Saturday, December 15, 2012

Good morning Ladies and Gentlemen:

Gold closed up by a tiny 20 cents to finish the week at $1695.80.  Silver on the other hand closed unchanged at $32.28. The bankers are very concerned with events that are about to transpire in the USA in the next 3 weeks with respect to the fiscal cliff.  The Republicans and the Democrats are far apart and the powers to be are worried about the consequences of the fiscal cliff becoming a reality.  They are trying to keep gold and silver at bay such that the stock markets do not tank.

In the news on Friday, we learned that Chinese PMI rose above the 50 mark for the first time in quite a while.  This lit a match under the Shanghai composite index.  The European PMI numbers were mixed even though both Service PMI and Manufacturing PMI rose a touch.  They were expecting better figures.
Despite that, the Euro/usa cross rose finishing the week at 1.316.  The Japanese big manufacturing index fell to minus 12 from last month's -10.  This nation is certainly having their problems.  The yen has fallen quite dramatically in the past few weeks.

On this side of the pond, USA industrial production rose but most of the rise was in the automobile industry.
General Motors reports sales as soon as it leaves the plant and they are deeply involved in channel stuffing which seems to help industrial production.  We will be going over these and other stories but first.........................................

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

The total comex gold open interest fell by a dramatic 6,578 contracts as more newbie longs were fleeced again.  This will occur continually until the regulators stop bankers' collusive and criminal attack on the precious metals. The active gold contract month of December saw it's OI fall 239 contracts from 609 down to 370.  We had 225 delivery notices on Thursday so in essence we lost 14 contracts or 1400 oz of gold standing.  Blythe must have been a little busy yesterday. The non active January contract month saw it's OI rise by 98 contracts up to 1125. The next big active delivery month for gold is February and here the OI fell by 8225 contracts from 284,590 down to 276,365.  It was in this month that saw most of the gold open interest fall and thus the major fleecing occurred in the February contract month. The estimated volume today was tiny and tranquil at 92,119.
The confirmed volume on Thursday (with the massive raid) came in at a mighty 182,793.
Our regulators are blind as a bat.

The total silver comex OI fell by only a tiny 888 contracts despite the raid.  The OI for the silver comex rests at 143,178 down from Thursday's level of 144,066.  The active December contract month strangely saw it's OI rise by 92 contracts from 673 up to 765.
We had a massive 169 notices filed on Thursday so we gained another 261 contracts or an additional 1.305,000 oz of silver is standing for the December contract month. The non active February contract month saw the OI also rise by 6 contracts up to 524. The next big active silver contract month is March and here the OI dropped 2335 contracts from 86,405 down to 84,070. The estimated volume at the silver comex on Friday was extremely weak at 28,598.  The confirmed volume on Thursday was big at 69,233.

Comex gold figures 

Dec 14.2012    The  December contract month


Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
32,150.000 (Scotia)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
1446.75 (Scotia)
No of oz served (contracts) today
  8 (800 oz)
No of oz to be served (notices)
362  (36,200 oz)
Total monthly oz gold served (contracts) so far this month
2737 (273,700  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 another  huge sized activity  inside the gold vaults 

The dealer had no deposits  and no   withdrawals.

We had 1  customer deposits:

Into Scotia:  1,446.75  oz

total deposit:  1,446.75  oz

we had 1  customer withdrawal:

(You will recall that on Thursday we had a monstrous 321,500.00 oz leave the JPMorgan vault).

Today;  32,150.000 oz leaves Scotia (or 1 tonne of gold or 1000 kilo bars).

Adjustments: 0 

Thus the dealer inventory rests tonight at 2.616 million oz (81.27) tonnes of gold.

The CME reported that we had 8 notices  filed  for 800 oz of gold. The total number of notices filed so far this month is thus 2737 notices or 273,700 oz of gold. To obtain what will stand for December, we take the open interest standing for December (370) and subtract out today's notices (8) which leaves us with 362 contracts or 36,200 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:

273,700 oz (served)  + 36,200 oz (to be served upon)  =  309,900 oz  (9.64 tonnes of gold).

we lost 1400 oz of gold standing in the December delivery month.


Dec 14.2012:   The December silver contract month

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory  nil
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory9,565.000 oz (CNT)
No of oz served (contracts)286   (1,435,000 oz)
No of oz to be served (notices)479 (2,395,000 oz)
Total monthly oz silver served (contracts)2773  (13,865,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month2,794,309.2
Total accumulative withdrawal of silver from the Customer inventory this month9,173,389.3

Today, we had smaller than usual activity  inside the silver vaults.

 we had no dealer deposit and no  dealer withdrawals:

We had 1 customer deposits of silver:

Into CNT:  exactly 9,565.000 oz deposited

total deposit:  9,565.000 oz


we had 0 customer withdrawal:

total customer withdrawal: nil oz

we had 1  adjustments:  ( leaving the customer and entering the dealer accounts)

i) Out of CNT:  another masterful 323,705.000 oz leaves the customer and enters  the dealer.

Registered silver remains today at :  42.347 million oz
total of all silver:  147.52  million oz.

now we are still awaiting for the deliveries which should subtract out of the dealer accounts. I wonder why? 

The CME reported that we had 286 notices filed for 1,435,000 oz. 

To determine the number of silver ounces standing for December, I take the OI standing for December  (765) and subtract out today's notices (286) which leaves us with 479 notices left to be filed or 2,395,000 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:

13,865,000 oz (served) + 2,395,000 (oz to be served upon)  =  16,260,000 oz

we gained a massive 1,305,000 oz of addition silver  standing for December.
Somebody must have badly been in need of silver on Friday.


At 3:30 pm Friday afternoon, the CME released position levels of our major players in the precious metals area.

Here is the gold COT:

(courtesy of

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 11, 2012

A very strange COT report.

Our large speculators:  those large speculators that have been long in gold covered  222 contracts. I guess that is why the volume is down with respect to the gold comex as investors are obtaining their metal in other arenas.

Our large speculators that hare short in gold added another 1815 contracts to their short side as they must have thought another raid was coming and they are right.

Our commercials:

Those commercials that are long in gold and are close to the physical scene pitched a very tiny 115 contracts from their long side.

Those commercials that have been short in gold from the beginning of the 4th century BCE covered another 2851 contracts from their short seems these guys are starting to reel in their shortfalls.

Our small specs;

Those small specs that have been long in gold pitched a rather large 1939 contracts from their long side in anticipation of a raid and they were correct.

Those small specs that have been short in gold covered 1260 contracts from their short side.

Conclusion:  our commercials went net long again for the second week in a row.  This week by 2851 contracts.

Thus the gold complex is getting more bullish with respect to price. 

I would not play the comex.  Just buy your metal and put it away.

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

Tuesday, December 11, 2012

 The silver COT certainly behaves differently than with gold.

Our large speculators:

Those large specs that have been long in silver decided that the price rise last week was too much so they pitched a rather large 1656 contracts.

Those large specs that have been short in silver decided in their great wisdom to add to their short positions by 1815 contracts. So far they have done OK.

Our commercials:

Those commercials that have been long in silver and are close to the physical scene added a rather large 1105 contracts of silver to their long side.

Those commercials that have been short in silver from the beginning of time added another 514 contracts to their short side.

Our small specs:

Those small specs that have been long in silver added another 510 contracts to their long side.
Those small specs that have been short in silver covered 671 contracts from their short side.


a little more bullish than last week as the bankers went net long to the tune of 591 contracts.

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 14.2012

Total Gold in Trust



Value US$:73,686,294,784.47

Dec 13.2012:




Value US$:73,535,028,715.55

Dec 12.2012:




Value US$:74,556,900,179.71

Dec 11.2012:




Value US$:74,286,157,252.72


and now for silver:

Dec 14.2012:

Ounces of Silver in Trust317,369,318.700
Tonnes of Silver in Trust Tonnes of Silver in Trust9,871.29

dec 13.2012:

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

 dec 12.2012:

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

Dec 11. 2012:

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

 there was a big addition of 1.355 million oz of silver into 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 4.1 percent to NAV in usa funds and a positive 4.1%  to NAV for Cdn funds. ( Dec14 2012)   

2. Sprott silver fund (PSLV): Premium to NAV fell to 1.17% NAV  Dec 14./2012
3. Sprott gold fund (PHYS): premium to NAV  fell to 2.16% positive to NAV Dec 14.2012. 

 Now we witness the Central fund of Canada  gaining big time in its positive to NAV, as we now see CEF at a positive 4.1% in usa and 4.1% 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:

Your early morning gold report from Europe courtesy of Goldcore.
It is ironic that the Bank of England decided to show the world that there is still gold inside London.

The Bank of England is a depository for foreign gold.  Our bet is the gold that is in the picture is gold that belongs to the Arabs and some that is sovereign in nature

The Queen of England Asks Economists – ‘Why Did Nobody Notice?’

-- Posted Friday, 14 December 2012 | Share this article | Source:

Today’s AM fix was USD 1,696.50, EUR 1,297.32 and GBP 1,051.38 per ounce. 
day’s AM fix was USD 1,694.75, EUR 1,299.16 and GBP 1,051.46 per ounce.
Gold was up $1.30 or 0.08% in New York yesterday and closed at $1,711.30/oz. Silver slumped to a low of $32.21 and ended with a loss of 2.6%.
Gold was not able to break $1,700/oz on Friday and prices are on course for their 3rd consecutive weekly fall, as investors focus on the looming fiscal cliff talks where little progress has been made.
Like an old western movie, with wind and dust blowing around, Obama and Boehner are holding out waiting to see who will “draw” or concede to the other’s plan to avert the fiscal cliff. Last Sunday, they exchanged counteroffers to their original campaigns.  Yesterday evening just an hour after U.N. ambassador, Susan Rice, (not a Republican favourite) removed her name as a candidate for Secretary of State, the U.S. President and Speaker of the House met for an hour and still agree to disagree.
U.S. industrial output figures for November are published at 1415 GMT.
There is a decrease of liquidity in the gold bullion market with many institutional players taking profits, closing out positions for year end, and heading off for the Holidays all contribute to a lack of momentum in the market.
Spot silver hit a one month low in the prior session of $32.21. This is also its third weekly fall, and its longest period of weekly drops in 7 months.
Queen Elizabeth II and Prince Phillip visited the Bank of England’s gold vault and wonders like most people how the things got so bad. 
Back in 2008, when the monarch visited the London School of Economics she described the credit crunch as ‘awful.’ .  Fast forward to 2012, the heart of Europe’s  4 year-old debt crisis while the Queen of England hears a financial expert compare the debt crisis to a flu epidemic or an earthquake, as hard to predict. This comparison is truly patronizing and an insult to the Queen’s intelligence.
Although I am not English have some respect for your elders, especially your Queen, Britons!  Pensioners in England can recall hard times during the World War when items like sugar were a luxury.  In this new era of credit you have people complaining if they can’t borrow to have their new BMW financed to match their Cotswold’s country house or Spanish holiday home.
The Queen was informed that since financial risk has been managed better (need we mention Libor?) than it was in the past, people became complacent. She smiled and said, ‘But people had got a bit...lax, had they?’
Her Royal Highness also suggested that the Financial Services Authority may not have been hard-line enough in its policing. She said: ‘The Financial Services – what do they call themselves, the regulators – Authority, which was really quite newit didn’t have any teeth.’
It’s rather ironic that the tour showed the gold vault since a good portion of the UK gold reserves were sold off from 1999-2002, when gold prices were at their lowest in 20 years.  Hopefully so called financial experts can learn from the Queen as quantitative easing and money printing only debases currencies and strengthens gold which is not controlled by sovereign monarchies or governments.
Yesterday, Dr. Constantin Gurdgiev, a former non-executive member of GoldCore’s investment committee wrote “Some thoughts on gold’’ on his blogspot at True in reference to an the Irish TV program Prime Time’s presentation on the yellow metal.
Prime Time’s program covering gold is undoubtedly one of the rare occurrences that this asset class got some hearing in the Irish mainstream media. Which is the good news.
Not to dispute the issues as raised in the program, here are some of my own thoughts on the question of whether or not gold prices today represent a bubble.
A simple answer to this question, in my opinion, is that we do not know.
Short-term and even medium-term pricing of gold (in any currency) is driven by a number of factors (fundamentals), all of which are hard to capture, model and value.
For example, currency valuations forward suggest that gold is unlikely to experience a sharp and protracted correction in the US dollar terms, if you believe the Fed QE4 is likely to persist over time. In euro terms, potential for devaluation of the euro implies pressure to the upside to the gold price. Yen price is also likely to play longer-term continued devaluation scenario. Things are less certain when it comes to Pound Sterling price… and so on. Here's just one discussion on one of the above effects:
Another example: drivers for prices on demand side that include rather volatile regulatory conditions in the major gold demand growth markets, such as China and India.
In short, things are much more brutally complex than the PrimeTime programme allowed for.
The reason for this complexity is that gold acts simultaneously (as an asset) in several structural ways:
1) as a simple bi-lateral long term hedge for inflation, equities and currency valuations
2) as a medium term (albeit not entirely persistent) hedge for some asset classes (e.g. equities)
3) as a short term speculative instrument to some investors
4) as a backing for numerous and large volume ETFs
5) as a benchmark backing for numerous and relatively large volume synthetic ETFs
6) as a store of value
7) as a risk management tool for complex structured portfolios
8) as a bilateral safe haven against equities and bonds, political and economic risks, systemic financial markets risks, etc.
These relationships can be unstable over time, can require long time horizon for materialization and are 'paid for' by assuming higher short term volatility in the price of gold. That's right - while PrimeTime contributors spoke about gold price 'correcting' or 'bubble bursting' none seemed to be aware of the fact that if you want to get something you want (hedging and safe have properties being desirable to investors), you should be prepared to pay for it (price volatility seems to be a good candidate for such cost of purchase).
No matter what happens in the short- to medium- term, gold is likely to remain the sole vehicle for the store of value and risk hedging over the long-term. It did so over the last 5,000 years or so and it will most likely continue doing so in years ahead. This property of gold is well established in the literature and is hardly controversial.
There is one caveat to it - due to instrumentation via ETFs, there are some early (and for now econometrically fragile) signs emerging that some of gold's hedging properties might be changing. More research on this is needed, however and only time will tell, so in line with PrimeTime, let's stay on the RTE side of Complexity Avoidance Bias on that one.
There is an excellent summary on what we know and what we don't know about gold by Brian M. Lucey, Trinity College Dublin Professor.  Available here
Last year I gave a presentation at the Science Gallery on some properties of gold: Read here
Not to make this post a lengthy one, let me summarize my own view of gold as an asset class:
In my view, gold can be a long-term asset protection from the risk of expropriation, inflation, devaluations, and tail risks on political and economic newsflow side etc.
To me, gold is not a speculative (capital gains) instrument for the short-term and it should not be acquired in a concentrated fashion - buying in one go large allocations. Gold should be bought over longer period to allow for price-averaging to reduce exposure to gold price volatility.
Gold allocation should be relatively stable as a proportion of invested wealth - different rules apply, but 5-10% is a reasonable one in my view.
Of course, any investment portfolio (with or without gold) should strive to deliver maximum diversification across asset classes, assets geographies etc.
Disclosure: I have no financial interest in or any commercial engagement with any organization engaged in selling gold. Until December 1, 2012 I used to be a non-executive member of the investment committee of GoldCore Ltd and was never engaged on their behalf in any marketing or provision of advice to any of their current or potential clients.Dr. Constantin Gurdgiev’s Bio and Blogs

Gold heads for 3rd straight weekly drop; US eyed- Reuters
Japanese business confidence slumps – The Financial Times
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The Queen Of England Asks Economists – ‘Why Did Nobody Notice?’


Another great commentary from Von Greyertz on the destruction of paper money.

(Kingworld news/Von Greyerz)

Egon von Greyerz: Two important charts for gold and silver investors

3:35p ET Friday, December 14, 2012
Dear Friend of GATA and Gold:
Writing for King World News, Swiss gold fund manager Egon von Greyerz argues that Western currencies are following the downward path of the Roman Empire's silver denarius. "Although gold (and silver) didn't go up in the last couple of days," von Greyerz writes, "it is guaranteed that the continued destruction of paper money will lead to substantially higher prices in the precious metals. But remember: You have to hold physical metals and store them outside the banking system."
Von Greyerz's commentary is headlined "Two Important Charts for Gold and Silver Investors" and it's posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


My favourite politician Nigel Farage.  Simply put, it is the smart governments of the east that are buying gold and the idiotic ones (the west) who are selling their very valuable asset to the east:

(courtesy Nigel Farage/Kingworldnews)

Nigel Farage: The clever governments are buying gold, the idiots are selling it

4:15p ET Friday, December 14, 2012
Dear Friend of GATA and Gold:
Nigel Farage, leader of the United Kingdom Independence Party and a member of the European Parliament, was interviewed today by King World News and remarked on Queen Elizabeth's visit this week to the Bank of England's gold vault.
"If you look over the last 10 to 15 years," Farage says, "the clever governments have been buying gold and the idiots have been selling gold. And those that buy gold don't just buy paper -- they make sure they've physically got the stuff."
An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


The following is a wonderful summary of the demand for silver coming from China.
The demand for silver in China is now 170 million oz.  The world ex China produces around 700 million oz. When you see this nation's citizens start to buy silver like the Indians do with gold, then I can state that the bankers with their massive short have a serious problem

(courtesy the Silver Institute)  

China Playing a Major Role in Global Silver Market

New Report Explores Dramatic Changes in Last Decade

(Washington, D.C. – December 13, 2012) China’s role in the global silver market has dramatically changed over the past decade. Once a small player in the global market, China today is the world’s leading market for both physical investment and paper trading of silver futures and other similar products, and is the second largest silver fabricator today. Chinese demand for the white metal is expected to achieve further strong growth in the years ahead, according to a report by Thomson Reuters GFMS released today by the Silver Institute.
Total silver demand in China has grown by over 100 million ounces (Moz) in the past ten years, to a record 170.7 Moz. The strength of the Chinese economy, assisted by a boom in the manufacturing sector, along with heavy investment in infrastructure, has boosted domestic demand for silver since the liberalization of the Chinese silver market at the start of 2000.  This has propelled China into becoming the world’s second largest silver fabricator, with its share of global demand standing at 17 percent at the end of 2011.  Overall silver fabrication demand has grown from 67.1 Moz to 159.5 Moz during the period 2002-2011, a rise of 137 percent.
In the same time period, Chinese industrial silver fabrication experienced an almost uninterrupted period of growth, posting an impressive 135 percent increase.  The largest slice of industrial demand has come from the electrical and electronics sector, rising from 17.1 Moz in 2002 to 40 Moz last year.  Key to this development has been a rapid expansion in the country’s semi-conductor sector.  Similar growth across a wide range of applications has also occurred, including a surge in cell phone and computer production to account for 70 percent and 90 percent, respectively, of the global total last year.  Additionally, strong advances have been reported in other personal electronic goods, including tablet computers, notebooks and light emitting diode backlit televisions.
Moreover, the Chinese silver jewelry market has grown an impressive 211 percent from 2002-2011, to 54.4 Moz, as it enjoys greater exposure across the country’s interior.  Further growth is expected in coming years as ongoing urbanization should lead to the expansion of retail jewelry outlets in larger cities.
Chinese silverware fabrication nearly doubled over the last decade, making China  the second largest silverware fabricator globally behind India.
Investment demand from Chinese silver investors has jumped in recent years, making China the world’s biggest market for both physical investment and paper trading of silver futures and other similar contracts.  Of note, during the first full year after the liberalization of the Chinese silver investment market in 2009, net demand for silver bars and coins doubled to 9.8 million ounces (Moz).  In 2011, the figure soared to 17.0 Moz, accounting for 8 percent of global net purchases of silver bars and coins.
On the supply side, Chinese mine production has almost doubled over the last decade, assisted by the base metals mining sector, leading to a sharp rise in silver produced as a by-product.  China’s mine production of silver now accounts for 14 percent of global supply, and it is likely to be recorded as the second largest silver producing country in 2012.
Scrap supply has also risen steadily over the same period, as Chinese industrial fabrication has grown rapidly, lifting supply from this segment to 31.9 Moz last year.
A notable increase in government sales from China was an important feature of the silver market from 1999 to 2003.  Thereafter, sales from Chinese official and quasi-official stocks fell markedly, and the country has been essentially absent from the market since 2006.
“This report underscores China’s growing importance to the global silver market,” stated Michael DiRienzo, Executive Director of the Silver Institute.  “It is impressive to see the dramatic development in so many sectors of their domestic silver market in the last decade,” he added.
The report gives a historical background of China’s silver industry over the past 30 years.  It examines the deregulation of the Chinese silver market and includes chapters on Chinese silver supply, silver fabrication demand and silver investment, as well as silver imports and exports.
The report is available free of charge and can be downloaded from the Silver Institute’s web site:
The Silver Institute is a nonprofit international association that serves as the industry’s voice in increasing public understanding of the many uses and values of silver. Established in 1971, its member companies include leading silver mining houses, refiners, bullion suppliers, manufacturers of silver products and wholesalers of silver investment products.

Michael DiRienzo
The Silver Institute
+1 202-495-4030


And now your major paper stories which will influence the physical price of gold and silver.

Now let us have a look at overnight sentiment from Asia and Europe.

Key points.

1. the world awaits for a decision on the fiscal cliff.  This will be the major focal point for the next few weeks.
2. Chinese PMI released and results good with the preliminary or flash PMI at 50.9 well above 50.
3. Shanghai composite up 4.2% on the good PMI number.
4. Japan's tankan index (large manufacturing index) tumbled to -12 on expectations of -10
confirming the Japan's manufacturing is deteriorating at the worst possible time.
5.  European PMI mixed
   a) Service PMI Europe:  rose from 47.7 to 47.8
   b) Manufacturing PMI Europe rose slightly from 46.2 to 46.3  (expectations 46.6)
However both are still below 50 and thus in contraction mode.

The good result came from Germany with a rise in service PMI rising above 50 for the first time in months at 52.1.
They expected 50.0 and it rose from last month's level of 49.7

the bad:

France continues to stink up the joint. It is still mired in the basement with a reading of 44.6 a touch higher than last month's 44.5.  The pundits expected a reading of 45.0 and thus they were very disappointed.

Other disappoints included Spanish housing which saw another big dip of 3.8% last month.
Even with this lacklustre performance the Euro advanced throughout the day and finished and climbed above 1.31 with a final closing read of 1.316.

Jim Reid of Deutsche Bank provides the major details for you

(courtesy your overnight sentiment/zero hedge/Jim Reid)

Overnight Summary: Some Trivial Non-Fiscal Cliff Developments

Tyler Durden's picture

In a world in which the Fiscal Cliff, including headlines, rumors, leaks, and mere whispers thereof, is the main show, all other data points are at best supporting data actors. There was a lot of support overnight - for the futures, which once again closed the prior session at the lows - with a battery of PMIs released, starting with the December HSBC China Flash PMI which printed at a excel picture perfect 50.9 vs an expectation 50.8 and above 50 for the second straight month, which sent the Shanghai Composite up 4.32%, and wiped out the bitter aftertaste from the Japan December large manufacturer Tankan index which tumbled to -12 on expectation of a -10 print, confirming the Japanese recession is deteriorating at the worst possible time. Then after China, Markit released a bevy ofEuropean PMI data which came in mixed: Services PMI rose from 46.7 to 47.8 in December, beating expectations of a 47.0 print, while the Manufacturing PMI rose modestly from 46.2 to 46.3, missing expectations of a 46.6 result. The biggest wildcard once again was Germany, where the Service PMI, like in the US, posted a sizable rise, posting above 50 for the first time in months, or at 52.1 on expectations of 50.0, and up from 49.7 last, although more disturbing was the ongoing collapse in German manufacturing which dipped from 46.8 to 46.3, on expectations of a rise to 47.2. French manufacturing data did not help posting a tiny rise from 44.5 to 44.6, missing expectations of a 45.0 print. Economic data was further confounded when Spain released its quarterly home price update, which dipped 3.8%, accelerated last quarter's -3.3% drop, and sliding by a massive -15.2% in Q3, faster than the -14.4% drop in Q2, and confirming Spanish housing has a long way to go before it is fixed.
Then there was the announcement of yet another Eurozone summit, this time making vague promises about what a monetary union in Europe may look like years into the future. After all, anything to pad the Belgian caterers taxpayer funded year-end invoice.
Net of all these data, the EURUSD pushed above 1.31 in the middle of the overnight session, only to slide to its lows in the 1.3070 area as US traders started trickling in.
After all that, sit back and watch for flashing red headlines with the words Fiscal Cliff, as they are far more important than any actual news, facts, or data.
More from DB's Jim Reid
After a week of very early nights to shake off the draining effects of the man-flu, I finally ventured out past 8pm last night and to the recording of BBC TV institution "Have I Got News for You". It airs tonight so for those of you in the UK that want to look incredibly impressive in front of your partner while on the sofa this evening then I'm happy to divulge the obscure answers to the missing word round to anyone who emails me.
One missing word game the market is struggling with at the moment is 'Fiscal Cliff to be resolved by xxxxxx on xxxxxx'. Insert your own guesses here. Indeed yesterday brought us another day where hopes of an imminent resolution faded as a 50min face-to-face meeting between Boehner and the President showed no signs of progress. Both sides made little comments after the meeting other than saying that the meeting was “frank” and the “lines of communication remain open”. Boehner yesterday said that the President hasn’t yet offered up a plan that is truly balanced and begins to solve our spending problem while the House Democratic leader Nancy Pelosi again defended by focusing on the negative side effects of cutting your way to reduce the deficit. Boehner is scheduled to return home to Ohio today and Obama said talks are still work in progress. An ABC News/Washington Post poll released on Wednesday noted that 49% of Americans approve Obama’s handling of the talks versus 25% who say Boehner is doing a good job. A Bloomberg poll found that nearly 2/3 of respondents (including nearly 50% of Republicans) believe Obama’s re-election gave him a mandate to seek higher taxes on the wealthy. A WSJ/NBC poll released on Wednesday noted that more than 75% of Americans (including 61% Republicans) said they would accept raising taxes in order to avoid a cliff.
US equities started the day on a slightly positive footing before fiscal cliff worries started to weigh on sentiment. The S&P 500 (-0.63%) fell for the first time in 7 days although it closed 0.2% off the lows as headlines of the unscheduled White House meeting between Obama and Boehner lifted the mood slightly into the close. US data flow was decent with initial claims (343k v 369k) down more than expected and core retail sales (+0.7% v +0.4%) printing above market consensus. Treasuries came off the highs in yields but still close the day moderately weaker. The UST 10yr yield climbed 3bps higher to 1.730% while a 30-year UST auction yesterday which was priced at higher yield than expected. Also interesting to see that despite the cliff uncertainties the AAII Bullish investor sentiment rose for the fourth consecutive week to hit the highest since mid-March.
Turning to overnight markets Chinese equities are rallying strongly with the Shanghai Composite (+3.7%) up by the most in about 3 months. A slightly better than expected December HSBC China Flash PMI (50.9 v 50.8) is probably helping as the series stayed above 50 for the second straight month. Elsewhere the Hang Seng (+0.6%) is also higher and the Nikkei (-0.06%) is off its earlier lows. In terms data we saw Japan’s Tankan Business confidence drop to a 3- year low. Japan’s election this coming Sunday will be the main event this weekend with Abe’s LDP currently projected to win more than 300 of the 480 seats in the lower house (Kyodo News).
On to rating matters its worth mentioning that after 779 days the UK’s AAA rating outlook was again revised to back Negative (from Stable) by S&P yesterday. The rating was placed on Negative outlook back in May 2009 before it was lifted back to Stable in October 2010 but as we stand the agency thinks there is a 1/3 chance of a downgrade if the UK’s economic and fiscal performance disappoints relative to their expectations. According to the agency UK debt/GDP ratio is expected to rise in 2015 before declining again and they also noted that growth or employment shocks could pressure government finances further. Markets reaction to this was fairly muted overnight.
Staying in Europe, Eurozone finance ministers finally approved EU49.1bn in aid payments to Greece. Of these, EU34.3bn will be released within the next few days while the rest will be handed out in Q1 next year. Elsewhere, DB’s Gilles Moec noted that newly agreed Single Supervisory Mechanism (SSM) was a major concession to Germany, who wanted to keep its network of saving banks and Landesbanken out of direct federal supervision. However, as a concession to France (which was in favour of universal federal supervision), the ECB will retain the power to intervene in any bank and give national supervisors instructions. To separate the ECB's supervisory and monetary policy function a supervisory board within the ECB will be created, to which non-Eurozone countries willing to participate in the SSM would have a voting right. However, the ECB governing would retain the right to veto the decisions of the supervisory board. The European Banking Authority (EBA) will remain in charge of defining the supervisory rulebook for the EU27. Timing wise it is unclear on when the system could be in place. It states that the ECB “will assume its supervisory tasks within the SSM on 1st March 2014 or 12 months after the entry into force of the legislation, whichever is later, subject to operational arrangement”. Since the institutional process itself could be long this means delays are quite possible and therefore Gilles think March 2014 is therefore purely indicative.
Moving on to today, flash PMI readings from France, Germany and the Eurozone aggregate will be the main focus. In summary the market expects a modest improvement but these readings will still largely remain in contraction territory. The only exception here being Germany’s services PMI which consensus is calling for a 50.0 print today (from 49.7 in November) for the German services PMI which would be the only exception. The ECB will publish its financial stability review and we will also get CPI data for the Eurozone.
Meanwhile in the US, inflation and industrial production are the key releases.


And we have Marc to Mark discussing overnight sentiment as well. The emphasis in this commentary is on the big currency crosses:

(courtesy Marc to Market)

Four Drivers, Little Movement

Marc To Market's picture

With few exceptions, the global capital markets which began the week with a bang, are finishing with a whimper.  The US dollar is little changed against the major and emerging market currencies.   Asia stocks were by and large flat, with the notable exception of Chinese stocks, where the major indices jumped a  little more than 4%. 
European bourses are mixed, with gains and losses mostly less than 0.25% near midday in London.  Spanish and Italian bond yields are slightly lower, but activity is quiet.  
Despite the subdued tone there are four developments to note.
1). The jump in China shares today, the most in 3 years, was driven by two considerations.  First, there are reports suggesting that government may let more funds buy securities.   Financial firms, which include brokerages, led the advance, gaining over 5% today.  Government-backed firms were also reportedly featured buyers.   The index of Chinese companies that trade in HK rose almost 1.5% to a 9-month high.  Second, sentiment was also aided by the December flash HSBC flash manufacturing PMI that rose to 50.9 from 50.5 in November.  This is a 14-month high and helps blunt some lingering disappointment over some recent data. 
2). Japan's Tankan survey disappointed and this helped keep the yen under pressure on the eve of the election.  The diffusion index for large manufacturers fell to -12 from -3 in September and this was a bit worse than expected.  The larger service providers also saw sentiment slip to 4 from 8.  The relative bright spot was capex plans and that improved to 6.8% from 5.4%.  The weak general results, however, can only strengthen views that 1) the BOJ is likely to expanded its asset purchase program at next week's meeting by JPY5-10 trillion, and 2) that the DPJ are going to be swept from office and push an aggressive monetary, fiscal and foreign policy. 
3). It has been a fairly good week for Europe.  A deal for Greece was reached.  An agreement on bank supervision was reached.  Yes, it is not a full banking union and a common deposit insurance scheme is not included, but it does seem like a step forward.  And, perhaps, just as importantly, the mere fact that the was a summit, defies the loud calls and warnings that EMU break up was imminent.  
The economic news, however, is not so good.  It strikes us as a bit misleading to talk about the euro zone composite Dec flash PMI at a nine-month high.  It stands at 47.3.  This is still contraction mode.  Preliminary details on Germany and France are available.  The German composite did edge back above 50 to 50.2, for the first expansion since April, but the manufacturing sector unexpectedly weakened further (46.3 vs 46.8).  The strength was in the service sector (52.1 vs 48.0).  
For its part, France showed improvement in both gauges, but it still looking at a strong economic drag.  Manufacturing edged to 46.3 from 46.2.  The market had expected a stronger gain.  Recovery in services was more pronounced rising to 47.8 from 45.7. 
4). Lastly, we note the price action itself.    Although the dollar is little changed on the day, the underlying tone is weak.  Bounces have been shallow.  The euro's recovery this week off the $1.2880 low at the start of the week has been impressive and it is poised to close above a 18-month old down trend line.  The highs from Sept, Oct and earlier this month have been set near $1.3170, $1.3140, and $1.3130.  The offers in this area are likely to be absorbed and thin trading over the holiday period could exaggerate the price action.  The fundamentals that support this is the fact that by most accounts, including Taylor Rule type exercises, the FOMC was quite aggressive. The dollar is, however, making new 9-month highs against the yen.  The JPY84 area has been approached and the market has its immediate sights on year's high set in March just shy of JPY84.20.  Similarly, the euro has approached JPY110 and the year's high in March was near JPY111.45.    Sterling and the dollar-bloc has generally lagged in the broader move against the dollar, but share the direction. 


In the following Bloomberg article we see that European call sales drop to a fresh 19 year low with France 

leading the bleeding:

(courtesy Bloomberg/and special thanks to Robert H for sending this to me) 

Europe November Car Sales Fall as EU Drops to 19-Year Low

European car sales fell 10 percent in November, bringing European Union registrations this year to a 19-year low, as unemployment in Germanydeterred drivers from buying vehicles from PSA Peugeot Citroen (UG) and Renault SA.
Registrations in the 27 EU countries plus SwitzerlandNorway and Iceland dropped to 965,918 vehicles last month from 1.07 million a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today.

European November Car Sales Fall as German Decline Hurts Peugeot
Rows of Opel automobiles are seen parked awaiting transportation from the General Motor Co.'s Opel plant in Bochum, Germany. Photographer: Hannelore Foerster/Bloomberg

European November Car Sales Fall as German Decline Hurts Peugeot
Peugeot said its job reductions will take place by 2014 by not replacing people who leave. Photographer: Balint Porneczi/Bloomberg

Eleven-month sales fell 7.2 percent because of a 7.6 percent drop in the EU to 11.3 million vehicles, the lowest figure since 1993, the ACEA said. Peugeot’s sales in Europe fell 16 percent in November, while Renault’s declined 27 percent. Germany’s economy, the region’s biggest, may shrinkthis quarter, according to the IFO research institute, and its unemployment climbed for an eight consecutive month in November.
“The key here is not how bad 2012 is but whether there can be a realistic hope that 2013 will improve,” Erich Hauser, a London-based analyst at Credit Suisse, said today in an e-mail. “We see little reason to believe that EU volumes will grow next year, which means that the spread between EU-focused and export- oriented original equipment manufacturers will only continue to widen.”
Peugeot fell as much as 1.7 percent to 5.12 euros and was trading down 0.5 percent at 9:24 a.m. in Paris. Renault (RNO) rose 0.1 percent to 40.28 euros, recovering from a decline of as much as 0.4 percent. Fiat SpAdropped as much as 5.1 percent to 3.51 euros in Milan.

Largest Markets

Four of Europe’s five biggest automotive markets shrank last month, with deliveries in Germany falling 3.5 percent. That reversed a gain in October of 0.5 percent in the country, which accounts for 25 percent of the region’s total auto sales. Registrations dropped 19 percent in France, and 20 percent in Italy and Spain.
Growth in November of 11 percent helped the U.K. overtake France to become the second-biggest European car market in the first 11 months of 2012.
The ACEA is predicting a regional market drop in 2012 to about 12 million cars, the lowest level since 1995 and the sharpest decline since 1993.
European sales at Paris-based Peugeot dropped to 105,284 vehicles in November. Deliveries in Germany by the Peugeot brand last month fell 18 percent, while the Citroen marque sold 28 percent fewer cars, according to the country’s Federal Motor Vehicle Office, or KBA.

Job Cuts

Peugeot and Turin, Italy-based Fiat (F) each announced within the past week that they’re eliminating 1,500 jobs in response to the market decline.
Fiat is scaling back production in Poland, where it will cut manufacturing and sales positions. European sales by Fiat fell 13 percent to 59,152 cars in November.
Peugeot said its job reductions will take place by 2014 by not replacing people who leave. The French company’s cutbacks come on top of the elimination of 8,000 positions announced in July amid moves to shrink its workforce by 17 percent over the next two years and close a car plant in its home country.
Sales in the region by Renault, based in the Paris suburb of Boulogne-Billancourt, dropped to 82,885 vehicles. Including the French company’s low-cost Dacia brand, Renault’s deliveries in Germany fell 15 percent, according to the KBA.
“What does surprise me is how poorly Renault is doing versus the competition, despite having just launched the Clio 4,” a hatchback, in October and early November, Credit Suisse’s Hauser said.

Renault Disposal

Renault said yesterday that it sold its remaining 6.5 percent stake in Swedish truckmaker Volvo AB (VOLVB) for 12.8 billion kronor ($1.92 billion) to reduce debt and finance investments in manufacturing in France.
General Motors Co. (GM)’s group sales in Europe last month fell 13 percent to 75,876 vehicles, led by a 20 percent drop for the Chevrolet brand. The company’s Opel division said Dec. 10 that it will stop making cars at its plant in Bochum, Germany, in 2016, where its assembly line employs about 3,100 workers. The shutdown would be the first of a German auto plant since World War II.
European sales by Dearborn, Michigan-based Ford Motor Co. (F) fell 10 percent to 72,585 cars. The U.S. company, which is forecasting a combined loss of $3 billion in Europe this year and next, is shutting vehicle and component plants in the U.K. and Belgium in the next two years.

Volkswagen Decline

Volkswagen AG (VOW), Europe’s biggest carmaker, posted a 2.5 percent decline in sales in the region last month to 248,690 vehicles, led by a 4.5 percent drop at the namesake VW brand. The company’s Audi luxury division, the world’s second-biggest maker of luxury vehicles, sold 2.3 percent fewer cars in Europe.
Bayerische Motoren Werke AG (BMW), which ranks first in the global luxury-car industry, sold 67,200 cars in Europe last month, a 0.4 percent increase. Daimler AG (DAI) reported a 0.7 percent decline in European sales to 55,511 vehicles as an 18 percent drop at the Smart two-seat car brand overtook a 1.5 percent gain at Mercedes-Benz, the third-biggest luxury-vehicle maker.
To contact the reporter on this story: Mathieu Rosemain in Paris
To contact the editor responsible for this story: Chad Thomas


your closing 10 year bond yield from Spain:



5.391000.01300 0.24%
As of 12/14/2012.

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

Italy Govt Bonds 10 Year Gross Yield


4.603000.03900 0.84%
As of 12/14/2012.


Your 4:00 pm currency crosses: (  showing  USA weakness against major currencies
like the Euro on closing. The pound also rose against the dollar with the Canadian dollar slightly weaker against the dollar . The yen rose slightly at the close. 

Euro/USA    1.3160 up  .0085
Japan/USA  83.49  down .169
GBP/USA     1.6166 up .0055
USA/Can      .9858  down .0017


Your closing figures from Europe and the USA:

 in the green for Europe/ Red for the USA : 

i) England/FTSE down 7.85 points or  0.13%

ii) Paris/CAC  basically flat.

iii) German DAX: up 14.46 points or 0.19%  

iv) Spanish ibex: up 7.00  points or 0.09% 

and the Dow: down 35.71 points  (.27%)

And now for major USA stories

The Richmond Fed president Jeffrey Lacker, a 2012 voting member of the FOMC has stated by he was the sole objector to the Fed's policy of QE4 EVA. 

Jeffrey Lacker:

"Deliberately tilting the flow of credit to one particular economic sector is an inappropriate role for the Federal Reserve....I have dissented previously against the use of date-based forward guidance, and I supported the decision to drop such language at the December meeting....monetary policy has only a limited ability to reduce unemployment, and such effects are transitory and generally short-lived. Moreover, a single indicator cannot provide a complete picture of labor market conditions.

 He also emphasizes this:

"Therefore, I do not believe that tying the federal funds rate to a specific numerical threshold for unemployment is an appropriate and balanced approach to the FOMC’s price stability and maximum employment mandates."

(courtesy zero hedge)

Good Cop Time: The Fed's Voting Voice Of Reason Explains His Objection To QE4EVA

Tyler Durden's picture

The Richmond Fed's Jeffrey Lacker, a 2012 voting member of the FOMC, who has so far been the sole objector to the Fed's policy of exiting a hole by continuing to dig deeper, has released his traditional "good cop" response to Bernanke's QE4EVA plan. The highlights: "I disagreed with the Committee’s decision to continue purchasing additional assets to stimulate the economy. With economic activity growing at a modest pace and inflation fluctuating close to 2 percent — the Committee’s inflation goal — further monetary stimulus runs the risk of raising inflation and destabilizing inflation expectations....Deliberately tilting the flow of credit to one particular economic sector is an inappropriate role for the Federal Reserve....I have dissented previously against the use of date-based forward guidance, and I supported the decision to drop such language at the December meeting....monetary policy has only a limited ability to reduce unemployment, and such effects are transitory and generally short-lived. Moreover, a single indicator cannot provide a complete picture of labor market conditions. Therefore, I do not believe that tying the federal funds rate to a specific numerical threshold for unemployment is an appropriate and balanced approach to the FOMC’s price stability and maximum employment mandates." Of course, his objection is duly noted, and summarily rejected and forgotten.
Richmond Fed President Lacker Comments on FOMC Dissent
“The Federal Open Market Committee (FOMC) decided on December 12, 2012, to ‘continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.’ The Committee also stated it will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at year-end, initially at a pace of $45 billion per month. I disagreed with the Committee’s decision to continue purchasing additional assets to stimulate the economy. With economic activity growing at a modest pace and inflation fluctuating close to 2 percent — the Committee’s inflation goal — further monetary stimulus runs the risk of raising inflation and destabilizing inflation expectations.
“I also objected to the continuing purchase of agency mortgage-backed securities. If asset purchases are appropriate, the FOMC should confine its purchases to U.S. Treasury securities. Purchasing agency mortgage-backed securities can be expected to reduce borrowing rates for conforming home mortgages by more than it reduces borrowing rates for nonconforming mortgages or for other borrowing sectors, such as small business, autos or unsecured consumer loans.Deliberately tilting the flow of credit to one particular economic sector is an inappropriate role for the Federal Reserve. As stated in the Joint Statement of the Department of Treasury and the Federal Reserve on March 23, 2009, ‘Government decisions to influence the allocation of credit are the province of the fiscal authorities.’
“The Committee also altered its description of its expectations regarding future interest rate changes, replacing its previous date-based forward guidance with guidance based on numerical thresholds. Specifically, the Committee said it anticipates the current ‘exceptionally low’ target range for the federal funds is likely to remain appropriate ‘at least as long as the unemployment rate remains above 6.5 percent, the inflation rate over the next one to two years is projected to be no more than half a percentage point above its 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.’ I have dissented previously against the use of date-based forward guidance, and I supported the decision to drop such language at the December meeting.
“I agree that it’s useful for the Committee to describe how its future actions are likely to depend on the evolving state of the economy. However, monetary policy has only a limited ability to reduce unemployment, and such effects are transitory and generally short-lived. Moreover, a single indicator cannot provide a complete picture of labor market conditions. Therefore, I do not believe that tying the federal funds rate to a specific numerical threshold for unemployment is an appropriate and balanced approach to the FOMC’s price stability and maximum employment mandates. I would prefer to describe in qualitative terms the economic conditions under which our monetary policy stance is likely to change.


The following graph in a nutshell shows the dilemma facing Americans:

The first:  unfunded future entitlements that will be owed:

(courtesy Jim Sinclair)

Jim Sinclair’s Commentary
A compromise is never a solution. A can kick is suicide on this.

The second:  the USA debt ceiling!!!

(courtesy Jim Sinclair commentary)

Petunia takes significant offense to this, but agrees that no debt ceiling is debt to infinity.
If you planned a new monetary system this is the perfect formula for its advent.


Mark Grant on the upcoming fiscal cliff.  Grant believes we would be better off letting the fiscal  cliff happen.  He is afraid by tinkering with it, then bad things will develop

(courtesy Mark Grant/out of the box and onto wall street)

A Funny Thing Happened On The Way To The Fiscal Cliff

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,
“If I've told you once, I've told you a hundred times; do not fan the girls when they're wet! But you'll never learn; you'll be a eunuch all your life.” 
There are 16 days left before we all shoot over the falls and are plunged into the freezing water. The markets are pretending it will never happen and that some magical incantation will be found to set everything right in the moments before we take the dive. The lethargy is noticeable and the apathy is like someone has thrown the wet towel of complacency over everyone’s shoulders. The crowd meanders. The mob is a headless jumble of people and the clock ticks and ticks and does not stop ticking. The unknown is recognized but like some mindless lemming staring at the cliff I do not think that many understand the gravity of the situation.
Lycus: “Is it contagious?”
Pseudolus: “Have you ever seen a plague that wasn’t?”
In the best case scenario, according to most people, some agreement will be reached. I hate to even agree that this is the best case but this is what almost everyone thinks and so I will go along with it for the moment. This best case scenario however includes an assumption that I do not believe will be correct which is that something formulated by common sense will be the result and it is just there that I hold little hope. To be quite open; I am more frightened of what our political leaders might concoct than what we face at the cliff. The Democrats cry for more stimulus in a time when we cannot afford the stimulus and the social programs we now have but “more money” seems to be the only words in their vocabularies these days. Ok, they can also say “tax the rich” but it is a limited amount of words that they speak now.
It’s against the law of the United States to take one’s own life. The penalty is death.
Obama claims a mandate. Who gave him this mandate one may reasonable ask; the 47.5 million people on food stamps, the people living on the tax benefits of those that work, the people who game the system so that they never have to find a job and enjoy a life paid for by those that are gainfully employed? That is one heck of a mandate isn’t it and yet that is the basis of his claim. Given his “claim to fame” then what is it that we should expect if some agreement is, in fact, reached? Well, boys and girls, it is going to be higher taxes, maybe taxing Municipal Bonds, perhaps some new financial transaction tax, maybe a dividend tax or an income tax on interest received but whatever it is it will be designed to make the people that work and make money poorer. It will be Nottingham and the Sherwood Forest and robbing the rich to give to the poor which is a wonderful fairy tale but hardly a logical plan to run the country or perhaps it is a fine way to run the country if your object is to run it aground.
Pseudolus: “Calm yourself down. I’ll tell you when it is time to panic.”
Miles Gloriosus: “I smell mischief here.”
Pseudolus: “It’s time!”
I am slowly coming to the opinion that the best that can be hoped for is that we do plunge off the cliff. Maybe that will wake up some of the intoxicated with themselves people we now find living in Washington. It also might have a further benefit of waking up the citizens of the country who seem to be traipsing around like nothing is amiss. Nothing is amiss, of course, just ask Nancy Pelosi who will tell you that it is now “a ms.” The other problem is that our politicians are secretly whispering in the corridors. They have convinced themselves that even if we do go off the cliff that there is a tourist stop about half way down where they can stop and ask for directions. It has gotten so bad now in Washington D.C. that recently when one of our Democratic Congressmen announced that his wife was going into labor that the response from the floor was “well, some people have to work.”
Pseudolus: “A common courtesan in the house of Lycus?”
Hero: “Is that bad?”
Pseudolus: “There is no way to make it sound like an achievement.”


USA industrial production rises a huge 1.1% on consensus of .2%. The Dow Jones stock market was still not impressed as the Dow plummeted on the day by 35 points.

(courtesy Dow Jones newswires/Industrial production)

DJ U.S. Nov. Industrial Production +1.1%; Consensus +0.2%
Fri Dec 14 09:15:13 2012 EDT

WASHINGTON--U.S. industrial production jumped in November mainly due to the restarting of factories temporary idled in late October because of superstorm Sandy.
Industrial output advanced 1.1% in November, the Federal Reserve said Friday. Capacity utilization increased, rising to 78.4% from 77.7% the previous month.
"The gain in November is estimated to have largely resulted from a recovery in production for industries that had been negatively affected by Hurricane Sandy," the Fed said.
Widespread damage and power outages in the Northeast as a result of Sandy had caused industrial production to fall 0.7% in October compared with an initially reported decline of 0.4%.
November's improvement beat expectations. Economists surveyed by Dow Jones Newswires had forecast a 0.2% gain in output and capacity utilization of 77.9%.
Overall industrial production, which includes manufacturing, mining, construction and utility output, increased 2.5% from a year earlier.
Despite the improvements, the capacity utilization rate is about 1.9 percentage points below the 1972-2011 average.
Manufacturing has been a fairly consistent driver of the economic recovery, and that is expected to continue into next year. Manufacturing purchasers expect revenue gains in 2013 will outpace this year's improvement, according to a survey released Tuesday by the Institute for Supply Management.
In Friday's report, manufacturing advanced 1.1% from October and is up 2.7% from November 2011.
Automotive production rose 3.4%, the category's first increase in five months. Excluding autos, manufacturing grew 0.9% as output improved for home electronics, appliances and furniture.
Output of defense and space equipment was flat in November after decreasing 1.9% the prior month.
Other categories posted solid gains. Construction output rose 1.4% during the month, utilities advanced 1.0% and mining registered 0.8% gain.
Output by the service sector, which makes up most of the U.S. economy, isn't reflected in the industrial production data.


And now the real story behind the industrial production numbers courtesy of Dave/Denver, from his
site the Golden Truth)


Industrial Production, The Fiscal Cliff And Socialism

It has become crystal clear that Detroit automobile manufacturing employees who live in a home in which the mortgage is underwater is going economically advantageous when the Fiscal Cliff is resolved.
The Federal Reserve released its monthly industrial production report for November today.  It came in at a "hot" up 1.1% vs. .3% expected.  As has been the pattern for almost all economic reports this year, October's number was revised lower from -.4% to -.7%.   It high highly probable that today's report will also be revised lower next month.  Here the actual report:   LINK

It is always important to analyze the "sub-index" components that go into producing the headline-grabbing overall index that has the financial media doing cartwheels.  Once you look at the "guts" of the report, you'll see that the overall number is of low quality and not sustainable without a lot more Government spending.  On a side note:  this is one reason I fully expect that one way or another a Fiscal Cliff agreement will be hatched to kick the spending deficit/debt accumulation catastrophe down the road some more.

If you pull up that report and scroll down, you'll find a section called "market groups."  There you'll find this note in reference to automotive products: "the index for automotive products rose 3.4 percent, its first increase in five months."  If you scan through the rest of the footnote, it's obvious that auto parts were the most significant factor in fueling the November over October gain in industrial production.  The November number that will be revised lower next month.  I say this because if you look at this chart posted by Zerohedge earlier this month, you'll see that General Motors has essentially "stuffed" its dealer inventories with a record amount of inventory in November:  LINK

Please understand that General Motors is controlled by the Government and therefore is incentivized to use taxpayer dollars to support sales at General Motors in order keep the massive union labor force employed.  In fact, the Government subsidizes every part of GM auto production from the factory floor to the end buyer.  GM subsidizes production by subsidizing sales.  It does this because the floor financing used by dealers to take delivery of unsold cars is provided by the old GMAC.  GMAC is owned by the Government.  A sale at GM is recorded when the car leaves the factory floor and goes to the dealer, not when the end user buys it.  After the sale is recorded, GM could give a crap what happens because it has received a transfer of money from  GMAC (Ally financial which is owned by the Treasury) and now the dealer is on the hook for unsold cars.

Then, the dealer uses floor financing from GMAC.  If the car never gets sold, GMAC  the Treasury  the Taxpayer is on the hook.  You see how this works?  The fact that there's record inventories of GM cars piled up on the dealer floors is likely the result of the Government triggering production in excess of end user demand.  This is why, in my view, a big part of the reason that the industrial production number looks so robust for November.  I only have the dealer inventory data for GM because that's all Zerohedge tracks and I don't have time to hunt down numbers for Chysler.  But  I would bet that there's a similar dynamic for Chrysler, which is 6% owned by the Government.

This is all part of the insidious socialism that is engulfing our system.  It's a massive transfer of taxpayer wealth that is going into the bank accounts of the upper management at GM and to the giant auto union at GM.  This is not an anti-Obama/Democrat or anti-union rant.  I'm just pulling back the thick cloud of gray smoke away from the headline data to show you what's going on.   Not only does the economy look stronger from a production standpoint, but monthly auto sales also appear to be a lot more robust.

There's a lot more issues with the data in this latest IP report that are highly problematic.  If you are interested you can surf around the site in the "About" section and see what I mean.  I did that and it would put you to sleep if I wrote about it here.

In addition to the massive wealth transfer going on in Detroit, I found a news item earlier this week that I did not see widely reported by the mainstream media.  It turns out that House Democrats are trying to attach legislation to the Fiscal Cliff agreement that would provide mortgage principal reductions for underwater homeowners:  LINK

Interestingly, the biggest impediment to Obama's implementing FNM/FRE mortgage principal reductions, Edward DeMarco, head of the Federal Housing Finance Agency, is about to get replaced by Obama:  LINK  Make no mistake about it, Obama wants this guy around about as much he wants his Portuguese water dog to take a dump in the Oval Office

I don't really know what to say about this other than if everyone wants socialism and a massive transfer of privately earned and taxed wealth to go to underwater homeowners and Detroit auto manufacturing executives and union workers, so be it. But regardless of how you want to view this issue from a public policy standpoint, if they implement widespread FNM/FRE mortgage principal reductions it will be a huge negative for economy and our entire system.


Chris Martenson gives a great commentary on what QE 4 really means

(courtesy Chris Martenson)

Submitted by Chris Martenson of Peak Prosperity
QE 4: Folks, This Ain't Normal
What you need to know about the Fed's latest move
Okay, the Fed's recent decision to boost its monetary stimulus (a.k.a. "money printing," "quantitative easing," or simply "QE") by another $45 billion a month to a combined $85 billion per month demonstrates an almost complete departure from what a normal person might consider sensible.
To borrow a phrase from Joel Salatin: Folks, this ain't normal.  To this I will add ...and it will end badly.
If you had stopped me on the street a few years ago and asked me what I thought would have happened in the stock, bond, foreign currency, and commodity markets on the day the Fed announced an $85 billion per month thin-air money printing program directed at government bonds, I never would have predicted what has actually come to pass.
I would have predicted soaring stock prices on the expectation that all this money would have to end up in the stock market eventually.  I would have predicted the dollar to fall because who in their right mind would want to hold the currency of a country that is borrowing 46 cents (!) out of every dollar that it is spending while its central bank monetizes 100% of that craziness?  
Further, I would have expected additional strength in the government bond market, because $85 billion pretty much covers all of the expected new issuance going forward, plus many entities still need to buy U.S. bonds for a variety of fiduciary reasons.  With little product for sale and lots of bids by various players, one of which – the Fed – has a magic printing press and is not just price insensitive but actually seeking to drive prices higher (and yields lower), that's a recipe for rising prices.
Then I would have called for sharply rising commodity markets because nothing correlates quite so well with thin-air money printing as commodities.
That's what should have happened.  But it's not what we're seeing.
Instead, stocks initially climbed but then closed red.  Gold was mysteriously sold in the thinly-traded overnight markets and again right after the announcement in large, rapid HFT blocks that swamped the bids. U.S. Treasury bonds actually sold off on the news.  The dollar hardly budged. Commodities were mixed across the board but more or less flat on the day, with the exception of the metals, and especially the precious metals, which were sold vigorously.
The markets are now well and truly broken.  Not because they don't conform to my predictions, but because they are no longer sending useful price signals.  Instead, my hypothesis here is that the markets are now just a giant and rigged casino, where a relative handful of big firms and other tightly coupled players are gaming their orders to take advantage of this flood of money.
When your central bank badly misprices money and then bids up everything related to bonds, nothing can be reasonably priced.  Risk is mispriced; the few remaining investors (as distinct fromspeculators, which are now the majority) are forced to accept both poor yields and higher risk – so we know the price of everything, but the value of nothing.


So what exactly is this new thin-air money printing program all about?  Well, unlike any prior Quantitative Easing (QE) announcement, this one was tied to a fuzzy and quirky government statistic: the unemployment rate.

QE4 is Just-In-Time Fed Policy to Avoid Calamity

Dec 13, 2012

We got the most thunderous Just-In-Time monetary policy today that is a substitute for the absence of any degree of stimulative fiscal policy.

You might say that QE4 is now going to act as both monetary and fiscal stimulus– another $85 billion worth of Fed accumulations of Treasury bonds and mortgages- that is meant to keep stock prices moving higher and residential home sales climbing briskly.

The goal is to drive economic activity, especially residential home building, so that unemployment drops from 7.7% to 6.5%. The surprise move is meant to signal the Fed’s awareness of the softening economy; it sees the gritty numbers before we do.

Getting unemployment down to 6.5% without inflation rising to a level higher than 2.5% is not expected to happen until 2014 at the earliest. And it could go longer if there is no deal and we go over the cliff.

But, you should know that the only reason unemployment is 7.7% is because hundreds of thousands of males have dropped out of the search for regular work. A very depressing tale.
The key point here is that the Fed is now actively running both monetary and fiscal policy because it will now be in the business of funding nearly 100% of all the new government deficit spending in 2013.  And it is pumping a bit more than $1 trillion of hot, thin-air money into the economy as it does so.
The odd thing here is that by tying their policy to the unemployment rate, we could be in for a very long wait for the stimulus to end.  The reason is that the unemployment rate has a couple of moving pieces, one being the number of people who are unemployed, and the second consisting of people who have given up looking for work, which is tracked in something called the 'participation rate.' 
As more people leave the labor force and the participation rate goes down, the unemployment rate goes down, too.  Somewhat confusingly, as more jobs are created, the unemployment rate goes down, too.  As you can see, these numbers work in opposition to each other because as more jobs become available, more people re-enter the work force.
Before the crisis struck, the participation rate was around 66.5%. But now it sits at just 63.6%, meaning that, at roughly 1.4 million jobs for each percent, a bit more than 4 million jobs would have to be created just to absorb the folks who left the labor force but presumably would like to work again. As those 4 million folks come back to work, the unemployment rate will not budge at all.
It will require two full years of 150,000 jobs per month just to absorb the 4 million missing workers, which means that this QE effort will be with us for a very long time.  Three to four years is my best guess, and that's only if the economy magically recovers.  And I have very strong doubts about that.
This means that the Fed is most likely on track to increase its balance sheet by another $3-4 trillion.  Ugh.  That's 300% to 400% more money created in the next year than was created than during the entire 200 years following the signing of the Declaration of Independence.
The other part of this new QE policy is that they will continue this as long as inflation remains below 2.5%.  Again, this is a very fuzzy government statistic subject compared to the usual massaging and political biases, but it has top billing as the one that is most likely to force an early termination of the thin-air money printing efforts.
However, I remain convinced that the Fed will change any rules and move any goalposts it needs to in order to continue its mad money printing experiment.  Because there really isn't any other alternative at this point.

Secretly in the Open

Once upon a time, it would have been considered in bad taste to suggest that the world was being centrally managed in secret by a small-ish cabal of bankers whose actions served to either prop up the excessive spending habits of the very governments that conferred upon them the power to print money, or to bolster the health and profits of the banks they mainly serve.
That was then. Today you can just read about it in the Wall Street Journal:

Inside the Risky Bets of Central Banks
Dec 12, 2012

BASEL, Switzerland—Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine.

The dinner discussions on money and economics are more than academic. At the table are the chiefs of the world's biggest central banks, representing countries that annually produce more than $51 trillion of gross domestic product, three-quarters of the world's economic output.

Of late, these secret talks have focused on global economic troubles and the aggressive measures by central banks to manage their national economies. Since 2007, central banks have flooded the world financial system with more than $11 trillion. Faced with weak recoveries and Europe's churning economic problems, the effort has accelerated. The biggest central banks plan to pump billions more into government bonds, mortgages and business loans.

Their monetary strategy isn't found in standard textbooks. The central bankers are, in effect, conducting a high-stakes experiment, drawing in part on academic work by some of the men who studied and taught at the Massachusetts Institute of Technology in the 1970s and 1980s.

While many national governments, including the U.S., have failed to agree on fiscal policy—how best to balance tax revenues with spending during slow growth—the central bankers have forged their own path, independent of voters and politicians, bound by frequent conversations and relationships stretching back to university days.

If the central bankers are correct, they will help the world economy avoid prolonged stagnation and a repeat of central banking mistakes in the 1930s.If they are wrong, they could kindle inflation or sow the seeds of another financial crisis.
If it feels like you are part of a very grand, high-stakes experiment, congratulations!  You're exactly right. We are all collectively prisoner to whatever outcomes are in store.
The rather politely ignored truth right now, at least by most news outlets and politicians, is that the world's central banks have wandered very far off the reservation and are running an experiment that really has only two possible outcomes.  One is a return to what we all might call 'normal and stable' economic growth.  The second is the complete collapse of the fiat money and their attendant financial systems and markets.
While it is technically possible to achieve some other middling outcome, that possibility has been receding to ever more remote territory with every passing month and new round of money printing. 
The basic predicament here is that more and more money is being printed while the world economy, predictably for those who follow the net energy story, has been entirely stagnant and constantly threatening to slip back into economic retreat. Of course, more money + the same amount of (or even less) hard assets = the perfect recipe for inflation.
So the rise of inflation will signal the beginning of the end of this slow-motion tragedy.  I use the term 'tragedy' here because it doesn't have to end this way.  We have other options; we could make other choices and use our time and resources to try and do something other than maintain a broken financial system that desperately needs to be changed.
In Part II: It's Better to Be a Year Early Than a Day Late, I explain the facts behind why I am more convinced than ever that this all ends in one of the most disruptive financial and currency events ever seen on this planet.  And while the repercussions will be felt by all, taking prudent action while there is still time can greatly improve our individual odds of weathering them safely.


I will close this commentary with a recap of events courtesy of Greg Hunter of USAWatchdog

(courtesy Greg Hunter)

By Greg Hunter’s 
The Fed made it official, this week, with continuation of money printing to infinity.  The Federal Reserve is now engaged in $85 billion a month in pure QE.  It is continuing to buy the sour mortgaged-backed securities at a rate of $40 billion a month from the big banks, and it is now directly buying $45 billion a month of U.S. government debt.  The Fed says it is to spur employment, but my sources say it’s propping up the banks and the government at the expense of the dollar. 
The so-called “Fiscal Cliff” of tax increases and spending cuts are staring us all in the face.  The President says “one way or another, taxes are going up.”  He thinks the GOP will fold and give him higher rates, but I would not be so sure.  Why doesn’t either party talk about this ongoing banker bailout the Fed is conducting?  We could save a lot of money there couldn’t we?  The best we could hope for is a can kick into next year.  I just do not see a grand deal by December 31st.
What I do see are plenty of employers cutting people back to less than 30 hours a week and laying off people to avoid the requirements of Obama Care.  Look for unemployment to spike next year.  The only reason why it’s going down in the official government numbers is because hundreds of thousands are no longer counted in the work force every year.  
Syria fighting continues with no peace in sight.  The two sides are not even talking—just killing each other.  More than 40,000 Syrians have died in the civil war.  Russia is arming the Assad government, and the U.S. is arming the rebels.  The rebels have clear links to al-Qaeda and folks in the U.S. are starting to wake up.  Some people want the funding to the rebels cut off, but that is not likely to happen.  President Obama granted recognition to the rebels.  Of course, you will not hear much about the al-Qaeda/rebel link on the MSM.  
Finally, you are not hearing about the drought conditions, but there is still a severe drought going on in much of the country—especially the Midwest.  The winter wheat crop is suffering, and the Mississippi River is so low barge traffic is threatened.  This is a big deal because it looks like the drought is going to continue into 2013.  Look for food prices to continue to go up—dramatically.  
Join Greg Hunter as he gives his analysis of these stories and more in the Weekly News Wrap-Up.  

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