Thursday, October 18, 2012

Spain's bad loans increase/raid on silver and gold

Good evening Ladies and Gentlemen:

Gold closed down by $8.20  to finish the comex session at $1743.30  Silver fell by 38 cents to $32.84.
The bankers needed another raid as the silver OI was still too high . The raid generally accomplishes nothing.  In other news, Greece greeted it's  EU guest with a 24 hour national strike.  Spain saw it's bad bank loans climb to 10.5 % of total bank loans.  It represents close to 18% of  Spain's GDP.  Italy's oldest bank, Monte de Peschi di Sienna has been  reduced to junk status.

We will go over these and other stories but first..................

Let us now head over to the comex and assess trading today.  The total comex gold OI rose by 4097 contracts to settle today at 466,873..  The Wednesday session close came in at 462,826.  The active October contract saw its OI rise by 18 contracts to 277.  We had 5 delivery notices on Monday, so we  gained 23 contracts or 2,300 oz of additional  gold standing.  The non active  November contract saw it's OI  rise by 3 contracts to 1094.  The big December contract saw it's Oi fall by 1,112 contracts to rest at 333,482, a very lofty amount. The Wednesday session had its December OI settle at 334,594 contracts.  The estimated volume today registered 112,552 which was very anemic.  The confirmed volume yesterday was  stronger at 126,959..

The total silver comex OI fell by a very tiny 165  contracts to settle at 141,240.
Again we lost very  few silver longs who continue to be impervious to the continual banker antics of consecutive days of banker raids. We probably lost a few bankers along the way as they could not stand the heat.


  The bankers must get our silver leaves to fall or else we are looking at a possible silver commercial failure. The silver OI is very high and continuous raids are having no effect on our longs.  Either this resolves itself or else you will for the first time a commercial failure in silver. 

The non active October contract saw it's OI fall remain constant at 75 contracts.  We had 0 notices filed on Wednesday so we neither  gained  nor lost any silver
 standing.  The non active November contract saw it's OI fall by 5 contracts  to 47.  The big December contract saw it's OI fall marginally by  774 contracts to 84,965.  It is this figure that is driving our bankers bonkers as the bankers have to remove as many OI long contracts as possible.  The estimated volume at the silver comex today was anemic at 33,502.  The confirmed volume yesterday was  also weak at 27,867.  Our bankers seem absolutely frightened to supply the non backed silver paper.

Comex gold figures 

Oct 18-.2012    

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
192.90 (Manfra)
Deposits to the Dealer Inventory in oz
2499.95 oz Brinks
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
(26)  2600 oz
No of oz to be served (notices)
(251)   25,100 oz
Total monthly oz gold served (contracts) so far this month
(6930)  693,000 oz
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

Today, we again had negligible activity inside the gold vaults.

The dealer had one deposit to the tune of 2499.95 oz (Brinks)  and no dealer withdrawal.
The customer had no  deposits

The customer had one  withdrawal:

1) out of Manfra 192.90 oz

There was no adjustments.

Thus the dealer inventory rests this weekend at 2.570 million oz (79.81) tonnes of gold)

The CME reported that we had only 37 notices filed for 3700 oz of gold.
The total number of notices filed so far this month is represented by 6899 contracts or 689,900 oz of gold.
To obtain what is left to be served upon, I take the OI standing for October
(295) and subtract out today's notices (37) which leaves us with 258 notices or 25,800  oz left to be served upon our longs.

Thus the total number of gold ounces standing in October is as follows:

689,900 oz (served)  +  25,800  oz (to be served upon) =  715,700 oz.(22.29 tonnes)

we gained 8 contracts or 800 oz of additional gold standing.

The total physical amount of gold standing in October is awesome for what is generally perceived to be a very tiny delivery month. The amount standing equates to 27.86% of total dealer inventory.


Oct 18.2012:

Withdrawals from Dealers Inventory1,175,150.24 (Brinks)
Withdrawals from Customer Inventory 170,851.24(CNT, Scotia)
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory nil
No of oz served (contracts)1  (5,000)
No of oz to be served (notices) 74  (380,000)
Total monthly oz silver served (contracts)441 (2,205,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month2,422,537.36
Total accumulative withdrawal of silver from the Customer inventory this month3,678,963.12

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) Into Brinks:  595,921.54  oz
ii)  Into Delaware:  342,539.98 oz
iii) Into Scotia:  558,426.78

Thus the total customer deposit: 1,496,888.03

We had the following customer withdrawal;

1. Out of BRINKS:  302,388.95 oz
2  Out of Delaware vaults:  1009.5 oz

total customer withdrawal:  50,716.02

Registered silver tonight:  36.853 million oz
total of all silver:  141.75 million oz.

The huge movements in silver certainly suggests that the bankers are having great difficulty in obtaining physical metal.
Please note the difference in movements between gold and silver.

The CME reported that we had another one of those strange delivery notices in a delivery month for silver:  this time zero and remember this is an active delivery month. The total number of silver notices filed so far this month remains at 440 contracts or 2,220,000 oz of silver.  To obtain what is left to be served upon, I take the OI standing for October (75) and subtract out today's notices (0) which leaves us with 75 notices or 375,000 oz left to be served upon our longs.

Thus the total number of silver ounces standing in this non active delivery month of October is as follows;

2,200,000 oz (served) +  375,000 oz (to be served upon) = 2,575,000 oz
we  gained 2 contracts or 10,000 oz of additional  silver oz standing.

The amount standing is still very high for a non active month. 


The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.

Total Gold in Trust   Oct  18.2012

Total Gold in Trust



Value US$:74,734,316,096.25

Oct 17.2012:

Total Gold in Trust



Value US$:74,992,450,382.38

Oct 16.2012:




Value US$:74,886,057,530.23

Oct 15.2012:




Value US$:74,436,576,484.18

Oct 11 2012:

Total Gold in Trust



Value US$:76,232,333,675.27


we neither gained nor lost any gold from the GLD.


And now for silver: 

oct 18.2012:

Ounces of Silver in Trust317,052,725.200
Tonnes of Silver in Trust Tonnes of Silver in Trust9,861.44

Oct 17.2012:

Ounces of Silver in Trust317,052,725.200
Tonnes of Silver in Trust Tonnes of Silver in Trust9,861.44

oct 16.2012

Ounces of Silver in Trust317,827,514.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,885.54

Oct 12.2012:  318,115,000

Ounces of Silver in Trust318,941,345.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,920.18

Ounces of Silver in Trust318,941,345.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,920.18

Oct 9.2012

Ounces of Silver in Trust318,941,345.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,920.18

we neither gained nor lost any silver into slv vaults.

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

Sprott and Central Fund of Canada. 

(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)

1. Central Fund of Canada: traded to a positive 3.0 percent to NAV in usa funds and a positive 3.4%  to NAV for Cdn funds. ( oct 18.2012)  

2. Sprott silver fund (PSLV): Premium to NAV fell to  4.16% to NAV  Oct 18/2012  :
3. Sprott gold fund (PHYS): premium to NAV  rose  to 2.94% positive to NAV Oct 18.2012.  

 Now we witness the Central fund of Canada  gaining big time in its positive to NAV, as we now see CEF at a positive 3.0% in usa and .3.4% 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 4.16%. 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.


Your early morning gold report from Europe 

(courtesy Goldcore)

Institutions "Losing Enthusiasm for Gold", ECB Bank Supervision Plan Could Be Illegal say Lawyers

By: Ben Traynor, BullionVault

-- Posted Thursday, 18 October 2012 | Share this article | Source:

London Gold Market Report

SPOT MARKET gold bullion prices fell towards $1740 per ounce Thursday lunchtime in London,  0.8% down on the week so far, while most European stock indexes also ticked lower ahead of today's European leaders' summit in Brussels.

"While [gold] holds below $1758 the risk is to the downside," says the latest technical analysis report from bullion bank Scotia Mocatta.

"The path of least resistance for gold appears to be lower," agrees HSBC analyst James Steel.

"Institutional investors give the impression of losing enthusiasm for another challenge of gold's $1790-1800 price levels."

Like gold, silver bullion dipped towards the end of London's morning trading, trading lower towards $33 an ounce. Other industrial commodities were broadly flat on the day, while US Treasury bonds gained.

China's economy grew by 7.4% in the year to the third quarter – down from 7.6% in Q2 and the seventh successive quarter of slower growth – according to official GDP figures published Thursday.

"The economic situation in the third quarter is relatively good and we have the confidence to say that the Chinese economy is showing signs of stabilizing and will continue to show positive changes," Chinese premier Wen Jiabao said Wednesday ahead of the release.

Wen warned however that "China still faces considerable difficulty in the fourth quarter."

"Our economic growth still faces a very challenging external environment as it is extremely difficult to expand external demand," Wen said, "[but] our resolve to stabilize the economy is very firm."

"It might take another couple of quarters for growth to significantly recover, "says Bank of America Merrill Lynch economist Lu Ting, "but we believe the risk for a hard landing is getting increasingly smaller."

Here in Europe, European Union layers have advised that plans to grant banking supervisory powers to the European Central Bank may be in breach of EU treaties, according to draft documents leaked to reporters.

The plans, which will be discussed by European Union leaders at the two-day EU summit starting today, would see the ECB take on supervision of all Eurozone financial institutions.

The EU lawyers' conclusion, the Financial Times reports, is that "without altering EU treaties it would be impossible to give a bank supervision board within the ECB any formal decision-making powers".

Non-Euro members that opt into the supervision regime would thus be unable to vote on ECB decisions, with the supervisory board merely giving recommendations to the Governing Council.

Spanish borrowing costs meantime fell at an auction of 10-Year bonds this morning, amid speculation that the government is on the verge of asking for a bailout, which would enable the ECB to buy its bonds on the secondary market under its Outright Monetary Transactions program.

"The market is still looking for the timing of the aid request," says Harvinder Sian, rate strategist at RBS, speaking before the auction.

"The danger is that if the market continues to rally the Spanish government holds off [requesting a bailout]."

Over in Greece, unions have called another general strike today to coincide with the start of the EU summit, with protesters once again taking to the streets of Athens.

Cyprus meantime has had its credit rating pushed further into junk territory by Standard & Poor's, which now rates the country's debt at B. Cyprus too is widely expected to seek a bailout soon.

In South Africa, the world's fifth largest gold bullion producer Gold Fields is set to fire 11,000 workers for taking strike action, Reuters reports. Gold Fields said yesterday that a strike at some of its Beatrix shafts has ended, but that other sites are still being affected by industrial action.

Ben Traynor


Now this is not a way to treat your guests.  Greece has a 24 hour national strike.
The oldest bank in the world Banka Monte di Pesci de Siena has now been put at junk status.
Spain bad loans rise to 10.5% of total loans so conditions inside Spain continues to deteriorate with massive bank runs.

(Overnight sentiment)

Overnight Sentiment: Greece Greets Latest Eurozone Summit With 24 Hour Strike

Tyler Durden's picture

Today Europe awakes to yet another Eurozone summit, one at which such topics as Greece, Spain, the banking union project or a economic/budgetary union will have to gain further traction, if not resolution. In fact Greece could hardly wait and has already launched it latest 24 hour strike against austerity. The same Greece which demands a 2 year, €30 billion extension from Europe to comply with reform, a move which Europe has/has not agreed to as while the core have said yes to more time, all have refused to fund Greece with any more money. Alas the two are synonymous. As SocGen predicts unless there is some credible progress today, all the progress since the September ECB meeting, which has seen SPGB 10 Year yields decline from 690 bps to sub 550 bps, may simply drift away. And as everyone knows, there is never any progress at these meetings, except for lots of headlines, lots of promises (the Eurozone June summit's conclusions have yet to be implemented) and lots of bottom line profits by Belgian caterers. Elsewhere, Spain sold 3, 4 and 10 year bonds at declining yields on residual optimism from the pro forma bailed out country's paradoxical Investment Grade rating. In non-hopium based news, Spanish bad loans rose to a record 10.5% in August from 10.1% previously while the oldest bank in the world, Italy's Banka Monte dei Paschi was cut to junk status. All this is irrelevant though, as no negative news will ever matter again in a centrally-planned world. Finally the only real good news (at least until it is revised)came out of the UK, where retail sales posted a 0.4% increase on expectations of a 0.2% rise from -0.2%.
More on trading ranges and outlook from SocGen:

EUR/USD 1.3088-1.3131 overnight range. Quiet in a narrow range overnight as we await EU summit headlines. The 1.3140 high keeps spot within reach of the 1.3172 high of September. Merkel speech also in focus. 1mth RR climb above -0.20.

USD/JPY 78.76-79.22 overnight range. Big push higher overnight with follow through buying linked to hope of further BoJ easing, government stimulus and China data. Resistance 79.40, the 200d ma. EUR/JPY approaching 103.85, the Sep high.

GBP/USD 1.6124-1.6159 overnight range. MPC minutes keep QE on the table for November meeting, but more polarised views make a split vote possible. Retail sales due this morning, but profit taking could be in the offing. Support 1.6104.

AUD/USD 1.0366-1.0397 overnight range. The surge through the 50d/200d ma leaves bulls contemplating further upside backed by China data and AUD buying for corporate tax purposes (payment due 22 Oct). GBP/AUD in corrective mood.

EU 10y swaps touched a 1.9070% high overnight, extending the move since Monday to 17bp. EU summit headlines and the Spanish auction will set the tone today. Post EU summit disappointment is not unusual and could see stronger receiving interest emerge. Support 1.80%. 10y swap spread tightens to 23bp, -6bp since Monday.

US 10y cash yield touched 1.80%, the 200d ma and swaps hit a 1.8625% high in Asia as equities push on. Busy data ahead features initial claims (correction from last week's drop to 339k?) and the Philly Fed. Support swaps at 1.7765%.


The question now is whether risk appetite will continue after the summit. Has everything really been pre-announced? If no new measure is presented, whether on Greece, Spain, the banking union project or a economic/budgetary union, risk-on strategies could quickly lose steam. Let's just hope that in this event the ongoing hope that Spain will ask for aid over the next few weeks will stem the decline of the EUR/USD and EUR swap rates. The EUR/USD will have to break the 1.28/1.3175 range for us to have better visibility. For 10Y EUR swap rates, the levels to follow stand at 1.97% and 1.66%, respectively.

Today the pickup in UK retail sales should add to the list of positive surprises published recently in the UK. Will the same be true of the USA? Initial claims and the Philly Fed will be all the more important as 10Y US swap rates are close to a resistance level at 1.82% (200DMA).
And a more comprehensive summary as always from DB's Jim Reid and team:
Overnight markets ticked marginally weaker post the Chinese GDP print, although most markets have recovered any initial losses to trade up on the day with the Nikkei (+1.8%), ASX200 (+0.9%) and Shanghai Composite (+1.1%) all higher. Asian and Aussie credit spreads are trading tighter, with the IG benchmarks 2bp and 6bp tighter respectively, helped by the back up in 10yr US treasury yields overnight (which added 10bps to close at 1.82%).
Recapping yesterday’s moves, European equities closed higher for the third consecutive day with the Stoxx 600 adding +0.47% to take the index to just 0.1% below year-to-date highs seen in mid-September, post the announcement of QE3. It was a similar story in the credit space, with Crossover gapping in 80bps over the last 5 trading sessions to close at 477bp. Fin Snr, Fin Sub and Main were also -33bp, -45bp and -16bp tighter over the same period.
Moving to the US, Financial stocks (+1.2%) were once again amongst the leaders, helped by better than expected results from Bank of New York Mellon and Bank of America Corp. BofA shares ended lower however, probably driven by revenue declines in FICC (down 1% qoq vs 7-31% increases at peers) and equities trading (-8% qoq). On the data front, US housing continues to surprise to the upside. September housing starts rose 15% mom to 872k (vs 770k/2.7% expected) after the prior month was revised up 8k (to 758k).
The robust increase in starts was matched by an 11.6% mom rise in building permits (vs 1.1% expected) which was driven mostly by a 20.3% gain in multi-family permits. The strength in both starts and permits was broad-based and follows the recent surge in homebuilders' sentiment and banks' housing lending figures. S&P’s Homebuilders index closed up 1.9% yesterday.
Spanish news aside, the European headlines were towards the negative side, though they were largely shrugged off in the rally. The FT published an article suggesting that plans to create a single Eurozone banking supervisor was “illegal” citing an internal paper from the EU Council’s top legal adviser. The article adds that it would be impossible to give the ECB bank supervision powers without changing EU treaties. Elsewhere Cyprus was downgraded to B from BB by S&P as the nation's creditworthiness has deteriorated "significantly" since the last downgrade in August as domestic political constraints prevented a timely aid deal. The German government downgraded its 2013 growth forecast to 1% (from a 1.6% forecast in April), saying that uncertainty about the ability for policymakers to curtail the crisis has resulted in companies postponing investment, the finance ministry said. Staying with Germany, a study published by German newspaper Frankfurter Allgemeine Zeitung indicated that only 40% of those who live in Germany are convinced the euro will still be around in 10 years' time, compared with 50% at the end of 2011. Also Bloomberg reported that Peugeot’s financing arm will be forced to seek a bailout from the French government in order to help rollover shortterm loans.
On a more positive note though, inspectors from the Troika have left Athens after making substantial progress on budget cut talks and reforms but without agreement on labour reforms, officials said on Wednesday (Reuters). The IMF's mission chief for Greece, Paul Thomsen, stated that the two sides had agreed on "most policy issues", with agreement on the rest expected soon. Troika inspectors will fly to the EU summit (starting today in Brussels).
Turning to the day ahead, it will be relatively quiet in terms of European data. In terms of US data, initial jobless claims and the October Philly Fed survey are due. Morgan Stanley reports Q3 earnings before the US market open, while Google, Microsoft and AMD report after markets close. All eyes will be on the EU leader’s summit with Spain and Greece being hot topics. DB are not expecting decisions on either.


Greece Is To Pathogen As Cyprus Is To Contagion As Spain Is To Infected...

Reggie Middleton's picture

said on Wednesday it expected talks to start with lenders on badly
needed aid next week, as ratings agency Standard & Poor's pushed it
deeper into 
territory, implying domestic political expediency lay behind a delay in
clinching a deal. One of the smallest nations in the euro zone, Cyprus
sought European Union (EU) and International Monetary Fund (IMF) aid in
June after its two largest banks 
suffered huge losses due to a write-down of Greek debt.
Well, our Contagion Model showed
clear paths of the knock on effects of Greek infection, and we haven't
even gotten started with the economic pathogen party yet!
Of course, where there is a loser, there's always a winner as well -
sometimes hidden beneath all of their spoils... On Friday, 04 May 2012 I
penned The BoomBustBlog Pan-European Distressed Asset Acquisition Initiative, which clearly outlined the investment opportunities forthcoming in the tiny nation state known as Cyprus, as excerpted:
Asset sale by sovereigns is can be
seen in the sale of stakes in government owned infrastructure assets and
corporations. However, the approach adopted to dispose of these assets
is to make partial sales in tranches in order to participate in any
benefits of valuation recovery.
Professional and institutional subscribers should download the full version of this document (File Icon The BoomBustBlog Pan-European Distressed Asset Acquisition Initiative)
which outlines investment opportunities in the following nation/banks:
UK, Portugal, Italy, Cyprus, Greece, Ireland and Spain.  Our initiative
runs the gamut from whole companies and equities, to real estate,
infrastructure assets, rare earth and hard tangible assets to IP.
Dispositions by Europeans banks have
consisted mostly of foreign assets outside of Europe. Most of these
assets had the potential for high returns but are being offered at
prices reflecting the perception that future investment performance
would be robust. This is why there is so much interest in the private
equity and asset management space in scanning for strong deals among
those assets. However, the competition among these entities to buy
quality assets at reasonable valuations has created a micro bubble of
sorts, the type that make profitable vulture investing a very difficult
Over the next week I will lead readers and paid subscribers through a
journey of distressed assets being disgorged by banks and sovereigns
that are poised to give those who are perceptive enough out-sized
returns. I find this research and foresight to be invaluable, and I
believe many institutions, asset managers and UHNWers will as well. Of
course, the potential winners may be those who aren't among the usual
suspects, and I feel TPTB amongst the EU clan may feel downright
Yes, Spain will contribute to this vulture-fest, as will those still hooked into Greece, et. al.
Stay tuned, and follow me!


The Greek 24 hour national strike turned violent:

(courtesy zero hedge)

Athens Full Day Strike Turns Violent: Tears Gas, Petrol Bombs Exchanged

Tyler Durden's picture

Same old, same old from the country whose future is supposedly being decided at today's latest (we have now lost count) Eurosummit. Spoiler alert: nothing will be decided until after the US election. From AP: 'Violence has broken out at an anti-austerity demonstration in Athens during a 24-hour general strike, with youths pelting riot police with petrol bombs and rocks. Riot police responded with tear gas to disperse the troublemakers during the clashes Thursday in the capital's central Syntagma Square, as thousands of people marched through the streets. Greek workers are holding their second general strike in a month, protesting new austerity measures the government is negotiating with the debt-ridden country's international creditors." Too bad "rioter" is not a Full Time Equivalent employment position according to the Greek BLS. Or at least not yet.


Your most important commentary for today as Spain's total bad loans rise to fresh level of 178.6 billion euros.  The total bank debt in Spain is  1,698 trillion euros.  Spain's GDP is 1 trillion euros.

Thus the total bad loans equates to  a huge 17.8% of GDP.
And Spain needs only 100 billion euros?

(courtesy zero hedge)

Chart Of The Day: Spanish Bad Loans Hit New Parabolic Record

Tyler Durden's picture

It just refuses to get any better in Spain, whose banks are now aggressively marking down real estate to something resembling fair value. Last month we reported that Spanish bad loans jumped by the most ever, rising by over 1% to just under 10%. Today, last month's number was revised even higher to 10.1%. But the worst news is that the August bad loan total just hit a fresh record of €178.6 billion, or 10.5% of the total €1,698.7 billion in bank loans. Making things worse is that the primary bank funding lifeline - deposits - continues to flow out. That both Spain, and its banking sector are utterly insolvent, is clear to anyone but Oliver Wyman and those who have bought SPGBs (although granted the latter are merely hoping for a quick flip). And the ECB of course. Indicatively, as a % of GDP, this would be equivalent to roughly $2.7 trillion in US bank loans going sour (for more on the collapse of Spanish banking, and the laughable stress test whose worst case has already become the baseline, read here). The chart summarizing this staggering statistic is below.
As for that other marginal peripheral country, Italy, things aren't any better on ther ground there either.
The Italian banking association ABI said overall deposits and bank bonds had risen 0.57 percent year-on-year in September. Deposits held by Italian residents jumped 4.7 percent while bonds bank sold to retail clients fell 6.8 percent.

The data showed deposits held by foreigners continued to fall, although at a slower pace than in previous month. In August they declined by 15.4 percent compared with a 17 percent fall a month earlier.

Higher overall deposits did not translate in increased bank lending. Loans to non-financial businesses and families fell 2.6 percent, the fifth straight monthly decline and the worst deterioration in at least two years.

Also, bad loans rose due to Italy's recession. In September, they totalled nearly 116 billion euros, up 15.6 percent from a year earlier.
In other news, the European recovery is here. Or something.


Mark Grant is back and energized.
He states that the globe is going down a slippery slope:

(courtesy zero hedge)

A Small Printed Note Saying "Wait!"

Tyler Durden's picture

Submitted by Mark J. Grant, author of Out of the Box,
The Mothers of Intervention

To me, the world is running down a quite slippery slope in its attempt to avoid calamity. The political machines in Europe and the United States and to a real but lesser extent in China have passed the hat to their central banks because either they cannot or will not face up to the severity of their problems. Some have called it lack of leadership which may well be true and I have categorized it past that where there is a decided lack of agreement about how to settle important issues so that the three central banks are all that stand between farce and tragedy. The investment community, so long used to the invincibility of the Fed in particular, recognize the dire straits but continue to rally in equities or compress in bonds based upon their almost dogmatic faith  that each central bank can cure the problems by adding liquidity in ever increasing amounts to deal with the solvency issues that won’t go away. I would say that this “faith based initiative” is misplaced based first upon the caveat that the nations in question all have liability for their central banks, that one day, someday, the size of the national liabilities for their central bank will get counted and recognized and finally that the printing of money whether recognized or unrecognized eventually has consequences.

I have often heard it asked, and by some of the largest professional money managers in the world, why the markets are behaving in their current fashionWe get bad economic news, poor earnings, fiscal crisis in Greece, Spain, Ireland, Portugal, Cyprus and perhaps in Italy and still the markets rise. The reason for all of this is “intervention” which has resulted not just in liquidity but in the notion that the central banks will do anything/everything to cure the problems so that worse is better, white is black and rational judgment is transformed into lunacy. It is liquidity and faith that are driving the boat and derelict accounting that is providing the fuel.

The problems in the United States are clear enough. We find two distinct visions of the world. Forget the parties; we have one contender who is presenting a socialist viewpoint of the world which is actually quite similar to what is taking place in Europe. Then we have a candidate that is espousing a more traditional American value where people stand on their own two feet and make their way based upon their initiative. When I grew up in the 1950’s we applauded and respected the achiever and the successful. Today Mr. Obama bashes Wall Street and wants those who have attained some success to hand over their money to those that have languished. This is far past the “safety net” that has always been in place in the United States and his vision is the cousin to France, Italy and other nations mired in Socialism where the population is dollar cost averaged by the taxes and political system that is in place. While I would personally contend that the traditional American values have merit I would also agree with the proposition that the people in the United States are faced with a very real choice between Socialism and Capitalism that will be decided in the coming weeks. This is not, in my opinion, the traditional five degrees to the left or right choice but a fundamental difference in values.

In Europe the problems are also of a fundamental nature. It is not just North versus South or the nations with money as opposed to the nations without it but a demand by those nations in trouble to have access to the capital and the savings of the nations that are economically solid.The definition of “More Europe” in Germany is decidedly different than the definition in Spain and the fight for a European definition is at the center of the rancor in Europe which has left the ECB as the only real functioning institution in Europe past the drivel that flows out of Brussels like so much manure to sod the farms outside of Antwerp.

The problem is exemplified by both Spain and Greece. Bank stress tests that were a joke, economic projections that had all of the reality of a Grimm’s Fairy Tale, and economies that are diving off the cliff. Spain reports out this morning that the bad loans at their banks jumped to a record 10.5% which is coming off of a baseline of 0.72% in December 2006. The worst case scenario forecast of Oliver Wyman has taken on all of the reality of the economic projections of each country provided by the IMF which must have been constructed by some folks in the land of Winkin, Blinkin’ & Nod. The fantasy continues; inaccurate data, fanciful projections, grand arm waving assurances by the European politicians and then months or quarters out real numbers which lay the scheme out naked and finally the fantastical belief that the central bank will wave its magic wand and make everything all good again. This is the stuff of Mommy kissing the boo-boo and everything will be just fine but the scrape is now a gash and I am afraid that the machinations of Mommy Central Bank cannot cure the problems much longer because surgery is required.

Many countries in Europe have reached the point where they are saying “No.” We see it this morning in pronouncements from Sweden and Finland. Euro-zone nations “need to do some things now that we maybe can’t be a part of,” was the common statement. Austria and the Netherlands have lined up stating no more of their citizen’s money for other countries.  German Chancellor Angela Merkel on Thursday called for more integration within the European
Union by giving EU's top economic official the veto power on national budgets of member states.

This, I assure you, will not fly in the Parliaments of many European nations and “More Europe” not only lacks a common European definition but it lacks agreement from one nation to the next. We are just not reaching some sort of crunch time but we are reaching a point and perhaps the point where the European Muddle ends and the division begins.

“On the delivery plate of the Nutri-Matic Drink Synthesizer was a small tray, on which sat three bone china cups and saucers, a bone china jug of milk, a silver teapot full of the best tea Arthur had ever tasted and a small printed note saying "Wait.”

                  -Douglas Adams, The Restaurant at the End of the Universe

Germany's demands shocks the EU:

(courtesy Ambrose Evans Pritchard/UKTelegraph)

Germany shocks EU with fiscal overlord demand
Germany has stated its exorbitant price for keeping Greece in the euro and agreeing to mass bond purchases by the European Central Bank.
Finance minister Wolfgang Schaeuble dropped his bombshell in talks with German journalists on a flight from Asia.
 By Ambrose Evans-Pritchard
8:39PM BST 16 Oct 2012
There must be an EU “currency commissioner” with sweeping powers to strike down national budgets; a “large step towards fiscal union”; and yet another EU treaty.
Finance minister Wolfgang Schaeuble dropped his bombshell in talks with German journalists on a flight from Asia, and apparently had the blessing of Angela Merkel, the chancellor. “When I put forward such proposals, you can take it as a given that the chancellor agrees,” he said.
Officials in Brussels reacted with horror. “If that is the demand, they are not going to get it. Nobody in the Council wants a new treaty right now,” said one EU diplomat.
“We’ve got the fiscal compact and quite enough fiscal discipline. Not even the Dutch want a commissioner telling them how to tax and spend,” he said.
The new demands risk another stormy summit in Brussels on Thursday, pitting Germany against the Latin bloc. The last summit in June ended with an acrimonious deal in the small hours on a banking union that began to unravel within days.
Mr Schaeuble said the currency chief should have powers similar to those of the EU’s competition commissioner, a man “feared around the world”.
The competition Tsar is the arch-enforcer of the EU machine, with powers to launch dawn raids, deploy SWAT teams, and block mergers on his own authority. The job was the making of Italy’s Mario Monti a decade ago when he blocked the GE-Honeywell merger after it had been cleared by Washington.
The Schaeuble plan is highly provocative. The EU can set deficit targets but it cannot manage budgets, unless a country requests a bail-out and gives up fiscal sovereignty.
Nor is it clear how Germany’s constitutional court would react. It ruled last year that the Bundestag’s budgetary powers are the bedrock of democracy and cannot be alienated to any supra-national body.
Mr Schaeuble poured scorn on counter-proposals by EU president Herman Van Rompuy, including a first step towards debt pooling through joint “eurobills”. The term “Fiskalunion” in Berlin has a specific meaning: more power to police the affairs of debtor states. It does not mean debt mutualisation or a joint EU treasury. Germany has so far refused to cross this Rubicon.
Michael Link, the country’s Europe minister, said Mr Van Rompuy’s plans are dead on arrival. “When you make proposals that are simply unacceptable for certain members, this will only give the impression of division. You can phrase it any way you like, 'treasury bills’, 'debt-redemption funds’ or 'eurobonds’, this type of debt issuance will not fly with our government. We have always said this very clearly.”
The comment invited a barbed retort from his French counterpart, Bernard Cazeneuve. “Well, for us, it is 'yes’, just as clearly,” he said. Such an open rift between Germany and France on the eve of a summit is rare.
However, Berlin has softened its line on a rescue for Spain, suggesting that Madrid may be able to tap a precautionary credit line with “limited conditionality”, instead of forcing it to accept an EU-IMF Troika regime.
Michael Meister, Mrs Merkel’s key fixer in the Bundestag, told Bloomberg that German legislators might be open to the idea, “but one thing is clear: whatever is requested, it won’t be without conditions”.
Spain is quietly trying to find out what those terms might be. Demands for public-sector job cuts would set off a storm. “It’s all down to haggling over the price,” said Steven Englander from Citigroup.
Huw Pill, from Goldman Sachs, said Germany has, in fact, allowed “veiled” debt mutualisation through its share of €750bn (£607bn) of bail-out liabilities. Less visibly, it has let the ECB boost its balance sheet to 32pc of GDP, even before it embarks on “unlimited” purchases of Club Med bonds. This includes a €1 trillion lending blitz to banks, and more than €200bn of bond purchases.
The Bundesbank has also accepted €750bn in claims from EMU peers under the ECB’s internal Target2 payment system. These claims rotate risk from banks to the German taxpayer. “The Bundesbank’s Target2 balances need to be evaluated carefully. They do represent a real German exposure towards the periphery: they cannot be dismissed as mere accounting entries,” said Mr Pill, who helped create the Target2 system.
It is precisely for this reason that Swiss rating agency I-CV stripped Germany of its AAA rating last month.“Germany has taken on contingent liabilities of €2 trillion. When you create these backstops, the money comes from somewhere and it can all go wrong,” said I-CV’s Rene Hermann.
Germany is in deeper than it likes to tell its own people.


The French are venting their anger at the socialist Hollande as bankruptcies rise to record levels.
The big fury is the tax on the rich and they are voting with their feet by leaving France:

(courtesy Ambrose Evans Pritchard)

French Business Erupts In Fury Against "Disastrous" François Hollande
France is sliding into a grave economic crisis and risks a full-blown “hurricane” as investors flee rocketing tax rates, the country’s business federation has warned.
Francois Hollande is tightening fiscal policy by 2pc of GDP next year to meet EU deficit targets.
By Ambrose Evans-Pritchard
9:52PM BST 15 Oct 2012
Telegraph UK
“The situation is very serious. Some business leaders are in a state of quasi-panic,” said Laurence Parisot, head of employers’ group MEDEF.
“The pace of bankruptcies has accelerated over the summer. We are seeing a general loss of confidence by investors. Large foreign investors are shunning France altogether. It’s becoming really dramatic.”
MEDEF, France’s equivalent of the CBI, said the threat has risen from “a storm warning to a hurricane warning”, adding that the Socialist government of François Hollande has yet to understand the “extreme gravity” of the crisis.
The immediate bone of contention is Article 6 of the new tax law, which raises the top rate of capital gains tax from 34.5pc to 62.2pc. This compares with 21pc in Spain, 26.4pc in Germany and 28pc in Britain.
“Let’s be clear, Article 6 is not acceptable, even if modified. We will not be complicit in a disastrous economic mistake,” Mrs Parisot told Le Figaro.
An alliance of private organisations in France has issued a protest entitled “State of Emergency for Business”, warning that confiscatory tax rates threaten lasting damage to the French economy.
Mrs Parisot said the policies border on economic illiteracy: “The idea of aligning taxes on capital with those on wages is a profound economic error. It is scandalous that the French have been left in such economic ignorance for years.”
French business has called for “competiveness shock” of business tax cuts to claw back lost ground against Germany. Instead, it faces an extra €10bn (£8.1bn) of business costs from the budget unveiled in September.
Mr Hollande is tightening fiscal policy by 2pc of GDP next year to meet EU deficit targets, with two-thirds coming from higher taxes. The budget does little to shrink the French state. Spending has risen to 55pc of GDP, similar to Sweden but without Nordic labour flexibility.
French economic growth has been near zero for the past five quarters. It may have tipped into recession over the summer as the malaise spread from Italy and Spain, according to Banque de France.
New car registrations were down 7.7pc in the third quarter from a year earlier. Unemployment has been creeeping up, reaching a post-euro high of 10.6pc.
The fear is that a fiscal shock in 2013 will tip the economy into a sharp downward slide. “France needs more fiscal austerity right now like a hole in the head,” said sovereign debt strategist Nicholas Spiro.
“They don’t have any chance of meeting their growth target of 0.8pc next year, but that does not in itself put French debt at risk.
“The real danger is contagion if things turn ugly in Spain.”
Finance minister Pierre Moscovici has hinted at a shift in policy, saying there may have to be a “reorientation” of the eurozone’s fiscal strategy. “The people are not going to like Europe if it can’t offer growth,” he said.
Mr Hollande has promised reforms to the labour market next year but MEDEF remains sceptical.
Mrs Parisot said business feels deeply unloved and is “in revolt across the country”.


By goodness:  how stupid can it be:  to ban  homework:
France will probably follow Italy once Spain officially asks for a bailout.

(courtesy zero hedge)

To Promote The Great European Socialist Revolution, France's Hollande Will Ban Homework

Tyler Durden's picture

Homework favors the wealthy. This is the position that the increasingly imbecilic President of France is taking in proposing a ban on homework as part of a series of educational reforms. As ABC reports, Hollande sees "education as a priority" but work should be done during school hours rather than at home "in order to establish equal opportunities." But before the children of France rejoice, Hollande is unlikely to garner their future votes, as his proposal also looks to extend the French school week to nine half-days a week to be spread over four, five, or six days (as opposed to the current four days a week with Wednesdays off). Though we may sneer at this oh-so-socialist ideal of 'sharing' the homework load into the school-day, it is perhaps noteworthy that the US still lags France in Math (US 31st in the world vs France 22nd).

Via ABC:
Talk about courting the youth vote. French President François Hollande has proposed banning homework as part of a series of policies designed to reform the French educational system.

Education is priority,” Hollande said in a speech at Paris’s Sorbonne University. “An education program is, by definition, a societal program. Work should be done at school, rather than at home.”

The justification for this proposed ban? Inequality. According to a statement from an official at the French Embassy, “When it comes to homework, the President said it should be done during school hours rather than at home, in order to establish equal opportunities.” Homework favors the wealthy, Hollande argues, because they are more likely to have a good working environment at home, including parents with the time and energy to help them with their work.

Hollande’s education proposal is not limited to a homework ban. According to the embassy, Hollande has also pledged to add 60,000 teaching jobs in the next five years. He has also expressed support for extending the school week by establishing a model in which children would attend school for nine half days a week. Schools would be able to decide if this is spread over four, five or even six days, in consultation with local authorities and parents.

French children typically go to school for 36 weeks out of the year. The school day is roughly as long as an American workday, lasting from 8:00 to 4:00 or later. However, in most schools the week is only four days, with Wednesdays off in addition to Saturday and Sunday.

Hollande’s proposals are not official yet; they’re part of an ongoing national debate about reforming the education system, which is, according to the 2009 Program for International Student Assessment, ranked 21st in reading, 22nd in math and 27th in science among countries in the OECD (Organisation for Economic Development and Co-operation). The United States ranks 17th, 31st, and 23rd in those respective categories.


What happened to the BLS?  Last week initial claims were lower and now today they storm back rising by 46,000 to 388,000.  Last week's data was a print of 339,000.

Reality Storms Back As Initial Claims Explode Higher By 46K From Last Week's Upward Revised Aberration

Tyler Durden's picture

So much for last week's aberration initial claims print of 339K (revised higher of course to 342K). With expectations of an increase to 365K, the DOL just came out with a whopper of a miss, the largest in three months, at 388K, an increase of 46K in one week, which was also the highest print in three months. Remember: this number will be revised to 391K next week. So much for single print indicative of a recovery. As the chart below shows, the rate of change was a 13.45% from last week: the highest in five years! So far, there has been no explanation from the BLS or DOL for last week's outlier print. And no, last week's print was not due to  California, which the DOL reported just decreased by 4,979 in the week ended Oct 6, not the required 49K. What is however worse, is that it is becoming increasingly clear that nobody at the DOL knows what is actually going on following a statement by the Labor Dept that "it appeared that state-level administrative issues were distorting the data", and numbers are simply picked out of thin air. Finally, in truly amusing news, those on Extended Benefits have once again started to rise, after dropping to virtually 0 following expiration of state benefits. 
For the California conspiracy theorists:
Initial Claims:
Rate of Change:
Finally, courtesy of John Lohman, here is how long we have now gone without one single downward adjustment in the claims number:


Zero hedge discusses the real Philly Fed index which jumped -1.9 to 5.7.

(zero hedge)

Philly Fed Beats Even As Core Components Deteriorate

Tyler Durden's picture

The ridiculous economic data continues. Those looking at the headline Philly Fed, which jumped from -1.9 to 5.7, trouncing expectations of 1.0, such as the NY Fed's Simon Potter are pushing buy buttons left and right. And yet anyone who takes the 2 minutes to look at the internals, such as the collapse in the Number of Employees Sub-Index, which tumbled from -7.3 to -10.7 (the lowest since September 2009), the decline in the Average Employee Workweek, or the surge in Prices Paid from 8 to 19, double the change in Prices Received which means plunging corporate profits, or the ever critical New Orders which declined from 1.0 to -0.6, and one can see why this is a report only an Econ Ph.D-cum-Central Planner can love. Finally adding insult to injury, is the 6 month forecast, which unlike all other regional Fed diffusion indices, collapsed by half, from 41.2 to 21.6, as the Hopium at least in the city of brotherly mugging appears to be running out. Stocks kneejerk in every possible direction hoping the Fed will provide a direction.
To summarize from the report:
Price Indexes Increase Slightly

More firms reported paying higher prices for inputs, and the prices received for manufactured goods rose modestly this month. The prices paid index increased from 8 last month to 19 in October, with 30 percent of the firms reporting input price increases. With respect to their own manufactured goods, the percentage reporting an increase in prices (19 percent) was greater than the percentage reporting a decrease (14 percent). The prices received index rose to 5.4 from ]0.2.


The October Business Outlook Survey suggests that activity among the region’s manufacturing sector has steadied, following several months of reported declines. However, firms reported flat new orders and shipments and declines in employment. Prices for firms’ manufactured goods were moderately higher this month, while increases in input prices were more widespread. The future activity index decreased this month but remained positive, and firms are still generally optimistic regarding growth over the next six months.
Full table:
And chart:
And Philly Fed vs NFP:


I will leave you with this Bloomberg article on the financial conditions within the USA

(courtesy Bloomberg)

U.S. to Get Downgraded Amid Fiscal ‘Theater,’ Pimco Says

The sovereign credit rating of the U.S. will be cut as “fiscal theater” plays out in the world’s biggest economy, according to Pacific Investment Management Co., which runs the world’s largest bond fund.
Oct. 18 (Bloomberg) -- David Malpass, president and founder of Encima Global, talks about U.S. fiscal policy and the housing market. He speaks with Tom Keene, Sara Eisen and Mark Biffert on Bloomberg Television's "Surveillance." (Source: Bloomberg)
Pacific Investment Management Co. head of global portfolio management Scott Mather. Photographer: Guido Krzykovski/Bloomberg
“The U.S. will get downgraded, it’s a question of when,” Scott Mather, Pimco’s head of global portfolio management, said today in Wellington. “It depends on what the end of the year looks like, but it could be fairly soon after that.”
The Congressional Budget Office has warned the U.S. economy will fall into recession if $600 billion of government spending cuts and tax increases take place at the start of 2013. Financial markets are complacent about whether the White House and Congress will reach agreement on deferring the so-called fiscal drag on the economy until later next year, Mather said.
In a “base case” of President Barack Obama being re- elected and Congress becoming more Republican, there is a high likelihood an agreement “doesn’t happen in a nice way, and we have disruption in the marketplace,” he said.
Policy makers probably will agree on cutbacks that would lower economic growth by about 1.5 percentage points next year, Mather said. They may roil markets by discussing scenarios that would lead to a 4.5 percentage-point fiscal drag, he said.

‘Budgetary Meth’

Bill Gross, manager of Pimco’s $278 billion Total Return Fund, this month said that the U.S. will no longer be the first destination of global capital in search of safe returns unless fiscal spending and debt growth slows, saying the nation “frequently pleasures itself with budgetary crystal meth.” He reduced his holdings of Treasuries for a third consecutive month to the lowest level since last October.
S&P last week cut Spain’s debt rating to BBB-, the lowest investment grade, and placed it on negative outlook.
“Almost all sovereigns with poor debt dynamics are going to get downgraded, we’re just talking about the pace,” Mather said. Credit rating companies “have been slow in downgrading some sovereigns, but we think the pace probably picks up in the year ahead.”
Bond investors needn’t worry that a rating cut will hurt returns. About half the time, government bond yields move in the opposite direction suggested by new ratings, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back to 1974.

Bond Rallies

Spain’s bonds have rallied over the past week, pushing the yield on 10-year notes down by 16 basis points to 5.47 percent yesterday, the lowest closing level since April.
Benchmark U.S. Treasury yields have dropped to records since Standard & Poor’s cut the nation’s credit rating to AA+ from AAA on Aug. 5, 2011.
The 10-year rate was at 1.81 percent as of 11:04 a.m. in Tokyo, down 59 basis points since the day before the ratings reduction, after reaching a record-low 1.39 percent on July 24 of this year.
Credit-default swaps tied to U.S. debt, which typically fall as investors’ perceptions of creditworthiness rise and increase as they deteriorate, have dropped to 31.4 basis points from 55.4 basis points on the day of S&P’s downgrade and a record 100 in February 2009, according to data provider CMA. The firm is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

U.S. Debt

Credit rating firms may also be discounting an improvement in U.S. debt levels, which have shrunk to a six-year low. Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg.
French debt maturing in a year or more rallied 7.8 percent since before S&P cut the sovereign rating to AA+ on Jan. 13, more than double the gains for the global government bond market, according to Bank of America Merrill Lynch indexes.
Pimco forecasts global growth of 1.75 percent in the year through September 2013, weighed down by a euro-zone recession and a slowing pace of expansion in China.
“It’s a pretty dismal world growth outlook,” Mather said, adding that it will be difficult to return to former levels of growth in many of the world’s biggest economies because of the levels of debt, structural changes in the labor market and slower growth in the working-age population.
Those changes mean that a 2 percent expansion in the U.S. may in the future be seen as good growth, not the 3 percent that investors have been used to, he said.
It is difficult to see China’s growth continuing at a 7 percent pace, considering demographic changes and the challenge of maintaining expansion as the economy moves to a domestic consumption model from one based on exports, he said.
China’s economy expanded 7.4 percent in the three months ended Sept. 30 from a year earlier, slowing for a seventh quarter, the National Bureau of Statistics said today.
To contact the reporter on this story: Tracy Withers in Wellington at
To contact the editor responsible for this story: Stephanie Phang at


Well it is time to say goodnight and I will deliver Saturday's commentary on Sunday so you will be readdy for Monday morning.


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