Wednesday, March 27, 2013

More problems for Cyprus/Spanish 2012 deficit again is adjusted northward/Egan Jones downgrades UK/ Slovenia looks next to receive a bailout

Good evening  Ladies and Gentlemen:

Gold closed up  $10.60 to $1606.40 (comex closing time).  Silver fell by 6 cents to $28.58. 

Here are the final access closing of gold and silver:

gold:  $1605.4
silver: $28.69

In physical news at the comex, the CME reported another 5 gold delivery notices filed equal to 500 oz , the number of gold ounces standing for delivery  remained the same and thus 13.15 tonnes of gold are the standings for March delivery.  month.

Silver eagle sales are 3.4 million oz with 4 days left in the month.  Last year in March we had 2.5 million oz of silver sold in the entire month.  Silver is still on fire.

Late yesterday, zero hedge brought us a story which suggests that we had major leakages out of the Cypriot banks these past two weeks.  He even suggested that maybe all of the Russian money was already out of Cyprus. This morning the contagion of the Cyprus mess was translated with the Euro falling below the key 1.28 mark and settling at 1.2775. Tomorrow the Cypriot banks are scheduled to open by noon time.  However there are major controls set by the government as only 300 euros will be allowed to be taken out each day. Moody's lowered its credit ratings on Cyprus to Caa2 which is a few steps away from bankruptcy.  Moody's noted that the European exercise to bail out Cyprus has probably made an exit problematic for this island nation. Zero hedge believes the next nation to ask for a bailout will be Slovenia.  Mark Grant believes it will be Luxembourg.

Spain saw it's 2012 deficit rise due to faulty tax accounting.
Italy had a terrible day as it had a failed bond auction.  It's 10 year bond yield rose a huge 14 points. Italian industrial sales and orders collapsed last month.  Grillo refuses to ally with any of the two major parties.  Bersani has until tomorrow to form a government and it does not look likely.

Egan Jones just got downgraded the UK to A + from AA-.

 We will go over these and other stories but first.........................

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

The total gold comex open interest fell dramatically by 17,902 contracts from   437,629 down to  419,722. It is quite weird that many decided to throw in the towel at month's end instead of rolling.  The cost to roll to the next active month is tiny. I cannot explain investors behaviour on this one!   The non active front month of March is now off the board .  The next big active delivery month is April which is 1 days away from first day notice ( Thursday March 28).  Here the OI fell by 49,777 contracts from 83,551 down to 33,764. The open interest for April is very high for just one day left.  However we have to wait until tomorrow to get a good glimpse as to how many will stand.  Late tonight, we get first day notices filed so we can see how many are filled on the first day.
The next big and active delivery month is June and here the OI rose by 31,032 contracts from 213,241 up to 244,273. (the remainder just pitched their contracts). The estimated volume today was fair at 213,446 when you consider the huge number of rollovers.  The confirmed volume yesterday was  good  at 317,662.

The total silver open interest fell by 191 contracts from 151,575 down to 151,575.   The OI for the entire complex remains highly elevated. The active front month of March is now off the board. The non active April contract rose by 54 contracts up to 243.  The next big active delivery month contract for silver is May and here the OI fell by 547 contracts from 78,412 down to 77,865.  The estimated volume today was good at 42,906.   The confirmed volume yesterday was weak at 26,878 contracts. 

Comex gold/March contract month:

March 27.2013     Final standings

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
32.15 (HSBC)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
 5  (500  oz)
No of oz to be served (notices)
month now complete
Total monthly oz gold served (contracts) so far this month
4229  (422,900 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 no activity at the gold vaults.
The dealer had 0 deposits and 0   withdrawals.

We had 1   customer deposits:

i) 32.15 oz into Brinks

total deposit: 32.15  oz

We had 0  customer withdrawals :

total customer withdrawal:  0 oz  

We had nil  adjustments:

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 5 notices filed for 500 oz of gold today.   The total number of notices so far this month is thus 4229 contracts x 100 oz per contract or 422,900 oz of gold.   This completes the month of March.

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

4229 contracts x 100 oz =  422,900 oz ( total served )  or 13.15 Tonnes.

 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 27.2013:   The March silver contract month

Final standings:

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory nil
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory  nil
No of oz served (contracts)184  (920,000, oz)  
No of oz to be served (notices)month complete
Total monthly oz silver served (contracts) 2526  (12,630,000  oz) 
Total accumulative withdrawal of silver from the Dealers inventory this monthxxxxx
Total accumulative withdrawal of silver from the Customer inventory this monthxxxxx

Today, we  had 0 activity  inside the silver vaults.

 we had 0 dealer deposits and 0 dealer withdrawal.

We had 0 customer deposits:

total deposit:  nil oz

We had 0 customer withdrawals of silver:

total customer withdrawals:  nil

we had 0 adjustments:

Registered silver  at :  43.122 million oz
total of all silver:  164.764 million oz.

The CME reported that we had 184 notices filed for 920,000 oz of silver for the March active contract month. The total number of notices filed for the month is thus 4229 contracts or 12,630,000 ounces. This completes the month of March.

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

2526 contracts (served) x 5,000 oz per contract =  12,630,000 oz 

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

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

March 27.2013:



Value US$62.916   billion

March 26.2013:



Value US$62.721    billion

March 25.2013



Value US$62.771  billion

March 22.2013:



Value US$63.106   billion

March 21.2013:



Value US$63.343   billion

we neither gained nor lost any gold at the GLD.

And now for silver:

March 27.2013:

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

March 26.2013:

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

March 25.2013:

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

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

Today we neither had a gain nor a loss of silver inventory at the SLV


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

Sprott and Central Fund of Canada. 

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

1. Central Fund of Canada: traded  at  positive 0.2% percent to NAV in usa funds and a positive 0.5%  to NAV for Cdn funds. ( March 27 2013)   

2. Sprott silver fund (PSLV): Premium to NAV rose to 1.43% NAV  March 27/2013
3. Sprott gold fund (PHYS): premium to NAV  rose to 2.09% positive to NAV March 26/ 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!


And now for the major physical stories we faced today:

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

(courtesy Goldcore)


  Russia and South Africa are creating a Platinum cartel

Russia And South Africa To Create OPEC ‘Platinum Cartel’

-- Posted Wednesday, 27 March 2013 | Share this article | Source:

Today’s AM fix was USD 1,591.00, EUR 1,243.75 and GBP 1,052.39 per ounce.
Yesterday’s AM fix was USD 1,597.25, EUR 1,241.35 and GBP 1,052.21 per ounce.

Silver is trading at $28.35/oz, €22.27/oz and £18.84/oz. Platinum is trading at $1,576.50/oz, palladium at $756.00/oz and rhodium at $1,200/oz.
Gold fell $5.30 or 0.33% and closed yesterday at $1,599.10/oz. Silver finished -0.38% with a low of $28.62.

Precious Metals and Currencies Table – (Bloomberg)

Gold is slightly lower in most major currencies this morning but is higher in euros and Swiss francs. 
Gold appears to be consolidating near the $1,600/oz level and worries about the euro zone's fiscal health are supporting prices as is the EU’s unprecedented expropriation of bank deposits in Cyprus.
There are hopes that Cyprus will complete capital control measures today to prevent a run on the banks by rightfully nervous depositors. 

Platinum in USD – (Weekly 10 Years) - Bloomberg

Russia and South Africa, which together control about 80% of the world’s reserves of platinum group metals, plan to create a trading bloc similar to OPEC to control the flow of exports according to Bloomberg.
“Our goal is to coordinate our actions accordingly to expand the markets for realization of these metals,” Russian Natural Resources Minister Sergey Donskoy said yesterday in an interview at a summit of leaders from Brazil, Russia, India and South Africa in Durban. “The price depends on the structure of the market, and we will form the structure of the market.”
South Africa mines about 70 percent of the world’s platinum, while Russia leads in palladium, a platinum group metal used in autocatalysts, with about 40% of output, according to a 2012 report by Johnson Matthey Plc.
Palladium rose 0.8% yesterday to $763.50 after Donskoy’s comments, reversing declines to reach the highest level since March 18. Platinum, used to make jewelry and autocatalysts, has risen 2.3% this year because of increased demand from the auto industry and after supply disruptions at mines. The price jumped yesterday in the hour after Donskoy’s comments, narrowing yesterday’s decline.
South African Mines Minister Susan Shabangu confirmed that the two countries aimed to counter oversupply of platinum, and said possible measures could include taxes and incentives.
No ‘Cartel’
“We’re not really controlling the market,” she said in an interview in Durban. “We want to contribute without creating a cartel, but we want to influence the markets.”
Other producers will be invited to join the bloc, which will be similar to the Organization of Petroleum Exporting Countries, Donskoy said. The aim will be to open up new markets rather than limit exports, he said.
Zimbabwe, Canada, and the U.S. are among other major platinum group metals producers.
Russian and South African officials signed a memorandum of understanding today to cooperate in the industry.
“We are now forming working groups to work out joint actions on this market,” and aim to coordinate export volumes, Donskoy said. “There will be a meeting in the summer to discuss mechanisms in detail.”
Anglo American Platinum Ltd is the world’s largest producer of platinum, while Russia’s OAO GMK Norilsk Nickel is the largest producer of palladium globally.
Platinum in USD Adjusted for Inflation (CPI)  – 1970-Today – Sharelynx
Credit Suisse are bullish on the PGM’s of platinum and palladium. They favour them over gold and silver as they say that they are more cyclical and less dependent on investment flows. Therefore they believe that there is more upside likely for platinum and palladium.
We believe that due to the very favourable supply demand dynamics in the platinum market, it should rise well above the inflation adjusted record high from 1980 at $2,700/oz in the coming years from $1,571/oz today.
While gold is down about 5% this year and silver down about 6.5%, palladium is up 7.9% and platinum up 2.2% showing the diversification benefits of having an allocation to the PGM metals.

Gold futures inch higher after 3-day loss streak – Market Watch

Gold stays put as upbeat U.S. data offsets Europe worries - Reuters
Gold Heads for Worst Quarterly Run Since 2001 on U.S. Economy - Bloomberg
Global Pool of Triple A Status Shrinks 60% - CNBC
Invest in Gold or Your Bank Account Could be ‘Cyprused’ – The Daily Reckoning

Whom to Believe on Gold: Central Banks or Bloomberg? – Casey Research
Get Ready: Cyprus Readies Capital Controls to Avert Bank Run - CNBC
Cypriot bank crisis boosts demand for gold – The Telegraph

-- Posted Wednesday, 27 March 2013 | Digg This Article | Source:


Jim Sinclair believes Cyprus is being used to scare savers to become spenders.
Probably true but if you want to save, the best vehicle out there is gold:

(courtesy Jim Sinclair/Kingworldnews)

Cyprus being used to scare savers into spending, Sinclair says

2:35p ET Wednesday, March 27, 2013
Dear Friend of GATA and Gold:
Mining entrepreneur and gold trader Jim Sinclair tells King World News today that the taxing or confiscation of larger bank deposits in Cyprus is being used to scare savers to move their money into the real economy to increase the velocity of money and reverse deflation. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc

The following is very important for you to see:

(courtesy CNBC/Rick Santelli)

Santelli On The End Of Paper Gold's Reign

Tyler Durden's picture

Central Banks remain aggressive accumulators of the precious metal as we noted last night, as their actions outweigh their words; but as CNBC's Rick Santelli notes today, there is a big difference between the physical bullion they are buying and the 'gold bug' trading currently going on in our markets:
don't even look at gold as gold anymore since they securitized it. If things [went] badly in the world that I used to observe (as a gold bug); the gold would end up in the hands of the gold bugs. If things go badly now, they're going to end up with checks from ETFs! Sorry, it's not the same.The reign of [paper] gold as the Ayn Rand endgame, to me, that's over. Game, Set, Match.
Which likely explains the incessant demand for precious metals from the US Mint over the past few months - as the other great rotation (from paper to physical) proceeds.

Starting 0:25 in this clip:

Perhaps these two charts will help explain the 'difference'... Demand continues to surge while 'prices' drop...


Since the Cypriot bank crisis began demand for gold coins increased:

(courtesy Ian Cowoie/your money)

Cypriot bank crisis boosts demand for gold

By Ian Cowie Your Money Last updated: March 27th, 2013

The Cypriot bank crisis has increased demand for gold coins – such as these Maple Leafs – bullion dealers claim.
The Cypriot banking crisis reminds even the most trusting savers that not all banks or jurisdictions are safe – and is boosting demand for gold, bullion dealers claim.
As if to prove the old adage that it’s an ill wind that blows no good, enthusiasts for the precious metal argue that financial shocks in the eurozone are reminding savers of gold’s attractions.A YouGov survey of 2,000 investors for found that 11 per cent of them said they were more likely to invest in gold following the Cyprus banks crisis. Nearly one in four – or 23 per cent – of those living in London shared that view.
Daniel Marburger, a director of Jewellers Trade Services Partners (JTS) said demand for gold coins has doubled since the Cyprus crisis began, with 1oz Gold Britannia coins being the most popular within the United Kingdom, and 1oz Gold Maple Leaf coins the most popular in other markets.
He said: "The situation in Cyprus has reignited the wider Eurozone sovereign-debt crisis. At a time like this, people are attracted to gold because it is the ultimate crisis commodity.
"The proposed levy on deposits of Cyprus’s savers has not only shaken confidence in the single-currency Eurozone, it illustrates the fragility of savings held within the banking system. In our experience, clients are attracted to gold because it offers insurance against extreme movements in the value of other assets. Unlike paper currency, it will never lose its intrinsic value."
That prompts the question: just what is the intrinsic value of a metal that yields no income and has limited utility in the hands of most holders? One answer, in the case of gold coins, is rather less than you would have to pay to buy them.
For example, a single Maple Leaf would currently set you back £1,090 or about 2.7pc more than the spot gold price. Similarly, a single Britannia coin costs £1,110 or 4.9pc more than the price of the bullion it contains.
It is not clear why British investors should have to pay nearly twice the premium over intrinsic value than other investors. On a brighter note, British gold coins which are legal tender remain exempt from Capital Gains Tax.
But much of the metal’s appeal is based on distrust of other stores of value, as Adrian Ash ofBullionVault explained: "Banking crises tend to concentrate the mind, and buying gold is an obvious escape route.
"The events in Cyprus prove once again that bank customers do face risks as creditors who are owed money. Until news of the first, disastrous Cyprus deal, activity was very much in line with the same time last year.
"As a comparison, we’ve had 65pc more people buying gold on BullionVault than we did in the week after Lehman Brothers collapsed."
Against all that, there is scant evidence of increased demand pushing up the gold price. One explanation is that institutional investors rather than individuals determine valuations in this global market. Despite the dismal impact of the Greek tragedy on tiny Cyprus, most institutional investors seem to believe there is better value to be had than bullion can deliver at current prices.

And now for our paper stories:  

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

Overnight sentiment will come from two sources, zero hedge and Marc to Market

First:  zero hedge

Major points:

1.Data from Italy horrendous:

  i) Industrial sales and orders tumbling -1.3% and -1.4% respectively (expectations were of an increase)

 ii) retail sales down -5% on expectations of it being unchanged.

iii) Decembers  positive .2% rise was also revised down into negative territory

2.  Bersani states that he may not form a government in Italy.

3. Grillo refuses to aid Bersani

4. Police raid Nomura in connection with our famous bank Monte de Paschi di Sienna

5.  Bond auction in Italy failed as they could not raise the maximum targeted  7 billion euros

6. Euro area confidence number drops from 91.1 to 90.

7. Slovenia bonds tumble in price (rise in yield)

Thus in a nutshell:  a rush out of the Euro as it falls below the 1.28 mark.

8. In Cyprus:  the central bank of Cyprus demanded the resignations of both boards of Laiki bank and Bank of Cyprus. As for Bank of Cyprus how is this is stamp of approval?

9. Discussions by Soc Gen and Jim Reid of Deutsche bank on early morning market sentiment

Expect major bank runs!!

(courtesy zero hedge/early morning market sentiment)

Cyprus Contagion Spreads As European "Omnishambles" Return; Euro Under 1.28 For First Time Since November

Tyler Durden's picture

While everyone likes to hate on Cyprus, it is Italy that is the focal point of today's European "omnishambles" that has seen the EURUSD tumble to a five month low as of this writing. First it was economic data that scared investors, with Industrial Sales and Orders tumbling far below expected, posting numbers of -1.3% and -1.4%, respectively, on expectations of an increase. Retail sales were just as ugly, declining by -0.5% in January, on expectations of an unchanged print, with the December 0.2% number revised also into negative territory.
Then Bersani, who has been tasked to form a government until tomorrow, said that the possibility of a broad coalition government does not exist, adding that no lasting government is possible without him as a premier, and requesting that Grillo's Five Star party not block his path to government, for which we wish him the best of luck as moments later Five Star ruled out all external support for a broad government and would vote no confidence for Bersani.
Then we got news that the Italian financial police has searched the Nomura in Milan in connection with the Monte Pasci case, which means even more skeletons in the closet are about to be uncovered. Finally, Italy just held a 3.5% 5 and 4.5% 10 year bond auction in which the country raised less than the maximum targeted €7 billion, and in which the Bid to Cover on the 5 Year dumping to the lowest since 2002, with bidding quite soft and the yield rising to 3.65% versus 3.59% previously. This has resulted in a blow out in Italian yields by 16 bps to 4.73% compared to 4.705% earlier.
Not helping matters was Euroarea March Economic Confidence which dropped from 91.1 to 90, missing expectations of a modest dip to 90.5, with declines seen in the Services, Retail, Construction and Business categories, and only Consumer rising modestly. The recent Cyprus risk flare out should put an end to that.
As for Slovenian bond yields, especially the 4.375% of 2021, one word: whoooooosh.
End result, as noted yesterday, has been an acceleration in the rush out of the EUR, with the EURUSD sliding to under 1.28 for the first time since November 21, a blow out in Greek bonds with yields pushing up 55 bps to 12.68% and a push for real safety (sorry, not the DJIA) in the form of German 2 Year bonds, which have dipped to -0.018%, the lowest since December, on rising fears that despite endless lies out of its bureaucrats, Europe may not be fixed after all.
Keep a close eye on Cyprus where as of right now, banks are still set to reopen tomorrow, and where moments ago the Central Bank demanded the resignations of both Laiki and Bank of Cyprus bank boards. Hardly a stamp of trust and approval 24 hours before the bank run begins.
In terms of broad activity, here is SocGen's overnight take:
The broad equity market complex tentatively moved on yesterday from the Cyprus bailout with the USD following risk assets higher despite two disappointing US economic reports, one on consumer confidence and the other on new home sales. There was some reprieve in the confidence data in that labour market conditions, and thus employment growth, are holding up. This should reinforce the positive momentum as we head into Q2, but it remains too soon for the Fed to take its foot off the accelerator. To this end, markets will be listening attentively to what Fed members Rosengren, Pianalto and Kocherlakota have to say.
US pending home sales come out today, while the focus in Europe will be on the Italian bond auctions (2018/2023) and the monthly confidence reports from the EC. The latter are set to highlight a possible worsening in economic conditions as we head towards the end of Q1, with the Cyprus bailout and ramifications for the European bank resolution framework i.e. bail-ins, possibly causing a further dent in household confidence in early Q2. A raft of Italian data is due, but the focus will be on Bersani's report to president Napolitano on his latest government talks. As discussed yesterday in ‘SEK: a double whammy', SEK bulls could be strengthening their grip on EUR/SEK which may cause a return to the February lows below 8.30 in the event of strong confidence data.
‘The last leg of the US assets rally' was released yesterday and discusses SG's latest Cross Asset strategy. It features seven key calls for the 3-12 month investor horizon with portfolio recommendations primarily based around the Fed mulling exit strategies as the US economy recovers, a China slowdown and a dovish BoE.
Finally, here is the traditional recap from DB's Jim Reid: 
A day after sending markets into a spin Eurogroup President Dijsselbloem reiterated that “risks (of bank failures) should fall on those who take the risks, and not the taxpayer”. Interestingly, Mr Dijsselbloem said that he didn’t regret his comments earlier in the week and that Cyprus “does fit into the new approach towards bank rescues that is gradually evolving” (WSJ). Officials at the ECB seem to hold a slightly different view though with Beniot Coeure from the ECB’s executive board commenting that he thought Mr Dijsselbloem was “wrong to say what he said”. Those comments were echoed by Ewald Nowotny who stated that Cyprus is special case and is "no model for other instances".
In Italy, media reports suggest that the centre-left’s Bersani will meet with party leaders from the 5-Star Movement today, as part of his negotiations with major political parties to form a government. Bersani will report the results of his talks to President Napolitano later today or tomorrow. As far as current progress is concerned though, hopes of a working coalition with the centre-right’s PDL look bleak. PDL party secretary, Angelino Alfano told reporters after a meeting with Bersani yesterday that "our positions are still very distant from each other, and if they remain distant in the next 48 hours we will affirm that the only way is to go back to vote". So it looks like we will be hearing more on this in the next day or two.
Turning to Asia, the situation on the Korean peninsula remains a focus with the WSJ reporting that North Korea has ordered the country’s rocket and artillery units to be on highest alert to strike bases in the US mainland, Guam, Hawaii, and other targets in the Pacific and South Korea. The article says that the move comes after the US and South Korea signed a military contingency plan to respond to potential attacks from North Korea. South Korea earlier raised its alert level near the demilitarised border zone but that alert has been lifted as we go to print. For the time being, the news has had a muted impact on the KOSPI (+0.4%) and the Korean Won (-0.5%) but a number of Korean defense stocks are up 5 to 10% overnight.
Elsewhere in Asia equities are trading higher across the region on the back of the S&P500’s solid gain yesterday. There has been little news flow in the region outside of Korea. After a bout of risk aversion over the last week, USDJPY has resumed its climb and is trading 0.3% higher this morning at 94.75. Regional credit markets are 1-2bp firmer this morning while 10yr UST yields remain steady at 1.91%.
In terms of the day ahead, the Eurozone’s economic sentiment survey for March, Italian industrial orders and retail sales are the main data releases in the euro area. Italy will also auction 5yr and 10yr bonds. In the UK, the Bank of England’s Financial Policy Committee is due to publish a report on the capital levels of UK banks. Across the pond, US pending home sales for February will be the main focus. Several members from the Fed are scheduled to speak today including the Boston Fed’s Rosengren, the Cleveland Fed’s Pianalto and the Minneapolis Fed’s Kocherlakota.

Cyprus Forced Into Bailout Deal

Monetary Metals's picture

Do you think that depositors in Cyprus are being taxed? That their money is being taken from them to go to the government in Cyprus or to Europe? Most analysis of the Cyprus bailout is wrong on this point.
Cypriot banks are like all banks in one respect. They raise capital to buy assets that earn a yield, keeping the difference between what they must pay for the money and what they earn on it. Like all banks, they raise money first from equity investors. Equity investors get to keep all of the gains on the upside and therefore are first exposed to losses on the downside.
Banking uses leverage, which multiplies gains when assets rise and losses when they fall. Imagine using 20:1 leverage. You buy a house for $100,000 using $5,000 of your own money (equity) and $95,000 of borrowed money. If the house rises to $110,000 you have tripled your $5,000 of initial equity to $15,000. If the house falls to $94,000 you have negative equity. That may be fine for a homeowner so long as you can pay the interest and principle when due. It’s not fine for a bank.
Banks raise money next from junior, unsecured creditors. Equity capital is expensive capital. Borrowing money is cheaper than selling a stake in the business. Next on the capital hierarchy is senior, secured creditors. Borrowing at this tier is cheaper because the risk of loss is lower. Not only would the shareholders have to be wiped out first, but also the junior creditors. Additionally, secured creditors can take the assets pledged as collateral.
Finally, banks raise money from depositors. Depositors get the lowest rate of interest, which is the tradeoff for having the strongest position in case of bankruptcy. In addition to not suffering any losses until all other classes of capital are zeroed out, depositors also enjoy a government guarantee today, at least up to a certain amount (€100,000 in the case of Cyprus)—so long as the government can pay. It is important to note that while the government maintains the fiction of a “fund” to cover such losses, in a bank crisis the losses are imposed on the taxpayers. Today in the US, for example, the FDIC has a tiny reserve to cover an enormous deposit base.

FDIC Ratio

In the modern world, government bonds are the key security in the financial system. They are defined as the “risk free asset” by theory and regulatory practice. They are used as collateral for numerous other credit transactions. And banks hold them as core assets. Let’s focus on that. A bank borrows from depositors and buys a government bond (and not entirely by choice). There are two problems with this.
First is duration mismatch. The bank is borrowing from depositors, perhaps via demand deposits, and then buying multiyear bonds. Read the link to see why this will sooner or later blow up.
Second, the government bond is counterfeit credit. Governments are borrowing to pay the ever-expanding costs of their welfare programs and the interest on their ever-expanding debt (it is no help that they lower the rate of interest to keep down the interest expense—this increases their burden of debtand destroys capital). Governments have neither the means nor intent to ever repay the debt. They just endlessly “roll” the liability, selling new bonds to pay the principle and interest on old bonds at maturity. This would be like taking out a new credit card to pay off the old one. It “works” for a while, until it abruptly stops working. It has stopped working in Greece; it will stop working everywhere else at some point.
The Cypriot banks bought lots of government bonds, including the defaulted bonds of bankrupt Greece. They lost the euros that were invested by their shareholders, bondholders, and a majority of what was lent to them by depositors. In a way it is accurate to say that the government took it. However, his taking did not occur this week. It occurred when governments sold them fraudulent bonds over many years.
The money is now long gone.
Call it what you will, the government, central bank, and commercial banks of Cyprus are bankrupt; they needed a bailout—new credit from outside the country to postpone collapse. In a week of drama, posturing, demands, reversals, and a vote in parliament, a deal was struck. No one is likely to be happy. Here are the key points so far as we can glean them:
A fresh tranche of €10B will be lent to Cyprus
Funds to come from (presumably?) the “Troika”: ECB, EC, and IMF
Shareholders and bondholders in Laiki (2nd biggest bank) will be wiped out
Laiki deposits under €100,000 will be transferred to Bank of Cyprus
Larger deposits will bear big losses (not specified at this time)
No bailout funds will go to Bank of Cyprus (presumably to government?)
50% or more of large deposits in Bank of Cyprus converted to equity
“Temporary” capital controls will remain when banks reopen Thursday
CEO of Bank of Cyprus just resigned, fueling rumors it too will collapse
The Europowers have a big dilemma. If they allow euro backwardation to persist much longer, or they open a schism in the euro where Cyprus euros are not fungible, they risk the collapse of the euro. On the other hand, if they do not impose capital controls then depositors would run on the Bank of Cyprus and it will collapse (ZeroHedge has been covering the story that large Russian depositors have found ways to make withdrawals even though the banks have been closed, using branches located outside the country).
We hope that if the reader gets nothing else from this article, at least he now understands that the Cyprus banks lost their depositors’ money over a long period of time. They used leverage to buy assets that collapsed and now they are insolvent. External parties are providing a bailout (which Cyprus will never be able to repay). For the first time in this crisis, the bailout does not cover depositors in full. Losses are to be suffered by not only shareholders and bondholders, but even by depositors. We expect future bailouts to incorporate this feature.
It is good that Eurozone leaders are beginning to assert that banks should fix themselves. In a free market, there is no such thing as a bailout that takes money from taxpayers to give to those who made a mistake. Hopefully they will take this to the next logical step and realize that bank solvency is impossible under the regime of irredeemable paper currency wherein the government bond is defined as the “risk free asset”. Gold is the risk free asset. Everything else has a non-zero risk of default.
We will continue to monitor and publish the gold basis to see when world markets begin to shift away from trusting the banking system, when people are willing to forego a yield to avoid having to trust a counterparty. When this happens, we expect gold to move more significantly towards gold backwardation.
Compared to the first proposal last week, this bailout is less unfair (we can hardly call any bailout fair)—at least shareholders go first, then bondholders then depositors.


Cyprus capital controls are detailed below:

(courtesy zero hedge)

Cyprus Capital Control Details Revealed

Tyler Durden's picture

As of now, the banks are still expected to open tomorrow; some of the details of the capital controls to be put in place have been leaked (via Phileleftheros):
So no outflows allowed to a foreign country (cough Russia cough) and for only 7 days (Pluto Standard Time?); furthermore, talk is that carrying cash of over EUR3,000 across the border wil be banned.

The restrictions will be placed on transactions when banks are open a decree issued by the Ministry of Finance. Then we present the provisions of the Ordinance provided that changes may be made, as yet not announced officially. Since the opening of bank risk and deposit outflows because under these conditions created an emergency situation, and because for ensuring public order and public safety and for overriding reasons of public interest, the Minister of Finance, in exercise of the powers conferred by Articles 4 and 5 of the restrictive measures in trade in Case of Emergency Act of 2013, upon the recommendation of the Governor of the Central Bank will issue a decree provides for the following:

A) No cashing checks. Provided that may deposit checks into account.

(B) Any non-cash payment or money transfer outside the Republic, except:
  • (i) payments for commercial transactions within the ordinary activities of the client by presenting documentary evidence. Not require the production of documents for amounts not exceeding €500.
  • (ii) payment of salaries of employees working outside the Republic
  • (iii) subsistence expenses up to €10,000 per quarter tuition and persons studying abroad and first-degree relatives of persons who have their habitual residence in the Republic, with the presentation of relevant evidence. Provided that all payments made to the beneficiary.
  • (iv) Payments or transfers outside the Republic by debit or credit card or prepaid, to €5,000 per month per person for each institution.
  • (v) Payments of claims by insurance companies
  • (vi) or other payments and money transfers is ensured provided that prior approval of the Commission
(C) Any termination filing deadline before the specified end date unless the product will be used to repay the loan within the same institution.

(D) The transport of euro banknotes or foreign currency in excess of the amount of € 3000 or the equivalent in foreign currency per person per trip abroad. The Director of Customs shall implement this measure.

(E) Financial transaction, payment or transfer, which is not completed before the commencement of this Ordinance, subject to the provisions of this Order restrictive measures.

(F) prohibit a credit institution to perform cashless payments or money transfers that aim to circumvent the restrictive measures.

(G) The restrictive measures apply to all accounts, payments and transfers, regardless of the currency.


Excluding restrictive measures:
(A) All money transferred from abroad to the Republic.
(B) Diplomatic Missions
(C) financial transactions on their own behalf institution
(D) Payments authorized by the Commission ?
(E) The Republic ?
(G) The Central Bank. This Order is valid for a period of seven days commencing from the date of publication in the Official Gazette.


Banks set to open tomorrow and withdrawals will be restricted to 300 euros per day.
Thus the banks are nothing but ATM machines

(courtesy zero hedge)


Tomorrow Cyprus banks will reopen sometime around noon (they are supposed to close at 6 pm but likely will close far earlier). What does that mean? Apparently nothing much. Because according to various newswires the withdrawal limit at all banks will be €300 per day. This means that all those daytrading wannabes who want to get stinking rich and just buy US stocks with "no risk", will be unable to buy even one riskfree (at least until last September) stock of AAPL per day!
In other words, all said "reopening" will do, is to allow physical branches to be used as glorified ATMs but with a very terrified and confused carbon-based teller on the other side (the same ATMs which a few days ago saw their limit reduced from €300 to €120). All other cash transactions will be strictly curbed, virtually no cash will be allowed to exit the island, and the what's more the government will ban the termination of the oh so ironically-named time deposits. This means that time deposits will now become "permanent deposits", even if within the €100,000 insured limit. The good news: credit card treansactions will be permitted when paying for goods and services anywhere on the island. Of course, electronic cash just happens to not be physical cash, which is why the bank is so cavalier with allowing people to access their own money. Well, electronic 1s and 0s-based money.
In other words, tomorrow's bank reopening means absolutely nothing (as ATMs had worked for the duration of the Cyprus bail-in crisis), and anyone who had hoped they could just walk in and withdraw their entire insured deposit up to €100,000 will be severely disappointed. Of course, those who had more than €100,000: Poof, it's gone, step aside please.
Oh well: such is life in the New Normal under capital controls, in which there is aunquantifiable premium for having physical cash over electronic.
Learn from it.


The risk of a Euro risk is substantial

Moody's lowers sovereign rating to Caa2:

(courtesy zero hedge/Moody's)

Moody's: Cyprus Euro Exit Risk Substantial

Tyler Durden's picture

Though it may seem a little like stating the obvious to many, Moody's comments:
While the risk of a euro exit by Cyprus is substantial... ...following the economic dislocation that will be caused by the restructuring of the island's two largest banks and the imposition of capital controls in the country, it is possible that the risk of euro exit will increase further.
And so while the talking heads discuss Cyprus as a unique situation and too small to care about, it seems the reality of the last two weeks has actually raised their chance of Euro exit as opposed to bailed them into the Euro.

Moody's lowers Cyprus's country ceilings to Caa2 

London, 27 March 2013 -- Moody's Investors Service announced today that it has lowered its assessment of the highest rating that can be assigned to a domestic debt issuer in Cyprus to Caa2, based on the increasing risk of an exit by the country from the euro area. Any rating actions taken as a result of the new country ceiling will be released during the coming week.

Cyprus's Caa3 government bond rating, and negative outlook, remains unchanged as it does not lie in the scope of this announcement.


While the risk of a euro exit by Cyprus is substantial, Moody's does not consider it as its central scenario. Following the economic dislocation that will be caused by the restructuring of the island's two largest banks and the imposition of capital controls in the country, it is possible that the risk of euro exit will increase further. If that were to occur, the maximum rating Moody's would assign to Cypriot securities would fall further.

An exit would result in large losses to investors due to the redenomination of government debt and private debt securities issued under Cypriot law. It would also lead to further severe disruption to the country's banking system and additional acute dislocations in the real economy. Such disruption would generally imply additional losses for holders of debt securities issued by Cypriot entities, irrespective of their governing law.

Moody's country ceilings capture externalities and event risks that arise unavoidably as a consequence of locating a business in a particular country and that ultimately constrain domestic issuers' ability to service their debt obligations. Country ceilings encapsulate elements of economic, financial, political and legal risks in a country, which include political instability, the risk of government intervention, the risk of systemic economic disruption, severe financial instability risks, currency redenomination and natural disasters, among other factors. These factors need to be incorporated into the ratings of the strongest issuers. The ceiling caps the credit rating of all issuers and transactions with material exposure to those risks. In other words, the ceiling affects all domestic issuers and transactions other than those whose assets and revenues are predominantly sourced from or located outside of the country, or which benefit from an external credit support.


Mark Grant believes the next nation to need a banking bailout will be Luxembourg.

(you will enjoy this commentary courtesy of Mark Grant)

"We Are Not Making This Up"

Tyler Durden's picture

Submitted by Mark J. Grant, author of Out of the Box,
Flying Pigs

After the Dutch Finance Minister indicated that Cyprus would be a template for future European bail-outs there was a lot of consternation. Senior debt was hit and bank accounts were confiscated in Cyprus and the plan just seems lovely for future problems. The notion that the second largest bank in Cyprus went belly up on its own is just not the truth and so the argument that depositors are responsible for where they put their money is not even applicable!

The nation of Cyprus was in trouble, Germany and the rest did not want to pick up the whole tab to bail them out, they had the ECB threaten to pull the funding and forced the bank closure so that they could use the depositor's money to help pay off the loan to the country. There was no "due process," no judicial review and the bank's actual creditors will get zero so let's at least deal with the reality of what happened and not try to paint it as something else.

Then this morning the 20%-40% seizure of the depositor's money, which was the range that had been discussed, was now admitted by the Finance Minister in Cyprus today to be more like an 80% expropriation and a timeline to get any money back of six to eight years. This is, I suspect, because while the banks were closed in Cyprus that they were still open in Greece and Britain so that certain monies crept out during the night, and probably big money, so that the banks in Cyprus are in far worse condition than previously thought or admitted.

Then, of course, because the EU Finance Ministers were not going to meet again and re-open this fiasco; more money had to be seized from the depositors. Now the Dutch Finance Minister chaired the meeting on Cyprus. He was the one that directed the entire affair on Cyprus and the template that he revealed was fist denied then admitted, then denied by the ECB and confusion reigned supreme. Now here comes the first pig; the representatives of the Eurozone finance ministries released a document this morning stating that Cyprus was not the template for future bail-outs. I suppose it was initially written in German and translated into English however they must have forgotten to translate it into Dutch. This is because when the Dutch Finance Minister was asked about this document, and he is the Chairman of the Finance Minister group remember; he said he knew nothing about the document.

I am not making this up. My imagination is good but not this good.

It has finally happened; the pigs are flying!

The good news this morning is that we already know which country is going down next. That country is Luxembourg. We know this because the Foreign Minister of Luxembourg, Jean Asselborn, told Reuters yesterday that "Germany does not have the right to decide on the business model for other countries in the EU. It must not be the case that under the cover of financially technical issues other countries are choked." Now Luxembourg is not so far different than Cyprus. They have a large financial sector, a lenient tax structure and a lot of foreign money. They have just also spoken out again the ubermeisters in Berlin which is not permitted under the EU treaty somewhere I am sure.

Next up---Luxembourg.

It was then reported this morning that the Cyprus Central Bank Governor, Panicos Demetriades, summoned the Bank of Cyprus CEO this morning and asked him to resign. Let me guess; the new Administrator will be Franz Stupenmeister or some name of that ilk. Then the European Parliament President just said that the way "the Cyprus case was handled is no way to do business in the EU." I don't know; the Press must have gotten it wrong. It must not have been the EU that handled the Cyprus fiasco, it must have been Mongolia and no one has told us yet.

The pigs are flying I tell you; the pigs are flying.

To top all of this off, the cherry on the whipped cream, the banks of Cyprus just re-opened in Greece this morning. I don't know, the flights from Moscow to Athens must be jammed. There are no capital controls in Greece so you can take out what money you like while the banks in Cyprus are still closedand now subject to capital controls. "Sense" and her brethren "logical," "rational" and "coherent" must have all departed from Europe in a huff. No one could make this up; no one.

"Mother of God! Flying Pigs!"

                  -The Eagle Has Landed

However must pundits believe the next nation to go will be Slovenia.

First the facts:

Slovenia population 2 million people
GDP  =  49.54 billion euros

Sovereign debt:  26.6 billion euros. (debt to GDP 53.7%)

Bad loans at the 3 major Slovenia banks: 7 to   8 billion euros

Slovenia banks guarantee 100,000 euros per account

Now the story:

(courtesy zero hedge)

The Next Cyprus?

Tyler Durden's picture

In the seven days since Slovenia's new government has been in power, their 10Y bond has seen its yield explode over 120bps as the investing world searches for the next 'Cyprus'-like land-mine. Of course, the Slovenian leaders are proudly denying it all,"Slovenia won't need aid, we can do this on our own," but with the nation needing EUR3 billion in bailout funding and the previous government proposing a 'bad-bank' style breakup, one can only imagine the capital outflows that are viciously circlingthis nation's financial system (given the relative size of their large 'uninsured' depositor base as shown here - SI). How will they solve the problem? By tapping international bond markets of course, "depending on market sentiment."


And then this on the same subject Slovenia:

The Next Bailout Candidate?

Actually, the fact that Slovenia is in trouble due to its rickety banking system has been known for quite a while (here is e.g. of an article in 2012an August 2012 article on the topic). The markets treated it as the next euro area bailout candidate even before attention shifted to Cyprus (readers may recall from our updates on CDS on euro area sovereign debt that Slovenia was considered very shaky by the markets for a long time). The spread between CDS on Slovenia's debt and that of other euro area peripherals has remained wide since last summer.
Since news of the Cyprus 'bail-in' have hit, investors have seemingly suddenly remembered that Slovenia is in trouble as well. As a result, Slovenia's government bonds, which have been on a road to recovery for many months, have plunged over the past few days:

slovenia government bonds
Price chart of Slovenia's 10 year government bond – click for better resolution.


Yesterday Moody's cut the second largest Slovenian bank NKBM to junk:

(courtesy Reuters)

Moody's cuts Slovenian bank NKBM deposit ratings to Caa2, outlook negative

LJUBLJANA (Slovenia), March 26 (SeeNews) – Moody's Investors Service said it lowered the long-term bank deposit ratings of Slovenia’s Nova Kreditna Banka Maribor (NKBM) to Caa2 from B3 with a negative outlook.
The junior subordinate ratings were downgraded to C from Caa3, Moody’s said in a statement on Monday.
The rating agency also said:
"Concurrently, NKBM's standalone E bank financial strength rating (BFSR) has been affirmed. However, Moody's has lowered the bank's baseline credit assessment (BCA) to caa3 from caa1 within E standalone BFSR.
The downgrades were prompted by Moody's assessment that NKBM's credit profile has been further weakened by (i) the necessity of a further capital injection to maintain capital adequacy above the European Banking Authority's (EBA) regulatory guidelines; ii) sizeable provisioning needs undermining its already weak capital base; and iii) the expectation of further deterioration in asset quality given the weak economic trends and difficulties in Slovenia's highly-leveraged corporate sector.


Row over minister adds to Slovenia banking worries

(Reuters) - Slovenian Infrastructure Minister Igor Maher resigned on Monday only five days after taking office in the new cabinet, adding to the problems of a new government striving to avoid a banking collapse to mirror that in Cyprus.

The small eastern European country has been fighting for months to avoid becoming the latest euro zone member to seek a formal international bailout. Bad loans issued by its banks total 7 billion euros ($9.10 billion) or a fifth of national economic output and the cost of ensuring its government debt has risen by a quarter in the past week.

Maher resigned amid allegations he had built a house in western Slovenia without a building permit, a row that has dominated national media and debate just days after Prime Minister Alenka Bratusek's coalition government was sworn in.

Borut Hocevar, an analyst at daily Finance said that the minister's resignation was taking up valuable time although it could be a welcome sign the new government wanted to crack down on corruption.

"There is less time (to avoid a bailout) with every day that passes," he said. "The government should focus on reviving the economy and solving the bank problems rather than dealing with its internal political issues."

Analysts said banks in the tiny Alpine country could be at risk from a deal to save Cyprus that has forced substantial losses on bigger clients.

"There is a risk that the potential impact of the settlement in Cyprus ... could impact the behavior of depositors in Slovenia," said Timothy Ash of Standard Bank.

Bank of Slovenia Governor Marko Kranjec told Reuters on Friday Slovenia had not been affected by the bank run in Cyprus after the EU, the ECB and the IMF demanded a levy on bank deposits in Cyprus in exchange for financial aid.

But Bratusek's center-left government, which took over on Wednesday, has yet to explain how it plans to help the state banks, which will need to raise some 1 billion euros in extra capital this year, according to the International Monetary Fund.

Former Prime Minister Janez Jansa said last week Slovenia would need to issue new bonds by June 6 to avoid financial problems but the new government has not yet revealed its issuance plans.

The yield on Slovenia's 10-year bond retreated to 5.2 percent on Monday after spiking at 5.46 percent on Friday, Reuters data showed.

The five-year credit default swaps, showing the country's risk premium, stood at 295.9 basis points by 8.10 a.m. EDT on Monday, up 0.1 percent from Friday's close. They were up by 24.4 percent over the past week, Markit data showed.

Bratusek said last week Slovenia can avoid a bailout. She said her government would focus on reviving the economy and creating new jobs, with less emphasis on austerity enforced by Jansa, whose government collapsed in January over a corruption scandal.

($1 = 0.7694 euros)

(Reporting by Marja Novak; editing by Patrick Graham)


This is interesting.  This time around we did not see a flight to Swiss bonds.
Today it went only to German bunds:

(courtesy zero hedge)

A Teutonic Shift: Europe's New Safe Haven

Tyler Durden's picture

Something rather notable appears to have changed in Europe in the last week. Since the global financial crisis exploded five years ago, each significant risk-flare has seen money flow rapidly into Swiss short-dated bonds (the so-called safe-haven trade) and has often driven these rates significantly negative. However, the current debacle is exhibiting a very different picture. Whether it is concern (as we noted here) that Switzerland will be next for a 'wealth tax' or simply a market's recognition of where the 'only' safe-haven truly exists in Europe,investors have surged into short-dated German Bunds (and not Swiss) - driving the yield on these bonds below Swiss 2Y.
Swiss 2Y Yield is -0.2bps, German 2Y Yield is -2bps!

Chart: Bloomberg


Spain's 2012 budget was fudged with improper tax accounting.  The true deficit ex bank financing is 6.98%
instead of 6.75%.  If you add in the 60 billion for the Bankia finance mess, Spain will have in excess of 10% deficit to GDP in 2012:

(courtesy zero hedge)

Here We Go Again: Spain Says 2012 Budget Deficit "Will Be Bigger Than First Estimated"

Tyler Durden's picture

Back in December 2011, Europe swooned and bond yields soared when it was shocked, shocked, to learn that Spain had been lying about its budget deficit all year, a number which was subsequently hiked several more times. Then in 2012, to keep up with the pretense that things are better, Spain once again did what it does best: fudged numbers, this time desperate to make it appear that its actual government deficit was better than expected because one had to 'obviously' exclude all those items that are not part of the government spending... like payments for its broke provinces, or indirect funding for its broke banks. Now it turns out that in addition to fudging the definition of "budget", Spain was, surprise surprise, lying once again. From Bloomberg: "The Spanish government said its 2012 budget deficit will be bigger than first estimated after the European Union requested changes in how tax claims are computed. The budget shortfall excluding aid to the banking sector was 6.98 percent of gross domestic product last year, more than the 6.74 percent predicted on Feb. 28, Deputy Budget Minister Marta Fernandez Curras told reporters in Madrid today. That compares with 8.96 percent in 2011."
Spain is seeking an extension from other euro-region governments to reorder its public finances as Prime Minister Mariano Rajoy says output may shrink more in 2013 than the 0.5 percent he initially predicted. That’s a third of the contraction forecast by the International Monetary Fund. Spain is due to submit budget plans through 2014 to the European Commission next month.
Naturally, 2013 is already off to a "good" start:
The central government’s deficit for the first two months of the year widened to 2.22 percent of GDP from 1.95 percent last year, according to data calculated using the new methodology, Curras said.
How long, one wonders, until that number too is revised higher?
In the meantime, we await patiently to learn just how much more cash Europe will be handing over to Spanish banks. The same cash it refused to hand over to the Cypriots, and to prove that in the European animal house, one's "equality" is directly proportional to one's systemic collapse risk:
Eurostat, the EU statistics office, told Spain to compute tax refunds in its national accounting as and when they are claimed instead of waiting for the claims to be checked by tax authorities, Curras said. That means Spain must revise its budget-data series that starts in 1995, she said, without commenting on when the figures will be released.

“Bond markets need to know the country’s exact fiscal metrics,” Justin Knight, a London-based rates strategist at UBS AG, said by telephone. “It’s so difficult to tell what the real numbers are. We’ll have to wait for Eurostat’s release.”

The Budget Ministry delayed tax refunds in the fourth quarter as it intensified controls. Cash-basis data released this month by the national tax agency showed refunds surged 83 percent in January from a year ago after dropping 62 percent in December. Tax refunds declined an average of 7.9 percent in 2012, more than twice as much as in 2011.

“It is a bit of an accounting game,” said Ignacio Conde- Ruiz, a Madrid-based economist who works for the economic research institute Fedea.
You don't say. The bottom line, however, for Spain is quite clear:
The central government’s interest bill surged 15 percent last year to 26 billion euros, while tax receipts slumped 21 percent. The cost of servicing debt represented 30 percent of the taxes collected at the end of December, up from 20 percent a year earlier.
In other words: absolutely unsustainable on an actual, truthful, adjusted, revised, recasted, pro forma or simply fraudulent basis.


The following should explain clearly the problem of the Euro monetary union of 17 nations, inappropriate bilateral exchange rates!!

(courtesy zero hedge)

The Eurozone As An East-German Motorcycle

Tyler Durden's picture

Eager for yet another explanation why despite all the bluster and rhetoric, it is Germany that has been the biggest beneficiary from the "Eurozone Experiment" (at least so far), as the following chart (and yes, there are other nuances, but in a continent in which youth unemployment is approaching 60% in increasingly more countries, it really is all about jobs) so clearly shows...
... then here is one from the inimitable Albert Edwards of Socgen who compares the destruction of the peripheral economies to...  the iconic East German motorcycle the MZ, the two wheel equivalent of the just as iconic Trabant.
My final observation about the current eurozone conjuncture is to remind readers about the fate of the East German MZ motorcycle company (see picture below). Prior to the 1990 reunification of Germany these motorcycles were an extremely common sight (eyesore?) on the streets of London. But in what many saw as a cynical vote catching measure, Chancellor Kohl allowed the East German savings in Ostmark deposits to be converted into the Deutschmark at a one-for-one exchange rate (the black market rate was nearer to 10-1). The immediate euphoria of East Germans being able to spend their savings at a favourable exchange rate was replaced by gloom as East German industry was bankrupted at this wholly incorrect exchange rate. The quaint, oily MZ had a market at the right exchange rate. At the wrong one East German industry was bankrupted and West German citizens were forced to ultimately pay a heavy financial price for the resultant mass unemployment. And now all these years on one could say we are dealing with almost exactly the same issues: i.e. countries locked together at wholly inappropriate bilateral real exchange rates? Plus ├ža change

Egan-Jones Downgrades UK From AA- To A+

Tyler Durden's picture

Thought you could shut up Egan-Jones? Sure, you could... as a NRSRO: the same worthless designation that is carried by Moodys and S&P. However, that does not prevent them to act, and provide their ratings opinion, as a non-NRSRO. Which is exactly in what capacity the infamous firm, which was targeted by the SEC for daring to downgrade the US (the same reason S&P was sued by the DOJ later), just downgraded the UK from AA- to A+.
DOWNGRADING United Kingdom FROM AA- to A+ (S&P: AAA)


Synopsis: Re. the balance of payments, imports have exceeded exports by an average of 500B pounds annually over the past several years. The major problems for the UK is that Europe's banking crisis does not appear to be abating as evidenced by the problems of the Cypriot banks. On the fiscal side, the deficit to GDP has declined over the past three years from 11.5% to 8.3%, which is a respectable decline, but is still substantial; the bulk of the deficit reduction was the result of increased taxes. The over-riding concern is whether the country will be able to continue to cut its deficit in the face of weaker economic conditions and a possible deterioration in the country's financial sector. Unfortunately, we expect that the UK's debt/GDP will rise and the country will remain pressed (we are waiting for addl 2012 data). We are downgrading.


our early Wednesday morning currency crosses;  (8 am)

Wednesday morning we  see major euro strength against the dollar   from the close on Tuesday  with this time trading well below the  1.28 mark at 1.2776. The yen this the morning  is a touch stronger  against  the dollar,   at 94.258 yen to the dollar. It seems that the devaluing of the yen has run its course.  Those that loaded the boat shorting the yen and thus engaging in the yen carry trade are having their problems.      The pound, this morning is a lot weaker against the USA dollar lowering to 1.5100. The Canadian dollar is also weaker  against the dollar at 1.0187.   We have a slight  risk is off situation  this morning with  all  European  bourses in the red.  Gold and silver are lower  in the early morning, with gold trading at $1594.00 (down $1.80) and silver is at $28.35 down 29 cents in early morning European trading.

The USA index is up a whopping  32 cents at 83.20.

Euro/USA    1.2776  up .0015
USA/yen  94.28  up .347
GBP/USA     1.5166 down .0012
USA/Can      1.0203 down .0015


And now your closing Spanish 10 year bond yield: (a rise of .14%)



5.080.14 2.92%
As of 12:59:57 ET on 03/27/2013.

Tuesday's yield



4.930.03 0.52%
As of 12:59:00 ET on 03/26/2013.


And now our Italian 10 year bond yield:  (a huge rise of .21%)

Italy Govt Bonds 10 Year Gross Yield


4.780.21 4.55%
As of 12:59:50 ET on 03/27/2013.

Tuesday's yield



4.570.04 0.89%


Your 5:00 pm closing Wednesday currency crosses:

The Euro remained constant this afternoon after falling badly overnight . The Euro tumbled all the way down to 1.2780. The yen weakened a bit this afternoon  to finish at 94.41 . The shorters of the yen currency (the yen carry trade) are still getting hosed. The pound strengthened a bit this afternoon  finishing at 1.5128.  The Canadian dollar also strengthened a bit against the dollar closing at 1.0161. 

The USA index rose  from the morning session with the final index number up 33 cents to 83.21. 

Euro/USA    1.2780  down .0079
USA/Yen  94.41 down .22
GBP/USA     1.5128  down 0031
USA/Can      1.0161  down  0005


Your closing figures from Europe and the USA:

green ink for England/Paris/Germany and USA/
red ink for Spain and Italy.

i) England/FTSE up 11.81  or 0.18%

ii) Paris/CAC down 37.00 or 0.99% 

iii) German DAX:  down 90.58 or 1.15%

iv) Spanish ibex down  90.10 points  or  1.89%

v) Italian bourse (MIB) down 142.07  points or .92%

and the Dow down  33.49 (.23%)


And now for some USA news:

The following story needs no introduction!

(New York Times) 

JPMorgan Chase Faces Full-Court Press of Federal Investigations


Mike Montross said...

Did the Russians les money in Cyprus? Seems liken easy question to ask.

harveyorgan said...

Mike: from what I have learned a major portion of the Russian money left last week as they found quite a few loopholes.

It looks like the President of the Bank of Cyprus resigned because he knew that Russian money have left and there is no money left to restructure the bank.

It looks like the Bank of Cyprus will fail and thus there will not be enough euros to pay depositors that were below the 100,000 euro level.
Then the sovereign Cyprus will print Cypriot pounds and pay those depositors and then the fun begins throughout the world.

stay tuned....

reo said...

Even If 100 million ounces stand for delivery it makes no difference. Their is no TRUTH in any of these figures you get out of the Comex Harvey. If there was any REAL meaning to it...price would be going WAY up as they cover their shorts and get the metal to deliver...but they don't. They just pay off in cash or.. like MF GLOBAL,simply don't pay and steal the money/contracts and don't deliver...then when they need more cash they raid your bank account. THE SYSTEM IS ONE BIG HUGE F*&^%%% SCAM JOKE.

J said...

Alexander Lebedev was on TV this week bragging about he and his buddies go all of their remaining money out of Cyprus during the week that Cyprus banks were closed to the public, but the rest of the financial system was open. He explained that for people with contacts and means, "there are ways around the controls. It was nothing for me, not worth talking about".

The other ppl who have lost money are of course the fools who own silver. It has fallen in price since Cyprus, dispite the fear-mongering of the shrills who proclaimed money would all flow into silver and gold.... WRONG AGAIN! Money flows into stocks and property and even dollars. Not silver.

Silver broke down to close below 28.50 on the weekly AND monthly is VERY BAD.

A basic problem with gold and silver is that they can be confiscated and made illegal to own or transact with.. Therefore they are high risk and not a true safe haven.

Test of $26 silver is likely. And possibly $21-22 or maybe $17. Nobody knows how far metals will fall, but gold & silver & miners remain very bearish like before.

Mike Montross said...

The Federal Reserve is manipulating the price of silver. Everyone knows

Search This Blog