Saturday, December 1, 2012

Good morning Ladies and Gentlemen:

Gold closed down Friday as the bankers initiated another raid.

Gold finished the comex session at $1712.10 down $14.60 on the day.

Silver finished down $1.08 at $33.23.  The bankers must be desperate as they raid

constantly.  They generally let gold and silver rise on first day notice.  Not this time.

The gold standing in December is pretty good at almost 700,000 oz or 21.77 tonnes 

of gold.  What is interesting is the tiny amount of gold notices served on first day

notice, only 71 contracts.  I do not recall ever seeing such a low notice filed

on such a big delivery month as December in gold.  The number of notices filed

for silver on first day notice is 571 contracts for 2.855 million oz.  The total number 

of silver OI standing on first day is represented by 2725 contracts or 13.625 million oz.

In other news, China's PMI imploded for the 5th month in a row.  China refuses to 

engage in QE like their compadres in the west.

After the market closed in NY, Moody's lowered the boom on the European

bailout funds, the ESM and the ESFS due to the deteriorating conditions 

inside France.  We will cover a few major stories inside France as this nation

continues on it's socialistic path.

The  Greek banks refuse to participate in the "voluntary" bond buyback unless the 

EU agrees to various conditions.  The IMF refuses to participate in any Greek

bailout unless this voluntary bond buyback occurs first.  We will also highlight

 pension problems inside Greece.  The Central Bank of Greece which handles the

 pensions of its citizens were forced by law in 2009 to purchase Greek

 sovereign bonds with 77% of the pension funds on hand.  These bonds are worth

 little so you can imagine the anger on the streets with the Greek pensioners.  We

 will highlight a Bloomberg article on this issue.

On the USA side of things the big topic of course is the failure of both sides,

the Republicans and the Democrats to agree to a format to end the fiscal cliff.

In economic news, the USA posted disappointing consumer spending numbers

as well as a PMI number which did not meet investors expectations.

We will go over all of these stories and many more but first let us head over

to the comex and assess the damage on Friday in gold and silver trading.

The gold comex total open interest fell by 2,383 contracts from 452,129 down

to 449,746 despite gold's rise on Thursday.  We must have had a few more longs

 throw in the towel and refuse to roll.  On first day notice we had 6,999 contracts

 stand for delivery or approximately 700,000 oz of gold.  (21.77 tonnes).  On

 Thursday we had  356,289 contracts standing and thus a contraction of 28,090 contracts. 

 Of that total, 24,854 contracts landed in February in which it's OI rose from 272,660

 up to 297,514. For completeness, the next non active month of January saw it's

 OI fall by 115 contracts from 1,437 down to 1332.  The estimated volume on

 Friday was tiny at 121,287. The confirmed  volume on Thursday was quite good at 252,064.

The total silver comex OI rose on Friday from 146,082 up to 147,626 for a gain

of 1,544 contracts.  On first day notice the number of contracts standing for

silver delivery is represented by 2,725 contracts or 13.62 million oz.  We had a major

drop in OI of 5,244 as on Thursday we had 7,949 contracts standing.

The next big active month is March and here the OI rose by 6,270 contracts

as it seems that most of the paper players rolled into this next major active month.

For completeness, the non active January month for silver saw a rise of 121 contracts

to 618.  The estimated volume on Friday was quite good at 48,762.  The confirmed

volume on Thursday was excellent at 78,307.

Comex gold figures 

Nov 30.2012    The  December contract month

(first day notice for the December contract)   



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
3279.3 (HSBC)
No of oz served (contracts) today
  71 (7100 oz)
No of oz to be served (notices)
6928  (692800 oz)
Total monthly oz gold served (contracts) so far this month
71 (7,100  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  had  tiny activity  inside the gold vaults which is unusual for a first day notice. 

The dealer had no deposits  and no   withdrawals.
The customer had 1 deposits:

i) Into HSBC: 3,279.3  oz

total customer deposit:  3,279.3 oz

we had 0 customer withdrawals:

Adjustments: one

Out of the HSBC vault, 6,558.60 oz leaves the customer and adjusted to the dealer account at the HSBC.

Thus the dealer inventory rests tonight at 2.534 million oz (78.81) tonnes of gold.

The CME reported that we had only   71 notices  filed  for 7100 oz of gold on first day notice for December delivery month. The total number of notices filed so far this month is thus 71 notices or 7100 oz of gold. To obtain what will stand for December, we take the open interest standing for December (6999) and subtract out Friday's notices (71) which leaves us with 6928 contracts or 692,800 oz of gold.

Thus the total number of gold ounces standing for delivery in December  is as follows:

7,100 oz (served)  + 692,800 oz (to be served upon)  =  699,900 oz  (21.77  tonnes of gold).

As a point of interest this is perhaps the tiniest of notices filed for a first day delivery in a huge delivery month like December. It looks like the bankers are having troubles finding the necessary physical.


Nov 30.2012:   The December silver contract month

first day notice for the December contract:

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 311,368.75 (Brinks,CNT,Scotia)
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory1,552,896.2(Brinks,Scotia,JPM)
No of oz served (contracts)571   (2,855,000 oz)
No of oz to be served (notices)2284 (11,020,000 oz)
Total monthly oz silver served (contracts)571  (2,855,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month2,792,309.2
Total accumulative withdrawal of silver from the Customer inventory this month7,608,194.5

Today, we had huge activity inside the silver vaults.
Please note the difference between the gold vaults and the silver vaults.
 we had no dealer deposits and no  dealer withdrawals:

We had 3 customer deposits of silver

i) into Brinks:  507,559.62 oz
ii) into JPM:  625,441.70  oz
iii) into Scotia:  419,894.700 oz

total customer deposit:  1,552,896.2 oz

we had 3 customer withdrawals:

i) out of Scotia:  10,305.53 oz
ii) Out of Brinks; 300,072.22 oz)
iii) Out of CNT:  991.0000 (another of those perfectly round withdrawals)

total customer withdrawal:

311,368.75 oz

we had 3 major adjustments:

i) Out of the CNT vault, a rather large 449,181.000 oz was removed from the customer account and this landed in the dealer account at CNT.
I do not understand how we have exact round number transfers at the CNT happening 100% of the time!!~!!!

ii) Out of Delaware customer account, an addition error resulted in an addition of 1049.70 oz  (addition to eligible account)

iii) Out of the JPMorgan account..get a load of this:

      2,032,356.40 oz leaves the customer account and lands in the dealer account
      at JPMorgan.

     total adjustments  2,481,537.40 oz lands in the dealer account and 1049.70
                                    lands in the customer account.

Registered silver remains today at :  36,711 million oz
total of all silver:  142,625  million oz.

now we await the deliveries which should subtract out of the dealer accounts.

The CME reported that we had 571 notices filed for 2,855,000 oz on first day notice for the December contract month .  

To determine the number of silver ounces standing for December, I take the OI standing for November (2725) and subtract out Friday's notices (571) which leaves us with 2284 notices left to be filed or 11,020,000 ounces .
Thus the total number of silver ounces standing in this  active month of December is as follows:

2,855,000 oz (served) + 11,020,000 (oz to be served upon)  =  13,625,000 oz


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

Total Gold in Trust   Nov 30.2012

Total Gold in Trust



Value US$:74,823,307,085.92

Nov 29.2012:




Value US$:74,680,496,234.81

Nov 28.2012:




Value US$:73,945,078,816.35

nov 27.2012:




Value US$:75,534,752,022.84

NOV 26.2012:




Value US$:75,515,972,852.04

Nov 23.2012:




Value US$:74,827,992,666.94

Nov 21.2012:




Value US$:74,376,524,720.40

First, a new record high in gold inventory as the GLD advances another 1.81 tonnes of gold.  That makes a lot of sense with the whacking of gold on Friday.
Gold has advanced 4.82 tonnes of gold this week in inventory despite two big raid days knocking the price of gold down.

and now for silver:

Nov 30.2012:

Ounces of Silver in Trust314,448,453.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,780.44

Nov 29.2012:

Ounces of Silver in Trust315,174,390.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,803.02

Nov 28.2012:

Ounces of Silver in Trust315,658,356.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,818.07

Ounces of Silver in Trust315,658,356.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,818.07

Nov 26.2012:
Ounces of Silver in Trust315,658,356.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,818.07

nov 23.2012:

Ounces of Silver in Trust315,658,356.000
Tonnes of Silver in Trust Tonnes of Silver in Trust9,818.07

Nov 21:2012:

Ounces of Silver in Trust317,642,788.800
Tonnes of Silver in Trust Tonnes of Silver in Trust9,879.80

Nov 20.2012:

Ounces of Silver in Trust318,126,801.800
Tonnes of Silver in Trust Tonnes of Silver in Trust9,894.85

Today, we lost another 726,000 oz at the SLV on Friday.
Notice the difference between gold and inventory advances yet silver inventory has been declining.

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 4.0 percent to NAV in usa funds and a positive 4.0%  to NAV for Cdn funds. ( Nov 30.2012)   

2. Sprott silver fund (PSLV): Premium to NAV rises to   1.72% NAV  Nov 30/2012
3. Sprott gold fund (PHYS): premium to NAV  rose to 2.44% positive to NAV Nov 29/2012. 

 Now we witness the Central fund of Canada  gaining big time in its positive to NAV, as we now see CEF at a positive 4.2% in usa and 4.0% in Canadian.This fund is back in premiums to it's former self with respect to premiums per NAV. 

The silver Sprott fund announced a big silver purchase and this reduces the premium to NAV temporarily.  It seems that the bankers are picking on Sprott to short their funds trying to cause an avalanche in selling in the precious metals.  They are foolhardy in their attempt.

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 the CME released the COT report.  

Let us now travel to the gold COT and see what we can glean from it:

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, November 27, 2012

This is quite a report:

Our large speculators:

Those large speculators that are long in gold read the tea leaves and decided to pour into gold to the tune of 10,998 contracts.

Those large speculators that are short in gold did not like what they saw and they decided to cover 1929 contracts from their short side.

Our commercials;

Those commercials who are long in gold and are close to the physical scene, pitched a rather large 4148 contracts 

Our commercials who have been short in gold from the beginning of time, added another monstrous 11,835 contracts to their short side.

Our small specs:

Our small specs that have been long in gold joined in the festivities with their older and wiser cousins the large specs in adding a rather large 7098 contracts to their long side.

Our small specs that have been short in gold added 4042 contracts to their short side.

Conclusion: The commercials went net short again this week to the tune of 15,983 which has to be construed as terribly bearish.  The bankers continue to supply the non backed paper and call on the commissioners and the CME to change rules to help them with their collusion.
Be very careful when you play with paper game.
The raid we had on Wednesday and Friday no doubt tried to lower  the huge increase in net shorts by the bankers.  Remember that the COT report is from Tuesday, November 20 through to Nov 27.  These figures miss the raid  on Wednesday and yesterday. 


And now for our silver COT:

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

Tuesday, November 27, 2012

Interesting:  same pattern but not as pronounced!!

Our large speculators:

Those large specs that have been long in silver remained resolute in adding another 3776 contracts to their long side.

Those large specs that have been short in silver added a rather large 3004 contracts to their short side.  Thus these guys balanced each other out as far as providing the paper silver contracts.

Our commercials;

Those commercials that have been long in silver covered a tiny 894 contracts from their long side.
Those commercials that have been short in silver added a very tiny 712 contracts to their short side.

Our small specs:

those small specs that have been long in silver added 1408 contracts to their long side
those small specs that have been short in silver added 574 contracts to their short side.

thus the commercials supplied the necessary non backed paper to our small specs and some large specs.

Conclusion:  the bankers went net short again to the tune of 1606 contracts which is bearish but not as bearish as gold.  

Here are your major physical stories:

First, let us see how trading in gold fared overnight.
The market is certainly waiting for the opening of the Shanghai gold exchange scheduled to start on the 3rd of December.  This should give our boys in London some competition and maybe put some honesty back into these markets;

(courtesy Goldcore)

Gold, Silver Rise On Concerns Of Further Currency Debasement and QE4

-- Posted Friday, 30 November 2012 | Share this article| Source:

Today’s AM fix was USD 1,728.25, EUR 1,329.53, and GBP 1,077.87 per ounce. 
Yesterday’s AM fix was USD 1,724.50, EUR 1,327.56, and GBP 1,076.47 per ounce.
Gold rose $6.40 or 0.37% in New York yesterday and closed at $1,725.60/oz. Silver fell to a low of $33.51 in Asia, and ran up to $34.36 in New York and finished with a gain of 1.51%.

Cross Currency Table – (Bloomberg)

Gold inched up on Friday, but prices saw their largest weekly drop since the beginning of November as the unease of the talks on the US fiscal cliff continue to weigh on sentiment.

Republican Speaker of the House, John Boehner said yesterday that the fiscal cliff talks made little progress, dampening the flame of optimism that he lit on Wednesday.

"Based on where we stand today I would say two things. First, despite the claims that the president supports a balanced approach, the Democrats have yet to get serious about real spending cuts," Boehner said after the private session with Geithner. "And secondly, no substantive progress has been made in the talks between the White House and the House over the last two weeks," Boehner commented.

US Treasury Secretary, Timothy Geithner, is Obama's chief negotiator in talks to avert the US fiscal cliff.

XAU/USD 5 Min – (Bloomberg)

Spot palladium is on course for its 5th weekly gain and a monthly rise of over 14%. Supply shortages contribute to the gain. Norilsk Nickel, the world's largest producer of nickel and palladium, said they expect the palladium market to remain in a deficit in the next few years largely due to a near depletion of Russian state supplies.

XAU/EUR 5 Min – (Bloomberg)

Spot silver is on course for a monthly gain of over 6%.

The Shanghai Gold Exchange said it will begin a trial run of OTC gold trading on the China Foreign Exchange Trading System on December 3rd, allowing interbank trading in large volumes.

The US CFTC (Commodities & Futures Trading Commission) commitment of traders is posted at 1930 GMT.

There is speculation in the markets that the US Federal Reserve will purchase more debt to help the US economy which boosting gold bullion.

While speaking at Pace University in Manhattan , Federal Reserve Bank of New York President William C. Dudley said, “I will be assessing the employment and inflation outlook in order to determine whether we should continue Treasury purchases into 2013.” Dudley also stated, “The Fed will promote maximum employment and price stability to the greatest extent our tools permit, and we will stay the course.”

Fed officials are considering whether to step up record accommodation to counteract the scheduled expiration next month of Operation Twist, a program swapping short-term Treasuries with longer-term debt. A “number” of Fed officials said at the last policy meeting that they may need to expand its monthly purchases of bonds, according to the minutes of the FOMC ’s Oct. 23-24 meeting.

Gold has returned 10% this year and silver has returned 23% year to date, driven by quantitative easing.

XAU/GBP, 5 Min – (Bloomberg)


Now we see Dutch parliamentarians ask why on earth do they have their gold on foreign soil.
They are starting to read our commentaries and they are now wondering if the gold is really there.

(courtesy nisnews/the Netherlands/GATA)

Most Netherlands gold vaulted abroad 'because trading is easier'

And so is fiddling around with it.
* * *
Doubts on Dutch Gold Reserves

From Algemeen Nederlands Persbureau
(Netherlands National Press Bureau)
Rijswijk, Netherlands
Thursday, November 29, 2012
THE HAGUE, Netherlands -- The Christian Democratic Appeal (CDA) and Socialist Party (SP) opposition parties are questioning whether it is desirable for Dutch state gold reserves to be largely stored abroad.
More and more citizens, politicians, and economists in Europe are questioning whether the foreign gold reserves, which their country possesses on paper, are still in fact physically there. Germany decided last month to move to verification.
In the next three years the German Bundesbank is to recall about 4 percent of its gold reserves from America, at the same time looking to see if the ingots are pure. CDA and SP want to know whether the Netherlands will follow the German example and physically check the genuineness of the precious metal.
For now, the answer appears to be no. "Repatriation is not yet on the agenda at the moment," De Nederlandsche Bank (DNB) spokesman Remko Vellenga said yesterday.

The Dutch government says it has 612 tonnes of gold -- with a value of around E24 billion -- and is thereby in the top 10 of countries with gold reserves. The bulk of the Dutch gold reserves is in America and, to a lesser extent, in Canada and the United Kingdom. The rest, about 10 percent, is in Amsterdam.
DNB does not wish to say exactly how much gold is at each location, but it is willing to say why it is there. "We pursue a location policy. The gold is spread out because trading is easier in this way. London, for example, is a big gold market," Vellenga said.
DNB receives an annual survey from the other central banks in which all gold data is reported. "This survey is valued annually," Vellenga said. "The internal accountant of the foreign central bank also reports to our internal accountant. For us, this is sufficient."

Eric Sprott agrees with us that central banks will never get their leased gold back.

(courtesy Kingworld news/Eric Sprott)

Central banks that leased gold won't get it back, Sprott tells King 

World News

2:30p ET Friday, November 30, 2012
Dear Friend of GATA and Gold:
Sprott Asset Management CEO Eric Sprott today tells King World News that central banks that have allowed their gold to be leased through intermediary central banks and now are thinking of repatriating it will discover that it is gone and they can't get it back. Meanwhile, Sprott adds, the monetary metals markets are getting tighter. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Here is the big story that Goldcore talks about, the opening of the new gold market

in Shanghai China.  China wishes to have Shanghai to be a significant player in the

gold arena.  This will put pressure on London England's LBMA the world's largest physical

player in gold and silver.  We are hoping that this will put more honesty back into the 

precious metals business.  It would be difficult for the bankers to play their silly games

if China wishes not to engage in the west's silly antics.

(courtesy Wall Street Journal/GATA)

China moves forward in opening gold market

By Clementine Wallop
The Wall Street Journal
Friday, November 30, 2012
China will allow over-the-counter gold trading between banks for the first time Monday, a significant financial reform for the world’s second-largest buyer of the precious metal.
The move reflects the Chinese government's latest effort to develop Shanghai into a major gold trading center, and mirrors similar developments in the country's currency and oil markets.
The introduction of interbank trading is intended to develop China into a liquid market such as London, and demonstrates the government's readiness to open the market to greater participation by international banks, said Jeremy East, global head of metals trading at Standard Chartered PLC.
"From a government perspective, gold is seen as currency, and the government is slowly releasing the controls on currency. We expect the [gold] market will be opened up to more foreign banks," he said.
Given their trading volumes, Chinese banks already play a significant role in determining international gold prices, so the move will have a limited impact on prices, Mr. East said.

China offers a massive gold market, albeit one that is tightly controlled. The country is the world's biggest gold producer and ranked as the No. 2 gold consumer in the third quarter of this year. It has official gold reserves of 1,054 metric tons, the world's sixth-largest, World Gold Council data show. But gold exports are banned and only a handful of banks hold import licenses.
Until now member banks have been able to trade physical gold between themselves on the Shanghai Gold Exchange, but the absence of an over-the-counter market restricted them from becoming market makers in gold. In an over-the-counter market, transactions are quoted and conducted between parties on a principal-to-principal basis rather than being traded through a broker on an exchange.
Chinese gold demand has surged in recent years. The People's Bank of China has encouraged people to buy gold while it has added to its own stockpile to diversify its foreign reserves. The Shanghai Gold Exchange is the world's biggest platform for trading physical gold.
The introduction of interbank trading represents only a "small step" in the government's long-term plan for its gold market, but the initial stages of interbank trading are likely to be "very limited," said Xie Duo, director-general of the central bank's financial market department.
"We're trying to test the market," Mr. Xie said.
Standard Chartered is one of the banks that will participate in interbank trading when it begins next week. Others include Chinese banks such as Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., and Bank of China Ltd., as well as Chinese units of foreign banks such as HSBC Holdings PLC.
Mr. East noted that the gold market will remain tightly regulated.
"Ultimately the gold market will open up to more banks, but it's not going to be carte blanche," he said. "It's unlikely the floodgates will be opened and every foreign bank will be able to import everything they want."
The Shanghai Gold Exchange said late Thursday that the interbank gold trading will be cleared and delivered by the bourse and will be conducted via the China Foreign Exchange Trading System, a central bank subsidiary that oversees onshore currency trading. The SGE is directly supervised by the PBOC.
The gold exchange currently offers spot and deferred prices to more than 3 million individual clients, a senior PBOC official said this month.
The opening up of the gold market comes as China is seeking to increase foreign investors' participation in the nation's crude-oil market. Chinese regulators said this month that they will allow qualified foreign institutional investors to trade crude-oil futures contracts planned for the Shanghai Futures Exchange.
Gold exchange-traded funds, hugely popular in Western markets, are widely expected to be the next precious metals product launched in China.
The Shanghai Stock Exchange could launch gold ETFs early next year if it receives government approval by the end of this year, the state-run China Securities Journal said last week, citing an exchange official.
ETFs have been a major source of demand for physical gold since the first gold ETF was launched in 2003. In the third quarter of this year, global gold demand from ETFs rose 56% from the same period a year earlier, WGC data showed.


And now for our major paper stories which certainly has an effect on the physical price of gold and silver.

Overnight market trading from Asia and Europe.

Major points:

1.Eurozone unemployment rises to 11.8% in October from 11.7% in September
2.Italian unemployment surges to 11.1% in October from 10.8% in September (expectation 10.9%)
3. French consumer spending down .2%
4. Worst news of all:  German retail sales plunging by 2.8%, the biggest monthly collapse in 4 years.
5. Denmark's GDP rises by only .1% instead of last quarter's .3%
6. Sweden says no to direct ESM/EFSF bailout of the Spanish banks, thus it will never happen.
7. Japanese PMI drops to 46.5 from 46.9 with a huge drop in export orders from 46.7 to 45.1.
8 Details on trading courtesy of Jim Reid of Deutsche bank

(courtesy zero hedge)

Europe's Recessionary Collapse Beating Even Most Optimistic Expectations

Tyler Durden's picture

There was some confusion as to why yesterday various Eurozone consumer confidence indices posted a surprising jump and beat expectations virtually across the board: turns out Europeans had an advance warning of today's horrendous economic data among which we learned that Eurozone October unemployment just hit a record 11.7%, up 0.1% from September (we are trying to get data if the Eurozone is gaming its unemployment number the way the US does by collapsing its labor participation rate), with Italy unemployment surging to 11.1% from 10.8%, on expectations of a 10.9% print, French consumer spending in October was down 0.2%, compared to an unchanged reading in September, but far more troubling was that German retail sales imploded at a rate of 2.8%, the biggest monthly collapse in 4 years, and worse than even the most bearish forecast. Do we hear "Sandy's fault."
As a reminder, there was a bevy of "optimistic" data released yesterday which was meant to give people the impression that Germany is getting better. It isn't: in fact it is getting dragged ever lower courtesy of the endless bailouts it is engaged in (and with the Bundestag set to vote in the 3rd Greek bailout momentarily, this will merely continue). But at least Mario Draghi earlier said that he believes a eurozone recovery is coming in H2 2013. No it isn't.
Finally, we learned that even more hard core core countries are starting to get dragged into Europe's neverending recession as Denmark Q3 GDP missed expectations of +0.3% wildly barely posting a 0.1% growth. Finally, Sweden threw some cold water on hopes that the ESM can recapitalize banks, after saying that Sweden would block the key permissive condition needed: a EU bank deal. Of course, Germany will continue saying "9."
Naturally, none of this bothers the crack FX trading team at the BIS who has done everything in its power to keep the EURUSD smack on top of 1.3000 so as to not give any impression that anything is out of control.
And a quick look out of Europe brings us to the Japanese endlessly hilarious Keynesian basket case, where the Manufacturing PMI just dropped to 46.5 in November, down from 46.9 in October, on a collapse in Export Orders to 45.1 from 46.7. CPI slowed to -0.4% (that's a negative) Y/Y, but at least the unemployment rate was flat at 4.2%. To paraphrase Chuckie Evans: ease until that hits Minus 5%.
A more complete event recap comes courtesy of DB's Jim Reid:
“No substantive progress”, “a step backward”, and “disappointing” were the words used from both sides of US politics to describe the state of fiscal cliff negotiations yesterday. Yet despite this, the S&P500 still managed to close 0.43% higher - although it did trade briefly in negative territory in the morning session before recovering to close near the day’s highs helped by comments from Democrat Senator Chuck Schumer, who insisted that there indeed had been progress in talks.
Markets may have also taken comfort in the fact that the Democrats had at least offered a deal of sorts to the Republicans yesterday. Tim Geithner reportedly proposed a deal involving $1.6trn of tax increases over 10 years, an immediate $50bn round of stimulus spending and the ability to unilaterally raise the US debt ceiling in return for $400bn of savings from entitlement programs  (Washington Post). However the plan was quickly dismissed by Republicans as “not a serious  proposal”.
Nevertheless, Asian markets have taken the lead from the stronger US close to trade firmer overnight. The Shanghai Composite is rallying 0.55% after closing lower in the last four consecutive sessions. Meanwhile while the Hang Seng (+0.50%), KOSPI (+0.2%) and ASX200 (+0.63%) are also trading firmer. The Nikkei is outperforming (+0.85%) after the Japanese government approved an  additional JPY880bn of stimulus measures. Data showed that Japan’s consumer prices fell 0.4%yoy in October (in line with expectations) which was sufficiently weak to prompt the economy minister to say that he wants to work with the BoJ to end inflation – echoing recent calls from the opposition leader. The USDJPY is up 0.41% overnight off the back of the headlines, while the EURJPY is up 0.53% reaching its highest level in seven months (107.2).
Back in the US and away from the to and fro of ‘cliff speak’, yesterday’s economic data was generally on the better side. Pending home sales for October were up 5.2%mom (vs 1% expected) after the previous month’s number was revised up to 0.4%mom (from 0.3%). Initial jobless claims fell to 393k for the week to Nov 24th, largely reflecting the diminishing impact from Hurricane Sandy which caused a large increase in jobless claims during the first half of the month. The second estimate of Q3 GDP growth was revised up to 2.7% from 2.0% although the detail was a little disappointing with inventory build accounting for the bulk of the upward revision.
Given the decent gains in equities on Thursday, it was interesting to see US 10yr treasury yields continue to grind tighter for the fourth consecutive day (-1.4bp yesterday to close at 1.615%). The US CDX IG credit index slipped below 100 again (99.5bp, or -1.5bp on the day) and spent much of the day trading in a narrow range, failing to react to the “cliff on, cliff off” headlines. In other moves, Brent rallied 1.25% yesterday to close up for the first time in four sessions, while spot gold added 0.3%.
It was a relatively quiet day in Europe with much of the focus on the US. The Ekathimerini reported that a number of local bank executives have informed the Greek finance minister that they do not want their institutions to take part in the bond buyback scheme, potentially decreasing the scheme’s chances of  succeeding.
In other headlines, November was the second busiest month on record for US high grade corporate debt issuance according to the IFR with the total amount raised breaching the $120bn mark. The US Congressional Budget Office said that Treasury could hold off on needing to raise the debt ceiling until mid-February or early at the latest. The Treasury has previously estimated that it would hit the debt ceiling by the end of the year.
Turning to the day ahead, in Europe we get an update on the Eurozone’s unemployment, together with German and French consumer spending reports. The Bundestag is expected to vote and approve Greece’s latest aid package. Over in the US, October’s consumer spending report is due, as is the Chicago PMI for November. President Obama hits the road today stopping at a number of manufacturers in Philadelphia to pitch his message on extending tax cuts for middle class families.
What other macro events are on the radar today? SocGen chimes in:
Optimism is attempting to take hold as the year-end approaches amid hopes for a favourable resolution to the fiscal cliff, for mid-December financial aid for Greece, and for a smooth turn of the year for Spain. European equity markets are close to 2012 highs, the EUR/USD is close to 1.30 and the 10Y Bonos/Bund spread has tightened from 456bp to 390bp since mid-November.
Careful though, economic indicators published today will highlight that the eurozone situation remains depressed. French household consumption is expected to drop and the unemployment rate in the eurozone is expected to increase. In the US, the industrial sector is showing signs of recovery: the Chicago PMI is expected to go back over 50 in November. Conversely, household consumption is in the spotlight: consumer spending is expected to be nil in October. We also note that the private spending component of Q3 GDP was revised down, from 2.0% to 1.4% yesterday.
Political factors or economic fundamentals: which will dominate between now and year-end? While the former are attempting to gain ground, the latter will limit the potential of any rally. Against this backdrop, we continue to recommend selling the EUR/USD on rebounds. This strategy can also be applied to the EUR/JPY, particularly as the exchange rate is close to over-bought territory, which is not the case for other EUR/G10 exchange rates. On rates, watch the 10Y Bonos/Bund spread: the 18 October low at 370bp is in the crosshairs.

* * *
And now that you have read all of this, forget it all, and focus on any and all conflicting, confusing, and contradictory headlines out of America's political class about the Fiscal Cliff, which is increasingly looking like it will not be fixed until the due date for the debt ceiling deal, some time in March 2013.

Late Friday night China released its latest PMI  (Purchasers Manufacturing Index) and it was not pretty as it misses expectations for the 5th month in a row:

(courtesy zero hedge/Friday night)

China PMI Rises But Misses Expectations For Fifth Month In A Row As Uncertainty Prevails

Tyler Durden's picture

China's Manufacturing PMI missed expectations, coming in at 50.6 relative to a slightly expansionary 50.8 expectation, and up down from the 50.2 prior. This is the fifth month in a row of missed expectations but it has now risen for three months in a row, to the highest level in 8 months; but has now hovered within 0.6pts of the expansion/contraction knife-edge for six months. The PBOC's index remains above (more positive) than the HSBC version for the 20th month in the last 21 (which remains in the contractionary sub-50 range it has been in for 16 months). With the Shanghai Composite testing Jan 09 lows and the ongoing Reverse Repo delicate bank pumpathon, the relative stabilization in Services and Manufacturing PMIs is confirmed by this evening's data and provides hope for those bidding H-Shares to 16-month highs. Interestingly for all those who remain shocked at the divergence between the Hang-Seng and the Shanghai Composite, it seems clear that A-Shares investors remain skeptical of the PMI-based stabilization of macro and prefer to trust the weaker (and harder to tweak) Industrial Output data.
Employment and Input Prices sub-indices fell. New Orders rose modestly but it seems like this month's pickup was as much about picking up the slack from last month's backlog than new business.

5 months in a row of missed expectations - but 3 months of expansion...

but remains above the HSBC index...

SHCOMP vs Industrial Production vs Hang Seng

Charts: Bloomberg

Thought for the night... YUM vs SHCOMP...

The German Bundestag approves the 3rd Greek bailout:

(courtesy zero hedge)

German Bundestag Approves Third Greek Bailout Package

Tyler Durden's picture

With a vote of 473 in favor, 100 against, and 11 abstentions in the German Bundestag, Europe's AAA-club gets the formal green light to pay off hedge fund holders of Greek bonds, and to preserve the solvency of Deutsche Bank, also incorrectly known elsewhere as "the third Greek bailout." As for Greece, we expect a 4th "bailout" within 3-6 months. In fact after today's spectacular collapse in Greek retail sales which plunged 12.1% in October, make that 2-5 months.


Beggars cannot be choosers unless you are Greek banks.  The IMF wants the Greek banks and other private holders of Greek bonds to take another haircut.  This will surely damage their balance sheets again due to the fact as these bonds act as collateral to the ECB and on many of Greek trading.  The Greek banks list the conditions under which they will agree to voluntary take a haircut and thus be bailed out

(courtesy zero hedge)

Greek Banks List Conditions Under Which They Will Agree To Be Bailed Out

Tyler Durden's picture

One of the indirect beneficiaries of the German generosity which allowed a token EUR44 billion to be released for Greece, with the bulk of the proceeds used to pay off hedge fund and Western Europe bank creditors, are Greek banks, who will fight for the remaining scraps and use them to plug their massively underwater balance sheets. However, as we reported yesterday, the same Greek banks not only want their cake, but they now have a set of conditions that must be met for them to eat it too.
Because recall that remarking GGB2s from par (where Greek banks certainly have the bulk of the post-reorg impaired debt market) to the debt buyback price will cause massive hits to Greek bank capitalization which explains the tumble in Greek bank stocks in the past few days. As such, said Greek bankers are threatening to scuttle the "voluntary" aspect of the Greek bailout as explained yesterday, unless the Greek government agrees to a set of conditions that will allow them to continue operating even after the forced remarking of Greek debt to post-Greek bailout #3 market.
Imerisia, via Bloomberg, reports these conditions:
  • Greek banks at a meeting with Finance Minister Yannis Stournaras late yesterday agreed to participate in the country’s debt buyback plan, Imerisia reports, without citing anyone.
  • In compensation, banks ask for full recognition of deferred tax assets in capital calculations, which would reduce capital needs by EU4bn
  • Stournaras to present request to troika while saying final decision will rest with EU competition commission
  • Following lender concerns, Stournaras also agreed to introduce legislation that give banks legal indemnity from potential shareholder lawsuits
Of course, reading other media, such as Kathimerini, one would be left with a far less optimistic view on the conclusion of the talks, which demands a Greek bank "voluntary" agreement to be crammed down, as otherwise CACs have to be enforced, and the entire third Greek bailout is in danger of being unravelled.
From Kathimerini:
Meeting between Stournaras and bankers hits stalemate

There was no progress in the Thursday meeting between Finance Minister Yannis Stournaras and the Hellenic Bank Association regarding the issues of the bond buyback plan and the sector’s recapitalization.

Neither Stournaras nor the association’s head, Giorgos Zannias, made any statements after the meeting. Kathimerini understands that the representatives of the credit sector expressed opposition to the buyback plan, stressing that it would lead to the loss of the banking system’s private character. That in turn would have serious implications for the economy itself and the rebound effort, as it would send a negative message to investors and the markets.

The association’s representatives suggested that bank stakeholders have already suffered huge losses as a result of the original debt haircut (PSI) earlier this year and that the buyback would constitute a disproportionate burden for them.

They went on to present two alternative proposals to the minister, which they argued would reach the target of reducing the country’s debt without the economic exhaustion of stakeholders: The first concerns swapping the Greek state bonds banks hold with European Financial Stability Facility (EFSF) bonds, either directly or through the Hellenic Financial Stability Fund (HFSF); the second is less drastic and provides for a partial participation in the buyback, with the government exempting the PSI losses from tax, which could lead to a benefit of about 3 billion euros for banks.

Stournaras is said to have reiterated the need for the buyback plan to succeed, and reminded bankers that such alternatives have already been rejected by the European Central Bank and the European Commission. However, he did say he would examine the tax proposal.
Of course, since in the end this is merely an exercise in perpetuating the failed Eurozone status quo at a modest incremental cost, expect everyone to fall into place, with an end cost borne out again by German and European taxpayers, with the marginal winners both Greek and European banks. As always. Expect this to continue until such time as Greece runs out of any and all lien-free assets, at which point there will be no wealth that can be "fresh started" by the global banking syndicate, and will then be set free.


The IMF will not contribute any money unless Greece buys its private debt back held by the Greek banks and other holders:

(courtesy Reuters)

IMF money for Greece contingent on debt buy back

WASHINGTON | Thu Nov 29, 2012 11:10am EST

(Reuters) - The International Monetary Fund will not disburse Greece's next bailout tranche until the country completes a voluntary buy back of its debt, an IMF spokesman said on Thursday.
Eurogroup finance ministers and the IMF agreed earlier this week to conduct the buy back as part of measures to make Greece's debt sustainable and release urgently needed loans that help the near-bankrupt economy stay afloat.

"The (IMF) managing director (Christine Lagarde) said once progress has been made on specifying and delivering on the commitments agreed, in particular the implementation of debt buy backs, she would be in a position to recommend to our executive board the completion of the first review of Greece's program," IMF spokesman Gerry Rice told reporters.

The approval of the IMF's board is required before Greece can get its next installment of aid from the Fund. In December, Greece's international lenders are set to give it 23.8 billion euros ($31 billion) of aid to prop up its teetering banks, and 10.6 billion euros in budget assistance to help the government pay wages and pensions.

Rice said the IMF expects the results of the buy back by December 13, when European finance ministers said they plan to release their share of Greece's aid.

But Rice declined to comment on what specific price the IMF would be looking for when Greece buys back its own bonds from private investors.

Rice also said the IMF was not planning a trip to Ukraine to discuss an IMF program, as the Ukrainian government had not asked for a visit.

The IMF, Ukraine's key lender, froze its $15 billion aid program for the former Soviet republic last year after Kiev, wary of a political backlash, chose not to follow the Fund's recommendation to raise household gas and heating prices.

(Reporting by Anna Yukhananov; Editing by Chizu Nomiyama)


The following Bloomberg report on the devastation to the Greek pensioners.

In 2009 a law was passed whereby 77% of excess pension funds had to place this  money into a  pool of common  capital managed by the central Bank of Greece.  Thus when these sovereign bonds took a massive haircut in March, most Greek pensioners lost their money and they have nowhere to go.  You will see in the following commentary, the leader of the Greek journalists pension fund had to tell her pensioners the awful news of the massive loss of income in their fund.  The pensioners attacked her and she had to receive treatment at the hospital. 

By the way, Greece is not the only country to have forced citizens to purchase only govern bonds.  Cristina Fernandez de Kirchner of Argentina orchestrated the same manoever 3 years ago where she confiscated private pension plans and put government bonds in its place.

As you can see we will get massive rioting on the streets as this cannot correct itself

(courtesy Reuters) 

Special Report: Greeks rage against pension calamity

ATHENS | Fri Nov 30, 2012 4:08am EST

Yorgos Vagelakos, 75, is interviewed by Reuters at his home at Keratsini suburb, a few miles west of Athens November 28, 2012. Picture taken November 28, 2012. To match Special Report GREECE-CRISIS-PENSIONS REUTERS-Yorgos Karahalis

(Reuters) - In the heat of a June night, Eleni Spanopoulou found her audience at an Athens hotel turning ugly. Mutiny and violence hung in the air.

For hours the leader of the Greek journalists' social security fund had been chairing a meeting about disastrous losses on retirement savings caused by the country's economic collapse. "She tried to present herself as the fund's savior and asked (members) to double contributions to 6 percent of salaries," said one of those present that night at the Titania hotel. Spanopoulou, 58, did not succeed.

When she rose to leave around midnight, enraged fund members first swore, then waded in punching, kicking and tearing at her clothes, according to witnesses. A bodyguard managed to bustle her out of the room, but another group caught her just outside the hotel and gave her a second beating. She spent the night in hospital.

It was a brutal sign of the fury many Greeks feel at the way the country's debt crisis has dashed hopes of a comfortable old age. Greece's pension funds - patchily run in the first place, say unionists and some politicians - have been savaged by austerity and the terms of the international bailout keeping the country afloat.

Workers and pensioners suffered losses of about 10 billion euros ($13 billion) just in the debt restructuring of March 2012, when the value of some Greek bonds was cut in half. That sum is equal to 4.6 percent of the country's GDP in 2011.

Many savers blame the debacle on the Bank of Greece, the country's central bank, which administers three-quarters of pension funds' surplus cash. Pensioners and politicians accuse it of failing to foresee trouble looming, or even of investing pension fund money in government bonds that it knew to be at high risk of a 'haircut' - having their value reduced.

A Reuters examination of previously unpublished data from the Bank of Greece reveals the bank invested pension fund money in 1.18 billion euros of Greek bonds after the economic crisis began.

Prokopis Pavlopoulos, a lawmaker in the ruling coalition's conservative New Democracy party and former interior minister, said: "From July 2010 it was obvious that a debt restructuring would be inevitable. While foreign banks were unloading their Greek government bonds, no one moved to tell Greek pension funds to do something, that a haircut was coming."

Spanopoulou, while deploring the violence she suffered, said: "The Bank of Greece knew about the haircut on bonds well in advance and should have informed (our) fund."

The losses compound the woes of Greek pensioners, many of whom have seen their income fall; further cuts are expected as part of the latest austerity package voted through parliament in November.

The Bank of Greece rejects the criticism, arguing its room for maneuver was limited. Around the world pension funds routinely invest in government bonds, and the bank says the scale of Greece's economic meltdown was not obvious when most of its pension fund investments were made.

"More than 90 percent of the bonds that eventually suffered a haircut had been bought before 2009," said Mihalis Mihalopoulos, a Bank of Greece official who invests money on behalf of Greek pension funds.

That is not enough to assuage critics, who say the pension fund crisis is one of the most neglected facets of the Greek catastrophe. "At the very least ... pension funds were not warned," lawmaker Pavlopoulos said. "The government ... knew it was heading for a haircut and did nothing for these people, which I find hard to stomach."


Having grown up piecemeal over decades, the Greek pension system is highly fragmented with about 200 official bodies running different funds, with different costs and benefits, covering numerous occupations.

Broadly, though, the majority of people rely on schemes with an element of government funding as well as contributions from employers and employees. The state also plays a pivotal role in deciding how such funds invest, and appoints the boards on many of them.

Under a law passed in 1997 and refined in 2007, pension funds have to place 77 percent of any surplus cash in a pool of "common capital" managed by the Bank of Greece. The law requires the common capital to be invested only in Greek government bonds or Treasury bills (T-bills). The remaining 23 percent of funds can be invested in other assets, such as mutual funds, shares and real estate.

The aim of the measures, officials said, was to ensure that most of the money was safely tucked away for a steady return. In the good times, this worked. But it was to have disastrous consequences when the credit crunch that began in 2007 led to a crisis in sovereign debt.

When the incoming government of 2009 revealed Greece's finances were far worse than previously admitted, ministers initially dismissed the idea of reneging on some of the country's debts. But in some circles the prospect rapidly gained ground, according to a former Greek representative to the International Monetary Fund (IMF).

"The IMF ... was more open to securing the sustainability of Greece's debt via a writedown (than the euro zone countries)," said Panagiotis Roumeliotis, a former economy minister and Greece's IMF representative at the time. Foreign investors were not slow to see the danger.

Many scrambled to sell their holdings of Greek debt, but officials managing pension fund money at the Bank of Greece did not. Pavlopoulos claims that while foreign investors dumped more than 100 billion euros of Greek government bonds from 2009 to 2011, the country's pension funds actually raised their holdings by 9 billion euros.

The central bank disputes his figures. It says that between January 2009 and May 2011 it invested pension fund money in government bonds with a nominal value of only 1.18 billion euros, after which it stopped. It also said, in a letter to Pavlopoulos, that from the end of 2009 to the end of 2011 pension funds' total holdings of Greek bonds fell by 2.5 billion euros.

Despite those figures, Pavlopoulos remains dissatisfied. "The Bank of Greece did nothing to protect the pension funds," he said.

Amid the wrangling over exactly who bought what when, one thing is clear: when the financial storm struck, the pension funds remained heavily exposed. Bank of Greece figures show that the pension funds still held 19 billion euros of Greek bonds and 1.4 billion euros in T-bills as the country teetered on default in early 2012.

Mihalopoulos, the central bank investment manager, said selling the bonds would not have helped: "Had we liquidated the bond portfolio we would have realized a loss of 8 billion euros as prices had come down sharply."

In the end, however, the pension funds appear to have suffered an even bigger loss. In March, Greece completed the largest-ever sovereign debt restructuring as part of its bailout by the "troika" of euro zone members, IMF and European Central Bank. In a move known as "private sector involvement" or PSI, Greece replaced old bonds with new ones worth 53.5 percent less.

Bank of Greece figures show that by June the pension fund assets it controlled had plummeted to 11.1 billion euros, made up of 8.7 billion in bonds and 2.4 billion in T-bills. In the space of three months pension funds had lost about 10 billion euros.

Former Labour Minister George Koutroumanis told Reuters the losses were unavoidable. "How could we have asked to protect our own pension funds and let all the others take the blow, it could not have worked that way," said Koutroumanis, whose former department is in charge of the pension system. "The billions of euros that pension funds lost because of the PSI was a significant hit. But it has to be weighed against the need to ensure the viability of the country in the euro and the system's continued funding."

That argument does little to stem the anger of those facing impoverishment. Before the PSI, the journalists' pension fund had assets at the central bank worth 115 million euros; after the PSI they were worth 59 million euros, according to Bank of Greece figures.

Employees at ATEbank, a state-run institution that recently had to be rescued, are among others to have suffered. "The (health and supplementary pension) fund of ATEbank's employees is collapsing ... as a result of the PSI, which cost 70 million euros," said Konstantinos Amoutzias, president of the bank's employee union. "We have asked the Bank of Greece since the summer to provide us with data on the investment of our funds and they haven't answered us yet."

A senior Bank of Greece official, who declined to be named, said: "Any fund which has asked for data on transactions and market prices has received it." He added that, for reasons of legal confidentiality, the central bank could not reveal full details, such as the names of the banks from which it had bought government bonds in the secondary market.

Vaso Voyatzoglou, secretary general of insurance at the bank employees' union OTOE, said: "Eventually all pension funds will end up suing the Bank of Greece in order to find out what exactly happened and how they lost their money."


Among individuals on the receiving end of the losses is Constantine Siatras, 79, a retired lieutenant-general, who says his income has fallen by 33 percent during the crisis.

"We should not have illusions that our pension fund will recoup what it lost from the haircut on its government bond holdings," he said. "It's very hard to get by as a pensioner the way things are going."

Yet Siatras is one of the lucky ones: he still gets about 1,700 euros a month. Most have to survive on far less. Despite Greece's reputation for profligacy - with reports of public sector workers retiring early on fat pensions - the average pension is about 850 euros a month, according to unions representing 80 percent of pensioners.

Many pensioners have to get by on less, including Yorgos Vagelakos, a 75-year-old former factory worker, and his wife, who live in Keratsini, a working-class district near Athens. "We can barely afford to buy our grandchildren anything, not even a colorful notepad. When they ask us for one, we change the subject and then we cry," Vagelakos said in the tiny yard of his house.

His pension of 650 euros a month supports himself, his wife Anna and, when possible, the family of his 42-year old-son, who is unemployed. "Thankfully my younger son and his wife have a job," he said.

Tax increases and high prices have hit hard. "We have slashed everything by 50 percent. At night we keep the light off to save on our electricity bill. We have become vegetarians from cutting back. We can't take it anymore," Vagelakos said, talking while his wife cooked cauliflower and potatoes for lunch, a meal that would also feed the family of their elder son, who has two children.

"Out of 650 euros, at least 170 go for medicines for me and my wife, another 100 for electricity and 30 euros for water. With the rest we get by as we can." He picked up a bunch of bananas. "We don't eat these, we save them for our four grandchildren."

Faced with the plight of the retired and public anger, officials are now promising to make good some of the pension fund losses. The government has passed a law to enable it to transfer some state-owned assets, such as real-estate, into a new vehicle for the benefit of pension funds.

However, no such body has yet been established. And, as the country's debt crisis persists, the value of its state-owned assets remains uncertain.

(Additional reporting by Stephen Grey in Athens. Editing by Richard Woods)


After the markets closed in NY this bombshell as the new ESM has been downgraded by Moody's to Aa1 from AAA.  The EFSF has been downgraded from Aaa down to Aa1 and the reason:  they are very worried about France:

(courtesy zero hedge)

European Rescue Mechanism Loses AAA Rating

Tyler Durden's picture

S&P futures are bleeding back down again after-hours (and EUR -30pips) as Moody's announces the downgrade of the EFSF and ESM from AAA to Aa1. "Moody's decision was driven by the recent downgrade of France to Aa1 from Aaa and the high correlation in credit risk which Moody's believes is present among the ESFS' and ESM's entities' largest financial supporters." Of course, this is nothing to worry about as we are sure that some Middle East sovereign wealth fund will still buy their bonds? Or China? Or Supervalu?
Not entirely surprising given the underlying rating moves - but yet more AAA-rated collateral bites the dust.

Full statement to follow:
Moody's downgrades ESM to Aa1 from Aaa and EFSF to (P)Aa1 from (P)Aaa, maintains negative outlook on ratings


Moody's decision was driven by the recent downgrade of France to Aa1 from Aaa and the high correlation in credit risk which Moody's believes is present among the ESFS' and ESM's entities' largest financial supporters.

Moody's downgrade of France reflects the rating agency's view that there has been a marginal diminution in the certainty that the sovereign will fulfil its financial obligations. France is the second largest contributor to the two entities' financial resources, as a provider of callable capital in the case of the ESM and as a guarantor country in the case of the EFSF.
Moody's view that there is a high correlation in credit risk among the entities' supporters is consistent with the evolution to date of the euro area debt crisis and the close institutional, economic and financial linkages among the major euro area sovereigns. As a result, the credit risks and ratings of the ESM and the EFSF are closely aligned to those of its strongest supporters.
At the same time, Moody's explains that both entities remain extremely highly rated at Aa1 because the ESM and the EFSF benefit from the following common credit strengths:

(i) Low leverage: the ESM has a maximum lending capacity of EUR500 billion, which is backed by subscribed capital of EUR700 billion; while the EFSF has a guarantee mechanism which results in an overcollateralisation of up to 165%; and
(ii) The creditworthiness of the members: both entities have a weighted median shareholder rating of Aa1 (changed from Aaa further to the downgrade of France's government bond rating to Aa1); both the ESM's and the EFSF's purpose is to provide an inter-governmental support mechanism which extends financial assistance to members that are either unable to access the capital markets, or able to do so only at very high interest rates.

Moody's acknowledges that the ESM benefits from credit features that differentiate it from the EFSF, including the preferred creditor status and the paid-in capital of EUR80 billion. However, in Moody's view, these credit features do not enhance the ESM's credit profile to the extent that it would warrant a rating differentiation between the two entities.

In a related rating action, Moody's has additionally downgraded the ratings on all the debt securities that have been drawn down to date from the EFSF to Aa1 from Aaa.

A provisional rating for a debt facility is an indication of the rating that Moody's would likely assign to future draw-downs from the facility, pending the receipt of documentation detailing the terms of the debt issuance.


Hence, the combination of France's large ESM capital share and the elevated default correlation of euro area member states leads to the conclusion that, in such a scenario, the effectively accessible capital -- subscribed capital of EUR700 billion minus the callable capital of defaulting countries -- will likely fall short of covering the outstanding issuance. Accordingly, in light of its anticipated highly concentrated credit portfolio and the high correlation of euro area member states' creditworthiness, Moody's considers the ESM's rating to be currently constrained by France's government bond rating.


Similarly to the ESM, the one-notch downgrade of the EFSF's rating to Aa1 from Aaa follows the recent downgrade of France's government bond rating to Aa1 from Aaa. France's share in the EFSF contribution key is 21.8%, second after Germany's 29.1% share. France's share corresponds to a guarantee commitment of EUR158 billion (out of EFSF's total guarantee commitment of EUR726 billion). Further to France's loss of its Aaa rating, only 67% instead of the previous 100% of the EFSF issuances are now backed by guarantees issued by Aaa-rated sovereigns. The full coverage of EFSF issuances by guarantees issued by Aaa-rated sovereigns had been a key factor for the EFSF's Aaa.
In the very unlikely scenario of the French sovereign bond default, Moody's does not expect that France would be able to fund its commitments to the EFSF. Furthermore, given the credit risk correlation of the EFSF guarantor countries, Moody's considers it unlikely that lower-rated member states would be in a position to honour their own commitments to the EFSF and fully compensate for a potential shortfall arising from France. Hence, in light of the elevated credit risk correlation among the guarantor countries, the EFSF's rating is -- similar to that of the ESM -- currently constrained by France's government bond rating.


-- ESM

The negative outlook on the ESM's long-term rating reflects the negative outlooks on the ESM member states with significant capital contribution keys and high ratings. Specifically, the Aaa ratings of Germany (which holds a 27.1% share in the subscribed capital) and the Netherlands (5.7%), as well as the Aa1 rating of France (20.4%) all have negative outlooks.


The negative outlook on the EFSF's (P)Aa1 rating reflects the negative outlooks on euro area sovereigns that are EFSF guarantors, including some countries with significant shares in the EFSF's guarantor pool. Specifically, the Aaa ratings of Germany (which holds a 29.1% share in the guarantor pool) and the Netherlands (6.1%), as well as the Aa1 rating of France (21.8%) all have negative outlooks.


The ECB wins a court battle to keep secret the Greek swaps purchased with Goldman Sachs in the year 2000.

(courtesy Bloomberg)

ECB Withholding Secret Greek Swaps File Keeps Taxpayers in Dark

The European Central Bank’s court victory allowing it to withhold files showing how Greeceused derivatives to hide its debt leaves one of the region’s most powerful institutions free from public scrutiny as it assumes even more regulatory power.

The European Union’s General Court in Luxembourg ruled yesterday that the central bank was right to keep secret documents that would reveal how much the ECB knew about the true state of Greece’s accounts before the country needed a 240 billion-euro ($311 billion) taxpayer-funded rescue.

A Euro sign sculpture is seen illuminated at night outside the European Central Bank's (ECB) headquarters in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg
Nov. 30 (Bloomberg) -- Joerg Kraemer, chief economist at Commerzbank AG, discusses European Central Bank interest-rate policy, Spanish and Italian bonds, and Greece's debt sustainability. He talks with Mark Barton in Frankfurt on Bloomberg Television's "Countdown." (Source: Bloomberg)

The case brought by Bloomberg News, the first legal challenge to a refusal by the ECB to make public details of its decision-making process, comes a month before the central bank is due to take responsibility for supervising all of the euro- area’s banks. The central bank already sets narrower limits on its disclosures than its U.S. equivalent, the Federal Reserve. The court’s decision shows the ECB has too broad a discretion to reject requests for disclosure, academics and lawyers said.

“It’s a very disturbing ruling,” said Olivier Hoedeman of Corporate Europe Observatory, a Brussels-based research group that challenges lobbying powers in the EU and campaigns for the accountability of EU bodies. “It is such a sweeping, blanket statement that it undermines the right to know.”

Bloomberg sought access to two internal papers drafted for the central bank’s six-member Executive Board. The first document is entitled “The impact on government deficit and debt from off-market swaps: the Greek case.” The second reviews Titlos Plc, a structure that allowed National Bank of Greece SA, the country’s biggest lender, to borrow from the ECB by creating collateral from a securitization of swaps on Greek sovereign debt. The bank loaned 5.4 billion euros to the government.

Mario Draghi

ECB President Mario Draghi said on Oct. 4 that the ECB “is already a very transparent institution,” citing the fact that he holds a monthly press conference after its rate decision, testifies to lawmakers, gives interviews and makes speeches.

In yesterday’s decision, the court upheld the ECB’s opinion that the documents sought by Bloomberg could damage the public interest and aggravate Europe’s financial crisis.

“The ECB must be recognized as enjoying a wide discretion for the purpose of determining whether the disclosure of the documents relating to the fields covered by that exception could undermine the public interest,” the three judges said in their ruling. Exceptions “must be interpreted and applied strictly,” they said. An ECB spokeswoman said the central bank welcomed the court’s decision.

‘Dummy Standard’

Since Bloomberg made its request in August 2010, the ECB granted itself additional scope to withhold information if the stability of the financial system or a member state could be undermined. The power was added after the ECB was chosen by the European Parliament to chair the European Systemic Risk Board, a pan-EU supervisor that monitors markets and financial risk.

“This is a dummy standard which means whatever it wants it to mean and the courts grant it a margin of interpretative discretion,” said Gunnar Beck, a barrister and a reader in EU law at the University of London. “The ECB is becoming less transparent, even though it pays lip service to it.”

The ECB is under pressure from some policy makers to become more open as it embarks on more so-called non-standard measures aimed at staunching Europe’s crisis. The Frankfurt-based authority has been central to keeping Greek banks alive since the crisis began, providing loans and at times risking European taxpayers’ money in event of an outright default. The central bank owns about 45 billion euros of Greek government bonds, according to data compiled by Bloomberg.

‘Step Forward’

Governing Council member Erkki Liikanen said on Sept. 21 it was no longer sufficient for the ECB to publish just its decisions, but that it needed to “take one step forward and also describe the conversation, what each member has said.”

Unlike the Federal Reserve, the ECB doesn’t publish minutes of its discussions in the run up to a decision on interest rates or non-standard measures for 30 years, arguing that secrecy is necessary to shield its officials from political pressure in their home countries. Instead, Draghi holds a monthly press briefing after the rate decision.

The Federal Open Market Committee meets eight times a year in Washington. At every other meeting, Chairman Ben S. Bernanke holds a press conference following the release of the Fed’s statement to explain the actions. Minutes of each meeting, which summarize the discussions that took place, are released with a three-week lag and transcripts are published five years later.

In Europe, internal dissent only reaches the public if a member chooses to go public, as was the case with Jens Weidmann, the Bundesbank president who has publicly opposed the ECB’s program to buy the government bonds of Spain and Italy if they request it. Weidmann said he wasn’t the only policy maker to have concerns about the proposal.

Fed Documents

The ECB’s stance contrasts with the Fed, which has moved toward greater transparency, in part under pressure from the U.S. Congress and a lawsuit by Bloomberg News, said Roberto Perli, a former economist for the Federal Reserve’s Division of Monetary Affairs and a managing director at International Strategy & Investment Group in Washington.

Congress, through the Dodd-Frank Act, forced the Fed to reveal details of its lending through its discount window with a two-year delay. The Fed argued disclosure would stop banks from using the facility. The first release under the act was in September.

FOIA Request

That followed the Fed’s release in March 2011 of more than 29,000 pages of documents, covering the discount window and several Fed emergency-lending programs established during the crisis from August 2007 to March 2010 after court orders upheld Freedom of Information Act requests filed by Bloomberg and News Corp.’s Fox News Network LLC.
“Of course it may be crucial to keep some market-sensitive information under wraps” to stop a run on a bank, said Petra Geraats, an economics lecturer Cambridge University who specialises in central bank transparency. “But when the ECB uses such an argument for two-year-old documents, claiming they could aggravate the crisis, one wonders what skeletons are still hidden in the ECB’s closets.”
The case is: T-590/10, Thesing and Bloomberg Finance v. ECB.
To contact the reporter on this story: Elisa Martinuzzi in Milan at; Gabi Thesing in London at gthesing@bloomberg.netAlan Katz in Paris
To contact the editors responsible for this story: Edward Evans at


This week I brought to you the story in France where ArcelorMittal wishes to halt production of steel at one of it's two blast furnaces in Florange France because of deteriorating business conditions. At stake is 2,500 jobs.  The French industry minister then stated: "we did not want Mittal in France".  ArecelorMittal employs 20,000 employees in France.

Executives around the world are evaluating their investment plans inside France.  The unions are demanding nationalization of private operations such as the French shipbuilding businesses

No wonder France is sinking faster than the speed of light.

A wonderful commentary from our resident expert on France.Wolf Richter of

(courtesy Wolf Richter) 

Nationalizations Take Off In France

testosteronepit's picture

The nationalization debate has been sizzling on France’s front burner since last week when Industry Minister Arnaud Montebourg lashed out at the world’s largest steelmaker, ArcelorMittal. He threatened to nationalize its plant in Florange where some old blast furnaces had been shut down for a year-and-a-half. At stake were 2,500 jobs. “We no longer want Mittal in France,” he told the Indian owners—though the company has 20,000 employees in France.
Breaking into a cold sweat, executives around France reevaluated their investment plans. Just then, unemployment hit a 14-year high. Creating jobs was needed more than anything. Scaring off investment was not. Whether his threat was a form of extortion or an announcement of a hostile takeover remains to be seen. But it opened the door for unions at another troubled company to demand nationalization, and the socialist government might not be able to resist.
The three unions—CFTC, Solidaires, and Force Ouvrière—that represent the workers at the shipyard Chantiers de l’Atlantique at Saint-Nazaire on the Atlantic coast demanded in a joint statement today that the government “must become totally involved  to guarantee the future of the shipyards” and must become “a majority shareholder.” Jean-Marc Perez, Deputy Secretary of the Force Ouvrière, clarified: “Nationalization is unavoidable.”
Chantiers de l’Atlantique is famous for building the largest cruise ships and supertankers in the world, including the Queen Mary 2, the largest ocean liner ever. But it’s in trouble. Its future is uncertain. Its order books are empty; no new orders are coming in. By 2013, after finishing the current projects, it will be practically without work.
MSC Croisières, its largest customer, put on hold any further investments in cruise ships. Last April, Viking Ocean Cruises cancelled its two cruise-ship orders that had been announcedwith fanfare just a few months earlier. And a proposal for new ferries for SNCM, a ferry operator in the Mediterranean, isn’t likely to go anywhere—SNCM was privatized in 2006, though the French government still owns 25%. And if the shipyard wants to diversify into offshore oil and gas rigs and windmills, two of the few sectors still doing well, it will face competition from companies around Europe that have specialized in it for a long time.
Employment at the shipyard is down to 2,100 workers, the lowest in its history. Of those, about 1,000 are on partial unemployment. Of the 4,000 subcontractors who still worked there a few months ago, only a little over 1,000 are left. It’s tough for companies in France [Stimulating The Public Sector, Suffocating the Private Sector].
In their desperation, the unions appealed to Montebourg for help, initially last June. Over the summer, they asked for another meeting. Without response. To draw attention to the “silence of the government,” 500 workers went on a one-hour strike at the end of September. Voilà, on October 15, when Montebourg was in Nantes for another event, the union leaders got their meeting.
Afterwards, instead of making earthshaking announcements, he only said that the government would do “its utmost” to defend the shipyard. “Our position is to find economic solutions, in other words, work,” he said. That was a bit too wishy-washy for the union leaders.
But they did sense that he was determined to maintain the shipyards and the special skill sets. Hence hope that the shipyard might not be closed and that a government sponsored program could retrain workers to build offshore oil and gas rigs or windmills. But diversification, if at all possible, would take time. The immediate solution was nationalization. Once the state owned it, closing the shipyard and laying off workers would become, for a socialist government, politically infeasible.
But ownership is already complicated. One of the largest shipbuilders globally, STX Europe owns 66.66% of the shipyard. Headquartered in Oslo, it owns 15 shipyards around the world. It, in turn, is owned by the Korean group, STX Corporation. And who owns the remaining 33.34%? The usual suspect: the French government.
The unions are blaming the majority owners, “the Koreans,” a convenient and distant target. “We don’t see the Koreans, they have done nothing. It’s the state, a minority shareholder, that finds itself playing substitute boss, even though that’s not its role,” said several union sources.
So begins another melancholic chapter in the deindustrialization of France. While privatizing state-owned companies has been all the rage since the mid-nineties, by socialist and conservative governments alike, the current morass in the private sector has stopped that process. The dominoes are lined up. Nationalization is being brandished as a solution.
The government, once it owns a controlling share, could force companies to continue operating and employ people, whether or not they have any work. But it’s an illusory solution. The government already owns a third of Chantiers de l’Atlantique, as it owns major stakes in many large companies. Some, like mega utility EDF, it owns outright. Despite—and cynics say, because of— this profound government ownership, the private sector is in deep trouble, and even more government ownership is unlikely to cure its ills, but might strangle it altogether.
In France, socialism isn’t a political movement that swept the elections. And it isn’t an economic philosophy that moved once again to the forefront. But it’s part of the DNA of much of the population. And it produces some classic reactions. Read...Nationalizing Companies Is Part Of The French DNA
And here is another government-company saga: the folks at Gazprom, majority-owned by the Russian government, are reveling in the mockery that has been made of a Ukraine-Spain gas deal that would have loosened Russia’s stranglehold on Kiev. But this is what happens when you mess with Gazprom. Read....  Ukraine Crushed in $1.1bn Fake Gas Deal.


An in depth look at the banking crisis inside Japan as the upcoming Prime Minister Abe demands huge QE something that the B. of J governor Shirakawa is totally against.
Japan already has debt to GDP of 200%  and this new "big bang war" on deflation may knock them over the edge:

(courtesy Reuters/Kihara/GATA)

After a bashing, Bank of Japan weighs 'big bang' war on deflation

By Leika Kihara
Thursday, November 29, 2012
TOKYO -- Bank of Japan Governor Masaaki Shirakawa was feeling the heat in February when he was summoned to parliament five times to explain what he planned to do to get Japan out of its deflation doldrums.
Shirakawa tried to defend his cautious approach to easing monetary policy, but his tremulous voice was often drowned out by jeers from the benches. "We need a new governor," one MP shouted during one session. Some angry lawmakers even questioned whether the Bank of Japan should retain its independence from the government.
Shirakawa had been opposed to another round of policy easing, though most members of his policy board were actually arguing for it at that time, according to sources familiar with the bank's internal discussions.

The threat from lawmakers to withdraw the BOJ's charter granting its independence was what changed his mind, the sources said. So the central bank surprised the markets in February by setting an inflation target for the first time of 1 percent and announcing a $122 billion increase in its asset-buying program.
Those five days of intense grilling and the ones that have followed have been among the most intense ever faced by a Japanese central bank governor. Shirakawa has been summoned 29 times so far in 2012, a decade-long record. And the pressure is having a big impact: it was the catalyst for a radical rethink in central bank policy. The full effect of that pivot is expected after April when Shirakawa is due to step down, according to more than a dozen interviews with those involved in the process.
"The central bank, as an institution, was under threat and people there were getting pretty desperate, feeling that something had to be done," said a former BOJ official who remains in touch with central bank executives.
The 63-year-old Shirakawa, a University of Chicago-trained economist, insists monetary policy can have only a limited impact in the battle against persistent deflation that has come to define two decades of Japan's economic stagnation. Pumping unlimited amounts of cash into the banking system or underwriting government debt, the solutions pushed by his critics, could thrust Japan into a financial crisis, he says.
But the terms of the debate are already changing within the BOJ's nine-member policy board, where Shirakawa is now outflanked by newcomers who pushed - unsuccessfully for now - for a bolder commitment to an ultra-easy policy last month, minutes released by the board in November showed.
Members of the BOJ's elite monetary affairs department have been drawing up plans for a bolder set of policy options since late last year, people with knowledge of those discussions say.
One unifying concern, many of those interviewed say, is a belief that in order to keep lawmakers from undermining its legal independence the BOJ needs to step into uncharted territory by running an ultra-loose policy for years to come.
Masaaki Kanno, a former BOJ official and now chief economist at JPMorgan Securities in Japan, said Shirakawa will go down in history as the last "normal" governor of the central bank.
"Shirakawa is unpopular because he tells the hard truth people don't want to hear," Kanno said. "He may not necessarily be the best cheerleader, but then, do we really want the central bank governor to be just a good cheerleader?"
Shirakawa has also become a lightning rod. With a series of headline-grabbing comments that jolted financial markets, Shinzo Abe, the former prime minister whose Liberal Democratic Party (LDP) is favored to return to power after a nationwide election on December 16, has made BOJ bashing a centerpiece of his campaign.
Abe has called on the BOJ to set an inflation target of at least 2 percent -- doubling its current target -- and to commit to open-ended monetary easing. Short-term interest rates should be set below zero, he has said, and the central bank should stand ready to buy all the bonds needed to finance public works investment from the market - an extreme step economists warn is dangerously close to "monetizing" debt, or directly underwriting debt from the government.
If needed, Abe also says, the 1998 law that granted the BOJ its long-sought independence should be rewritten.
Proposals to rewrite the law governing the BOJ first came from a number of junior Democratic Party lawmakers who formed an "Anti-Deflation League" in 2010. Initially seen as a fringe initiative without real chance of succeeding, their ideas gradually drew allies from other parties and has become a cross-party movement, winning endorsements from party heavyweights such as Abe.
As a 130-year-old institution, the BOJ is proud of its traditions and of having been on the right side of Japan's modern history. Visitors to the bank's hulking Meiji-era headquarters are told how the central bank had the foresight to buy one of Japan's first elevators -- and a vault that withstood the bombing of Tokyo by the U.S. military.
They are sometimes shown a portrait of Korekiyo Takahashi, a former BOJ governor and later prime minister, who stands as something of a martyr for economic policy. Known as Japan's Keynes, Takahashi advocated fiscal expansion and an abandonment of the gold standard and is credited with pulling the economy out of the Great Depression. He was assassinated in 1936 by military officers who blamed him for cuts in arms spending.
The BOJ's legal independence came only in 1998 after officials had argued for decades for more autonomy. The bank's previous charter, based on the Reichsbank of Nazi Germany, was enacted as part of Japan's World War Two-era mobilization.
Its independence was granted in part because of a string of financial scandals and the fallout from the collapse of Japan's asset bubble in 1991. The charter states the BOJ's objective is to pursue "price stability." But Japan's long bout of falling prices, which began back in mid-1998, has actually destabilized the economy, undermining the central bank's ability to claim the intellectual high ground. Somewhat like Germany's central bankers, whose collective memory is seared by hyper-inflation nearly a century ago, Bank of Japan officials were shaped by past bouts of asset bubbles and price inflation -- an impulse they found hard to abandon.
In December 2011, a group of the most senior bureaucrats from the Monetary Affairs Department decided it was time for bold action that would impress both lawmakers and markets alike, with an objective of fighting deflation more forcefully. They were worried that the old approach -- doling out monetary stimulus in measured doses at times of heightened market stress, usually coinciding with yen rallies -- was no longer working.
Although final policy decisions are made by the BOJ's nine-member board, the bank's Monetary Affairs Department hammers out policy options. Nearly all of the 50 or so members of the predominately male group were recruited from the University of Tokyo with degrees in law or economics. All have done stints with other departments at the BOJ before being called in to serve in the inner sanctum of policy.
"It's a very close-knit society. Most of us have known each other for a long time," one member said.
Many officials in the current team had their first stint at the bank in the late 1990s when Japan was struggling with a banking crisis that forced the BOJ to cut interest rates to zero.
"Dealing with inflation isn't really on the minds of the younger generation. They seem to doubt whether Japan may ever see inflation driven by economic strength," said a person in regular contact with central bank officials.
Some inside this circle advocate a shock to the system with a "big-bang" increase in government bond buying to the tune of 100 trillion yen ($1.22 trillion) in one go, instead of the much-criticized baby-step approach of incremental increases, people familiar with the discussions say.
Another idea being floated would have the BOJ buy foreign bonds, a step intended in part to drive down the value of the yen and ease pressure on exporters such as Toyota Motor and beleaguered consumer electronic giants like Sony and Panasonic. Carrying out the latter step would require creating a new fund to give the BOJ legal cover, those familiar with the discussions say.
The emerging shift in central bank strategy carries risks: the BOJ would be expanding its balance sheet at a time when Japan's public debt is already off the charts because of the ballooning costs of providing healthcare and pensions to its rapidly ageing population.
If it goes too far, some worry, it could trigger a loss of confidence and a debt crisis.
But among the firebreaks against runaway price increases is a banking sector that keeps pouring money into government bonds, rather than lending it out, and individuals who continue to save against uncertainty, rather than splurging. The same factors could give the BOJ more room to buy government bonds aggressively without igniting panic-inducing price increases, or so the argument goes.
Those who have worked for the soft-spoken Shirakawa describe him as a workaholic and a perfectionist. His few pleasures outside work include listening to the music of the Beatles and catching an occasional movie. A recent favorite: "Always Sunset on Third Street," a 2005 drama that captures Tokyo on the cusp of economic boom in 1958.
Shirakawa joined the BOJ in 1972, months before inflation began sharply rising to near 25 percent. The chaos of those months around the oil price shock was a formative experience for him, as was the "asset bubble" that formed in the late 1980s, people close to him say.
He was among the cadre of BOJ officials who masterminded the central bank's previous spell of quantitative easing, which involved pumping vast amounts of money into the financial system. That spell lasted for five years until 2006 and helped Japan emerge from a domestic banking crisis. But he remains wary of the risks of that policy.
Shirakawa declined to be interviewed for this story.
One worrying trend Shirakawa and others have cited to support their caution over easing monetary policy was that much of the money the BOJ has injected into the economy recently has simply been piling up in bank accounts, rather than feeding into the productive economy via bank loans. That poses the risk of inflating financial assets, if the account holders plough it into stocks.
Until the mid-1990s, cash and deposits held by companies and households were around 1.1 times the size of Japan's GDP. They have now grown to 1.7 times GDP, the highest among major economies.
The real problem is that the economy has been running below its potential for years, according to a paper published in July by a team of BOJ researchers. They identified the yawning "output gap" as a key factor behind Japan's long-running, mild deflation.
Market and consumer psychology was one reason for the weak output and falling prices, the study concluded. Japanese companies and consumers had come to expect prices would fall and were behaving accordingly, the study noted. In fact, inflation expectations had been in retreat since 1990 and plunged in 2008. The BOJ researchers believe expectations of falling prices could become dangerously self-fulfilling.
Advocates of an ultra-easy monetary policy argue that cycle could be broken by pumping a river of money into the system - economist Paul Krugman, a commentator Shirakawa is said to admire -- has urged the BOJ to do just that and "credibly commit to being irresponsible."
Masayoshi Amamiya was a key figure in the Monetary Affairs Department group that is overhauling BOJ policy. He oversaw the division until May this year when he was sent to head the bank's Osaka branch, a step expected to set him up for an eventual stint on the bank's policy board.
A 57-year-old fan of the music of Bartok and Prokofiev, who jokes he feels more comfortable talking about classical scores than monetary policy, won praise for bringing a newfound flexibility to BOJ policy since the previous round of quantitative easing. Admirers inside the bank refer to "Amamiya magic" for his skill at handling communication with lawmakers, and coming up with creative banking ideas.
Amamiya was at the center of deliberations leading up to the BOJ's surprise easing in February, when it announced an inflation target of 1 percent and raised its asset-buying target by 10 trillion ($122 billion). Amamiya also helped make the case for a follow-up easing in April on the belief that, when necessary, the central bank must aim for a "shock" effect.
The most recent appointments to the policy board -- former economists Takehiro Sato and Takahide Kiuchi -- are also more strongly committed to an easing policy. Both warned on October 30 that the central bank's consumer price inflation forecasts were too optimistic. Their appointments came after the Diet turned down a nominee -- Ryutaro Kono, an economist at BNP Paribas -- because lawmakers thought he would not be aggressive enough. Rarely if ever has a government nominee for a board member been rejected in parliament.
Kono's rejection and the recent board appointments sent a clear message to the central bank that it needed to change, said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. "It will certainly have an effect on who will be chosen as governor."
At the working level, the BOJ is preparing for a leadership change next spring when the terms of Shirakawa and both of his deputies expire. The bank has appointed 50-year-old Shinichi Uchida as head of the Monetary Affairs Department, making him the youngest of the bank's 15 department heads and surprising many in an organization where posts are almost universally assigned according to seniority.
Miyako Suda, who served on the BOJ board for a decade before leaving in March 2011, had been Shirakawa's last dependable ally. Suda stood out as the only woman on the policy board during her tenure, and because she was so open with her dissent.
Suda warned that too much easing might forestall more important economic reforms, such as deregulation and opening up Japanese markets to foreign competition. For Shirakawa, Suda also had been something of a soulmate and sounding board, someone who shared his core set of beliefs, people close to the policy board say.
The pressure for a shakeup at the BOJ has mounted both from the LDP and key members of the ruling Democratic Party. The new generation of BOJ critics mostly started their careers during Japan's lost decades. They have witnessed how fiscal policy tools such as subsidies, tax breaks and massive public works failed to jolt the economy back to life.
As a matter of tradition the top BOJ job long rotated between career central bankers and finance ministry bureaucrats, though BOJ insiders have dominated the post for the past 15 years. Now lawmakers and finance ministry officials are putting on the pressure to bring in someone from outside to replace Shirakawa.
That favors candidates such as Toshiro Muto, 69, a former finance ministry bureaucrat who served as deputy governor from 2003 to 2008 and Kazumasa Iwata, 66, a former deputy governor who now sits on a government panel discussing ways to boost Japan's productivity. Both advocate a radical expansion of the BOJ bond-buying program and both play down the threat of inflation or another market bubble.
"The effect of non-traditional policy may not be clear, but neither are the side-effects. The chance of Japan seeing inflation flare up soon is small," Muto told Reuters.
The BOJ's post-Shirakawa policies could have global reverberations. If the experiment with radical monetary expansion fails, it would strengthen the opponents of quantitative easing policies that have been in vogue among central banks across the world. Foes warn of its diminishing returns and risks for long-term financial stability. Success in Japan would have the opposite effect, perhaps ushering in a new era of experimental central banking -- with an additional side effect of realignment among major currencies, weakening the yen in a lasting manner.
There is no guarantee the BOJ will succeed. The last time price increases were over 2 percent was in 1992, just after the collapse of the bubble in property and stock prices. That was the end of the boom era when growth had averaged over 4 percent for nearly two decades.
Bolstered by a pioneering round of quantitative easing Shirakawa helped engineer as a working-level official, Japan's economy staggered back to average growth of 1.6 percent between 2002 and 2007.
But the 2008 global financial crisis sent Japan into recession as did the March 2011 earthquake and tsunami. Some members of the BOJ's policy board have warned the third recession since Shirakawa took the central bank's helm may have begun in the past quarter.
Some economists say Shirakawa did well guiding the economy through crisis, though failing to win allies or communicate effectively with markets and lawmakers. Others are not so kind.
When asked to grade Shirakawa's nearly five-year tenure, economists at major Tokyo banks surveyed by Reuters at the end of September gave him a grade of 60 percent. Twelve of 16 said they expected him to leave when his term ends in April. Most rejected the need to change the BOJ law.
Yasutoshi Nishimura, 50, a LDP lawmaker who is expected to have a big say in the choice of the next BOJ chief, underscores the consensus. "The next governor should be someone who does not have the 'inflation fighter' DNA," Nishimura told Reuters.


Your opening Spanish 10 year bond yield at 7:30 am:
( still down in yield with expectation of a bailout soon) 



5.381000.04400 0.82%

Your opening Italian 10 year bond yield

Italy Govt Bonds 10 Year Gross Yield


4.535000.02400 0.53%
As of 07:31:32 ET on 11/30/2012.

Your 7:30 am early currency crosses: showing general  USA dollar weakness with the exception of a stronger dollar against the yen.  The yen is weaker as we get closer to the Abe regime in Japan.  The Canadian dollar this morning a touch weaker against the dollar.

Euro/USA    1.2989  up .0017
Japan/USA  82.66   up .52
GBP/USA     1.6025  down .0011
USA/Can       .9936  up  0007


Your early results for bourses for Europe 7:30 am Tuesday morning prior to NYSE :  (everybody in the green, except Spain)

i. England/FTSE up 11.22 points or 0.19%

ii) Paris/CAC up 11.91 points or 0.33%

iii) German DAX: up 34.02 points or 0.46%

iv) Spanish ibex: down 10.40   points or 0.13%


Your closing Spanish 10 year yield: (reversed course in yield) 4 pm



5.317000.02200 0.41%
As of 11:59:55 ET on 11/30/2012.


Your closing Italian 10 year bond yield:  (now safely below 5%)

Italy Govt Bonds 10 Year Gross Yield

 +Add to Watchlist


4.498000.06200 1.36%
As of 11:59:57 ET on 11/30/2012.


Your 4:30 pm currency crosses: ( still showing some  USA weakness against major currencies except the Japanese yen and the Canadian dollar both of which fell against the dollar.)

Euro/USA    1.3004 up  .0033
Japan/USA  82.45  up .304
GBP/USA     1.6017 down .0019
USA/Can      .9931  up .0001


Your closing figures from Europe and the USA:

 in the red for England,Paris and Spain and green for Germany and USA

i) England/FTSE down 3.48 points or  0.06%

ii) Paris/CAC down  11.6 points or 0.33%

iii) German DAX: up 4.54 points or 0.06%

iv) Spanish ibex: down 39.1 points or 0.49% 

and the Dow: up  3.76  points  (.03%)


And now for some big USA stories: 

Republicans reject Obama's budget as the fiscal cliff battle rages on:

(courtesy Bloomberg)

Republicans Reject Obama Budget as He Sells It to Public

Andrew Harrer/Bloomberg
Treasury Secretary Timothy Geithner shuttled among congressional leaders yesterday with a plan to trade $1.6 trillion in tax increases for $400 billion in unspecified entitlement program cuts, Republican congressional aides said.
Congressional Republicans dug in to fight President Barack Obama’s plan to skirt the fiscal cliff, rejecting his tax-and-spending proposal as the president heads out today to sell it to the American public.
Nov. 29 (Bloomberg) -- U.S. House Speaker John Boehner, a Republican from Ohio, talks about the discussions aimed at avoiding the year-end fiscal cliff of tax increases and automatic budget cuts. Boehner speaks at a news conference in Washington. (Source: Bloomberg)
Timothy F. Geithner, U.S. treasury secretary. Photographer: Pankaj Nangia/Bloomberg

Treasury Secretary Timothy Geithner shuttled among congressional leaders yesterday with a plan to trade $1.6 trillion in tax increases for $400 billion in unspecified entitlement program cuts, Republican congressional aides said.

Republicans complained that the offer was little more than a rehash of old budget proposals, setting the stage for more contentious negotiations over the next several weeks as the year-end deadline approaches for more than $600 billion in spending cuts and tax increases to kick in.

“If the president is going to lead on this critical issue, he has to propose a plan that can actually pass,” said Republican Senator Roy Blunt of Missouri. “This is simply not a serious proposal.”

Obama today is scheduled to visit a manufacturing plant in Hatfield, Pennsylvania, about 33 miles north of Philadelphia, to emphasize his call for an extension of George W. Bush-era tax rates for middle-income households. He is using the approach of the holidays to argue that families will curb spending if they don’t know whether they will have to pay more taxes next year.

Angry Birds

The president is going to a facility of the Rodon Group, which is the only U.S. manufacturer of K’NEX Brands, which makes Tinkertoys, K’NEX Building Sets and Angry Birds Building Sets. The company also produces plastic parts for the construction and pharmaceutical industries.

The fiscal plan presented by Geithner yesterday was modeled on Obama’s budget proposal from February and includes at least $50 billion in economic stimulus spending for this fiscal year, according to the aides. It would permanently increase the U.S. debt limit to avoid the need for congressional action, said one of the aides, who wasn’t authorized to speak publicly.

Geithner met separately with each of the top four leaders in Congress in their first direct talks since Obama hosted the leaders Nov. 16 at the White House.

Obama and congressional Democrats have insisted that the Bush tax cuts should be allowed to expire at the end of this year for the top 2 percent of taxpayers. The tax cuts should be extended for middle-class taxpayers, they contend.

Entitlement Programs

Republicans reject higher tax rates for all income levels. They are seeking an overhaul of entitlement programs in exchange for raising tax revenue through other methods, such as limiting deductions. They want a higher Medicare eligibility age and an alternative yardstick for calculating inflation that would reduce Social Security cost-of-living adjustments, according to a Republican aide who wasn’t authorized to speak publicly.

The administration has been consistent about its plans during the campaign and after the Nov. 6 election, said Senator Barbara Mikulski, a Maryland Democrat.

“The voters knew what the president was saying,” Mikulski said. “They voted for the president. The election’s over. Let’s get on with it.”

Geithner’s offer, as described by two Republican aides, is based on Obama’s fiscal 2013 budget and his 2011 proposal to the deficit-cutting supercommittee, which last year didn’t come up with a plan all sides could accept.

Top Earners

It would raise taxes for top earners by $1.6 trillion over the next decade with higher rates on income, capital gains, dividends and estates, along with limits on tax breaks. It would call for about $400 billion in cuts to entitlement programs, which Republicans have deemed insufficient.

The plan would either extend or replace a payroll tax cut that is set to expire at the end of the year, according to the Republican aides. It would protect millions more people from having to pay the alternative-minimum tax and defer by a year the federal spending cuts set to start taking effect in January.

The administration hasn’t taken a public position on the extension of the payroll tax cut, which reduces employees’ share of the tax for Social Security to 4.2 percent from 6.2 percent. The current break, which started in 2011, expires Dec. 31.

Geithner said in a Nov. 16 Bloomberg Television interview that the U.S. should abolish the debt ceiling, arguing that it enabled the threat of default in 2011. “The sooner the better,” he said. Republicans have used previous debates over increasing the debt limit to hold out for policy changes.

Infrastructure Spending

The proposal seeks infrastructure spending similar to what Obama proposed in September 2011 in his American Jobs Act, which included $50 billion for roads, rails and airports and $30 billion for schools.
The Congressional Budget Office has warned that if Congress doesn’t avert the fiscal cliff, the economy might slip into recession next year and boost the unemployment rate to 9.1 percent in the fourth quarter of 2013, compared with 7.9 percent now.
House Speaker John Boehner, while urging Obama yesterday to propose “serious spending cuts,” avoided publicly discussing specific options for a budget deal. The speaker wouldn’t say how large a spending cut he seeks for an agreement by year’s end.
It’s not “productive for either side to lay out hard lines” because “there are a lot of options of how to get there,” said Boehner, an Ohio Republican.

‘Waiting Game’

Boehner “knows that part of it is a waiting game until the pressure builds to where there is decision,” said Republican Representative Steve King of Iowa. “Barack Obama and John Boehner in the end are going to offer something back here.”
At a briefing yesterday, White House press secretary Jay Carney responded to questions about Republican complaints that the administration wasn’t offering specifics by holding up a proposal Obama presented in September 2011.
Carney said the plan “is very detailed” in how the White House would make cuts and “It is of a piece with his budget that he put forward in February 2012.”
The place where details are missing is “anything specific, politically feasible, or substantial from the Republican side on revenues,” Carney said.
The administration and Democrats say tax rate increases are necessary because deduction caps won’t generate enough money, especially if they are designed to protect charitable contributions and to avoid affecting 98 percent of taxpayers.
A $25,000 cap on deductions with those features would raise about $450 billion over 10 years, less than one-third of what the administration wants, according to a blog post on the White House website by administration economists Gene Sperling and Jason Furman. Keeping tax rates constant would make it more difficult to overhaul the tax code in the future, they said.
That would require any future tax overhaul “to raise taxes on middle-class families simply to preserve lower rates for the most fortunate,” they wrote.
To contact the reporters on this story: Roxana Tiron in Washington at; James Rowley in Washington at
To contact the editor responsible for this story: Jodi Schneider at

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