Thursday, June 20, 2013

Bloodbath today/Greece short by 3 to 4 billion euros, IMF demands they find the money

Good evening Ladies and Gentlemen:

Gold closed down by $87.70 to $1285.90 (comex closing time ).  Silver fell by $1.80 cents to $19.82  (comex closing time)

In the access market at 5:00 pm, gold and silver finished trading at the following prices :

gold: 1281.00
silver:  $19.64

It is futile talking about actual gold/silver trading as these precious metals are manipulated by the bankers every minute of the day.  
At the Comex, the open interest in silver rose by  1815 contracts to 151,706 contracts despite  silver's fall in price yesterday.  The silver OI is still  holding firm at these highly elevated levels. As I mentioned to you yesterday, the bankers will try and do everything possible to remove as many longs from the silver arena as possible. The big test will be tomorrow.  If the OI remains at the same level as today, it could only mean somebody with huge deep pockets in standing and quite possibly a sovereign like China.
The open interest on the entire gold comex contracts rose  by 5477 contracts to 382,583 which is still extremely low. The bankers today continued to drown more and more of newbie gold paper players   . The number of ounces which is standing for gold in this June delivery month  remains at 940,100 or 29.24 tonnes. The number of silver ounces standing in this non active month of June also  remains constant at 705,000 oz

Tonight, the Comex registered or dealer inventory of gold remains the same at  1.434 million oz or 44.60 tonnes.  This is still dangerously low.  The total of all gold at the comex also remained the same  at 7.706 million oz or 239.68 tonnes of gold.

 JPMorgan's customer inventory shows no  change and rests tonight at its nadir of 136,380.611 oz or 4.24 tonnes.  Its dealer inventory remains at 413,526.284 oz but it still must settle upon contracts issued in the June delivery month which far exceeds its inventory.

The total of the 3 major bullion dealers, Scotia , HSBC and JPMorgan have in the Comex dealer account only 30.02 tonnes of gold

The GLD  reported a loss in inventory of 2.42 tonnes of gold inventory. The SLV inventory of silver  remained firm with no losses or gains in inventory.

Tonight, we have two major commentaries:  i) from Bill Holter and ii) Mark Grant
on today's events.  They are both extremely important.

Kingworldnews and Eric King provide two great interviews with James Turk and Bill Kaye.

Also, we have a commentary from Monty Pelerin who agrees with us that it will be impossible to stop QE as there is nobody on the planet who will buy USA bonds.  The USA will no doubt have a deficit of 1 trillion dollars and these dollars must be funded by somebody.  Strange! nobody seems to address this.

Matt Taibbi, from Rolling Stone Magazine delves through all the emails from the lawsuit with the ratings agencies.  He concludes this is one massive fraud as the rating agencies knew what they were doing by giving junk, an AA plus rating etc.
You will not want to miss reading this one as well. 

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.
Here are the details:

The total gold comex open interest rose  by 5477 contracts from  377,106 up to  382,583 with gold rising by $7.60 yesterday. Remember, the waterfall occurred at 2:15 yesterday (after comex closed) when Bernanke gave his press conference. The front active month of June saw it's OI fall by 30 contracts from  934 down to 904. We had 26 deliveries served upon our longs yesterday,thus we lost 400 gold ounces standing in this June delivery contract month (4 contracts). The next delivery month is the non active July contract and here the OI rose by  36 contracts down to 621.  The next active delivery month for gold is August and here the OI rose by 4943 contracts from  212,676 up to 217,619. The estimated volume today was huge at 347,557 contracts.    The confirmed volume yesterday was fair at 142,370. 

The total silver Comex OI rose by 1815 contracts despite silver falling in price yesterday by 5 cents. The big test will be tomorrow as we see if the longs in silver remain resolute, willing to take on the criminal bankers. If the OI remains relatively constant tomorrow, then no doubt we have a sovereign standing for much of silver.  The front non active June silver contract month shows no change in OI at 25. We had 0 notices filed yesterday so in essence we neither gained nor lost any silver contracts. The next big delivery month is July and here the OI fell by only 2322 contracts down to 52,749. We have a little over 1 week to go before first day notice (June 28.2013) and judging from the relatively high OI in July, we may see some fireworks in silver.  The estimated volume today was astronomical coming in at 144,877 contracts.  The confirmed volume yesterday was  good at 55,446. The volume today in oz is 724 million oz or a little less than 100% of annual global production from all mines.  

Comex gold/May contract month:

June 20/2013

 the June contract month:

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
 32.15 oz  (Brinks) 
No of oz served (contracts) today
 1 (100  oz)
No of oz to be served (notices)
903 (90,300 oz
Total monthly oz gold served (contracts) so far this month
8498  (849,800  oz)
Total accumulative withdrawal of gold from the Dealers inventory this month
78,856.579 oz
Total accumulative withdrawal of gold from the Customer inventory this month

259,153.01 oz

We again had tiny activity at the gold vaults
The dealer again  had 1 deposit and no  withdrawals.

Into Brinks;  100.65 oz

We  had zero  customer deposits today :

total customer deposits:  zero

It is very strange that in a big delivery month, we are witnessing no gold enter the dealer or even the customer.

 we had 1  customer withdrawal:

i) Out of Manfra:  257.216 oz

i) total customer withdrawals:  257.216 oz

 thus, zero ounces were withdrawn from JPMorgan today as well as no notices filed from the dealer side of JPM.

As we reported to you two weeks ago, that JPMorgan withdrew a huge amount of gold from its customer account:

 Out of JPMorgan:  217,844.96 oz.

If you will recall, we needed to see 100,000 oz of gold removed from JPMorgan's customer account. (1000 contracts served upon our longs in mid May).

The  last Tuesday in May, we  had 15,416.93 oz removed from the JPM's customer account. No doubt that this gold was part of the 1000 contracts issued by JPMorgan customer account and thus we calculated that as of last night 28,389.579 oz was settled upon, leaving 71,611.00 oz  still left to arrive in the settling process.

Last Tuesday, June 11, we had 217,844.96 actual ounces leave JPMorgan

Today we had no issuance from any of the major bullion banks, JPMorgan, HSBC and Scotia.

In summary on the customer side of things for JPMorgan:

Today 0 notices were served upon our longs from the JPMorgan's customer side of things. 


From the beginning of June we have had 1553 notices served from the customer side of JPMorgan for 155,300 oz.  If we add the 71,611.00 oz owing from  May issuance, we get  226,911 oz.  If we subtract the actual withdrawal of gold from JPMorgan of 217,844.96,  this still leaves 9,066.04 oz that needs to be settled upon from the vaults of JPMorgan customer side.


Today we had no adjustments.

The total dealer comex gold thus remains at 1.434 million oz or 44.60 tonnes of gold.

The total of all comex gold, dealer and customer rests tonight at 7.706 million oz or  239.68 tonnes..

Thus tonight we have the following closing inventory figures for JPMorgan:

i) dealer account:  413,526.284 oz
ii) customer account  remains at 136,380.611   oz. (or only 4.2 tonnes of gold)

Now for JPMorgan's dealer side and what the inventory should be:

 Last Tuesday night June 11.2013 we reported that 4935 contracts have been issued by JPMorgan's house account since first day notice and not yet subtracted out of inventory

You will also recall two weeks ago on  Saturday (and again on that following Monday night,) I reported that JPMorgan had 470,322.102 oz in it's dealer account. From that day until now, 58,795.82 oz was either withdrawn or adjusted out, leaving the dealer side  at 413,526.284  oz where it sits tonight.

On the dealer side here are the last 9 trading sessions as to notices issued from JPMorgan's dealer side:

 Friday:  zero
 Monday:  1
 Tuesday:  0
 Wednesday :  0
 Thursday:  0
 Friday:  0
 Monday:  0 .
 Tuesday:  0
Wednesday: 0
Thursday:  0

Thus,  4946 notices have been issued by JPMorgan (dealer side) so far in June  for 494,600 oz  and these ounces have yet to settle from JPMorgan's dealer side.

JPMorgan's dealer vault registers tonight 413,526.284 oz.

Somehow we have a huge negative balance as   i) the gold has not left JPMorgan's dealer account and has yet to settle


ii) it is now deficient by 81,074 oz   (413,526 inventory - 494,600 oz issued =  81,074 oz)

In other words, the entire 413,526 must be first transferred out of Morgan's dealer category ( in the same format as in the customer category) leaving it with zero,  plus the 81,074 of additional gold

JPMorgan has not had any deposits in gold in quite some time. As a matter of fact, zero ounces has entered on the dealer side from the beginning of 2013.

How will JPMorgan satisfy this shortfall??

Another disturbing piece of news is the low dealer gold inventory for our  3 major bullion banks:  Scotia, HSBC and JPMorgan equal to 30.08 tonnes

i) Scotia:  285,596.23 oz or 8.88 tonnes
ii) HSBC:  270,197.277 oz or  8.4 tonnes
iii) JPMorgan: 413,526 oz or 12.8 tonnes

Brinks dealer account has the lions share of the dealer gold at 445,398.58 oz 13.89 tonnes.

There were no changes in inventory from all sides today.

Today we had 1 notice served upon our longs for 100  oz of gold. In order to calculate what I believe will stand for delivery in June, I take the OI standing for June (904) and subtract out today's notices (1) which leaves us with 903 contracts or 90,300 oz left to be served upon our longs.

Thus  we have the following gold ounces standing for metal in June:

8498 contracts x 100 oz per contract  or  849,800 oz served upon +  903  contracts or 90,300 oz (left to be served upon)  =  940,100 oz or 29.24 tonnes of gold. 

We  lost 400 gold ounces standing in this June delivery month.

 We now have the official USA production of gold last year and it registered 230 tonnes.  Thus approximately 19.16 tonnes of gold is produced by all mines in the USA per month. Thus the amount standing for gold this month represents  152.6% of that total production.

Ladies and Gentlemen: we have a three-fold problem:

i) the total dealer inventory of gold  is at a very dangerously low  level of only 44.32 tonnes and none of the 9.5 tonnes delivery notices from May and the 29 tonnes from June have been removed from inventory as of yet.

ii)  a) JPMorgan's customer inventory remains at an extremely low 136,380 oz.
If you are a customer of JPMorgan and have your gold in its vault, I think it is best to remove it before we have another fiasco like MFGlobal.

ii  b)  JPMorgan's dealer account rests tonight at 413,000 oz.  However all of this gold has been spoken for plus an additional 81,000 oz

iii) the 3 major bullion banks have collectively only 30.08 tonnes of gold left!! 


now let us head over and see what is new with silver:


June 20.2013:  June silver contract month: 

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 67,582.898 oz (CNT,Scotia Delaware,JPM) 
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory nil
No of oz served (contracts)0  (nil oz)
No of oz to be served (notices)25  (125,000 oz)
Total monthly oz silver served (contracts) 116  (580,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month988,092.07 oz
Total accumulative withdrawal of silver from the Customer inventory this month4,398,468.5 oz

Today, we  had fair activity  inside the silver vaults.

 we had 0 dealer deposits and 0  dealer withdrawals.

We had 0 customer deposit:

total customer deposits  nil  oz

We had 4 customer withdrawals:

i) Out of Scotia: 2099.50 oz
ii) Out of CNT:  59,223.898 oz
iii) Out of JPM: 5247.40
iv) Out of Delaware:  1012.10

total customer withdrawal  :  67,582.898 oz 

we had 0    adjustments  today

Registered silver  at :  41.263 million oz
total of all silver:  164.318 million oz.

The CME reported that we had 0 notices filed for nil oz  today. In order to calculate what we believe will stand in the month of June, I take the Oi standing for June (25) and subtract out today's notices (0) which leaves us with 25 notices or 125,000  oz.
Thus the total number of silver ounces standing in this non  active delivery month of June is as follows:

116 contracts x 5000 oz per contract (served) = 580,000  oz  + 25 contracts x 5000 oz  or 125,000 oz left to be served upon =  705,000 oz

we neither gained nor lost any silver ounces standing today.


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:

June 20/2013:



Value US$41.348  billion



Value US$44.1026   billion 

June 18.2013:



Value US$44.002  billion

June 17/ 2013:



Value US$44.649  billion

June 14.2013:



Value US$44.860   billion

June 13/2013:



Value US$44.659  billion

June 12/ 2013:



Value US$44.8682  billion

June 11.2013:



Value US$44.592  billion

June 10.2013:



Value US$44.885   billion

June 7.2013:



Value US$44.855  billion

June 6.2013:



Value US$45.334  billion

June 5.2013:



Value US$45.588  billion.

June 4.2013:



Value US$45.443  billion

June 3.2013:



Value US$45.662  billion

Today, the bleeding resumes again. We lost  4.21 tonnes of gold today. 

The registered  vaults at the GLD will eventually become a crime scene as real physical gold  departs for eastern shores leaving behind paper obligations to the remaining shareholders.   There is no doubt in my mind that GLD has nowhere near the gold that say they have and this will eventually lead to the default at the LBMA and then onto the comex in a heartbeat  (same banks)

As a reminder the total comex gold had inventories of around 11 million oz in 2011. Today it remains  at 7.706 million oz  (239.68 tonnes)

GLD gold:  995.35 tonnes.


And now for the ETF  silver SLV

June 20;2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,473,111.500
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 19.2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,473,111.500
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 18.2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,473,111.500
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

Inception Date4/21/2006
Ounces of Silver in Trust321,473,111.500
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 14.2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,473,111.500
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

june 13.2013;

Inception Date4/21/2006
Ounces of Silver in Trust321,473,111.500
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 12.2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,473,111.500
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 11.2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,135,274.700
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 10.2013

Inception Date4/21/2006
Ounces of Silver in Trust321,135,274.700
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 7.2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,135,274.700
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 6.2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,135,274.700
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 5 2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,135,274.700
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 4.2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,279,945.800
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 3.2013:

Inception Date4/21/2006
Ounces of Silver in Trust321,279,945.800
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.



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 negative 6.5% percent to NAV in usa funds and a negative 6.9%  to NAV for Cdn funds. ( June20/13) .

2. Sprott silver fund (PSLV): Premium to NAV fell  to negative .23% NAV June 20/2013
3. Sprott gold fund (PHYS): premium to NAV  fell to negative-1.27% to NAV June 20/ 2013  


And now for the major physical stories we faced today:

Gold trading from Europe this morning

Gold, Silver, Equities, Bonds Plunge On Fed Noise And China Debt Crisis Risk

GoldCore's picture

Today’s AM fix was USD 1,303.25, EUR 986.34 and GBP 842.38 per ounce.
Yesterday’s AM fix was USD 1,366.00, EUR 1,019.86 and GBP 874.91 per ounce.
Gold fell $16.10 or 1.18% yesterday and closed at $1,351.00/oz. Silver sank to $21.25 and ended down 1.25%.
Bonds, shares plus gold and silver fell sharply around the world this morning after the U.S. Federal Reserve again suggested an end to their easy money policies. Data also showed China's economy slowing down amid growing concerns that a credit crunch in China is worsening.
Gold fell to a more than two-year low, while silver was at its lowest since 2010. Gold fell 2.7% and silver slumped by 4.5%.
The sell-off began after Fed chairman Ben Bernanke again suggested that U.S. economic growth was strong enough to begin tapering back on its $85 billion in monthly asset purchases later this year.
Ten-year U.S. Treasury note yields hit 15-month highs of about 2.38% after the comments sparking a slump in global equity and bond markets. 
The FTSE fell 1.8% in early trade, while the Dax was down 2.4% and the CAC 40 down 2.1%. 
The selling accelerated when a survey of China's factories showed activity slumping to a nine-month low just as a squeeze in the nation's money markets sent short term rates to record highs. 
Asian stocks outside Japan suffered their biggest daily loss since late 2011, German Government bond futures dropped to their lowest levels since February and oil slumped by around $1.50 a barrel.
Perhaps most concerning is the very sharp selloff in the UK and other European government bond markets which have seen very sharp falls.
The market slump is also due to the fact that many bond and equity markets had become overvalued despite deteriorating fundamentals.
This deterioration in the fundamentals of the global economy may be more important that the Fed suggesting that they will ‘taper’ their extremely unorthodox and massive debt monetisation programme.
The Fed has been suggesting that this would happen for many months and as ever it is always best to watch what central bankers do rather than what they say. 
Some market participants may be realising that markets, and bond markets in particular, are hopelessly addicted to ultra-loose monetary policies, the printing of money to buy bonds and currency debasement.  
Conversely, these fundamentals are actually bullish for gold and silver in the medium and long term.
The smart, store of wealth, money will continue to gradually accumulate physical bullion on dips like this.
Commercial traders, the so-called "smart money" in the futures market have twice as many long positions as they do short, as per the latest Commitments of Traders (COT) report. Meanwhile, the speculators, the so-called "dumb money" have slightly more short positions.
Considering that the commercial traders tend to be biased to the short side, this indicates they are confident that prices will soon rise.
Ignore the noise of the Fed and continue to focus on the long term fundamentals driving the precious metals market.
Video: "Get Out Of Paper Money" - Bloomberg
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From the Ed Steer column, here is the correct amount of silver sales from the USA Mint:

(courtesy of Ed Steer and T.B)

The silver eagle sales number that you report is sort of misleading as you are only counting the bullion coins.  You have to do a little extra digging to find all of the silver eagle sales.  The mint has sold an additional 568,155 2013-W proof silver eagles, 118,841 2013-W uncirculated silver eagles, 281,310 2013-W two-coin eagle sets (562,620 coins/ounces) and 3,207silver eagles contained in "2013 Congratulations sets" for a total of 1,252,823 silver eagles that you've failed to report.  Just because the coins may be a little shinier or sold separately as collectable's doesn't mean that they aren't silver eagles sold to the public.  YTD silver eagle sales totals from the mint should be reported as 25,280,823.
Then, if you count the 2013 5-ounce ATB [American the Beautiful] silver coins -- the mint has sold 24,998 of those coins for an additional 124,990 ounces.
They have also sold 103,484 2013 5-quarter silver proof sets (90% silver) equating to 92,488 ounces of silver.
244,812 2013 14-coin silver proof sets have been sold with each set containing five 90% silver quarters, one 90% half and one 90% dime.  These sets total 323,825 ounces of silver.
48,853 2013 5-star general silver dollar proof coins (90%) and 20,756 5-star general uncirculated (90%) coins have been sold, totaling 53,807 ounces of silver.
77,838 2013 girl scouts silver dollar proof coins (90%) and 28,976 girl scouts uncirculated (90%) coins have been sold, totaling 82,567 ounces of silver.
And finally American gold eagles are alloyed with 3% silver by weight.  YTD gold coin sales contain approximately 34,700ounces of silver within these coins.
So, all of these non-silver eagle products totaled together equate to 712,377 ounces.
Total silver sales YTD from the mint should correctly be reported as 25,993,200 ounces.


Turk, Kaye on the Fed's latest distraction

8:33a ET Thursday, June 20, 2013
Dear Friend of GATA and Gold:
In interviews with King World News, the Federal Reserve's latest communique is analyzed by GoldMoney founder James Turk and Hong Kong fund manager William Kaye.
Turk says the communique has distracted from seriously disturbing news about major banks:
Kaye says the communique was written to give a false impression of dissent within the Fed about "quantitative easing" and that nothing has really changed:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Only crooks do this:

CME Hikes Gold Margins By 25%

Tyler Durden's picture

How very unexpected. And how, judging by today's massive selloff, it is almost as if someone knew in advance this would happen. Can JPMorgan just restock its vault with whatever gold it needs to meet its massive delivery demands (at three year low prices) so some normalcy can return to the market?
Source: CME

And now your more important paper stories which will influence the price of gold and silver:

Your overnight sentiment which shapes the price of gold and silver:

Major Points:

1. Major liquidation on all bourses after the Bernanke press conference

2. Markets shocked at Bernanke's hawkish tone.
3. In Japan, the Nikkei and the USA/Yen diverged with the yen down and the Nikkei down over 230 points.
4. China had weak PMI numbers coupled with a frozen interbank lending facility as the country is in desperate need of liquidity
5. The USA 10 year bond yield rose to 2.45% settling at 2.42% at 7 am est.
6. Volatility is increasing dramatically which in turn will probably cause Bernanke to continue with his 85 billion bond purchases.
7. The Fed's balance sheet has now swollen to 3.41 trillion dollars and will reach 4 trillion dollars by this December.
8. Major discussions on the Fed tapering by Jim Reid of Deutsche bank

(courtesy zero hedge/Bloomberg/Jim Reid /Deutsche bank)

Liquidation Wave Sweeps Globe In Bernanke Aftermath

Tyler Durden's picture

The global liquidation wave started with Bernanke's statement yesterday, which was interpreted far more hawkishly than any of his previous public appearances, even though the Fed had been warning for months about the taper (even if meant sacrificing what little credibility Hilsenrath had following his latest "blog" article). Still, markets were shocked, shocked.
Then it moved to Japan, where for the first time in months, the USDJPY and the Nikkei diverged, and despite the strong dollar, the Nikkei slumped 1.74%. Then, China was swept under, following the weakest HSBC flash manufacturing PMI print even as the PBOC continued to not help a liquidity-starved banking sector, leading to the overnight repo rate briefly touching on an unprecedented 25%, and locking up the entire interbank market, sending the Shanghai Composite down nearly 3% as China is on its way to going red for the year.
Then, India got hit, with the rupee plunging to a record low against the dollar and the bond market briefly being halted limit down.
Then moving to Europe, market after market opened and promptly slid deep into the red, despite a services and mfg PMI which both beat expectations modestly (48.6 vs 47.5 exp., 48.9 vs 48.1 exp) while German manufacturing weakened. This didn't matter to either stocks or bond markets, as peripheral bond yields promptly soared as the unwind of the carry trade is facing complacent bond fund managers in the face. And of course, the selling has now shifted to the US-premarket session where equity futures have seen better days. In short: a bloodbath.
In fact, no fundamental news at all mattered for a market that is now in liquidation panic mode, selling equities, bonds and commodities across the board: the 10 Year Treasury hitting 2.45% moments ago will not help with the impression that things are spiraling out of control, and the only sell off that is helping the Fed's cause is that of gold which tumbled to two year lows under $1300, driven by a scramble for dollars.
Of course, what the market is forgetting is that just like in Japan a month ago, the volatility that will emerge from Bernanke's hawkish stance will lead to a sell off, which in turn will force the Fed to promptly undo any taper talk, and even promptlier lead to speculation when the untaper will hit. Which is to be expected in a market in which over 50% of the gains since 2009 are on the back of the $12 trillion in global central bank liquidity.
Either way, the plunge protection team will have its hands full this morning to put a halt to the equity sell off. We wish them luck.
* * *
A different summary of overnight's action from RanSquawk:
Stocks and bonds under pressure in Europe as markets re-price Fed QE tapering expectations. The price action was dominated by bond vigilantes this morning, with stocks also in free-fall mode as market participants reacted to the release of less than impressive macroeconomic data in China, but also digested the statement and more importantly comments by the governor Bernanke who suggested that tapering could begin this year. The belly of the treasury curve bore the brunt of the sell-off, while credit spreads blew out overnight in Asia and in Europe this morning as the USD rallied and the index looks set to make a test on the 1000MA level at 82.18. The USD was also supported by worsening liquidity conditions in the Chinese interbank market, where the 7-day repo rate soared. Heading into the North American open, stocks are seen lower across the board, with basic materials and financials seen as the worst performing sectors, while health care stocks outperformed given the flight to quality sentiment.
Going forward, market participants will await the release of the latest weekly jobs data, as well as the Philadelphia Fed survey.
* * *
A bulletin recap of all the news highlights via Bloomberg
  • Treasuries extend yesterday’s losses after Bernanke indicated Fed is prepared to begin phasing out its easing, with tapering of $85b in monthly bond buying later this year, halt purchases around mid-2014
  • 5Y yields surged as much as 22bps yesterday, most since Jan. 1962; 5Y-30Y yields all at highest levels since August 2011
  • Unwind tactical UST 5Y longs on more hawkish Fed, JPM says
  • China’s benchmark money-market rates climbed to records as the central bank refrained from using reverse-repurchase agreements to address a cash crunch
  • China’s manufacturing is shrinking at a faster pace this month, adding to stresses in the economy and financial system
  • Investors are pulling money from emerging markets at the fastest pace in two years as slowing economic growth and the prospect of less global stimulus sink stocks, bonds and currencies from India to Brazil
  • Swiss National Bank President Thomas Jordan pledged to defend the Swiss currency ceiling “with utmost determination” after the central bank underlined the measure’s importance in protecting the economy
  • Norges Bank signaled interest rates may be cut later this year as inflation is slowing more than projected amid weakening economic growth in western Europe’s largest oil producer
  • JGBs are set for the worst quarterly performance in a decade as the central bank’s unprecedented buying of the debt crowds out investors and increases volatility
  • MSCI Pacific Index dropped 4.2%, most in two years
  • Five U.K. banks including Barclays, RBS and Lloyds must find GBP13.4b ($21 billion) to plug a GBP27.1b capital shortfall by the end of the year, the Bank of England said
  • Sovereign yields surge. Nikkei falls 1.7%; Asian, European equity markets and U.S. index futures uniformly lower. WTI crude falls, copper and gold plunge
SocGen highlights the main macro events:
The dust is settling on the FOMC announcement of yesterday evening and realistically speaking, today's packed data and event calendar should not be too influential we suspect. Central bank decisions in Norway and Switzerland are likely to stick to the ‘low for longer' mantra on interest rates in contrast to the US where the Fed yesterday took another step towards normalisation and the weaning of excess liquidity. Don't fight the Fed: tapering may start later this year and asset purchases may cease altogether in mid 2014 if the economy (read labour market) follows the Fed's projected path (jobless rate forecast lowered for 2013 and 2014; more insight from SG economics here). The back up in UST 10y yields carried on overnight, further inflating US/G10 and US/EM rate differentials and supporting the USD across the board. The outflow of bonds into cash is set to continue. EM currencies predictably took a severe hit but the AUD is competing for the crown of worst performer. A break of 0.9216 in AUD/USD opens up a return to the Jun-10 low of 0.8067.
Turning to the SNB, annual CPI inflation in Switzerland has averaged 0.55% so far in Q2 which means that it is not following the official central bank forecast. In March, the SNB put out a Q2 forecast of -0.4% which would only be reached on a leap from -0.4% in May to -0.1% in June. Unlikely. And with the EUR/CHF and the trade-weighted franc having surrendered all of the gains since the March meeting, the case for another downward revision to the inflation forecast is a foregone conclusion. Look for the SNB to reiterate that it will enforce the minimum EUR/CHF 1.20 rate with the utmost determination. But as the normalisation in US rates gathers momentum in the second half and the eurozone turns the corner, the erosion of the franc's safe haven status is anticipated to continue. The 3.4% retracement from the 1.2650 high was reminiscent of the move in January and February, but the correlation of EUR long-term rates with the US should soon cause the uptrend to reverse. This should lead participants to pay up for EUR/CHF vol and narrow the gap with EUR/JPY vol.
In the eurozone, the preliminary manufacturing and services PMIs from Germany and France will draw close attention. A narrowing in the difference between the PMIs of both countries started to materialise in late spring and, though a gap of 3pts and 5pts respectively in manufacturing and in services continues to exist, confirmation today of the mild improvement from the lows and a cheapening in EUR/USD will keep a lid on expectations of further ECB easing. Where the Spanish and French auctions are concerned, we look for good demand in 5y and 8y Bonos and see more value in 2y vs 5y OATs.
In the US today, we will get weekly initial claims and the Philly Fed survey. In the UK, a 1.0% gain in May retail sales is forecast to reverse two successive months of decline.
* * *
And finally, Jim Reid from DB wraps it all together:
If the Fed’s new revised economic forecasts are correct then over the medium term there is not much to worry about them being more hawkish than expected last night. However, will their expectation that tapering will start before the end of 2013 and bond purchases be totally removed by mid-2014 actually cause a global risk sell-off that means these forecasts end up being too optimistic? If so, then the pace of tapering will end up being slower than the scenario painted last night by Bernanke. But for now there’s little doubt that this was a hawkish FOMC as the Fed showed little desire to squeeze the tapering genie back into the bottle. Investors have been given warning that liquidity and carry sensitive trades are dangerous if the summer sees stronger data.
So where do we go from here? Well, the Fed have just made the market even more sensitive to data than it was previously and the volatility surrounding each key data print will likely multiply. We now think this will be a difficult few weeks for risk, especially if the data is on the stronger side. If you wanted to be more sanguine you would highlight the fact that they remain data dependent and no stimulus reduction has been announced yet. The removal still requires another few weeks of improving data. It might now need data to disappoint over the summer
for risk to perform.
As we wrote yesterday, the last two quarters have seen the lowest US nominal GDP since Q1 in 2010 – some 13 quarters ago now. This has recently been a weakening nominal recovery and one that even at its peak was still very weak relative to history. Clearly the Fed has emphasized many times the difference between the end of asset purchases and a policy rate hike but investors may perceive the latest signalling as the beginning of a ‘tightening’ journey. If that’s the case we note that the Fed has never hiked rates in the past when nominal GDP is growing below 3.5% (3.4% in Q1 2013). Furthermore, for the Fed to be tightening while nominal GDP has been weakening is also a rare occasion. The last time we saw this was in 1979/80 when nominal GDP fell from 14.6% in Q1 1979 to 10.6% in Q1 1980 whilst the Fed Funds rate rose from 10% to 20% during the same time on sharp inflationary concerns. What’s also unusual is that yesterday’s ‘tightening’ came as the Fed lowered their projections for core inflation to 1.2-1.3% from 1.5-1.6% for year-end 2013 although they noted that there are transitory influences, and acknowledged that inflation over the medium term will likely run at or below its 2% objective. So they are hoping by the time the tapering is underway nominal GDP will be edging back up but it will still be a low nominal growth environment to be withdrawing stimulus.
So what was the market reaction last night and this morning? Starting with last night, the S&P500 managed to limit its losses initially following the FOMC’s statement, as markets digested the Fed’s comment about “diminished” downside risks to the economic outlook. But the sell-off gathered steam as Bernanke started his press conference and his talk of tapering and the ending of QE next year. The S&P500 closed at a session low of -1.39% and now stands about 2.4% below its May all-time high. By sector, the higher yielding telco (-2.7%), utilities (-2.25%) and consumer goods (-1.8%) industry stocks were the underperformers. In fixed income, 10yr UST yields jumped 17bp to close at a 16-month high of 2.33%. The belly of the treasury curve bore the brunt of the sell-off. Yesterday’s rise in 10yr yields was also the largest one-day increase in basis point terms since October 2011. Indeed, 10yr yields were last seen at these levels March 2012. But we have to go back to mid-2011 to find a time when 10yr yields traded consistently above 2.30%. On the inflation front, US 10yr breakeven rates fell 3bp to their lowest level in a one year (2.04%) while in DM credit, the IG20 widened sharply post-FOMC to close 7bp wider. The EM complex remains under enormous pressure with the MSCI EM Latam equities index down 3.5% last night with Latam sovereign CDS anywhere between 16-30bp wider on the day. The US dollar (dollar index +1%) was perhaps one of the few assets to see strength yesterday.
The risk-off sentiment has continued in Asia with equities and credit markets all weaker as we type, but some markets have managed to stabilise towards the second half of the session. The disappointing Chinese HSBC Flash Manufacturing PMI (48.3 v 49.1 expected) and the worsening liquidity conditions in the Chinese interbank market are unlikely to improve sentiment today. On the latter point, China’s 7-day repo rate rose by 374bps overnight to a record 12%. The Shanghai Composite (-0.7%) is down for the second consecutive day and the benchmark has fallen 13 out of the last 15 trading sessions. Asia credit spreads are also markedly wider overnight with the Asia iTraxx IG about 22bp wider at one point.


Today Michael Pento describes the Fed is total dissarray:

(courtesy Eric King/Kingworldnews/Michael Pento)

a must read....

Fed In Complete Disarray & Investors Must Brace Themselves

Posted  at 9:41 PM (CST) by  & filed under King World News.
Dear CIGAs,
Pento:  “We all knew that the Fed suffers from acute schizophrenia, but let’s take a look at what their statement really said today.  Of course there was no change in the amount of bond purchases.  They are still doing $85 billion every month.
But the Fed downgraded the outlook for inflation.  The outlook was for 1% inflation for the totality of 2013.  At the Fed’s last meeting in March, the outlook was for 1.5% inflation.  So they lowered their outlook for inflation which is half of their mandate.
They then said, ‘The risks to rising unemployment have diminished.’  They mad that bold claim even though the unemployment rate was up last month….

This occurred at  9 pm last night

Liquidity in China goes from bad to worse  :

(courtesy zero hedge)

China's Red Flags

Tyler Durden's picture

Following the hushed-up default by Everbright Bank last week, the liquidity situation in China has gone from bad to worse- with 1Y IRS now at all-time record highs.

Many are now questioning whether the dramatic elevation in short-term financing rates is "here to stay," and with the Chinese yield curve now inverted... a similar fashion as the US Treasury market prior to the US recession in 2007...

and for a similar period before the US recession...

the clarion call for government stimulus is loud from the addicts.
However, as HSBC notes today, since the government is now putting more emphasis on balanced growth and market reforms, it will tolerate GDP growth in the 7-7.5% range and will therefore take no strong measures to boost growthunless there is a risk of growth slowing to 7%. The markets, even though the Shangahi Composite is trading at near-seven-month lows...

...will be disappointed; and we suspect, as the FT notes, that "the central bank wants to send a warning signal to commercial banks and other credit issuers that unchecked credit expansion, particularly through the shadow banking system, will not be accommodated."
As the PBoC itself noted (via its state-owned newspaper) andwe confirmed yesterday, "we cannot use fast money supply growth as in the past, or even faster, to promote economic growth, and must control the pace of money supply growth."
But macro data is almost as bad as it has ever been...

In essence, the frantic stimulus China put together at the end of 2008 sowed the seeds of slower growth in the future by crowding out more productive investments.
Despite all efforts to slow inflation (and rein in the credit bubble), the hot money imported from the Fed and the BOJ continues to push home prices ever higher which continues to be the key marginal variable for the PBOC - as long as the hot "carry" money is exported by the Fed and the BOJ, the Chinese economy will continue to suffer.


Then the following during the night:  it looks to us like the Chinese interbanking system as collapsed.
Total trust has collapsed as bank yields explodes to 25%!!!

(courtesy zero hedge)

China Interbank Market Freezes As Overnight Repo Explodes To 25%

Tyler Durden's picture

It seems liquidity (or counterparty mistrust) is beginning to reach extreme levels in China as the nation's banking system is now quoting overnight repo transactions at 25%. The explosion in funding costs echoes the collapse in trust (and surge in TED spread) among US banks in the run-up to the Lehman bankruptcy. MSCI Asia-Pac stocks are down over 3% with China's Shanghai Composite -2.5% at seven-month lows.
  • China’s 1-day Repo Rate Climbs to Highest Since at Least 2006
China's bond market is also collapsing:
Yield on 3.1% govt bonds due January 2016 jumps 39 bps to 3.749%, biggest rise since notes were issued in January
China this week...

US in the run-up to Lehman...

Charts: Bloomberg

And finally the following two commentaries

( lst courtesy zero hedge)

Chinese Bank Bailed Out Through PBOC "Targeted Liquidity Operation" Amidst Liquidity Crunch

Tyler Durden's picture

It was only a matter of time before at least one Chinese bank (and then many more) needing to rollover overnight/short-term funding and unable to do so in an interbank market that is now completely frozen, had to be bailed out. Sure enough, according to Hao Hong, the chief China strategist at Bank of Communications Co., who cited unidentified industry sources, the People’s Bank of China used "targeted liquidity operations" to supply 50b yuan to a bank in China. Bloomberg reports that the overnight cash supplied was at 5.1%, while the 1-week at 5.4%. Hong added that more banks are in talks with PBOC to obtain funds amid a cash squeeze, as expected. The problem is that the PBOC can't continue targeted bail outs, and will sooner or later be forced into a broad liquidity providing move, which will unleash a repeat of the 2011 in China scenario, which did not have a very happy ending.


(2nd commentary courtesy of zero hedge)

Bank Of China Denies Default

Tyler Durden's picture

Either things in China are now very serious (and Jean-Claude Juncker has been hired as chief propaganda officer), or the BOC hired Erin Callan as CFO. Either way, for now at least, the Bank of China "is fine":
Then again, looking back in history, the instances when banks volunteered to being in default are... er... uhm.... not many.
via BBG


Then this biggy!!

(courtesy zero hedge)

Stocks Plunge As IMF Tells Greece To Plug Holes Or It Pulls The Plug

Tyler Durden's picture

As we warned earlier in the week, Greece is notably missing its Troika goals and the issue just became a lot more critical. AsThe FT reports, the IMF is preparing to suspend aid payments to Greece over what it claims is a EUR 3-4 billion shortfall that has opened up. Between healthcare budget shortfalls, central banks refusing to roll-over Greek bonds, and amid signs that even the scaled-back privatization plans that Athens had agreed to being behind schedule, the IMF - following its own admissions of mistakes in the Greek bailout, has warned EU officials the shortfall will require it to stop aid payments by the end of July. The equity market is already reacting (as is EURJPY - EUR weakness against the big carry pair) to this re-awakening of EU event risk (and the awkward timing with Merkel's election so close) - with the Fed's comfort blanket somewhat removed.

Via The FT,
The International Monetary Fund is preparing to suspend aid payments to Greece by the end of next month unless eurozone leaders plug a €3bn-€4bn shortfall that has opened up in Greece’s €172bn rescue programme, according to officials involved in management of the bailout.

The gap emerged after eurozone central banks refused to roll over Greek bonds they hold, and comes amid signs that even the scaled-back privatisation plan Athens agreed to last year is falling behind schedule.


The shortfall will force eurozone finance ministers to discuss “alternate sources” of funding


But the timing is particularly awkward as Germany is holding parliamentary elections on September 22. In the run-up to polling day Chancellor Angela Merkel will be loath to submit any further aid request to the Bundestag where it would likely be highly controversial.


the IMF has warned EU officials the gap will require it to stop aid payments at the end of July, said a person involved in the discussions.

Under its rules, governments must have at least 12 months of financing in place to receive IMF disbursements under a bailout programme. This latest shortfall of €3bn-€4bn means that Greece’s financing needs are only covered up to the end of July 201

Then this:

(courtesy zero hedge)

Greek Coalition On Verge Of Collapse: Snap Elections Scenario Returns

Tyler Durden's picture

And just like that, the entire world is on fire with Greece back in the frying pan following news from Kathimerini's Chrysoloras that the Greek coalition has collapsed, and the possibility of a snap election front and center, and with it the likelihood that the Greek memorandum is voided, the Grexit follows and so on.

Kouvelis is leaving the Greek coalition government. Snap elections scenario is back with a vengeance

An emergency cabinet meeting starts in Athens. Kouvelis didn't clarify if he withdraws his support from the government, but he implied it

Venizelos: political stability is under threat in Greece


Wolf Richter does a great job talking on Japan's Abenomics:

(courtesy Wolf Richter/

One Part Of Japan’s Abenomics Salvation Is Already A Fail

testosteronepit's picture

The Bank of Japan is certainly accomplishing the worthy task of devaluing the yen by wagging its mouth and printing enormous amounts of money. From mid-September to May 23 – the day the whole construct began tottering – the yen dropped 24% against the dollar. Then the Japanese stock market took a nosedive, and the yen retraced some of its decline. But it’s stilldown 18%. Japan’s attack in the Currency War was supposed to make it more competitive in international trade – but that, it failed to do. In fact, the opposite occurred.
Japan’s trade deficit in May jumped 9.5% from an already awful May last year, to ¥993.9 billion ($10.5 billion), the eleventh month in a row of trade deficits, the longest period of trade deficits since the series of comparable data started in 1979, the largest deficit for any May, and the third largest trade deficit ever.
The report by the Ministry of Finance wasn’t a fluke. April had been the worst April ever, March had been the worst March, February the worst February.... The deterioration has been systematic, unrelenting, and brutal. The chart below, going back to 2011, shows how the trade deficit in each month this year was worse than in the equivalent month in 2012; and in 2012, they were worse than in 2011.
Abenomics didn’t start digging that hole. That happened years ago, gradually, through a thousand cuts and structural changes by Japan Inc., the same process that began in the US decades ago, namely offshoring production. But Abenomics is digging the hole at a more furious pace.
The weaker yen did drive up exports by 10.1% in May from prior year, but imports, which now have to be paid for with the same weaker yen, rose 10.0%, from a much larger base!
China has become Japan’s largest trading partner, and largest export market. They might hate each other and needle each other and step on each other’s toes while they dance around their various disputes, island issues, and historic massacres, but they do trade. And the trade deficit with China soared 34.8% in May to ¥410 billion.
Trade with China involves having to jump through some murky hoops, including transshipments through Hong Kong, which skew the numbers. To correct for that, we look at China and Hong Kong combined. That way, the trade deficit with both was only ¥78.4 billion. But it nevertheless jumped 29%. Part of the relentless deterioration – from May 2007, when there was atrade surplus of ¥318.5 billion.
It was a continuation of the same song: exports to Hong Kong and China rose 14.0%, but imports rose even more, 14.7%. Just how important are these two trade partners? Over a quarter of Japan’s total exports end up there, and almost a quarter of its total imports come from there.
Like its US counterparts, Japan Inc. has become expert at offshoring. Part of the motivation is the greener grass on the other side of the pond, namely cheap labor. But increasingly in huge markets like China, there has been an even more powerful logic: companies want to be closer to their customers.
As Japanese manufacturers have set up shop in China and other countries, their Japanese suppliers are under pressure to be closer to their customers. The auto industry is a prime example: when Honda sets up production plants in China, its Japanese suppliers increasingly end up following, lest they lose that business to Chinese suppliers, which many of them do anyway. Some of their products, particularly components, filter back into Japan. A type of offshoring that cannot be reversed by monkeying around with the currency.
So the usual suspects, rising imports of crude oil and LNG, have been blamed for the trade deficit, and they’re up, but the entire category of Mineral Fuels inched up only 2.7%. They’re not the big culprits.
What drove up imports the most was the second largest category, Electrical Machinery (semiconductors, telephony equipment, etc.), formerly Japan’s forte: it soared 23.7%! And the third largest category, “Other,” which includes scientific instruments, clothing, furniture, etc., rose 12.2%, with imports of apparel jumping 22.3%! Indeed, the wealth effect and corporate optimism kicked in. Consumers spent money more freely – on imported bras, purses, ties, luxury goods, and doodads. And Japan Inc. bought equipment and components, and they were all supporting the economies of Bangladesh and China. The first failure of Abenomics, and a side effect of its Currency War.
But China has its eyes riveted on the revolt in Brazil. Like all revolts, it’s about deep-seated issues and inequalities. Yet the spark that lit it – after inflation had made life too expensive – was an increase in bus fares. Read.... Currency War Rattles Brazil, Wakes Up the People


Your closing Japanese 10 year bond yield very early this morning:

Japan Govt Bond Year to maturity 10 Year Simple Yield


0.860.04 4.90%
As of 03:59:00 ET on 06/20/2013.


Your Spanish 10 year government bond:

(up a huge 32 basis points)



4.850.32 7.11%
As of 11:59:00 ET on 06/20/2013.


Closing Italian 10 year bond yield:

up a huge 29 basis points

Italy Govt Bonds 10 Year Gross Yield


4.550.29 6.77%
As of 11:59:00 ET on 06/20/2013.


Your opening 10 year USA 10 year bond:  (still relatively high)  early Thursday morning;

US Generic Govt 10 Year Yield


2.410.06 2.43%
As of 06:53:00 ET on 06/20/2013.

Early Thursday   Morning morning currency crosses   (7 am)

 Thursday morning we  see considerable  euro weakness against the dollar from the close on Wednesday  with this time  trading just below  the  1.33 mark at 1.3291.  The yen this  morning,is weaker  trading down 119 basis points to 97.79 yen to the dollar (dollar up).   

The pound, this morning is a lot weaker  against the USA dollar, with this time still trading well below  the 1.55 column at 1.5454. The Canadian dollar currency is a little weaker against the dollar trading above the 1.03 column at 1.0344.  We have the sentiment this morning with a huge  risk is off situation with all of our European  bourses deeply  in the red.   The Nikkei exchange was on a roller coaster ride this morning finishing down by 231 points or 1.74%  The Japanese 10 year bond yield finished up in yield by 3 basis points to .85%. 

The USA index is dramatically up early this morning by 54 cents at 81.93  

Euro/USA    1.3291 down  .0094
USA/yen  97.79  up 1.19
GBP/USA     1.5451 down .0132
USA/Can      1.0344 up .0068


Your closing figures from Europe today. Key crosses late Thursday afternoon 5 pm:

The Euro weakened again this  afternoon closing this time well below the 1.33 mark at 1.3219.  The yen  proceeded southbound in the afternoon in value finishing just below the 98 barrier to 97.40.   The pound strengthened a lot from early this morning  , closing right at 1.5486.   The Canadian dollar weakened badly this afternoon against the dollar finishing the day at 1.0371.

The USA index was up 42 cents at 81.81 


Euro/USA    1.3219 down  .0068
USA/Yen  97.40  up 0.813  
GBP/USA     1.5486 up .0009
USA/Can      1.0371 up .0092


Your closing 10 year USA 10 year bond yield:

US Generic Govt 10 Year Yield


2.390.04 1.64%
As of 15:31:00 ET on 06/20/2013.


i) England/FTSE  down 189.31 points or  2.98% 

ii) Paris/CAC down 140.41  points or  3.66%
iii) German DAX: down 168.60 pts (or  3.28%)  
iv) Spanish ibex down  276.20  points or 3.41% 

v) Italian bourse (MIB) down: 496.29   (3.09%)

and the Dow down 353.87 points (2.34% )....


And now for USA news:

We have two very important commentaries on today's bloodbath.

In essence today, we have liquidation of many of those leveraged trades. This is the reason for the huge rise in the dollar as many tried to sell those trades. There is another huge problem in that there is not enough liquidity on Wall Street to absorb all of those sells.

First, Mark Grant

(courtesy Mark Grant)

More To Come

Tyler Durden's picture

Submitted by Mark J. Grant, author of Out of the Box,
I have long held the opinion that the markets, all of them, have been buoyed by what the Fed and the other central banks have done which was to pump a massive amount of money into the system. There are various ways to count this but about $16 trillion is my estimation. The economy in America has been flat-lining while the economies in Europe have been red-lining and while China has claimed growth their numbers did not add up and could not be believed.

In other words, the economic fundamentals were not supporting the lofty levels of the markets which had rested upon one thing and one thing alone which was liquidity. I have also stated often enough that the long awaited reversal would take place either due to an "event" or due to a change in the Fed's position where the liquidity was going to be stopped. In one of the clearest and most open meetings ever conducted by the Fed, in my opinion, they said quite clearly that the end to its liquidity operations was coming and while the postulated this and that if the markets did this and that the message was quite clear; we are going to unwind what we have we have done.

Yesterday was the first day of the reversal. There will be more days to come.

What you are seeing, in the first instance, is leverage coming off the table. With short term interest rates right off of Kelvin's absolute Zero there was been massive leverage utilized in both the bond and equity markets. While it cannot be quantified I can tell you, dealing with so many institutional investors, that the amount of leverage on the books is giant and is now going to get covered. It will not be pretty and it will be a rush through the exit doors as the fire alarm has been pulled by the Fed and the alarms are ringing. There is also an additional problem here.

The Street is not what it was. There is not enough liquidity in the major Wall Street banks, any longer, to deal with the amount of securities that will be thrown at them and I expect the down cycle to get exacerbated by this very real issue. Bernanke is no longer at the gate and the Barbarians are going to be out in force.

Yesterday was not pretty but today is likely to be worse.Gold is getting smashed, equity futures are down significantly, bonds are taking it on the chin and the only thing that is up is the Dollar. Then besides the Fed's announcement; China is a rose dying on the vine. Their overnight repo rate hit 25% as the fear is palpable in Asia between the collapse of the Everbright Bank and the antics in Japan. The yield on China's three year government bonds rose 12.5% last night while their flash PMI plunged to 48.2 which is the worst number in nine months.

Now you may be wondering what to do next. You will hear a lot of people in the media today saying that this is just a normal part of the market's cycle.

This is not the case.

The Fed has signaled its intentions very clearly. You should be taking profits, taking money off the table and building up your cash positions. Your supplier of opiates has just informed you that your drugs are going to get cut off and preparations need to be made because there is no other supplier of this opiated cash. You can accurately think of the world's central banks as a "cash cartel" and the distribution is being ended.

How bad it is going to be is uncertain but BAD, with capital letters, in my estimation. For four years we have lived on drug money supplied by the Fed and their colleagues and what the emperors' can give; they can take away.

Eventually Treasury yields will go back down because the Fed will be buying more bonds than the Treasury needs to issue but for now the "leverage issue" will overcome that reality. Mortgage rates will be heading higher, the Real Estate market is going to correct and the days of wine and roses are now behind us.

The party is over!

"It's my party, and I'll cry if I want to
Cry if I want to, cry if I want to
You would cry too if it happened to you"

             -Lesley Gore


And now the second major commentary courtesy of Bill Holter.

As we indicated above interest rates have risen across the globe.
Bill Holter explains its huge significance:

(courtesy Bill Holter/Miles Franklin)

Interest rates have risen 50%

A couple of months back the yield on the 10 year Treasury was 1.6% or slightly lower, in anticipation of the Fed "tapering" the yield rose to 2.32% yesterday and 2.43% this morning.  In fact, yesterday alone the yield on the 5 yr. rose 6% (relative, not yield) in one day.  That is THE biggest jump in the 5 year yield EVER.  Another way to put this is that the 5 yr. Treasury lost more value yesterday than any day prior in history.  Something that no one has really talked about (before this is over they surely will) is that the Fed, as owner of more Treasury securities than anyone got killed to the tune of $115 billion in May.  Please keep in mind that their "equity capital" was only $65 billion.  Gee, I wonder how this will be accounted for?
  Another area in fixed income that literally blew up last night was "funding debt" to the Chinese banking system.  Their overnight rates between banks rose to 25%.  Yes, 25% for overnight money...what does this tell you?  It tells me that the Chinese banks don't trust each other...very similar to what happened here in the U.S. back in late 2008 when no one would lend to anyone else.  They wouldn't lend because they knew that they themselves were cooking the books and squeezed for who else was in the same boat with them?  Please understand that the Chinese are sitting atop of a bigger real estate bubble than we ever had, higher interest rates will shut that down and cause "collateral" to evaporate.
  I would be remiss if I did not mention derivatives.  These are leveraged bets where $1 or less can control $100 "bet".  There are purportedly over $200 trillion worth of debt derivatives outstanding worldwide.  Rates rose yesterday everywhere around the world in violent fashion.  There were huge winners and huge losers in these derivatives.  The winners are smiling now...but if the losers got hit so hard that they cannot pay then the winners are also is the entire system.  My point is this, we don't know, no one knows...who the losers are but...we do know that they are out there!  "They" are out there everywhere you look, we just don't know which ones they are and this is the reason that banks during times of stress don't want to lend to other banks. 
  And herein lies the problem.  The world runs on credit for everything, everywhere.  If credit slows or God forbid seizes up, everything stops.  Everything as in your employers ability to pay you or your grocery store to stock their shelves.  I know this may (shouldn't) come as a surprise but the food in your grocery store actually comes from farms, ranches and processing plants.  The shelves do seem to "magically" re stock themselves but this happens at night while you are sleeping.  AND it happens BECAUSE credit is available to move product.  If credit becomes unavailable then so will products and goods.  Please understand this and never forget it.
  Ben Bernocchio as you know spoke yesterday about the possibility of "tapering" from the current $1 trillion QE (monetization).  Everything has been sold off since then.  Stocks, bonds, commodities and of course (sarcasm) Gold.  The mindset has now become "he who gets out first gets out best".  This huge movement by the global herd is basically "front running" the announcement that "the party is over".  This movement is basically the selling of assets by those who borrowed to purchase in the first place.  Quite simply the "carry trade" is unwinding.
  This "unwinding" will not ultimately end until the borrowed money and credit (thus the entire system) gets wiped out.  The "last man standing" will unquestioningly be Gold.  How do I know this?  Because Gold IS money, money that cannot default and is always "trusted" exactly for this cannot default.  Yes it is "down hard" today and CNBC will parade those who are bearish for you mental consumption.  Just know that as this "unwinding" matures and spreads, fear, REAL FEAR will begin to grow.  As the fear grows so will demand for physical metal which was already at record levels prior to this. 
  To wrap this up I will tell you that when all is said and done, the banking system INCLUDING central banks and sovereign treasuries themselves will need to recapitalize themselves.  There is only one way to do it.  The price of Gold must be marked up to multiples of the current price to make these entities viable again.  We are close to this happening.  I can say that "we are close, very close" because you can see the carry trade beginning to unwind right before your very eyes and the margin calls will only increase from here.  Regards,  Bill H.


Collapse In Caterpillar North American Sales Not Helping Bernanke's "Recovery"

Tyler Durden's picture

Moments ago, Caterpillar released its May 2013 dealer statisticsbreaking down the 3-month rolling average for machine retail sales. Curiously, unlike in previous months when Asia/Pac (i.e. China) was the worst performing region on a year-over-year basis, in May it was the US that showed the worst results. Just how bad: retail sales in the US clocked at a -16% clip, just barely above the -18% drop in April, and only the second worst print in the past 3 years. And just to put the CAT dump in perspective, the chart below correlates CAT North American retail data with a 3 month delay in Durable Goods Orders ex Transportation: has CAT become the best leading proxy for corporate CapEx, and if so, just how much more negative does it have to get before the recession-watchers join the bond vigilantes in waking from hibernation?


Initial claims worse than expected:

(courtesy zero hedge)

Initial Claims Worse Than Expected, Rise By 18,000 To 354,000

Tyler Durden's picture

It would not be the DOL if the last week's initial claims wasn't revised higher. And it was: from 334K to 336K. But more importantly, the current week's number of 354K once again broke the "improving" trend, and printed far above consensus estimates of 340K, proving that there is still a substantial amount of "disposable" slack in the economy. If the stock market continues its downward jiggle, and without the Fed that may well be the case, look for the Claims trendline to resume going from the lower left to the upper right, in seasonally adjusted terms. In short: yet another red flag for the economy, which continues to reject the Fed's attempts to restart a "virtuous cycle." Yet by the looks of things, this datapoint alone is not enough to start speculation of the untaper.
And a breakdown of the last week's major initial claims change for states with a +/- 1,000 change.
  • CA: -1,209 -  Fewer layoffs in the service and retail trade industries.
  • PA: +5,214 - Layoffs in the transportation, healthcare and social services, entertainment, lodging and food service, and scientific and technology services industries.
  • IL: +3,364 - Layoffs in the transportation and warehousing, construction, and accommodation and food service.
  • TX: +3,007 - No comment.
  • GA: +2,937 - Layoffs in the manufacturing, trade, administrative and support service, transportation and warehousing, healthcare and social assistance industries.
  • OH: +2,326 - Layoffs in the manufacturing, communication, finance, and service industries.
  • KY: +1,825 - No comment.
  • FL: +1,645 - Layoffs in the manufacturing, retail trade, agriculture, and service industries.
  • VA: +1,479 - Layoffs in the transportation and warehousing, and manufacturing industries.
  • NC: +1,454 - Layoffs in the industrial and commercial machinery, business service, textile, and metal industries.
  • PR: +1,385 - No comment.
  • NY: +1,341 - Layoffs in the finance and insurance, healthcare and social assistance, and transportation industries.
  • NJ: +1,340 - Layoffs in the finance, trade, transportation and warehousing, professional and technical service, and manufacturing industries.
Not a good distribution there..


Monty Pelerin is stating what Bill Holter, Dave Kranzler, James Turk and myself have been telling you from the beginning of time, the Fed cannot cut off QE 4 due to the 1 trillion USA deficit.
Governments need to be funded and there is nobody on the planet that will buy the USA bonds other than the FedL

(courtesy Monty Pelerin/World blog/zero hedge)

Financial Market Russian Roulette

Tyler Durden's picture

Originally posted at Monty Pelerin's World blog,
A couple of points are important:
  1. The current level of the stock market is a function of quantitative easing. Neither fundamentals nor conditions in the economy justify financial asset prices where they currently are. Suggestions that QE is about to lessen or stop will produce sell-offs in markets.
  2. If the Federal Reserve cuts QE, it will not be based on economic considerations. The government is illiquid without the Fed buying/underwriting their bond sales. QE, if it is to drop at all, will drop in line with shrinking federal deficits.
No market can remain overvalued forever. However, a market can remain overvalued longer than rationality suggests and even go higher from these levels.
The government is in a box. They cannot sustain the level of spending they are currently at with tax revenues or conventional borrowing. Government is dependent on the Fed to fund its deficits via the QE scheme of money creation. Politicians in Washington will not willingly cut spending. So long as the Fed continues to be The Great Enabler, the uncontrolled spending will continue.
The Fed knows its QE has no effect on the economy. All it is doing is providing the fuel for political excesses. Stopping QE causes government checks to bounce. The Fed is not an independent agency and will not cross its master by doing what should have been done a long time ago.
The economy is not recovering and cannot recover.Government is planning to increase spending even more. Incentives encourage more people to enter the welfare state. ObamaCare will overrun spending estimates. The passage of the immigration bill, so lusted for by the political class, has been estimated to cost an additional $6 Trillion in spending. Playing in Syria is not free. No future natural or terrorist events are budgeted for. So long as the Fed makes spending painless, no cuts in government are coming.
The Fed knows its actions are not helping the economy recover. They have five years of data that supports my contention. If they were ever an independent agency, they are no longer. They have become entirely politicized and owned by the political class. They will continue to carry the water for their political masters.
Continuation and expansion of Fed liquidity may hold markets up or even drive them much higher. At some point the entire scheme crashes, probably when enough people recognize that the greater fool theory is in danger of exhausting the quantity of fools. The drop in markets is likely to come about as a result of one of the following factors:
  • High inflation breaks out which causes the economy to further decline and shifts the perceptions of market participants in a way that causes them to recognize the Fed fraud. 
  • The Fed stops enabling the wastrels  in Washington and government is unable to meet obligations or forced to dramatically cut its spending.
Neither the ending nor its timing can be forecast with any accuracy. Markets may continue higher as this drama plays out with future Fed announcements and deceptions. Markets, however, cannot levitate forever. Eventually they coincide with reality, which in this case probably means another major market correction.
All Ponzi schemes have limits. Participating in these markets is akin to playing a version of Russian roulette. If the chamber is empty, you make money. If not, you financially die.


Did we expect anything less?

(courtesy Matt Taibbi/RollingStone Magazine)

The Last Mystery of the Financial Crisis
It's long been suspected that ratings agencies like Moody's and Standard & Poor's helped trigger the meltdown. A new trove of embarrassing documents shows how they did it
by Matt Taibbi
JUNE 19, 2013

What about the ratings agencies?

That's what "they" always say about the financial crisis and the teeming rat's nest of corruption it left behind. Everybody else got plenty of blame: the greed-fattened banks, the sleeping regulators, the unscrupulous mortgage hucksters like spray-tanned Countrywide ex-CEO Angelo Mozilo.

But what about the ratings agencies? Isn't it true that almost none of the fraud that's swallowed Wall Street in the past decade could have taken place without companies like Moody's and Standard & Poor's rubber-stamping it? Aren't they guilty, too?

Man, are they ever. And a lot more than even the least generous of us suspected.

Thanks to a mountain of evidence gathered for a pair of major lawsuits, documents that for the most part have never been seen by the general public, we now know that the nation's two top ratings companies, Moody's and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.

In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

"Lord help our fucking scam?.?.?.?this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.

Ratings agencies are the glue that ostensibly holds the entire financial industry together. These gigantic companies – also known as Nationally Recognized Statistical Rating Organizations, or NRSROs – have teams of examiners who analyze companies, cities, towns, countries, mortgage borrowers, anybody or anything that takes on debt or creates an investment vehicle.

Their primary function is to help define what's safe to buy, and what isn't. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It's supposed to be sacrosanct, inviolable: According to Moody's own reports, AAA investments "should survive the equivalent of the U.S. Great Depression."

It's not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.

That this happened is even more amazing because these companies naturally have powerful leverage over their clients, as they are part of a quasi-protected industry that enjoys massive de facto state subsidies. Largely that's because government agencies like the Securities and Exchange Commission often force private companies to fulfill regulatory requirements by retaining or keeping in reserve certain fixed quantities of assets – bonds, securities, whatever – that have been rated highly by a "Nationally Recognized" ratings agency, like the "Big Three" of Moody's, S&P and Fitch. So while they're not quite part of the official regulatory infrastructure, they might as well be...

Read the rest of this article


I am so sorry to report today's awful events.

I hope that tomorrow will be a better day dealing with these criminals.

I will see you Saturday morning.


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