Wednesday, June 5, 2013

JPMorgan's vault gold declines/All registered gold at Comex falls/GLD gold remains constant/

Good evening Ladies and Gentlemen:

Gold closed up  by $1.30 to $1398.40 (comex closing time).  Silver rose by 6 cents to $22.46  (comex closing time)

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

gold: 1404.10
silver:  $22.56

I am not going into the trading of gold and silver because you all know that it is manipulated throughout all time zones, so I will not waste your time.


At the Comex, the open interest in silver rose by 739 contracts to 145,734 contracts with silver's fall in price on Tuesday by 32 cents.  The silver OI is  holding firm at elevated levels . The open interest on the entire gold comex contracts fell  by 2909 contracts to 375,970 which is extremely low. There is no question that all of the weak speculators in gold have now departed.  Only the strong remain. The number of ounces which is standing for gold in this  June delivery month  is 936,400 or 29.12 tonnes.The number of silver ounces, standing for delivery is represented by 620,000 oz. No doubt this level will climb as the June month proceeds.


 Tonight, the Comex registered or dealer gold lowers to  1.513 million oz or 47.06 tonnes.  This is getting dangerously low.  The total of all gold at the comex fell slightly and now it is just below the 8 million oz at 7.985 million oz or 248.36 tonnes of gold. 

The GLD  reported another loss in gold inventory to the tune of 2.7 tonnes. The SLV inventory of silver also remained firm with no losses. 

We have physical stories today from Addison Wiggin on the fraudulent leasing of gold and silver;Jessie from the Jessie's American cafe on the low registered gold inventory at the Comex with additional inputs from zero hedge with respect to JPMorgan's inventory. Dr Paul Craig Roberts discusses the price manipulation of gold with the GoldMoney.com report.

Finally, Adrian Ash discusses events in India where the government banned all credit related purchases of gold.  That is correct, gold can only be purchased with cash.  Gold paid no attention as it rose soon after the announcement.

On the paper side of things, we have a report from Dave of Denver/the Golden Truth who is paying attention to the signals that are being emanated out of the junk bond market.


We have  great commentaries for you from Bill Holter  on the ramifications of the past 6 days of global trading and how we must prepare for the inevitable.

Wolf Richter provides a superb presentation on how China is gobbling up all major assets that it can find.

Pivotfarm gives a good thorough analysis on what is going on in Egypt today.


We will go over these and 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 fell  by 2909 contracts from  375,970 down to 373,061 with gold falling by $14.60 yesterday. The front active month of June saw it's OI fall by 225 contracts from 3540 contracts down to 3315. We had 63 contracts served upon our longs yesterday.  We thus lost 162  contracts or 16,200   that will not stand this month. The next delivery month is the non active July contract and here the OI fell by 62 contracts up to 537.  The next active delivery month for gold is August and here the OI fell by 2725 contracts from 215,940 down to 213,215 . The estimated volume today was poor at 129,971 contracts.    The confirmed volume yesterday was also poor at 126,177 contracts. It looks to me like all of the paper gold longs have been washed out!!



The total silver Comex OI completely plays to a different drummer than gold. Its OI rose by 739  contracts to 145,734,  with  silver's fall in price to the tune of 34 cents yesterday.  The front non active June silver contract month shows no gain or loss in OI contracts. We had 0 notices filed yesterday so in essence we neither gained nor lost any silver ounces standing for metal for the June contract month.   The estimated volume today was fair, coming in at 39,988 contracts.  The confirmed volume yesterday was better at  at 42,750.


Comex gold/May contract month:


June 5/2013

 the June contract month:




Ounces
Withdrawals from Dealers Inventory in oz
nil  (0 oz)
Withdrawals from Customer Inventory in oz
21,034.434  oz (JPMorgan, HSBC)
Deposits to the Dealer Inventory in oz
nil
Deposits to the Customer Inventory, in oz
nil
No of oz served (contracts) today
 333 (33,300  oz)
No of oz to be served (notices)
2982 (298,200 oz
Total monthly oz gold served (contracts) so far this month
6382  (638,200  oz)
Total accumulative withdrawal of gold from the Dealers inventory this month
100.000 oz
Total accumulative withdrawal of gold from the Customer inventory this month


 
35,324.352 oz



We again had good activity at the gold vaults

The dealer had 0 deposits and 0  dealer withdrawal.



We had 0 customer deposits today: (very strange for a huge delivery month of June)




total customer deposit: nil oz



We had 2  customer withdrawals today:

1. Out of JPMorgan 21,034.434 oz  (and this will partially settle May's 100,000 oz of JPM issuance)
2. Out of HSBC:  32.222 oz ( I guess this kilo bar had a little extra weight on it)

total withdrawal:  21,066.656 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).

Yesterday, 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 yesterday 28,389.579 oz was settled upon, leaving 71,611.00  still left to arrive in the settling process.

Today we received notice that all 333 notices served upon today were issued by JPMorgan's customer account. We can assume that this will settle upon our longs and this will reduce by 33,300 oz what is left to be settled by JPMorgan on the customer side of things.


 Today, we also received notice that we have one adjustment and that too involved JPMorgan:

Out of JPMorgan  8,793 oz was removed from its dealer account and this lands in its customer account.

Thus JPMorgan still needs the following: 71,611.00 - 33,300 - 8793 oz or 29,518 ounces to serve upon our anxious longs from its client or customer accounts.


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

i) dealer account:  412,529.844 oz
ii) customer account  355,222.011.

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

Last night 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 on Saturday and Monday night, I reported that JPMorgan had 470,322.102 oz in it's dealer account.

On the dealer side today we had 0 notices issued.

Thus, so far 4935 contracts have been issued so far  for 493,500 oz


JPMorgan's dealer vault registers tonight 412,529.844 oz

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

and

ii) it is now deficient by 85,713.16. oz   (412,529.844 inventory - 493,500 oz issued =  85,713.16 oz)

JPMorgan has not had any deposits in gold in quite some time.
How will JPMorgan satisfy this shortfall??

HSBC 's dealer vault gold is also slim as it remains at: 260,323.275 oz  (8.09 tonnes)


Tonight the dealer inventory remains tonight at a low of 1.513 million oz (47.06) tonnes of gold. The total of all gold slightly contracts, resting tonight at 7.985 million oz or 248.3 tonnes.

Today we had 333 notices served upon our longs for 33,300  oz of gold. In order to calculate what I believe will stand for delivery in June, I take the OI standing for June (3315) and subtract out today's notices (333) which leaves us with 2982 contracts or 298,200 oz left to be served upon our longs.


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

6382 contracts x 100 oz per contract  or  638,200 oz served upon +  2982 contracts or 298,200 oz (left to be served upon)  =  936,400 oz or 29.12 tonnes of gold. 

We lost 162 contracts or 16,200 oz  of gold will not stand for the June contract 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  151.98% of that total production.


end




Jessie of Jessie's Americancafe comments on the extemely low registered or dealer gold at the comex:




Comex Gold Registered Ounces Available Nearing All Time Low - The Risk of Rehypothecation
'What has been will be, what has been done will be done; there is nothing new under the sun.'

Ecclesiastes 1:9
'Registered gold' is bullion in the Comex warehouse that is available to futures contracts standing for delivery. There are also a much larger number of ounces stored, at least according to reports by some organizations, that is 'eligible' to be sold, if the owner of the bullion should decide to place it in the 'registered' category.

According to the chart below the number of registered ounces at the Comex are approaching a record low. That in itself has some significance, but I think the point of this chart is that the registered category typically reaches these low levels at major market bottoms.

Simply put, owners of bullion are not willing to put their bullion up for sale at the paper gold market price set by Comex. They would rather let it sit in storage and pay fees.

Now, in addition to this, there is quite a bit of controversy and speculation that the bullion banks have been leasing out that customer gold that is being held in storage. That is what is known as rehypothecating.

Rehypothecating simply means that a financial institution uses an asset that is pledged as collateral or assigned for some specific reason as collateral for another transaction of their own. And these days these rehypothecation schemes tend to go to multiple stages like a daisy chain, or dominos. Bank A takes a customer asset and lends it out to Bank B. Bank B uses that same asset as collateral to Bank C. And Bank C uses that same asset once again.

We saw this first level rehypothecation in the collapse of MF Global. That company was using customer assets, whether they be cash, financial paper, and even actual bullion, as collateral with other banks, including JP Morgan it appears, to back their own private speculation in the markets. When the markets turned against them, the collateral was 'called' and the scheme collapsed.

What made that rehypothecation particularly odious is that such assets held by a clearing broker are considered untouchable and 'sacred.' But as it came out in the aftermath of that scandal, we are indeed in different times with regards to oaths, pledges and obligations in finance.

This is not all that dissimilar in character to the Madoff scheme, which is why it is prohibited. Customers provided the Madoff fund cash, the front men and Bernie Madoff took their fees, and then that money was committed to pay other fund obligations, notably the returns that investors holding paper obligations were owed if they chose to withdraw them. Madoff just cut to the chase and did not bother with the investment part of the deal.

So if there is a rehypothecation scheme going, and there is a run on the bullion banks at these prices, as customers refuse to voluntarily offer their bullion for sale, and other sources of supply become exhausted, eventually a 'market break' will occur and the scheme will be exposed.

And to complicate matters, it is likely that a significant quantity of gold has been leased out from central banks into these rehypothecation schemes that will not be easily returned. This would be considered 'career affecting' and rather embarrassing to the governments.

Like the case of the Madoff fund, many people on the periphery of the transactions knew that there was a likelihood of fraud, and that at the very least, something was wrong. But it is risky to say or do anything, and very lucrative to keep one's mouth shut and hope to plead ignorance of the scheme later on. Conspiracy is hard to prove unless one has 'smoking gun' admissions on tape, and too often not even then in this culture of fraud where the professional courtesy of moral hazard is more the rule than the exception.

I should note that even in the endgame stages of the exhaustion of a highly leveraged rehypothecation scheme, a more likely outcome would be to let the price of gold rise, and hope that this tempts new bullion supplies on to the market. This would allow the cycle of this scheme can go along for another turn of paper selling and price manipulation.

But I would not doubt that they will try and frighten out holders of bullion with more price raids. That scheme eventually fails as the bullion passes into stronger, more sophisticated hands. And the governments and people of the East are certainly doing their part to make it happen.

I do think that the spike in gold to 1900 was just such an instance. And the opposite was tried in the recent price smackdown, because allowing the price to rise puts some of the derivatives bets of the TBTF financiers at risk.

And at this time I think that the crucial turning point in this scheme occurred in 2000-2001 with the selling of England's gold in an act that became known as 'Brown's Bottom.'

I do not think it is a question of if this rehypothecation scheme fails, but when. I should add that I no longer doubt it is a highly leveraged rehypothecation scheme in the precious metals markets, and probably others as well. The circumstantial and direct evidence is just too persuasive.

Since Germany cannot get its 300 tonnes of sovereign gold back for almost seven years, that tells us that it is a relatively small amount of bullion that is required to collapse this paper pyramid scheme. And so we are likely in the endgame.

So let's see what happens. I think after the worst is exposed, people will remark how obvious it all was. It will be like the housing bubble, which really was an artifact of the CDO pyramid scheme of mispricing of risk, abuse of collateral, and fraudulent representations of ownership and quality.

The government may try to impose some draconian settlement. And I think most of the world, and a goodly portion of their own country, will tell them 'to go shit in their hat,' as my old boss used to say. And then the coverup will begin, the small fry and scapegoats who were involved will be thrown to the wolves, and losses distributed to the innocent. That is where we are now with the latest credit bubble.

The jokers who are behind these types of schemes are bad enough. They are just despicable conmen, no matter how one wishes to cover up their schemes with sophisticated words and jargon. Madoff was simply a thief. And so were the responsible parties at Enron, MF Global, LIBOR manipulation, and so forth.

These schemes of manipulating key prices and commodities is as old as markets. The notion that markets are naturally virtuous and self-correcting are a ludicrous and harmful fallacy, generally nurtured by conmen who seek to corrupt them.

But their enablers, those who facilitate the scheme and who defend it too often for the rewards of position and pay, are just as bad. And that net reaches further and wider, in to the chambers of government and into the halls of universities.

They will be brought to account eventually. It is for us to see that justice is done in this world in accord with the law. And if the law is corrupt, it is our duty to work for its reform.

If you have your wealth secured in the right ways and places, you may not be overly affected, except perhaps by anxiety and some scarcities of goods that will pass with time. Life does go on.

I do think being prepared is a good idea. But look at those who were ruined by Madoff and MF Global. If you did not have your money with either of them, you were not affected all that badly.

I tend to think that this scheme too will be circumscribed a bit, through a coverup, and the printing of a virtual moat of paper. And I think we all know how to deal with even a serious inflation whether we feel confident of it or not.

Those of us who lived through the serious inflation of the 1970's will remember what it was like. Those on fixed incomes may suffer and we need to make sure that the pigmen do not take advantage of them, or add to their misery. This latest crop of demi-gods knows no shame and has little self-restraint. They are walking occasions of sin.

History repeats, and remarkably so, because we so easily forget what we and our forfathers have learned, and succumb to the same old temptations and excesses of the few
.

***

end




and now zero hedge discusses the JPM vaulted gold:


(courtesy zero hedge)



JPM Vaulted Gold Slides To New All Time Low

Submitted by Tyler Durden on 06/04/2013 18:02 -0400
Beginning on May 13, when JPM's commercial gold holdings tumbled to an all time low of 137,377 ounces, the firm's daily Comex updates became erratic with daily reallocations out of its Registered holdings into Eligible. Over the next three weeks, some 209K ounces had their warrants detached, and shifted into customer account, all the while the total number of ounces held in the JPM gold warehouse at 1 Chase Manhattan Plaza, remained flat at 817,167. Then two days ago the first withdrawal in nearly one month took place, with 13K ounces pulled out of JPM's Eligible holdings. Moments ago, the daily Comex update showed that yet another 15.4K ounces were withdrawn out of JPM, following the latest gold withdrawal, offset by a 49K ounces reallocation. This however is still short of the roughly 70K ounces due for delivery. Long story short, as of close of activity on June 3, the total gold held by the JPMorgan depository is now the lowest it has ever been at just 788,786 ounces and once again falling fast.
Then again, as many have noticed, the addition of an peculiar footnote to the daily Comex report which states the following:
The information in this report is taken from sources believed to be reliable; however,
the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness.
This report is produced for information purposes only.

means that it is quite possible that all of the above numbers are just that, and that in reality JPM (and others) are representing whatever they wish. It is, however, odd that the CME decided to add this disclaimer only now.

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





Silver:



June 5.2013:  June silver contract month: 



Silver
Ounces
Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 1,121,152.985 oz (Brinks, Scotia,CNT)  
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 832,114.52 (Scotia)
No of oz served (contracts)0  (nil oz)
No of oz to be served (notices)102  (510,000 oz)
Total monthly oz silver served (contracts) 22  (110,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month701,301.63 oz
Total accumulative withdrawal of silver from the Customer inventory this month1,227,181. oz


Today, we  had good activity  inside the silver vaults.

 we had 0 dealer deposits and 0  dealer withdrawals.





We had 1 customer deposits:

i) Into Scotia:  832,114.52 oz



total customer deposit; 832,114.52  oz


We had 3 customer withdrawals:


i) out of Brinks:  500,014.80 oz

ii) out of CNT:  21,017.71  oz
iii) out of Scotia:  600,120.075 oz







total customer withdrawal   1,121,152.985   oz 

  
we had 0    adjustments  today


Registered silver  at :  42.035 million oz
total of all silver:  164.204 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 (102) and subtract out today's notices (0) which leaves us with 102 notices or 510,000
  
Thus the total number of silver ounces standing in this non  active delivery month of June is as follows:

22 contracts x 5000 oz per contract (served) = 110,000  oz  + 102 contracts x 5000 oz  or 510,000 oz left to be served upon =  620,000 oz

we neither gained nor lost any silver ounces today at the Comex silver. 

end





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 5.2013:




Tonnes1,010.45

Ounces32,486,916.77

Value US$45.588  billion.




June 4.2013:




Tonnes1,010.45

Ounces32,486,916.77

Value US$45.443  billion






June 3.2013:
















Tonnes1,013.15

Ounces32,573,918.24

Value US$45.662  billion





May 31.2013:









Tonnes1,013.15

Ounces32,573,918.24

Value US$45.403  billion














May 30.2013:











Tonnes1,013.15

Ounces32,573,918.24

Value US$46.023   billion






May 29.2013:













Tonnes1,013.15

Ounces32,573,918.24

Value US$45.014  billion





May 28.2013:












Tonnes1,012.25

Ounces32,544,916.00

Value US$44.779  billion






May 24.2013:









Tonnes1,016.16

Ounces32,670,593.55

Value US$45.403  billion






May 23.2013:











Tonnes1,018.57

Ounces32,747,937.28

Value US$45.192  billion






May 22.2013:












Tonnes1,020.07

Ounces32,796,277.52

Value US$46.177  billion







May 21:2013












Tonnes1,023.08

Ounces32,892,959.74

Value US$44.743  billion









May 20.2013:










Tonnes1,031.50

Ounces33,163,669.76

Value US$44.913   billion















Today,  the bleeding of gold stops from the GLD.  They neither lost nor gained any tonnes of gold tonight. 


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.  As you can see, the bleeding of physical gold from this locale continues unabated. 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 fell a bit and now stands at 7.985 million oz  (248.36 tonnes)

It is possible that the physical supplies inside the GLD has evaporated.



end



And now for the ETF  silver SLV

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.
9,988.42






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.
9,992.92


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.
9,992.92



May 31.2013: at SLV  

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.
9,992.92



May 30.2013:

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.
9,992.92




May 29.2013:

Inception Date4/21/2006
Ounces of Silver in Trust322,245,369.800
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.
10,022.95





May 28.2013:


Inception Date4/21/2006
Ounces of Silver in Trust322,245,369.800
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.
10,022.95




May 24.2013:


Inception Date4/21/2006
Ounces of Silver in Trust322,245,369.800
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.
10,022.95

May 23.2013:




Inception Date4/21/2006
Ounces of Silver in Trust322,245,369.800
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.
10,022.95





May 22.2013



Inception Date4/21/2006
Ounces of Silver in Trust327,893,650.100
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.
10,198.63




May 21/2013:


Inception Date4/21/2006
Ounces of Silver in Trust327,893,650.100
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.
10,198.63





May 20.2013:

Inception Date4/21/2006
Ounces of Silver in Trust329,631,679.700
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.
10,252.69






May 17/2013


Inception Date4/21/2006
Ounces of Silver in Trust329,631,679.700
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.
10,252.69


May 16.203:





Inception Date4/21/2006
Ounces of Silver in Trust334,121,683.000
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.
10,392.35


No change in silver inventory tonight.



end




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 1.2% percent to NAV in usa funds and a negative 1.4%  to NAV for Cdn funds. ( June 5/13) .

2. Sprott silver fund (PSLV): Premium to NAV rose  to .63% NAV June 4/2013 (not out yet)
3. Sprott gold fund (PHYS): premium to NAV  rose to - .32% positive to NAV June 4/ 2013  (not out yet)





end





And now for the major physical stories we faced today:



Gold trading from Europe this morning:



(courtesy Goldcore)




Gold Production May Plunge After Price Fall Supporting Gold


-- Posted Wednesday, 5 June 2013 | Share this article | 1 Comment

Today’s AM fix was USD 1,396.50, EUR 1,068.89 and GBP 909.42 per ounce.
Yesterday’s AM fix was USD 1,405.25, EUR 1,074.68 and GBP 918.64 per ounce.
Gold fell $13.80 or 0.98% yesterday to $1,398.20/oz and silver slid to $22.28 and lost 0.92%.
Gold rebounded to trade above $1,400/oz this morning as the dollar and equities retreated, increasing demand for the yellow metal as a safe haven and store of value.
The Shanghai Futures Exchange has cut its gold and silver margin requirements. The bourse will cut margin requirements for gold and silver futures to 4% from 7%, according to amended trading rules posted on its website. Trading limits for silver and steel rebar futures will be lowered to 3% from 5%, the exchange says. The amendment will go effect on June 25.


The recent 22% decline in gold prices may lead to a substantial drop in gold production. During the 26% plunge in gold prices in 2007-08, gold production fell by 9.4%. Balance sheets in much of the gold mining sector are much worse than they were in 2007 and this may also force production cutbacks from the major producers, while growth from junior miners may struggle given the dire financing backdrop.
This will support gold in the long term.
Gold’s latest correction has put gold mining companies on the defensive globally and many are under severe pressure. Gold mining companies have been forced to cut costs, investment and most importantly for the price of gold - production.
All of which will likely worsen already strained relations with workforces, particularly in poor countries in Africa and South America.
There are many uneasy agreements between mine workers and companies involving promises of higher wages, better working conditions and new rights. Soon, the pay promises are set to 
be tested.


Gold Spot $/oz, Daily, 3 Year – (Bloomberg)
The Philadelphia Stock Exchange Gold and Silver Index is the benchmark gold mining index in the world. It is a capitalization-weighted index which includes the leading companies involved in 
the mining of gold and silver globally.

PHILA GOLD & SILVER INDX – (Bloomberg)

The index has performed miserably in recent years and is down 34.6% YTD and 34.56% in the last year. Indeed, the index is at levels seen nearly 30 years ago in 1984.
Printing and debasing currency is easy with central bankers just pressing a few buttons on a keyboard and electronically creating billions and indeed trillions of dollars, euro’s, pounds and yen today.
Mining for gold and other precious metals is far from easy and gets harder every year.
Miners are having to go deeper and deeper into the ground in the attempt to extract the precious metal from the bowels of the earth. Ore grades are declining globally and peak gold has been reached in South Africa and may have been reached globally.
The poor miners in South Africa who are wielding machetes today will testify as to just how very hard it is to mine for the earth’s precious metals – despite the huge advancement in technology 
seen in recent years.



Cross Currency Table – (Bloomberg)
Blood, sweat and tears are involved in extracting small amounts of gold from the earth's crust.
Global currency debasement means that the dollar, the euro, the pound, the yen and all fiat currencies in our current fiat based monetary system will continue to fall in value versus gold, silver and the precious metals over the long term.
Caveat Emptor: Another Level of Non-Quantifiable Risk Added to Trading Metals On the Comex - Jesse's Café Américain

For breaking news and commentary on financial markets and gold, follow us on Twitter.







end



The Mint today:  DEMAND UNPRECEDENTED!!

(courtesy zero hedge)





US Mint Head: Bullion Demand Still "Unprecedented"


Tyler Durden's picture




As every down-tick in the paper price of Gold is viewed as another death knell for the 'global safety' trade; a drop in stock prices is somehow seen as an 'opportunity' to the world's media and status quo maintainers. However, as Reuters reports, Richard Peterson - acting director of the US Mint - explains,demand for US gold and silver bullion remains at "unprecedented" high levels almost two months after the historical sell-off. So that is what the pent-up-demand, 'money on the sidelines' has been waiting for? Notably, Peterson also added that, due to demand, the Mint may resume making platinum bullion coins (after stopping in 2008).

Via Reuters:
...

"Demand right now is unprecedented. We are buying all the coin (blanks) they can make,"Richard Peterson, acting director of the U.S. Mint, said in an interview referring to the Mint's suppliers.

...
end




Addison Wiggin on the fraudulent leasing of gold:

(courtesy Addison Wiggin/GATA/Chris Powell)







Addison Wiggin: The 'zero hour' scenario

 Section: 
9:20p ET Tuesday, June 4, 2013
Dear Friend of GATA and Gold:
The Daily Reckoning's Addison Wiggin shows again tonight that he understands Western central banking's racket in the gold market.
"Remember," Wiggin writes, "the main reason central banks are in business -- to benefit their biggest and most powerful member banks. And what's beneficial to U.S. and European banks is gold leasing. Commercial and investment banks lease gold from a central bank at bargain rates -- usually less than 1 percent a year. Then they sell that gold into the private market and plow the proceeds into. ... well, anything that yields more than 1 percent. It's a sweet deal if you're a banker.
"'But then the gold is gone, right?' Yes. If the central bank wants its gold back from the commercial and investment banks, those banks would have to buy gold on the open market -- driving up the price. That's a bad deal if you're a banker.
"So usually there's a tacit understanding: Central banks don't ask for their gold back, and the commercial and investment banks roll over their gold leases. As long as they're earning more than 1 percent, the debt service is easy-peasy.

"But if a central bank asks for its gold back, it's game over."
Wiggin even notes the deceptive accounting used by Western central banks to conceal their gold leasing. He doesn't quite explain why gold leasing is concealed -- to facilitate secret intervention in the currency and gold markets -- but you already have gotten the answer from GATA (and the International Monetary Fund) here:
Wiggin's commentary is headlined "The 'Zero Hour' Scenario" and it's posted at the Daily Reckoning here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

end




Of all the people in the world who should know about gold's suppression by the Fed and central banks,

its is Dr Paul Craig Roberts who was the former USA assistant to the Treasury Secretary:


(courtesy Paul Craig Roberts/GoldMoney.com)





Paul Craig Roberts on gold suppression, the dollar's decline, and 'gangster capitalism'

 Section: 
3p ET Wednesday, June 5, 2013
Dear Friend of GATA and Gold:
GoldMoney's Andy Duncan today interviews former U.S. Assistant Treasury Secretary Paul Craig Roberts about the Federal Reserve's suppression of gold prices, the decline of the U.S. dollar as the world reserve currency, and the "gangster capitalism" that has resulted from deregulation of the financial markets and failure to enforce anti-trust law. The interview is 40 minutes long and is posted at GoldMoney's Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

end




The Indian government bans all credit paid important of gold.  Gold paid no attention to this

(courtesy Adrian Ash/Bullion vault)




If India wants gold, it will buy gold!


The gold market shrugged off Wednesday the decision by India’s government to ban credit-paid imports of gold bullion and are braced for higher premiums.
Author: Adrian Ash
Posted: Wednesday , 05 Jun 2013
LONDON (BullionVault) -




GOLD BULLION traded for London delivery rose back through $1400 for the fifth day running on Wednesday morning, rising as the US Dollar slipped following weaker-than-expected jobs data.
Gold priced in the Euro ticked higher to €1075 per ounce, but was unchanged for the week so far in terms of Pounds Sterling below £914.
Silver prices rose back above $22.60 per ounce.

"The [gold] market has quite rightly shrugged this off," says David Govett at brokers Marex Spectron of yesterday's decision by the Indian government to ban credit-paid imports of gold bullion.

"If India wants gold, it will buy gold!"

"As a result of these measures," agrees the Business Standard in an editorial, "gold demand and import will come down...[but] smuggling of the precious metalis likely to go up."

Reuters says retail distributors in the world's largest gold-consuming nation are "braced for higher premiums" over and above the international benchmark price for gold, typically quoted for London settlement.
"Supplies will get more scarce," the newswire quotes Mayank Khemka of the Khemka Group. "There won't be any [gold bullion] imports for the next two-three days until clarity comes."
Speaking for the world's leading gold-mining companies, "We recognize the short-term needs for such measures,"The Times of India quotes Aram Shishmanian, CEO of market development organization the World Gold Council.

"But we are proposing to work with [the Reserve Bank of India]," he explains, "so that in the long term gold could be monetized as a financial asset" rather than as a physical consumer commodity dragging on India's trade balance.

April saw net imports of gold bullion to China – the world's #2 consumer nation – fall 41% from March's record high, new data showed today.
The net reading of 80 tonnes "is a surprise" said one dealer, but others cited a backlog of paperwork for gold importing banks who had already used their official quota in the first 3 months of the year.
The Shanghai Futures Exchange yesterday cut the amount of money gold and silver traders must keep on deposit against their positions from 7% to 4% by value.

For Western money managers, meantime, "Gold is a beneficiary of negative real interest rates," says a research note from asset managers Blackrock, noting that May saw the sixth month running of outflows from exchange-traded gold trusts, knocking nearly one-third of gold ETF assets from the start of this year to $96 billion worldwide.

Even so, "Many invest in gold as a long-term holding due to its diversifying properties," Blackrock adds. Because gold bullion "has historically shown little to no correlation with other major asset classes, including commodities."
Commodity prices meantime ticked higher Wednesday morning, as did major government bonds, while the US Dollar slipped following news of weaker-than-expected growth in US hiring.

The private-sector ADP report – released ahead of Friday's closely-watched official Non-Farm Payrolls report – missed forecasts of 165,000 net new jobs by a fifth.

Ten-year US Treasury yields fell to 2.12%, a 1-week low.
Two US Federal Reserve presidents said separately on Tuesday that reducing the central bank's huge monetary stimulus is beginning to look "appropriate".
"Gold continues to move sideways within a small range," says the latest technical analysis from bullion bank Scotia Mocatta, pegging support at $1373 and resistance at $1422.

"Consolidation is ongoing," agrees Axel Rudolph at Commerzbank, "but the overall trend remains bearish" with support pegged lower at $1338.
On the supply side, the world's largest gold mine, the giant Grasberg mine in Indonesia, will be shut for 3 months as the government investigates a collapse which killed 28 miners in May.

Majority owned by Freeport-McMoRan Copper & Gold Inc, Grasberg had been scheduled to produce some 65 tonnes of gold this year – more than 2.4% of global output – after falling to 28 tonnes due to strikes in 2012.

The shutdown will likely bloock 125,000 tonnes of copper production too.
Meanwhile in Brussels on Wednesday, Latvia was welcomed by the European Commission as the 18th member of the Euro currency union, joining on New Year's Day 2014.
Anti-Euro parties won more than 50% of the vote in last weekend's elections in Latvian capital Riga, the BBC says.
Approving Latvia's accession to the 330-million citizen Eurozone, the European Central Bank today warned of the "important risk to financial stability" posed by the reliance of "a significant part" of the country's banking sector on foreign investors' deposits.
Adrian Ash
BullionVault

-END-


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






Your overnight sentiment Tuesday morning trading from Asia and Europe:



Major points:

1.  Nikkei plunges by 519 points or 3.83%.

2. Markets not impressed with Abe's pronouncements of average 10 year growth of 3% and real growth of 2% with average incomes rising by 1.5 million yen (15,000 USA dollars)

3. Yen then broke again the key 100 barrier to trade this morning at 99.52, hitting its low of 99.35 

4. Intraday, the Nikkei plunged 700 points from high to its low point.  It is a whisper away from a 20% market correction.

4b.  Japan's balance sheet exceeds 100 trillion yen for the first time rising to 104 trillion yen up 8 trillion yen.

5. Europe clearly is not in the spotlights due to Japan's volatility.

6. Europe reports its second guess of GDP down -.2%

7. Most of Europe's service PMI numbers lower expect Spain which miraculously pulled off a 47.3
reading from 44.0 previously, the highest in 23 months

8. Eurozone retail sales plunge .2% as consumers just do not spend.  No recovery yet on the Eurozone horizon

9.  Details from Bloomberg/Soc Generale, and Jim Reid Deutsche bank


(courtesy zero hedge/Bloomberg/SocGenerale andJim Reid Deutsche bank)





Global Risk Off: Nikkei Plunges 700 Points From Intraday Highs, Whisper Away From 20% Bear Market Correction

Tyler Durden's picture





That deep red premarket color on your terminal means it must be a non-Tuesday. Just kidding.
Anyone expecting Abe to announce definitive, material growth reform instead of vague promises to slay a "deflation monster" last night was sorely disappointed. The country's PM, who may once again be reaching for the Immodium more and more frequently, said the government aims for 3% average growth over the next decade and 2% real growth, raising per capita income by JPY 1.5 million. The market laughed outright in the face of this IMF-type silly vagueness (as well as the amusing assumption that Abe will be still around in 7 years), which left untouched the most critical aspect of Abenomics: energy, and nuclear energy to be specific, and sent the USDJPY plummeting well below the 100 support line, printing 99.55 at last check. But more importantly, after surging briefly at the opening of the second half of trading to mask a feeble attempt at telegraphing the "all is well", it rolled over with a savage ferocity plunging 700 points from an intraday high of 13,711 to just above 13,000 at the lows: yet another 5% intraday swing in a market which is now flatly laughing at the BOJ's "price stability" mandate. Tonight's drop has extended the plunge from May 23 to 18.4% meaning just 1.6% lower and Japan officially enters a bear market.
Europe, clearly secondary to yet another night of Japanese fireworks, reported a second estimate of GDP at -0.2%, same as the previous and same as expected: sorry folks, the recession is going on, despite Rajoy's obvious attempts to put the upward thumb on Spanish economic data, with Spain's Service PMI coming at a laughable 47.3 from 44.4 previously, the highest in 23 months. Other Service PMI readings were largely weaker than expected (Germany 49.7, Exo. 49.8, Italy 46.5, Exp. 47.5, France 44.3, Exp. 44.3), leading to the broader Eurozone Service PMI number printing at 47.2 vs Exp. 47.5. Most importantly, and proving there is no recovery on the European horizon as long as the lending machinery remains clogged up was Eurozone retail sales, which plunge from a -0.2% change in March to -0.5% in April. However, none of the above will matter once the Japanese carry trade dynamics change as Abenomics begins to be faded much more more aggressively in the coming weeks, resulting in a first slow then fast blow out in peripheral yields. Then the real "post-fauxterity" fun begins.
Summarizing the news in bulletin format via Bloomberg:
  • Dollar Index little changed as markets await further clues ahead of tomorrow’s ECB meeting and U.S. nonfarm payrolls Fri. USD/JPY declines on  disappointment over Abe’s speech while GBP/USD gains on better than est. U.K. PMI services.
  • Today: U.S. ADP employment change for May due, est. 165,000; April factory orders est. +1.5% M/m; Fed Beige Book released
  • Euro-zone 1Q final GDP showed -0.2% contraction; euro-zone final services; composite PMIs remained unchanged at 47.7 in May
  • U.K. PMI Services index rose to highest since March 2012; making it less likely BoE further actions are needed, ING says
  • Abe vowed to “slay deflation monster” with fiscal, monetary policy; USD/JPY fell to weakest in 2 days on comments
  • Fed’s Fisher (non-FOMC voter) says he sees end of 30-yr bond-market rally while calling for reduction in QE
  • Japan to target 2% annual growth through FY22, Nikkei says, to be discussed at tomorrow’s meeting of economic council
  • Australian 1Q GDP grew 2.5% Y/y vs est. 2.7%; AUD weakened, odds of Aug. rate cut rose to 58% in OIS pricing vs 49% pre- GDP
  • Brazil will scrap tax on foreign investment as it seeks to arrest decline in the real 
  • Treasuries gain; 10-yr yield -2bps to 2.13%
  • Nikkei -3.8%
  • MSCI Asia-Pacific -1.8%
  • Euro Stoxx 600 -0.7%
  • Oil higher, gold and silver reverse Asian gains
SocGen covers the macro highlights:
A rise in the correlation of EUR crosses with commodities and equities has been noted this week, and not only has it changed the dynamics somewhat it is giving participants something else to think about as we wait for today's US ADP employment and non-manufacturing PMIs and ISM. If the manufacturing PMIs are any guide, then firmer European data are likely to play out and will diminish the arguments for a very dovish ECB message tomorrow (to the extent that a reining back in was not planned already). Eonia rates have been edging higher ever so gradually from the May lows as we have moved into June, with Eonia for the December meeting having more than doubled to 0.08%. Stronger data today will keep up the tendency to pay up, even though no one is ready to totally discard the idea of further stimulus yet.
The inverse correlations for EUR/USD (and EUR/CAD, EUR/NOK, EUR/PLN) vs Eurostoxx are in contrast to the positive correlation of EUR/JPY with Eurostoxx, and this shows how the EUR is considered a risk-sensitive currency these days, whilst the JPY remains the favourite defensive play when risk aversion sets in. The influence of rate differentials has ebbed somewhat, especially for EUR/USD even as EU swaps try to narrow the gap with the US, but this is more relevant for crosses like EUR/JPY and EUR/GBP. Whilst we see evidence of stronger Q2 economic momentum in the UK, the fact that short-term rates in the eurozone and the UK are not going anywhere justifies the narrowest of ranges we have observed so far this month. If Draghi tomorrow puts his weight behind the article published in the FT yesterday (ECB backs away from using bazooka), then psychologically this will force markets to reel in the dovish bets on euro rates. It is in that context that the services PMI and retail sales will have to be assessed today. Unconfirmed ECB sources yesterday claimed that the central bank is divided on a further cut in the refi rate. Whether that means the ECB can steal the thunder from US data is extremely doubtful. ADP and ISM employment components will be dissected this afternoon for a final stab at Friday's payrolls guesstimate.
* * *
DB's Jim Reid recaps the balance of overnight events.
Fixed income asset classes continue to come under pressure across EM and DM, with fairly notable intra-day vol in some areas, as investors fret over the Fed’s potential path of asset purchases. Following yesterday’s moves, 10yr yields in USTs, bunds and gilts are +52bp, +37bp and +41bp off their recent lows respectively. Similarly, major DM credit indices have pulled back from the cyclical tights seen last month including US CDX IG (+13bp off the tights), European iTraxx (+17bp) and Australian iTraxx (+18bp). Interestingly US CDX IG traded between - 2bp and +5bp yesterday, a range wider than any seen for a few months. There is clearly nervousness around the Fed.
It remains to be seen whether the correction will continue, but for now the technical picture continues to generate headlines amid reports of outflows  across a number of fixed income funds. Bloomberg reported yesterday that PIMCO’s Total Return Fund, which is the world’s largest mutual fund, had clients redeem $1.32bn last month. The article notes that the redemptions were the first since 2011, which although not insignificant remain fairly small in context of the fund’s $285bn size. In high yield, there have been recent reports of outflows from the SPDR Barclays High Yield and iShare/iBoxx High Yield Corporate bond funds (Bloomberg), which is adding further nervousness to the entire asset class. Indeed, it hasn’t just been fixed income which has been at the behest of the Fed's likely next move. Yesterday saw the S&P500 (-0.55%) oscillate between highs of +0.35% and lows of -1%, helped along by a number of Fed speakers. Fed Governor Sarah Raskin bemoaned the state of the labour market, saying that the unemployment rate underestimates the true scope of the unemployment problem, and also noting that those who do find employment often must accept low quality positions. Meanwhile, FOMC dissenter Esther George repeated her call to slowdown stimulus saying the risk of tightening too late was just as high as if  the Fed tightened too soon.
Turning to Asia, equities are trading with a negative tone overnight, taking their lead from the cautious end to the US session yesterday. The Hang Seng (-0.8%) and KOSPI (-1%) are both trading in the red, in contrast to the better sentiment in Japanese equities. Prime Minister Abe outlined his economic growth strategy overnight. The measures announced include the establishment of special strategic zones for high density construction, and the opening up of energy, health and infrastructure sectors. The Nikkei and TOPIX indices initially traded up as Abe spoke but subsequently sold off as some were disappointed by the lack of detail around the plans. Dollar yen has seen volatile trade, and is currently 0.3% lower as we go to print (99.7).
Staying in Japan, the Nikkei reported that the BoJ’s balance of JGBs grew by more than JPY8trillion last month to JPY104trillion as of the end of May. Its balance sheet has surpassed the JPY100 trillion yen mark for the first time. According to the article, the central bank purchased 40-year JGBs for the first time (JPY45billion) last month, with its holdings of 10-year JGBs increasing the most. Interestingly, the Nikkei is also reporting that the BOJ's REIT purchases are bumping up against a ceiling.
Turning to the day ahead, the US ADP employment report and non-manufacturing ISM are the key data points ahead of Friday’s all-important payrolls. Consensus is for +165k private level change for the ADP report and forecasters are looking for a 53.5 ISM print. Factory orders, MBA mortgage applications and the Fed’s Beige book round out the US dataflow. In Europe, services PMIs and Q1 GDP for the Euroarea are scheduled.



end




As we explained above, the central bank of Japan holdings of bonds rises above the key 100 trillion yen mark:

(courtesy zero hedge)




Bank Of Japan Bond Holdings Rise Above ¥100 Trillion For First Time

Tyler Durden's picture




It's a central bank world, and we are all just suckerfish attached to the Great Central Planning Whites, hoping for little scraps to trickle down as trillions (Yen-denominated) in bonds are monetized every day.
Below, we show the change in the BOJ balance sheet which for the first time ever just surpassed ¥100 trillion in bond holdings, increasing the various maturities of debt held from ¥91 trillion as of the end of February to ¥105 trillion as of right now. Putting this number in perspective, that is roughly one-tenth of the ¥1 quadrillion in total JGBs outstanding. Furthermore, with Japan GDP at around ¥480 trillion, the BOJ now holds over 20% of the country's GDP hostage (and rising very rapidly).
Finally, the ¥13.5 trillion ($135 billion) increase in security holdings - which included the first ever monetization of 40 Year bonds for a total of ¥45 billion - was a 15% increase in total holdings in the past quarter. Expect many more such quarterly increase.
... ¥1 quadrillion here, ¥1 quadrillion there - soon we are talking a Kroogol (the imaginary amount of stimulus that would satisfy even Keynesian voodoo shaman Paul Krugman)

Inflation ripping apart Egypt and they need new loans totaling 4.8 billion USA.  They have received already 10 billion USA last year.  Their unemployment is also rising and thus the seeds for tension are mounting!!


end




Ladies and Gentlemen:

I want you to spend some time on this important piece from Bill Holter.
He discusses the ramifications on what has been going on in the market place for the past 6 sessions.  He delves into the Japanese mess where interest rates there have tripled (even though less than 1%).  The real problem is the fact that the Yen carry trade is becoming unglued. Investors borrow yen and purchase assets like Spanish and Italian bonds. The trade looks to be OK in theory due to the fact that the yen should falter with a doubling of the monetary base in only 2 years and investors could score 4% on the yield spread.  Investors then leverage that trade 24 - 36 to one.  What happens if the yen rises and the Italian bonds/Spanish bonds falter?
Answer:  they have a mess on their hands as leverage rips their hearts out.  Then you can add banks that have done derivative trades on this and the mess just magnifies.  Collateral disappears as losses skyrocket.



(courtesy Bill Holter of Miles Franklin) 

If a butterfly flaps it's wings in Japan...



I am sure that you've heard the old proverb that a butterfly flapping its wings in Japan can through cause and effect cause a tsunami elsewhere in the world.  Over the last 6 trading days, the Nikkei average is down almost 20%.  Are there, will there be any global ramifications to this?  And why has it happened?  As for the "why" part, their interest rates have risen roughly 3 fold (though still under 1%) as a result of Abenomics hyperinflation.  Their bond market (2nd biggest in the world) has come unglued and is no longer stable.

  As for "will there be any global ramifications?", there inevitably has to be.  Japan for years was the fertile planting ground for the "carry trade".  The carry trade, where you borrowed money at 1/2% or less and invest in whatever and reap the yield over this 1/2% cost to carry.  It worked.  It worked and it worked and it worked.  This Yen trade can be cited as the fuel for all sorts of rising asset prices and of course the bubbles that were created.

  So, will there be any ramifications?  If this "trade" truly starts to unwind then all sorts of asset pricings everywhere will blow up.  And since everything is "bet on", hypothecated, interconnected and derivative instruments placed upon...a collapse in the Nikkei will drag everything with it.  There are $ trillions in bets on Japanese Yen, bonds and stocks.  Extreme volatility will create both winners and losers.  The problem is that with such extreme volatility, the winners will be huge and the losers devastated.  The question then becomes "can the losers perform and actually payout to the winners?". 
  The answer to this is NO, they cannot.  But how do I know this?  Because all it will take is one loser who is over levered and can't pay, this will cause a break in the chain and everyone will then start grabbing for "collateral".  "Collateral", you know...that thing that Europe and The BIS spoke so much about last week?  Did you think that the "odd timing" of both Europe and the BIS commenting about collateral was a coincidence?  And the BIS coming out with its "simple plan" to re collateralize insolvent U.S. banks...another coincidence? 

  How about the new disclaimer at the COMEX website?  Why now?  Why while all this other "noise" (it's not if you are really listening and want to hear what they are saying) is being bandied about?  The COMEX now says, "we can't be held liable for anything, the numbers may or may not be real, you pays your money you takes your chances".  This "noise" in reality will be looked at (and actually pointed to) and you will hear "we tried to warn you!".  If you have been actually "listening" to what they have been saying all along, the whole thing is unsustainable.  I am not talking about what the mainstream tells you because they walk out clown after clown to keep you in place.  If you listen to the actual words that come out OFFICIALLY, they are telling you that game over is being prepared and the plug will be pulled.  If you didn't listen, hear or understand...oh well then...that's YOUR fault!  Regards,  Bill H.


end




China gobbling up assets as fast as they can:

(courtesy Wolf Richter/www.testosteronepit.com)




The “Chinese Dream” Come True: Gobbling Up Assets Overseas

testosteronepit's picture




The “Chinese dream” is the dream of the whole nation and also of every individual Chinese, explained Fu Ying, chairwoman of the Foreign Affairs Committee of the National People’s Congress. The slogan had been coined by President Xi Jinping after he’d ascended to the throne of the Communist Party. It would benefit the world, she said. But for the richest Chinese, it has already come true.
So Chinese real estate mogul Zhang Xin bought a big stake in the iconic 50-story white-marble General Motors Building in Manhattan. A few days ago, Shuanghui International Holdings, China’s largest meat processor, offered to acquire Smithfield Foods, the largest pork producer in the US, a couple of months after 16,000 dead pigs floated down the Huangpu River into Shanghai. Maybe, Shuanghui wants to obtain Smithfield’s expertise in food safety; or maybe it just wants to find a place outside China to park a few billions.
Other industries have seen similar purchases, particularly the automotive component sector. Or what’s left of it in the US, as many component makers have already moved their production and in some cases even their design centers to China in search of cheap labor. It shows: for the first four months of 2013, imports of Chinese auto components have swollen to over $5 billion and will soon be in second place, behind Mexico but ahead of Japan and Canada. Delphi, GM’s former component division, and Visteon, Ford’s former component division, have but skeleton crews left in the US [for these dark aspects of deindustrialization, read my article....  The Currency Wars: Now US Automakers Are Squealing].
The Chinese have also gone on a shopping spree in Germany, where they’re interested in the Mittelstand – family-owned companies with innovative technologies and high-quality manufacturing in worldwide niche markets. The most prominent was the acquisition of Putzmeister, long the world leader in concrete pumps (here is my take). The Chinese have been buying in each country according to their perception of what that country is famous for, and what is available to Chinese buyers without too many political hassles.
So in France, the Chinese have a different shopping list – in late May, for example, Fosun International, one of the biggest privately owned Chinese conglomerates, partnered with Axa Private Equity to make a tender offer for vacation-resort operator Club Med, of which both are already the largest stockholders. There were other deals for what France is known for in China: châteaux and their vineyards.
It just emerged that Goldin Financial, based in Hong Kong, bought three châteaux and their prestigious vineyards in Bordelais, a brand-name wine region in southwestern France: Château Le Bon Pasteur in Pomerol, Château Rolland Maillet in Saint-Émilion, and Château Bertineau Saint-Vincent in Lalande de Pomerol. A few weeks earlier, a Chinese architect had bought the Château La Fleur Jonquet in the Graves region.
In 2008, the Chinese made their first acquisitions in Bordelais, each less than €5 million. Over the years, the pace quickened. By 2011, they’d picked up 21 vineyards, some of which had been on the market for a long time. In 2012, they added another nine – including a Grand Cru Saint-Émilion. And so far in 2013, they’ve snapped up six more.
The Chinese are now in second position of foreign owners in the region, behind the Belgians with 45 vineyards. China is already the number one importer of Bordeaux, with 538,000 hectoliters, or 10% of production, more than double of runners-up Germany, Belgium, and the UK. They’ve also gone shopping in other wine regions, including Burgundy where a Chinese investor bought the Château de Gevrey-Chambertin last summer.
It’s the same story around the world. The “Chinese dream” come true. For some. That concept “came just in time,” said Fu Ying while addressing the Asia-Pacific Roundtable in Kuala Lumpur, Malaysia. “It reflects the reality in China and people’s expectations, and serves the need to unite the people to achieve a higher objective,” she said.
A higher objective? Corporate chieftains from the US, Europe, Japan, and elsewhere have invested untold billions in China over the years to offshore production from their home countries. As a consequence, the US, most other Western countries, and more recently even Japan, have run up huge trade deficits with China. And hot money washed ashore, even while the Chinese government created an enormous credit bubble that could effortlessly fund just about anything, from the largest high-speed and money-losing rail network in the world to entire ghost cities, no matter how impossible it would later be to service this debt.
That bubble is there for all to see, more flamboyant than ever, scaring even the government – and the rich. Those who can, while they still can, try to take at least some of their money overseas where it would be safe even during periods of financial or political instability at home.  
But bubbles are everywhere. An economic slowdown is looming over the global economy, but no one seems to care, as stock markets continue to reach new record-highs – giving investors false hopes of economic growth. But how long can this mirage actually last? Read.... A Mirage Called The Stock Market

end

Wow!! that did not take long:  China retaliates for yesterday's solar panel imposition of duties

(courtesy zero hedge)




Trade Wars: The Chinese Empire Strikes Back

Tyler Durden's picture




We reported yesterday that Europe, in a surprising escalation of global trade wars, announced it would impose solar-panel duties against China in one week, with the terms rapidly deteriorating over the next three months. It took China less than one day to retaliate. What's worse the retaliation is aimed at Europe's already weakest - the PIIGS - by targeting not hard German machinery exports but something far more prosaic: French, Spanish and Italian wine.
Reuters reports that "in a step targeting southern European states such as France and Italy that back the duties but largely sparing north European opponents such as Germany, Beijing said it launched an anti-dumping and anti-subsidy probe into sales of European wine. The Chinese ministry said the government had begun the probe into EU wines at the request of Chinese wine makers.
"The Commerce Ministry has already received an application from the domestic wine industry, which accuses wines imported from Europe of entering China's market by use of unfair trade tactics such as dumping and subsidies," it said in a statement.

"We have noted the quick rise in wine imports from the EU in recent years, and we will handle the investigation in accordance with the law."

The move appeared largely symbolic and less severe than if China had targeted hi-tech exports such as Airbus aircraft, made by Toulouse-based European aerospace group EADS.

Beijing imported 430 million liters of wine last year, of which more than two-thirds came from the EU, according to Chinese customs figures. Imports from France alone came to 170 million liters.
Short Diageo and Pernod?
China is the third biggest export market for French wines and spirits by value, worth 1 billion euros ($1.31 billion) in 2012 or nine percent of Paris' wine and spirits exports, according to the FEVS producers' federation.

Jim Boyce, who runs the wine blog grapewallofchina.com, said Chinese manufacturers have been upset about alleged dumping for a while.
It appears Spain's recent export stability is about to be monkeyhammered:
"The big issue was all this Spanish wine flowing in here at incredibly low prices," he said.
And should the trade war escalate, things are about to get far, far worse for Europe:
The European Union is China's most important trading partner, while for the EU, China is second only to the United States. Chinese exports of goods to the 27-member bloc totaled 290 billion euros ($376 billion) last year, with 144 billion euros going the other way.

Wine sales are only a fraction of overall exports to the rising Asian economic powerhouse but the move raises the risk of more tit-for-tat trade barriers.

The EU now has 31 ongoing trade investigations, 18 of them involving China. The largest to date is that into 21 billion euros of imports from China of solar panels, cells and wafers.

The EU says it has evidence that Chinese firms are selling solar panels below cost - a practice known as dumping. But the initial duty of 11.8 percent announced on Tuesday by European Trade Commissioner Karel De Gucht was far below the average 47 percent that had been planned.

China's Commerce Ministry said it took note of the lower initial rate, but called on the EU to "show more sincerity and flexibility to find a resolution both sides can accept through consultations".
Then again, in a centrally-planned world where the only "growth" is currency dilution who needs trade: Ben and Mario can just print it, right?
end




Egypt's problems continue to mount especially in staples like food and energy.
Last year they had 10 billion USA in loans and today they are in need of another 4.8 billion USA




(courtesy Pivotfarm)



Egypt Still in Dire Straits

Pivotfarm's picture





Talks are still on-going between the IMF and Egypt over future loans worth up to $4.8 billion to get the country back on its feet. Arab aid from the IMF in the entire region has hit the $10 billion mark in the last year alone. But, if there is not action taken pretty soon, Egypt will fall into uncontrollable depths of inflation and unemployment and see unrest increase in the country.
A joint statement had already been issued at the end of April by Christine Lagarde, the Managing Director of the international Monetary Fund, along with the Governor of the Central Bank of Egypt, Hisham Ramez, the Egyptian Finance Minister, Al-Mursi Hegazy and the Minister of Planning and International Cooperation, Ashraf Al-Araby. It stated: “The authorities are firmly committed to addressing Egypt’s economic and financial challenges with the objective of restoring sustained and socially-balanced growth, and they are already taking encouraging actions in this direction. Work will continue with the objective of reaching agreement on an IMF Stand-By Arrangement to support the authorities’ national economic program in the coming weeks”.
There were five areas that were discussed. Firstly, trade integration. Then, business regulation and reforms of public institutions. The labor market needed redressing as well as access to finance. Lastly, communications must be dealt with.
Growth prospects are estimated at roughly an average of 3% in Egypt for 2013. This is only moderate growth (although a lot better than some of the countries that fund the IMF). Strange, isn’t it, that the IMF is planning on telling the others (as usual) how to run their economies, when their own economies are in disarray? Don’t do as I do, do as I say is always a good method for working practices in management, isn’t it just?
But, the 3% growth expected in Egypt is not going to do very much for those that are unemployed in the country, at the present time. There are just too many of them. Unemployment stood at 13.2% in the first quarter of this year. That’s a huge increase from the pre-Arab Spring figures of about 8.9%. But, we have to ask two questions. First of all, what types of jobs were being dished out by the dictatorship and secondly whether or not that dictatorship faked the figures (as dictators like to do, usually)?
Whatever the case may be, unemployment in Egypt has never been higher than today. The same trend can be seen across the board in all countries that went through the Arab-Spring revolutions.  Trade and unemployment have been the top priorities of Egypt for the past two years now. Youth unemployment stands at a staggering 95%. 80% of university graduates are still out of work in the country.
Inflation is also increasing in the country. In April 2013 it amounted to 8.1%. That’s nothing new, however, perhaps some might say. According to the Bank of Egypt, unemployment stood at an average of 8.9% between 1958 and 2013. It even reached a high of 35.1% in 1986. It’s the sector of food and beverages that have increased the most overall. Inflation was one of the reasons behind the ousting of President Mubarak, but it is still not under control today. The Revolution has made way for more discontent in the population of the country. Prices are expected to rise yet again in July as the country will prepare for Ramadan (around July 9th) and that’s when food prices traditionally take a hike upwards yet again in the country.
According to research carried out by the Pew Research center, 70% of Egyptians are now unhappy with the way things are going in their country concerning the economy. Unfortunately 49% of them believe that a strong economy is higher up on the to-do list than democracy. But, is that all that surprising? What’s the first thing we want in life: survival. Once you have the food and water and the shelter and protection covered, people start worrying about democracy. Isn’t that the way we work up the Pyramid of Needs (no pun intended) in life?
Imports are becoming more expensive in the face of rising inflation and scarcities are starting to show through in the market for everyday-Egyptians (such as fuel, for example). Tourism has tapered off considerably in the wake of the uprising and whereas there were 15 million tourists entering the country in 2010 before the revolution, there was a massive drop of a third immediately after and that has stuck since then. It dropped from the world ranking of 75thplace as the most visited country in the world to 85th position last year.
The IMF has lent $10 billion in assistance programs to Arab countries in the last year alone. Let’s hope that the money that will be lent to Egypt will do something to increase the situation of average Egyptians. The discussions over the $4.8 billion that will boost the economy there had better have a beneficial effect. Some might question the ability of the IMF to deal with the problem. Others have seen a marked shift in the way that the IMF is dealing with the problems in the Arab-Spring countries and its questionable way of dealing with the Asian crisis of the 1990s (notably in Egypt by reducing energy subsidies which tended to benefit the rich only).
For the moment, it’s the people that are in dire straits and they are the ones that are in need of immediate help to alleviate their problems.

end





Following, is the 10 year Japanese bond yield early Wednesday morning:



Japan Govt Bond Year to maturity 10 Year Simple Yield

GJGB10:IND


As of 01:31:00 ET on 06/05/2013.



end





USA 10 yr bond early Tuesday morning: down 32 basis points



US Generic Govt 10 Year Yield

USGG10YR:IND

2.120.03 1.24%
As of 07:28:00 ET on 06/05/2013.






end



Closing 10 year Japanese 10 year bond:

a little rise of 02 basis points from this morning. 

Tonight's trading in Japan will  no doubt be eventful again!!!!



Japan Govt Bond Year to maturity 10 Year Simple Yield


GJGB10:IND

0.850.03 3.75%
As of 03:58:00 ET on 06/05/2013.



end






Early Wednesday morning currency crosses   (7 am)

Wednesday morning we  see some  euro weakness against the dollar from the close on Tuesday  with this time  trading just below  the  1.31 mark at 1.3064.  The yen this  morning,is a lot stronger  trading up 66 basis points to 99.52 yen to the dollar (dollar down). The yen carry traders are not  very  happy today as they need the yen to weaken for the yen carry trade to flourish . The pound, this morning is a little stronger  against the USA dollar, with this time trading above  the 1.53 column at 1.5355. The Canadian dollar currency is a little weaker against the dollar remaining well above the 1.03 column at 1.0346.  We have the sentiment this morning with a mainly  risk off situation with all of our European  bourses  in the red.   The Nikkei exchange fell badly  this morning down badly by 519 points or 3.83%.   The Japanese 10 year bond yield finished up in yield by 2 basis points to .84%. Gold and silver are slightly  in the early morning, with gold trading at $1398.00 (up $.90)  and silver is at $22.41 up 1 cent in early morning European trading.


The USA index is down this morning by 11 cents at 82.73  


Euro/USA    1.3064  down  .0015
USA/yen  99.52  down 0.66
GBP/USA     1.5355 up .0048
USA/Can      1.0346 up .0007






And now your closing Spanish 10 year bond yield:  a gain of 2 basis points from yesterday.




SPANISH GOVERNMENT GENERIC BONDS - 10 YR NOTE

GSPG10YR:IND

4.440.02 0.43%
As of 11:59:00 ET on 06/05/2013.











Your Italian 10 year bond yield this morning (a rise of 4 basis points in yield) 




Italy Govt Bonds 10 Year Gross Yield

 

GBTPGR10:IND

4.140.04 0.95%
As of 11:59:00 ET on 06/05/2013.






Key crosses Friday 5 pm:





The Euro strengthened quite a bit this  afternoon closing now just below the 1.31 mark at 1.3088.  The yen strengthened again  this afternoon breaking well below the 100 barrier  resting at 99.12.  The pound strengthened a lot  more from early this morning  , closing  just above the 1.54 barrier  at 1.5405.  The Canadian dollar slightly weakened this afternoon against the dollar closing at 1.0349.



The USA index is fell badly this afternoon at 82.57, down 27 cents on the day. 


Euro/USA    1.3088 up  .0007
USA/Yen  99.12  down 1.06
GBP/USA     1.5405  up .0096
USA/Can      1.0349 up .0008







end.




Your closing figures from Europe today. 



i) England/FTSE down 139.22  2.12% 


ii) Paris/CAC down 73.39 or  1.87%
  
iii) German DAX: down 99.78 points (or  1.20%)  
  
iv) Spanish ibex down 72.30 or .86% 

v) Italian bourse (MIB) down 164.31   (.96%)


and the Dow down 216.95 points (1.43% ).



end.






And now for USA news:




A good summary today on the big fall of the Dow:









(courtesy zero hedge)


Stocks Slammed On Best Day For Bonds In 4 Months


Tyler Durden's picture




Treasuries appear to be shrugging off the Taper talk in favor of safe-haven status as they rally 6-7bps - the best yield compression since mid-FebruaryUS equity markets did not close off the lows (as the Nikkei is within 45 points of the dreaded bear market 20% correction level). Credit markets anxiety yesterday bled through today and they led stocks lower (with no Hindenburg Omen today). The VIX term structure bear-flattened dramatically as the 'picking-up-nickels-in-front-of-the-steamroller' trade finally got its fingers caught - the front-end of the curve smashed higher and is now at itsflattest to the midcurve in 2013. The USD weakened as JPY was bid (and AUD sold hard) amid heavy carry unwinds. Volume was heavy today but the selling was very broad-based across the sectors (homebuilders remain worst on the week). The Dow ended with its biggest points drop in almost two months - no buy-the-dip-mentality victory today eh Maria?

No matter how hard they trued to pick up JPY and get back to VWAP - the algos couldn't trump the selling pressure...

From Friday morning's top, things are accelerating...

with homebuilders leading the way...

Credit led the way after yesterday's huge range day...

and VIX pushed up near its year's highs and its flattest term structure...

Why do we care so much about FX? Because it's all about the JPY carry trade - as it seems a few mainstream media types are finally catching on to...

Charts: Bloomberg and Capital Context

end


Dave from Denver/the GoldenTruth talks about the signals that are being created out of the junk bond market and what they are telling us with respect to the future prices on the stock market:

(courtesy Dave from Denver/the Golden Truth)

WEDNESDAY, JUNE 5, 2013

The Stock Market May Be In Trouble: A Very Ominous Signal


I believe that the junk bond market is starting to price in the deteriorating economic fundamentals and has begun a price correction to reflect the expectations of higher credit risk for companies which require cash flow growth to service their debt. It is my view that the stock market will soon "catch up" to the junk bond market in a big sell-off that will be triggered soon by something - perhaps even a bad employment report this Friday  - Dave in Denver
The Seeking Alpha article from which that quote is derived was actually written by me on Monday night and published yesterday mid-day by SA.  So my call that the stock market could incur a significant sell-off should be measured based on Monday's close of 1640 on the S&P 500 (SPX) and 15,254 on the Dow.  As I write this, the SPX is trading at 1612 (-1.7% from Monday) and the Dow at 14,991 (also -1.7% from Monday).

The reason I believe the stock market is vulnerable to a big sell-off here has to do with a signal that is being emitted by the junk bond market.  I lay out my entire case in this article:  Ominous Signals  As you will see, I discuss the sell-off going on in the junk bond market and what it could imply for the stock market.

On another note, I've been seeing the decibel level in the media being turned up loudly about the rising the probability that the Fed could "taper" QE.  What amazes me about this nonsense is that before QE2 and QE3, the same chorus of Fed heads and writers/bloggers were promoting the same crap - about three or four months prior to the Fed actually pulling the trigger on even more QE.  I recall specifically that Phoenix Capital and Bill King of the King Report were adamant that QE2 was the last of the printing.  They should be eating a lot of humble pie for their intransigent insistence that QE would stop at QE2 but King is now certain that tapering is imminent.  Amazing how tragically ephemeral most people's memories seem to be.

The fact of the matter is that 1) the economy is going into a tail-spin, especially the housing market (more on that soon with hard data as evidence) and 2) QE was never intended to prop up the economy.  Huh?  Ya, that's right.  QE is 75% about keeping the banking system from collapsing and 25% about keeping the Government funded at low interest rates.   If you look at the change in the Fed balance sheet since QE began, it has gone up so far by about $2.4 trillion.  Well guess what, and not coincidentally?  The Excess Reserve Account at the Fed of the Too Big To Fail banks has gone up in the same time period by $1.8 trillion.  Wow.  That math works - that's 75% of the QE.  The rest of the QE has funded the Government and the housing market.

My point here is that QE is not going to "taper," although the Fed will jawbone and tap dance as if they are going to taper until it becomes obvious to everyone that they're going to have to increase QE.  IF for some reason the Fed were to "taper," it will make my prediction of a huge stock market decline look even more prescient.

end




The private ADP misses expectations and the second worst print in the last 8 months

(courtesy zero hedge)


ADP Misses Expectations, Second Worst Print In Last 8 Months; Sequester Blamed


Tyler Durden's picture




By now it is futile to point out the woeful inability of the ADP report to predict the NFP's ARIMA X 12 output of pure noise so we'll leave it at that. Here is the headline: May private payrolls created 135K with consensus looking for 165K - only two analysts were looking for a weaker number. This was the second lowest print since September excluding only the April 113K print. What's worse is that the prior number which usually is revised to match the NFP was revised lower from 119K to 113K, confirming that the quality of NFP reporting in the past month is suspect to quite suspect. Don't expect the imminent arrival of a manufacturing renaissance: mfg jobs were down 6,000. But fear not - Mark Zandi blames it on the sequester: "Manufacturers are reducing payrolls. The softer job market this spring is largely due to significant fiscal drag from tax increases and government spending cuts." At least it wasn't the May weather or tornadoes...
From the report:
“U.S. private sector employment increased by 135,000 jobs during the month of May 2013, a slight increase over the previous month of April. The majority of new jobs in May came from the service-providing sector, which added a total of 138,000 jobs, while the goods-producing sector recorded a loss of 3,000 jobs. Notably, a gain of 5,000 jobs in the construction industry during May was offset by a decline of 6,000 lost jobs in the manufacturing industry.”
– Carlos A. Rodriguez, president and chief executive officer of ADP
Mark Zandi, chief economist of Moody’s Analytics, said, "The job market continues to expand, but growth has slowed since the beginning of the year. The slowdown is evident across all industries and all but the largest companies. Manufacturers are reducing payrolls. The softer job market this spring is largely due to significant fiscal drag from tax increases and government spending cuts."
Some more charts: this is the second worst month in the past eight.
ADP now trending decidedly below the BLS:
Small companies have recovered their depression plunge. Medium-to-large, not so much:
The manufacturing renaissance is absent: second month in a row, and 6 of the past 11 with negative manufacturing jobs "growth":


Finally, the beloved by all social networks ADP inforgraphic:
Infographic: ADP National Employment Report Shows 135,000 Jobs Added in May

end


This last figure out today sealed the fate of the Dow as hourly compensation crashed and manufacturing compensation plummets by 7%.  The recovery looks very dim:



(courtesy zero hedge)




Hourly Compensation Crashes Most Ever, Labor Costs Drops By Most In 4 Years, Manufacturing Compensation Plummets By 7%

Tyler Durden's picture




So much for the thesis of declining labor slack and rising labor leverage. Moments ago the BLS reported its Q1 labor costs which poured cold water over all recent hypotheses that the US worker's plight is improving. It isn't: productivity increased by 0.5% in Q1 in ling with expectations of 0.6% (on what is not exactly clear - everyone on their iPhones?) but it was labor costs which plunged -4.3% on expectations of a +0.5% increase driven by a 3.8% collapse in hourly compensation that was the stunner. This was the biggest labor cost drop in four years and the biggest collapse in hourly compensation in well,ever and confirms our observations from the last NFP report that quantity gains in jobs continue to be offset by quality declines in actual worker pay. As a reminder we were scratching our heads following the soaring Q4 labor cost and declining productivity data which made no sense in the general context of deteriorating labor conditions. Following this print, it all falls back into place and confirms the Q4 data was nothing but an outlier. Also,this may be the end of the core thesis behind David Rosenberg's recently developed reflationary argument.
But nobody was as punished as manufacturers who as ADP reported moments ago are not only losing their jobs, but are getting much less:
Unit labor costs in manufacturing decreased 10.0 percent in the first
quarter of 2013, due to both the 3.5 percent increase in productivity 
and a 6.9 percent decrease in hourly compensation.
Oh well, time to export some more jobs to China or Greece, even as corporations focus on buybacks and dividends, instead of investing in growth CapEx or retaining workers. If one needed an indicator of what end demand truly looks like, this is it.

end



It looks like the fiasco with JPMorgan and the city of Birmingham may cost the bank another 1.5 billion dollars;

(courtesy William Selway/Bloomberg)


JPMorgan’s Alabama Debacle Set to Cost Bank $1.5 Billion
By William Selway - Jun 5, 2013 10:02 AM ET
Bloomberg



JPMorgan Chase & Co. may see as much as $1.6 billion go down an Alabama sewer.
The biggest U.S. bank by assets agreed to forgive $842 million of debt owed to it by Jefferson County, Alabama, where it took the lead in arranging risky securities deals that pushed the county into the largest U.S. municipal bankruptcy, in November 2011.
That agreement follows a $722 million settlement in 2009 with the U.S. Securities and Exchange Commission related to the Jefferson County financing. JPMorgan’s total costs amount to a quarter of the $6.2 billion trading loss in 2012 from corporate-credit bets by a trader known as the London Whale. The episode prompted an outcry in Washington and challenged Chief Executive Officer Jamie Dimon’s reputation as a savvy leader.

Elizabeth C. Seymour, a bank spokeswoman, had no comment on the accord announced yesterday. If accepted by the court, it would cap almost a decade-long disaster in Alabama’s largest county, where JPMorgan initially reaped substantial fees arranging interest-rate swaps that subsequently proved tainted by municipal corruption and devastating to taxpayers during the 2008 credit crisis.
"Everybody thought there was a free lunch and they could all take advantage of it at the same time," saidChristopher Taylor, the former executive director of the Municipal Securities Rulemaking Board. "It burned them all."

Doing Time


The deals, arranged while Dimon, 57, was running rival Bank One Corp., which New York-based JPMorgan acquired, also resulted in a prison sentence for former county Commissioner and Birmingham Mayor Larry Langford, who is serving time for bribery.



Jefferson County, which encompasses Birmingham, the state’s largest city by population, yesterday said the agreement was made with holders of about $2.4 billion of its $3.1 billion in sewer-system debt, which would be refinanced, and may help it emerge from bankruptcy by year-end. Along with JPMorgan, the accord includes three insurance companies that guaranteed the county’s bonds, and hedge funds that own the securities.
The agreement would increase residents’ sewer fees by 7.4 percent annually in the first four years
JPMorgan would forgive about 70 percent of the $1.2 billion in sewer debt it holds, according to a statement from the county.
Other creditors would take smaller hits. Hedge funds owed about $872 million will collect more than 80 cents on the dollar, according to the agreement.
Turning Toxic

Court approval for the agreement would put an end to Jefferson County’s more than five-year struggle with its debts, which began with the effects of the subprime mortgage crash that cascaded in unexpected ways through complex financing arranged for the county by Wall Street banks led by JPMorgan.
The arrangements left almost all of the county debt taken on to pay for a new sewer system with interest rates that reset periodically, similar to adjustable-rate mortgages. JPMorgan and other banks also sold the county related derivatives to protect against the risk posed by the securities, earning undisclosed fees of about $120 million, according to the county’s former financial adviser.

Lucrative Business



Business with the county was so lucrative that JPMorgan bankers agreed to pay local counterparts, including Bill Blount, a friend of Langford, for doing little or no work to secure its place in the deals, according to the SEC.
"I got to get the politics lined up. And, of course, we have to pick the partners who are going to get free money from us this time," JPMorgan banker Charles LeCroy said to an associate at the time, according to the SEC’s complaint against him.
Blount was later sentenced to 52 months in prison for paying bribes of cash, clothes and jewelry to Langford. LeCroy is planning to fight the SEC’s civil claims against him, according to his lawyer, Lisa Mathewson.
The transactions backfired on the county during the financial crisis of 2008. When credit dried up on Wall Street, investors dumped Jefferson County’s sewer bonds and their yields soared, pushing the county’s costs sharply higher. Derivatives that were supposed to protect against such an event added to the costs as central banks cut interest rates. Lenders that were paid fees to buy back some of the debt had the right to force early redemptions from the county, which it couldn’t afford.


Plan’s ’Backbone’



Officials spent years unsuccessfully seeking an agreement to resolve the impasse. In 2011, after a court ruling struck down a local tax that was a key revenue source, Jefferson County sought court protection under Chapter 9 of U.S. bankruptcy law.
Jimmie Stephens, chairman of the county commission’s finance committee, said the agreement announced yesterday will "form the backbone" of a plan to pare down debt.
"I look forward to restoring Jefferson County to its former position of leadership," he said.
The county was the municipality hardest hit by the unraveling of derivative deals arranged by Wall Street banks for government borrowers. In other cases, the operator of the San Francisco Bay Bridge and Pennsylvania school districts paid at least $4 billion in fees to back out of the contracts.


More Trades




Such trades weren’t limited to the U.S. Italian Judge Oscar Magi in Milan ruled that JPMorgan, Deutsche Bank AGUBS AG and Depfa Bank Plc tricked his city into agreeing to a financing deal that didn’t meet its objective of cutting borrowing costs, and misleading the city about derivative counterparties. The banks have said they will appeal the February decision.
In 2008, under Dimon, JPMorgan decided to get out of the business of selling derivatives to municipalities. In 2009, without admitting or denying wrongdoing, the bank agreed to pay $75 million and forgive $647 million in derivative fees owed by Jefferson County to settle with the SEC over the undisclosed payments made to local bankers.
In 2011, JPMorgan agreed to a $228 million settlement with federal and state regulators for allegedly rigging bids on investments that state and local governments buy with the proceeds of municipal bonds, which allowed the bank to pick up added profits. The employees involved had left JPMorgan by that time.


Tightening Grip



Bank of America Corp., UBS and Wells Fargo & Co. agreed to similar accords in connection with such investment contracts, which were typically handled by the same bankers who arranged municipal derivative trades.
Regulators tightened their grip on the derivative business under a law signed by President Barack Obama in 2010. That measure seeks to protect municipal-debt issuers from being misled into risky derivatives deals.
It was too late to help Jefferson County.

"Everyone came in and wanted to suck that place dry," said Taylor, the former regulator. "Everybody looks bad in this. And everybody should look bad."

end


Well that about does it for tonight
I will see you tomorrow night

Harvey.

1 comment:

Timo said...

Harvey,

I have one observation: the JPM gold activity has shifted in recent months from house account to customer account.

http://www.cmegroup.com/delivery_reports/MetalsIssuesAndStopsYTDReport.pdf


Any guesses, what could this mean?

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