Saturday, December 8, 2012

Good morning Ladies and Gentlemen:

Gold closed up $3.70 to $1704.00.  Silver remained unchanged at $33.04.

Gold was languishing throughout the European session as investors were  waiting patiently for news on the USA jobs front. At exactly 8:30 am est, gold and silver plummeted within seconds as the following hit the wires:

(courtesy zero hedge)

146,000 Jobs Added In November, Beat Expectation Of 85,000, Unemployment Rate Lower At 7.7%

Tyler Durden's picture

Looks like Sandy was not an issue at all in the November jobs report which beat in both the number of jobs added, at 146,000 on expectations of 85,000, while the unemployment rate declined to 7.7% from 7.9%, where it was expected to post as well. Watch this space next month for prio revisions: September and October saw 49K downward revisions combined. November will suffer the same fate.

and manufacturing jobs dropped more than expected...

(we will discuss the jobs report in the body of my commentary).

The bankers no doubt were trying to orchestrate a gold/silver avalanche on Friday which is what we are accustomed to see on a jobs report day.  Gold was knocked to $1685 but this price held again as gold successfully defended this resistance level.  We also  had a triple bottom.  Demand for gold was just too great for our bankers as they immediately retreated to higher ground covering as many shorts as they could.  It looks to me like $1700 gold and $33.00 silver are your new floors.  The COT report below also is very bullish as the bankers massively covered their shortfall.

News out of Europe early Friday morning was not good.  Germany's latest quarter GDP was only .4% growth instead of the forecast 1.8%.  Also Germany suffered a huge contraction in it's industrial production last month falling by minus 3.6%.
Greece decided today that it was OK for itself to buy Greek bonds back making a mockery of the bailout.  Japan suffered another magnitude 7.8 earthquake setting this nation back again.  It seems that Japan cannot win.  The opposition LDP party is well out in front and it is expected to win the election.  Their leader Abe has promised massive printing of yen. We have so many stories for you tonight but first.......................

let us head over to the comex and assess trading on Friday .

The total comex gold OI rose by 190 contracts from 428,518 up to 428,708.
The active December contract saw it's OI rise by 29 contracts from 800 up to 829.  We had 64 contracts served yesterday so we finally gained 93 contracts or 9300 oz of gold standing in December.  The non active January contract saw it's OI rise 146 contracts up to 1271.  The next big active contract is February and here the OI fell by 507 contracts from 278,534 down to 278,007.  The estimated volume at the gold comex Friday came in at a lame 142,655 contracts. The confirmed volume on Thursday was also lame at 152,294 contracts. It sure looks like investors have caught on to the crooked antics of the bankers as they are beginning to  shun the comex.

The total silver comex OI rose slightly by 1052 contracts from 140,923 up to 141,975.  The active December contract saw it's OI fall from 718 down to 700 for a loss of 18 contracts.  We had 60 notices filed yesterday so we gained 42 contracts or 210,000 oz of additional silver standing.  The non active January contract saw it's OI fall by 23 contracts up to 530.  The next big contract month is March and here the OI rose  from 85,399 down to 85,741.  The estimated volume on Friday,  came in at 40,157 which is fair.  The confirmed volume on Thursday was also fair at 42,857 contracts.

Comex gold figures 

Dec 7.2012    The  December contract month


Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
1095.05 (Brinks)
Deposits to the Dealer Inventory in oz
4,999.82 (Brinks)
Deposits to the Customer Inventory, in oz
3279.3 (HSBC)
No of oz served (contracts) today
  53 (5,300 oz)
No of oz to be served (notices)
776  (77,600 oz)
Total monthly oz gold served (contracts) so far this month
2454 (245,400  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 

The dealer had 1 deposit  and no   withdrawals.

Dealer deposit into Brinks:  4999.82 oz

We had 1 customer deposits:

i) Into HSBC: 3,229.3  oz

total customer deposit:  3,229.3 oz

we had 1 customer withdrawal:

Out of Brinks:  1095.05 oz

Adjustments:  0:

Thus the dealer inventory rests tonight at 2.612 million oz (81.24) tonnes of gold.

The CME reported that we had 53 notices  filed  for 5300 oz of gold. The total number of notices filed so far this month is thus 2454 notices or 245,400 oz of gold. To obtain what will stand for December, we take the open interest standing for December (829) and subtract out Friday's notices (53) which leaves us with 776 contracts or 77,600 oz of gold left to be served upon our longs.

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

245,400 oz (served)  + 77,600 oz (to be served upon)  =  323,000 oz  (10.04 tonnes of gold).

we gained 9300 oz of gold standing.


Dec 7.2012:   The December silver contract month

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory  nil
Deposits to the Dealer Inventory 51,511.000 (CNT)
Deposits to the Customer Inventory1,193,440.83 ( Scotia)
No of oz served (contracts)178   (780,000 oz)
No of oz to be served (notices)544 (2,720,000 oz)
Total monthly oz silver served (contracts)2123  (10, 615,000 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 month8,519,873.8

Today, we had huge activity again inside the silver vaults.

 we had one dealer deposits and no  dealer withdrawals:

Dealer deposit:

i) Into CNT:  51,611.000 oz  (again another perfectly around deposit to three decimals.

We had 1 customer deposits of silver:

i  Into Scotia:  1,193,440.83 oz

total customer deposit: 1,193.440.83 oz

we had 0 customer withdrawals:

total customer withdrawal:


we had 2 fairly big adjustments:

 i)  Out of HSBC:  19,932.58 oz .  The silver left the customer account and landed in the dealer account.
 ii) Out of JPMorgan: 494,525.10  oz landed in the dealer account from the customer account.

total adjustments out of customer and into dealer:  514,457.68 oz
Registered silver remains today at :  40.402 million oz
total of all silver:  146.548  million oz.

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

The CME reported that we had 156 notices filed for 780,000 oz. 

To determine the number of silver ounces standing for December, I take the OI standing for December  (700) and subtract out Friday's notices (156) which leaves us with 544 notices left to be filed or 2,720,000 ounces left to be served upon our longs.
Thus the total number of silver ounces standing in this  active month of December is as follows:

10,615,000 oz (served) + 2,720,000 (oz to be served upon)  =  13,335,000 oz
we gained 210,000 additional ounces of silver on Friday.


At 3:30 we got the COT for the week ending Tuesday, Dec 4.
All COT reports go from a Tuesday to Tuesday.

The gold COT.  In a nutshell: my goodness!!

Our large speculators:

Those large specs that have been long in gold succumbed to the vicious attacks by our bankers as they shed a monstrous 26,254 contracts from their long side.

Those large specs that have been short in gold added a rather large 8417 contracts.

Our commercials:

Those commercials that have been long in gold, pitched 5230 contracts from their long side.

Those commercials that have been perennially short in gold covered an unheard of 46,346 contracts. (it must be a record, we will have to go back and search but I can never recall such a large covering of a short position)

Our small specs:

Our small specs that have been long in gold pitched a huge 6197 contracts from their long side.

Our small specs that have been short in gold added a very tiny 248 contracts.

Conclusion:  This has to be the biggest bullish sign in gold in a such a long time as the commercials went net long by 41,116.

That should put the floor on gold at around the $1700 level.

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, December 04, 2012

and now for our silver COT:

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

Tuesday, December 04, 2012

Our large speculators;

Those large specs that have been long in silver, pitched a tiny 880 contracts from their long side.

Those large specs that have been short in silver reduced their shortfall by 877 contracts.

Our commercials:

Our commercials that have been long in silver and are close to the physical scene
pitched a rather large 4134 contracts from their long side.

Our commercials that have been short in silver covered 4954 contract from their short side.

Our small specs;

Those small specs that have been long in silver pitched a rather large 1324 contracts from their long side.

Those small specs that have been short in silver decided to cover a small 507 contracts from their short side.

Conclusion: slightly more bullish than last week as the commercials went slightly net long by 820 contracts.

Please note the huge difference in COT reports with respect to gold and silver.


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   Dec 7.2012

Total Gold in Trust



Value US$:74,002,379,642.15

Dec 6.2012:




Value US$:73,589,263,566.05

Dec 5.2012:




Value US$:73,579,206,708.59

Dec 4.2012




Value US$:73,726,517,141.37

Dec 3.2012:




Value US$:74,560,653,332.07

we  set another record on Friday as we gained 1.81 tonnes of gold into the GLD.
I believe that London has a problem.  There is absolutely no way that GLD can accumulate gold this fast. No doubt the latest gold addition is nothing but a paper obligation on somebody. 

and now for silver:

Dec 7.2012:

Ounces of Silver in Trust316,014,502.300
Tonnes of Silver in Trust Tonnes of Silver in Trust9,829.15

Dec 6.2012:

Ounces of Silver in Trust316,014,502.300
Tonnes of Silver in Trust Tonnes of Silver in Trust9,829.15

On Friday, there was no change in the inventory of the SLV

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

Sprott and Central Fund of Canada. 

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

1. Central Fund of Canada: traded to a positive 6.4 percent to NAV in usa funds and a positive 6.6%  to NAV for Cdn funds. ( Dec 7.2012)   

2. Sprott silver fund (PSLV): Premium to NAV rose to   1.51% NAV  Dec 7./2012
3. Sprott gold fund (PHYS): premium to NAV  rose to 2.46% positive to NAV Dec 7/2012. 

 Now we witness the Central fund of Canada  gaining big time in its positive to NAV, as we now see CEF at a positive 6.4% in usa and 6.6% 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.



Here are your major physical stories:

On Thursday night we brought to your attention the following story:

BBC's 'Panorama' killed report exposing silver market manipulation

Submitted by cpowell on 02:35PM ET Wednesday, December 5, 2012. Section: Daily Dispatches

5:30p ET Wednesday, December 5, 2012
Dear Friend of GATA and Gold:

Ned Naylor-Leyland, investment director of Cheviot Asset Management in London, interviewed by Max Keiser on yesterday's edition of "The Keiser Report" on the Russia Today television network, revealed that the British Broadcasting Corp.'s investigative journalism TV program, "Panorama," killed a report exposing silver market manipulation even after doing substantial interviews that provided evidence of manipulation.
Naylor-Leyland added that the failure of the mainstream news media to confront and expose it is what most sustains market manipulation.
Naylor-Leyland's segment of yesterday's "Keiser Report" begins at 12:37 here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


GATA knew all along that the BBC was doing this expose on the silver manipulation as GATA member and a fellow contributor at the March 2010 CFTC hearings Adrian Douglas was involved along with other members of GATA. The program was set to run when GATA was told that the BBC killed the broadcast.  Rumours of the cancellation of the broadcast came after a telephone call from Tony Blair, the former Prime Minister of England,  to the director of the BBC. 

You see, Blair is on the payroll of JPMorgan for 2.5 million pounds per year.  He also received a loan from JPMorgan for a huge mansion in London:

London’s Mailonline…

Feeling the pinch, Tony? Blair takes out £4.2million loan against his central London des res from U.S. bank he advises


Your early morning gold and silver trading courtesy of Goldcore:

(courtesy Goldcore)

Gold ‘Storm’ - Could Rise Sharply Next Week On Fed Say UBS And Nomura

Tyler Durden's picture

Form GoldCore Gold Bullion
Gold ‘Storm’ - Could Rise Sharply Next Week On Fed Say UBS And Nomura
Today’s AM fix was USD 1,697.00, EUR 1,312.55, and GBP 1,058.71 per ounce.
Yesterday’s AM fix was USD 1,693.00, EUR 1,295.14, and GBP 1,050.77 per ounce.
Silver is trading at $32.89/oz, €25.54/oz and £20.62/oz. Platinum is trading at $1,599.50/oz, palladium at $684.00/oz and rhodium at $1,045/oz.
Gold rose $4.40 or 0.26% in New York yesterday and closed at $1,698.00/oz. Silver surged to a high of $33.259 and finished with a gain of 0.4%.

Gold $/oz, 5 Days – (Bloomberg)

Gold crept higher in Asia overnight prior to selling, then saw initial gains lost. Gold and silver are headed for their second week of declines.
For the week gold is down 1% and silver is down 1.4% in dollar and sterling terms but the losses in euros and Swiss francs are more muted (euro gold and silver is down 0.5% and 0.9% respectively) due to weakness in the euro and Swiss franc.
As expected the ECB kept rates on hold at 0.75% yesterday. The ECB confirmed what more realistic commentators have been warning - that the eurozone economy would contract further in 2013. This is leading to hopes for rate cuts by debtors and concerns of currency debasement by creditors.
The US non-farm payrolls data is released at 1330 GMT and this will be critical ahead of the US Fed’s gathering next week. Yesterday’s US unemployment rate at 7.9% shows that jobless claims have fallen back to a pre-Hurricane Sandy range.
UBS and Nomura have suggested that gold could rise next week as the Federal Reserve may announce further easing at the FOMC meeting – on Tuesday (11/12/12) and Wednesday (12/12/12).
Nomura said it is worth considering whether the FOMC will announce further easing to replace so called ‘Operation Twist’. The research house noted that gold remains at the same level as during the October meeting, which suggests gold has not yet priced in any move by the FOMC – creating an opportunity for gold bullion buyers. 
Regardless of whether the FOMC actually eases at this point – Nomura thinks there is a non-negligible probability – gold is likely to rise. Therefore, Nomura expects gold to rise and prices in this probability as the December meeting approaches, just as gold rose when the September meeting was approaching.

XAU/EUR, 5 Days – (Bloomberg)

In a daily note entitled ‘Gold: Calm Before A Storm?’, UBS said today that expectation of additional quantitative easing next week by the Federal Reserve is not priced into the gold market, so any aggressive move by the Fed would prompt a “sizeable response.”
Index rebalancing will also cause gold to be bought, UBS said in its daily precious metals report today.
The rebalancing action this year should be interesting according to UBS as gold is to “be bought this time around as opposed to being sold in previous years”.
The expected conclusion of the ongoing US fiscal cliff negotiations should also elicit a “considerable” reaction from the gold market. 
“The UBS house view, which is in line with consensus, is that a deal will likely be reached in Washington by year-end. Much of gold’s response will depend on the details, and the price move could be quite powerful.”
Preparing For Economic Headwinds: Bill Gross's Likes Oil and Gold– Seeking Alpha

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And this version from Ben Traynor from Bullionvault:

(courtesy Bullion Vault)

Momentum in Gold "Unlikely to Come Back Until New Year", Survey Shows Traders Less Bullish on Gold

By: Ben Traynor, BullionVault

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

London Gold Market Report

FRIDAY morning saw the gold price drop below $1700 an ounce again, while stock markets, commodities and the Euro all fell ahead of the final US nonfarm payrolls release of 2012.

According to several sources the consensus forecast among analysts ahead of the report was for 93,000 jobs added in November, with the official unemployment rate expected to hold steady at 7.9%.

"US payroll data will be the main number focus today but there's probably two reasons why we might expect less reaction than normal," says Standard Bank analyst Steve Barrow.

"The first is that the markets are clearly fixated by the fiscal cliff and it is doubtful that any data is going to have a significant impact until the cliff is sorted. Secondly, economic growth this quarter will be written off due to the impact of [Hurricane] Sandy."

"If the unemployment rate should turn out to be higher than anticipated, the US Federal Reserve may decide at its meeting next week to top up [its latest asset purchase program] 'QE3'," says today's commodities note from Commerzbank, though it too acknowledges that today's employment numbers "will be distorted as a result of Hurricane Sandy."

"A weaker-than-expected number could have a [gold positive] impact on the Fed meeting," agrees Ole Hansen, head of commodity strategy at Saxo Bank.

"But it could also help force the hands of US politicians [negotiating over the so-called fiscal cliff], as they can see that the economy is hurting from the lack of knowledge about where it stands on January 1."

Heading into the weekend, gold looked set for a 1.1% weekly loss by Friday lunchtime in London, the second successive weekly drop.

Bullishness among gold traders has fallen to its lowest level in seven weeks, according to a survey by news agency Bloomberg, which found 14 of 31 analysts expect the gold price to rise next week, the lowest proportion since October 19.

"We will get momentum again, but I don't think it's going to come until after the first of the year," says Jeffrey Sica, president of SICA Wealth Management in New Jersey.

"Hedge funds that have underperformed and need to raise liquidity for redemptions are likely to sell their winners."

Silver meantime fell to $32.82 an ounce this morning, 1.9% down from where it started the week.
The European Central Bank yesterday cut its economic growth forecasts for next year, while it also lowered its outlook for Eurozone inflation.

ECB president Mario Draghi told a press conference that 2013 projections for Eurozone growth made by central banks staff range from a 0.9% contraction to growth of 0.3%. This is down from the range of minus 0.4% to 1.4% 2013 growth projected back in September.

"Inflation rates are expected to decline further to below 2% next year," added Draghi.

"Over the policy-relevant horizon, in an environment of weak economic activity in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate."

The Bundesbank meantime has cut its forecast for German economic growth to 0.4%, down from 1.6% predicted back in June.

"However, there's reasonable hope that the phase of economic weakness won't last too long and Germany will return to growth," said a statement from Germany's central bank.

The Euro extended Thursday's losses against the Dollar this morning, ending Friday morning in London around 1.6% below Wednesday's seven-week high.

Following yesterday's drop for the single currency, gold in Euros has risen back above €42,000 per kilo, though it remains below where it started the week.

UK consumers expect an inflation rate of 3.5% over the coming year, up from 3.2% expected back in August, according to the Bank of England's latest Inflation Attitudes Survey published Friday.

UK manufacturing output meantime fell 1.3% in October compared to a month earlier, and 2.1% year-on-year, while overall industrial production was down 0.8% over the month and 3.0% year-on-year, official figures published Friday show.

"Triple dip [recession] watch starts here," says Scotiabank economist Alan Clarke.

Britain's next government will likely have to raise taxes as a result of "inconceivable" spending cuts proposed in Wednesday's Autumn Statement by UK chancellor George Osborne, according to report published yesterday by think tank the Institute for Fiscal Studies.

Hong Kong meantime exported just under 47.5 tonnes of gold bullion to China in October, a 32% drop from the previous month and a 10-month low, Hong Kong government data published Friday show. Hong Kong acts as a major conduit for Chinese gold imports from the rest of the world.

Over in India, traditionally the world's biggest source of private gold demand, the Rupee failed to hold onto Thursday's gains against the Dollar earlier today.

"Demand is not very high today as [gold] prices have increased," says Mayank Khemka, managing director at Khemka Group, a wholesaler in Delhi, though he added that the festival season has seen "some revival in demand" during December.

"Structural policy measures are needed to reduce [India's] vulnerability emanating from high oil and gold imports," Shri Deepak Mohanty, executive director at India's central bank, said in speech Friday.

"Gold seems to have become a safe investment asset and a hedge against inflation as is observed in other advanced economies."

Mohanty argued that the "dematerialization" of gold, meaning the encouragement of investment in gold-linked instruments rather than ownership of the metal itself, could be a way of reducing imports of physical bullion with a view to improving India's balance of payments.

"Inflation indexed bonds could also be another option to offer investors the inflation linked returns and detract them from gold investments," he added.

Ben Traynor

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012


Ben Davies and Citibank's Fitzpatrick both say that gold's decline is now over:

(courtesy Ben Davies/Tom Fitzpatrick/Kingworldnews)

Hinde's Davies, Citigroup's Fitzpatrick say gold's decline is over

8a ET Friday, December 7, 2012
Dear Friends of GATA and Gold:
Hinde Capital CEO Ben Davies tells King World News that gold is likely to be supported by demand in China that is rising faster than mine supply and that low volatility in the gold price indicates higher prices next year. He thinks gold's recent decline is over. An excerpt from Davies' interview is posted at the King World News blog here:
Also at King World News, Citigroup analyst Tom Fitzpatrick gets out his charts and concurs that the decline is over:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


And now for our major paper stories which will influence the physical price of gold and silver:

Major points last night from European trading ahead of the Non farm payrolls:

1. Germany has now revised its forecast for 2013 and instead of 1.6% growth, it will add only a tiny .4% increase stating that there are growth projection risks to the downside.

2.  This caused the Euro/USA to fall even further.

3.  Then came German Industrial production which tumbled -2.6%  year over year on expectations of a flat reading.

4.  The German bailout of Greece is certainly placing a toll on Germany.

5. The Greek buyback is not doing too good.  Get a load of this:

"Sovereign Greece now intends to buy back it's own debt"

 Obviously the Greek buyback program is not going too well.

6. The Netherlands industrial production also missed it's mark.

7.  Japan got hit with another 7.8 magnitude earthquake in the North east. However this time a tsunami was contained.  

8.  Not everything is bad news.  Iceland which decided not to bailout out its bankers, saw its growth rise by 3.5% year over year.

we now await the non farm payroll figures from the USA

(courtesy zero hedge/overnight sentiment)

Pre-NFP Party Spoiled By Reality, Bundesbank And Another Japanese Earthquake

Tyler Durden's picture

In a day in which it was all supposed to be about today's far weaker (because there is a perfectly good alibi in the face of Hurricane Sandy) Nonfarm payroll report, expected to print at 85,000, due out in 2 hours, once again it is the the "rest of the world" that stole the scene, starting with a reality slam out of Germany whose Bundesbank came out with revised forecast for German economic growth, which collapsed projected 2013 growth from 1.6% to a tiny 0.4%, adding that there are "growth projections risks to the downside" in effect all but sealing Germany's recessionary fate in the coming year, and send the EURUSD to overnight lows.
Specifically, the Bundesbank sees:
  • German 2012 real GDP at 0.7%%, was 1.0%, and 2013 at 0.4%, down from 1.6%.
  • German 2012 inflation 2.1% (2.1%), 2013 1.5% (1.6%)
  • German 2012 unempl rate 6.8% (6.7%), 2013 7.2% (6.5%)
  • Drop in germany economic activity possible in 4q 2012,1q 2013
  • See German 2014 GDP +1.9%, infl +1.6%, unemployment 7.0%
  • Bundesbank Weidmann: underlyng german econ health suggests fast recov
  • EMU crisis, global slowdown main drags on german growth
  • Risks to Germany growth projections to the downside
Sure enough, as if to confirm this forecast, moments ago German Industrial Production in October tumbled -2.6%, on expectations of an unchanged print. None of this should come as a surprise to our readers whom we have been warning for weeks and months that the European economic malaise is spreading closer to the core with each passing day.
What this means is that as we have been saying for months, slowly but surely the narrative that the ongoing German bailout of Greece is crushing the AAA-rated economy will become louder and louder until it is the German people themselves who demand a severing of all ties with Greece.
And speaking of Greece, there are simply no words to explain the stupidity of what may be happening there. Perhaps the following Bloomberg headline captures it best: Greece to Buy Debt It Already Owns to Reach Target. While this in itself is idiotically absurd, what it does mean, is that the debt buyback is going not quite as well as expected and hedge funds will likely demand even higher conversion prices. And who can blame them: the Eurozone rolled over and died the second someone demanded beneficial terms for hedgies, who are the only beneficiaries from the "third Greek bailout." And since all of this is orchestrated and funded indirectly by the ECB, another BBG headline that is not at all surprising is that "Draghi’s Go-to ECB Seen Risking Credibility Through Overload." What is amazing is that the ECB still has any credibility left.
There was more bad news out of Europe (NetherlAAAnds industrial production which also missed,
Elsewhere, a major driver of macroeconomic risk was a large Japanese 7.8 Magnitude earthquake hitting the northeast coast, and producing a moderate contained tsunami, although nothing like that from March 2011. The initial response sent the JPY higher briefly but since normalized after the quake was seen as being nowhere near as destructive as the last one. What it did, however, remind us is that despite any and all promises of imminent inflationary nirvana by incoming PM Shinjiro Abe, Japan's fate may be far more acutely determined by mother nature first and foremost. But at least the Shanghai Composite is still going through the phases of the latest dead cat bounce, rising 1.6% to close at 2062, well above the 4 year lows seen earlier this week.
But not all was bad news as Icelandic Q3 GDP rose Q/Q by 3.5%. And so the country that escape the Keynesian black hole tractor beam continues to grow by leaps and bounds as the rest of the insolvent world continues to stick its head in the rehypothecated sand.
And now, lean back, grab your popcorn, and wait as the media spin tsunami washes over everyone and proves how a sub 100K increase in November jobs is actually a good thing in a country which needs to grow by nearly 200K/month to offset the effect of 5 years of ongoing depression.


A stunning chart on the huge drop with respect to industrial production inside Germany:

(courtesy zero hedge)

Just How Bad Is It In Europe?

Tyler Durden's picture

EURUSD is 'weak' (under 1.2900) this morning, having given a week's worth of gains back in just 2 days as it appears (quite unsurprisingly) that even the core or Europe is now becoming embroiled in a total economic depression. While it seems unlikely that the much-discussed optimal-strategy of Germany leaving the EUR will occur before Merkel's re-election, we suspect there will be growing angst that their economic woes are due to their other European cousins. To wit, Germany's Industrial Production Capital Goods (just as we have also seen in the US) have fallen off a cliff in the last two months (almost -3 sigma); it has only been this bad twice in the last twenty years. Perhaps, we need to replace the youth unemployment records with German Capital Goods production as the 'new' scariest chart in Europe, since it seems the Money McBags of the disunion has mounting troubles of its own.

(h/t Sean Corrigan of Diapason Commodities)


Friday saw the release of unemployment data in the USA. 

France also had a conference in Paris on the pauperization inside France as this nation continues to implode. Politicians attended the conference trying to find cures for France's increasing level of poverty. We continually  witness the nationalization of many of it's industries.  France's unemployment has now risen to 10.3% with youth unemployment at a shade under 25%.

A great commentary from our resident expert on France, Wolf Richter/

The Alarming “Sense Of Pauperization” in France

testosteronepit's picture

In France, 48% of the people considered themselves either living in poverty or on the way to living in poverty. The sobering results of a survey released just ahead of the National Conference of the Fight against Poverty. It’s going to be a big conference—a sign the government is taking poverty seriously. Prime Minister Jean-Marc Ayrault had announced it in September under the motto, “Imagine the social policies of the 21st centruy.”
It will take place in Paris on December 10 and 11 at the Iena Palace, home of the Economic and Social Council, which advises the National Assembly and the Senate on social and economic policies. President François Hollande himself will kick it off. Ayrault will close it. Sandwiched between them will be ministers, representatives of anti-poverty associations, and even people who live in poverty. The goal: a roadmap for social questions in Hollande’s five-year term.
It was one of his campaign promises. “The first time that the poverty has become a political topic that a President seizes,”said Bruno Grouès, coordinator of Alerte, an umbrella organization of 35 anti-poverty associations.
The largest consumer companies are already reacting to “the logic of pauperization,” as L’Oréal CEO Jean-Paul Agon had called it. Unilever, the third largest consumer products company in the world, was adjusting its commercial strategy by redeploying to Europe what had worked in poor countries of the developing world. E.Leclerc, the number one retailer in France, confirmed that poverty is a new commercial reality [read.... The “Pauperization of Europe”].
In France, poverty is linked to the private sector that is atrophying and shedding jobs. Unemployment numbers have been like Chinese water torture, rising relentlessly since mid-2011 to reach 10.3%—the worst since 1999. Youth unemployment hit 24.9%, the highest since the data series began in 1996. And there is no letup in sight.
The jobs fiasco goes beyond the debt crisis. Unemployment peaked at 11.2% in 1997. The emasculated private sector simply couldn’t participate in the craziness and benefits of the dotcom bubble that was in full swing in the US. After 14 years of Socialist governance—from 1981 to 1995—and nationalization of many of the largest companies, the private sector had lost its oomph. But after a wave of partial privatizations, jobs recovered. Unemployment dropped to 7.5% in the second quarter of 2008, even as the US was sinking into the financial crisis.
President Nicolas Sarkozy gloated on TV: France was immune to the American crisis, he said; under his leadership, it had its act together. By late 2009, unemployment was at 10%. The subsequent jobs recovery was as feeble as it was short, ending in mid-2011 at 9.5%. Unbeknownst to Sarkozy, that was as good as it would get:
The debt crisis was hitting France. Uncertainty took over. The private sector pulled back, and unemployment stormed higher, right in front of Sarkozy’s incredulous eyes. When Hollande took over, unemployment had been getting worse for a year!
It has left its mark on poverty in France, as the dreary CSA survey shows: 37% of the French consider themselves on the way to living in poverty; 11% consider themselves already in it. Only 51% weren’t affected by it. Surprisingly, of the professional categories, “employees” were the hardest hit, with 12% living in poverty and a stunning 48% on the way. A total of 60%! Only 38% considered themselves beyond poverty’s reach.
Jérôme Sainte-Marie, director of the political opinion department at the market research firm CSA, which had conducted the survey, worried that France has “entered a new era.” This was now no longer a question of “lowered status,” he lamented, “but of pauperization.” Many French people not only had the impression of being “worse off than their parents or worse off than hoped,” but they worried “that they could be thrown into misery, if they aren’t already in it.”
The conference and the surrounding fanfare will produce some heartfelt speeches, a few soothing Band-Aids, and perhaps even a laudable roadmap. But it remains doubtful that these measures can, or even attempt to, address the wheezing private sector whose job-creation machine has been demolished. But only a thriving private sector could reverse the jobs fiasco and stem the rising “pauperization.”
The Eurozone is full of big fat lies that politicians and eurocrats served up to make the euro and subsequent bailouts or austerity measures less unappetizing. Like in 1999: “Can Germany be held liable for the debts of other countries? A very clear No!” said the CDU, the party of Chancellor Merkel. Read....Ten Big Fat Lies To Keep The Euro Dream Alive.

More turmoil inside Egypt today:

 (courtesy Reuters)

Egypt demonstrators reject Mursi call for dialogue

CAIRO | Fri Dec 7, 2012 12:25pm GMT

An Anti-Mursi protester shouts slogans and holds a placard (R) that reads 'Leave' in front of members of the Republican Guard blocking a road leading to the presidential palace in Cairo December 6, 2012. REUTERS-Amr Abdallah Dalsh
1 of 15. An Anti-Mursi protester shouts slogans and h

(Reuters) - Demonstrators rejected a call from Egypt's Islamist President Mohamed Mursi for a national dialogue after deadly clashes around his palace, demanding the "downfall of the regime" - the chant that brought down Hosni Mubarak.

Mursi said in a televised speech late on Thursday that plans were on track for a referendum on a new constitution on December 15 despite clashes that killed seven people. He proposed a meeting on Saturday with political leaders, "revolutionary youth" and legal figures to discuss the way forward after that.

But a leading activist group rejected the offer, and fresh demonstrations were called for Friday.

The "April 6" movement, which played a prominent role in igniting the revolt against Mubarak said on its Facebook page that Friday's protests would deliver a "red card" to Mursi.

Egypt has been plunged into turmoil since Mursi issued a decree on November 22 awarding himself wide powers and shielding his decisions from judicial review.

His Islamist supporters say the decree was necessary to prevent Mubarak-era judges from interfering with reforms. A constitution drawn up by a body dominated by Islamists is due to be put to a referendum next week.

The opposition has demanded that Mursi scrap his decree, postpone the referendum and redraft the constitution.

In his address, Mursi said: "I call for a full, productive dialogue with all figures and heads of parties, revolutionary youth and senior legal figures to meet this Saturday."

Several thousand opposition protesters near the palace waved their shoes in derision after his speech and shouted "Killer, killer" and "We won't go, he will go" - another of the slogans used against Mubarak in last year's revolt.

The Cairo headquarters of the Muslim Brotherhood, the group that propelled Mursi to victory in a June election, was set ablaze. Other offices of its political party were attacked.


The United States, worried about the stability of an Arab partner which has a peace deal with Israeland which receives $1.3 billion (810.4 million pounds) a year in U.S. military aid, had urged dialogue.

Mursi said his entire decree would lapse after the constitutional referendum, regardless of its result.

He said a new constituent assembly would be formed to redraft the constitution if Egyptians rejected the one written in the past six months.

The Republican Guard, an elite unit whose duties include protecting the presidential palace, restored peace on Thursday after a night of violence outside the palace, ordering rival demonstrators to leave by mid-afternoon.

Mursi supporters withdrew, but opposition protesters remained, kept away by a barbed wire barricade guarded by tanks. By evening their numbers had swelled to several thousand.

Thousands of supporters and opponents of Mursi had fought well into Thursday's early hours, using rocks, petrol bombs and guns. Officials said 350 were wounded in the violence. Six of the dead were Mursi supporters, the Muslim Brotherhood said.

Opposition groups have called for protests after Friday prayers aimed at "the downfall of the militia regime", a dig at what they see as the Brotherhood's organised street muscle.

A communiqué from a leftist group urged protesters to gather at mosques and squares across Egypt, and to stage marches in Cairo and its sister city Giza, converging on the presidential palace. "Egyptian blood is a red line," the communiqué said.

Hardline Islamist Salafis also summoned their supporters to protest against what they consider biased coverage of the crisis by some private Egyptian satellite television channels.

Since Mursi issued his decree, six of his advisers have resigned. Essam al-Amir, the director of state television, quit on Thursday, as did a Christian official at the presidency.

The Brotherhood's supreme guide, Mohamed Badie, called for unity, saying divisions "only serve the nation's enemies".

The Islamists, who have won presidential and parliamentary elections since Mubarak was overthrown, are confident they can win the referendum and the parliamentary election to follow.

As well as relying on his Brotherhood power base, Mursi may also tap into a popular yearning for stability and economic revival after almost two years of political turmoil.

Egypt's pound hit an eight-year low on Thursday, reversing gains made on hopes that a $4.8 billion IMF loan would stabilise the economy. The stock market fell 4.6 percent.

(Additional reporting by Edmund Blair and Marwa Awad; Writing by Alistair Lyon and Peter Graff; Editing by Louise Ireland)


and then this happened late in the day:

(courtesy zero hedge)

Meanwhile In Egypt...

Tyler Durden's picture

Increasingly it is appearing that all those things formerly considered "fixed", are not. Latest case in point, Egypt where despite the general population's very finite attention span having been fully exhausted on all things Cairo-related back in the spring of 2011, the locals counterrevolutionary natives are once more getting restless and absent some miracle, the days of the US puppet appointed "democrat"-cum-self appointed dictator Mursi are numbered.
From Reuters:
Egyptian protesters broke through a barbed wire barricade keeping them from the presidential palace in Cairo on Friday and some climbed onto army tanks and waved flags.

Up to 10,000 protesters had been penned behind the barrier, guarded by tanks that were deployed on Thursday after a night of violence between supporters and opponents of the Islamist president, Mohamed Mursi, in which seven people were killed.

Demonstrators cut the barbed wire and hundreds swarmed through and surged up to the walls of the palace, some kissing the police and military guards surrounding it. "Peaceful, peaceful," they chanted.

Troops of the Republican Guard, which had ordered rival demonstrators to leave the vicinity on Thursday, moved to the front gate to secure the main entrance to the palace.
Then again, who cares about such trivial things as the failure of US liberated, formerly dictatorial regimes, when there are the daily gyrations of AAPL to ruminate over.




5.519000.05000 0.91%
As of 06:31:07 ET on 12/07/2012.

Your opening Italian 10 year bond yield
(also starting to rise in yield)

Italy Govt Bonds 10 Year Gross Yield


4.601000.03700 0.74%

As of 06:31:30 ET on 12/07/2012.

Your early results for bourses for Europe 7:00 am Friday morning prior to NYSE :  (everybody in the red.)

i. England/FTSE down 9.53 points or 0.16%

ii) Paris/CAC down  9.07 points or 0.25%

iii) German DAX: down 17.05 points or 0.23%

iv) Spanish ibex: down 94.6   points or 1.16%


Your early morning currency crosses: (  showing good  USA strength against all major currencies

Euro/USA    1.2929 down  .0032
Japan/USA  82.38  up .06
GBP/USA     1.6024 down .0035
USA/Can      .9925  up .0011

Your closing Spanish 10 year yield: as the bailouts commence yields plummet: 

(at 5:30 pm est)



5.456000.01800 0.33%

As of 12/07/2012.

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

next in line for a bailout!!

Italy Govt Bonds 10 Year Gross Yield


4.525000.04900 1.07%

As of 12/07/2012.

Your 4:00 pm currency crosses: (  showing big  USA strength against major currencies
like the Euro.   The Canadian dollar also rose big time against  the USA , making the "Candido" the best currency of the lot ;                     
Euro/USA    1.2927 down  .0034
Japan/USA  82.48  up .038
GBP/USA     1.6040 down .0007
USA/Can      .98880  down .0025


Your closing figures from Europe and the USA:

 in the red for England, the USA and Germany while Spain, and France were positive in the green.  Strange! two basket cases!! 

i) England/FTSE up 12.98 points or  0.22%

ii) Paris/CAC up  3.96 points or 0.11%

iii) German DAX: down 16.74 points or 0.22%  (due to poor industrial production)

iv) Spanish ibex: down 62.7  points or 0.79% 

and the Dow: up  81.09 points  (.62%)


Late in the day, the CNOOC deal with Nexen was approved.  CNOOC is a state owned oil company 
and now they enter Canada.

(courtesy CTV/zero hedge) 

Nexen/CNOOC Deal Approved

Tyler Durden's picture

According to Reuters: "Canadian authorities have approved the acquisition of Nexen Inc by China's CNOOC Ltd, a source familiar with the matter said on Friday." It appears Canada decided against infuriating Chinese M&A overtures after all, imminent protectionist political kneejerk reaction notwithstanding.
Watch the full announcement at 5:00 pm after the jump:


And now for some other  USA stories:

The following Bloomberg article is the official release of an increase of 146,000 jobs in the USA and a big revision downward to  138,000 gain from the previous month month. The unemployment rate fell to 7.7% as many poor souls stop looking for work  (a huge 552,000 unemployed stopped looking and as such fell off the rolls)

(courtesy Bloomberg)

Payrolls in U.S. Increase More-Than-Forecast 146,000

Employment climbed by 146,000 following a revised 138,000 increase in October that was less than initially estimated, Labor Department figures showed today in Washington. The median forecast of 91 economists surveyed by Bloomberg called for a gain of 85,000. The unemployment rate fell to 7.7 percent as the labor force shrank.
The improvement in hiring bodes well for the holiday shopping season and indicates Americans will keep up the spending that makes up 70 percent of gross domestic product. Coupled with improvements in housing, the report indicates the economy will be better placed to weather federal budget cuts and tax increases that may occur next year even if lawmakers agree on reducing long-term budget deficits.
“There is some decent momentum in the economy now, which we’re going to need coming into next year when one way or another there is some amount of fiscal drag,” said Jerry Webman, chief economist at New York-based OppenheimerFunds Inc., which has $186 billion in assets under management. “This is modestly encouraging.”
Stocks erased gains as Apple Inc. slumped and concern about budget negotiations in Washington overshadowed the jobs data. The Standard & Poor’s 500 Index was little changed at 1,413.70 at 12:55 p.m. in New York after rising as much as 0.5 percent. The yield on the 10-year Treasury note rose to 1.62 percent from 1.59 percent late yesterday.

Consumer Confidence

Another report today showed confidence among consumers fell more than forecast in December as Americans’ expectations slumped to a one-year low. The Thomson Reuters/University of Michigan preliminary consumer sentiment index decreased to 74.5, the weakest in four months, from 82.7 in November. Economists projected a reading of 82, according to the median estimate in a Bloomberg survey.
Estimates for the increase in November payrolls ranged from 15,000 to 145,000 after a previously reported 171,000 gain in October. The revision for October reflected a 51,000 drop in government jobs.
Private payrolls, which exclude government agencies, rose 147,000 in November. They were projected to rise by 90,000, the survey showed.
An early Thanksgiving may have boosted payrolls by about 75,000 last month, according to projections by UBS Securities LLC, as companies such as retailers took on extra staff sooner than normal.

Holiday Hiring

Businesses that stepped up holiday hiring include Macy’s Inc. (M) The second-biggest U.S. department-store chain said it would add about 2,000 more seasonal workers than the 78,000 it hired last year. Toys ‘R’ Us Inc., the world’s largest toy retailer, reported plans to employ 45,000 temporary staff, up 5,000 from the 2011 season.
A rebound in housing is boosting sales at furniture makers, some of which are adding workers to keep up with demand.
“We have a sense of much more positive momentum heading into next year than we did at this time last year,” Alan Cole, president of Martinsville, Virginia-based Hooker Furniture Corp., said on a Dec. 5 conference call with analysts. “We’ve expanded our workforce by about 5 percent to date and anticipate another 5 percent expansion in the coming months.”

Insurance Career

Valerie Epps of Atlanta, who lost a part-time retail job in November, said she is “optimistic” she can return to her prior career in real estate and insurance now that the housing market is improving in the area.
“In the past, the market wasn’t very good in real estate or insurance, and they are so tied together,” said Epps, 45. “It’s all now building back up. You can see a turnaround. I do see companies hiring, slowly.”
The administration of President Barack Obama used the report to push for an extension of tax cuts for middle-income Americans as well as a program to help homeowners refinance their mortgages.
“It is critical that we continue the policies that are building an economy that works for the middle class,” Alan Krueger, chairman of Obama’s Council of Economic Advisers, said in a statement.
Obama is also pushing for higher tax rates for the top 2 percent of earners, a proposal Republicans reject while pressing for deeper cuts in social programs. Failure to come to an agreement would mean more than $600 billion in tax increases and spending cuts take effect automatically next year.

Economists’ Outlook

Economists were forecasting the jobs report would show Sandy depressed payrolls. Nomura Securities International Inc. projected a hit of 45,000, while UBS Securities LLC and Deutsche Bank Securities Inc. put the fallout at 150,000.
While the Labor Department said Sandy didn’t “substantively impact” the data, its poll of households showed that 369,000 people were not at work because of bad weather during the survey week. The average of the last 10 Novembers was 70,000 in the survey, which is used to calculate the jobless rate.
The storm left about 8 million homes and businesses without power for days after making landfall in New Jersey on Oct. 29. The 26 counties designated as major disaster areas after the storm had an average 1,301 labor force participants per square mile, about 30 times the average labor force density for the U.S. in 2011, according to the Labor Department.

Restaurant Demolished

Rafael Landi, 47, lost his job in Jersey City, New Jersey as an executive chef and general manager of Surf City, a waterfront restaurant that was demolished by the storm.
“It’s a complete loss because the place was entirely made of wood,” Landi said of the restaurant, which faced Liberty Harbor. “That whole area was just completely destroyed.” Landi said he is working part-time as he looks for a full-time job.
A rebound in auto purchases after Sandy signals carmakers and dealers may continue to boost employment. Industry sales of cars and light trucks rose to 15.5 million at an annual rate in November, the best pace since February 2008, according to Ward’s Automotive Group.
Today’s report showed a decline in the share of working-age people in the labor force, helping explain why the unemployment rate dropped. The so-called participation rate fell to 63.6 percent from 63.8 percent in the prior month.
The unemployment rate in November was forecast to stay at 7.9 percent, according to the survey median.

Factories, Construction

Among industries, factory payrolls decreased by 7,000 in November as job losses in food manufacturing and chemicals more than offset gains at automakers. Employment at construction companies dropped by 20,000 workers and increased by 169,000 at private service-providers.
Citigroup Inc. (C) is among companies cutting back. The New York-based bank announced this week it will eliminate more than 11,000 jobs and pull back from some emerging markets to drive down costs as revenue dries up.
Some companies say hiring and investment are being held back on concern growth is cooling globally and U.S. lawmakers will fail to reach agreement on reducing the budget deficit.
“We’re expecting the same sort of a slow-growth environment, that’s our best view of 2013,” Fredrik Eliasson, chief financial officer of CSX Corp. (CSX), the largest eastern U.S. railroad, said on a Nov. 28 teleconference with analysts. “There are a lot of uncertainties out there in the world at this point between what’s going on here with the fiscal cliff and between Europe andChina.”
Federal Reserve officials meeting next week are considering whether to step up easing to stimulate the economy and trim the jobless rate.
“Although the economy continues to expand, we must grow faster if we are to put all of our jobless workers and idle businesses back to work,” William C. Dudley, president of the Federal Reserve Bank of New York, said in a Nov. 29 speech. He called the unemployment rate “unacceptably high.”
To contact the reporter on this story: Shobhana Chandra in Washington
To contact the editor responsible for this story: Christopher Wellisz at


And now the truth:

(courtesy Dave from Denver/the GoldenTruth)


Non-Farm Payroll Report - Seriously?

73% of all jobs "created in the last 5 months are Government jobs:  LINK
These are not GDP-producing jobs, as jobs created by the Government are a result of tax revenue generated by the economy:  In fact, it can be argued that every Government job created subtracts from the wealth of this country.

The Bureau of Labor Statistics should be re-named the Bureau of Laughable Statistics.  I wasn't surprised when the headline number was reported to be an increase in jobs during November of 146,000, well in excess of the forecast increase of 80,000.  But I was shocked by the reaction to the number by the cast of clowns on CNBC, who were in total disbelief.  I was shocked because typically CNBC hypes and promotes a good number and "spins" a bad number into a good number.  To me that is emblematic of the extreme degree of implausibility with the BLS jobs report now assumed by everyone.

Of course, as usual, it doesn't take much digging below the surface to find serious holes and inconsistencies:  BLS report  Right off the top, the BLS posts a disclaimer saying that Hurricane Sandy did not affect the sampling results.  Well, if that's the case, then why bother mentioning it other than in a footnote, like everything else?  The Government has qualified every other weak economic report released since the beginning of July as being affected by the hurricane.  This one isn't? LOL

The real shocker was the downward revision to October's reported headline number.  Originally coming in at 171,000, it was revised down to 138,000.  31,000 jobs disappeared with computer keystroke at the BLS.  Recall, very few analysts were not skeptical of the 171k reported and the BLS just confirmed why.  I would suggest that we will see a massive downward revision to the number released today when December's headline is reported next month.  Please note that the revisions are not typically reported in mainstream media news reports.

But I don't have to shoot holes in this report.  The Census Bureau released a report yesterday in which it measures the unemployment rate at 8.3% vs. today's BLS' reported 7.7%.  Furthermore, Gallup's index which measures the intentions of small businesses to hire in the next 12 months plunged to -4.  The matches the all-time low for this index, which was hit previously in November 2008.  You can see the details HERE

The truth is that we'll never get the truth out of the Government.   If you delve into the depths of the BLS employment report, even their own more comprehensive measurement of the level of unemployment in this country shows 14.4% unemployment.  The way that metric is calculated more closely resembles how the unemployment was calculated 30 years, before the real statistical manipulation of economic numbers started occurring.

Just one more point about this.  It won't be too long before the number of people receiving some form of Government support payment will outnumber the number of people paying for those payments (taxpayers).  The payees will outnumber the payers.  Make no mistake about it, as tragic and catastrophic as this is for our system, it is going to get worse.  I can guarantee you that it will mean more debt accumulation, more money printing/currency devaluation and much higher prices in store for precious metals.

Have a great weekend.


As Mark Grant and others have stated to us:  the following is impossible as the Fed 
will have 24-28% of USA assets or in plain English:  24 -28% of GDP.  How on earth can
you unwind 24% of GDP?

The Fed exit plan is nonsense:

(official garbage from Bloomberg on the USA exit plan)

Fed Exit Plan May Be Redrawn as Assets Near $3 Trillion

A decision by the Federal Reserve to expand its bond buying next week is likely to prompt policy makers to rewrite their 18-month old blueprint for an exit from record monetary stimulus.

Under the exit strategy, the Fed would start selling bonds in mid-2015 in a bid to return its holdings to pre-crisis proportions in two to three years. An accelerated buildup of assets would also mean a faster pace of sales when the time comes to exit -- increasing the risk that a jump in interest rates would crush the economic recovery.

The Marriner S. Eccles Federal Reserve building stands in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

“There is certainly an issue about unwinding the balance sheet” in a way that “is effective and continues to support the recovery without creating inflation,” St. Louis Fed Bank President James Bullard said in an interview in October. The central bank might have to “revisit” the 2011 strategy, he added.

The Fed is already buying $40 billion a month in mortgage- backed securities to boost the economy, and policy makers meeting Dec. 11-12 will consider whether to purchase more assets. John Williams, president of the San Francisco Fed, has proposed adding $45 billion of Treasury securities a month.
The bigger the balance sheet, “the riskier the exit becomes,” Richmond Fed President Jeffrey Lacker said during a Nov. 20 speech in New York. “That is something we need to think carefully about.”
Krishna Memani, director of fixed income at OppenheimerFunds Inc., said a too-rapid sale of assets risks disrupting the $5.2 trillion market for agency mortgage debt.

Finding Ways

“They have to find ways of unwinding the balance sheet without dumping all of it in the marketplace,” said Memani, who oversees a bond portfolio of about $70 billion, including about $6 billion of mortgage-backed securities.
The central bank has been extending the maturities of its assets with Operation Twist, a program to replace $667 billion of short-term debt with the same amount of longer-term bonds that expires this month.
A decision to expand purchases could push the total assets to $4 trillion by the end of 2013, saidMichael Hanson, a senior U.S. economist at Bank of America Corp. Total assets stand at $2.86 trillion, up from $869 billion at the end of June 2007.
“The more they add to the balance sheet, the longer it will take to normalize,” said Hanson, who worked on designing tools that will be used in the Fed’s exit strategy as an economist in the monetary affairs division at the Board of Governors in 2009.

Holdings Expand

The central bank’s holdings expanded during the financial crisis as the Fed created several emergency loan programs. Chairman Ben S. Bernanke in November 2008 ordered the purchase of debt issued by housing agencies and mortgage-backed securities in a strategy that he called credit easing.
After the benchmark lending rate was cut almost to zero in December 2008, the Fed continued buying bonds as its primary easing tool. The Fed announced its third round of purchases in September without specifying a total quantity or end date.
Those central bank initiatives have helped push yields on Treasury and housing debt to record lows. The average fixed rate on a 30-year mortgage fell to 3.31 percent last month, according to a Freddie Mac index. The yield on the 10-year Treasury reached 1.39 percent on July 24 and was 1.59 percent late yesterday.

Transparency Push

The Fed announced the exit strategy in June 2011 as it sought to assure investors that it had the means to avoid igniting inflation once job growth, wages, and demand started moving up. The plan was part of Bernanke’s push for greater transparency and predictability.
The goal is to return the balance sheet to a pre-crisis size in two to three years and eliminate holdings of housing debt “over a period of three to five years.”
First, the Fed would allow assets to mature without being replaced, a process that will be slower now that the Fed has extended the average duration of its holdings. It would then modify its guidance on how long it plans to keep the federal funds rate near zero and begin temporary operations to drain excess bank reserves.
The Fed would next raise the federal funds rate, and finally, it would start selling securities.
The balance sheet averaged about 6.3 percent of nominal gross domestic product during the decade before the financial crisis. Today, a balance sheet of that size would be around $995 billion rather than $2.86 trillion.

Long Exit

“The exit is going to take a long time,” said Stephen Oliner, a resident scholar at the American Enterprise Institute in Washington and former Fed Board senior adviser. He estimates the Fed’s holdings could rise to more than $4 trillion.
If the Fed were to start bringing its holdings back to their pre-crisis level today, it would have to sell almost $2 trillion over a period of two to three years under its current exit plan. Assuming holdings grow to $4 trillion, asset sales could come to $3 trillion over the same period.
Fed officials haven’t publicly discussed an alternative plan for shrinking the balance sheet. One possibility, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey CityNew Jersey, would be to enlist the help of the U.S. Treasury.
The Fed could ask to swap longer-term Treasury debt for short-term bills and notes, thus reducing the maturity of its portfolio to accelerate the runoff. The Fed and Treasury could do this partly in a one-time swap, and partly by allowing the Fed to bid on new issues and pay with its holdings of long-term Treasuries, Crandall said.

‘More Aggressive’

Because the Fed would have less debt to sell to return its portfolio to a normal size, it could be “more aggressive in the liquidation” of housing-agency securities, he said, which was a priority for Fed officials when they announced the exit strategy.
Asset purchases have made it harder to change the federal funds rate when the time comes to raise borrowing costs.
In the five years before the crisis, excess bank reserves averaged $1.7 billion, so the Fed could alter interest rates by buying or selling comparatively small amounts of short-term debt in open-market operations.
Those reserves are now more than 800 times larger at $1.4 trillion. To move the fed funds rate, the central bank will have to drain or lock up the supply of excess reserves.
Under the current exit plan, the Fed would soak up reserves by using reverse repurchase agreements or offering term deposits.

Draining Reserves

“I’m not sure we’ll really know, until they undertake a real program, what the effectiveness is” of such measures, said Bank of America’s Hanson. “The amount of reserves could be so large that the draining doesn’t do a whole lot.”
The central bank could lose credibility if its policy actions don’t move the federal funds rate, saidMarvin Goodfriend, a former adviser at the Richmond Fed.
“The Fed needs to delicately acquire inflation credibility in the exit,” said Goodfriend, a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh. “We are used to tightly managed short-term interest rates.”
The Fed’s other tool is to extinguish reserves by selling bonds back to dealers. Even a fully-explained plan could push up home borrowing costs as traders account for hundreds of billions of dollars of new supply flowing back into the market.
“We are deep into experimentation at this point,” Oliner said. “It’s understandable that people are worried.”
To contact the reporter on this story: Craig Torres in Washington at; Joshua Zumbrun at
To contact the editor responsible for this story: Christopher Wellisz at;



26 Wellington Street East, Suite 900, Toronto, Ontario, M5E 1S2

Phone (416) 604-0533 or (toll free) 1-866-269-7773 , fax (416) 604-0557

Overlooked amongst all of the talk about the “fiscal cliff” is the looming debt ceiling. While the collision course to come to an agreement on the “fiscal cliff” would have a negative impact on the US (and world) economy, failure to come to an agreement to raise the debt ceiling could in theory push the US into bankruptcy.

The battles between the Republican led Congress and former US President Bill Clinton over the debt ceiling in the 1990’s were almost legendary. Yet for all of those battles the actual increase in the debt ceiling under Clinton was low compared to his two Republican predecessors Ronald Reagan and George Bush 1. Under George Bush II, the debt ceiling was raised 7 times from about $6 trillion to almost $12 trillion. Since then the debt ceiling has gone up another three times and now stands at $16.394 trillion.

Under George Bush II the debt ceiling rose with little fanfare but since the election of Republican congress in 2010 debt ceiling battles have been normal. Given the US adds roughly $1 trillion of new debt every year primarily because of the needs that arose out of the 2008 financial collapse the next increase could take the debt ceiling over $17 trillion. US Treasury Secretary Tim Geithner has suggested that the debt ceiling have no limit. Given the polarization between the Republican led congress and the Democrat White House the odds of that happening appear to be extremely low.  

Failure to increase the debt ceiling in a timely manner could result in the government being unable to pay its bills including the interest on the debt. Failure to pay interest on the debt and or meet a bond or bill rollover could put the US in default triggering in a bankruptcy. While that appears to be remote congress and the White House remain firmly on a collision course as each presents its differing plans to resolve the “fiscal cliff”. The debt ceiling is hardly garnering any attention but if the debt ceiling is not increased in a timely manner the impact of it could be more immediate then the “fiscal cliff”. The “fiscal cliff” is hyperbole as the effects of failure to reach a deal would only be felt over time and not immediately.

But like the “fiscal cliff” a resolution must be found or the unintended consequences could be worse than failure to reach an agreement on the “fiscal cliff”. In the polarized world that is currently the US an agreement is not a given as each will manoeuvre to blame the other for any unintended consequences.

The collision course of the “fiscal cliff” and the debt ceiling are ironically playing themselves out against the backdrop of the end of the Mayan calendar. This is not to suggest that the end of the Mayan calendar on December 21, 2012 leads to the end of the world but failure to reach agreement on the “fiscal cliff” and the debt ceiling may feel like it.

The collision course over the “fiscal cliff” and the debt ceiling is not the only collision course currently underway. Some are suggesting that the Assad government in Syria is preparing to use chemical weapons against the rebels. If that is correct than it could set a collision course for the Assad government and NATO. The current clashes in Egypt are another potential collision course as pro Morsi supporters and opponents battle it out on the streets of Cairo. The military has stepped in but Egypt could in a worst case descend into civil war. Finally the recent success in Palestine receiving recognition at the UN has triggered reprisals from Israel including cutting off the sending of tax receipts and announcing further expansion of settlements that could divide up the West Bank further.  The Palestinian/Israeli collision course has been ongoing since 1948.

Given all of these collision courses, maybe the Mayans are right.


The confidence number is so important because the consumer is 70% of USA GDP.
It plunged last month, the biggest miss on record:

(courtesy zero hedge)

UMich Confidence Plunges, Biggest Miss On Record As Outlook Crashes

Tyler Durden's picture

After its biggest miss in four years (following the pre-revision spike to the biggest beat in three years), UMich Consumer Confidence came at 74.5 relative to an 82.0 expectation (biggest miss on record). Hugely down from last month's final print of 82.7, this is the first negative print since July to the lowest since August. Expectations for the future crashed its second largest absolute print on record (-13 to 64.6) to the lowest since Dec 11.  In the typical election year we see a rise in hope and confidence into the election and then a drop off after - it seems we are following that path...

Average performance of the UMich Confidence data on election years versus this year...

Jim Sinclair’s Commentary
This should come as no surprise to anyone except the talking heads.
State laying groundwork for managed bankruptcy for Detroit December 7, 2012 at 8:35 am
Daniel Howes
Even as the state Treasury prepares to begin another financial review of Detroit’s books, a plan is being solidified in the governor’s office that would guide Michigan’s largest city through what is being called a managed bankruptcy.
The working concept, still evolving, assumes that the state’s financial review would find severe financial distress in Detroit, that Mayor Dave Bing and City Council would be unable to push through overdue restructuring, and that the process would culminate in appointment of an emergency financial manager under Public Act 72.
The case would be filed under Chapter 9 of the federal bankruptcy code, according to two ranking sources familiar with the situation, following efforts to reach prenegotiated settlements with as many key creditors — unions, vendors and pension funds among them — as possible before any filing.
"Clearly, we will always try to do that," one source familiar with the situation said in an interview Thursday. "You can move on a much more expedited basis if you can demonstrate that your cash is running out" — as Detroit clearly is with each passing week.
The evolving bankruptcy scenario is a clear signal that Gov. Rick Snyder and Treasurer Andy Dillon have lost confidence in the ability of the mayor, his management team and council to honor their commitments under the eight-month-old consent agreement with the state, or to make any meaningful progress on restructuring.


Well that about does it for this week.

I hope you all have a grand weekend and I will catch up with you on Monday night.

all the best


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