Monday, February 4, 2013

Italian banks plummet on more woes for BMP/More Spanish problems/Greece enters 6th day of a strike as the Greek isles cut off from Mainland

Good evening Ladies and Gentlemen:

Gold closed up today to the tune of $5.80 to finish the comex session at $1675.20.  Silver however finished lower by 24 cents to $31.70. Today was quite a day as the bankers showed up early bashing gold and silver but that was to no avail as gold and silver rose despite the huge fall in the Euro. Gold in Japanese yen rose to 155,180 yen per oz.

The big news for today without a doubt comes from Europe.

i)  The Greek isles have been cut off the mainland for 6 straight days as strikes intensify.  Slowly but surely Greece's GDP will spiral done to nothing.  Can you imagine all of its sovereign bonds that are used as tier one assets allowing the 24:1 leverage we are witnessing at major banking institutions.

ii) Problems inside the Italian Banca Monte dei Paschi:  Today we learn that Draghi lied outright.  He knew about the derivative losses while he ran the Central Bank of Italy.  However he claims that he could not do anything about it, it was the job of bank supervisors.  However the bank supervisors claim that Draghi refused to do anything as probably in 2008-2009 it could have very well brought the whole house of cards falling down.  Monte de Paschi is a public company and not to do anything and allowing investors to buy the stock claiming everything is OK is simply shameful.

Mr Bersani, the leader of the party wishing to win the Premiership of Italy has strong ties to the bank. Mr Bersani is now faltering at the polls and Berlusconi is the recipient of this largess. Berlusconi, if you will recall was thrown out of office by Draghi and you can bet the farm that Berlusconi would like to return the favour.
The problem with Berlusconi:  he wants to exit the EU.

iii)  The Spanish leadership has received "donations" from construction companies for many years and many of the Spanish leaders benefited greatly from this.  The leaders lavished themselves with euros and deposited much of this in Swiss bank accounts.  They rewarded contractors with public projects.
This will surely bring down these politicians..and thus Spain.

We will discuss these and many other stories but first let us head over to the comex and assess trading today............

The total comex gold open interest fell by 537 contracts from 424,150 down to 423,613.  The front February gold delivery month saw it's OI fall from 5644 down to 3571 for a loss of 2073 contracts.  We had 1544 notices filed on Friday so we lost 519 contracts or 51,900 oz of gold standing.  We may have had some cash settlements due to the high level of gold ounces standing for February.  The next non active gold month is March and here the OI rose by 3 contracts up to 1238.  The next big active gold month is April and here the OI fell by 216 contracts from 255,662 done to 255,446. The estimated volume at the gold comex today came in at an extremely light 108,550.  The confirmed volume on Friday was much better at 191,188.  

The total silver comex refuses to budge from it's lofty levels.  The total OI for the silver complex rests tonight at 148,857 down 997 contracts from Friday's level of 148,857.  The non active February contract month saw it's OI fall by one contract down to 19.  We had 1 delivery notice filed on Friday so everything is in balance, we neither gained nor lost any silver.  The next active silver contract month is March and here the OI fell by 1180 contracts form 75,339 down to 74,159.  The estimated volume at the silver comex today was very weak at 25,382. The confirmed volume on Friday was very good at 59,404.

Comex gold/February contract month:
Feb 4.2013    

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
3,600.800 (Scotia)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
514.53 oz (Brinks)
No of oz served (contracts) today
 1106    (110,600  oz)
No of oz to be served (notices)
2465  (246,500) oz
Total monthly oz gold served (contracts) so far this month
10,248  (1,024,800 oz) 
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month


We had some activity at the gold vaults.
The dealer had no deposits and no    withdrawals.

We had 1   customer deposit:

Into Brinks:  514.53 oz

total deposit:   514.53 oz

We had 1  customer withdrawal:

out of Scotia:   3600.800 oz (.112 tonnes)

total withdrawal:  3,600.800 oz

We had 0 adjustments:

Thus the dealer inventory rests tonight at 2.925 million oz (90.97) tonnes of gold.

The CME reported that we had 1106 notices filed for 110,600 oz of gold today.   The total number of notices so far this month is thus 10,248 contracts x 100 oz per contract or 1,024,800 oz of gold.  To determine how much will stand for February,  I take the OI standing for February (3571) and subtract out today's notices (1106) which leaves me with 2465 notices or 246,500 oz left to be served upon our longs.

Thus the total number of gold ounces standing in this  active month of February is as follows:

1,024,800 oz (served ) + 246,500 oz (to be served upon) = 1,271,300 oz or 39.51  Tonnes.

we lost 519 contracts or 51,900 oz of gold.


February 4.2013:   The February silver contract month

Withdrawals from Dealers Inventory10,327.000 (Brinks)
Withdrawals from Customer Inventory  166,695.058 (CNT,Delaware,Scotia)
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory  598,625.53 (Delaware,Scotia)
No of oz served (contracts)6  (30,000  oz)  
No of oz to be served (notices)13  (65,000  oz) 
Total monthly oz silver served (contracts) 72  (360,000  oz) 
Total accumulative withdrawal of silver from the Dealers inventory this month10,327.000
Total accumulative withdrawal of silver from the Customer inventory this month186,312.66

Today, we  had fair activity  inside the silver vaults.

 we had no dealer deposit and one dealer withdrawal.

Out of Brinks:  10,327.000 oz leaves the dealer  (seems they caught the CNT bug)

We had 2  customer deposits of silver:

i)Into Delaware:  1945.90 oz
ii) Into Scotia:  596,679.63 oz

total deposit:  598,625.83 oz

we had 3 customer withdrawals:

i) Out of CNT:  99,998.91 oz  (notice how they are now using decimals)
ii) Out of Delaware:  17,222.488 oz
iii) Out of Scotia:  49,473.66 oz

total customer withdrawal:  166,695.058  oz

we had 2  adjustments:

i) Out of the CNT vault:  29,782.80 oz was removed from the customer (eligible account) and landed in the dealer or registered account

ii) Out of the Scotia vault:  5299.28 oz leaves the customer account and lands in the dealer account


When you see massive deposits and withdrawals you know that there is turmoil inside the silver vaults. 

Registered silver remains today at :  37.204 million oz
total of all silver:  157.549 million oz.

The CME reported that we had  6  notices filed for 30,000 oz of silver for the February contract month. To obtain what is left to be served upon our longs, I take the OI standing for February (219) and subtract out Friday's notices (6) which leaves us with 13 notices or 65,000 oz left to be served upon our longs. 

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

360,000 oz (served)  +  65,000 oz (to be served upon)  =  425,000 oz

We neither gained nor lost any silver oz standing on Friday.

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:   Feb 4.2013:



Value US$71.104    billion

Feb 1.2013:



Value US$71.235     billion 

Jan 31.2013:



Value US$71.054   billion

Jan 30.2013:



Value US$71.599    billion

Jan 29.2013:



Value US$71.002   billion

Jan 28.2013:



Value US$70.704  billion

we neither gained nor lost any gold at the GLD today.

and now for silver:

Feb 4:2013:

Ounces of Silver in Trust335,175,993.900
Tonnes of Silver in Trust Tonnes of Silver in Trust10,425.14

feb 1.2013:

Ounces of Silver in Trust335,175,993.900
Tonnes of Silver in Trust Tonnes of Silver in Trust10,425.14

Jan 31.2013:

Ounces of Silver in Trust335,756,245.200
Tonnes of Silver in Trust Tonnes of Silver in Trust10,443.19

Jan 30.2013

Ounces of Silver in Trust335,756,245.200
Tonnes of Silver in Trust Tonnes of Silver in Trust10,443.19

Jan 29.2013:

Ounces of Silver in Trust335,756,245.200
Tonnes of Silver in Trust Tonnes of Silver in Trust10,443.19

Jan 28.2013:

Ounces of Silver in Trust335,756,245.200
Tonnes of Silver in Trust Tonnes of Silver in Trust10,443.19

we  neither gained nor lost any silver at 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 4.3 percent to NAV in usa funds and a positive 4.5%  to NAV for Cdn funds. ( Feb 4 2013)   

2. Sprott silver fund (PSLV): Premium to NAV rose to 2.06% NAV  Feb 4./2013
3. Sprott gold fund (PHYS): premium to NAV  rose to 3.04% positive to NAV Feb 4/ 2013..

 Now we witness the Central fund of Canada  gaining big time in its positive to NAV, as we now see CEF at a positive 4.3% in usa and 4.5% 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 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.



And now for the major physical stories we faced today:

First gold trading from Europe and Asia courtesy of Goldcore.

  Gold in yen hits near record 155,180 yen per oz.

(courtesy Goldcore)

Gold Reaches 155,180 Yen/oz - Near Record In Japanese Yen

Tyler Durden's picture

From GoldCore
Gold Reaches 155,180 Yen/oz - Near Record In Japanese Yen
Today’s AM fix was USD 1,664.25, EUR 1,224.52, and GBP 1,057.47 per ounce.
Friday’s AM fix was USD 1,665.00, EUR 1,217.99, and GBP 1,052.46 per ounce.
Silver is trading at $31.57/oz, €23.37/oz and £20.17/oz. Platinum is trading at $1,701.00/oz, palladium at $754.00/oz and rhodium at $1,200/oz.
Gold rose $3.00 or 0.18% in New York Friday and closed at $1,667.80/oz. Silver surged to a high of $32.14 and finished with a gain of 1.18%. 
Gold advanced 0.54% for the week, while silver was up 1.99%.
Gold rose initially on Monday prior to seeing determined selling. Gold was unable to break its narrow trading range despite rising after the poor GDP number last week.
While sentiment towards gold remains lukewarm due to recent tepid price action and confusing, mixed economic data, platinum rose to a 4 month high ($1,705.25) and palladium soared to its highest since September 2011 ($759.75) primarily due to concerns about supply especially from South Africa.
The run up in platinum and palladium is also due to U.S. auto sales reporting that January topped estimates, as car buyers returned to U.S. showrooms.
This week’s U.S. economic highlights include Factory Orders at 1500 GMT today, ISM Services on Tuesday, Initial Jobless Claims, Productivity, Unit Labor Costs, and Consumer Credit on Thursday, and the Trade Balance and Wholesale Inventories on Friday.
The Eurozone Sentiment and PPI are also released today and currency and gold traders will be paying close attention to the ECB's monthly policy statement on Thursday for any attempt by the ECB to weaken the euro as currency wars heat up.
The Chinese week long holiday for the Lunar New Year starts on Saturday and therefore physical buying will continue this week and lend support prior to becoming quiet next week.
Holdings of SPDR Gold Trust, remained unchanged for its 4th session at 1,328.092 tonnes
The benchmark gold on Tokyo Commodity Exchange (TOCOM) hit a record high of 5,000 yen a gram, driven by a weak yen and the continuation of the Bank of Japan’s loose monetary policy.
Gold bullion for delivery in December climbed as high as 1.2% to 5,000 yen per gram on the TOCOM. In ounce terms, the yen fell to 155,180/oz against gold, its highest level since 1980. 
According to the data on Bloomberg, the all-time record high for gold priced in yen was 204,850 yen on January 21, 1980.
Thus, yen gold remains 33% below the record intraday nominal high from 1980. Given the Japanese determination to devalue the yen to escape deflation, the record nominal high will almost certainly be reached in the coming months.
Platinum also climbed 2.7% to 5,130 yen per gram for the same month, the highest level for the most-active contract since May of 2010.
The yen was 92.97 per dollar on Feb. 1st its, the lowest ratio since May 2010. The Japanese yen dropped 2.1% last week its 12thweek of losses in a row.
Despite Japanese Finance Minister Taro Aso claiming that “the objectives from the current government are not intended to weaken the yen” – that is exactly what is happening.
A cheaper yen boosts Japanese exporters.  It helps increase the earnings abroad when they are funnelled back into yen, plus it lowers the price abroad of goods that are made in Japan and exported.  The country’s strong auto and electronics sector benefitting from the cheap yen are outperforming the benchmark index. 
The yen fell by more than 20% against gold in 2012 and analysts are concerned that Prime Minister Abe and his new government’s determination to stoke inflation, devalue the currency and promote growth could lead to further falls in 2013.
Competitive currency devaluations are set to continue and currency wars deepen and such beggar thy neighbour monetary policies will lead to debased currencies, inflation and the real risk of an international monetary crisis.


The following is an important paper from Austrian school trained economist, Julian Phillips as he talks about why the Swiss banks are moving from unallocated to allocated gold:

why? they are getting ready for the USA forcing owners to part with their metal even if parked in Switzerland.

Here is a very important paper for our American friends who deposit gold in Switzerland;

(courtesy Julian Phillips)

What’s Behind Moving Swiss Bank Clients from Unallocated to ‘Allocated’ Gold Accounts?

Swiss banks UBS and Credit Suisse, have moved to offer ‘allocated’ gold and silver accounts to their clients, including high net worth individuals, hedge funds, other banks and institutions. The move allows these entities to take direct ownership of their bullion in ‘allocated’ accounts. In addition, their storage fees have been raised by 20%.
The reason being is that the banks say that they are making the move to reduce exposure and risks on balance sheets and in an effort to be more transparent. Is there more to this than meets the eye? We believe there is, much more and it is a warning for us!
First let’s look at what the actions mean.

‘Unallocated’ Gold

The London Bullion Market Association defines an “Unallocated account as an account where specific bars are not set aside and the customer has a general entitlement to the metal. It is the most convenient, cheapest and most commonly used method of holding gold.”
The story of Germany’s gold being repatriated to Germany highlighted that Germany’s gold is ‘unallocated’ in foreign central banks. Most gold owners hold their gold in storage systems where it is ‘unallocated’. The downside is that the owner of ‘unallocated’ gold is an unsecured creditor of the storage company. So if you hold your gold at a bank in this way and it goes bust, you will have to wait and hope you get at least some of your money back.

‘Allocated Gold’

An ‘allocated’ gold account is where a customer has his gold physically segregated and is given a detailed list of the weights and assays of his gold. The gold is held in the customer’s name and owned by him still. In this case his gold cannot be taken by the Custodian or bank’s creditors should the bank go bust. The gold would, in that case be moved on the instructions of the beneficial owner.
Please note, though, that the clients of UBS and Credit Suisse have been ‘offered’ allocated accounts, they had not requested them. ‘Allocated’ accounts are more costly so it is no surprise that the costs of storing customer’s gold has risen 20%.
As we said, there is far more behind this story than is apparent at first.

The History of UBS and Credit Suisse in the U.S.

Let’s look at the recent history of UBS and Credit Suisse in the U.S. Add to this other Swiss banks under investigation for assisting U.S. citizens evade taxes, an investigation that is ongoing and costing Swiss banks [in the U.S. – not in Switzerland] huge fines to keep banking there.
Switzerland has laws which protect banking secrecy. If a Swiss banker discloses client information outside the bank he is liable for imprisonment. Switzerland, after all, has a history of over 300 years of protecting the assets of foreigners during World Wars and from outside governmental pressures.
Even in the recent UBS scandal where it was accused by the U.S. I.R.S. of harboring U.S. tax evaders, these bankers of UBS in the States, face imprisonment inside the U.S. if they did not disclose the names of account holders and faced imprisonment in Switzerland if they did disclose names.
After lengthy negotiations that included the Swiss Government, it was decided to disclose the names of 4,050 names out of 45,000 U.S. client so UBS. It appears that the Swiss government acceded to the principal that a tax evader was a criminal and so his information could be handed to the U.S. authorities, but the Swiss government refused to allow the disclosure of all 45,000 names, which is what the I.R.S. wanted. So the Swiss kept their integrity, the I.R.S. got [only] 4,050 tax evaders and Swiss bankers did not go to prison, but UBS got a massive fine, which they had to pay to continue banking in the U.S.
During that entire time and through until now, Swiss banks have been loathe to take on U.S. clients and have been nervous about continuing to keep the ones they already have. It becomes clear that the current story of offering ‘allocated’ accounts fits neatly into this story. Many Swiss banks simply dropped U.S. customers and refused new ones, erroneously believing that it would get rid of the problem.

The Threat of FATCA

What is particularly terrifying to Swiss bankers is the new tax system being formulated called FATCA [Foreign Account Tax Compliance Act] which came into effect in 2010, but will only be fully in effect in 2014 with IRS agreement. In this system there are features that will affect financial institutions worldwide. Here are some of the reasons why Swiss banks are changing their handling of clients: -
  • FATCA will impose all sorts of reporting requirements on U.S. taxpayers with foreign financial accounts. This is in ADDITION to form TDF 90-22.1, which is due to the Treasury Department each year by June 30th, and IRS form 1040 schedule B. Transparency will become the order of the day.
  • The law requires ALL financial institutions across the world to share personal customer information with the U.S. authorities. Undoubtedly, all allies of the U.S. such as Canada as well as the rest of the developed world will cooperate with them quicker than others. Under certain conditions this could be extended to include gold and other precious metals, easily.
  • FATCA has failed to define the terms, “foreign financial institution” and “foreign financial account“. These are defined generally just as a “financial security” is a transferable ownership right over an asset. Likewise a “financial institution” deals in and handles “financial securities”. Foreign nations have their own definitions of “foreign financial institutions” and ‘foreign financial account’s. No doubt these definitions will be accepted by the U.S. authorities.
  • The law was passed in 2010 [final implementation 2014], when it became the responsibility of the IRS to interpret Congress’s intent in implementing FATCA. We expect a release of their interpretation of FATCA any time now.

Swiss Banking Reactions

So Swiss banks are opting for the pain-free option of having their clients own their gold in their own name, in ‘allocated’ accounts. This allows them to duck the issue of disclosure to the authorities and passes it to the clients themselves.  It also allows Swiss Banks to step out of the way should the U.S. authorities want to reach out and take that gold! And we feel that this is a real reason behind their move.
While gold dealers are not regulated and not treated as financial institutions, the concept of transparency will apply to them under certain circumstances, which could have huge ramifications in the future, for their clients.
At the moment, there is no requirement for reporting gold holdings or other precious metal holdings offshore, but if the IRS does not extend such reporting to precious metal owners it’s a small step for them to do so and at their discretion.

What Future Events are the Swiss Banks Pre-empting?

We have to look at this more closely. If banks are doing this now, why? What monetary situation do they see? Do they expect the U.S. authorities to reach out for their citizen’s gold outside of the U.S.? The pains they have suffered at the hands of the I.R.S. so far have forced them to look ahead and ensure they stay on the right side of these people.
So let’s look around at what they are seeing;
  • Germany has decided to bring half its gold home to be available for use in future crises, which they seem to expect. Which other central banks will follow?
  • Emerging nation’s central banks are continuously buying gold now, likely for the same reasons.
  • There is a massive change due in the global reserve currency scene when the Yuan arrives as a global reserve currency, no matter how careful China is. Uncertainty and instability will be present as power moves east to the detriment of the developed world, it’s unavoidable.
  • Gold is moving to a pivotal position in the global monetary system [see the World Gold Council’s OMFIF report released two weeks ago – ].
  • The future holds a scene of tremendous uncertainty in the international currency scene and one where gold is going to have to play a significant and possibly central role!
You can be sure that the Swiss banks foresee a coming situation that will keep them out of the crosshairs of the U.S. monetary authorities. It’s on the direct owners of that gold that the crosshairs of the authorities will settle.

Not Enough Gold Out There!

And the fact of the matter is that the gold market doesn’t have enough gold at these prices. With newly mined gold supply at around 2,800 tonnes and ‘recycled gold over the last four years at around 1,700 tonnes and usually re-bought by the sellers at lower prices, the open market would be too small to supply the central banks and the commercial banks [who would want them in their coffers as a counter to the currencies they hold in their reserves] even if prices were pushed much higher.
Add to this that gold producing countries would probably take the local production directly into their reserves just as China is believed to be doing now, which would severely lower the newly mined gold availability.
Yes, higher prices and the resultant gold selling may well yield a greater supply, but prices would have to be significantly higher. And then the scramble between central banks for that extra gold would destabilise and disrupt the gold market. That’s just what the banking system would not want to see. Nor do buyers of gold. They would act in a manner that would leave gold markets stable. There is only one way that that could be the case.
The only way for central banks to get a sizeable quantity of gold would be to take it off their citizens, through confiscation, nation by nation;
  • There the gold could be taken and paid for at current market prices.
  • The largest sources of local gold would be Custodians, gold dealers and the large holders of gold.
  • But governments would have to issue a blanket confiscation Order covering all gold owners. In the last ‘Confiscation Order’ in the U.S. in 1933 citizens were allowed to retain 5 ounces of gold each. The Order was rescinded in 1974.
This is not only our opinion it seems. The highly respected Casey Research and renowned Marc Faber sense the dangers coming in the gold market. Marc Faber has warned of confiscation and Casey Research advised holding gold outside the U.S.

Gold Dealers in the Same Place as Swiss Bank and Allocated Accounts

The key point to understand in the moves of the Swiss banks is that they are pushing clients to hold their gold directly in their name. This is what happens when you live in the U.S. and hold your gold overseas. You may think that holding gold outside the U.S. in your own name will protect you from the rapacious arm of your government, but it will not!
A repeated fact of history is that governments do not venture into a foreign Jurisdiction to impose their laws. They attack those they feel they should within their own Jurisdictions.
UBS and other Swiss banks were attacked inside the U.S. Remember, under FATCA and FBAT your personal information is fully available to your authorities including foreign holdings. It is a small step to extend that to precious metal holdings!
The authorities will also require gold dealers as well as all financial institutions to disclose client holdings too. Under FATCA this is likely to be extended to gold dealers overseas particularly those in Britain [and the Channel Islands] and in Canada. This will even include Swiss institutions doing business in those countries.
Then it is simply a matter of forcing you to either transfer your gold to them or under threat of penalty forcing you to repatriate your gold!
The gold will flow home, Swiss banks will be in the clear and your friendly neighborhood gold dealer will have to exit the business.
But your national banking system will look healthier with the gold countering the falling value of currencies.

The Way Out of the Trap

There is a way out of the closing net being prepared [if Swiss bank actions are anything to go buy], but this article is not the place to give you all the details [and the author does have an interest in the system -he designed it] but it was designed with FATCA FBAT and the Confiscation of gold in mind.
The system is designed to let you continue to own the gold you now own [sell it when you want], not have it confiscated and to not disobey the confiscation order at home, so as to not be liable for the penalties that will surely be threatened! Please send your enquiries to admin @
We know of no other system that offers you protections against confiscations and we are certain that confiscation has now moved from possible to probable.
Protect against the confiscation of your gold by contacting us through GoldForecaster.comor admin @ for more information.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.


The following commentary by Alasdair Macleod shows why price inflation will finally take off:

(courtesy Alasdair Macleod/GATA)  

Alasdair Macleod: Why price inflation will take off

9:38p ET Sunday, February 3, 2013
Dear Friend of GATA and Gold:
In commentary tonight GoldMoney research director Alasdair Macleod makes the case for inflation. "Five years ago," Macleod writes, "there was a large one-off shift in favor of money, which suggests that the next large shift will be away from money -- not because suddenly we are all going to like spending again, but because we will like money even less." Macleod's commentary is headlined "Why Price Inflation Will Take Off" and it's posted at GoldMoney's Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


John Embry is stating what I have been telling you:  the silver manipulators cannot shake silver leaves from the silver tree

(courtesy Kingworldnews/John Embry/GATA)

plus other related precious metals news:

Silver riggers can't seem to scare off buyers, Embry tells King World News

1:40p ET Monday, February 4, 2013
Dear Friend of GATA and Gold (and Silver):
The failure of the big commercial shorts to pound down the open interest in the silver futures market and scare off buyers leads Sprott Asset Management's John Embry to suspect that the collapse of silver futures market rigging may be near. Embry comments in an interview with King World News that is excerpted here:
King World News today also has gold- and silver-related commentary from Robert Fitzwilson of the Portola Group:
And from Michael Pento of Pento Portfolio Strategies:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

The following author warns us that physical gold/silver will detach from the paper price"

(courtesy David Ceresne/GATA)

David Ceresne: Watch out when physical market for gold and silver detaches from paper

By David Ceresne
Saturday, February 2, 2013
Shortages and volatile markets are forcing the precious metal industry into turbulent times.
How is the precious metal industry adapting? Global mints and refiners have increased premiums on all products.
How are investors reacting? Buying is at an all-time high and premiums are no longer the primary concern. In fact, delivery time on products now is the most important factor for buyers. This shift demonstrates the demand for precious metals, whatever the premium may be.
It's simple. Relentless demand and shrinking supply are changing the precious metal landscape. We are witnessing a deviance from paper price to physical price. But why?
To understand the changing landscape, we need to analyze the precious metal supply chain. Looking to global mints can let us know what changes must be made.

To start, where are mints getting their metal? It boils down to three sources.
1) Mining companies. Above-ground and easily mineable metals are a thing of the past. Mining companies must dig deeper than ever to extract precious metals. Changing mining conditions and high input costs are affecting the precious metal supply. As mining conditions change and inflation continues to rise, the extraction of metal through mining appears to become less feasible. Political factors also play a role. Laws, politics, and tax rules can slow down or even stop the extraction of precious metals in key markets.
2) Recycled products. It is estimated that 85-95 per cent of world silver output is now disposed of, primarily through industrial applications. Middle-class people all over Europe are trading in their gold and silver for cash, disposing of everything from jewelry to silverware. In North America the story is the same. But much of that supply has already been depleted as people sell personal items to help pay the bills. This causes a big strain on the physical gold and silver markets. People are also liquidating their retirement accounts and selling assets to buy precious metals. Supply is depleting as demand increases.
3) Global trading floors. Mints and refiners will purchase silver and gold from global trading floors. If you have purchased precious metals before, many of your products may have been melted down from large bars into smaller-denominated coins and bars.
But the next time mints ask for metal to melt, will it be there? With current demand for metals, the answer is no. Then what? If there is no silver or gold to procure, we will head toward a "force majeure" (
At this point the paper price will have no relevance to the physical price. As people rush for the door, dealers will undoubtedly sell. But at what price? This will be for the true markets to decide.


I wonder what they will be talking about with respect to silver and gold?:

CFTC to Hold Closed Meeting to Consider Litigation Matters
The Commodity Futures Trading Commission (CFTC) will hold a closed meeting to consider litigation matters.Monday, February 4, 2013, 12:00 p.m. (ET)
CFTC Headquarters Conference Center, 1155 21st, NW, Washington DC
Various litigation matters

And now for your important paper stories which will certainly have an influence on gold and silver.

First, overnight sentiment:

1.  The Euro/USA cross down some 150 basis points from midday Friday when it hit 1.37.
2. Spanish bonds spiking up 20 basis points on the 10 year bond (5.41%)
3. Italian bonds spiking up 10 basis points on the 10 year bond to 4.42%
4.  Italian and Spanish stock exchanges down badly over 1.2% (Spain) and Italy )1.9%)
5. Monte dei Paschi stock halted again this morning.
6. Stock markets are down, according to the media due to the turmoil on the political scene with respect to Banca Monte dei Paschi in Italy and the Spanish graft scandal.
7. France's Moscovici again reiterates that the Euro has gone too far in strength.
8  Major headlines below

9 Details courtesy of Deutsche bank

(your overnight sentiment courtesy of zero hedge/Deutsche bank)

Europe Unfixed Again

Tyler Durden's picture

Slowly things in Europe are starting to go bump in the night again, with the EURUSD down some 150 pips from Friday's multi-year 1.37 high, Spanish bond yields spiking 20 bps to over 5.41%, back over the declining 50 DMA, Italian BTPs getting slammed up some 10 bps to 4.42%, as both Spanish and Italian stocks are sharply down on the day, by 1.2% and 1.9% respectively, following yet another Monte Paschi halt lower earlier in trading. The reason goal seeked by the media for today's weakness is signs of upcoming "political turmoil", namely the escalating Monte Paschi incident out of Italy, which we have been following closely, as well as the Spanish graft scandal, in which the ruling PP party and Mariano Rajoy have been implicated in massive kickbacks, and which may cost Rajoy his leadership at this pace. Of course, none of the data above is new, and neither is France's Moscivi repeating for the second time in a week that the EUR has risen far too high, and to call it catalytic is very naive, but it merely goes to show how the manipulated market decides when and if to actually follow the newsflow. As a result, US futures are pointing to a mildly lower opening, which however may reverse quickly once today's $2.75-$3.5 billion POMO kicks in. Of course, if the Italian political turmoil drags Draghi further into the mud, all bets are suddenly off about Europe being "fixed."
Key overnight headlines:
  • Spanish opposition calls on PM Rajoy to resign over corruption allegations
  • Spain’s Rajoy Fails to Quell Graft Criticism
  • China Jan non-mfg PMI up to 56.2 vs 56.1 prev, marks a 5-month high
  • Japan GPIF Mitani: to review asset allocation in April, 67% bond holdings "harsh" especially if Abe succeeds
  • Nikkei +0.62%, 10y Bund yield up 3bp at 1.70%
  • SPGBs, BTPs Plunge Amid Signs of Political Turmoil
  • Spain Registered Unemployment Rises Amid Deepening Slump
  • Merkel Cabinet to Pass Bank-Separation Plan: Handelsblatt
  • Cyprus at Odds With Pimco Report Method, Shiarly Tells RIK
  • Europe Investor Confidence Rises to 19-Mo. High, Sentix Says
  • Ireland ‘Coming Close’ to Anglo Irish Note Deal: Minister
Markets, via BBG:
  • Spanish 10Y yield up 19bps to 5.4%
  • Italian 10Y yield up 9bps to 4.42%
  • U.K. 10Y yield up 5bps to 2.15%
  • German 10Y yield up 1bp to 1.68%
  • Bund future down 0.06% to 141.93
  • BTP future down 0.68% to 111.81
  • EUR/USD down 0.51% to $1.3569
  • Dollar Index up 0.42% to 79.45
  • Sterling spot up 0.3% to $1.5732
  • 1Y euro cross currency basis swap little changed at -18bps
  • Stoxx 600 down 0.25% to 287.49
  • ECB Preview: Draghi May Sound More Dovish; Rate Cut Unlikely
    BoE Preview: Watch Incoming Governor Carney’s Treasury Address  
  • Short Semi-Core Debt on Periphery Risks in Feb., RBS Says
  • Enter Bund/ASW Widener; Target 40bps, Morgan Stanley Says
  • Target 400bps for Spain/Germany Spread, Commerzbank Says
  • ‘Risk-On Mode’ May End Soon as S&P 500 Overvalued: SocGen
Outlook, via SocGen
There will be little economic news this week, putting the central banks in the spotlight starting with the RBA tomorrow where a rate cut cannot totally be ruled out after weak employment and lower inflation data. There will be little to salvage for the AUD should they cut given the poor correlation with risk at present.
The Fed last week confirmed it would continue to purchase Treasuries at the current pace of USD85bn/month until sufficient improvement in the economy was achieved. The 7.8-7.9% rise in the unemployment rate last Friday underpinned this position, but as we saw from the price action on Friday, this may not stop the uptrend in longer duration UST yields ad swaps.
What about the ECB this week? No change is expected in interest rates: Mr Draghi shattered all hope of a rate cut last month, and confidence indicators have stopped deteriorating though the divergence within the euro area is not going away. However, the market will be waiting for the ECB president's comments on the first LTRO reimbursements: 305 banks have reimbursed EUR140bn, which is a good performance. Investors were no doubt too optimistic regarding a quick and massive withdrawal of liquidity by the ECB.
However, the tone has been set. This will undeniably support the EUR and EUR rates, but will comments on the currency slow the currency's ascent? Spanish politics are perhaps a good excuse to lock in profits.
Although risk appetite was mixed at the end of last week (reflected by the slight decline in rates), we still do not see any factor justifying a long-lasting turnaround. The EUR should remain in demand overall and EUR and US long rates are still skewed to the upside


The following can bring Greece's GDP to its knees:

(courtesy zero hedge)

Greek Isles Cut Off From Mainland For Sixth Day As Strikes Return With A Vengeance

Tyler Durden's picture

When Europe's politicians boldly said a few weeks ago what they have been repeatedly saying every year for the past three, namely that "Europe is fixed" usually just before it breaks all over again, what they meant was that the various stock markets were up. Because if they were actually referring to the European economies, Europe just broke (no pun intended) once more, with the Greek economy once again back to its "new normal" baseline state: a near complete halt as the cold of winter dissipates, and protests and strikes return. In this case, the biggest losers are the thousands of people living on various Greek islands who have now been cut off from the mainland for the 6th consecutive day. And everyone else, of course, reliant on the Greek economy actually posting an uptick one of these centuries.
From Reuters: "Greek seamen extended a strike to protest against government austerity for a further 48 hours on Sunday, meaning dozens of islands will have been cut off from the mainland for six days." They were not alone: "Farmers also briefly disrupted traffic on major motorways across Greece in the latest wave of protest over budget cuts and labor reform that is needed to satisfy international lenders." And that is just the start: "Greece's biggest labor union has called a general 24-hour strike for February 20." Happy days are back again, and with them, the warm up of the Syntagma Square riotcam, unless of course said riotcam was pledged long ago as ECB collateral for yet another loan which promptly ended up in G-Pap's or Venizelos' Swiss bank account, and is now long gone.
Caption of a ship generating zero GDP
From Reuters:
The seamen are demanding months of unpaid wages and the repeal of a draft law that weakens their union by introducing a new employment contract between shipowners and crew.

"The law wipes out the seamen's profession and all the rules underpinning it," the PNO union said.

The strike, which started on Thursday, has begun causing shortages on grocery shelves and is hindering agricultural exports to the Balkans and beyond, the Athens Central Vegetable Market Association said in a statement.

The farmers disrupted traffic with sit-ins and by distributing free rice to drivers, to protest against tax increases that form part of the country's bailout.

"We have no choice but to go on, we're on the brink of desperation," one farmer told state television NET. Greece's latest austerity package mandates lower tax refunds and fuel subsidies for farmers and increases the social security contributions they must pay.

The Greek government is holding talks with the protesters but refuses to budge on any demands that might undermine its deficit cutting efforts, a condition of bailout funds and debt relief from the European Union and International Monetary Fund.
While in the past most labor strikes have been resolved peacefully, Greece is now at a point where even one day of economic standstill has unknown consequences as the economy is already on empty. Which is why last month the country invoked rarely used emergency powers to break a strike of subway workers, serving military-style orders instructing them to return to work or face arrest. Should the same "militant" intervention be used to break up wholesale day strikes, the path to full blown social unrest, mediated by what's left of the Greek army, will be a very short one.
Merchant shipping minister Costis Mousouroulis suggested on Sunday that the government might do the same against the seamen. "We can't be shutting our ears to islanders' desperate calls," he said.

Austerity has fuelled social unrest and extremism. Police on Friday arrested two bank robbers who turned out to be suspected members of a left-wing extremist group, Conspiracy of Fire Cells, which has claimed a spate of bomb attacks across the country since 2009.

Golden Dawn, an ultra-right, anti-immigrant party which ranks third in the opinion polls, staged its biggest rally ever in Athens late on Saturday, mustering about 5,000 supporters.
Needless to say, by the time full blown civil war is raging in Greece, we expect to be able to collect not less than par for the several torn up and completely worthless Greek bonds collecting dust in our collective attic.


The Italian stock market was down 4.5% today. It seems that the Bank of Italy has been caught lying about knowledge of derivatives undertaken by the 3rd largest bank in Italy Banca Monte dei Paschi.  The bank auditors knew of the problems, forwarded them onto the Bank of Italy (under the direction of Mario Draghi) and this central bank decided to do nothing.
The Italian election is 3 weeks away and Berlusconi is loving this.  Mr Bersani's party  is losing support in the forthcoming election.  The Banca Monte dei Paschi has at it's major shareholder a foundation that controls Bersani's political party. Berlusconi would like nothing better than throw Draghi under the bus as it was he would ousted Berlusconi in 2011 as the Bank of Italy and the ECB cut off funds to Italy.  Once Berlusconi left, the funds resumed.  Berlusconi wants Italy out of the EU and they probably will do better out of the EU than inside it.

On the Spanish graft situation, we do not need to supply any more verbiage to this scandal.
This will probably bring down the government and maybe the sovereign country as its sovereign bonds are now suspect.

(courtesy zero hedge)

Bank Of Italy Caught Lying About Imploding Monte Paschi, Counters With Even More Ridiculous Lies

Tyler Durden's picture

One half of the reason why the "market" has finally been reacquainted with gravity is its realization that the previously reported Spanish kickback scandal, which incidentally has been known for over two weeks to most if not the algos that push stocks higher, is refusing to go away. As El Pais summarized below, the graft revealed in this ongoing political fiasco threatens to take down everyone in the Spanish ruling PP, from PM Rajoy, who received more than €300,000 over the years, and on to the lowest rungs of political corruption.
The other half of the reason for today's Italian stock market collapse is the well-known to our readers scandal involving Italian bank Monte Paschi, which also refuses to go away due to its massive political implications three weeks ahead of the Italian elections. Yet the reason why little if anything has been mentioned about what may soon be a nationalization of the third largest (and just as insolvent) Italian bank in the mainstream US press is the resulting humiliation for the current ECB head, ex-Goldmanite Mario Draghi, who has been aggressively pushing to become a bank supervisor of all European banks as ECB head, yet with every day new revelations emerge about how epically he failed to supervise a major Italian bank right under his nose as head of the Bank of Italy.
The latest in this developing scnadal which not even the market can ignore any more comes once more from the Bank of Italy, which has once more changed its story. Recall that as recently as January 23 Mario Monti vowed in Davos that "nobody knew nuthin":
This was a sentiment that was vouched by the Bank of Italy itself, which pled complete ignorance and accused then-BMPS management of everything.
Turns out Monti and the Bank of Italy both lied.
And now that it has to change its story once more, it is instead blaming the fact that it had no authority to act over what has emerged its own inspectors discovered were derivative irregularities as early as mid-2010. As Reuters summarizes, what we first said two weeks ago: "The roots of the corruption and derivatives scandal at Monte dei Paschi all stem back to when Draghi, now president of the European Central Bank, was chief of Italy's central bank from 2006 to 2011."
So now that the Bank of Italy can no longer plead ignorance, what is the defense? Why inability to actually do anything.
From Reuters:
The Bank of Italy (BoI) says it did everything in its powers to oversee Monte Paschi, including forcing it to raise new capital and applying behind the scenes pressure to force out its executives, who left last year.

Last month, the BoI approved 3.9 billion euros ($5.3 billion) of state loans needed by the ailing Siena bank to shore up its capital.

But the BoI, under Draghi's leadership, is under fire for not acting faster to sanction those managers and make its doubts public even though its inspectors had spotted the derivatives contracts at the center of the scandal back in mid-2010.

However, the senior BoI source stressed that the decision on launching a sanctions procedure, involving publicly blaming and fining bank officials, does not depend on the BoI governor and its five member executive board, but on the bank's inspectors and then a series of lower committees.

"The inspectors are the only people responsible for initiating a sanctions procedure so if they don't find anything in the course of their inspection then it's not possible for the top management to start the process," said the source, who asked not to be named.

"We instruct the staff to be absolutely free from any influence from us, to present exactly the case, so if a sanction is decided then they present a proposal to the board and the board decides on the actual implementation of the sanctions."

In the summer of 2010 BoI inspectors uncovered two opaque derivatives contracts that could cost Monte Paschi 720 million euros and are now at the center of fraud investigations, yet did not propose that sanctions be launched.

That decision "had nothing to do with the board," the official said, though he added that Draghi was shown the inspectors report.

He declined to say whether he thought it was a good decision not to propose sanctions at that time.
Why was the BoI caught lying? Same as every other time: a media leak.
That 2010 inspectors' report was leaked to the press and sparked much of the current criticism of the BoI because the sharp criticisms of Monte Paschi's accounts and operations made by the inspectors were not followed by pressing action.

The BoI did not summon Monte Paschi's executives, now under criminal investigation, until November 2011, after Draghi had left to head the ECB. It did not launch a sanctions procedure - which is still not completed - until the following year, after the officials had left the bank.
And the piece de resistance:
"We may perhaps appear to be slow, but I think we are deliberate," the official said. He also stressed that although Monte Paschi failed to comply with the BoI's requests, the wrongdoing was already done at the time of the 2010 inspection. "What took place afterwards was to try to disguise the losses but it wasn't a recurrent or growing pattern of misbehaving," he said.
Deliberate indeed: very deliberate in covering up fraud, and pretending the situation is fixed when in reality anyone with half a brain now realizes that despite the endless pumping of liquidity by the same ECB that Mario Draghi is now in charge of, things on Italian bank balance sheets are uglier than ever, and just getting worse by the day.
This comes from the people who continue lying every single day, telling any idiot who still believes them that "Europe is fixed."
And the worst is that nobody knows just which other Italian (at first, at least) will blow up next, certainly not Italian shareholders which just dumped local stocks with a vigor not seen since the July near-bankruptcy of Spain, resulting in the Italian stock market plunging 4% or the most in six months.
More on this scandal herehere and here.


The major Italian banks were halted today as you can safely say we have a monstrous run on these banks. The Italian stock exchange was down over 3.16% on the day.  Bond yields rose big time. (bond prices plummeted) and the Eur/USA cross fell as well!

(courtesy zero hedge)

Meanwhile In European Financials...

Tyler Durden's picture

Rajoy tried to assert some confidence in Spain this morning (#Fail) but the realization of the potential for fraud tape-bombs being everywhere in Europe's financial and political elite appears to be pricing in. All five of Italy's largest banks are halted currently (all down 8-12% from Friday's open) as the broad stock markets continue to sink (despite short-selling bans - so don't blame them nasty bearish speculators). Even more dramatic is the blow-out in European financial credit spreads.The Subordinated financials spread has been on the rise from the first day of 2013 - and has now seen its biggest 3-week loss in over 14 months! There is a way to play this trend in the US...

European sub financials have smashed wider all year - biggest loss in 14 months

with Spanish stocks plunging back to bonds reality (and EUR still disconnected)...

as Spanish bond spreads start to decompress from a previous unreality...
all of which has happened post-LTRO as that free-money may just have had the effect we said...

as Italian Bank stocks (all banned from short-selling) continue to plunge...

and if you want to play this trend - EUFN (the US-based European Financial ETF) has not pulled lower (yet) as risk increased in Europe...

Charts: Bloomberg


Marc to Market talks about Spain tonight:

(courtesy Marc to Market)

Spain: No Mas

Marc To Market's picture

The accusations of corruption against senior Popular Party officials, including Spanish Prime Minister Rajoy would not have necessarily been market move.   The accusations raise more questions than they answer.  However, Rajoy's denial may have deterred Asian traders early Monday, but European investors were more skeptical.  

Confidence in the Rajoy government has been eroding as the economy deteriorates.  The fourth quarter contraction was deeper than the Bank of Spain expected.  News on Monday included the largest jump in unemployment since January 2013.   In addition, Spain's three largest banks, Santander, BBVA and CaixaBank announced large write downs in recent days, in part due to large real estate provisions, reminding investors a key source of Spain's vulnerability.

Calls for Rajoy's resignation from opposition forces were given more credence by the financial press than they deserve.  Nevertheless, the political fragility is palatable.  The one thing that could bolster the government's support is German Chancellor Merkel's best wishes, but an substantial improvement in the Spanish economy.  This does look to be forthcoming for at least several months.   

The decline in sovereign yields over the past six months has been a powerful tonic.  Spanish financial institutions are large holders of government bonds.  Their access to the capital markets also improved.  This is part of the positive contagion.  

Spanish bonds sold off sharply on Monday.  It seemed to trigger a slide in the euro after new multi-month highs were set before the weekend above $1.37.  The last part of the euro's rally took place even as Spanish yields were rising in absolute terms and relative to Germany.  

The Spanish-German 2-year spread bottomed on Jan 11 near 200 bp.  It finished last month at 230 bp and is now just above 260 bp.  The Spain's 2-year yield bottomed on Jan 10 at about 2.11% and had risen to 2.50% by the end of of Jan and was near 2.88% on Monday.   

A similar story is told by the performance of the 10-year bonds.  Spanish 10-year bond yields have been rising and driving the premium over Germany has been rising for a few weeks.   Spain's premium fell to 330 bp on Jan 11 and has been trending higher since.  The premium stood at 355 bp at the end of Jan and 382 bp on Monday.   The Spanish 10-year yield bottomed the same day just below 4.90% and is now at 5.43%

The review of the recent action illustrates that the euro has been able to rally in the face of the increase in Spanish bond yields and widening premium over Germany.    The key question now is whether this phase is over and the the risk emanating from the periphery will again be a driver of the foreign exchange market and the capital markets more broadly.    

It is coming too amid increased political fallout of the third bailout of Italy's third largest bank, Monte Dei Paschi.   The center-left PD has suffered the most in the polls three weeks ahead of the election.  Although it is still ahead, the margin over Berlusconi's PDL has narrowed.  Berlusconi, the consummate politician is running circles around this rivals, appealing the basest populist instincts.

As an aggregator of information, the market generates noise and a signal.  We suspect the flare up in political tensions is noise and that the underlying signal generated by the OMT backstop (which is the inducement cited by some of the world's largest money managers for returning to the European debt market) and the more recent passive tightening of monetary conditions in Europe will continue to underpin the euro.  

The latter is taking place at the same time the Federal Reserve renewed its commitment to buying $85 bln a month in long-term assets.  Although US job creation has accelerated, the economy is downshifting.  Over the past four quarters, the economy has posted average annualized growth of 1.6%.  Over the past three year, quarterly average has been 2.0%.  Moreover, the impact of the end of the payroll savings tax holiday and the sequester warns of a couple more quarters of weak growth.

We anticipate that new euro buying will emerge on this pullback. Investors may rightfully be cautious ahead of the ECB meeting.   Sharp sell-offs, like the one seen Monday, are rarely one-day phenomenons.   Technically, there seems to be scope for euro losses toward $1.34.



And now the people speak:

(courtesy zero hedge)

Madrid Protests Return: Live Stream

Tyler Durden's picture

First Italian bank failures, then Greek strikes, and now Spanish protests: Europe is back at square one where the only thing fixed are the local football matches.

Liam Halligan: Falling yen set to spark renewed currency wars

By Liam Halligan
The Telegraph, London
Saturday, February 2, 2013
History shows that currency disputes can escalate from rhetorical spats into disastrously counterproductive economic conflict.
In September 2010 the Brazilian Finance Minister, Guido Mantega, pointed a rhetorical finger at the United States and accused the world’s largest economy of conducting a "currency war." Suggesting that emerging markets were being unfairly squeezed by a falling dollar, which makes US exports more competitive, Mantega lit the touch paper on a controversy that won’t go away.
For now "currency wars" are a relatively arcane debate limited to foreign exchange specialists and diplomats. But this issue has already adversely affected hundreds of millions of people who consider themselves largely immune to the vicissitudes of international markets, not least in the UK. History shows, also, such currency disputes can escalate from rhetorical spats into disastrously counter-productive economic conflict.
"Currency wars" have hit the headlines anew in recent weeks, given Japan's attempts to force down the yen. Freshly installed prime minister Shinzo Abe, determined to stimulate a moribund economy, has ordered Japan's ultra-conservative central bank to be more expansionary.

The Bank of Japan has announced it will raise its inflation target to 2 percent while trying to reach that goal "at the earliest possible date" and phasing in hefty government debt purchases. Governor Masaaki Shirikawa will also be replaced by a more compliant successor when he retires in April.
Japan has been treading economic water for over 20 years, ever since its almighty real estate bubble burst in the early 1990s. Still the world's second-largest economy when the credit crunch began in late 2007, the country has since slipped back to third-place and counting, its GDP having contracted for six of the last eight quarters. Despite all that, Abe's decision to take drastic measures has sparked a chorus of complaints.
The yen spent 2012 oscillating around 80 to the dollar. Since then it has fallen rapidly and is now approaching 93 to the US currency. Most analysts expect a further slide -- not least as the central bank is now committed to aggressive monetary measures and a higher inflation target.
This has big implications for other Asian exporters, as a weaker yen makes Japanese goods cheaper in foreign markets.
Since the middle of last year, the South Korean won, for instance, has risen over 30 percent against the yen. That's why politicians in Asia's fourth-largest economy, which competes with Japan in many sectors including autos and electronics, were last week threatening measures to discourage capital from flowing into the won, stopping it rising even more.
Germany also is deeply concerned about the yen's recent fall and the prospect of further weakness. With an eye on his country's all-important export sector, Bundesbank President Jens Weidmann recently mauled Tokyo's new affinity for loose money, referring to "alarming infringements" and an "end to central bank autonomy."
The danger is that semi-covert moves to depreciate a currency then become aggressive, jingoistic devaluations. Such retaliatory "beggar-thy-neighbour" policies sparked the explicit capital controls and sky-high trade barriers of the early 1930s that, in turn, eviscerated global commerce and caused the Great Depression.
It's a historical lesson Germany's central banker was keen to recall. "Whether intended or not, one consequence" of Japan's action "could be the increased politicisation of the exchange rate," Weidmann said. "Until now the international monetary system got through the crisis without competitive devaluations and I hope very much it stays that way."
As a longstanding critic of excessively loose monetary policy, I'm not particularly impressed by Tokyo's latest move. The Japanese people would be much better served by courageous reforms to increase labour market flexibility and expose their zombie banks to reality, so unleashing, once more, their nation's huge commercial talents.
Having said that, while the yen has fallen more than 10 percent against the dollar and 15 percent against the euro since Abe took power, it must be recognised that for several years after the credit crunch Japan suffered from an artificial appreciation. This was because of Tokyo's refusal to engage in the "extraordinary measures" taken by leading central banks elsewhere.
Since early 2008, for instance, the US Federal Reserve has expanded its balance sheet by 220 percent. Even the European Central Bank, relatively late to the money-printing party, has now clocked-up a 98 percent expansion.
In contrast, the Bank of Japan, largely eschewing quantitative easing in recent years, has overseen balance sheet growth of 30 percent over the last four years -- large under normal circumstances but, in these incredible times, a model of monetary probity.
Currency movements are caused, the economic textbooks tell us, not only by trade flows but, above all, by interest rate differentials. In a world of near-zero Western interest rates -- negative, if adjusted for inflation -- the usual rules don't apply. Currency values are now overwhelmingly driven by the extent to which central banks print money.
This ongoing "ugly contest" among the so-called advanced economies is itself a result of attempts by the Western political classes, via QE, to artificially inflate asset prices, bail out busted banks, and suppress real bond yields while debasing and devaluing the debts we owe the rest of the world.
Yet this disgraceful policy, while good for asset-rich Western elites, not least politically connected bankers, is a disaster for middle-income savers, not least pensioners, as the value of their home currency is destroyed. Oh, and now, as some of us have long predicted, QE is in danger of causing currency conflicts that could ultimately spark protectionism and all the economic damage that entails.
To understand what's really going on here, headline nominal exchange rates should be ignored in favour of real effective exchange rates -- which give a weighted measure of each country's currency against their actual trading partners.
Since September 2007, as a direct result of unprecedented Western money-printing and Tokyo's refusal to do the same, the yen has appreciated no less than 22 percent in real effective terms -- a body blow to Japan's export sector.
While eurozone politicians have lately been bleating about the yen, the single currency is currently down 5 percent in real effective terms over the same period -- something that has disproportionately helped Germany, of course.
The dollar's real effective exchange rate has also fallen, by more than 6 percent, since September 2007, and there's likely much more to come. In late January the Fed's balance sheet topped $3,000 billion (L1,910 billion) for the first time. If the US central bank keeps virtually printing at the current pace of $85 billion a month for the rest of the year, as recently indicated, we'll see another 30 percent expansion by 2014.
When it comes to currency debasement, though, the UK is in a class of its own. Our jaw-dropping 350 percent central bank balance sheet expansion has engineered a 15 percent drop in the real effective sterling exchange rate since the start of 2008.
For now, a lot of the UK's QE money remains "inert" and therefore not yet inflationary, the banking sector so far refusing to lend it on to firms and households -- which is one reason the UK economy remains so weak.
This standoff will continue, in my view, until the banks have blackmailed the British Government into following the Fed by sucking-up toxic corporate "assets" as well as government bonds, shoving yet more losses onto taxpayers.
Such kleptocratic nonsense must stop. Not least because, as Prudential CEO Tidjane Thiam has told my colleague Helia Ebrahimi, by extending QE further the UK would simply be "storing long-term trouble by minimising short-term pain."
That trouble will come in the form of runaway inflation, another financial collapse, and even more deeply entrenched moral hazard. It will also manifest itself, unless wise heads soon prevail, in the form of an all-out trade war.


Wolf Richter discusses the implosion of European banks

(courtesy Wolf Richter/

The Putrid Smell Suddenly Emanating From European Banks

testosteronepit's picture

By now we should have gotten used to the odor emanating from banks—bailouts, money laundering, Libor rate-rigging, the other misdeeds. But in Europe over the last few days, it was particularly dense.
A nauseating whiff came from Barclays today, when it leaked out that it has been under investigation by the Financial Services Authority and the Serious Fraud Office in Britain for illegal fundraising in 2008. Allegedly, the bank secretly loaned £5.3 billion ($8.4 billion) to one of Qatar’s sovereign wealth funds, which then turned around and with great public fanfarepumped that money back into Barclays—a scheme to raise capital on paper to escape a government takeover during the financial crisis.
Then Crédit Agricole, France’s third largest bank, announced €3.8 billion ($5 billion) in write-downs, mostly of “Goodwill” due to the “present macro-economic and financial environment.” Goodwill reflects money paid out for certain items in excess of their value—an expense that, by a quirk of accounting, is temporarily parked as an asset on the balance sheet to be expensed eventually. After the write-off, the bank will still have about €14 billion of Goodwill clogging up its balance sheet, and more write-offs are to come. It already wrote off €2.5 billion last year, when it agreed to sell its stake in the Greek bank Emporiki for €1, which it had acquired with impeccable timing in 2006 for €2.2 billion.
Greek banks... oh my! They’re being investigated by Greek financial crime prosecutors for €232 million in loans that they handed out to the ruling parties, Prime Minister Antonis Samaras’ New Democracy and the Socialist PASOK. “Suspected crimes against the state,” a court official called it.
The state funds political parties based on their share of the vote, and both parties pledged hoped-for state funding as collateral for these loans. But during the election last June, New Democracy’s share of the vote dropped from 33% to 29% and PASOK’s from 43% to 12%. With it, state funding suddenly collapsed, and some of the loans are turning sour.
Bitter irony: teetering Greek banks, hoping at the time to get bailed out by taxpayers in other countries, funded Greek political parties that then negotiated the bank bailouts with the EU for the benefit of bank investors [likewise, Proton Bank got bailed out in 2011 though it engaged in fraud, embezzlement, and money laundering, when a bomb exploded.... European Bailout Fund For Greek Money Laundering And Fraud]
Still on Friday, SNS Reaal, fourth largest bank in the Netherlands, was bailed out again—after already having been bailed out in 2008. This time, it was nationalized. The €10 billion package would cost taxpayers initially €3.7 billion. Stockholders and junior debt holders lost out too, but holders of senior debt and covered bonds were made whole.
There is never an alternative to bailouts. A collapse “would have unacceptably large and undesirable consequences,” according to Finance Minister Jeroen Dijsselbloemsaid. As brand-spanking new President of the Eurogroup, he thus confirmed: bank bailouts will be the norm in the Eurozone.
They’re worried that letting even a smallish bank fail could take down the electron-thin confidence in the entire financial system—just when the debt crisis has been officially declared “over.” And so, based on the operative set of rules, the Dutch government shanghaied its strung-out taxpayers, whose belts are already being tightened by austerity, into paying, once again, for the misdeeds of the bankers.
In Italy, a billowing scandal got new fuel. It kicked off with acriminal investigation into Monte dei Paschi di Siena, Italy’s third largest bank, for alleged market manipulation, false accounting, obstructing regulators, and fraud. The bank used derivatives to hide losses during the financial crisis, but these losses are now seeping from the woodwork. So Standard & Poor’s just cut the bank’s credit rating, fearing that the announced losses may just be the tip of the iceberg.
That form of financial engineering came to light when new management took a gander at the books. Now a government bailout is in the works. Because there is never an alternative. Taxpayers tighten your belts!
And on Thursday, Deutsche Bank waded deeper into its quagmire of “matters,” among them the Libor rate-rigging scandal, which might cost it €2.5 billion, and the carbon-trading tax-fraud scandal that broke with a televised raid by police on its headquarters. So, more write-downs are due, and the bank announced a €2.2 billion loss for the fourth quarter. “In 2013,”said co-CEO Jürgen Fitschen reassuringly, “we will be confronted with more developments in these and other matters.”
And other matters! More revelations to come. Already, there are estimates that these misdeeds would eventually amount to €10 billion. Now suddenly: “Building capital is our top priority,”said the other co-CEO Anshu Jain. He wants to do it without diluting current stockholders. “But in this uncertain world, I cannot exclude anything,” he mollified his audience.
Turns out, the bank intends to get rid of €16 billion in high-risk credit default swaps by end of March. It might boost its core Tier 1 capital ratio from 8% to 8.5%. More such sales are planned—a wholesale dumping of its credit correlation book, an outgrowth of the financial engineering it used to hide whatever needed to be hidden.
The bitter irony of the financial crisis is just how common the putrid smell has become since. And how routine it has become for these inscrutable institutions with their opaque financial statements to transfer risks and losses to the people. In the US, too, the smell refuses to evaporate. And nothing indicates that this will change anytime soon.
Weary of all this, the French—whose economy is spiraling deeper into crisis—expressed disdain for their political class; they’re dreaming of authoritarian leadership, a “real leader” who would clean up the mess and “reestablish order.” Read.... Could 87% of the French Really Want A Strongman To Reestablish Order?


This will be a very scary moment for Japan if this happens shortly.  No doubt the huge retirement fund will sell Japanese bonds and buy the only investment it can:  gold. As Sovereign Japan prints money these bonds will lose money.  The retirement fund senses the massive printing of yen will finally cause massive inflation and thus bond prices will fall as bond yields  rise as this will compensate for inflation.

How much is in the fund?:  108 trillion yen  (1.18 trillion usa dollars)

World's Biggest Retirement Fund Considers Selling Its Japanese Bonds

Tyler Durden's picture

While in the past 3 months both the USDJPY and the Nikkei index have soared on the same vague mix of promises (than can never be delivered), and threats (by central bankers, which work only as long as they remain purely abstract and are not acted upon), one security that has barely budged are Japanese bonds: without doubt the fulcrum security that will put a premature end to Abe's latest attempt to reflate an economy, whose total debt is a ridiculous 2000% of annual public revenues, and which will spend half of its annual tax income on interest expense if rates merely double from their record low levels. Until now: Bloomberg reports that Japan's Government Pension Investment Fund: the largest retirement fund in the world overseeing 108 trillion yen ($1.16 trillion), and historically the biggest buyer of Japanese bonds, "will begin talks in April about whether to reduce its 67% allocation to domestic bonds." Read: sell, which may be why we have already seen a rather steep move across the JGB complex overnight, because one the largest player in the space moves, everyone else follows as nobody wants to be the last seller left.
And once the selling begins, logically so does the countdown to the end of Japan's latest reflation attempt, as like it or not, Japan can not afford rising rates, no matter how high it blows the stock market bubble (which by the way is unchanged in non-yen terms), as the alternative is a full blown banking sector crisis, coupled with a public funding crisis.
And also because this time is no different from all the other times Japan has done just this. Only on no previous occasions did Japan have some JPY1 quadrillion in public debt, or nearly 250% in debt/GDP.
From Bloomberg:
The GPIF, as the fund created in 2006 is known, didn’t alter the structure of its holdings during the worst global financial crisis in 80 years or in response to the 2011 earthquake and nuclear disaster. Talks to shift its positions come as Prime Minister Shinzo Abe and the Bank of Japan pledge to restore economic growth and spur inflation, which will mean higher interest rates, Mitani said.

If we think about the future and if interest rates go up, then 67 percent in bonds does look harsh,” Mitani, who was an executive director at the Bank of Japan when it bought shares from banks in 2002, said. “We will review this soon. We will begin discussions for this in April-to-May. Any changes to our portfolio could begin at the end of the next fiscal year.”

GPIF, one of the biggest buyers of Japanese government bonds, held 69.3 trillion yen, or 64 percent of total assets, in domestic bonds at the end of September, according to its latest quarterly financial statement. That compares with 12 trillion yen, or 11 percent, in Japanese stocks. The asset manager had 9.6 trillion yen, or 9 percent of its portfolio, in foreign bonds and 12.6 trillion yen, or 12 percent, in overseas stocks.
This is a tectonic shift for an asset allocator who has been steadfast in what it buys:
GPIF is the biggest pension fund in the world by assets under management, according to the Towers Watson Global 300 survey in August, followed by Norway’s government pension fund.

The portfolio structure has been broadly unchanged since 2006 when it was formulated with an outlook for consumer prices to rise 1 percent annually. Instead, they have fallen.

“The portfolio was based on a prerequisite of things such as long-term interest rates at 3 percent on average for the next 100 years,” Mitani said. “Whether this is good will be a possible point of discussion.”
Good luck with that because momentum plays and chasing "hot money flows" always, without fail, end up with a Hollywood ending. As for the "100 year forecast" confusion, it stems from the glaring contradiction that is debt monetization by the BOJ coupled with a government mandate to crush the Yen. The fear is that at least for the time being, if not in the long-term, the latter will overtake the former.
JGBs were how we made money over the past 10 years,” Mitani said. “The BOJ said that they are increasing buying bonds, but they’re also putting power into lowering interest rates. If the economy gets better, then long-term interest rates like a 10-year yield at less than 1 percent are unlikely.”
Yet where the real comedy is about to begin is that instead of investing people's retirement money in at least modestly safe securities which the BOJ openly monetizes, the GPIF will focus on some riskier assets: "The fund may increase holdings in emerging market stocks and is evaluating alternative assets, he said." Good luck with the former: Japan will be only some 10 years behind the curve. As for "alternative assets", if this includes gold, prepare for liftoff as all other retirement fund managers across the world, who have a blended allocation to gold somewhere between 0% and 0.5%, piggyback on Japan's example.
At the end of the day, however, none of the above matters. Japan's Yen will fall a little more, its equities will rise, but all that matters is when and if the bond tumbles. Once that happens, and once Japan's leaders take a look at the chart below, first presented in "Japan's WTF Chart", everything will be quickly put back in its original place, Abe will be "retired", and this latest experiment in ending Japan's self-sustaining three decade long liquidity trap will be promptly forgotten.


Today we learn that the IMF sees a huge 140 million shortage of jobs in China as China's demographic dividend has been exhausted.   Beijing revealed last week that the country's working age population has already begun to shrink.

With a one child per family doctrine, who is going to support the elderly in China.  Thus this nation has hit it's Lewis Point:

(courtesy Ambrose Evans Pritchard)  and a special thanks to Robert H for sending this down to us

IMF sees 140m jobs shortage in ageing China as 'Lewis Point' hits
China’s vast reserve of cheap workers in the hinterland is vanishing at a vertiginous pace.
Beijing revealed last week that the country’s working age population has already begun to shrink, sooner than expected.
By Ambrose Evans-Pritchard
6:48PM GMT 03 Feb 2013
Telegraph UK
We can now discern more or less when the catch-up growth miracle will sputter out. Another seven years or so - enough to buoy global coal, crude, and copper prices for a while - but then it will all be over. China’s demographic dividend will be exhausted.
Beijing revealed last week that the country’s working age population has already begun to shrink, sooner than expected. It will soon go into “precipitous decline”, according to the International Monetary Fund.
Japan hit this inflexion point fourteen years ago, but by then it was already rich, with $3 trillion of net savings overseas. China has hit the wall a quarter century earlier in its development path.
The ageing crisis is well-known. It is already six years since a Chinese demographer shocked Davos with a warning that his country might have to resort to mass suicide in the end, shoving pensioners onto the ice.
Less known is the parallel - and linked - labour drain in the countryside. A new IMF paper - “Chronicle of a Decline Foretold: Has China Reached the Lewis Turning Point?” - says the reserve army of peasants looking for work peaked in 2010 at around 150 million. The numbers are now collapsing.
The surplus will disappear soon after 2020. A decade after that China will face a labour shortage of almost 140m workers, surely the greatest jobs crunch ever seen. “This will have far-reaching implications for both China and the rest of the world,” said the IMF.
These farm workers are the footloose migrants that pour into the cities from the interior, the raw material of China’s manufacturing workshops They are carefully regulated by the semi-feudal Hukuo system to keep their families tied to villages at home, and to keep the lid on social revolt.
There is little Beijing can do to head off the shock. The effects of low fertility rates - and the one child policy - are already baked into the pie. It would take half a century to turn around the demographic supertanker.
The Lewis Point, named after St Lucia's Nobel economist Sir Arthur Lewis, is when the supply of workers dries up and city wages soar. It is when labour turns the tables on capital, and profits crash.
You could argue that such a process already well under way, and is why Chinese equities are trading at a third of their 2007 peak in real terms. Manufacturing pay has risen 16pc a year over the last decade in the East Coast hubs of Shenzhen, Beijing, Shanghai and Tianjin, though this slowed sharply in 2012.
Boston Consulting Group says that “productivity-adjusted wages” were just 22pc of US levels as recently as 2005. They will reach 43pc by 2015, or 61pc for the American South.
It is a key reason why General Electric, Ford, Caterpillar and others are “re-shoring” from China back to the US, though cheap shale gas, a weaker dollar, and shipping costs all play their part.
This is no bad thing. The world economy is rebalancing. China’s current account surplus has fallen from 10pc of GDP to just 2.5pc.
China’s corrosive gap between rich and poor should narrow. The GINI coefficient measuring inequality should come down from stratospheric levels, 0.61 according to researchers at Chengdu University.
Yet it is also a dangerous moment for Beijing. The Lewis Point is the great test for catch-up economies, when they can no longer rely on cheap labour, copied technology, and export-led growth to keep the game going.
The air is thinner at the technology frontier. Success depends on such intangibles as the rule of law and the free flow of ideas. Those that fail to adapt in time slide into the `middle income trap’, and most do fail.
The Soviet Union failed. The Philippines -- richer than Korea in the 1950 -- failed. Most of the Mid-East failed. So did most of Latin America in the 1960s and 1970s, and it is far from clear that Argentina and Brazil will break free this time.
We still do not know which way China is going to go under Xi Jinping. Vested interests - aligned with Maoist nostalgics - are putting up a formidable fight against reformers. It is worth reading an investigative series by Caixin showing how close hardliners came at different times to reversing Deng Xiaoping’s free-market drive. Nothing is set in stone.
What we see so far is that the Politburo has turned on the credit spigot again, and the reforms are mostly talk. Railway investment almost doubled in the second half of last year. The authorities at all levels have pledged stimulus worth $2 trillion dollars since the economy swooned last year. Some of it is a fictional wish-list, but some is real.
The shares of construction firms have surged since premier Li Keqiang uttered the magic words: “unleashing urbanisation as the most important growth engine”. Cynics suspect that China’s leaders are reverting to bad old ways: manic over-investment, more steel and concrete
George Magnus from UBS said investment made up 55pc of all growth in 2012, and will soon have to reach 60pc to keep up the pace. It is becoming unhinged, a sort of Ponzi scheme.
The boom is rotating, of course, which makes it harder to read. The epicentre is moving West, deep into the Upper Yangtze and heartland regions holding 700m people.
The Sichuan capital of Chengdu is completing the world’s biggest building, a glass and steel pagoda. This will soon be eclipsed for sheer chutzpa by the world’s tallest tower in Changsha, to be erected in three months flat.
Standard Chartered has just upgraded its China growth forecast to 8.3pc year and 8.2pc next, and others are doing much the same. They are probably right, but one watches this latest spree with a mixture of awe and alarm.
The balance sheets of China’s banks have been growing by over 30pc of GDP a year since the Lehman crisis and are still growing at a 20pc, wildly exceeding the safe speed limit.
Fitch Ratings said fresh credit added to the Chinese economy over the last four years has reached $14 trillion, if you include shadow banking, trusts, letters of credit and off-shore vehicles. This extra blast of loan stimulus is roughly equal to the entire US commercial banking system.
The law of diminishing returns is setting in. The output generated by each extra yuan of lending has fallen from 0.8 to 0.35, according to Fitch.
Mr Magnus said credit has reached 210pc of GDP - far higher than other developing countries - and only half of new loans are “plain vanilla” under the full control of regulators.
How and when this will end is anybody’s guess. He fears a “Minsky Moment” when the investment bubble pops, as such bubbles always do.
My guess is that there is one last cycle of Chinese fever to enjoy -- if that is right word -- before the aging crunch and the credit hangover combine with toxic effect. One thing is for sure: a middle-income country with a shrinking work force is not about to displace the United States as global hegemon.


The following could be a game changer: Pakistan gives a final nod for an Iranian Pakistan Gas Pipeline despite USA pressure

(courtesy Global Insight/Siddik Bakir)

Pakistan Gives Final Nod for Iran-Pakistan Gas Pipeline Despite US Pressure
by Siddik Bakir   
Global Insight
Friday, February 01, 2013
Pakistan's cabinet has reportedly given approval to award a contract to an Iranian company (Tadbeer) to conduct the engineering, procurement, and commissioning work for the Iran-Pakistan (IP) gas pipeline, despite ongoing US pressure on Pakistan to refrain from dealing with sanctions-hit Iran.
The Pakistani government has reinvigorated its on-off ambition to go ahead with the USD1.5-billion IP pipeline project, according to Pakistani information minister Qamar Zaman Kaira. He also said that the Pakistani government is arranging funds for the project and a special committee has been formed under the chairmanship of Pakistani finance minister Abdul Hafeez Sheikh for this purpose.
Although details remain sketchy at the moment, an unnamed Pakistani government official has been quoted in the Financial Times today (1 February), saying: "A decision has been made that we can't delay this project for any longer. This is Pakistan's essential lifeline. We are going ahead with this project."
Under the deal between the National Iranian Oil Company and Pakistan's Interstate Gas System, Tehran will provide 750 million cubic feet per day of natural gas for 25 years from its giant offshore South Pars field in the Persian Gulf.
Significance: Despite the new impetus given by recent Pakistani announcements, it remains questionable whether the IP gas pipeline will go ahead any time soon. There are still significant geopolitical, domestic, and financial obstacles that Pakistan needs to overcome in order to back the project wholeheartedly.
First, the US has repeatedly asked Pakistan to refrain from buying gas from Iran. Washington would prefer Pakistan to engage in the alternative TAPI gas pipeline project, buying gas from Turkmenistan's rich gas fields and importing it via neighbouring Afghanistan before exporting it eastwards to India. However, the TAPI project is also a risky commercial and political undertaking, possibly more so than the IP pipeline. Yet Pakistan's growing demand for energy reigns supreme: its hydropower projects are insufficient and the country needs more LNG imports to prevent further energy crises.
For Iran, opening its gas export routes eastwards is a dream come true; Iran has long sought to sell gas to the growing and energy-hungry markets in Asia. Iranian officials visited India recently to convince Delhi to purchase Iranian gas, although the Indian government rejected the offer fearing US pressure. However, the on-off discussions on IP need funding guarantees.
Aside from a generous credit offer of USD500 million from Iran, Pakistan needs further financial guarantees from domestic sources, which are by no means certain. To make matters worse, the pipeline stretches through the tumultuous Sistan-Balochistan region of southeast Iran where Sunni Muslim militants are fighting the Iranian government, and southwest Pakistan where militant Balochi groups and tribes seek autonomy if not outright independence from Islamabad (seePakistan: 24 December 2012:;10 December 2012: ;andPakistan - Iran: 22 November 2012:).
Copyright 2013 World Markets Research Limited.


Your early Monday morning currency crosses;  (8 am)


Monday morning we  see some euro weakness  against the dollar   from the close on Friday. The yen this the morning again fell badly  against on the dollar, retreating this time  close to the "93" column .    The pound, this morning  shows some strength against the USA dollar along with the Canadian dollar   We have a risk is off situation  this morning with most European bourses in the red. Gold and silver are  both down  in the early morning, with gold trading at $1663.90 (down 3.90)  and silver at $31.46 (down 4 cents)

Euro/USA    1.3571  down .0067
USA/yen  92.85  up  .020
GBP/USA     1.5722  up .0033
USA/Can      .9958 down .0004


your closing 10 year bond yield from Spain: 

...a monstrous gain in yield.



5.440.23 4.42%
As of 11:59:48 ET on 02/04/2013.

Friday's close:



5.210.03 0.48%

As of 11:59:00 ET on 02/01/2013.


Your closing Italian 10 year bond yield: 
 huge rise in yield.... the Banca Monti dei Paschi di Sienna problems didn't help today

Italy Govt Bonds 10 Year Gross Yield


4.470.14 3.21%
As of 11:59:53 ET on 02/04/2013.

Friday's close:

Italy Govt Bonds 10 Year Gross Yield


4.330.02 0.42%
As of 12:00:00 ET on 02/01/2013.


Your 5:00 pm closing Monday currency crosses:

The Euro weakened further from this morning as the Italian Monte dei Paschi scandal hit a feverish pitch as the Bank of Italy was caught lying.
The Spanish government has it's own scandal with graft from its highest officials. Strikes are called for in Spain and in Greece. The Yen strengthened  against the dollar after coming very close to the 93 handle .  The pound reversed course in the afternoon  against the dollar, rising to the 1.5768 level. The Canadian dollar stayed  above par to the USA, losing a touch . This afternoon it was all about the Euro  and it's problems.   Currency wars at its finest!!!!  

Euro/USA    1.3517 down a huge    .01200
USA/Yen  92.37  down  .46
GBP/USA     1.5768  up .0079
USA/Can      .998  down .0018


Your closing figures from Europe and the USA:
everybody drew red ink today as investors are waking up to the fact that this global economy is in deep trouble.

i) England/FTSE down 100.40  or 1.58%

ii) Paris/CAC down 113.62 or  3.01% 

iii) German DAX: down 195.16 or 2.49%

iv) Spanish ibex:down another whopping 310.10  or 3.77%

v) Italian bourse (MIB)  down 779.94 points or 4.50%

and the Dow: down 129.71 points or 0.93% 


And now the major USA stories of the day:

Your chart of the day:

(courtesy zero hedge)

The Subsidy Addiction: Jobs Vs Foodstamps

Tyler Durden's picture

In the aftermath of Friday's mediocre jobs report, and while we wait for the USDA to release the latest November foodstamp update which will almost certainly print at a new record high, here is yet another representation of a relationship we have shown on several occasions previously, yet which is always entertaining, and shows just what kind of "recovery" the US is undergoing. Presenting the indexed change of payrolls (green line) and foodstamps recipients (red). No explanation is necessary.
Some thoughts from Bloomberg Brief:
An ongoing concern is that growth in jobs continues to be dwarfed by the surge in food stamps. During the first 10 months of 2012 there were 1.01 million new additions to the USDA’s Supplemental Nutrition Assistance Program (SNAP), a 2.2 percent increase. During the same period, the number of nonfarm payroll jobs increased by 1.5 million, a 1.1 percent gain.

The results from the end of the recession in June 2009 are even more staggering. The number of food stamp recipients has rocketed 30 percent since mid-2009, yet the number of nonfarm payroll jobs has inched up a mere 2 percent over that same period. Considering the composition of those jobs – in low wage industries – the household sector is clearly suffering.

In a conference call last Thursday, a day before the jobs report, Scott Beattie, CEO of Elizabeth Arden noted that the company’s customers remain challenged by the economy. “These are customers that are living paycheck-to-paycheck, many of them reliant on government subsidy in food stamps and unemployment insurance and other kinds of government subsidies, and you see it,” he said.

Dick Boer, CEO of Koninklijke Ahold Nv, the Dutch owner of Stop & Shop, mentioned his concerns with this issue in late November. “We know that 15 percent of the Americans are living on food stamps today, and we know that most of them, even after two or three weeks, are short of money.

And David Dillion, the CEO of grocery store giant Kroger recently said that while the economy has gently improved, value customers are still stretched. “We still are getting a lot of food stamps, a very high dollar amount and a very high percentage amount, and that is definitely problematic.”


USA factory orders rise less than expected:

(courtesy Dow Jones newswires)

Orders to U.S. Factories Rose Less Than Forecast in December

Feb 4, 2013 10:25 AM ET

Orders placed with U.S. factories increased less than forecast in December, reflecting a drop in non-durable goods that partly countered gains in construction equipment and computers.
Bookings climbed 1.8 percent after a revised 0.3 percent drop in November that was initially reported as unchanged, figures from the Commerce Department showed today in Washington. The Bloomberg survey median called for a 2.3 percent gain. Demand for durable goods increased 4.3 percent, little changed from a 4.6 percent gain estimated last week, while non-durables dropped 0.3 percent on declines in petroleum and tobacco.
A fourth-quarter pickup in consumer spending is spurring companies including automakers such as Chrysler Group LLC and Ford Motor Co. (F), reviving a manufacturing industry that cooled in the second half of 2012. The acceleration extended into January, according to a gauge last week that showed factories expanded at the strongest pace in nine months.
"Manufacturing’s fine," said Brian Jones, senior U.S. economist at Societe Generale in New York, who projected a 1.9 percent gain in orders. "The economy continues to improve."
Estimates in the Bloomberg survey of 63 economists ranged from a drop of 0.3 percent to a 3 percent gain.
Job Prospects
A measure of job prospects fell in January for the first time in four months as more Americans said jobs were harder to get, another report showed. The Conference Board’s Employment Trends Index decreased 0.1 percent to 109.38 from the prior month’s revised reading of 109.47, the New York-based private research group said. The measure increased 2.7 percent from January 2012.Stocks fell, after the Standard & Poor’s 500 Index jumped to a five-year high, on concern over increasing political tension in Europe. The S&P 500 dropped 0.6 percent to 1,503.63 at 10:25 a.m. in New York.
Factory orders excluding the volatile transportation category increased 0.2 percent in December after falling 0.2 percent the previous month. Demand minus military hardware advanced 0.3 percent.The jump in bookings for durable goods was paced by a 12.2 percent increase in construction equipment and a 6.4 percent gain for computers.
Non-Durable Goods
The drop in orders for non-durable goods, reported today for the first time, may have been influenced by swings in prices. Demand for petroleum and coal products fell 0.6 percent in December, while tobacco slumped 23.1 percent.
Demand for capital goods excluding aircraft and military equipment, and including items such as computers, engines and communications gear, fell 0.3 percent compared with the 0.2 percent increase the Commerce Department estimated in its Jan. 28 durable goods report. The increase for November was revised up to 3.3 percent from 3 percent.
Shipments of those goods, used in calculating gross domestic product, climbed 0.2 percent, about the same as the previously estimated 0.3 percent gain. Total shipments advanced 0.4 percent, keeping the inventory-to-sales ratio at 1.27 months.
Today’s updated figures will probably not alter the data issued by the Commerce Department last week. Business investment in equipment and software climbed at a 12.4 percent annual rate in the fourth quarter, the best performance in more than a year, according to last week’s report.
Economy Stalls
Growth in the world’s largest economy unexpectedly stalled in the last three months of 2012 as military outlays plunged by the most in 40 years and inventories grew at a slower pace. Gross domestic product shrank at a 0.1 percent annual rate from October through December.
Factory inventories climbed 0.1 percent in December, today’s report showed. A smaller gain in stockpiles subtracted about 1.3 percentage points from growth last quarter.
The auto industry remains a source of strength for manufacturing and the economy. Light vehicles sold at a 15.2 million annual rate in January after 15.3 million in December, according to data from Ward’s Automotive Group.
Sales for Chrysler, majority owned by Fiat SpA, climbed to 117,731 cars and light trucks from 101,149 a year earlier, led by demand for its Dodge models, the Auburn Hills, Michigan-based company said last week in a statement. The Dodge Dart compact had its best month since its introduction in June.


The new figures suggest that by March 31.2013 the new debt to GDP for the USA will be 105%.

Treasury Forecasts $16.763 Trillion In Debt On March 31 Translating To 105% Debt/GDP

Tyler Durden's picture

Earlier today the US Treasury released its latest Borrowing Estimates for Q1 and Q2 of calendar 2013. In brief: in the ended quarter, the Treasury borrowed some $297 billion, $9 billion more than the $288 billion previously predicted. One reason for this miss is the build up of cash in the quarter which ended at $93 billion instead of the $60 billion initially expected. However the extra cash buffer will be used in Q1, in which Treasury now expects to burn some $63 billion instead of the $30 billion forecast before, ending the quarter with $30 billion in cash. To get there, Treasury will need to raise some $331 billion in debt in January through March, just shy of the prior estimate of $342 billion in funding need in this quarter. And since the US debt to the penny counter has been stopped since the debt ceiling breach, and is still at the December 31, 2012 debt limit of $16.432 billion, this means we now know, approximately, that US debt on March 31, 2013 will be $16,763,730,050,569.10, give or take a dime, or said otherwise, assuming a generous 1% sequential growth in Q1 GDP, a 105% debt/GDP in two months.
And what this means:

Well that about does it for tonight

I will see you tomorrow night.



Anonymous said...

Aubie Baltin
The most massive and most intelligent pools of capital on the planet are now looking to crowd into gold and silver. So far, they have been accumulating it on the QT so as not to drive their prices up before they have had a chance to buy back all the gold that they foolishly dumped from 1980 until 2001. This is great news for a sector that has been in a state of consolidation for over a year and strongly supports the thesis that 2013 will be a banner year for gold and silver – just as the Stock Markets will also be a banner year but on the downside for stock markets around the world.

Anonymous said...

monkey-"nefarious agenda"-you are wacky-lol

ssgtrader said...

Hi Havey Organ, can I say we loss quite a lot of Feb 2013 gold standing for delivery ? It is no longer 40 tones but maybe closer to 10 tons now ? Please help to clarify. Thanks !

Harvey Organ said...

No: 39.5 tonnes of gold standing.
we lost a few tonnes to probable cash settlements.

(to ssgtrader)

Anonymous said...

Just wanted to say thank you. My evening is not complete Neil I read your commentary.

Anonymous said...

Until. I pressed send to fast.

ssgtrader said...

thanks !

Anonymous said...

+1 on Aubie's comment.

Exactly what I see. It would appear, we are being held back so boats can be loaded.

Anonymous said...

-1 Aubie and 5:04 AM

Y-A-W-N. Same old story, different day... I guess you people think that if you say it enough it will happen. Keep telling yourself that.

Anonymous said...

silver is in short supply so the price is down from mid-40's to low 30's. yeah boy makes sense to me!

Anonymous said...

You bashers keep it coming-its what makes a market.

Bloomberg just did a nice piece on platinum shortages. It won't take long until they wag the dog on the other PM's.

Whether its real or not all we need is a story about gold shortages and then you better duck.

Jack said...

Price controls always lead to supply shortages.

Anonymous said...

Ha Ha ! This was too funny not to pass on to this site - came from The Golden Truth ~ Thanks Dave :

The illusion of freedom [in America] will continue as long as it’s profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way and you will see the brick wall at the back of the theater."- Frank Zappa

Budd said...

Bad Monkey go away! Your personal war with Heavey is of no consequence here! Harvey gives advice. He does not make anyone do anything they do not want to do! Your simplistic verbiage filled rhetoric has become "very very old and boring"! Stick a banana in that mug of yours and hit the tree tops Dude!!

Fred said...

No evidence??

When has that ever stopped the Precious Metal Guru.

"There is now evidence that the GLD and SLV are paper settling on the comex."

Evidence, we don't need no stinkin' evidence!!!!!

Anonymous said...

monkey,what would you be investing in,being the paper bug you are?

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