Thus the registered or dealer inventory for silver rests this weekend at 39.449 million oz

The total of all silver rests at 139.984 million oz.

The CME notified us that we had zero notices filed and thus the total number of notices filed this month remain at 1335 for 6,675,000 oz.  To obtain what is left to be filed upon, I take the OI standing for September (495) and subtract out Friday's notices (0) which leaves us with 495 or 2,475,000 oz left to be served upon our longs.

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

6,675,000 oz (served)  + 2,475,000 oz  =  9,150,000 oz
we gained another 90,000 oz of silver standing.
This month has been a pretty good showing for silver deliveries at 9.15 million oz.

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 21.2012:

Total Gold in Trust



Value US$:75,585,149,725.40

sept 20/2012

Total Gold in Trust



Value US$:73,955,922,291.80

sept 19.2012:




Value US$:74,132,496,237.19

Friday, we gained another 9.35 tonnes following on the heels of a big 3.01 tonnes addition on Thursday and another gain of 2.11 tonnes of gold into the GLD on Wednesday.The GLD boys are the best at procuring "physical" gold in a hurry!!


And now for silver:

Sept 21.2012:

Ounces of Silver in Trust319,599,599.800
Tonnes of Silver in Trust Tonnes of Silver in Trust9,940.66

sept 20.2012:

Ounces of Silver in Trust317,758,807.600
Tonnes of Silver in Trust Tonnes of Silver in Trust9,883.40

sept 19.2012

Ounces of Silver in Trust316,402,423.200
Tonnes of Silver in Trust Tonnes of Silver in Trust9,841.22

sept 18.2012:

Ounces of Silver in Trust316,402,423.200
Tonnes of Silver in Trust Tonnes of Silver in Trust9,841.22

we gained a rather large 1.841 million oz on Friday which followed a huge  1.356 million oz into the silver vaults at the SLV on Thursday.

Ladies and Gentlemen: It looks like we are going to have a "nuclear reaction" with respect to GLD and SLV especially if their inventories are not real but owning nothing but hypothecated and rehypothecated paper!!

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 5.4percent to NAV in usa funds and a positive 5.2%  to NAV for Cdn funds. ( Sept 21 .2012)

2. Sprott silver fund (PSLV): Premium to NAV  fell slightly  today  to  4.66% to NAV  Sept 20/2012   :
3. Sprott gold fund (PHYS): premium to NAV rose to 2.72% positive to NAV Sept 20 .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 5.8% in usa and 5.5% 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  at 4.66%. 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 releases their COT report (Commitment of Traders).  He get to see positions held by our major players.  First let us see what we can glean from our Gold COT which is from Sept 11 through to Sept 18  (  Tuesday to Tuesday):

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 18, 2012
Quite a report!!!

Our large speculators:
Those large specs that have been long in gold loved what they saw with respect to QEIII etc and they added a monstrous 10,585 contracts to their long side.

Those large specs that have been short in gold somehow misread the tea-leaves and added another 1486 contracts to their short side and this weekend they are in mourning!

Our commercials:

Those commercials that have been long in gold and  are also close to the physical scene, added 5,654 contracts to their long side.  Ted Butler refers to these guys are "raptors"

And now for our famous commercials that have been perennially short in gold;

Our heroes (JPMorgan and company) added another monstrous 18,196 contracts to their short side setting up conditions for the Battle of Waterloo.  All of the bankers short have no gold behind them.

Our small specs:

Our small specs that have been long in gold added another 1975 contracts to their long side and tonight they are happy campers.

Our small specs:

They saw the light and covered 1468 contracts from their short side.

Conclusion: With respect to only the bankers, you must view this report as extremely bearish as the commercials went net short another  12,542 contracts.  


Our silver COT

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

Tuesday, September 18, 2012

  You can visually see the difference between the Gold COT report and the Silver COT with respect to the mood of the bankers.

First let us have a look at our large speculators:

Our large specs that have been long in silver realized that silver was about to pierce the 32.00 level and thus they added another 1834 contracts to their long side.

Those small specs that have been short in silver thought that silver was advancing too fast so they added another 761 contracts to their short side and these guys are not happy campers this weekend.

Our commercials;

Those commercials that are long in silver and are close to the physical scene pitched a small 322 contracts from their long side.

And now for our famous commercials shorts i.e. JPMorgan et al:

These guys reluctantly added another 2880 contracts to their already burgeoning short position.
They have decided to regroup and call for one of those weekend meetings trying to stop silver's advance.

Our small specs;

Our small specs that have been long in silver liked what they saw and they added a rather large 2705 contracts to their long side.

Our small specs that have been short in silver, added another 576 contracts to their short side and they too are not happy this weekend.

Conclusion: Only with respect to the commercials who basically decide where the price of silver will be heading, went net short another 3202 contracts and you must say that this is terribly bearish.
You can count on a gold and silver raid sometime next week.   


Gene Arensberg gives a detailed look at the COT report as he breaks out the commercials
as to their long and short positions.  Something big happened but he does not know why.

(Courtesy Gene Arensberg/GATA)

Big changes in trader positions in gold and silver: Got Gold Report

11:18p ET Friday, September 21, 2012
Dear Friend of GATA and Gold:
Gene Arensberg of the Got Gold Report writes today that there are big changes in trader positions in the gold and silver futures markets. What do they mean? He expects to elaborate shortly. In the meantime the GGR's latest dispatch is posted here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

And now for some important physical stories:

Jim Grant of the Interest Rate Observer talks with Maria Bartiromo of CNBC.
In a question asked what asset should we buy,  his response is gold as countries debase their currencies. Gold has no P/E and thus it is solely a bet on what countries do to debase their currencies to zero via quantitative easing.

Goldcore also gave a fine review of gold trading throughout the European time zone:

(a must view...James Grant/CNBC/goldcore.

“How High Can Gold Go?” "There Is No Telling" James Grant Tells CNBC

-- Posted Friday, 21 September 2012 | Share this article | Source:

 Today’s AM fix was USD 1,773.75, EUR 1,361.28, GBP 1,089.19 per ounce.
Yesterday’s AM fix was USD 1,760.00, EUR 1,360.33 and GBP 
1,088.03 per ounce.
Gold fell $2.10 or 0.12% in New York yesterday and closed at $1,768.40. Silver dropped to $34.084 in London, but rallied back higher later in the session and finished with a gain of 0.03%.

James Grant Interview on CNBC

Gold is slightly higher today and is being supported by investor concerns not just about ‘stimulus’ but about “open ended” QE or ‘QE to infinity’. 

Gold and silver have this week consolidated on their recent sharp gains which is a healthy development as there were concerns that the markets were getting ahead of themselves. 
Currency Ranked Returns - (Bloomberg)

Gold has been hovering near $1,775/oz a 6 ½ month high seen after the US Federal Reserve launched QE3 and vowed to keep borrowing costs low until 2015, fuelling global demand for gold, which benefits from a low and negative interest rate environment.

Deutsche Bank has reported that their high net worth private clients have expressed an increasing interest in owning gold in order to protect their wealth from the growing risk of inflation (see Newswire).

Thursday’s US manufacturing figures showed the sector suffered its weakest quarter in 3 years.

Gold Tick (17/09/2012-Today) - Bloomberg

The recent renewed appetite for gold and silver has shot the precious metal backed funds to their highest levels in a year.  SPDR Gold Trust, the world's largest gold ETF, said its holdings had hit 1,308.41 tonnes.  Holdings in iShares Silver Trust, the world's biggest silver ETF, climbed to an 11-month high of 9,940.66 tonnes.
XAU/EUR Exchange Rate Daily, 17/09/12-Today - (Bloomberg)

Gold is consolidating near record highs in the euro and is less than 1% below the record intraday high from just over a year ago on September 9th 2011.

One of the most astute financial analysts in the world, Jim Grant, founder of highly respected Grant's Interest Rate Observer, was asked by Maria Bartiromo on CNBC yesterday “how high can gold go”? Grant responded that "there is no telling."

Grant was asked about the stock market and where to invest today and asked if “you want to get in front of this train?”

He responded by advocating “security analysis” and said that he thinks that that is“where an investment in gold and silver comes in”.

Grant said the following:

“Central banks around the world are bound and determined -- either through actions or words to debase their currency. They're telling us”
XAU/GBP Exchange Rate Daily, 17/09/12-Today - (Bloomberg)

When asked how high gold could go, Grant astutely noted that:

“The nice thing about gold, it has no PE multiple. There’s no telling.
Gold is a speculative -- it earns no yields, gold is a speculation on an anticipated macro economic outcome. That macro economic outcome being the systematic debasement of currencies by the central banks.

They've done QE 3, right? The economy appears not to be in the best of health. Why wouldn't they do QE 4? What intellectual argument do they have against doing it again and again and again?

That's one of the risks, right? Well, it's open ended already. Maybe they'd need it, because we know it's open ended. They can save the paper in the press release”.
With regard to hard assets such real estate and gold, Grant said:

“There is an argument to be made that you want to be buying hard assets like gold, like real estate ... that's not a bad way to hedge against the currency”.
The interview ends on a funny but sadly telling note when the “Money Honey” Bartiromo says that she knows that Federal Reserve Chairman, “Bernanke knows you have been so critical. What is his answer to you, when you raise these points?”James Grant said:
“We don't talk any more.

Ron Paul named Grant as his likely candidate for Chairman of the Federal Reserve to replace Ben Bernanke whose term expires in 2014.

The interview is a must watch and can be seen 

Cross Currency Table – (Bloomberg)

(Bloomberg) -- Indian Physical Gold Demand ‘Encouraging of Late,’ UBS Says
Indian demand for physical gold has been “encouraging of late” with flows this week heading for the biggest since mid-July, UBS AG said in a report.

“Volumes aren’t huge, but it’s clear that demand is quick to emerge on local price pullbacks,” the bank said.

(Bloomberg) -- Russian Gold Holdings Fall to 30 Million Troy Ounces in August
Russia’s central bank decreased its gold holdings to 30.0 million troy ounces as of Sept. 1, from 30.1 million troy ounces a month earlier, according to a statement published on its website yesterday.

The stockpile was valued at $49.7 billion at the end of last month, Bank Rossii said in the statement.

(Bloomberg) -- Gold Targeted by Wealthy Amid Stimulus, Deutsche Bank Unit Says
More so-called high-net-worth individuals are seeking physical gold to protect their wealth from the risk of inflation after central banks boosted stimulus, according to Deutsche Bank AG’s asset and wealth-management unit.

Mark Smallwood, head of Asia-Pacific wealth-management solutions, commented in an interview from Guilin, China, yesterday with gold trading near the highest level since February after Japan’s central bank followed the U.S. in expanding asset purchases to boost economic growth. Spot gold was at $1,770.90 an ounce today.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

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  Keith Barron, a gold mining entrepreneur and consultant talks with Eric King of Kingworldnews.
He states that the global move to debase their currency through QE will end ultimately in the issuance of a new world reserve currency.

a stimulating conversation.

(courtesy Keith Barron/Kingworld news/GATA)

Debasement will lead to new currency, gold mining entrepreneur Barron says

9p ET Thursday, September 20, 2012
Dear Friend of GATA and Gold:
Gold mine entrepreneur and consultant Keith Barron tells King World News that currency devaluation is policy throughout the world now and he thinks it will end in issuance of a new world reserve currency. An excerpt from Barron's interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Late in the day, Bart Chilton announced that the CFTC is wrapping up "its investigation" on the silver  scandal with respect to JPMorgan and expects something in the "near future"

I have my doubts on this one

(courtesy Kitco news)

CFTC'S Chilton: Silver Investigation Continues, Expects Something Public 'In Near Future'
21 September 2012, 2:45 p.m.
By Debbie Carlson
Of Kitco News

Kitco News) - The Commodity Futures Trading Commission is wrapping up its investigation of the silver market and while some sort of public announcement may come "in the near future," nothing is "imminent," said CFTC Commissioner Bart Chilton Friday.
"We’re still wrapping it up. There’s nothing imminent, but I envision saying something publicly in the near future," Chilton told reporters at the Hard Assets conference in Chicago.
It’s been four years since the CFTC announced in September 2008 that it was investigating the silver market for possible manipulation. It’s unusual for the government agency to announce publicly that there is an ongoing investigation.
Chilton reiterated at the conference that he believes that there was illegal activity, but did not say what that might be. He told reporters that he was frustrated the investigation has not ended yet.
Chilton said speculative position limits go into effect Oct. 12 which caps the number of trades a single speculative trader can have in place to 10% of a contract’s first 25,000 in open interest.


Von Greyerz talks about the latest tungsten scare in New York:

(courtesy Kingworld news/Von Greyerz)

Von Greyerz on real metal and hyperinflation

3p ET Friday, September 21, 2012
Dear Friend of GATA and Gold:
It's hard to get too much of Swiss gold fund manager Egon von Greyerz of Matterhorn Asset Management, and today he is interviewed at King World News about the latest tungsten scare and the necessity of holding real metal outside the banking system, while at Matterhorn's Internet site, GoldSwitzerland, he gives an overview of the Western financial system and predicts hyperinflation.
The King World News interview is summarized here:
Von Greyerz's commentary at GoldSwitzerland is here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


I wish China all the luck in the world as they attempt to extract gold from the difficult Las Cristinas gold mine in Venezuela:

(courtesy GATA/associated press)

Now China has the claim on Venezuela's Las Cristinas gold mine

Venezuela and China Agree to Team Up to Develop Large Gold Mine
By The Associated Press
via The Washington Post
Friday, September 21, 2012
CARACAS, Venezuela -- Chinese and Venezuelan officials signed an agreement Friday to jointly develop one of the world's largest gold mines.
The agreement to develop the Las Cristinas gold mine was signed by officials of the Venezuelan government and the Chinese company China International Trust and Investment Corp., or Citic. The mine in southern Bolivar state has been estimated to hold about 17 million ounces of gold.
President Hugo Chavez called it an agreement to begin exploiting both gold and copper deposits at the mine. He called Las Cristinas "one of the biggest reservoirs of gold that exists -- not only in Venezuela, not only in Latin America, but in the world."

Officials didn't discuss financial details of the agreement but said it specifies engineering, construction, and processing of the gold and copper. Chavez said officials also signed an agreement to produce a map of mineral deposits in the South American country.
He announced the deals after a meeting with Chinese officials at the presidential palace. Chavez said they also agreed to deepen cooperation in Venezuela's oil industry.
China's ties with Venezuela have grown rapidly in recent years. China also has become the country's biggest creditor, offering Chavez's government more than $36 billion in loans, which are being paid off largely with increasing oil shipments.
Last year Toronto-based Crystallex International Corp. said it sought international arbitration after Venezuela rescinded its contract to develop the Las Cristinas mine. The company said it had appealed to a World Bank arbitration body, claiming it was due $3.8 billion in compensation.


And now for the important paper stories which will have an influence on the physical price of gold and silver:


 We start with rumours in Europe :  1. the EU is in fresh talk over  Spanish rescue plan.  This caused the Euro to climb back above the 1.30 level and also caused all bourses around the globe into the green. Even though the rumour has been stated as being false, it did not matter as the algos went into high gear. No nation will give up their sovereignty with bond yields being jawboned down. Both Spain and Italy can temporarily finance as their bond yields are lower especially at the short end of the curve.

The regional province of Catalonia in Spain continues with hardship finding money.
The Spanish government has asked the 3 major Spanish banks:

i Santander
ii) BBVA
iii)Caixa bank

to take a 30% interest in all of the bad Spanish banks. That will make their shareholders really happy.

2.  The second rumour is that Greek lenders are considering a Greek haircut as they try and cut Greece's huge sovereign debt.  The chances of that happening is zero as the ECB would be insolvent and would thus have a margin call for cash from all 17 euro zone nations.

Your early morning sentiment from Europe:

(courtesy zero hedge)

Overnight Sentiment: Rumors Regurgitated, Refuted

Tyler Durden's picture

The overnight session has been dead, leading to continued trading on the two regurgitated rumors appearing overnight, one coming from the FT that the EU is in "fresh" talks over a Spanish rescue plan - something which is not news, but is merely the occasional catalyst to get algos snapping up EURUSD and to keep it from sliding far below the 1.3000 barrier. This rumor has subsequently been swatted down later when Italy's undersecretary of finance, Gianfranco Polillo, in an interview in Rome, repeated what has been known to most for over two months, namely that Italy and Spain won’t request bailouts unless there a new surge in bond yields (just as we explained first thing in August), and adding that "There won’t be any nation that voluntarily, with a preemptive move, even if rationally justified, would go to an international body and say -- ‘I give up my national sovereignty." A surprising moment of lucidity and truth for a European. Naturally the reemergence of the rumor is supposed to draw attention away from the real news, which is that broke Catalonia is ever closer to bluffing itsindependence in exchange for a bailout, or else. The other real news is that as Confidencial reported, the Spanish government has asked Santander, Banco Bilbao Vizcaya Argentaria and CaixaBank to take 30% stake in the Spanish bad bank, something which will hardly make shareholders in these companies happy for the simple reason that no bank in Spain is "not bad" if the current rate of deposit outflows continues. Finally, a second rumor appearing late yesterday is that Greek lenders are considering a new Greek bond haircut. This too has since been refuted when German Finance Ministry spokesman Martin Kotthaus told reporters in Berlin at a regular press conference that this report is without basis. In other words, as we said, rumors refuted, leaving us with essentially no real news overnight.
For the remaining (lack of) action we go to DB's Jim Reid for the best market action summary.
Moving to the US and taking a closer look at the Philly Fed print, while the headline was ahead of estimates it remained in negative territory for the fifth consecutive month. As DB’s Joe LaVorgna notes, the biggest negative in the report was the deterioration in shipments (-21.2 vs. -11.3), which fell to the lowest level since the recession (-30.5 in April 2009). On a more positive note, overall expectations of economic conditions six months forward rose sharply (+41.2 vs. +12.5). The flash Markit PMI was unchanged at 51.5, while the Conference Board Leading Indicators fell in 0.1% for August. Initial jobless claims  or the September employment survey week declined -3k to 382k but remain near the top of this year’s range (352k to 392k). Joe’s preliminary read on September employment number is +110k with no change to the unemployment rate at 8.1%.
Data aside, it was a relatively dovish day in terms of Fedspeak. Fed’s Kocherlakota advocated an unemployment targeting approach to monetary policy, saying that he would like to see rates at zero until unemployment reached 5.5%, although on the condition that the Fed fulfils its price stability mandate. Also speaking yesterday, Fed’s Lockhart reiterated his support for further QE while the more hawkish St Louis Fed’s Bullard said that he does not favour unemployment targeting, and opposed QE3 saying that he would not want to see a re-inflation of US housing prices.
Over in Europe, PMIs surprised to the downside, increasing the debate around ECB policy rates. The Eurozone’s flash composite PMI was down 0.4 in September (45.9) and disappointed versus expectations of 46.6. Most surprising was the divergence between France and Germany. The latter’s manufacturing PMI improved month-on-month (47.3 vs 44.7) but France was down sharply (42.6 vs 46.0). As Mark Wall noted this reasserts Germany’s relative PMI strength after a brief period of weakness. The implied reading of the ‘non-core’ bloc was softer on the month too, but we have to wait until the  start of October to see the details for the likes of Italy and Spain.
In other European headlines, der Spiegel is reporting that EU leaders are considering drafting a declaration designed to fulfil the conditions set out by last week’s German constitutional court ruling. The declaration will clarify that each country’s maximum ESM liabilities cannot be exceeded without that country’s parliamentary approval, and provides assurance that governments will have access to information held by the ESM. Elsewhere the Italian economy minister reiterated there were no plans for Italy to request aid, although the government lowered their 2012 GDP growth forecast to -2.4% compared to a previous forecast of -1.2%. For the record, DB is expecting growth in Italy of -2.3% this year. Staying in Europe Chinese Premier Wen during his trip to Brussels said that the country will continue its investments in the EFSF and the Eurozone.
In terms of the day ahead, it will be relatively light in terms of data. Spain’s trade data and the UK’s budget data for August will be the main focus. German finance minister Schauble is due to speak this morning in Berlin. In the US, the Fed’s Lockhart will be speaking in Atlanta. Last but by no means least, the iPhone 5 goes on sale today. How long will we be able to hold out!!??


As we have mentioned above Italy and Spain will shun aid unless their bond yields rise.  Rajoy and Monti will not give up their jobs and they will not subject their citizens to a loss of sovereignty.  The one thing that will drive Spain and Italy for a bailout is the inevitable soaring budget deficits.  Eventually their luck just runs out and they must come to the table and ask for a bailout!

(courtesy Bloomberg)

Italy, Spain to Shun Aid Unless Yields Jump, Polillo Says

Italy and Spain won’t request bailouts unless a new surge in bond yields leaves them shut out of markets as no government will voluntarily accept conditions imposed for the aid, a senior Italian government official said.
“There won’t be any nation that voluntarily, with a preemptive move, even if rationally justified, would go to an international body and say -- ‘I give up my national sovereignty,’ ” Gianfranco Polillo, undersecretary of finance, said in an interview in Rome late yesterday. “I rule it out for Italy and for any other country.”
Italian and Spanish 10-year bond yields have dropped more than 1 percentage point since European Central Bank President Mario Draghi first signaled on Aug. 2 that the bank would buy debt of distressed euro-region nations in tandem with the European Union’s bailout funds. Photographer: Alessia Pierdomenico/Bloomberg
Sept. 21 (Bloomberg) -- Steven Major, global head of fixed income research at HSBC Holdings Plc, and Neil Dwane, chief investment officer for Europe at Allianz Global Investors, talk about central bank policy, a possible Spanish bailout and a successor to Mervyn King as Bank of England Governor. They speak with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)
Sept. 21 (Bloomberg) -- Italian Finance Minister Vittorio Grilli and Finance Undersecretary Gianfranco Polillo sought to allay concerns over the nation's public finances yesterday. Mark Barton reports on Bloomberg Television's "Countdown." (Source: Bloomberg)
Italy's Undersecretary Of Finance Gianfranco Polillo. Photographer: Alessia Pierdomenico/Bloomberg

Italian and Spanish 10-year bond yields have dropped more than 1 percentage point since European Central Bank President Mario Draghi first signaled on Aug. 2 that the bank would buy debt of distressed euro-region nations in tandem with the European Union’s bailout funds. While Italian Prime Minister Mario Monti championed the EU bond-buying plan, Draghi’s insistence on imposing conditions on any aid has left Monti and Spanish Prime Minister Mariano Rajoy reluctant to make a request.
The program “will be activated only when the single countries have the water up to their necks,” Polillo said.
Italy’s 10-year yield fell 3 basis points to 4.96 percent as of 9:55 a.m. Rome time, down from a peak of 7.5 percent on Nov. 9. Spain’s benchmark fell 4 basis points to 5.73 percent. It reached a euro-area high 7.75 percent on July 25.

Monti-Rajoy Meeting

Monti is meeting with Rajoy at 12:30 p.m. in Rome today, a day after the Italian government increased its budget-deficit forecast for this year amid a deepening recession. High yields are weighing on the two nations’ public finances, jeopardizing efforts to contain budget shortfalls. Italy now expects a deficit of 2.6 percent of gross domestic product this year, up from a 1.7 percent forecast in April.
Spanish Deputy Prime Minister Soraya Saenz de Santamaria said this week that Spain will consider seeking a bailout if the conditions imposed are acceptable.
Should a country hit the aid button, the related “procedures would be very heavy from both a political and economic point of view” and any conditionality would carry uncertainties, Polillo, who serves as a deputy to Finance Minister Vittorio Grilli, said. He added that he is not aware of any pressure from other countries on Italy to seek external aid.
Monti Running?
An increase in political risk in the run-up to general elections due by the end of April, could also increase the chance that Italy would be forced to seek support, Polillo said. Polls suggest that the vote may fail to produce a stable majority or may lead to a government that’s not committed to Monti’s reforms. The risk of a hung parliament would also increase if politicians don’t succeed in reaching an agreement on a new election law that ensures governability, Polillo said. Monti won’t run in the election.
“Should the markets perceive some political uncertainty, they would anticipate a negative judgement on Italy,” Polillo said. “Spreads would rise and would force us to activate” the bond buying procedure. “I hope that responsibility prevails and a new electoral law will be made in order to guarantee more governability to this country.”
A political stalemate could also increase the chance of Monti staying on. Should elections fail to produce an outright majority, raising the possibility of another election as happened in Greeceearlier this year, “even a person like Monti, who so far has said that he’s not willing to be a candidate for premiership, would be available to” run, Polillo said.
To contact the reporters on this story: Chiara Vasarri at; Lorenzo Totaro in Rome at
To contact the editors responsible for this story: Jerrold Colten at; Craig Stirling at Reuters finally brings us the details of what the Spanish bailout would entail, and they are not pretty: "Spain is considering freezing pensions and speeding up a planned rise in the retirement age as it races to cut spending and meet conditions of an expected international sovereign aid package, sources with knowledge of the matter said...The accelerated raising of the retirement age to 67 from 65, currently scheduled to take place over 15 years, is a done deal, the sources said. The elimination of an inflation-linked annual pension hike is still being considered."


As we have pointed out above, Spain and Italy will not ask for a bailout as long as their bond yields are lower. However very shortly they will run out of cash and seek the necessary bailout.

But why would a bailout request cause social unrest?

Reuters provide the answers as Spain is considering:

1. freezing pensions
2. speed up a planned rise in the retirement age to 67 from 65 to take place over 15 years.
3. Elimination of an inflation linked annual pension hike is also being considered.

the Spanish will not like this and they will take to the streets to protest:

(courtesy zero hedge)

First Spanish Bailouts Conditions Revealed: Pension Freeze, Retirement Age Hike

Tyler Durden's picture

As we reported first thing this morning, Spain, while happy to receive the effect of plunging bond yields, most certainly does not want the cause - requesting the inevitable sovereign bailout. To paraphrase Italy's undersecretary of finance, Gianfranco Polillo: "There won’t be any nation that voluntarily, with a preemptive move, even if rationally justified, would go to an international body and say -- ‘I give up my national sovereignty." He is spot on. However, the one thing that will force countries to request a bailout is the inevitable outcome of soaring budget deficits: i.e., running out of cash (as calculated here previously, an event Spain has to certainly look forward to all else equal). Which simply means that sooner or later Mariano Rajoy will have to throw in the towel and push the red button, knowing full well it most certainly means the end of his administration, and very likely substantial social and political unrest for a country which already has 25% unemployment, all just to preserve the ability to fund its deficits, instead of biting the bullet and slashing public spending (and funding needs), which too would cause social unrest - hence no way out. But why would a bailout request result in unrest? Reuters finally brings us the details of what the Spanish bailout would entail, and they are not pretty: "Spain is considering freezing pensions and speeding up a planned rise in the retirement age as it races to cut spending and meet conditions of an expected international sovereign aid package, sources with knowledge of the matter said...The accelerated raising of the retirement age to 67 from 65, currently scheduled to take place over 15 years, is a done deal, the sources said. The elimination of an inflation-linked annual pension hike is still being considered."
More from Reuters:
The new pensions steps, which could be announced as soon as next week along with the 2013 budget, would send a strong signal to investors that Spain is serious about implementing structural reforms it has delayed because of the political cost.

Prime Minister Mariano Rajoy, who was forced earlier this year to break campaign pledges such as not raising taxes, has repeatedly said he would not touch pensions, but he has few options left to trim the budget after drastic cost cuts.

He toned down his language last week and said it would be "the last thing" he would do. On Tuesday, Deputy Prime Minister Soraya Saenz de Santamaria said the government was not implementing any cut on the pensions "for the time being".

Sources with knowledge of the government's thinking said Rajoy's comments were a sign that his stance was shifting.

"He just said that he would not cut the pensions. But did you hear anything else? We both know that there are several ways of cutting. One is to simply leave them steady against inflation," said one of the sources.

A second source said the acceleration in the change in the retirement age was backed by the government while a third source, who discussed the issue with senior Spanish officials, said a freeze was expected.

"Not increasing them is also an adjustment," the third source said.


"There is no way around it. You have to cut the link with inflation and freeze the pensions next year," said Jose Carlos Diez, chief economist at Intermoney brokerage in Madrid.

"And to me, that would be just a start... The pensions, the unemployment benefits and the borrowing costs are eating up all the efforts on the spending side so you need to act in those areas," he added.

Both removing the inflation adjustment and accelerating the retirement age increase are long-standing European Union demands and any bond-buying programme to help Spain finance its debt would insist on this, senior euro zone sources said.

Countries which were previously rescued, such as Greece, Ireland and Portugal all had to pass steep cuts on pensions.

In Greece, the cuts ranged from 20 percent to 40 percent, while new pensioners had a 10 percent pay cut in Ireland and Portugal scrapped the Christmas and summer extra payments.
Key word: "that's just the start" - meaning it's all downhill from here, as true austerity, long delayed, is finally implemented (on Germany's dime of course).
First cue Spanish official denials it will do no such thing (a la Rajoy saying Spanish banks will not get a bailout two weeks before they, well, were bailed out). Then cue riots.


The Municipality of Acharnes in northern Athens has decided to suspend all of its operations after running out of money. They will only provide the basic services as they have an inability to pay for wages of its workers.   I guess we will now see more rioting on the streets of Athens.

(courtesy zero hedge)

Athens Municipality Runs Out Of Cash; Suspends All Operations

Tyler Durden's picture

Remember when we said cash flow is always more important than diluting the M2 (the Fed is great at the latter, powerless at the former)? Here's why: The municipality of Acharnes in northern Athens has decided to suspend all of its operations after running out of money. The municipal council met on Thursday night and voted to stop providing anything other than basic services because of its inability to pay employees’ wages and regular expenses. In NintendoDonkey Kong Game and Watch parlance: Game over.
“Acharnes Municipality will remain closed indefinitely, until the financial problem can be resolved,” the local authority said in a statement.

The municipality will operate with just skeleton staff, which trash will only be collected from outside schools.

Mayor Sotiris Douros is due to meet Interior Ministry officials on Friday to discuss the municipality's problems.

He wants the government to reduce from 11.5 percent to 5.5 percent the interest rate on a loan to the municipality. Douros argues that the monthly loan repayments of 500,000 euro is to high.
Coming to an insolvent, cash free, Keynesian experimental abortion near you.



In the overnight market sentiment from Europe there was talk of a potential new Greek haircut.
This has about a zero chance but here is the article that sparked that story:

(courtesy der Speigel)

Lenders Reportedly Consider New Greek Haircut

A woman walks past graffiti outside the Athens' Academy. Zoom
A woman walks past graffiti outside the Athens' Academy.
Greece is scrambling to get its finances is in order, but the country's efforts may still be insufficient. Many argue Athens will need another debt haircut in order to ease its financial burdens. A German newspaper is reporting that lenders are already considering a second debt-relief program for the ailing euro-zone country.
In order to restore the country's debt sustainability, Greece's lenders are reportedly considering further relief in the form of a partial debt haircut for the crisis-wracked country, the Financial Times Deutschland reported on Friday.

Citing unnamed "euro-zone sources," the paper said the focus was on bilateral loans from the currency union's first bailout program for the country, the nearly €53-billion ($69 billion) Greek Loan Facility, which ran from May 2010 to the end of 2011. "There is a discussion," a high-level official told the paper.
Martin Blessing, chairman of Germany's second-largest bank, Commerzbank, has also said a second debt haircut is likely. "In the end we will see another debt haircut for Greece, in which all creditors will take part," he said on Thursday in Frankfurt.
This could be part of a new solution being arranged behind closed doors, according to the Financial Times Deutschland. Currently, new economization efforts are being discussed by Athens and the troika, comprised of representatives of the European Commission, the ECB and the International Monetary Fund and charged with monitoring reform programs agreed to by the country in exchange for its bailouts. The group is expected to present its next report on the country's financial situation in early October.
Athens is working to pass new austerity measures worth some €11.7 billion for 2012 and 2013, a prerequisite for the disbursement of a desperately needed €31 billion tranche of aid from its euro-zone partners. But government talks have been difficult, and the reality is that even if the government is successful, the country will still face a massive financial shortfall. If euro-zone nations and the IMF were to plug the gap with more loans, Greece's total debt would increase, and the country would no longer be able to reduce overall debt to 120 percent of gross domestic product (GDP) by 2020, the debt limit set by the IMF.
Now, the IMF is pushing for debt restructuring from public lenders, who currently hold over two-thirds of the country's total debt of some €330 billion, according to the newspaper. However, neither the IMF nor the ECB would take part in such a debt haircut, placing the burden on the euro-zone members, the paper added.
In March, private lenders to the country agreed to a bond swap that relieved Greece of some €100 billion in debt. But it has become clear since then that the measure was insufficient to help shrink the country's debt mountain to 120 percent of GDP by 2020. And though a second debt haircut would be tantamount to bankruptcy for Greece, it would also enable Athens to tackle the extreme debt that has so far hindered economic recovery.
kla -- with wire reports


 A close look at Japan and how its QE policies for 20 years accomplished absolutely nothing. We should

except the same for the USA 

(courtesy Wolf Richter/


“Forceful And Timely Action” To Nowhere

testosteronepit's picture

Wolf Richter
“Japan’s experience is a sobering real-world reminder of why forceful and timely action is appropriate,” Boston Fed president Eric Rosengren said in his desperation to rationalize the Fed’s QE3 decision. It would restart the printing press in a massive way. It would be a flood of money—in contrast to the “muted” response from Japan to its two decades of economic stagnation.
And it has already been successful, he said: “I would say in sum that regardless of the event window chosen, stock prices are up substantially, mortgage rates are lower, and exchange rates are lower.” Thus, he’d named the three goals of QE3: manipulate stock prices into the ether, repress yields on mortgages (and on everything from savings to corporate bonds), and demolish the dollar [read.... QE, Zimbabwe, And The Surreptitious 30% Haircut Every Decade].
Then he claimed that “appropriate fiscal policies”—namely even larger deficits—could “provide significant positive effects” to battle Japanese-style stagnation.
Alas, no country has done that better, for longer, and to a greater extent than ... Japan. Two decades of deficit spending haven’t had any lasting success in stimulating the economy, though they goosed various sectors temporarily. And they left behind a political culture of deficits-don’t-matter and an insurmountable pile of debt.
Japan perfected the art of ZIRP (zero-interest-rate policy) years before it became a noun. The 10-year Japanese government bond (JGB) has yielded less than 2% for many, many years. Currently, JGBs yield 0.81%, less than half of the 10-year Treasury note’s 1.78%. Yields on short-term Japanese debt, savings accounts, time deposits, etc. have been at practically zero for just as long.
And Japan plowed into “quantitative easing” before that euphemism was even invented. The Bank of Japan’s balance sheet is stuffed with over ¥80 trillion (well over $1 trillion) in JGBs, in addition to other assets it bought along the way. That’s about 25% of Japan’s GDP, while the Fed’s balance sheet holds assets that amount to “only” 22% of GDP.
Rosengren, having kept an eye on the housing market, must have been agog at its recent “recovery.” OK, there were prior “recoveries” that crashed, but this one is different. Japan too had a real estate bubble. After it burst in 1990, there were several “recoveries.” Yet it just marked 21 consecutive years of declines.
Culturally, the Japanese are attached to land, not houses. A house is usually a “one-generation” structure designed to be torn down by the next generation. Hence, the Ministry of Land, Infrastructure, Transport, and Tourism reports land prices. As of July 1, residential land prices dropped 2.5% from last year—after having dropped 3.4% in 2011 and 3.7% in 2010. Commercial land prices dropped 3.1%.
But there are two scourges that Japan has not inflicted on its people: high unemployment and inflation. By US standards, unemployment is phenomenally low: 4.3% in July. However, Japanese society approaches work differently, and unemployment numbers may not be comparable to US numbers. By all accounts, it is currently much harder for young people to enter the workforce as jobs have become scarce—and less remunerative. More work for less pay. Same as in the US [read.... Calamity Economy Strikes Again, But Hope Is Back In Vogue].
And Japan has enjoyed price stability for the last 15 years. Periods of minor inflation alternated with periods of minor deflation—though the numbers hide painful price increases in a variety of items, including gasoline, cars, doctor copays, or services like water.
So I wonder what Rosengren was thinking when he said, “Japan’s experience is a sobering real-world reminder of why forceful and timely action is appropriate.” The Fed’s four-year frenzy of “forceful and timely actions” coincided with the greatest stimulus frenzy in Congress where annual deficits of over $1 trillion have become the norm. Yet, they accomplished little in the real economy. Same thing in Japan. But they did get Japan into a mess from which there is now no good exit.
And here’s my book about Japan: “funny as hell nonfiction about wanderlust and traveling abroad,” a reader tweeted. “What a fantastic finish,” another tweeted. Reviewers wrote, “Super enjoyable, great antidote to everyday life,” “hilarious, thrilling in many ways,” “an incredible climax,” “full of cultural complexity, passion, and shock.” Read the first few chapters for free.... BIG LIKE: CASCADE INTO AN ODYSSEY, at Amazon.

Get a load of the following:

Police open fire on protesters who were given a holiday by government to protest the anti Islam film.

So they 1. create a holiday to protest the video
2. then they shoot citizens who protest that video..

go figure..

(courtesy zero hedge)

Police Open Fire On "Prophet Protesters" In Pakistan, One Killed

Tyler Durden's picture

The torching of US embassies across the Muslim world may have been put on the backburner, perhaps driven by the withdrawal of virtually all embassy personnel across the affected regions, but the anti-US sentiment, whether predicated by some movie or not - and oddly enough nobody appears to have set any French embassies on fire following the Prophet Mohammad cartoon which appeared earlier this week, continues. The latest affected country: Pakistan, where "police opened fire on rioters who were torching a cinema during a protest against an anti-Islam film Friday, killing one man on a holiday declared by the government so that people could demonstrate against the video." So, the government specifically creates a "holiday" to protest the video then shoots people who protest the video? Does anyone else get the feeling that all authorities here are urgently doing their best to preempt a war? Was there a secret G-50 meeting in which it was decided the world was too overpopulated and a war was desperately needed? Surely that is ludicrous: just look at the natural growth that the world experienced after the first great depression unaided and unabetted by such trivialities as world war.
More from AP:
Mohammad Amir, a driver for a Pakistani television station, was killed when bullets hit his vehicle in the northwest city of Peshawar, said Kashif Mahmood, a reporter for ARY TV who was also sitting in the car at the time. The TV channel showed footage of Amir at the hospital as doctors tried to save him. It also showed the windshield of the vehicle, shattered by several gunshots.

The film denigrating the Prophet Muhammad has sparked unrest in many parts of the Muslim world over the past 10 days, and the deaths of at least 31 people, including the U.S. ambassador to Libya, have been linked to the violence. Much of the anger has been directed at the U.S. government even though the film was privately produced in the U.S. and American officials have criticized it for insulting Muslims.

Pakistan has experienced nearly a week of violent rallies against the film in which three people have died. The government declared Friday to be a national holiday and encouraged people to protest peacefully.

Police could not immediately be reached for comment about the death of Amir.

The cinema where police opened fire was one of two in Peshawar that several hundred protesters ransacked and set ablaze. A similar number of protesters also torched a toll booth on the outskirts of the capital, Islamabad. Police fired tear gas at the angry crowds in both cities.

On Thursday, the government was forced to call in army troops to protect the capital after more than 2,000 stone-throwing demonstrators tried to reach the U.S. Embassy inside a guarded enclave that houses foreign missions and government offices. Security was tight in Islamabad again Friday, as police set up scores of shipping containers to prevent protesters from reaching the diplomatic enclave.

The government also blocked cell phone service in 15 major cities, including Islamabad, Lahore and Karachi, to prevent militants from using phones to detonate bombs during the protests, said an Interior Ministry official, speaking on condition of anonymity because he was not authorized to talk to the media. Service is scheduled to be restored at 6 p.m. local time, he said.

U.S. officials have struggled to explain to the Muslim world how they strongly disagree with the anti-Islam film but have no ability to block it because of the freedom of speech in the country.
In other news, the remainder of the world is right now waiting in line for the latest and greatest Phonshion Accessory. Etc.


The legendary Jim Sinclair on the economic effects of QEIII:

Your most important read for the day.

He states:  QEI and QEII were not failures because we have no idea what the consequences would have been if all the banks went broke at the same time.

He cautions us that in 90 days, the full force of QEIII will be upon us and prices will rise and gold and silver will run to 3500.00 per oz.

please take your time reading this man...he is bang on!

(courtesy Jim Sinclair)

Economic Effects Of QE3 Will Soon Enter The Markets

My Dear Extended Family,
Everyone has an opinion of QE3. Almost all are wrong.
What has taken place here in its size, and in an almost simultaneous international unified approach has no precedent in economic history.
QE1 and QE2 were not failures. Do you have any idea what the world would have looked like if every major bank in the Western financial world broke?
It is easy to be a naysayer and say let the banks go broke, but you have no idea how hard it would have hit you and yours and maybe gold and silver. This is not to say that Debt Monetization, which QE represents, is correct, but it was the only tool available to central banks that would create infinite cash for the Fed and Treasury to use in a totally discretionary manner. Governments, because of the size of their debt, were incapable of applying the better tool for reviving economic activity, which is fiscal stimulation. One thing for certain is the infrastructure of the USA is collapsing in front of your eyes. Dar es Salaam airport looks better on approach than JFK. Dubai is beyond description. Roads from the Beijing airport are brand new. The USA infrastructure is disgraceful for a major power. New York City roads look like "Mad Max and the Day After." However when you are the major debtor nation fiscal stimulation is simply not possible. It will not happen because it cannot happen.
Please stop listening to those that tell you QE will have no effect. They are "Ignorant to Infinity." QE3 is going to have an unprecedented effect, as it is now simultaneous and global in scope.
Please make note of all the governments that screamed at the Fed for the use of QE1 and QE2 that are now applying QE to infinity.
There will be no QE4 because QE3 is going to go on continually with a month or two off now and then. Please recognize that it is hard for markets to discount what they do not believe in and therefore by definition do not anticipate.
Know within 90 days the economic effects of QE3 will be entering markets for money and therefore the markets for gold, silver, and most certainly the dollar.
Gold is going to at least $3500. Silver will certainly perform well also. The real support for the US dollar is .7200 on the USDX and it will trade there. The euro will trade at $1.35 and $1.40.
Ron McEwen of MUX fame said it correctly: “Patience is bitter; but the fruit is sweet!”

My Dear Extended Family,
The final end game of QE3 to infinity, with a month or two off from time to time, will be a product of the long term viability of the Federal Reserve Balance sheet and the impact on the dollar there from.
Let’s review what has transpired and begin to look at what will happen:
1. OTC derivative manufacturers and distributors sold fraudulent paper to almost every entity as clients of the Western world financial system. Inherently the OTC derivatives manufacturers and distributors had part of the transaction on their books. No problem as long as the entire scam was a "Daisy Chain," a connected set of transactions that has the appearance of risk but when all netted out equals almost zero.
2. Until Lehman was flushed, and flushed it was, most all OTC derivatives could have been netted to zero in a derivative resurrection bank. Losers would have rejoiced and winners would have declared war. However when Lehman was forced into bankruptcy it broke the "Daisy Chain" (a chain of near risk-less transactions when netted) of the OTC derivatives scam. At this point winners had won huge and loser had lost huge and there was no longer a means of repair to the quadrillion dollar scam. The problem has no practical solution other than transferring all losing paper to the balance sheet of the Federal Reserve where then it was anticipated no non-government "mark to market" audit would ever occur. It was the perfect hole to stick the junk into.
3. The size of the OTC derivative market stood at one quadrillion one hundred and forty four trillion as reported by the Bank of International Settlement, the counter internationally.
4. The Bank of international Settlements, seeing this outrageous number, changed their computer method of valuation to maturity assuming no failures and reduced the size of OTC derivatives of all kinds to a more acceptable but still huge number of $700 trillion notional value.
5. In the first and second round of QE the Federal reserve purchased OTC derivatives including the variety called securitized mortgage debt to remove them from the balance sheets of the Western world financial system, thereby improving the Western world’s financial institutions balance sheet and preventing an international industry wide bankruptcy. That means the Federal Reserve has impaired its balance sheet in order to repair some of the balance sheet integrity of the Western world financial system. The amount they have purchased is significant, but not compared to total outstanding above more than one quadrillion dollars.
6. The reason for QE to infinity, QE3, is the failure of business activity in the Western world to pick up with early huge monetary stimulation so as to repair the balance sheet of the Western financial world financial system. The unseen crisis is the hidden weakness of the Western world financial system thanks to FASB (The gatekeepers of world accounting) which allows financial institutions internationally to hide their losses by valuing their paper at whatever the bank wants it to be with no reference to seek a market value, primarily because there is none to seek.
7. The crisis not seen by Fed observers is the true balance sheet condition of the loses on the trillions of dollar of worth-less paper fraudulent paper because numbers are given but no independent mark to market audit has been or is likely performed.
8. As QE3 to infinity moves ahead, the balance sheet of the Federal Reserve continues to acquire worthless paper in exchange for dollars. Junk moved onto the balance sheet of the US Federal Reserve as the common share of the USA, the US dollar, continues to expand exponentially.
9. The end game problem is an extended recessionary business conditions going into 2015 to 2017 wherein the supply of dollars continually expands, the US Federal Deficit grows, US state deficit spending continues to grow and the quality of the Federal Reserve balance sheet proceeds to deteriorate further.
Therefore the end game is the perception of the weakness of the lender of last resort, the Federal Reserve’s Balance sheet, as it impacts confidence the US dollar and US interest rates.
Now you know what brings about the end game.
In the future I will do small simple articles dealing with the impact on markets of a to be Bankrupt Central Bank, the US Federal Reserve. The end game could come sooner, but only if there was an independent "mark to market" audit of the Federal Reserve inventory of worthless paper which remains unlikely no matter who wins the election in November.
Those of you invested in gold and silver vehicles of all kinds (with the exception of ETFs and futures) rest well this weekend. $3500 will easily be a place gold trades. The Canadian dollar and blasphemy to the euro snobs, the Swiss franc, remain go to vehicles for cash positions. Yes cash because you to not have to pay to own them as you do with a sovereign paper with negative interest.
Your watchman,


Your opening Spanish 10 year bond yield at 7 :57 am:


Add to Portfolio


5.764000.00400 0.07%

As of 07:01:13 ET on 09/21/2012.

your opening Italian 10 year bond yield at 7:18 am early Friday morning:

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


5.021000.04800 0.96%
As of 07:01:15 ET on 09/21/2012.

Your  key early currency crosses:

Eur/USA  1.2986  down .0015
USA/Japan 78.16  down .087
GBP/USA    1.626  up .0044
USA/Canada  .9747 down .0016


Your early European trading levels prior to NY opening:  

FTSE  down 9.18 points or .16%
Paris CAC up .88 points or .03%
German DAX up 6.00 points or .08%

and Spanish Ibex up 54.2 points or .68%.


Your closing Spanish 10 year bond yield:  


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5.761000.01100 0.19%
As of 11:59:53 ET on 09/21/2012.

Your closing Italian 10 year bond yield: 

Italy Govt Bonds 10 Year Gross Yield

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5.050000.06100 1.22%

Your closing figures from Europe: 

FTSE  down 2.02 points or  0.03%
Paris CAC up   20.8 points or .59%
German DAX up 62.13 points or  0.84%

and Spanish Ibex up 208.60 points or 2.60%.

The Dow closed up  19 points.


Your more important currency crosses closings tonight:

Euro/USA   1.2988 up .0017
USA/Japan  78.14  down .104
GBP/USA   1.6251 up .0036
USA/Can  .9770  up .0008

And now for the major USA stories of the day:

The following needs no explanation:

(courtesy Graham Summers/Phoenix Research Capital)

We're Entering Another Economic Collapse... Right As Inflation Hits LIft Off!

Phoenix Capital Research's picture

By all counts, the latest ISM (a measure of manufacturing in the US) was a complete and total disaster. In August the ISM hit 49. Anything below 50 is considered a recessionary rating.

However, things are even worse below the surface. The ISM is made up of several components. Its Production component is back to May 2009 levels. The New Orders component is back to April 2009 levels.

And worse of all, Prices Paid is up to 54, up from a reading ofjust 39 in July.

In simple terms this tells us that inflation is hitting “lift off” in the US at the very same time that we are entering a recessionthat could be on par with that of 2008. And with corn and soybean prices at or near record highs, we could be on the verge of a stagflationary disaster combined with a food crisis at the very same time.

We get additional confirmation of a major economic contraction from corporate earnings. Recently we’ve seen earnings forecast cuts from Fed Ex, Bed Bath and Beyond, Proctor and Gamble, Adobe, Starbucks, McDonald’s and more.  Indeed, when you remove financials, S&P 500 earnings FELL year over year for 2Q12.

This is hardly indicative of a strong economy. The fact a record number of Americans are on food stamps doesn’t bode well either. And the Rasmussen Employment Index indicates worker confidence is at levels not seen since the FALL OF 2008!

What does this tell us? That the US Federal Reserve has failed miserably to generate an economic recovery, despite spending trillions of Dollars in bailouts and expanding its balance sheet to $2.8 trillion in size (it was just $800 billion before the Crisis):

  1. Median income today is lower than it was during at the end of 2009 (when the recession supposedly ended)

  1. The percentage of Americans on food stamps has increased from 11% to nearly 15%

  1. The average unemployment duration has increased from 30 weeks to nearly 40 weeks

  1. The civilian employment to population ratio hasn’t budged

I don’t see any of the above pointing towards a “recovery.”

To top it off, the ECRI (which is a much better predictor of recessions than the National Bureau of Economic Research or NBER) believes that the US re-entered a recession in June.

And this is happening at a time when inflation is soaring due to the Fed’s money printing/ loose monetary policies. Agricultural commodities have risen some 20% since the last recession supposedly “ended.” Over the same time, Oil has risen by nearly $30 per barrel.

There’s a word for an economic contraction marked by high inflation: it’s called stagflation, and the US is in it big time.

Folks, this is the reality we’re dealing with. The Fed has gone “all in” in its efforts to stop the debt implosion… and it’s failed. All it’s done is unleashed an even more serious inflationary storm than the one we were already facing.

The time to start preparing is now. The printers are running. The Great Currency Debasement has begun. Some folks will walk out of this mess winners. Most will walk out as losers.

Best Regards,

Phoenix Capital Research


Rick Santelli describes what QEIII to infinity will do to most of the world.

On Santelli's Queasiness About Bernanke's Quantitative-Easiness

Tyler Durden's picture

Between CNBC's Rick Santelli and PIMCO's Mohammed El-Erian, this brief clip succinctly sums up the 'less than ideal' reality of Bernanke's all-in bet and how the world is trying to 'trade' it. Santelli analogizes: "Visualize the biggest fire hose in the world, 20 miles away from a little Geranium plant? Now this hose is going and going and going, and ultimately, that Geranium plant gets a little bit of water but everything around it and leading up to it for miles around is just underwater. That's QE, in my opinion." To which El-Erian retorts: "at what point do you tell investors stop focusing on the benefits and make the collateral damage the investment theme?" It seems, given gold's outperformance, that this is exactly what is occurring as the hose-pipe's flood spills out everywhere.

The discussion ensues, with Santelli noting that the Fed-heads (especially Charles Evans) have admitted QE is not 'ideal' but 'We've got to do something!!"
 From currency manipulators, to China's problems, to our iGadget obsession, and the destruction of future generation's wealth - epic rant!

PIIGS In America: Is Illinois Preparing To Request A Federal Bailout?

Tyler Durden's picture

Moments ago we saw the following amusing headline crossing the BBG:
It's amusing because these are the same teachers who were demanding, and received, higher pay - 17% higher over four years in fact - following a several day strike. It is even more amusing considering that in a fiscal year in which we saw QE2, Operation Twist 1 and 2, and LTRO 1 and 2, the nation's largest pension fund, Calpers, managed to eek out a measly 1% gain (and this is including the end of June surge following the then announced European bailout which turned out to be yet another dud). It is, however sadly, most amusing, because it may be a harbinger of something truly sad: the advent of the "PIIG bailout" to America, when a US state demands a Federal bailout. We have seen how eager Europe has been to bailout its insolvent nations. We are next about to see just how "united" the US is when its own solidarity is tested as state after state repeat the European bailout experience. But hey: at least we have the dollar so all should be well.
From the WSJ:
Now that Chicago's children have returned to not learning in school, we can all move on to the next crisis in Illinois public finance: unfunded public pensions. Readers who live in the other 49 states will be pleased to learn that Governor Pat Quinn's 2012 budget proposal already floated the idea of a federal guarantee of its pension debt. Think Germany and eurobonds for Greece, Italy and Spain.

Thank you for sharing, Governor.

Illinois now has some $8 billion in current debts outstanding and taxpayers are on the hook for more than $200 billion in unfunded retirement costs for government workers. By some estimates, the system could be the first in the nation to go broke, as early as 2018.

For years, states have engaged in elaborate accounting tricks to improve appearances, including using an unrealistically high 8% "discount" rate to account for future liabilities. To make that fairy tale come true, state pension funds would have to average returns of 8% a year, which even the toothless Government Accounting Standards Board and Moody's have said are unrealistic.

The city is already facing upwards of a $1 billion deficit next year with hundreds of millions of dollars in annual pension costs for retired teachers coming due. But despite the fiscal imperatives, the negotiation didn't even discuss pensions. The final deal gave unions a more than 17% raise over four years, while they keep benefits and pensions that workers in the wealth-creating private economy can only imagine.

As a political matter, public unions are pursuing a version of the GM strategy: Never make a concession at the state level, figuring that if things get really bad the federal government will have no political choice but to bail out the pensions if not the entire state. Mr. Quinn made that official by pointing out in his budget proposal that "significant long-term improvements" in the state pension debt will come from "seeking a federal guarantee of the debt."
So when the time comes to bail out Chicago we can just tell America's insolvent state(s), who will soon pursue the MAD strategy of Europe's PIIGS, to demand a bailout with the ECB. We are confident the ECB will be more than happy to comply: after all quite soon Mario Draghi will realize that his goal should be to push the EUR down not up, and taking on more and more bailouts and money printing is precisely what he should be doing to once again retake the lead in the global FX race to debase.
After all, as it was already made clear earlier, Obama's promise in exchange for European votes, is to bail out Europe. It is only fair that Europe reciprocate after the election.
Quid pro quo.
And now: the End of the Beniverse

In what has to be the biggest change in modern history, the Minneapolis Fed governor, Kocherlakota completely switches from extreme hawk to dove joining Chicago's Evans and Boston's Rosengren.  The USA must be in big trouble:

(courtesy Dow Jones newswires)

DJ FED WATCH: Kocherlakota Completes Extreme Swing from Hawk to Dove

Thu Sep 20 16:09:50 2012 EDT

--Minneapolis Fed's Kocherlakota swings hard from hawk to dove
--Kocherlakota now advocates aggressively easy monetary policy, for years to come
--Some observers shocked by evolution of neophyte policy maker
NEW YORK--In the nearly three years Narayana Kocherlakota has held the keys to the Minneapolis Fed, the central banker has undergone a pronounced evolution from hawk to dove, in a shift made complete Thursday.
Fed hawks earn their feathers by their laser-like focus on the inflation-fighting side of the central bank's mandate, even if that means the goal of maximum job growth has to suffer a bit. Doves, meanwhile, are more inclined to support aggressive action to spur growth and hiring.
In the current central bank aviary, the hawks are well represented. There is Richmond Fed boss Jeffrey Lacker, a persistent dissenter at this year's Federal Open Market Committee meetings against new stimulus. Dallas Fed chief Richard Fisher argues repeatedly the central bank has provided far and away enough liquidity to a financial system already choking on liquidity.
Doves are in the ascendance, however. Their camp counts Chairman Ben Bernanke, his second in command, Janet Yellen, and New York Fed President William Dudley. One particular high flyer is Charles Evans of the Chicago Fed. He is in favor of a policy rule that would allow inflation to go as high as 3% in the pursuit of lowering high unemployment. It was the doves who authored the new stimulus effort the Fed put in place a week ago.
In a speech Thursday in Michigan, Mr. Kocherlakota completed his shift. He noted he "liked" Mr. Evans's ideas. However, unease with tolerating higher inflation caused him to argue as long as inflation doesn't go above 2.25%, the Fed should maintain its 0% interest-rate policy until the unemployment rate hits 5.5%.
Given the current jobless rate is 8.1%, Mr. Kocherlakota said it could be "four or more years" before the Fed is positioned to raise rates. That view appears to put the central banker outside the official consensus that rates will stay very low until mid-2015. Mr. Kocherlakota's comments suggest he may have been the only Fed official to predict at last week's meeting the Fed's first rate increase will likely happen in 2016.
It has been quite a journey for Mr. Kocherlakota. In his first voting stint on the FOMC in 2011--regional bank presidents rotate on the monetary-policy-setting body--he twice joined an insurrection against actions taken by the Fed. At the August and September meetings he voted with Dallas's Mr. Fisher and the Philadelphia Fed's Charles Plosser in a dramatic dissent against the stimulus then undertaken.
Mr. Kocherlakota's hawkish credentials had been further burnished by comments earlier this year contemplating tighter monetary policy. He has also viewed the labor market in ways to suggest there wasn't as much slack there as many believed.
Mr. Kocherlakota's Thursday speech caught some Wall Street observers totally off guard. Calling the official a "noted hawk," Eric Green, economist at TD Securities said the policy maker's path to his current view is "tortured."
"In a matter of months a hawk moves from a premature exit strategy to raising the inflation target and then suggests keeping real fed funds at 50-year lows" even if that breaches what many consider to be inflation generating full-employment levels, Mr. Green said. He called Mr. Kocherlakota's plan "positively preposterous stuff" and said "If the Fed kept rates at -2% in real terms until we hit 5.5% unemployment, inflation credibility would not be eroded, it would be exploded."
Whether Mr. Kocherlakota is right or wrong, his newfound stance squares well with what appears to be an FOMC predisposed to keep policy very easy for a very long time. Mr. Kocherlakota may have joined the ranks of the very dovish, but in doing so, he is now in good company.


and now San Francisco Fed President Williams:

DJ Fed's Williams: When Op Twist Ends Could Do Outright Treasury Buys -Report

Fri Sep 21 09:12:09 2012 EDT

The Federal Reserve should not automatically boost total asset QE3 purchases just because Operation Twist expires at the end of December, San Francisco Federal Reserve Bank President John Williams said in an interview with Market News International Thursday. The Fed could decide to add outright purchases of Treasurys to its new "quantitative easing" program provided economic conditions warrant doing so, he said. Mr. Williams, a voting member of the FOMC, said he is not worried about "cliff effects" at the end of Operation Twist as the Fed will still be holding Treasury securities it has purchased in its portfolio.
 ld-do-outright-tsy-buys -END-


I will conclude my commentary with this week's great wrap up courtesy of Greg Hunter of USAWatchdog:

Weekly News Wrap-Up 9.21.12

By Greg Hunter’s 
The Middle East and North Africa are on fire.  The latest blow-up happened in Pakistan where the U.S. Embassy was attacked by protestors.  There have been attacks and protests on U.S. interests in Middle East countries such as Libya, Egypt, Yemen, Sudan and many others.  The Obama Administration says it is all because of some anti-Muslim movie, but many think it is way more about our foreign policy.  The Obama Administration finally admitted the U.S. Libyan Embassy attack was the pre-planned assault by al-Qaeda.  The U.S. backed al-Qaeda terrorists in Libya and continues to do so in Syria.  Meanwhile, the U.S. conducts drone strikes against al-Qaeda in Yemen and Pakistan.  These people are not stupid.  They know when they are getting played.  A new Pew Poll out shows America is less trusted in many Middle Eastern countries now than in 2008.  For example, in Pakistan in 2012, only 12% view America favorably.  In 2008, 19% viewed the U.S. favorably.  Mitt Romney made his now famous “47% of people don’t pay taxes” statement that has put his campaign on the defensive.  What I find ironic is that neither party is talking about the “unlimited” $40 billion a month the Fed is printing to buy sour mortgage debt from the big banks.  This is another banker bailout!!  This mortgage debt was supposed to be equal to Treasuries in quality-AAA.  Now, it is toxic?  Isn’t that a gigantic fraud on the taxpayers of America?  Finally, a story you need to watch is the fight China and Japan are having over a group of islands in the South China Sea.  These islands are apparently so important one Chinese general is threatening to go to war over who owns them.  Coming up, Gerald Celente of Trends Research is the guest for Monday.  He says we are not headed for war in the Middle East–it has already started.  Join Greg Hunter as he gives his analysis to these stories and more in the Weekly News Wrap-Up.  


Well that about does it for this week. 

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

all the best


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