Saturday, October 27, 2012

Spanish unemployment rises above 25%/Greece given until Sunday for an all party agreement on austerity/gold and silver hold/

Good morning Ladies and Gentlemen:

Gold closed down $1.10 to finish the comex session at $1710.90.  Silver finished the day down 4 cents to $32.01. Throughout the night, bourses were deeply in the red reacting to news of Apple's warnings that things might not be that good in 2013.  Amazon also disappointed with big losses.  However at 8:30 news that 3rd quarter GDP was better than thought at 2% caused the S and P to stop falling and it gave the green light to investors to pile into the markets.  The Dow however at the end of the day faltered and finished up only 3 points. In other news, we learned on Friday that the Troika has given Greece until Sunday for an all party agreement on austerity.  That has zero chance of occurring.  Also in Spain, their unemployment rate rose again and now tops 25%.  We will be going over these and other stories but first let us head over to the comex and assess trading today.

The total gold comex open interest fell by 1130 contracts as the bankers again succeeded in fleecing some longs.  This weekend the OI rests at 452,424 compared to Thursday's level of 453,554.  The active October contract saw it's OI fall by 36 contracts falling to 163 from Thursday's level of 199. We had 25 notices filed on Thursday so we lost 11 contracts or 55,000 oz of gold standing in October.  The non active November contract saw it's OI fall from 601 down to 481.  The big December contract saw it's OI fall from 315,515 down to 310,035.  The raids orchestrated these past few days certainly had an effect on our longs.
The estimated volume on Friday was quite anemic at 135,649.  The confirmed volume on Thursday was much better at 175,822.

The total silver comex finally had some some liquidation but it was a very marginal loss of 1286 contracts settling this weekend at 137,977 from Thursday's level of 139,233.  The non active October silver month contract saw it's OI rise by 1 contract to 33.  We had zero notices filed on Thursday, so in essence we gained 1 contract or 5000 oz of additional silver will stand in October.  The non active November contract also saw it's OI rise by 17 contracts to 64.  The big December contract saw it's OI fall by 1960 contracts from 79,975 down to 78,015.  The estimated volume on Friday was quite light at 35,314. The confirmed volume on Thursday was slightly better at 42,654.

Comex gold figures 

Oct 26-.2012    

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
96.45 (Brinks)
No of oz served (contracts) today
 2  (200)
No of oz to be served (notices)
(161)   16,100 oz
Total monthly oz gold served (contracts) so far this month
(7008)  700,800 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 very little activity inside the gold vaults.

The dealer had no deposits and no withdrawals. 
The customer had one tiny  deposit

i) into Brinks:  96.45 oz

The customer had no withdrawals:


There was one huge adjustment:

i) 163,782.442 oz of gold left the customer and entered the dealer at HSBC

Thus the dealer inventory rests this weekend at 2.7349 million oz (85.06) tonnes of gold.

The CME reported that we had 2 notices  filed for 200 oz of gold.
The total number of notices filed so far this month is represented by 7008 contracts or 700,800 oz of gold. 
To obtain what is left to be served upon, I take the OI standing for October
(163) and subtract out today's notices (2) which leaves us with 161 notices or 16,100  oz left to be served upon our longs.

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

700,800 oz (served)  +  16.100  oz (to be served upon) =  716,900 oz.(22.29) tonnes)
we lost 1100 oz standing from Thursday.
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 26.2% of total dealer inventory.


Oct 25.2012:

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 801,417.000(brinks)
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory253,457.06  (Brinks,CNT,Delaware)
No of oz served (contracts)2  (10,000 oz)
No of oz to be served (notices) 31  (155,000)
Total monthly oz silver served (contracts)482 (2,450,000 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 month5,562,171.8

Again, we had quite a bit of  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:  199,495.16 oz
ii) Into CNT;   49,978.000 oz
iii) Into Delaware: 3,983.90 oz

total customer deposit:  253,457.06 oz

We had the following customer withdrawal;

1. Out of brinks:  801,417.000 oz

total customer withdrawal: 801,417.000 oz

we had one adjustments as a counting error:

i) 15,706.19 oz was removed from the customer account at JPM.

Registered silver remains  at :  36,972 million oz
total of all silver:  141.82 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 2 notices filed for 10,000 oz . The total number of silver notices filed so far this month remains at 482 contracts or 2,450,000 oz of silver.  To obtain what is left to be served upon, I take the OI standing for October (33) and subtract out today's notices (2) which leaves us with 31 notices or 155,000 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;

2,450,000 oz (served) +  155,000 oz (to be served upon) = 2,565,000 oz
we  gained 1 contract or 5,000 oz of silver.

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  26.2012

Total Gold in Trust



Value US$:73,702,957,603.51

Oct 25.2012:




Value US$:73,715,533,741.05

Oct 24.2012:




Value US$:73,329,496,453.80

Oct 23.2012:




Value US$:73,523,722,642.31

we lost .6 tonnes of gold at the GLD.  



And now for silver: 

Oct 26;.2012:

Ounces of Silver in Trust319,037,966.300
Tonnes of Silver in Trust Tonnes of Silver in Trust9,923.19

oct 25.2012:

Ounces of Silver in Trust318,069,610.300
Tonnes of Silver in Trust Tonnes of Silver in Trust9,893.07

oct. 24.2012:

Ounces of Silver in Trust318,892,721.400
Tonnes of Silver in Trust Tonnes of Silver in Trust9,918.67

we gained 968,000 oz of silver into the slv.


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

Sprott and Central Fund of Canada. 

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

1. Central Fund of Canada: traded to a positive 4.6 percent to NAV in usa funds and a positive 4.5%  to NAV for Cdn funds. ( oct 26.2012)  

2. Sprott silver fund (PSLV): Premium to NAV rose to  4.59% to NAV  Oct 26/2012  :
3. Sprott gold fund (PHYS): premium to NAV  fell slightly to 2.26% positive to NAV Oct 26.2012.  

 Now we witness the Central fund of Canada  gaining big time in its positive to NAV, as we now see CEF at a positive 4.6% in usa and 4.5% 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 4.59%. Investors are seeking out physical supplies..  And now the Sprott gold fund having just done an offering has partially returned to its normal premium to NAV  .

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 COT report is released which gives the position levels of our major players.
Let us see what we can glean from this information:

First the Gold COT:

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, October 23, 2012

Quite a report:

Our large speculators:

Those large specs that have been long in gold were fleeced again by the crooked bankers as they pitched a massive 10,893 contracts from their long side.

Those large specs that have been short in gold, added a tiny 1084 contracts to their short side.

Our commercials:

Those commercials that are long in gold and are close to the physical scene added 3359 contracts to their long side.

Those commercials who have been perennially short in gold saw the opportunity and covered a massive 11,359 contracts from their short side.

Our small specs:

those small specs that have been long in gold pitched a considerable 2361 contracts from their long side.
Those small specs that have been short in gold added a tiny 380 contracts to their short side.

Conclusion: extremely bullish for gold as the commercials again went net long this week to the tune of  exactly 14,718 contracts.

and now for our silver COT:

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

Tuesday, October 23, 2012

Our large speculators:

Those large specs that have been long in silver pitched a tiny 1578 contracts from their long side.
Those large specs that have been short in silver added a tiny 414 contracts to their short side.

Our commercials;

Those commercials that have been long in silver and are close to the physical scene pitched a very tiny 435 contracts from their long side.

Those commercials that have been short in silver saw a bit of an opportunity and covered 2030 contracts from their short side.

Our small specs:

Those small specs that have been long in silver pitched a tiny 544 contracts from their long side.
Those small specs that have been short in silver covered 941 contracts from their short side.

Conclusion:  more bullish than last week as our commercials went net long again to the tune of 1625 contracts.

and now for some physical stories:

Gold trading for Asia and Europe early Friday morning with some commentaries:

Of note:  gold and silver one oz bars are officially out at the Perth mint i.e. 30,000 one oz bars of both silver and gold.

(courtesy goldcore)

Gold To Rally Strongly In November After Expected October Correction

-- Posted Friday, 26 October 2012 | Share this article | Source:

Today’s AM fix was USD 1,704.00, EUR 1,316.44, and GBP 1,057.01 per ounce. 
Yesterday’s AM fix was USD 1,715.00, EUR 1,317.71, and GBP 1,063.24 per ounce.
Gold climbed $11.80 or 0.69% in New York yesterday and closed at $1,712.70. Silver surged to a high of $32.232 and finished with a gain of 1.36%.

Gold in USD (2 Year) With Support At 100 and 200 Day Moving Averages -(Bloomberg)
Gold edged down early Friday, on track for its third week of declines as the US dollar strengthened and momentum traders continued to exit positions or go short.
Investors and dealers await the US CFTC commitment of traders figures due at 1930 GMT, after last week's data showed hedge funds and other big speculators decreased their long positions in gold to their lowest since the end of August.  This is bullish from a contrarian perspective and shows that much of the short term speculative froth has been removed from the market.
Gold in USD, 5 Day – (Bloomberg)

The US GDP figures are released later today and they are expected at 1.9%. A weaker than expected number would benefit safe haven gold.
Gold corrected in October as we anticipated and has fallen by 5.5% (in USD terms) from over $1,795.55/oz to a low of $1,699.65/oz  It is too early to tell yet if the October correction is over. There would appear to be strong support at $1,700/oz and Asian physical demand is very robust down at these levels.
The physical bullion market was subdued in Asia overnight although there was some buying out of Japan. Trade was muted because of a public holiday in Indonesia, Malaysia and Singapore, but Reuters noted that dealers saw gold buying from Thailand.

Importantly, Chinese buying of gold, official and public, on dips is likely to be continuing.
Physical demand for gold bullion coins and bars in western markets remains subdued but smart money buyers continue to add to allocations. Gold and silver 1oz bullion coins from the Australian Lunar – 2013 Year of the Snake Coin Series are officially sold out at The Perth Mint. The sell out of the full mintages of 300,000 pure silver 1oz coins and 30,000 pure gold 1oz coins was achieved in just two months, ranking this release as one of the fastest selling behind the phenomenally successful Year of Dragon coins in 2012.
With gold having pierced slightly below $1,700/oz there is a risk that gold could fall to test the 200 and 100 day moving averages which are now at $1,663.30/oz and $1,664/oz respectively (see chart above).
Cross Currency Table – (Bloomberg)

A rise of over 1% today (from the current price of $1,705/oz) would result in a higher close this week, above $1,721.75/oz. This would be a good indicator that the recent dip is over and it is time to get into position for November, which is one of gold’s strongest months and the November to March rally which is one of gold's strongest periods. A lower close this week could see further falls next week and in early November.
As ever it will be nigh impossible to pinpoint the exact price lows.

The low of $1,699.65/oz seen two days ago on Wednesday may mark the intermediate low however gold could continue falling until October 31st (next Wednesday) as month ends often mark intermediate lows or could even continue falling until the US election or soon after.
There are now 6 trading days left until the US Presidential election on November 6th. The US election has many investors on the sidelines.

Gold will be supported by and likely see gains into year end due to the coming uncertainty surrounding the US “fiscal cliff.” Tax increases and spending cuts are expected which would sink the US economy into a deep recession or Depression. If US Congress cannot agree on a deal by the end of the year it could have deleterious effects on the dollar and on capital markets.

The US elections themselves are unlikely to have a significant impact on currencies and wider markets in the short term but we expect the recent calm may recede and the stormy volatility of recent years may again be seen soon after the election when the reality of the appalling US fiscal and monetary situation is realised.
November is traditionally one of gold's strongest months (see gold seasonal charts).

Given the extremely bullish fundamentals due to negative fiscal outlooks, ultra loose monetary policies, negative real interest rates and global currency debasement, we expect this November and year end to be very positive for gold and particularly still undervalued silver.
Prudent buyers should now be buying this dip by cost averaging or getting into a position to do so. While gold may correct by another 2% or 3% from here, there is a greater likelihood of gold beginning to rise sharply and quickly recovering the 5.5% loss seen this month in November.
NEWSWIRE(Bloomberg) -- Eclectica’s Hendry Says Owning Gold Stocks Almost ‘Insanity’
Hugh Hendry, founder of London-based hedge fund Eclectica Asset Management LLP, said buying shares of gold-mining companies is “as close as you get to insanity.”
Hendry said he owns gold and also has a short position on gold-mining stocks, meaning that he’s sold shares he’s borrowed with the expectation of buying them back at a lower price. Mining stocks are likely to fall because the companies are at greater risk as the price of gold rises, he said.
“More precarious societies across the world are more envious of your gold assets at $3,000 than at $300” an ounce, Hendry said today at the Economist magazine’s annual Buttonwood Gathering in New York. “There is no valuation argument that protects you against the risk of confiscation.”
The NYSE Arca Gold Bugs Index has risen about 0.6 percent this year, including reinvested dividends, while bullion climbed 9.2 percent.

“There is no rationale for owning a gold-mining equity,” Hendry said. “Think about it, if you were bullish on gold why didn’t you just buy a gold ETF, gold futures or gold bullion?”
Hendry started Eclectica in 2005 and the firm has $1.1 billion under management, according to its website.

(Bloomberg) -- LBMA Says Gold Trading Surged 26% in September as Silver Rose
Gold trading jumped 26 percent to an average of 22.4 million ounces a day in September compared with a month earlier, the London Bullion Market Association said today in an e-mailed report.
That was the highest average since August 2011, the LBMA said. Silver trading rose 4 percent to a daily average of 124.3 million ounces, the LBMA said.
GoldCore Special Offer - Perth Mint Gold Bars (1 oz) At Just 3.8% ENDS TODAY!
We are offering increasingly popular Perth Mint gold bars (1 ounce) at an extremely low 3.8% premium finishing today, the 26th of October. The bars are LBMA approved and each bar is individually sealed in a tamper proof assay card featuring a unique serial number. The minimum order is 5 ounces and terms and conditions apply. 
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Gerald Celente tells Kingworld news that Germany is not the only nation missing it's gold.
A fun commentary:

(courtesy Kingworldnews/Gerald Celente)

Germany's isn't the only missing gold, Celente tells King World News

2:21p CT Friday, October 26, 2012
Dear Friend of GATA and Gold:
Market analyst Gerald Celente today tells King World News that Germany's gold isn't the only gold that has disappeared -- all official gold reserves are likely gone as well, the proof being the refusal of central banks to answer questions about their reserves and permit them to be audited. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Egon von Greyerz tells why he is confident that gold will keep rising due to massive government printing of paper money:

(courtesy Von Greyerz/Kingworld news)

Unlimited government debt will take gold up parabolically, von Greyerz says

6:42p CT Friday, October 26, 2012
Dear Friend of GATA and Gold:
Gold fund manager Egon von Greyerz today tells King World News that he's confident that gold will keep rising because government debt will keep rising as well -- unlimited debt going up parabolically will take gold with it. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


And now another country wishing to repatriate its gold:

Romania Wants Return of 93.4 tons as Gold Repatriation Ratchets Up

Oct 23 2012
The WealthCycles Staff
Romania wants its gold treasure back from Russia, a recent Bullion Street article says. It’s another signal of the accelerating trend of countries to repatriate their gold—and another indication that the tide is turning toward gold and silver.

Two railway carloads, or 93.4 tons of gold, were transferred to Russia as German troops began to threaten the region during World War I. According to the article, "All the governments of Romania since World War I, regardless of their political colour, have tried unsuccessfully to negotiate a return of the gold."
Of course, this is not the first time the Romanian people, or people of any region for that matter, have found their monetary metals tempting to foreign powers. Invaders sent by Roman Emperor Trajan found gold and silver in great quantities in the Western Carpathians, which run through what is now modern-day Romania. Resulting from this conquest, Trajan brought back to Rome over 165 tons of gold and 330 tons of silver.
It is interesting that considering this history independent auditors say Germany has stored its gold abroad since the Cold War in case of Soviet invasion. Additionally, the auditor’s report says the German gold stored in London has fallen "below 500 tons" due to recent sales and repatriation. Considering German gold stocks have remained the same, the sale of physical gold must have been offset by an acquisition of paper promising to pay gold from the Federal Reserve Bank or other entities needing a physical supply of gold.
One event that may have triggered a large-scale demand for physical delivery of gold was the repatriation of the 211 tons, or 17,000 standard 400-ounce bars, of Venezuelan gold.
"We’ve held 99 tons of gold at the Bank of England since 1980. I agree with bringing that home," President Hugo Chavez said, "It’s a healthy decision."
The obvious danger to having others hold your valuables is that they can simply deny your right to audit or access what they store for you. German lawmakers were turned away from viewing the 1,500 tons of German gold reportedly held at the New York branch of the privately held Federal Reserve Bank (Fed). This fact may have played a part in the recent German federal court ruling that mandates repatriation of 50 tons of the gold per annum. For more, see Germany Brings it Home – Gold Repatriation as Stocks Scare.
One reason Russia has refused to cooperate with Romania’s demand for its gold is assumed to be Romania’s cooperation with the U.S. missile "shield." According to the Huffington Post, in 2011, U.S. Secretary of State Hillary Clinton signed the agreement with Romanian Foreign Minister Teodor Baconschi and said the United States expected to deploy interceptor missiles at a Romanian air force base in approximately four years.
Mr. Eugen Anca at the time of the following quote ran the European arm of the Institute for Foreign Economic Relations (VNIIVS), a governmental agency of the Russian Federation’s Ministry of Economic Development and Commerce. He comments on the Romanian "gold treasure"
The Treasure is privately owned. Specifically, it is the private property of the National Bank of Romania (BNR)! At least this is how it was defined and certified by Victor Antonescu himself, the minister for finances in 1916, who signed the Protocol with Kremlin. This document is public and it can be found by any interested reader in the Foreign Ministry Archive, fund 71/1914, E2, Part I, vol. 183, pages 50 – 53. And there are certified copies of this document held by the Ministry for Finances, BNR, the French and British embassies, and Kremlin.
For this reason the Russians wanted a private corporation to exchange the BNR’s gold with a private Romanian entity that could secure assistance in developing Siberian natural resources as a win-win situation that could offer an new option to offset the 300 million (274 tons of gold) owed Russia per the 1947 Paris peace treaty previously satisfied via confiscation of the BNR gold stored in Russia. This is crucial, the "Romanian gold" is not even owned by Romania, it is owned by a private bank acting as the central bank of Romania. Sounds familiar as Americans handed their gold over to the Federal Reserve in 1934, not their state or federal Treasuries.
One lesson here for international players is that "if you can’t hold it, you don’t own it!" Accordingto Edel Tully, precious metals strategist at UBS, "There is a growing preference among many different communities in the gold market to have their physical gold at home."
Over the years the Russians have returned to Romania 17 railroad car loads of archives and documents, including as many as 39,320 Romanian art works were returned in 1956, including paintings, drawings, engravings, icons, tapestry works, religious objects, gold coins, medals and the Pietroasele treasure (below).

While this recent spate of repatriation may not be what sends gold immediately surging higher, it will be this repatriation movement that prevents the paper price from accurately reflecting the value of the physical metal. The paper market only has sway over prices of real silver and gold because the paper contracts bestow the bearer a right to physical delivery of metal. When the exchange defaults, by either limiting buying or by settling in cash, more and more holders of paper will catch on to the very real physical shortage of monetary metals, especially as gold and silver are more and more commonly used as a medium of exchange. There is infinite demand for money.
The fundamentals underpinning the greatest wealth transfer in the history of the world are solid. Considering the 80-year bull market, during which gold rose from 20 dollars per ounce to near 1700 paper dollars today, we conclude that it is the fundamentals of the Fed’s dollar are volatile—not the fundamentals of gold and silver.
Even under a fully implemented, "extreme" Paul Ryan budget, the federal deficit would persist until 2040, with debt growing larger and larger. The debt ceiling will be breached in 2013 either way, and printing paper rectangles is slated to increase in speed soon with promises to stop only when unemployment falls "significantly."
With the money supply still deflating since 2008, for the first time since the first Great Depression, what makes anyone think this time is different, and that the Keynesian promises of real growth will somehow finally materialize? The fact is, bankers fight deflation with re-inflation, or further increases in the supply of currency and credit. This process, repeated five times in the U.S. and many times abroad since the recent crisis began, has been very good to gold and silver money, the stable landmass to which all fiat currencies are referenced. Better stated, the cycle of deflation and re-inflation has been very bad to paper currency.
Generally speaking, prices don’t rise; the value and purchasing power of the Fed’s co-opted dollar falls. Bob Januah of Nomura, who has been calling for a sell-off in markets for some time now, saysthat gold has consolidated by around $100 recently, and that he feels that these look like attractive entry levels to position for additional action by the Federal Reserve. Time to musk up.

For more on the Swiss initiative to repatriate their gold see Gold Reserves Increasing at Central Banks and addressing the concerns of Americans, see Gold Audit Fails to Discover Who Owns What.


And finally, this brings back memories of the 1933 edit of President Roosevelt where it would be illegal to hold gold.  Draghi mulls gold sales and a backing of bonds with gold:

October 26, 2012 · 1:21 am
EUROZONE GOLD EXCLUSIVE: Draghi mulls gold sales ban….
Marigold Draghi?

….looks at gold-backed bonds to restore confidence

The Slog’s Brussels Mole reports that a bold double-whammy scheme to stabilise the euro and restore confidence in eurozone bonds ‘in the intermediate future’ is under serious consideration at the European Central Bank (ECB). The plan involves banning the private sale of gold in the proposed Fiskalunion, and using ECB gold supplies as collateral for sovereign debt bonds issued by member States.
In what will be seen as both sensational and horrifying by everyone from private investors to senior German financial figures, The Slog was today advised of the existence of an ECB plan to protect the single currency from desertion in favour of gold…and back some Fiskalunion eurobond and member State debt issuance with gold bullion.
It’s an odd mentality, is it not, that destroys confidence in eurozone bonds by cheating investors one year, and then looks to back the bonds with gold the next. It is, however, typical of ruthless eurofanatic tunnel vision to go for every last throw of the dice to before giving up.
That said, it is at least a creative idea – so we can be sure, therefore, that it didn’t originate in Brussels. The most likely original source of such a scheme is the front left cerebral lobe of Mario Draghi….or one of his chums in Goldman Sachs. Say for the sake of argument, Mario Monti.
"The idea is new Union, fresh start," my source asserts, "The old fluffy eurozone is dead, long live the gilt-edged FU. They’re not going to do it next week, but there is an ECB task-force working seriously on the ramifications and details".
Two days ago in Berlin, ECB boss Draghi made a significant comment when asked about the inflationary pressures of QE in the eurozone. I quote:
"in our assessment, the greater risk to price stability is currently falling prices in some euro-area countries."This was a calculated comment by Mario, designed to suggest a future where gold would represent a poor investment. Its effect was immediate: gold futures fell to $1703, and the hint was duly trotted out by several commentators.
"Gold is not getting any support since people are not talking about an inflation spike," said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.
My view is more anthropological I’m afraid: Mario Draghi wouldn’t be indirectly rubbishing gold if he didn’t fear it.
In fact, The Slog’s bottom-line belief about gold hasn’t changed since 2009: with the exception of top-top end A+++ property, it is the best investment on offer given the current outlook. And although timing one’s purchase entry exactly right is as much about good fortune as calculation, by 2014, $50 this way or that could very easily feel like peanuts compared to the gains made.
Those who see gold as purely an inflation hedge are missing the point. Top end property and gold are must-buys for the big investors right now, because they want safety and survival once the global financial system starts unravelling in the face of eurozone debt contagion.
Look at what Soros and Paulson did in August. Both liquidated a huge tranche of stock investments in favour of an enormous call on gold. This is a six-month track of the gold price from May 12 this year:
You can see that by the time Soros and Paulson bought the shiny stuff, it’d been holding at between 1550 and 1600 dollars for three months. This was a rigorous test of the low, and it had failed. All you’d need to do then is read a couple of newspapers about QE, the eurozone disaster, and the global slowdown, and decide it would be daft not to buy.
The other consideration (when dealing with the likes of Paulson and Soros) is whether they know of the Draghi scheme already….and plan to (a) get in while they can, and (b) benefit from what would probably result: a rising dollar price of gold. Odder things have transpired on the Goldman Sachs bush telegraph.
Of course, when Big Dicks like these two buy big, it becomes a short-term self-fulfilling prophecy to some extent: after much hype, the price shot up to test $1800 by the end of September. But this is the lesson: the existence of such major opinion leader actions – and ironically, the current cyclical fall-back of gold making it look increasingly, temptingly cheap – would worry any organisation in charge of a dodgy currency. And as Draghi’s ECB is the proud owner of a Mickey Mouse euro, it is entirely logical that the all-or-nothing brigade would plan to close off the exit-route into gold.
It’s not as if there is no precedent in recent times: the Reserve Bank of India very seriously considered banning the sale of gold coins there during last June. And as of early September 2012, private citizens can no longer buy gold in Argentina. That’s not what the new law says, but it is the cast-iron practical effect of the legislation.
In fact, using gold to back bonds has been put forward before by the World Gold Council – they would, wouldn’t they? – but I can imagine the idea terrifying the US Treasury and Reserve. It could well, for instance, trigger an investor desire to inspect the contents of Fort Knox; and it would turn the QE thing into a whole different ball of wax.
Meanwhile, the question is there for European private gold-bug investors to address: should they get in while the window’s still open? More on this later at The Slog.

Update at 11.15 am BST Friday: Germany starts repatriating gold – Coincidence or coordination?


and now for your major paper stories which will have an influence on gold and silver:

 Overnight from Europe, we again wait with bated breath for Spain to officially ask for a bailout.
In Italy, conditions got a little worse with confidence levels slipping to 87.8 from 88.3.  Expectations were for a reading of 88.7

Europe initially reacted negatively to the news on Apple and Amazon

(your overnight sentiment form Asia and Europe) 

Overnight Sentiment: Defending 1400 and 1.29

Tyler Durden's picture

There have been no major overnight events or surprises, with Europe continuing a war of semantics whether the Spanish bailout is a bailout, and attempting to avoid it as long as possible while reaping the benefits of Spanish bonds which are trading at post-bailout levels for a 3rd months now, as well as whether Greece will receive more Troika money (the WSJ reported that Greece requires €30 billion through 2016 to close its funding gap: a number which will eventually double, then triple), and yet as of moments ago the EURUSD slipped under the psychological 1.2900 support, which also means that 1400 on the SPX cash is in play. Italy did not help after business confidence declined from 88.3 to 87.6 on expectations of a rise to 88.7 What news there has been is largely the realization that reality is here to stay, following misses and guides lower from Amazon and Apple, and no matter what some low-volume algo tries to represent by buying the stock in the after hours session, profitability and cash flow creation for both companies will be lower going forward. In terms of newsflow, the NYT released a report last night that China's Premier may have been hiding billions in "related-party" transactions - imagine that, and one which promptly got the NYT blocked from China's internet. Obviously this is a touchy topic for China days ahead of its internal party vote, and one which will hardly score the US brownie points with the domestic administration. Concurrently, Japan announced a new fiscal "stimulus" for a whopping ... $9.4 billion. That is roughly the amount of money needed to evade deflation for 2-3 hours. More apropos, Bild reports whatBloomberg noted earlier, namely that Merkel has no majority for reported Greek aid, further blowing up the hole that Greek finmin Stournaras dug himself in with his lies earlier this week. So while everyone is once again on edge, with the Shanghai composite sliding 1.7%, and key technical levels either breached or in play, today's session promises to be quite interesting.
Here is what to look forward to as US traders come in, via SocGen:
Risk and volatility down, USD and core yields (swaps) up. This is how markets have fared this week and barring a whopping US GDP number this afternoon, this is probably how markets will close this week. The rise in core yields and a higher USD/JPY despite lower stocks is odd (generally USD/JPY falls when stocks fall), and it will take some time to figure out whether market dynamics are changing. Speculation of additional BoJ easing (reports suggest meeting next week will boost APP by JPY10tr and, commit to a 1% inflation target) but there have been many false dawns in the past. For USD/JPY , a break above the 200d ma set in motion a 7.9% rally in February/March and a 2.4% in June. A repeat would in the worst case scenario see the pair reach 81.30 (+2.4% from 80.10), in the most bullish scenario 85.60 (+7.9% from 80.10). A stronger GDP number and higher UST 2y yields would be a start. However, sluggish employment growth is one reason why we should not expect fireworks from the advance estimate of US Q3 GDP today. Weak core durable goods orders and shipments data yesterday was a cause for our US economists to fine-tune their forecast for annualised growth down to 1.6%. With inventory build estimated at 0.3ppt, that means real growth of only 1.3%, or 0.325% qoq. Not a number for risk assets to get carried away.

Elsewhere, focus will be on Italian business confidence, the Swiss KOF leading index, and Swedish trade data. A dovish statement by Sweden's  Riksbank yesterday (two committee members voted for an immediate cut) suggest a rate cut could follow in December. This explains why the SEK should end the week at the bottom of the G10 table (with the NOK).
Finally, for those who slept through it, here is a comprehensive summary of the past 24 hours via Deutsche Bank:
US equities once again lost momentum after a solid open yesterday with the S&P500 closing 0.30% higher even though the index traded as high as +0.9% in the morning. Technology stocks (-0.17%) drove much of the move lower and the tech sector has now underperformed the broader index by 5.2% since the last peak on September 14th. Yesterday's performance wasn’t helped by Apple who closed 2% down from the intraday high (-1.2% for the day) ahead of their Q4 earnings which were announced post-market close. Despite selling 27 million iPhones, 14 million iPads and 5.3m iPods, Apple’s Q4 earnings still managed to miss consensus EPS estimates (by 1%) due to a combination of lower margins and supply constraints. In addition, the company provided EPS guidance for the current quarter of $11.75 per share on revenues of $52bn, which were below prior estimates of $15.49 per share and $55 billion respectively, on lower margins particularly for its iPad mini.
More broadly, the current earnings season’s theme of strong EPS performance against weaker revenue continued yesterday with 76% companies beating on the bottom-line but only 37% beating on the top-line across the 54 S&P companies who reported on Thursday.
Apple’s earnings have set a weaker tone for Asian trading overnight with most bourses trading lower. Losses have been led by the Shanghai Composite (--1.6%) and Hang Seng (-0.8%) as a number of poor earnings from Chinese cyclicals weigh on sentiment. The Nikkei is outperforming on a relative basis (-0.7%) after the government unveiled a JPY750bn stimulus package and USDJPY is trading marginally lower (-0.3%) after the release of Japan’s CPI which was marginally firmer than expected (-0.3%yoy vs -0.4%). In the credit space, markets are trading unchanged to marginally weaker with Australian and Asian IG indices +0.5bp and 2bp wider respectively.
Today’s focus will be on the US GDP print which is due at 1:30pm London time. DB’s Joe Lavorgna expects a 1.7% increase in Q3 real GDP helped by moderate growth in private domestic demand. Residential investment (+10% expected vs 8.4% previously) will be a key driver for domestic demand, while consumer spending led by retail sales (+2.2% forecast) is also expected to contribute. On the business side, our US economics team expects corporate spending to show little or no growth in Q3. Indeed, yesterday’s September durable goods report confirmed the extent of corporate indecisiveness ahead of the upcoming election and “fiscal cliff”. The headline durable goods print rose +9.9% (vs 7.5% expected) but this was attributed almost entirely to aircraft orders which rose over 5x in the month. Notably, core capex orders (which exclude aircraft) were unchanged on August, and are down 7.4%yoy.
Elsewhere in Europe, the FT reported overnight that Greek junior coalition partners have not agreed on the labour reforms proposed between the Troika and the Greek PM/finance minister which are part of a revised programme granting a 2yr extension for Greece to hit deficit targets. Despite the delay, troika officials met in Brussels to begin negotiations over how to fund the revised programme which is expected to cost an additional EUR18bn. EU officials are reportedly opposed to haircuts on existing loans and are hoping to complete adeal before the November 13 ECOFIN meeting (FT). S&P downgraded a number of French banks overnight, including BNP Paribas (from AA- to A+) citing the potential for a protracted recession. S&P also placed 10 banks on negative outlook including Socgen and Credit Agricole. Newswires are reporting that Spain has approved initial payments to Valencia and Andalusia from the central government’s regional bailout fund.
In other stories, there was talk of an imminent downgrade of the US sovereign rating by Fitch, which helped drive some of the mid-morning fade in US equities. Fitch rates the US at AAA with negative outlook. The rating agency declined to comment on the headlines but referred to its July 10th report which said that the US rating or the outlook will be resolved by late 2013. Ironically US treasuries rallied on the initial headline, but 10yr yields finished the day up 3.5bps following a mixed 7yr auction.
Looking at the day ahead, the focus in the US will be the Q3 GDP report together with the final UofMichigan consumer sentiment reading for October. It will be a relatively quiet day for earnings with only 13 S&P500 companies reporting. Ahead of that, consumer confidence data is scheduled for Germany and France. We may see more Spain-related headlines with the country’s Q3 unemployment report due, together with Banco Popular, Bankia and Caixabank all reporting earnings today.


and early future market sentiment in the USA at around 7 am Friday morning:

S and P is being crushed by the Apple and Amazon report.
Also reports of a major Aussie bank in trouble also caused the S and P to falter before NY opening.
Things stayed negative until news from NY of a very positive 2% GDP reading for the 3rd quarter. (we still need 2 more revisions before becoming official)

Overnight Market: Futures Breaking Below Draghi-Believe Lows

Tyler Durden's picture

S&P futures are being crushed overnight. Currently trading below the levels of September 5th Draghi comments (back under 1400) and -11pts from the close. AUD is weak, Treasuries are modestly bid (as is the USD) and commodities are rolling over.The catalyst? We see four things: 1) Delayed reaction to global supply chain implications of an AAPL outlook cut (and/or overseas holders hedging) as well as some missed earnings in China; 2) Major Aussie quasi-bank Banksia (yes, its really called that!) hitting the skids (a la Northern Rock) bringing fear that Australia is entering 2008-mode USA; 3) a NYT article which could be inferred as a direct attack on the Chinese political faction (exposing Wen Jiabao's hidden billions); and/or 4) a realization that at 14-plus x P/E multiples, the US equity markets are not pricing in anything the kind of possible pain a fiscal cliff scenario (or Romney-ite in the Fed) might bring. Of course, the need for a narrative is irrelevant, the most net long position since 2008 is unwinding (for now) but by the time we wake for New York's morning, things could have reversed once again.

S&P 500 futures are down over 11pts at 1396.50 - 100DMA is 1388.75, 200DMA is 1364.5

AUDJPY is 1 big figure down from yesterday's highs.
TSY ylds are 6bps down from yestereday's highs.
WTI is at the lows of the week - around $85.
Gold and Silver are sliding - down 1% on the week at $1703 and $31.79 respectively.
The NKY, Tpoix, and Hang Seng are down around the same 1% or so as US equity futures but the Shanghai Composite is down 1.7%.


Greece has until Sunday to get a 3 party agreement on its austerity package before any more funds are released..  good luck to them on this one!!

(courtesy zero hedge)

Greek Deadline - Sunday Evening

Tyler Durden's picture

Tim Geithner's carefully scripted plan to avoid European "reality" until the US election is unraveling. While previously Greece was not supposed to be an issue until after November 6, the recent escalation with the Greek FinMin openly lying about a Troika interim bailout outcome (which may or may not happen, but only following yet another MoU which would see Greece fully transitioning to a German vassal state in exchange for what is now seen as a €30 billion shortfall over the next 4 years, and which would send Syriza soaring in the polls in the process ensuring that a Grexit is merely a matter of time) has forced a retaliation. According to the Greek press, the Troika now demands that Greece resolve its objections to labor reforms (which as reported earlier have forced the ruling coalition to split) by Sunday night, or else...
The implication, it appears, is that absent a compromise, the next Troika tranche of €31.5 billion is not coming, and Greece is out. And while the market is sanguine about this outcome, we are once again at the bargaining table, where nobody knows just who has the upper hand in Mutually Assured and quite Destructive bailout negotiations: Greece or Germany. FromKathimerini: "The government is facing a Sunday deadline for a full agreement on the package of measures that will see it cash in the next bailout tranche of 31.5 billion euros. The three-day extension it got in order to get maximum backing within the three-party coalition will be necessary as minor partner Democratic Left insists on an improvement in the terms concerning labor reforms that it staunchly opposes." Will Greece come through in the clutch? And if not, just what happens with the EURUSD on Sunday night as Greece calls the Troika's bluff? Deja vu shades of early summer, and plunging European risk come to mind...
The Euro Working Group (EWG) of eurozone finance ministry officials will convene again on Monday to discuss whatever conclusions Athens has come to and prepare the blueprint that the Eurogroup of euro area finance ministers may discuss on Wednesday through a video conference that sources from Brussels say is likely to take place in order to discuss Greece.

The prime minister appears determined to have the measures passed immediately through Parliament, either in one or in two draft laws, ordering on Thursday the preparation of the bills required.

At the same time there are also disagreements within PASOK, the other minor coalition partner, as a number of deputies are threatening to vote against a Finance Ministry measure regarding privatizations.


Greece needs 30 billion euros in aid over the next 4 years:

(courtesy Wall Street Journal)

Greece Faces Need for Additional Assistance

Euro-Zone Finance Officials Are Told Athens Requires an Extra $39 Billion From International Creditors Through 2016

BRUSSELS—Greece will need an extra €30 billion ($39 billion) in aid from its international creditors through 2016 to make up for a deeper-than-expected recession and a two-year delay in budget targets, senior European finance-ministry officials were told Thursday in their first detailed discussion on how to keep the debt-ridden country in the euro zone.
Finding a solution to Greece's debt dilemma is set to occupy euro-zone policy makers for much of the autumn, forcing them to make politically unpopular decisions just as they try to stabilize larger countries like Spain.


From the New York Times:

the following is what is going on Greece with their health system in disarray:

(courtesy New York Times)

Amid Cutbacks, Greek Doctors Offer Message to Poor: You Are Not Alone

Angelos Tzortzinis for The New York Times

Elena, a cancer patient, at a clinic in Athens. Her illness long went untreated.

Your opening Spanish 10 year bond yield:  (starting it's ascent to 6%) 


+Add to Watchlist


5.665000.02900 0.52%


How on earth can this nation recover with such a high unemployment rate?

(courtesy zero hedge)

One Quarter Of All Spanish Workers Without A Job: Female Unemployment In Ceuta Region Hits 57%

Tyler Durden's picture

One in four Spaniards are now officially out of work - well over double the euro-area's average 11.4% rate. This is the highest rate of unemployment since the Franco dictatorship ended in the mid-1970s as 5.8 million now stand idle. Perhaps more stunning is the fact that eight of the bailout-nation's regions have higher unemployment rates than the national average with Cueta at a stunning 41.03% (with women's unemployment rate in that region an almost incomprehensible 56.92%)!! The YoY increase of almost 800,000 people unemployed leaves 1.74 million households with no members employed. As one would expect, loan delinquencies are also surging as Caixabank just almost doubled its pool of bad loans in the third quarter. While Rajoy fiddles...
Spain's Unemployment Rate Hits 25.02% - the highest since the 1970s!

and across the regions (far right hand column) - the rate is even higher in many cases!

with women's unemployment (far right column) reaching a stunning 56.92% in Cueta region!


Your opening Italian 10 year bond yield:  (starting it's ascent to 5%)

Italy Govt Bonds 10 Year Gross Yield

 +Add to Watchlist


4.905000.03000 0.62%
As of 08:26:09 ET on 10/26/2012.


 Dr Grant's calculations on Greece are quite accurate:

1. They need 40 billion usa dollars worth of immediate funding ( or 30 billion euros) over the next two years or else they collapse
2. Greece has the following debt:

    i) sovereign debt:  390 billion euros(500 billion usa)
    ii) 70 billion euros of sovereign derivatives written by the sovereign state.
    iii)1  trillion euros of total debt either written or guaranteed by the sovereign state.

3.  There are massive credit default swaps underwritten by the big USA banks betting that Greece would not fail.

Spain:  the true debt to GDP of Spain is now closer to 200% if you include all of the guarantees underwritten by the state e.g. regional and corporate guarantees.
The Spanish banks have total loans underwritten equal to 300% of Spain's GDP.
If Spain bailouts it's banks, these debts must be added to it's own sovereign debt.
This is why Spain must fail.

Your Friday morning commentary courtesy of Dr Mark Grant/out of the box and onto Wall Street)

Hark! The Herald Angels Aren't Singing

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,
“No matter where you stand, no matter how far or how fast you flee, when it hits the fan, as much as possible will be propelled in your direction, and you will not possess a towel large enough to wipe all of it off.”

                                           -The Wizard

Coming Attractions

You thought it was tough; it is going to get tougher. You thought that Europe would not affect America and that we lived in some sort of bubble over here; think again. You thought that the liquidity provided by the world’s major central banks would carry us across the divide and intact; keep dreaming. We are at the cross roads, at breakpoint, where solvency is no longer overcome by liquidity because the politics is dysfunctional and because after you get to “unlimited” and “uncapped” there is nowhere further to go. We have arrived at that long dreaded moment where decisions will have to be made, will be forced to be made by the economic plights of Greece, Spain and Portugal that can no longer be shunned or twisted perversely under the banner of “More Europe” as Nationalism and self-preservation take root on the Continent and the effects of the austerity measures in Europe slows down and stops the economies in various nations which then impacts the earnings of American companies in a significant manner. Put succinctly;European austerity has arrived in the United States.

Riches to Rags

The situation in Greece is dire. The country is weeks away from being insolvent. The IMF and many European nations will not fund, the leaked Troika report, overly optimistic by any stretch of any rational mind, still puts Greece in a sinkhole that cannot be climbed out from no matter what scheme is suggested or utilized. Even using their fanciful projections it will require some $40 billion in immediate new funding when Germany probably can’t get the votes for it and when Austria, the Netherland and Finland have already said “No.” Meanwhile in Athens there has been no compromise and no agreement among the coalition parties so that the government may well topple and new elections would have to be called. The IMF wants the ECB and/or the EU to write off part of their Greek debt, which has been refused by the ECB and Germany so that the hours tick away, no resolution is found and the cash in Athens dwindles. If Greece actually defaults the shock will be systemic. More than $500 billion in sovereign debt obligations, $90 billion in sovereign derivatives and more than $1.3 trillion in total debt and if the plug is actually pulled either by a refusal to fund or a refusal to accept the terms and conditions of funding then I believe the correct phrase for the reality that will ensue is “Pop Goes The Weasel.”

Jack is Out of the Box

Spain is going nowhere and fast! The truth here is that the Spanish are twisting in the wind trying to find a way, any way, any possible way so that they can get money from the EU without having their finances audited or verified. The country is literally falling apart in the meantime with unemployment rising past 25% this morning while the talk and banter continues and while Germany, stuck in a Pandora’s Box of their own making, denies that Spain needs any help at all and that it is a matter of “readjustment.” The Germans must be kissing ostrich’s these days because there is no one else there with them in the hole in the sand where they have buried their head.

Just as Greece is about to run out of money; Spain is not far behind. In the end Spain will ask for the bailout because there will be no other choice and, a close examination of their finances will assure you; there is no other choice. Their calculation of their regional debt problems and of their bank problems has all of the accuracy of firing a canon at Bermuda and hitting some town in Latvia. I have been repeating this for over a year now but the top is about to be blown off the barrel and so I repeat it again; “Just because you do not count it does not mean that it is not there.” The actual, real debt to GDP ratio for Spain is over 200% when you count all of their liabilities and not just the ones that they wish to include. Payment is now coming due and a handout from Europe is the only way out so if Rajoy claimed “A great victory for Europe” in the last go round it must be that the Saints and Apostles are about to show up in Madrid when the next bailout is announced.However it will not be the “Saints That Come Marching In” but the Germans with calculators and computers and it will be the end of the siestas and of too much wine at lunch. Poor Don Quixote; his worst fears are about to arrive at the gates.

"Yet the first bringer of unwelcome news hath but a losing office, and his tongue sounds ever after as a sullen bell, remembered tolling a departing friend."

                  -William Shakespeare, Henry IV

So be it!


Your 8:40 am early currency crosses: (showing USA strength)

Euro/USA    1.2918  down 0020
Japan/USA  79.93    down .359
GBP/USA     1.6119 down .0002
USA/Can       .9952  up  0005



Your closing 10 year Spanish bond yield:



5.592000.02400 0.43%
As of 10/26/2012.


Your closing Italian 10 year bond yield:

Italy Govt Bonds 10 Year Gross Yield


4.903000.04000 0.82%
As of 10/26/2012.


Your more important currency cross closings:

Your 6 pm currency crosses: (showing mixed USA strength)

Euro/USA    1.2930  down 0008
Japan/USA  79.62    down .675
GBP/USA     1.6103 down .0016
USA/Can       .9968  up  0021

Your closing bourses for Europe and the USA:

i. England/FTSE up 1.66 points or .03%

ii) Paris/CAC up 23.56 points or .69%

iii) German DAX: up 31.62 points or .44%

iv) Spanish ibex: down 3.60 points or .05%

and the Dow: it could not hold its gains and finished up only 3.53 points.

In USA news, the Q3 GDP estimate beat expectations with a rise to 2.0%.  However if you go deeper into the figures, one would find that over 1/3 of that gain was due to "government consumption".  This is only the first initial reading. We must wait for second and third revisions to GDP to get your final print for Q3.

Also personal consumption rose 2%

Immediately as soon as this news hit the wires, the S and P stopped its descent and immediately rose into the green as soon as the NY opened for trading.  Nobody looked at the true figures.  Remember we are close to election day and everything is basically on hold as markets must be buoyed into the green to make things look good. 

Your official release of GDP

(courtesy Dow Jones newswires)

DJ US GDP Grows 2.0% in 3rd Quarter
Fri Oct 26 08:30:06 2012 EDT

WASHINGTON--U.S. economic growth picked up in the third quarter as consumers spent more, federal government spending accelerated and the housing industry improved in the months leading up to November's presidential election.
The nation's gross domestic product--the broadest measure of goods and services produced by the economy--grew at an annual rate of 2.0% between July and September, the Commerce Department said Friday. Economists surveyed by Dow Jones Newswires had expected 1.8% annualized growth.
Friday's figures are the final GDP reading ahead of next month's election.
The economy is a key issue with voters and has been central to President Barack Obama and Republican challenger Mitt Romney's campaigns. Monday's presidential debate, focused on foreign policy, more than once turned to domestic economic matters as the candidates promised stronger growth and more jobs.
Economic output has expanded for 13 consecutive quarters, covering all but the first months of the president's administration. But the pace has been lackluster--GDP grew only 1.3% in the second quarter. As a result, unemployment has remained high and payrolls have expanded only slowly. So far this year, employment growth has averaged just 146,000 per month, down from 153,000 in 2011.
Despite the slow recovery and uncertain prospects, Americans opened up their wallets in the third quarter. Consumer spending accounted for most of the increase in GDP--real personal consumption expenditures climbed 2.0%, compared with only 1.5% in the second quarter. Purchases of long-lasting goods posted an especially strong 8.5% gain.
Government spending contributed to economic growth for the first time in more than two years, led by federal outlays on national defense. Overall federal government spending jumped 9.6%, versus a 0.2% fall in the second quarter. State and local government spending was down slightly.
And an improving housing market helped boost residential fixed investment by 14.4%, continuing a string of solid gains for the category.
Not all the data was good.
Weaker business investment held back growth in the third quarter, a sign that companies are hesitant to spend amid broad uncertainty over policies in Washington and slowing demand from abroad. Nonresidential fixed investment, a category that includes business spending on structures and equipment, fell 1.3% during the third quarter, compared with a 3.6% gain the prior period.
A drought in the Midwest also hit the economy, chopping about $29 billion from farm inventories and lowering the rate of growth. Nonfarm inventories rose but not enough to offset the drought's effect.
Real final sales--GDP less changes in private inventories--increased 2.1% in the third quarter, compared with a 1.7% gain in the prior period.
Trade also was a drag on overall figures. Exports shrank for the first time in three-and-a-half years, suggesting that weaker demand from overseas is hurting sales. Imports also shrank, though at a slower pace than exports.
Data from the latest quarter is consistent with the recovery as a whole, the second-weakest rebound of the post World War II era.
Anemic growth spurred the Federal Reserve to launch an open-ended program of bond purchases last month in an effort to spur demand. Earlier this week, the Fed held steady its easy-money policies, saying that without very low interest rates "economic growth might not be strong enough to generate sustained improvement in labor market conditions."
Friday's report showed that the central bank's latest actions comes amid moderate inflation. The price index for personal consumer expenditures--the Fed's preferred gauge for inflation--grew 1.8% in the third quarter. The core inflation rate--which excludes volatile moves in food and energy prices--was up 1.3%.


and now the rebuttal from zero hedge:

(courtesy zero hedge)

Q3 GDP Estimate Beats Expectations As Government "Consumption" Soars

Tyler Durden's picture

Moments before this morning's first look at the Q3 GDP print came out we tweeted the following:
Sure enough, the preliminary look at Q3 GDP just came out and "beat" expectations of a 1.8% print, with a 2.0% reading (or just in line with stall speed, a number which previously has been indicative of recessions). So far so good, but as with every other pre-election economic data point out of the government, one has to look behind the headline to get the true picture. And the details are, as expected, ugly. Because of the 2.02% annualized increase in GDP, over one third, or 0.71%(compared to a deduction of -0.14% in Q2, and 0.64% of the 0.71% came from defense spending), was contributed by "Government Consumption."  This was the biggest rise in government spending in 3 years, and only the first contribution by Uncle Sam to its own GDP print since Q2 2010. So in much the same way as the September jobs print soared courtesy of government employee hiring, this same government is now juicing its own numbers to make itself look better. The real question is what the second and third Q3 GDP revisions will show, which both come, luckily, after the election. Recall that Q2 GDP initially came out at 1.5%, then was revised to 1.7%, until finally coming to rest at 1.25%.
And in other news, Personal Consumption: the key driver for real economic growth, rose 2.0% in Q3, missing expectations of a 2.1% increase.
Source: Chinese Department of Truth BEA

Meredith Whitney is correct.  Muni bankruptcies are on the rise:

(courtesy zero hedge)

Muni Ratings Slump As Bankruptcies Rise, Surpass 2011 Total

Tyler Durden's picture

Credit-rating cuts were made on more than $200 billion of municipal securities in the first nine months of this year, exceeding the total for 2011, and there’s no end in sight.Bloomberg Briefs also notes that it is not just the weaker Californian cities (such as Fresno) but even Los Gatos (an affluent town about 50 miles south of San Francisco, where Apple's Steve Wozniak lives) is facing possible rating downgrades. Moody’s is concerned that cities might skip debt payments in a cash crunch to preserve services and meet payroll. The decisions to seek bankruptcy “provide some indication that willingness to pay debt obligations may be eroding in the U.S. municipal market,” according to the Moody’s report, especially since California municipalities have limited ability to boost revenue. They can’t impose higher sales taxes without going to voters. Meanwhile Chapter 9 Muni petitions are now above 2011's YTD equivalent as California’s Mendocino Coast Health Care District became the 12th Chapter 9 petition filed year to date and the fourth from that state - up from just 5 Chapter 9s in 2010. Paging Ms. Whitney...


The University of Michigan confidence readings point to less confidence in the economy:

(courtesy zero hedge/University of Michigan confidence index)

Americans Modestly Less Confident Than Expected, UMich Finds

Tyler Durden's picture

In a stunning development, and likely the result of the University of Michigan no longer calling solely various number at the (212) 902-XXXX extension, one data point has come below expectations and this is with less than 2 weeks until the election: because whereas GDP was a comfortable beat courtesy of the government spending to make itself look better, today's UMichigan confidence print came at 82.6 on expectations of a 83.0 print, and just barely down from 83.1 last month. What was surprising too, is that hopium consumption, which has been off the charts recently, also moderated, with not only conditions declining modestly from 88.6 to 88.1, but expectations also down from 79.5 to 79.0. That said, and for popular media consumption, the headline will be that the final expectations print (not prelim) has been the highest since 2007. And in a sign that there is at least some coordination between the various departments of truth, 5 year inflation expectations finally rose from 2.6% to 2.7%. Recall that the whole premise behind the "improvement" in the economy is due to QEtc, which in turn implies a surge in inflation. Which explicitly means one can feel good about today, but one has to expect spiking inflation in the future. One can't have both. Today uMich finally got the memo.
UMich consumer expectations are the highest since July 2007!

and entirely disconnected from business perspectives (5 year highs for consumer versus 3 year lows for company expectations)...


If you remove the constant revisions on analysts and just focus on earnings from quarter to quarter, the real picture is getting worse.  We are continually getting bad figures on the top line meaning it is difficult for companies to grow:

(courtesy zero hedge)

Why The Real Earnings Picture Is Bad And Getting Worse

Tyler Durden's picture

Listening to the incessant chatter of confirmation bias from CNBC, you could be forgiven for thinking that earnings are 'not that bad'. Headline-makers like AMZN, GOOG, and AAPL scare for a few moments but we are reassured back to numb BTFD-land by some disingenuous analyst (or worse a PM) who says he is buying with both hands and feet. The misleadingly top-down positive impression of looking at a 'beats-to-total ratio', suffers from one rather annoying bias (that often gets forgotten):  analysts constantly revising their expectations throughout the reporting period, and hence rarely deviates from the current level of 71%. But, as Citi notes, if one examines results relative to analyst expectations prior to the reporting season, it's clear just how disappointing Q3 has been - especially given the sell-side mark-downs already factored-in.

If one uses unrevised expectations - which simply anchor lower and make every succeeding number look relatively better and better as earnings season progresses in one direction or another -  then the S&P 500's earning surprises are even worse than Q2 - making the sixth quarter in a row of 'missed' pre-expectations...

Via Citi:
Third quarter earnings have surprised to the downside even more than in the second quarter.

What's more, earnings have been particularly disappointing given that sell-side expectations already underwent significant downward revisions months ago.  Indeed, the bottom-up estimate for S&P500 third quarter earnings per share dropped quite precipitously from above 28 down to 26.5 in July as management teams lowered their own guidance. Intriguingly, for as downbeat as third quarter results have been, we've yet to see the sell-side revise down estimates for next quarter or 2013 (see chart).

That could be an ominous sign given that the commentary on many a third quarter earnings call has been so cautious, particularly with respect to the fiscal cliff. Qualitatively speaking, we worry that with almost all companies missing top line revenue targets (most notably OC, AVT, NSC, LLY), fourth quarter earnings may end up disappointing sell-side analyst even more than Q3. Moreover, the weakness we’ve seen in the basics/cyclicals as a result of slower growth in China and Europe (DD, DOW, FCX) and the headwind that sequestration looks like it will pose to the defense industry (NOC, GD, LMT) createpotentially formidable challenges for those sectors in particular.


I will leave you this morning with two important articles.

The first from Patrick Baron of the Mises Institute.  Please note that the author suggests that Germany should leave the Euro and not only that but back its German mark to gold:

(courtesy Patrick Baron of the Mises Institute)

A Golden Opportunity

Mises Daily: Monday, October 22, 2012 by  and 

golden deutsche mark
The euro debt crisis in Europe has presented Germany with a unique opportunity to lead the world away from monetary destruction and its consequences of economic chaos, social unrest, and unfathomable human suffering. The cause of the euro debt crisis is the misconstruction of the euro that allows all members of the European Monetary Union (EMU), currently 17 sovereign nations, to print euros and force them on all other members. Dr. Philipp Bagus of King Juan Carlos University in Madrid has diagnosed this situation as a tragedy of the commons in his aptly named book The Tragedy of the Euro. Germany is on the verge of seeing its capital base plundered from the inevitable dynamics of this tragedy of the commons. It should leave the EMU, reinstate the deutsche mark (DM), and anchor it to gold.

The Structure of the European Monetary Union

The European System of Central Banks (ESCB) consists of one central bank, the European Central Bank (ECB), and the national central banks of the EMU, all of which are still extant within their own sovereign nations. Although the ECB is prohibited by treaty from monetizing the debt of its sovereign members via outright purchases of their debt, it has interpreted this limitation on its power not to include lending euros to the national central banks taking the very same sovereign debt as collateral. Of course this is simply a backdoor method to circumvent the very limitation that was insisted on when the more responsible members such as Germany joined the European Monetary Union.

Corruption of the European Central Bank into an Engine of Inflation

When the ECB was first formed around the turn of the new millennium, the bond markets assumed that it would be operated along the lines of the German central bank, the Bundesbank, which ran probably the least inflationary monetary system in the developed world. However, they also assumed that the EMU would not allow one of its members to default on its sovereign debt. Therefore, the interest rate for many members of the EMU fell to German levels. Unfortunately, many nations in the EMU did not use this lower interest rate as an opportunity to reduce their budgets; rather, many simply borrowed more. Thus was born the euro debt crisis, when it became clear to the bond market that debt repayment by many members of the EMU was questionable. Interest rates for these nations soared.
Over the past few years the European Union itself has established several bailout funds, but the situation has not been resolved. In fact, things are even worse, for it now appears that even larger members of the EMU succumbed to the debt orgy and may need a bailout to avoid default. Thus we have arrived at the point predicted by Dr. Bagus in which the euro has been plundered by multiple parties and the pot is empty. The ECB and many sovereign members of the EMU want unlimited bond buying of sovereign debt by the ECB. Only Germany opposes this plan, but it is the lone voice against this new bout of monetary inflation.

The Historical Context of German Antipathy to Monetary Inflation

In 1923 Germany experienced one of the world's worst cases of hyperinflation and the worst ever for an industrialized nation. The reichsmark was destroyed by its own central bank, plunging the German people into misery and desperation. Now, after only a dozen years of relative monetary discipline, the euro faces the same fate as country after country demands to be bailed out of its mounting debts by unlimited printing of money by the ECB. Because Germany is part of the EMU, it must accept these newly printed euros. This threatened monetary inflation of unlimited amounts has shaken German bankers to the core. It is the nightmare scenario that they feared when, against their better judgment, the German politicians agreed to give up their beloved deutsche mark and place the economic fate of the nation in the hands of a committee of foreigners not as concerned about monetary inflation. But Germany can put a stop to this destruction and save the world while it saves itself. It can leave the EMU, reinstate the deutsche mark, and tie it to gold.

A Golden Deutsche Mark Is Possible and Desirable

Despite the haughty pronouncements of EU officials, there is nothing that can stop a sovereign country from leaving the EMU and adopting a different monetary system. The most likely scenario would be a one-for-one redenomination of German banks' euro-denominated accounts for deutsche marks. Thereafter, the DM would float freely in currency markets in the same way as British pounds and American dollars. The Bundesbank would be responsible for monetary policy just as it was before Germany joined the EMU. By leaving the EMU Germany would insulate itself from the consequences of the euro as a tragedy of the commons; i.e., monetary inflation by third parties would end, Germany would not experience higher prices due to the actions of third parties, and the capital-destroying transfers of wealth would end.
Yet Germany should go one step further. It should anchor the DM to gold. Germany is the world's fourth-largest economy, behind only the United States, China, and Japan. Furthermore, Germany owns more of the world's gold than any other entity except the United States, more than either China or Japan and more than any other European country. A prerequisite to market acceptance of any gold money would be confidence in the integrity of the sponsoring institution. Not only is the Bundesbank known for its integrity and reverence for stable money; Germany itself has a worldwide reputation for the rule of law, advanced financial architecture, and a stable political system. For these reasons, Germany would prove to the world that a gold-backed money is not only possible but desirable. Expect a cascade of similar pronouncements once Germany's trading partners realize the importance of settling international financial transactions in the best money available — which initially at least would be a golden DM.

Germany Should Seize the Moment!

Of course the beneficial consequences of tying money to gold go beyond ending price inflation and capital-destroying wealth transfers. We can expect all the beneficial consequences of a return to limited government, for government could no longer fund itself through the unholy alliance with an inflationary central bank that creates fiat money in order to monetize government's profligate spending. The people would no longer be so subservient to government, pleading and begging for special interests at the expense of the rest of society, for government would be forced to go to the people for approval to increase its budget. The list of benefits goes on and on. Suffice it to say that it all begins with truly sound money, money anchored in gold. Germany can lead the way and earn the just respect of a grateful world. It is in the right place at the right moment in history. It should seize the moment!


Finally, this article on the rise of Putin and how he will control both the price of oil and gas:

(courtesy Marin Katusa/Casey Research)

Putin Is the New Global Shah of Oil

Exxon Mobil is no longer the world's number-one oil producer. As of yesterday, that title belongs to Putin Oil Corp – oh, whoops. I mean the title belongs to Rosneft, Russia's state-controlled oil company.
Rosneft is buying TNK-BP, which is a vertically integrated oil company co-owned by British oil firm BP and a group of Russian billionaires known as AAR. One of the top-ten privately owned oil producers in the world, in 2010 TNK-BP churned out 1.74 million barrels of oil equivalent per day from its assets in Russia and Ukraine and processed almost half that amount through its refineries.
With TNK-BP in its hands, Rosneft will be in charge of more than 4 million barrels of oil production a day. And who is in charge of Rosneft? None other than Vladimir Putin, Russia's resource-full president.
TNK-BP has been an economic dream, producing many billions in dividend payments for its owners – but it has been a relations nightmare. The partners have fought repeatedly. In 2008 Russian authorities arrested two British TNK-BP managers amid a dispute over strategy that forced then-CEO Bob Dudley (who now heads BP) to flee Russia – and that is just one of many partnership scandals.
The writing has been on the wall for TNK-BP since this time last year, when one of the AAR billionaires quit his role as CEO of the venture and declared that the relationship with BP had run its course. Since then speculation has raged over who might buy into the highly profitable venture.
Now we know: Rosneft is buying the whole thing, in a two-part deal. In the first part, Rosneft is acquiring BP's 50% stake of the joint venture in exchange for cash and Rosneft stock worth $27 billion. The deal will give BP a 19.75% stake in Rosneft. In stage two, AAR would get $28 billion in cash for its half, though this deal is not yet finalized.
Finalized it will be, however, because the billionaires of AAR are now eager to sell, rather than remain in a joint venture with the powerful Russian oil company. Rosneft gained much of its current heft at the expense of another Russian oligarch whom Putin threw under the bus, and the billionaires of AAR know they could easily meet the same fate if they try to partner with Rosneft as equals.
If it all comes to pass, Rosneft's daily production will jump to some 4.5 million barrels per day – enough to put the Russian firm neck and neck with Exxon in the race to be the world's top oil producer. And the deal that seals it will be worth something like $56 billion – for comparison, Nike is worth $34 billion and Kraft only $27 billion. If the TNK-BP deal goes through, it will be the largest in the industry since Exxon bought Mobil in 1999.
Numbers like that deserve a little contemplation. Russia is spending a heck of a lot to buy its own oil production – smells like nationalization to me. And with Vlad Putin – the most resource-driven leader in the world today – behind the controls, I dare say we're witnessing the "Saudi Aramco-ing" of Russian oil.
Putting Putin in a position of even greater resource power can only lead one place: to high oil prices and an amazing bull market in energy.
What's In It For BP
Russia has been a pretty profitable place for BP, and while BP is tired of dealing with the drama within TNK-BP, the British firm definitely wants to stay in Russia to participate in developing the country's vast northern oil and gas potential.
A cash and shares deal gives BP a nice ownership stake in Rosneft, which is the best way to profit from Russia's immense untapped oil potential – because Putin will ensure Rosneft gets first dibs at prime opportunities. Depending on the size of BP's slice, the company would likely also get a seat or two on Rosneft's board. That is as important as anything else, because it would put BP personnel in regular, direct contact with Igor Sechin, the CEO of Rosneft, who has a significant say in Russian energy policy.
In general, a role in Rosneft would also allow BP to pursue closer ties with a Kremlin that exerts a much tighter hold on the oil industry than it did in the 1990s, when BP first invested in Russia. And anyone who wants to operate in Mother Russia has to have an inside track to the Kremlin – or you are likely to find yourself unexpectedly kicked to the curb.

Putin's Plan Is Working

Rosneft has grown dramatically in the last ten years – not by chance, but because Rosneft is Vladimir Putin's vehicle to reassert state ownership over a fair chunk of Russia's oil fields. The most famous example happened in 2003, when Putin charged privately held producer Yukos Oil with a $27-billion tax bill that bankrupted the company. The Russian president then handed Yukos' oil fields over to Rosneft, immediately boosting Rosneft's daily production from 400,000 barrels to 1.7 million barrels.
It was blatant nationalization. Yukos' chairman and founder, Russian billionaire Mikhail Khodorkovsky, was convicted of fraud and sent to prison. Overnight, Rosneft ballooned from a small producer to Russia's biggest oil company.
With a snap of his fingers, Putin had created a national oil giant, a vehicle through which he could pursue his plan to reassert Russian influence in the world by controlling other countries' energy needs. The pending TNK-BP deal is simply the next step in this plan. If Rosneft does buy TNK-BP, the state oil giant will pump almost half of the barrels of oil produced in Russia.
That is a massive amount of oil. Remember, only Saudi Arabia produces more oil than Russia; and no country in the world exports more oil than Russia. The country is an energy superpower – and by gradually nationalizing Russia's energy resources, Putin is tightening his grip on Europe's energy needs.
However, Putin knows he can't quite do it alone – his country doesn't have enough oil and gas expertise. Without the right expertise, production will tank, and Putin's whole plan will be derailed.
History proves that point. When Saudi Arabia nationalized its oil industry in 1980, the country was producing more than 10 million barrels of oil per day. Within five years, production had fallen by more than 60%.
For Putin, that's not an option. That's why he is encouraging BP to stick around – Rosneft needs BP's technical expertise in order to tap into Russia's huge reserves of unconventional tight oil and shale gas. Having BP as a significant shareholder also lets Putin continue the pretense that Rosneft is not simply an arm of the government.
But an arm of Putin's government it is, and as Rosneft gradually takes control of more and more of Russia's oil wealth, Putin's leverage on the international stage will increase. Saudi Arabia may have struggled in its early years as an oil-producing giant, but today the country hosts incredible clout on the world stage because of its ability to open or close oil spigots and thereby influence global oil prices.
Europe is reliant on Russia for oil and gas. To be in control of other nations' necessary energy resources is to be in a very powerful position – one that Putin has been working toward for more than a decade.
He has built pipelines that bypass troublesome countries and feed into needy markets. He is cornering the uranium market by owning a large amount of primary production and controlling 40% of global uranium-enrichment capacity, while leaving the United States in need of a new nuclear-fuel supplier. He has increased Russia's oil and gas production and encouraged unconventional exploration.
Gazprom, the Russian state gas company, already has Europe wrapped around its little finger. Russia supplies 34% of Europe's gas needs, and when the under-construction South Stream pipeline starts operating, that percentage will increase. As if those developments weren't enough, yesterday Gazprom offered the highest bid to obtain a stake in the massive Leviathan gas field off Israel's coast.
Gazprom in control of Europe's gas, Rosneft in control of its oil. A red hand stretching out from Russia to strangle the supremacy of the West and pave the way for a new world order– one with Russia at the helm.
It is not as far-fetched as it might seem – or as you might want it to be. If Rosneft does buy both halves of TNK-BP, it will become a true goliath within the global oil sector. All the little Davids who rely on its oil will be at Putin's mercy. Same goes for Gazprom as a Goliath in the continent's gas scene.
In this scenario, Russia could choke off supply to raise prices. Putin could play oil- and gas-needy nations off one another, forcing European nations to commit to long-term, high-priced contracts if they want secure supplies.
Or imagine this: Russia could join OPEC. Suddenly the oil cartel would control more than half of global oil production and most of its spare capacity. With that kind of clout, the nations of OPEC could essentially name their price for oil – and the rest of the world would simply have to pay.


Well that about does it for the week.
I will see you late Monday night



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