Saturday, March 23, 2013

Cyprus fails in Plan B and C/Russia so far refuses to help/Texas wishes to repatriate gold held in New York/

Good morning  Ladies and Gentlemen:

Gold closed down  $7.60 to $1606.20 (comex closing time).  Silver fell by 52 cents to $28.66.

Here are the final access closing of gold and silver:

gold:  $1609.20
silver: $28.76

In physical news at the comex, the CME reported 7 gold delivery notices filed equal to 700 oz , the number of gold ounces standing for delivery  rose by  5 contract or 500 oz and thus 12.86 tonnes of gold is standing for March delivery.  No doubt this is a record for gold deliveries in the off delivery (non active) delivery month.
The Texas pension fund which has over 1 billion dollars worth of gold stored in New York wishes to "repatriate" this gold back to Texas.

The big news of the day is Cyprus again. This morning we were greeted with news that all deals with Russia are now off the table. Cyprus is scrambling with Plan C to rape the private pension funds and replace them with worthless sovereign Cyprus bonds, and possibly sell their 13.9 tonnes of gold if indeed it is still there and not leased. It looks to me like Russia is waiting for Cyprus to fail and then they will swoop in and take the prize assets for pennies on the dollar.

Late in the day, Europe responded by raising the ante for poor Cyprus from 5.8 billion euros to 6.7 billion euros citing deteriorating conditions.
Cyprus, as a partner with the other 16 EMU nations supplied their share of money needed to fund Ireland, Greece, Portugal and Spain.  Now that they are in trouble, the EU are raping private property of Cypriot citizens.  Nice people, the EU!!

On the 20th of March Jim Sinclair had a question and answer meeting in New York which many attended.  We have a summary of questions asked of him and his answers. We will go over these and many other stories but first..............

Let us now head over to the comex and assess trading over there today:

The total gold comex open interest rose by 4481 contracts rising from 435,050 up to 439,531.    The non active front month of March saw it's OI rise by 3 contracts from 39 up to 42 .  We had only 2  notices filed yesterday so in essence we gained 5 contracts or 500  oz of additional gold will stand for March delivery.  The next big active delivery month is April which is 1 week away from first day notice (next Friday March 29).  Here the OI fell by 10,921 contracts from  152,272 down to 141,851.  The estimated volume Friday was mediocre at 161,767 when you consider the huge number of rollovers.  The confirmed volume Thursday was slightly better at 177,593.

The total silver open interest fell by 669 contracts from 151,593 down to 150,924. The open interest in silver refuses to budge .  The OI for the entire complex remains highly elevated. The active front month of March saw it's OI rise by 21 contracts from 378 up to 399. We had 14 delivery delivery notice filed on Thursday so in essence we gained 35 contracts or 175,000 oz of additional silver oz will  stand for the March delivery. The non active April contract fell by 54 contracts down to 329.  The next big active delivery month contract for silver is May and here the OI fell by 559 contracts from 80,293 down to 77,734 .  The estimated volume Friday was good at 37,626.   The confirmed volume on Thursday was also good at 38,847 contracts. 

Comex gold/March contract month:
March 22.2013    

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
803.687 (HSBC)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
 7   (700  oz)
No of oz to be served (notices)
35 (3,500) oz
Total monthly oz gold served (contracts) so far this month
4100  (41,000 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 0 deposits and 0   withdrawals.

We had 0   customer deposits:

total deposit: nil  oz

We had 1  customer withdrawals :

Out of HSBC:  803.687 oz

total customer withdrawal:  803.687 oz  

We had 2 major  adjustment:

i) out of HSBC vault: 10,717.521 oz was adjusted out of the dealer account and into the customer account at HSBC.

ii) out of the JPMorgan vault:  7471.628 oz was adjusted out of the dealer account and into the customer account

total number of oz adjusted out of the dealer (registered) accounts: 18,189.149 oz

Thus the dealer inventory falls again and rests tonight at 2.421 million oz (75.30) tonnes of gold.

The CME reported that we had 7 notices filed for 700 oz of gold today.   The total number of notices so far this month is thus 4100 contracts x 100 oz per contract or 41,000 oz of gold.  To determine how much will stand for March,  I take the OI standing for March (42) and subtract out today's notices (7) which leaves me with 35 notices or 3,500 oz left to be served upon our longs.

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

4100 contracts x 100 oz =  410,000 oz (served ) + 3,500 oz (to be served upon) = 413,500 oz or 12.86 Tonnes.

we gained another 5 contracts or 500 additional gold ounces will stand in March.  The amount standing is extremely large for a non active delivery month and I believe a record for a non delivery (non active) gold month.


March 21.2013:   The March silver contract month

Withdrawals from Dealers Inventory5,162.50 (Brinks)
Withdrawals from Customer Inventory 364,060.148 oz oz (Scotia)
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory  945,922.14 (Scotia, CNT)
No of oz served (contracts)92  (460,000, oz)  
No of oz to be served (notices)307  (1,535,000  oz) 
Total monthly oz silver served (contracts) 2078  (10,390,000  oz) 
Total accumulative withdrawal of silver from the Dealers inventory this monthxxxxx
Total accumulative withdrawal of silver from the Customer inventory this monthxxxxx

Friday, we  had good activity  inside the silver vaults.

 we had 0 dealer deposits and 1 dealer withdrawal.

Dealer withdrawal at Brinks:  5,162.50  oz

We had 2 customer deposits:

i) Into CNT:  400,299.25 oz
ii) Into Scotia:  545,622.89 oz

total deposit:  945,922.14 oz

We had 3 customer withdrawals of silver:

i) Into Brinks: 302,330.000 oz
ii) Into CNT:  45,562.34 oz
iii) Into Delaware:  16,167.808 oz

total customer withdrawal:  364.060.148

we had 1 adjustment:

Out of the Scotia vault:  10,339.44 oz leaves the dealer at Scotia and enters the customer account.  We also had a tiny counting error correction of 10.49 oz added to HSBC

Registered silver remains Friday at :  42.536 million oz
total of all silver:  164.104 million oz.

The CME reported that we had 92 notices filed for 460,000 oz of silver for the March active contract month. To obtain what is left to be served upon our longs, I take the OI standing for March (399) and subtract out Friday's notices (92) which leaves us with  307 notices or 1,595,000 oz left to be served upon our longs. 

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

10,390,000 oz (served)  +  1,535,000 oz (to be served upon)  =  11,925,000 oz

we gained 175,000 oz of additional  silver standing.

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.

Now let us check on gold inventories at the GLD first:

March 22/2013:



Value US$63.106   billion

March 21.2013:



Value US$63.343   billion

 March 20.2012:



Value US$63.145  billion

March 19.2013:



Value US$63.273  billion

we neither gained nor lost any gold at the GLD.

And now for silver:

March 22.2013:

Ounces of Silver in Trust343,645,323.100
Tonnes of Silver in Trust Tonnes of Silver in Trust10,688.56

March 21/2013:

Ounces of Silver in Trust340,262,979.100
Tonnes of Silver in Trust Tonnes of Silver in Trust10,583.36

March 20.2013

Ounces of Silver in Trust340,262,979.100
Tonnes of Silver in Trust Tonnes of Silver in Trust10,583.36

 March 19.2013:

Ounces of Silver in Trust345,095,059.100
Tonnes of Silver in Trust Tonnes of Silver in Trust10,733.66

March 18.2013:

Ounces of Silver in Trust345,095,059.100
Tonnes of Silver in Trust Tonnes of Silver in Trust10,733.66

Today the inventory at the SLV rose by a huge 3.383 million ounces of silver.
Just look at the figures above: on March 19 we had 345.09 million oz; March 20 it went down by a whopping 4.835 million oz and then up again to close this week up by 3.383 million oz. And for all of this action the price of silver hardly moved in the week. I have a hard time believing that this ETF has the silver they claim it has.


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 0% percent to NAV in usa funds and a positive 0.3%  to NAV for Cdn funds. ( March 22 2013)   

2. Sprott silver fund (PSLV): Premium to NAV rose to 1.72% NAV  March 22/2013
3. Sprott gold fund (PHYS): premium to NAV  rose to 1.95% positive to NAV March 22/ 2013.

It is interesting that the traders on raid days pick on shorting Central Fund of Canada but they are leaving the Sprott funds alone.

Strange indeed!


At 3:30 Friday, we saw the release of the COT report which measures position levels of our major players.  The data is from Tuesday March 12 through to March 19.

Let us head over and see the gold COT report.

Gold COT Report - Futures
Large Speculators
Change from Prior Reporting Period

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, March 19, 2013

Our large speculators:

Those large specs that have been long in gold added a rather large 7278 contracts to their long side.

Those speculators that have been short covered a monstrous 13,825 contracts from their short side

Our commercials:

The commercials that have been long in gold pitched a huge 12,873 contracts from their long side.

Those commercials that have been short in gold added a huge 7370 contracts to their short side.

Our small specs:

Those small specs that have been long in gold covered a tiny 484 contracts from their long side
Those small specs that have been short in gold  added 376 contracts to their short side.


The commercials went net short by 20,243 contracts.  They are doing their best trying to contain the price of gold.  This has to be construed as bearish.


And now the silver COT

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

Tuesday, March 19, 2013

You can see how tame the figures are!! 

First our large speculators:

Those large speculators that have been long in silver added a tiny 70 contracts to their long side
Those large speculators that have been short in silver added a rather large 3127 contracts to their short side.

Our commercials;

Those commercials that are long in silver and are close to the physical scene added a large 3085 contracts to their long side.

Those commercials that are short in silver added only a tiny 101 contracts to their short side

Our small specs:

Those small specs that are long in silver added only a tiny 434 contracts to their long side
Those small specs that are short in silver added 361 contracts to their short side.


the bankers are certainly not providing much of the paper shorts.
The commercials went net long by 2985 contracts and that must be construed as bullish.

It is amazing that when gold OI rises silver OI falls, when gold OI falls silver OI rises.
And now the COT is completely at opposite ends of the spectrum.

And now for the major physical stories we faced today:

First off, we have gold trading in Europe early Friday morning

Already Europe is reacting to the EU considering deposit and capital controls.

This should have been extremely positive for gold/silver trading)

(courtesy Goldcore)

Gold +2.5% In Euros – EU Considering Deposit Withdrawal Restrictions And Capital Controls

-- Posted Friday, 22 March 2013 | Share this article| Source:

Today’s AM fix was USD 1,611.50, EUR 1,246.62 and GBP 1,059.99 per ounce.
Yesterday’s AM fix was USD 1,608.75, EUR 1,246.42 and GBP 1,059.43 per ounce.
Silver is trading at $29.05/oz, €22.52/oz and £19.19/oz. Platinum is trading at $1,588.50/oz, palladium at $751.00/oz and rhodium at $1,250/oz.
Gold climbed $8.70 or 0.43% and closed yesterday at $1,614.40/oz. Silver reached $29.31 and finished +1.29%.

Cross Currency Table – (Bloomberg)
Gold is slightly lower in all major currencies this morning but remains near a 4 week high, underpinned by safe haven demand due to concern of a financial meltdown in Cyprus and the risk of contagion in other European countries.
Gold bullion is headed for its second consecutive weekly rise and its biggest weekly rise in four months.
Gold is 1.4% higher in dollar terms and 2.5% higher in euro terms. In British pounds, gold has consolidated after the gains seen in sterling in recent weeks and is 0.8% higher for the week.
The clock is ticking for Cyprus to come up with a solution to clinch an international ‘bailout’, otherwise it could face the collapse of its financial system and exit from the euro zone.
There is a slow but creeping realisation that this crisis will almost certainly escalate. Financial contagion could ensue due to risks to payment systems and bank deposits which are often guaranteed by near insolvent governments.
Events in Cyprus look like that they could precipitate bank runs in Greece, Spain and Italy with obvious negative ramifications for the entire EU banking and financial system.
Senior euro zone officials acknowledged in a confidential conference call yesterday that they were "in a mess" and discussed imposing capital controls to insulate the currency area from a possible collapse of the Cypriot economy.
In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean forcing Cyprus to abandon the euro.

Gold In EUR, 10 Day - (Bloomberg)
The ECB has warned of the "great danger" of a bank run once banks reopen next week and has said that they may enforce capital controls overriding the government of Cyprus. Other draconian restrictions on people's private property include an indefinite “freezing” of savings accounts, making bank or wire transfers dependent on central bank approval and lower ATM and bank deposit withdrawal limits.
While, the capital controls will be designed "so that citizens have access to sufficient cash to go about their lives", they are likely to lead to a further collapse of consumer confidence in Cyprus and the collapse of commerce as businesses are greatly hampered in carrying out every day business activities.
This is not the first time this has happened in the EU and unfortunately, it will not be the last time.
Only last June, the Bank of Italy authorized the suspension of payments by Bank Network Investments Spa (BNI) without communicating anything to depositors. The BNI, a large Italian bank, suspended operations and clients with bank accounts could not write checks, pay bills, make mortgage payments, and use ATMs or debit and credit cards.
At the time, it was reported that not alone was the EU considering imposing a limit on the amount of money that can be withdrawn from ATMs but they were also considering imposing border checks and introducing currency controls to stop a flight of capital out of European countries.
As well as limiting cash withdrawals and imposing capital controls, the EU discussed suspending the Schengen Agreement, which allows for visa-free travel among 26 countries, including most of the EU, though not Britain and Ireland.
While EU officials may again manage to patch things up and not implement such extreme measures in the short term, unfortunately extreme measures seem quite likely in the long term given the scale of the crisis in the EU. There is also the risk of Japan, the UK and U.S. seeing their various debt crises deepening in the coming months and similar capital controls are more than possible.
These are risks that we have long warned of and it gives us no pleasure to see them come to pass.

Gold In USD, 10 Day - (Bloomberg)
However, people who own physical bullion in their possession and in safe storage internationally remain positioned and prepared for these threats.
These real risks have huge implications and ramifications that most have yet to fully consider and comprehend.
The silly debate as to whether gold is a safe haven or not, or a bubble or not, will be seen for what it is very soon.
Those, such as Paul Krugman, Nouriel Roubini and Warren Buffett, who have suggested gold is a barbaric relic, is a bubble and is not a safe haven, and have dissuaded investors from diversifying some of their wealth into gold, will be shown to have misled investors and savers and will lose credibility.
They will no doubt engage in some furious back pedalling and claim that “nobody saw this coming” when indeed there have been many financial and economic analysts warning about exactly these risks for years.
Rather than sitting nervously and passively and awaiting the coming financial dislocations and expropriations, investors and savers need to be prepared for the uncertain financial scenarios that seem increasingly likely.
One of the most published academics on gold in the world, Dr Brian Lucey of Trinity College Dublin (TCD) wrote yesterday that "the research evidence is that gold is usually a safe haven asset”.
Lucey pointed out how physical gold is financial insurance or a hedge against political uncertainty:
“Interestingly financial gold, such as ETFs etc are useful as safe havens against economic events and physical gold against political events. Both are in play in Cyprus and so the safe haven nature of gold should continue to provide comfort for purchasers."

Gold In GBP, YTD - (Bloomberg)
Hoping for the best, but preparing for less benign scenarios remains prudent.


Gold Seen Extending Rebound as Cyprus Revives Bulls – Bloomberg
Gold heads for biggest weekly rise in 4 months on Cyprus – Reuters
Gold futures pause after gains – Market Watch
Shanghai Bourse Mulls After-Hours Trade in Gold, Silver – Fox Business
Video: Gold Fundamentals "Absolutely Intact" - $1,800/oz By September – Business Week)
Getting Beyond the Fed – NY Sun
"It Is Only In Safe Hands If It Is Kept In Switzerland" – Zero Hedge
President Nixon: The Man Who Sold the World Fiat Money – CFA Institute
Could a “Cyprus-Like” Situation Happen in US? It Already Has – Sense on Cents
For breaking news and commentary on financial markets and gold, follow us on Twitter.


 The following is a big story.  Texas is considering "repatriating" its pension fund's gold supply
from New York to Texas.  The Federal Research Bank of NY only holds official gold for foreign nations and USA official gold.  Thus it looks like the only place that would house Texas' gold would be official comex sites.  If the comex has been settling with paper obligations then this repatriation will be just as fascinating as the German request to relocate its gold back to Frankfurt.

(couresy GATA/Texas Tribune of Austin Texas)

Texas considers repatriating university pension fund's gold

The university pension fund's gold almost certainly is NOT being stored by the Federal Reserve Bank of New York, which stores only central bank gold. Most likely the pension fund's gold is just a matter of Comex futures contracts, claimable against gold held in Comex-approved vaults.
* * *
Perry, Some Lawmakers Want State's Gold Back in Texas
By Emily Ramshaw and Aman Batheja
The Texas Tribune, Austin
Thursday, March 21, 2013
Call it the Rick Perry gold rush: The governor wants to bring the state’s gold reserves back from a New York vault to Texas.
And he may have legislative support to do it. Freshman Rep. Giovanni Capriglione, R-Southlake, is carrying a bill that would establish the Texas Bullion Depository, a secure state-based bank to house $1 billion worth of gold bars owned by the University of Texas Investment Management Company, or UTIMCO, and currently stored by the Federal Reserve.
The idea isn’t entirely new. Some Republican members worked on a gold bill last session that was never filed. And gold-standard-backing Ron Paul, the former Texas congressman, has raised repeated concerns about the safety of states' gold supplies.
"If you think gold is a hedge, or a protection, you always want it as close to the individual and the entity as possible," Paul told the Tribune on Thursday. "Texas is better served if it knows exactly where the gold is rather than depending on the security of the Federal Reserve."
Bringing Texas' gold home has gained more traction this legislative session because of Perry's vocal support for it. On conservative radio host Glenn Beck's show on Tuesday, the governor said Texas was "in the process" -- the legislative process, he later clarified -- of "bringing gold that belongs to the state of Texas back into the state." He argued that the state was at least as capable as the Federal Reserve of safeguarding Texas' "physical gold."
"If we own it," Perry said, "I will suggest to you that that's not someone else's determination whether we can take possession of it back or not."
State Rep. Lon Burnam, D-Fort Worth, said he was familiar with Capriglione's bill but was skeptical that it addresses a legitimate problem facing the state.
"We've got plenty of real problems that we're not going to deal with this session," Burnam said. "Let's deal with them."
Capriglione said he was at a Tea Party event in Tarrant County this year where Perry spoke about the state's gold investments as an economic development tool. Since then, he has been working with Perry's office on the bill.
"Something on the scorecards of a lot of these businesses in deciding whether they want to come to Texas is stability and gold as being one of those items," Capriglione said. "I think it's been in his consciousness for a while in trying to get some sort of depository in the state of Texas."
He has also spoken with UTIMCO, which owns the 6,643 gold bars currently housed underground in New York City.
"We're trying to figure out the right amount of gold to have here in Texas," Capriglione said. "We don't want just the certificates. We want our gold. And if you’re the state of Texas, you should be able to get your gold."
The United States and many other countries stopped pegging their currencies to the gold standard decades ago. Capriglione said the bill is not about putting Texas on its own gold standard. Rather, a depository would give the state a reputation as being more financially secure in the event of a national or international financial crisis.
"For us to have our own gold, a lot of the runs on the bank and those types of things, they happen because people are worried that there's nothing there to back it up," Capriglione said. "So I think this cures a problem before it can happen."
Physically transporting gold that various state entities own from New York City or other banks to Texas would be impractical from a security and logistics standpoint, Capriglione said. He believes it makes more sense to sell the gold Texas has elsewhere and repurchase it within state lines.
He said he doesn't think the measure would be a significant expense, because the gold bars could be safeguarded in a small area, no bigger than 20 square feet.
Capriglione said he is working on revisions to the bill to address some concerns he has heard. He plans to make sure the bill would not cause the state to change its overall asset portfolio to be more heavily invested in gold. Also, to lower the bill's costs, he expects to change the language to allow some of the administrative costs of building and running the depository to be handled by the private sector.
Such a bill might not divide lawmakers along strictly party lines. State Sen. Rodney Ellis, D-Houston, called the bill "an interesting concept" but said he would want to learn more about it and talk to "colleagues in the financial industry" before weighing in on its merits.


The following is a Bloomberg commentary on what the big giants in the mining field
are thinking.

(courtesy Bloomberg) 

Gold giants shrink to fit as Paulson pushes breakup

By Liezel Hill
Bloomberg News
Wednesday, March 20, 2013
The 10 biggest gold companies, led by Barrick Gold Corp., spent more than $100 billion in the past 20 years buying new mines and projects around the globe. Now they're feeling pressure to throw the strategy into reverse.
Gold Fields Ltd. spun off most of its South African assets in February. Billionaire hedge-fund investor John Paulson is calling for a breakup of Johannesburg-based AngloGold Ashanti Ltd. Barrick, which has 27 mines, is selling assets after an acquisition and cost overruns helped erase $27 billion of the Canadian company's market value.
A Bloomberg Index of 14 large gold miners has lost 27 percent in the past year, worse than the 7.2 percent drop in a similar gauge of global oil companies. The gold industry, which underperformed the metal for five of the last seven years, has tried to stop the slide by ending gold-price hedges, raising dividends, building mines, and, most recently, pledging spending discipline. Spinning off or selling assets may be its next option.

"The next fad is going to be the unbundling of the majors," said Mark Bristow, chief executive officer of Randgold Resources Ltd. The Jersey, Channel Islands-based company believes the optimal number of mines is "four or five, six at a push," he said.
Such moves would follow the example of international oil companies that have split up to unlock value. ConocoPhillips, the largest independent U.S. oil and natural gas producer, spun off its refining unit in May, less than a year after Houston-based Marathon Oil Corp. listed its refinery network as a separate company.
Shareholders have grown cold on further expansion as valuations in the industry declined. The ratio of the largest gold miners' enterprise value to their earnings before interest, tax, depreciation, and amortization dropped to 6.3, less than half the multiple at the end of 2010, data compiled by Bloomberg show.
The gold-mining strategy of bulking up was led by Barrick, which became the industry leader in 2006 when it bought Placer Dome Inc. for $10.2 billion. Now operating across four continents, Barrick saw the estimated cost of its Pascua Lama mine on the Argentina-Chile border more than double to as much as $8.5 billion and it took a $3 billion writedown on a Zambian copper mine last month.
"It's like herding cats to manage something like that," said George Topping, a Toronto-based analyst at Stifel Nicolaus & Co. "It's very difficult across all those different time zones, different cultures, tax regimes, politics."
Investors, weary of operational setbacks and soured takeovers, have turned to gold-backed exchange-traded products that track the price of the metal.
SPDR Gold Trust, the largest gold ETP, has lost 3 percent in the past year, a smaller decline than gold equities. The S&P 500 rose 11 percent and the gold price dropped 2.4 percent in the period. Gold equities are now trading at a discount to the broader stock market.
"The mining industry has lost a lot of appeal, of interest, because of poor guidance, poor delivery, overpromising, cost overruns," said Gerald Panneton, a former Barrick executive who’s CEO of Detour Gold Corp., the operator of one mine in Ontario. The global gold miner "is not a model that is sustainable," he said in a March 5 interview.
To win back investors, Barrick and competitors including Newmont Mining Corp., the second-biggest producer by sales, are promising they'll focus on margins and containing soaring costs rather than boosting output.
Returns will drive production, rather than the other way around, Barrick CEO Jamie Sokalsky said Feb. 25. Barrick says it will defer, shelve, or sell assets that don't meet his requirements for returns and cash flow.
"Our overriding objective is to translate the company's strengths into higher shareholder returns and we'll always consider opportunities to advance that objective," said Andy Lloyd, a Barrick spokesman.
Breaking up the biggest gold producers could result in higher valuations for the parts compared with the whole, according to Stifel Nicolaus' Topping. It would also make it easier for companies to expand output and replenish reserves, said Jorge Beristain, an analyst at Deutsche Bank AG in Stamford, Connecticut.
"There is a logic in sort of shrinking to grow, if you will, as the type of growth that they would be able to tackle would be less risky and more digestible in size," Beristain said in a phone interview March 15.
Paulson, the biggest shareholder in AngloGold, last month told investors in his firm Paulson & Co. that the miner might unlock value if it were to split its business between South African assets and those outside the country, according to a letter obtained by Bloomberg News.
Armel Leslie, a spokesman for Paulson & Co., and Stewart Bailey, a spokesman for AngloGold, declined to comment on the potential split of assets. AngloGold is looking at a "range of options" to improve the business, CEO Mark Cutifani said on a Feb. 20 conference call.
Paulson's firm is the biggest investor in the SPDR Gold Trust, according to data compiled by Bloomberg. His $900 million Gold Fund, which is invested mainly in gold stocks and derivatives, fell 26 percent this year through February, according to a client update obtained earlier this month by Bloomberg News. The fund declined 25 percent in 2012, two people familiar with the matter said in February.
Still, there's no unanimity that the answer to the gold industry's plight lies with the breakup of established producers.
Gold Fields has fallen 20 percent in Johannesburg since it spun out its South African assets through the listing of Sibanye Gold Ltd. Feb. 11. The combined market capitalizations of the two companies is 17 percent less than Gold Fields' value on the last trading day before the split. The Bloomberg Industries index of the largest producers fell 12 percent over the same period.
African Barrick Gold Plc has also disappointed since it was spun off from Barrick in March 2010, dropping 60 percent. The African unit has been dogged by operational setbacks and struggled to meet production targets. Barrick said in January it ended talks on the sale of its majority stake in African Barrick to China National Gold Group Corp. after no agreement was reached.
Randgold, which owns mines and projects in Africa, has risen 13 percent in New York in the past 24 months, compared with a 34 percent decline in the Philadelphia Stock Exchange Gold and Silver Index of 30 producers. The company may sell one of its smaller assets if it found or acquired "another Kibali," Bristow said, referring to the Democratic Republic of Congo gold mine that Randgold and AngloGold jointly acquired in 2009.
"That's a perfect value creation," Bristow said in a March 6 presentation in Toronto. "We want to have four or five mines, we think 1.5 to 2 million ounces, and focus on the quality."
There would probably be investor appetite for more regionally focused companies if some of the biggest miners were to split along geographical lines, Deutsche Bank's Beristain said. That's partly because of heightened concern about geopolitical risk in developing countries as governments seek increased royalties, taxes, and other commitments from mining companies.
Barrick could improve the valuation of its shares by spinning off assets in Australia and Papua New Guinea and selling its remaining 74 percent stake in African Barrick, said Tony Lesiak, a Toronto-based analyst at Macquarie Capital Markets.
Both Barrick and Greenwood Village, Colorado-based Newmont could unlock value by splitting off assets or listing mines separately and retaining a stake as a holding company that receives dividends, said Caesar Bryan, a portfolio manager at Gabelli & Co. in Rye, New York. Newmont and Barrick could also generate savings by combining their Nevada operations, he said.
Newmont declined to comment on speculation about the sale or purchase of specific assets.
"The mantra even until probably as recently as two years ago was: Get out of the U.S., get out of Canada, get out of Australia, get out of the safe geographies, and chase growth in emerging markets," Beristain said. "The pendulum is really swinging back toward people questioning the value of this kind of international, almost over-diversification that we've seen."


Most of you are aware of the seminar in NY sponsored by Jim Sinclair.
Here is a summary of what happened during the session:

(courtesy anglofareast/Jim Sinclair/GATA)

Summary of Jim Sinclair's New York seminar

6:39p HKT Friday, March 22, 2013
Dear Friend of GATA and Gold:
The Anglo Far East bullion people have posted a summary of gold trader and mining entrepreneur Jim Sinclair's gold seminar in New York this week:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

And now for our paper stories:  

First  your early market sentiment which shaped the trading in NY:.

No question about it today.  It was all about Cyprus.

First we learned that  Russia rejected the latest Cyprus bailout and then Europe rejected plan B
and Plan C

The latest proposal of one of shifting the bad assets of Laiki bank together with the non guaranteed depositors into a bad bank and then merge the largest bank, Bank of Cyprus with Laiki bank. This would have saved Cyprus 2 billion euros and then they would create a solidarity fund by raping the pension funds plus future gas find revenues to capture the remaining 3.8 billion euros needed.

The offer was spurned by the EU:

(courtesy zero hedge)

Europe, Russia Reject Latest Cyprus Bailout Plan Before It Is Even Voted By Parliament

Tyler Durden's picture

Yesterday, when we described the latest Cyprus bailout proposal being (belatedly) debated by the Cyprus parliament and soon to be voted, we wondered how long before the Troika rejects it outright.  After all the "Solidarity Bailout" Plan C (or whatever it is) did not do what Germany more than anything wanted to accomplish - punish Russian depositors as this entire farce has been nothing but a political gambit dictated by Germany from the onset. And so while GETCO's entire army of algos awaits the flashing red headline with a touch of optimism to unleash robotic buying of ES and EURUSD, we fast forward to the inevitable denouement, which is, not surprisingly, bad news for Cyprus, because as the FT reports, confirming our initial skepticism, "European officials rejected Cyprus’ plans for an alternative package to save its banking sector and remain in the euro, starting a fresh round of talks with the island nation’s government on Friday."
Full details:
The latest plan involved winding up Laiki, the island’s second-largest lender, and split it into a “good” and “bad” bank, with larger deposits over €100,000 folded into the latter. Deposits up to €100,000 would be guaranteed and bank jobs were to be safeguarded. 

But several of its elements – such as raising €2bn by nationalising the state pension fund and issuing bonds based on future revenues from offshore gas deposits – continued to be seen as non-starters by Brussels and Berlin.

“There was some discussion of going back to the original plan of a bank levy, but there are objections from the central bank,” said one person with knowledge of the talks.

The dismissal of the plan comes as time is running out for the island nation to agree on a plan to raise €5.8bn and avert financial collapse before the European Central Bank suspends funding on Monday.

There were already long lines at cash machines in Nicosia on Friday morning and one Cypriot official summed up the sense of desperation saying: “We are waiting for a messiah to come and save us, and of course, there is none”.

Indeed, Angela Merkel, German Chancellor, on Friday told lawmakers that the nationalisation of Cyprus’ pension funds was not acceptable.
Elsewhere, pouring gas on the non-bailout fire, was Russia which Bloomberg reported has crushed all hopes it would swoop in as an alternative white knight, and bailout Cyprus. After all why would it: the worse the situation on the ground, already blamed on Merkel and the Troika, the greater its leverage, and the more power it has to acquire any and all Cypriot assets for free if and when Cyprus is "spun off" from Europe. From Bloomberg:
Russia spurned Cyprus’s offers of assets for a bailout as the island nation’s lawmakers debate legislation to avert a financial collapse.

“I think we are not able to get the support that we wanted to get,” Cypriot Finance Minister Michael Sarris said in an interview after checking out of the Lotte Hotel in downtown Moscow. “But we must go back home because things are getting serious.”

Russia has ended talks with Cyprus and will decide on participating in restructuring debt after the so-called troika overseeing euro-area bailouts, makes its decision, Finance Minister Anton Siluanov told reporters today in Moscow. The troika comprises the EU, ECB and International Monetary Fund.
Bottom line: Europe will not agree to any plan that does not promote "debt sustainability", i.e., impairment of Russian oligarch savings, which in turn is a non-starter in Cyprus, and would lead to an immediate trade war with European energy supplier Russia.
That is, in a nutshell, the stalemate as we head into the weekend, and a Monday Cyprus bank holiday, during which the ECB has issued the supreme bluff, and said it would cut off all the funding to the small island.
It is certainly shaping up as a fun weekend.


The following is the official rejection by Russia  of extending help to Cyprus.
In essence Russia is waiting in the wings to pounce of valuable Cypriot assets for pennies on the dollar:

(courtesy Bloomberg)

Russia Rejects Cyprus Financial Rescue Bid as Deadline Looms

Russia spurned Cyprus’s offers of assets for a bailout as the island nation’s lawmakers begin debate on legislation to avert a financial collapse.
“I think we aren’t able to get the support that we wanted to get,” Cypriot Finance Minister Michael Sarris said in an interview after checking out of the Lotte Hotel in Moscow. “But we must go back home because things are getting serious.”
Cypriot lawmakers begin debating legislation today to prevent a financial meltdown as the European Central Bank threatens to cut off a lifeline for the country’s banks in three days unless a bailout agreement with the European Union is reached. Russian companies and individuals may have about $31 billion of deposits in Cyprus, which in turn is the biggest source of foreign direct investment in Russia.
“The only thing that Cyprus could hope for is Gazprom buying some reserves from them,” Vladimir Kolychev, head of research at Societe Generale SA’s Rosbank (ROSB) unit in Moscow, said by phone. “It’s not clear what these gas reserves are worth, and apparently Gazprom wasn’t particularly interested.”
Russia has ended talks with Cyprus and will decide on participating in restructuring debt after the so-called troika overseeing euro-area bailouts makes its decision, Finance Minister Anton Siluanov told reporters today. The troika comprises officials from the European Commission, ECB andInternational Monetary Fund.

Door Open

“We didn’t close the door, didn’t say we won’t discuss anything,” Prime Minister Dmitry Medvedev said today at a briefing in the Russian capital with Jose Barroso, head of the European Commission. While “we are prepared to discuss various options for supporting” Cyprus, Russia’s possible assistance is contingent on a consensus over a rescue plan between the nation and the EU, he said.
A solution to the crisis “can be found” and it must be acceptable to all members of the currency union, Barroso said. “I believe there is no time to lose,” he said.
Sarris met with First Deputy Minister Igor Shuvalov and Siluanov on March 20, asking Russia to restructure a 2.5 billion-euro ($3.2 billion) loan that was granted in December 2011 by extending its duration beyond 2016 and lowering the rate. The Mediterranean island nation is seeking to overcome a deadlock after lawmakers rejected an unprecedented 5.8 billion- euro levy on bank deposits that the Eurogroup proposed.

‘Not Ready’

“I think the loan will be extended and the conditions adjusted,” Sarris said. “But the rest of the support, we are not ready to have concluded anything.”
A new loan to Cyprus wasn’t considered because it would have exceeded a European debt limit, Siluanov said. Cyprus had asked Russia for about 5 billion euros, three Russian government officials said yesterday, asking not to be identified because the talks were private.
The euro-area nation sought to attract Russian capital into a proposed investment fund that would include gas, banking and other assets, intended to help raise the 5.8 billion euros needed to trigger emergency loans, Siluanov said. “Investors didn’t show interest,” he said.
OAO Rosneft (ROSN) and OAO Gazprom (OGZD), Russia’s state-run oil and gas producers, received an offer only to participate in tenders for Cypriot offshore assets and weren’t interested, a Russian government official said today. State-run OAO Sberbank (SBER) and VTB Group, Russia’s two largest lenders, said they didn’t plan to buy assets in Cyprus.

Cypriot Commitment

Sarris said March 20 that talks would last “as long as it takes,” while his hotel room had been booked until March 25, according to hotel reception.
The euro appreciated 0.2 percent to $1.2929 at 1:52 p.m. in Moscow. Russia’s Micex Index (INDEXCF) declined 0.8 percent to 1,448.11, while the ruble was little changed at 34.9767 against the central bank’s target dollar-euro currency basket.
Russian companies and individuals have $31 billion of deposits in Cyprus, according to Moody’s Investors Service. Including loans to companies registered in Cyprus, Russia’s exposure is about $60 billion, Moody’s estimates.
To contact the reporters on this story: Olga Tanas in Moscow at; Ilya Arkhipov in Moscow at


 the Eurozone is now considering capital controls to protect the collapse of Cyprus:

(courtesy Reuters/GATA)

Euro zone considers capital controls to protect against collapse of Cyprus

Russia Rebuffs Cyprus; EU Awaits Bailout 'Plan B'
By Michele Kambas and Lidia Kelly
Friday, March 22, 2013
Cyprus' finance minister left Moscow empty-handed on Friday after Russia turned down appeals for aid, leaving the island to strike a bailout deal with the European Union before Tuesday or face the collapse of its financial system.
The rebuff left Cyprus looking increasingly isolated, with the deadline looming to find billions of euros demanded by the EU in return for a 10 billion euro ($12.93 billion) bailout.
Without it, the European Central Bank said on Wednesday, it would cut off emergency funds to the country's teetering banks, potentially pushing Cyprus out of Europe's single currency.
"The talks have ended as far as the Russian side is concerned," Russian Finance Minister Anton Siluanov told reporters after two days of crisis talks with his Cypriot counterpart, Michael Sarris.
Having angrily rejected a proposed levy on tax deposits in exchange for the EU bailout, Nicosia had turned to the Kremlin to renegotiate a loan deal, win more financing, and lure Russian investors to cut-price Cypriot banks and gas reserves.
Wealthy Russians have billions of euros at stake in Cyprus' outsized and now crippled banking sector.
But Siluanov said Russian investors were not interested in Cypriot gas and that the talks had ended without result.
Sarris was due to fly home, where lawmakers were preparing to debate measures proposed by the government to raise at least some of the 5.8 billion euros required to clinch the EU bailout.
They included a "solidarity fund" bundling state assets, including future gas revenues and nationalized pension funds, as the basis for an emergency bond issue likened by JP Morgan to "a national fire sale."
They were also considering a bank restructuring bill that officials said would see the country's second largest lender, Cyprus Popular Bank, split into good and bad assets, and a government call for the power to impose capital controls to stem a flood of funds leaving the island when banks reopen on Tuesday after a week-long shutdown.
There was no silver bullet, however, and Cyprus's partners in the 17-nation currency bloc were growing increasingly unimpressed.
"I still believe we will get a settlement, but Cyprus is playing with fire," Volker Kauder, a leading conservative ally of German Chancellor Angela Merkel, told public television ARD.
Merkel told lawmakers that nationalization of pension funds was unacceptable as a way to plug a hole in finances and clinch the bailout, parliamentary sources said. They quoted the chancellor as saying debt sustainability and bank restructuring would have to be the core of any deal, which she called a matter of "credibility."
Senior euro zone officials acknowledged in a confidential conference call on Wednesday that they were "in a mess" and discussed imposing capital controls to insulate the currency area from a possible collapse of the small Cypriot economy.
Cyprus itself refused to take part in the call, minutes of which were seen by Reuters. Several participants described its absence as troubling and reflecting the wider confusion surrounding the island's predicament.
In Brussels a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus' biggest banks being wound up, wiping out the large deposits it has sought to protect and probably forcing the country to abandon the euro.
"If the financial sector collapses, then they simply have to face a very significant devaluation, and faced with that situation, they would have no other way but to start having their own currency," the EU official said.
Cypriot banks have been crippled by their exposure to Greece, the centre of the euro zone debt crisis.
There were long queues at ATMs on Thursday and angry scenes outside parliament, where hundreds of demonstrators gathered after rumors spread that Popular Bank would be closed down and its staff laid off.
"We have children studying abroad and next month we need to send them money," protester Stalou Christodoulido said through tears. "We'll lose what money we had and saved for so many years if the bank goes down."
Cypriots have been stunned by the pace of the unfolding drama, having elected conservative President Nicos Anastasiades barely a month ago on a mandate to secure a bailout. News that the deal would involve a levy on bank deposits, even for smaller savers, outraged Cypriots, who raided cash machines last weekend.
While EU lenders, notably Germany, had wanted uninsured bank depositors to bear some of the cost of recapitalizing the banks, Cyprus feared for its future reputation as an offshore banking haven and planned to spread the burden also to small savers whose deposits under E100,000 were covered by state insurance.


During the morning NY session optimism was prevalent:

(courtesy zero hedge)

Euro Surges On Optimism Cyprus To Be "Fixed" In Hours

Tyler Durden's picture

EURUSD (and implicitly the algo-connected S&P 500 futures market) is surging on the basis of optimism (for the new 'deposit tax plan') from the head of the party that abstained from the previous 'deposit haircut vote'.
It seems 'cautious optimism' is contagious but the irony of this politician's two-faced hypocrisy driving any market reaction is mind-numbing. EUR has broken above 1.30, Italian and Spanish bonds are rallying, and Italian stocks are now green for the week.

President Nicos Anastasiades' ruling DISI party has said a solution satisfactory to the troika may be possible within hours. Speaking to reporters, deputy leader Averof Neophytou said: There is cautious optimism that in the next few hours we may be able to reach an agreed platform so parliament can approve these specific measures which will be consistent with the approach, the framework and the targets agreed at the last Eurogroup.

Charts: Bloomberg


That was refuted 40 minutes later:

And Rejected: 40 Minutes Later "Optimism" Denied By ECB

Tyler Durden's picture

Moments after the last Hopium and Optimism driven surge in the EURUSD, we asked a simple question:

"so what happens if Cyprus is not fixed within hours?"

...we just got our answer, courtesy of the perfectly expected ECB rejection, which this time waited a whopping 40 minutes before showing Cyprus who's boss


(we are not sure the following will be acted upon)

Then bang!!  The amount of money needed to be raised by Cyprus for the bailout has now been increased from 5.8 billion euros to 6.7 billion euros as "conditions worsened"

Monday should be interesting!!

(courtesy zero hedge)

"The Waterfall Of Reality": A Visual History Of Cyprus' Credit Rating

Tyler Durden's picture

It was May in 2010 that Greece suffered its first bailout by its Eurozone peers. At that moment it effectively went bankrupt, however it took nearly three years for reality to set in. Yet it wasn't until months later that Greece's smaller (as we are constantly reminded) neighbor was first downgraded from its legacy "pristine" status, by the jokes that are the "Big 3" credit rating agencies. That downgrade unleashed an "waterfall of reality", shown exquisitely on the chart below culminating with yesterday's S&P cut of the island nation to CCC from CCC+, which is only comparable to the boom to bust ratings of CDS issued in early 2007 only to see full loss a few months later. How long until one or more agencies push the country to the dreaded "D" line?
Source: Bloomberg Brief


A terrific commentary on the huge assets that Cyprus has under the Mediterranean sea
known as the Levant Basin.  It may contain 122 trillion cubic feet of gas.

Israel has discovered two major parts of this large find:

i) the smaller  Tamar basin of 9 trillion cubic feet
ii) the larger Leviathan basin containing 16 trillion cubic feet.

Russia has already struck deals with Israel on the Tamar basin.
Russia controls the gas distribution throughout Europe.  If Israel builds a pipeline to the south of Turkey they can bypass Russian.  This is why Russia badly needs the Cyprus gas finds.

(courtesy Jen Allic/

As Cyprus Collapses, It's A Race To The Mediterranean Gas Finish Line

Tyler Durden's picture

Submitted by Jen Alic of,
Cyprus is preparing for total financial collapse as the European Central Bank turns its back on the island after its parliament rejected a scheme to make Cypriot citizens pay a levy on savings deposits in return for a share in potential gas futures to fund a bailout.
On Wednesday, the Greek-Cypriot government voted againstasking its citizens to bank on the future of gas exports by paying a 3-15% levy on bank deposits in return for a stake in potential gas sales. The scheme would have partly funded a $13 billion EU bailout.
It would have been a major gamble that had Cypriots asking how much gas the island actually has and whether it will prove commercially viable any time soon.
In the end, not even the parliament was willing to take the gamble, forcing Cypriots to look elsewhere for cash, hitting up Russia in desperate talks this week, but to no avail.
The bank deposit levy would not have gone down well in Russia, whose citizens use Cypriot banks to store their “offshore” cash. Some of the largest accounts belong to Russians and other foreigners, and the levy scheme would have targeted accounts with over 20,000 euros. So it made sense that Cyprus would then turn to Russia for help, but so far Moscow hasn’t put any concrete offers on the table.
Plan A (the levy scheme) has been rejected. Plan B (Russia) has been ineffective. Plan C has yet to reveal itself. And without aPlan C, the banks can’t reopen. The minute they open their doors there will be a withdrawal rush that will force their collapse.
In the meantime, cashing in on the island’s major gas potential is more urgent than ever—but these are still very early days.
In the end, it’s all about gas and the race to the finish line to develop massive Mediterranean discoveries. Cyprus has found itself right in the middle of this geopolitical game in which its gas potential is a tool in a showdown between Russia and the European Union.   
The EU favored the Cypriot bank deposit levy but it would have hit at the massive accounts of Russian oligarchs. Without the promise of Levant Basin gas, the EU wouldn’t have had the bravado for such a move because Russia holds too much power over Europe’s gas supply.
Cypriot Gas Potential
The Greek Cypriot government believes it is sitting on an amazing 60 trillion cubic feet of gas, but these are early days—these aren’t proven reserves and commercial viability could be years away. In the best-case scenario, production could feasibly begin in five years. Exports are even further afield, with some analysts suggesting 2020 as a start date. 
In 2011, the first (and only) gas was discovered offshore Cyprus, in Block 12, which is licensed to Houston-based Noble Energy Inc. (NBL). The block holds an estimated 8 trillion cubic feet of gas.
To date, the Greek Cypriots have awarded licenses for six offshore exploration blocks that could contain up to 40 trillion cubic feet of gas. Aside from Noble, these licenses have gone to Total SA of France and a joint venture between Eni SpA (ENI) of Italy and Korea Gas Corp. 
But the process of exploring, developing, extracting, processing and getting gas to market is a long one. Getting the gas extracted offshore and then pumped onshore could take at least five years and some very expensive infrastructure that does not presently exist. The gas would have to be liquefied so it could be transported by seaborne tankers.
The potential is there: Cyprus’ gas discoveries adjoin Israeli territorial waters where the discovery of the massive Leviathan gasfield (425 billion cubic meters or 16 trillion cubic feet) and smaller Tamar gasfield (250 billion cubic meters or 9 trillion cubic feet) have foreign companies in a rush to cash in on this.
There are myriad problems to extracting Cypriot gas—not the least of which is the fact that some of this offshore exploration territory is disputed by Turkey, which has controlled part of the island since 1974.
Gas exploration has taken this dispute to a new level, with Turkey sending in warships to halt drilling in 2011, and threatening to bar foreign companies exploring in Cyprus from any license opportunities in Turkey. The situation is likely to intensify as Noble prepares to begin exploratory drilling later this year in Block 12.
In the meantime, there is no shortage of competition on this arena. Cyprus will have to vie with Israel, Lebanon and Syria—all of which have made offshore gas discoveries of late in the Mediterranean’s Levant Basin, which has an estimated total of 122 trillion cubic feet of gas and 1.7 billion barrels of oil.
Blackmailing Cyprus?
While Greek Cypriot citizens are not willing to gamble away their savings on gas futures, Russia and the European Union are certainly less hesitant.
This is both a negotiating point for Cyprus and a convenient tool of blackmail for Russia and the EU. Essentially, the bailout is the prop on a stage that will determine who gets control of these assets.
Theoretically, Cyprus could guarantee Russia exploration rights in return for assistance. As much as this is possible, the EU could ease its bailout negotiations if it becomes clear that a Russian bailout of sorts is imminent.
Gas finds in the Mediterranean and particularly across the Levant Basin—home to Israel’s Leviathan and Tamar fields—could be the answer to Russian gas hegemony in Europe. The question is: How much does Cyprus count in this equation? A lot.
Though only half of the estimated resources in the Levant Basin, Cyprus’ potential 60 trillion cubic feet of gas could equal 40% of the EU’s gas supplies and be worth a whopping $400 billion if commercial viability is proven.
Russia is keen to keep Cyprus and Israel from cooperating too much toward the goal of loosening Russia’s grip on Europe before Moscow manages to gain a greater share of the Asian market.
Russia is also not keen on Israel’s plan to lay an undersea natural gas pipeline to Turkey’s south coast to sell its gas from the Leviathan field to Europe. Turkey hasn’t agreed to this deal yet, but it is certainly considering it. This is fraught with all kinds of political problems at home, so for now Ankara is keeping it as low profile as possible.
With all of this in mind, Russia is doing its best to get in on the Levant largesse itself. While it’s also courting Lebanon and Syria, dating Israel is already in full force. Gazprom has signed a deal with Israel that would give it control of Tamar’s gas and access to the Asian market for its liquefied natural gas (LNG). Tamar will probably begin producing already in April at a 1 billion cubic feet/day capacity.
In accordance with this deal, which Israel has yet to approve, Gazprom will provide financial support for the development of the Tamar Floating LNG Project. In return, Gazprom will get exclusive rights to purchase and export Tamar LNG. It is also significant because Tamar is a US-Israeli joint venture—so essentially the plan is to help Russia diversify from the European market.   
What does this mean for Cyprus? The chess pieces are still being put on the board, and both fortunately and unfortunately, Cyprus’ gas potential will be intricately linked to its bailout potential.


A great commentary from Mark Grant:

Major points:

1. Three weeks ago Cyprus was not in crisis and now it is in crisis..why?
2. Because contingent liabilities became real.
3.Germany claims that all the banks in Cyprus are bust and that is the reason for the confiscation of private property.  But, what about foreign banks in Cyprus..they are solvent..Thus the German argument is false.
4. The USA has propped up Europe by sending hundred and billions dollars over to the ECB and it's banks.  And how does the ECB reward the taxing deposits of General Electric etc in Cyprus.

fun and games in Cyprus

(courtesy Mark Grant/Out of the Box and Onto Wall Street)

Union: One Survived; One May Not

Tyler Durden's picture

Submitted by Mark J. Grant, author of Out of the Box,
Uncounted Liabilities

One of the most interesting issues of what has happened in Cyprus is where was the problem three weeks ago? There was not a mention, not a hint of anything that was wrong. All of the banks in Cyprus had passed each and every European bank stress test. The numbers reported out by the ECB and the Bank for International Settlements indicated nothing and everything reported by any official organization in the European Union pointed to a stable and sound fiscal and monetary policy and conditions. The IMF, who monitors these things as well, did not have Cyprus or her banks on any kind of watch list.

What happened?

Let me assure you it was not some "Miracle on 34th Street" that took place overnight while everyone was in bed and counting sheep. I can also assure you it was not because some bean counter in Brussels or Frankfurt stumbled over some new bit of data and informed his superiors. Nothing of the sort. The culprit is what is counted and not counted in the European financial system and the quite real consequences of uncounted liabilities.

Before I even go on with Cyprus, so you do not glaze over the punch line, I point out to you what has taken place. In just two weeks' time we have gone from not a mention of Cyprus to a crisis in Cyprus because none of the official numbers were accurate. Without doubt, without question, if this can happen in Cyprus then it could happen in any other country in the Eurozone because the uncounted liabilities are systemic to the whole of Europe. The European Union does NOT count sovereign guarantees of bank debt, sovereign guarantees of corporate debt, derivatives or many other types of contingent liabilities. They are all uncounted, but still there, no disappearing act, and as the bills roll in they have to be paid by someone. Dexia was fine, the mortgage company in the Netherlands was fine, Bankia was fine and overnight, "Snap, Crackle Pop!"

And Jack comes out of the Box.

For investors here is the crux of the problem. The Press is handed the official numbers and reports them out as if they were accurate. To be fair to the Press; they have no choice. Some EU Finance Minister send out a press release and the story is printed. S&P, Moodys and the rest have some choice but it is limited if they wish to keep doing business in Europe. In a sense it is the CDO issue all over again. The ratings agencies take the word of Europe, make judgments based upon the faulty data and opine based upon the erroneous information. As the geeks among us would say; Garbage in---Garbage out.

Then many money managers rely upon the official data, rely upon the ratings agencies and make investment decisions based upon the data that they are given. The CDO issue again you see where everything was rated inaccurately. So then we have Garbage in---Investments based upon Garbage. Therefore I will tell each and every one of you; if you are making decisions relying upon the official numbers of Europe and upon the ratings of European sovereign debt then you are going to get burned. You are relying upon falsified data and any ratio that you might run is wrong as the underlying numbers are inaccurate.

Just Garbage---Everyone is talking Trash.

When discussing Cyprus, besides, the systemic mis-reporting of data, I always hear the wrong headed thinking that they are so small that they don't matter. Think of the Senate in the United States. New York has two Senators and Rhode Island has two Senators and the argument goes that only the New York ones matter. Sorry folks, every Senator has one vote and is part of the Senate regardless of the size of their State.

There is a distinction in the law of the United States and Great Britain between private property and investments.Your own money and your own house are treated differently than the ownership of securities. Both countries, also, have due process of law where courts decide who is entitled to what under the bankruptcy laws. The government does not and cannot mandate the seizure of private property without this due process. Then let us compare this to the demands of the EU and Germany.

They want bank accounts seized and part of the money to be used to pay off the national debt. They have not asked for the bondholders to be jeopardized because the bonds in Cyprus are governed under British law and they will not allow for a retroactive change of covenants. They also have not pressed for this because then they too would have to take a hit and they prefer the Russians, the British and the normal, ordinary people of Cyprus to pay the price. What a great message for the Cypriots; you pay your share for the banks of Spain, you pay for Greece, for Portugal and for Ireland as a member in good standing of the European Union. Then when you are in trouble we will seize your assets so that you can pay for yourself. Such nice people.

Germany now says that all of the banks in Cyprus are bankrupt. It is on this basis that they demand the depositors money; all of the depositors or perhaps just the wealthier ones with deposits over one hundred thousand Euros. There are French banks, British banks, Emirates banks and Swiss banks in Cyprus. In the case of Switzerland it is UBS. No one has told us yet that UBS is bankrupt. Perhaps they are waiting to tell us on Saturday night as is their usual practice, but today we all think that UBS is solvent. The German argument is spurious.

There are also American deposits in Cyprus. General Electric, Procter and Gamble, Caterpillar et al do business there and I am sure have money in the banks somewhere. How nice of Europe to expropriate American money along with the rest. Very kind of them. It is not a vast sum I am sure. It is not a significant amount of money; no doubt, but I am not sure that the act of stealing is defined by the amount of money that is taken. Maybe Merkel will send Obama a note thanking him for the extra liquidity. She could certainly send that note to Bernanke given the amount of money that the Fed has supplied to the foreign banks.

"While the Union lasts, we have high, exciting, gratifying prospects spread out before us, for us and our children. Beyond that I seek not to penetrate the veil. God grant that in my day, at least, that curtain may not rise! God grant that on my vision never may be opened what lies behind! When my eyes shall be turned to behold for the last time the sun in heaven, may I not see him shining on the broken and dishonored fragments of a once glorious Union…"

                       -Daniel Webster

A different day. A different time. A different Union. One survived; one may not.


A terrific commentary from Bruce Krasting on money centres.

He basically states that if anyone has money stored in any of these money centres, like Luxembourg they are nuts.

(courtesy Bruce Krasting)

The Week That Was - Money Centers in Focus

Bruce Krasting's picture

What an interesting week. Monday brought a wave of righteous indignation over the thought of a haircut for Cypriot depositors, on Friday everyone is cheering the idea that deposits over E100k are going to gets 'faced' for 40%. The Cyprus story is far from over, but there are some lessons so far:
- European leaders have shown their hand. They are more than willing to stiff depositors when pushed to the wall.
- The deposit level of +/- E100k has been reinforced at the benchmark for haircuts.
- All Deposits < E100k in European banks are safe.
- All Deposits > E100k are unsafe.
- One would have to be oblivious to these facts (or a complete idiot) to have greater than E100k in an EU bank deposit.
- European Money Centers are at risk.

One consequence of being a money center is that there has to be huge foreign liabilities. Looking at what is owed to external creditors provides some information on what I call the Money Center Debt Syndrome (MCDS). The following numbers on External Debt come from the CIA (Link). The numbers are external debt owing to other countries, minus external debt of other countries held. (The CIA presents all numbers in dollars.) The numbers are only the liabilities, there are foreign assets held against these liabilities. I want to focus on just the debt side of this picture.

The two biggest money centers in Europe are Zurich and London. The MCDS is very obvious:
Switzerland - External Debt = $2.2T. External Debt to GDP =210%
UK - External Debt = $9.8T. External Debt to GDP = 400%
Again, there are real assets behind most of this debt, so these ratios are not really as scary as they appear. In addition, these money centers are outside of the Euro Zone. I don't think there is an issue with these. Now consider Germany, a country with a large GDP and a relatively small function as a money center:
Germany - External Debt = $5.6T. External Debt to GDP =150%

Italy/Spain are not money centers at. As a result, they do not suffer from MCDS:
Italy - External Debt = $2.5T. External Debt to GDP = 110%
Spain - External Debt = $1.4T. External Debt to GDP = 93%

The following are 2011 numbers for Cyprus:
Cyprus - External Debt = $106B. External Debt to GDP = 440%
Clearly there was a red flag with external debt/GDP in Cyprus two years ago. The ratio was higher than all the other EU countries. It was higher than Switzerland. Cyprus was an accident waiting to happen.

Now to the point of this article; consider the ratio for this European money center:
Luxemburg - External Debt = $2.2T. External debt to GDP =3,700%

Yes, yes, I know. Luxemburg is different than Cyprus. Luxemburg is just a booking center, there are assets behind all of this debt. But at the same time, this looks like a very unstable situation.

I end with where I started, only an idiot would leave more than E100k in a Luxemburg bank (any EU bank for the foreseeable future). I believe that the deposits that are behind Luxemburg's external debt are measured in the trillions, the vast majority of those deposits exceed E100k. It would not take much for this situation to slide out of control.



Two Kingworld news reports from James Turk and Jim Sinclair

(courtesy Kingworldnews/James Turk/Jim Sinclair/GATA)

Turk expects more bank failures; Sinclair sees Cyprus driving Bernanke out

10a HKT Friday, March 22, 2013
Dear Friend of GATA and Gold:
GoldMoney founder and GATA consultant James Turk today tells King World News that bank failures like the one under way in Cyprus are like cockroaches -- and not because so many bankers are cockroaches but because when you spot one it's seldom the only one but rather is usually followed by more. An excerpt from Turk's interview is posted at the King World News blog here:
Meanwhile, gold trader and mining entrepreneur Jim Sinclair tells King World News that the attempt to expropriate bank depositors in Cyprus is likely to destroy the "quantitative easing" work of Federal Reserve Chairman Ben Bernanke to maintain sovereign solvency and even to drive him into retirement. An excerpt from that interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


The new head of the Bank of Japan, Kuroda plans massive bond purchases.
It is expected that late this year the Net debt to GDP of Japan will rise to 245% and the banks will have purchased 100% of Japan's GDP.

and they are not worried about inflation?????

(courtesy Ambrose Evans Pritchard/special thank you to Robert H for forwarding this to us)

Bank of Japan vows ‘all means available’ to smash deflation
The Bank of Japan's new governor Haruhiko Kuroda vowed to deploy "all means available" to end two decades of stagnation and kick-start economic revival, but insisted that there would be no attempt to steal a march on trade competitors by driving down the yen.
Mr Kuroda is the spearhead of "Abenomics", a double-barrelled blast of monetary and fiscal stimulus modelled on the reflation policies that lifted Japan out of the Great Depression in the early 1930s.
By Ambrose Evans-Pritchard, in Tokyo
1:27PM GMT 21 Mar 2013
Telegraph UK
"I will make an all-out effort to pull Japan's economy out of deflation," he said on his first day in office, promising to push through the revolutionary agenda of premier Shinzo Abe, which has that have set off a blistering 40pc rally on the Tokyo bourse since November.
"The BoJ must expand monetary stimulus both in terms of volume of assets it buys and type of assets it targets, and push down yields across the curve," he said.
Mr Kuroda is the spearhead of "Abenomics", a double-barrelled blast of monetary and fiscal stimulus modelled on the reflation policies that lifted Japan out of the Great Depression in the early 1930s.
He brushed aside criticism last week by his predecesor Masaaki Shirazawa that the extra money would leak into a financial bubble, saying the "spill-over effects" on assets were worth the risk to break out of fatalistic perma-slump.
The mere promise of action has already lifted animal spirits and given a life-line to struggling exporters, rescued by an 18pc fall in yen against the dollar and a 25pc against the euro. Mr Kuroda said the BoJ is targeting the domestic economy rather than trying to push down the yen, and would abide by the G20 ban on competitive devaluations.
Mr Abe made no secret of his frustration with the BoJ last year, threatening to change the bank's statute unless it embarked on a drastic change of course. He brow-beat the old guard into agreeing to open-ended bond purchases and an inflation target of 2pc within two years, aimed at breaking the deflationary pyschology .
Mr Shirakawa was more or less shunted out of the door, but issued a final warning on his way out that quantitative easing cannot solve deep structural problems and is like "punching air" if firms refuse to borrow.
"A lack of cash isn't what's keeping companies from increasing capital expenditure. If there was a single thing that could have cleared the fog and solved all problems, Japan wouldn't have been in this situation for 15 years," he said.
The BoJ's 2pc target implies vast stimulus and a wash of extra money into global system. There are already signs of a fresh "carry trade" as Japanese investors chase yield abroad. Japan is still the world's biggest creditor with $3.5 trillion of net assets overseas.
The BoJ has been widely accused of policy paralysis since the start of Japan's "Lost Decade" in the early 1990s, waiting too long before launching radical stimulus, and then doing so half-heartedly. It restricted bond purchases to short-term debt, and bought assets only from commercial banks, a mix that does almost nothing to boost the broad money supply.
The new team is much closer to the Fed and the Bank of England, but critics say the bank risks becoming a mere branch of the finance mininstry -- where Mr Kuroda spent much of his careers. Junko Nishioka, chief economist for RBS in Tokyo, said investors have already starting to fret that the BoJ may go too far, setting off an inflationary process that could ultimately destabilize the bond market.
"If they stretch the maturity of their bond purchases to 20 or even 30 years, people are going to think it is the beginning of debt monetisation. Markets will be watching the April policy meeting very closely."
"We don't think this is likely, but if the BoJ does go to 20 years, it will be a clear sign that the ministry of finance is deciding policy." Mrs Nishioka said a rise in 10-year bond yields to 2pc from 0.58pc today would be managable, but a further jump to 3pc could set off an ugly denoument.
The great fear is that Japan will lurch from stable deflation -- the devil it knows -- to an unstable price spiral that suddenly causes investors to question the integrity of the country's 23 trillion public debt, the world's largest.
The International Monetary Fund says Japan's gross debt will reach 245pc of GDP this year, up by 50 percentage points of GDP over the last five years. It has been possible so far because banks have gobbled up government bonds worth 100pc of GDP but this makes the banking system ever more vulnerable to a sudden rise in rates.
"Even a moderate rise in yields would leave the fiscal position extremely vulnerable. The JGB holdings of banks has more than doubled since the global financial crisis. Should a sharp rise of government bond yields coincide with a broader growth shock financial stability might be challenged," said the IMF.
Japan's state pension fund (GPIF), which holds a fifth of the government's bonds, said it is becoming nervous about the BoJ's efforts to drive up inflation and may switch to other assets to shield itself from possible losses.
Takahiro Mitani, the GPIF's chief, said the fund had done very nicely out of government bonds for the last decade but warned that a jump in the yields could have a "harsh" effect. "We will review this soon," he said.


Fitch places UK on negative credit watch:

 (courtesy zero hedge)

Cable Slumps As Fitch Places UK On Rating Watch Negative

Tyler Durden's picture

Based on the the budget, Fitch has placed the United Kingdom's AAA taing on Watch Negative (for future downgrade):
The RWN reflect the latest economic and fiscal forecasts published by the Office for Budget Responsibility (OBR) that indicate that UK government debt will peak later and at a higher level than previously expected by Fitch.
GBPUSD snapped 50 pips lower but is reverting a little now - US equities shrug (just another piece of AAA collateral nearer biting the dust).

Fitch Ratings-London-22 March 2013: Fitch Ratings has placed the United Kingdom's (UK) 'AAA' Long-term Issuer Default Ratings (IDR) on Rating Watch Negative (RWN) indicating a heightened probability of a downgrade in the near term. Fitch expects to complete its review of the UK's sovereign ratings by the end of April. The UK's Short-term IDR of 'F1+' and Country Ceiling of 'AAA' are unaffected.
The RWN reflect the latest economic and fiscal forecasts published by the Office for Budget Responsibility (OBR) that indicate that UK government debt will peak later and at a higher level than previously expected by Fitch. General government gross debt (GGGD) and public sector net debt are forecast by the OBR to peak in 2016-17 at 100.8% and 85.6% of GDP and only begin to decline in 2017-18. Fitch has previously stated that GGGD failing to stabilise below 100% of GDP and on a firm downward path towards 90% over the medium term would likely result in a downgrade of the UK's sovereign ratings.
The RWN reflects the following factors:
- The upward revision by the OBR of its projections for GGGD above 100% of GDP in 2015-16 before declining as a share of national income in 2017-18. This compares with Fitch's own projections published in September 2012 that envisaged GGGD peaking at 97.3% in 2015-16.
- Since it last affirmed the UK's 'AAA' IDRs, Fitch has revised down its forecasts for economic growth in 2013 and 2014 from 1.5% and 2.0% to 0.8% and 1.8%, respectively. These forecasts were published 15 March and are broadly in line with the OBR's latest forecasts. The persistently weak performance of UK growth, in part due to European growth, has increased uncertainty around the UK's potential output and longer-term trend rate of growth with significant implications for public finances.
The UK's creditworthiness continues to be underpinned by its high-income, diversified and flexible economy - underscored by the rise in employment despite the tepid economic recovery - and the authorities' commitment to deficit reduction. The independent monetary policy framework, as well as sterling's reserve currency status, and the long average life of government debt are further rating strengths.


China is inflating rapidly.  This is very ominous!

(courtesy Graham Summers/Phoenix Research Capital)

Is China Heading For Its Own Arab Spring?

Phoenix Capital Research's picture

This is a continuation of a series of article regarding China’s “miracle.” To read the first part, click here.

Inflation has been and remains the single largest problem for the Chinese Government’s attempts to mollify the Chinese population. It is the one issue that can truly negate a rise in incomes or other economic growth: if inflation is 10%, a 10% raise doesn’t actually mean you’re better off.
Please recall that it was high food inflation that resulted in the general Chinese population joining college students in the infamous Tiananmen Square protests. And today, with nearly 40% of Chinese living off of $2 a day or less, any spike in inflation quickly results in people taking to the streets and protesting.

With that in mind, it’s critical to note that the wealth and power Chinese Government officials have accumulated has come primarily from a massive lending bubble at China’s banks…

From the beginning of 2009 to the end of June this year, Chinese banks have issued roughly 35 trillion yuan ($5.4 trillion) in new loans, equal to 73 percent of China's GDP in 2011. About two-thirds of these loans were made in 2009 and 2010, as part of Beijing's stimulus package.  Unlike deficit-financed stimulus packages in the West, China's colossal stimulus package of 2009 was funded mainly by bank credit (at least 60 percent, to be exact), not government borrowing.

If you’re looking for the reason China’s economy continues to explode, look no further. To put this data into perspective, the above bank expansion would be the equivalent of US banks lending over $10 trillion into the US economy from 2009 onwards.

That is the equivalent of what China has done in the post-2008 Crash period.

Mind you, the above statistic is only for China’s official lending numbers (the ones Chinese banks official reveal). Indeed, China’s non-regulated financial system, also called its shadow banking system, has expanded to over $18 TRILLION, more than twice the size of China’s economy. Just last year (2012) the Chinese shadow banking system expanded by $1.3 trillion (that’s the equivalent of 20% of China’s GDP).

THIS is where China’s wealth and corruption and alleged economic “recovery” have come from: not real economic growth, but a massive credit fueled debt binge. And as anyone can tell you, there is a major consequence for this kind of financial expansion: INFLATION.

Now, the official China data pegs inflation at 2%. This, like China’s GDP, is an absurd measure. If inflation were indeed just 2%, the People’s Republic wouldn’t be facing widespread civil unrest over wages (on average there are 30 strikes or more per month in China).

Demands for wage arrears always spike in the weeks before the holiday as migrant workers, especially in construction, clamour for back pay. This year, with the rapid development of social media in China, the extent of the problem became very apparent with one online activist sometimes recording up to 100 protests a day. However, very few of these reports contained sufficient detail to be included on CLB’s strike map.

Of the 71 strikes and protests that we did include during the month of January, 38 were in the service sector and 26 were in manufacturing. Of the service sector strikes, 15 involved taxi and bus drivers protesting administrative charges and rampant unlicensed cars. There was also an upsurge in teachers’ strikes last month as middle school teachers protested pay reform measures introduced by local governments.

Most of the strikes and protests in factories meanwhile were related demands for pay increases. Continued improvements in the productivity and profitability of the manufacturing sector and indications that consumer prices are rising once again have pushed higher wage demands and also forced regional governments to increase the minimum wage. On 5 February, Guangdong announced it would increase the statutory minimum wage on 1 May to 1,550 yuan per month in the capital Guangzhou, and the following day, Shenzhen announced a 100 yuan increase in its minimum wage to 1,600 yuan per month to go into effect on 1 March.

There were two successful strikes for higher pay at Foxconn factories in January; in Jiangxi on 11 January and in Beijing on 22 January. Workers at Jiangxi Foxconn reportedly got a 500 yuan increase in basic pay to 2,200 yuan per month, prompting a strike for higher pay at another Taiwanese-owned electronics plant in the same city of Fengchengalmost immediately. Foxconn later announced that it would broaden the participation of ordinary workers in its enterprise trade union. However, this announcement was prompted by suggestions from the Fair Labor Association following its audit of the company’s Shenzhen and Chengdu facilities and does not seem to be the result of demands from the workers themselves.

One definite highlight of last month’s worker activism however was the strikes by sanitation workers in Guangzhou, which gained considerable public support and sympathy and eventually forced the city government to promise an increase in pay of around 400 yuan per month on average. However, this success was dampened somewhat when a few days later the government announced that the minimum wage in the city would be increased anyway.

So, let’s lay to rest the assumption that China’s inflation is just 2%.  Remember that nearly 40% of China’s population lives off of les than $2 per day. And China’s per capita income as a whole is just $6,200 (roughly $17 per day if you count weekends as working days).

A South China Morning Post survey of some commonly bought grocery items found that a 500 gram loaf of bread that sells for HK$8.60 in Hong Kong and the equivalent of HK$9.93 in London, cost the equivalent of HK$13.52 in Beijing.

Similarly, a 250 gram bag of Starbucks coffee beans cost HK$80 in Hong Kong and HK$50 in London, but HK$105 in Beijing. Across the board, imported and foreign brand items were often more expensive in Beijing, although locally produced items, such as eggs, were cheaper.

Similar comparisons contrasting Beijing, Guangzhou, Shanghai and Shenzhen, with those in New York, London and Hong Kong have increasingly become fodder for debate in recent years .

The latest annual cost of living survey by the compensation-consulting firm Mercer found Beijing and Shanghai to be pricier than New York and London. Shanghai was ranked 16th followed by Beijing at 17th, ahead of London (25th) and New York (32nd).

Ignore the “official” data. The massive expansion of the Chinese banking system has unleashed a much higher cost of living in China. And your average Chinese civilian, struggling to meet these increased costs, is going to be none to please to find that the very banking expansion that was supposed to grant him or her a higher quality of life has:

  1. Benefitted corrupt Government officials much more than the Chinese population
  2. Resulted in the very same increased cost of living that is eating up his or her paycheck.

This is precisely the formula that resulted in the Arab Spring in the Middle East: increased costs of living and a corrupt Government. Could China be heading for a similar development? It sure looks like it.

This concludes this article. To help investors avoid some of the biggest pitfalls concerning inflation, we recently published a NEW FREE Special Report titled, The Inflation Secrets Your Broker Won’t Tell You and it outlines three HUGE secrets that 99% of the investment community don’t know about inflation.

These include

  • The surprising industry that suffers as prices soar, despite being considered "inflation proof" by many investors...
  • Which investment Warren Buffett loves even more than gold...
  • Why U.S. Treasury Inflation-Protected Securities (or TIPS) don't work — and what investment could be your best alternative.

This Report is a $79 value, but we’re giving it away for free to investors today. To pick up your free copy, swing by:

Best Regards,
Graham Summers


Someone has a got a guts;

(courtesy Derivatives Intelligence)

$900 Million Says Euro Crashes In 2 Weeks: PUT Trade Rocks London Options Market

Posted on March 22, 2013 by chris
Before It’s News – by Live Free or Die

Someone has placed a GIGANTIC $900 million EURO PUT trade on the Euro to crash vs. the dollar within 2 weeks. Is this a ‘smart bet’ by someone who has seen the writing on the wall with the situation in Cyprus or does someone have inside knowledge that something big is about to happen? Beware! We have seen this before as shared in the videos below; in fact, it happened prior to September 11th, 2001, and we ALL saw what happened thereafter. This story is brought to us by Derivatives Intelligence.:

our early Friday morning currency crosses;  (8 am)

Friday morning we  see minor euro strength against the dollar   from the close on Wednesday, still trading below  the key 1.30 mark at 1.2952. The yen this the morning  is a touch stronger  against  the dollar,   at 94.85 yen to the dollar.  This will eventually cause problems as Japanese citizens bail out of their bond/yen holdings because of inflation.    The pound, this morning is a littler stronger against the USA dollar breaking into the 1.52 barrier at  1.5200. The Canadian dollar is stronger  against the dollar at 1.0244.   We have a slight  risk is on situation  this morning with the mixed European trading pattern with our bourses.  Gold and silver are lower  in the early morning, with gold trading at $1609.00 (down $4.80) and silver is at $29.05 down 13 cents in early morning European trading.

The USA index is down 19 cents at 82.60.

Euro/USA    1.2952  up .0050
USA/yen  94.85  down .060
GBP/USA     1.5200 up .0017
USA/Can      1.0244 down .0001


And now your closing Spanish 10 year bond yield: (a drop of .03%)


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4.860.03 0.53%
As of 12:59:59 ET on 03/22/2013.


And now our Italian 10 year bond yield:  (a drop of .07%)

Italy Govt Bonds 10 Year Gross Yield

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4.520.07 1.59%
As of 12:59:47 ET on 03/22/2013.

Your 4:00 pm closing Friday currency crosses:

The Euro rose this afternoon with optimism of a settlement with the Cyprus crisis settling at 1.2992. The yen strengthened again  this afternoon  to finish at 94.54 . The pound strengthened a bit this afternoon  finishing at 1.5232.  The Canadian dollar also weakened a bit  against the dollar closing at 1.0226. 

The USA index remained constant from the morning session with the final index number down 40 cent to 82.39. 

Euro/USA    1.2992 up  .0081
USA/Yen  94.54 down .367
GBP/USA     1.5232  up 0053
USA/Can      1.0226  up  0019


Your closing figures from Europe and the USA:

red ink

i) England/FTSE up 4.21  or 0.07%

ii) Paris/CAC down 4.56 or 0.12% 

iii) German DAX:  down 21.16 or .27%

iv) Spanish ibex down 21.7 points  or  .77%

v) Italian bourse (MIB) up 109.52  points or .69%

and the Dow down 90.24  (.62%)


And now for some USA news:

The Fed Has Already Imposed A "Cyprus Tax" On U.S. Savers

Tyler Durden's picture

Submitted by Lance Roberts of Street Talk Live blog,
Over the course of the last few days I have been swamped with media calls to discuss the "deposit tax" on Cyprus account holders and the potential impact on global financial markets and, more importantly, the possibility of such an event occurring domestically.  (See recent Fox Business Interview)  So far, Cyprus has not been able to pass such a direct tax against depositors and has gone to Russia for a helping hand.  However, the question of whether such an event could happen in the U.S. is a much more interesting point of discussion.
While I find it doubtful, but not totally improbable, that a direct deposit tax would be instituted by domestic banks - the issue of the Fed's monetary policies, particularly since the last recession, has had a significant impact on "savers."  As we have discussed in the past individuals are not "investors" but rather "savers."  Therefore, in planning for retirement, of which there is a very finite and generally short time frame within which to achieve that objective, individuals must not only have a return ON their principal, to maintain purchasing power parity of those saved dollars, but also the return OF their principal so that it may be reinvested to generate further returns.  One without the other, as has been see witnessed first hand over the last decade, is a losing proposition in the achievement of those retirement goals.  As my friend Doug Short recently showed in his amazing commentary on working age demographics - the age group that should be seeing declines in employment, 65 and older, are actually showing increases.  The destruction of principal since the turn of the century, which is far more disastrous than it appears when adjusted for inflation, has ended the dream of retirement for many individuals.
Beginning in 2008 the Federal Reserve began a consistent, and generally unprecedented, series of monetary actions specifically designed to artificially suppress interest rates.  The belief is that by creating an artificially low interest rate environment, and boosting asset prices, that it will in turn spur economic growth and consumption.  The chart below shows the Fed Funds Rate as compared to the 10-year treasury rate since 2007.
It is hard to believe that it was just 5 short years ago that the 10-year treasury was yielding above 4%.  That was a return high enough to offset the rate of inflation.  Today, with the Fed keeping overnight lending rates (Fed Funds Rate) at effectively zero - savings accounts are yielding roughly the same.  This has in turn forced "savers", by design, to move money out of the safety of personal savings accounts to chase higher rates of return.  The next chart shows the declined of personal savings rates as interest rates were pushed lower.
Unfortunately, the drive for higher rates of return has sent individuals buying the most risky of yielding assets driving yields on "junk bonds" to record lows.  This will, as it always has in the past, end badly once again. 
However, the decline in personal savings rates is not solely due to the artificial suppression of interest rates.  The Fed's monetary programs have led to a rising cost of living, particularly in food and energy, which has chipped away at the purchasing power parity of the dollar.
This is not a recent monetary phenomenon but rather one that started more than 30 years ago.  As interest rates have steadily been pushed lower by the Fed - the surge in accumulation of debt to offset the declines in savings and incomes has weakened economic prosperity.  The chart below shows the decline in GDP, interest rates, savings and incomes.  The offset to the declining standard of living has been access to credit.
Here is the point of this discussion.  The continued drive by the Fed's monetary policies to artificially suppress interest rates to create a negative interest rate environment for savers is a defacto "tax" on savings as shown in the chart below.
While the individuals in Cyprus have been faced with an outright extraction of capital from their accounts - U.S. savers have had their savings negatively impacted much more surreptitiously.
The problem is that the actions of by the Fed are having the opposite of the intended effect.  If you refer back to the chart above you will see that economic growth, savings, and incomes have all declined as the Fed has continually driven rates lower.   Lower interest rates have not the boon of economic prosperity as advertised.  What history does show is that higher levels of personal savings are necessary to support productive investment which leads to economic growth rates. 
What the manipulation of interest have historically led to is speculative financial bubbles.  Whether it was the "tech bubble", the "credit bubble" or the "housing bubble" the driver of each can be directly linked backed to the Fed's monetary policy actions.  With the Fed now going "all in" with current monetary easing programs it is highly likely that the next asset bubble is already well into formation - the resolution of which is not likely to be any kinder than the past two.
So, can the U.S. potentially have a direct tax on savings?  It's already happened.


I will leave you today with this CBC commentary on what might happen to Cyprus if it collapses 

(courtesy the Canadian Press/CBC)

What happens if Cyprus collapses?

Consequences for Cyprus could be rough and analysts think a deal will be struck

Posted: Mar 23, 2013 6:23 AM ET 

Last Updated: Mar 23, 2013 7:23 AM ET 

What happens if Cyprus' banks collapse? If its government goes broke? If it leaves the euro?
The European Union, the International Monetary Fund, the European Central Bank and the country's leaders are trying to find a deal to secure a €10 billion loan for Cyprus and stave off a failure of its banking system. The Cypriot parliament has already rejected one deal, which would have taxed all bank deposits in the country. The ECB has now put a ticking timer on this drama by declaring it would cut off emergency support to Cyprus' banks on Monday if no deal is found.
That's the worst case.
Even if a deal is found, the messy decision-making over the past week will have shaken confidence in Cyprus and the euro currency union itself. Here's what's at stake.


The consequences for Cyprus itself could be so rough that many analysts think some kind of deal will be struck. If not:
The only thing keeping Cyprus' banks afloat right now are short-term loans from the Cypriot central bank with the blessing of the ECB. The banks need this special funding because they can't borrow normally. They don't have good enough collateral to receive normal loans from the ECB, and others are reluctant to lend to them for fear of not getting their money back. The emergency lending program isn't publicly declared, but analysts say the Cypriot central bank has already handed out around €9 billion.
If the ECB pulls the plug, the Cypriot banks would probably not be able to open their doors, or would very quickly collapse because they wouldn't be able to satisfy the likely rush of customers pulling their money out. Then the banking system enters a sort of twilight zone — with the banks closed, there can be no real run on the banks, but salaries won't be paid, mortgage payments won't go through, electricity bills will linger.
After the banks, the next logical step is that the government goes bankrupt, either as it tries to shore up the banking system or because it is on the hook for insuring all deposits under €100,000.
The resulting disaster cannot be predicted clearly — and shouldn't be underestimated. The road could lead to an utter breakdown not just of the economy, but of the country's social fabric. Some economists say that as euros become scarce, Cyprus may have to issue some sort of IOUs for people to buy basic necessities. That could lead to hyperinflation, in which the prices of goods double and triple regularly. The country might have to prevent cash from leaving its borders. People may turn to barter. Commerce will slow or grind to a halt.
The country could leave the euro, and no one really knows what happens then. It's such a terrifying possibility for Cyprus and Europe that some analysts think the EU will step in at some point to prevent it from happening, even if most of the damage to Cyprus is already done.
"The euro area doesn't want a failed state in Cyprus," said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington. "Once the disaster happens, I would actually imagine that the euro area would be relatively lenient with respect to engaging in a new program."
Even if Cyprus avoids the nightmare scenario, it is facing a long road back. The measures it ends up enacting to secure the loan could hurt growth — especially as it may have to raise taxes, doing away with one of the most attractive things for businesses setting up in Cyprus. And the mere threat of confiscating a part of bank deposits could ruin faith in Cyprus as a center of international banking — destroying its largest industry.
Some argue that investors who put their money in Cyprus have been paid for this kind of risk — through high interest rates and low tax rates. Even if they aren't scared away, any deal with international lenders will demand that the country severely shrink its banking sector anyway.


Cyprus' economy is a tiny fraction of the eurozone's — just 0.2 percent — but its banking sector is heavily connected to Greece and any collapse could have a disastrous effect on that already stricken nation. European officials would have to move quickly to insulate Greece. How well Greece is protected will largely determine how much impact a Cypriot banking system collapse will affect the eurozone.
That's if Cyprus manages to stay in the euro. If it leaves, the consequences are hard to predict. Some think it could raise fears other countries, such as Greece, might leave. That would cause those countries' borrowing costs on the bond markets to rise, making it harder for them to finance deficits and potentially requiring them to seek bailouts. If fears worsened, investors and savers could pull their money out of these countries, threatening their banking sectors.
For now, the Cyprus crisis is not spreading market panic to other indebted countries such as Italy or Spain. That's because the ECB has pledged to do "whatever it takes" to save the euro, including buying the government bonds of troubled countries to keep their borrowing rates down. The backstop has done much to contain the eurozone crisis since last summer.
But even if Cyprus finds a deal by Monday, the impact of its crisis may be felt across Europe for a while to come. The mere fact that Cyprus considered confiscating bank deposits below the insured limit of €100,000 may have unsettled account holders in other financially troubled eurozone countries. The question is, whether depositors will be quicker to run for the ATM in a future crisis now that the insurance promise has been revealed as less than sacrosanct.


The possibility that bank deposits might be taxed has particularly angered Russia, whose citizens hold as much as €20 billion in Cypriot banks. Russian President Vladimir Putin called it "unjust, unprofessional and dangerous." Still, middle-class Russians don't have their money in Cyprus, so the effects will be limited to a class that can largely afford to shoulder the burden. They may move their money elsewhere, but Russian officials do not expect them to bring the money back home.
On the other hand, Russian banks, which have about $40 billion worth of loans to Cyprus-based companies on their books, stand to lose significant amounts if Cyprus' banking system breaks down and money isn't allowed to leave the country. The cost could rise to almost 2 percent of Russia's gross domestic product.

Global markets

For the moment, global markets appear largely unconcerned about Cyprus.
This could be because Cyprus is tiny. It could be because they are confident an 11th-hour deal is assured. Or that there's so much cash floating around markets after several rounds of monetary easing by the U.S. Federal Reserve and other central banks that investors are impervious to a potential banking collapse in just one small country.
Since Cyprus has a highly connected, international banking system, if it collapses, companies around the world will suffer. They will lose their savings and fail to be paid on outstanding contracts. But the entire banking sector is relatively small, so the direct effects from a collapse in Cyprus shouldn't be dramatic around the world.
The global impact depends largely on how the eurozone is affected. If European leaders contain the damage to Cyprus, the world probably shrugs. If Cyprus exits the euro or its banking collapse roils Greece or Spanish savers start demanding their money back, then the world will sit up and take notice. Taken as a whole, the EU is the world's largest economy. When it falters, everyone does.

That that about does it for today

I will see you on Monday night


1 comment:

Mike Montross said...

The video is all Greek to me.

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