Thursday, July 11, 2013

july 11/Gold rises to $1286.00 and Silver to $19.15

Good evening Ladies and Gentlemen:

Gold closed up $32.70 to $1280.10 (comex closing time ).  Silver is up by  79 cents to $19.94  (comex closing time)

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

gold: $1286.70
silver:  $20.15

It looks to me that the August delivery month for gold will be exciting to watch with the simple reason that only 30 tonnes remain at all dealers.  We still are patiently waiting for the gold issuance paper from JPMorgan to be settled upon with gold leaving JPM. 

At the Comex, the open interest in silver fell by 1149 contracts to 132,702.  

The open interest on the entire gold comex contracts fell by 3,659 contracts to 427,915 with  gold's rise in price by $1.50 on Wednesday. However all of the action in gold came at 5 pm est last night, when Bernanke spoke and confusion reigned supreme.  Most observers believed that the Fed will QE for quite some time.  As many of you know, I believe that they cannot ever taper as there is nobody on the planet that will buy the treasury's 1 trillion dollars of budgetary deficit in support of USA government spending. 

Tonight, the Comex registered or dealer inventory of gold remains below 1 million oz to 985,969 oz or 30.66 tonnes.  This is getting  dangerously low.  The total of all gold at the comex (dealer and customer) rises slightly and registers a reading of  7.142 million oz or 222.14 tonnes of gold.

JPMorgan's customer inventory remains constant at  136,380.609 oz or 4.24 tonnes.  It's dealer inventory also remains  constant at 401,877.493 oz but it still must settle upon contracts issued in the May and June delivery month which far exceeds its inventory.

The total of the 3 major gold bullion dealers( Scotia , HSBC and JPMorgan)  in its Comex gold dealer account registers only 26.03 tonnes of gold. The total of all of the dealers remains tonight at 30.66 tonnes!! Brinks continues to record a low of only 4.18 tonnes in its dealer account.

JPMorgan's customer inventory is now at a extremely low 136.38 million oz or 4.24 tonnes of gold.

The GLD  reported no loss in inventory  tonight  with an inventory reading of 939.07 tonnes. The SLV inventory of silver showed a gain of 2.894 million oz in silver inventory. The game will end when the GLD runs out of physical metal.

Today we have physical commentaries from  Steve Leeb and James Turk  talking with Eric King of Kingworldnews.  Bill Holter, discusses the potential for a huge runup in gold due to the massive buying power from (a) the USA commercials who are now net long and the massive short position by our long specs who must cover, with nobody supplying the paper.  This is a must read!!.  Chris Powell of GATA writes about the many years of gold leasing by central banks for the purpose of raising the value of paper money.

On the paper side of things, we have commentaries from Ambrose Evans Pritchard on the continuing deterioration of southern Europe. We have a Reuters story courtesy of Babington. The author states that  Greece  maybe has enough money until September before desperation sets in.  Sarah MacFarlane of Reuters touches on the continuing problems inside Egypt where today we find out that they have only 2 months worth of imported wheat left.  Egypt is the world's largest importer of wheat.

We will go over these and many other  stories today, 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  3659 contracts from 431,574  down to 427,915 with gold rising in price by $1.50 on Wednesday.   The large specs are slowly being let to the slaughterhouse.  We are now into the the non active July contract and here the OI rests at 114 up 2 contracts . We had 0 delivery notices filed on Wednesday so in essence we gained 2 contracts or an additional 200 oz gold will stand for the July delivery month.  The next active delivery month for gold is August and here the OI fell by 10,677 contracts from  197,180 down to 186,503 as we are now 3 weeks away from first day notice for the August contract month. The estimated volume today was good at 222,518 contracts. The confirmed volume yesterday was also  good at 216,976.  

The total silver Comex OI fell by 1149 contracts with silver rising in price on Wednesday by 3 cents.  The total of all comex silver OI stands at 132,702 contracts. We are now into the big delivery month of July  and here the OI fell by 182 contracts down to 1075. We had 181 notices filed yesterday so in essence we lost 1 contract or 5,000 oz will not stand. The next big delivery month is September and here the OI fell by 611 contracts down to 79,051.  The estimated volume today was good coming in at 54,349 contracts.  The confirmed volume yesterday was fair at 39,879.  

Comex gold/May contract month:
July 11/2013

 the July  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
 46,263.932 (, HSBC,)
No of oz served (contracts) today
 1 ( 100  oz)
No of oz to be served (notices)
113  (11,300 oz)
Total monthly oz gold served (contracts) so far this month
81  (8,100 oz)
Total accumulative withdrawal of gold from the Dealers inventory this month
329,994.08 oz
Total accumulative withdrawal of gold from the Customer inventory this month

285,319.02 oz

We  had tiny activity at the gold vaults
The dealer had  0 deposits  and no dealer withdrawal

We  had 1 customer deposit today :

i) Into HSBC; 46,263.932 oz

total customer deposits:  46,263.932   oz

 we had 0   customer withdrawals

 Total Customer withdrawals:  nil  oz

Today we had 0 adjustments

Thus tonight we have the following JPMorgan gold inventory which remains constant:  (same as Wednesday's level)

JPM dealer inventory:  401,877.493 oz   12.50 tonnes
JPM customer inventory:  136,380.609 oz  or 4.24 tonnes

As we reported to you 5 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 (May 28), 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 tonight 28,389.579 oz was settled upon, leaving 71,611.00 oz  still left to arrive in the settling process.

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

and on, June 28.2013 we had 4,817.251 oz leave jPMorgan customer account

and on Friday  July 5.2013: we had 6,831.54 oz leave jPMorgan customer account

Summary for the last week of issuance from JPMorgan:

On Friday, June 28th we had 23 notices filed and all of these were issued by JPMorgan on the customer side.

Tuesday we had 24 contracts were issued and all from the dealer or house account.
Thursday, 20 contracts were issued and all from JPMorgan's dealer or house account.
Friday,we had 10 contracts were issued and all from JPMorgan's dealer or house account.

In summary on the customer side of things for JPMorgan:

On Friday, the 28th of June, I reported that we had from the beginning of June,  2543 notices or 254,300 oz issued.  If we add the 71,611.00 oz owing from  May issuance, we get  325,911 oz.  If we subtract the actual withdrawal of gold from JPMorgan of 229,493.75 (which includes last Friday's  withdrawal customer side 6,831.54),  this still leaves 96,417.25 oz that needs to be settled upon from the vaults of JPMorgan customer side.

The total dealer comex gold remains constant  tonight below 1 million oz at  985,969 oz or 30.66 tonnes of gold.The total of all comex gold, dealer and customer rises slightly again  tonight to  7.142 million oz or  222.14 tonnes.

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

 On  June 11.2013 we reported that 4935 contracts have been issued by JPMorgan's house account(dealer account) since first day notice and not yet subtracted out of inventory.

Tuesday, July 2:  24 contracts (notices) were issued by JPMorgan's dealer or house account.
Wednesday:  July 3:  20 contracts were issued by JPMorgan's dealer or house account.
Friday:  July 5:  10 contracts were issued byJPMorgan's dealer our house account.

You will also recall 4 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, 68,444.61 oz was either withdrawn or adjusted out(on the dealer side), leaving the dealer side  at 401,877.493  oz where it sits tonight.

On the dealer side here are the last 24 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
Friday: 0
Tuesday: 0
Wednesday: 0
Friday: 0
Monday:  0
Tuesday: 24
Wednesday: 20
Thursday/Friday:  10
Monday:  0
Tuesday: 0
Thursday: 0

Thus,  5000 notices have been issued by JPMorgan (dealer side) for the month  of June and the beginning of July  for 500,000 oz  and these ounces have yet to settle from JPMorgan's dealer side.

JPMorgan's dealer vault registers tonight 401,877.493 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 98,122.51 oz   (401,877.493 inventory - 500,000 oz issued =  -98,122.51 oz)

In other words, the entire 401,877.493 oz 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 98,122.51 of additional deficient 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). Their dealer gold remains at  26.03 tonnes tonight

i) Scotia:  199,044,026 oz or 6.19 tonnes   (prev 7.204 tonnes)
ii) HSBC:  236,168.152 oz or  7.34 tonnes
iii) JPMorgan: 401,877.493 oz or 12.50 tonnes

total: 26.03 tonnes

Brinks dealer account which did have  the lions share of the dealer gold remains tonight at  134,524.79 oz or 4.18 tonnes (last Friday they had over 13 tonnes and today only 4.18 tonnes!!)

Today we had 1 notice served upon our longs for 100  oz of gold(and none were issued by JPMorgan from neither their dealer nor customer account). In order to calculate what I believe will stand for delivery in July, I take the total number of notices  (81) x 100 oz per contract to give us 8100 oz served + I take the OI remaining for July (114) and subtract out today's notices (1) which leaves us with 113  notices still left to be served upon our longs.

Thus  we have the following gold ounces standing for metal:

80 contracts served x 100 oz =  8,000 oz, +  113 contracts left to be served upon x 100 oz  =  11,300 oz to give us  19,400 oz  or .6030 tonnes of gold.  We  gained 200 additional gold ounces standing for July. 

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

i) the total dealer inventory of gold remains at  a very dangerously low  level of only 30.66 tonnes and none of the 9.5 tonnes delivery notices from May and the major part of the 30.70 tonnes from June  issued by JPM  on its dealer side  has  yet to leave.

ii)  a) JPMorgan's customer inventory remains at an extremely low 136,380.609 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 401,877.493 oz.  However all of this gold has been spoken for plus an additional 98,122.51 oz of deficient gold.

iii) the 3 major bullion banks have collectively only 26.03 tonnes of gold left in their dealer account.


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


July 11/2013:  July silver contract month:

July contract month

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 681,125.509 oz (Scotia,) 
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 1,526,159.839 (CNT,HSBC)
No of oz served (contracts)116  (580,000 oz)
No of oz to be served (notices)959 (4,795,000 oz)
Total monthly oz silver served (contracts) 2336  (11,680,000)
Total accumulative withdrawal of silver from the Dealers inventory this month143,024.57
Total accumulative withdrawal of silver from the Customer inventory this month1,621,374.0 oz

Today, we  had good activity  inside the silver vaults.
 we had 0 dealer deposits and 0  dealer withdrawals.

We had 2 customer deposits:

i) Into CNT:  1,100,673.94 oz
ii) Into HSBC:  425,485.899 oz

total customer deposit:  1,526,159.839 oz

We had 1 customer withdrawals:

i) Out of scotia;  681,125.509  oz

total customer withdrawal  :  681,125.509 oz

we had 3  adjustments  today

i) Out of Brinks:  25,687.23 oz was adjusted out of the dealer and this landed into the customer account of Brinks

ii) Out of JPM:  5,058.60 oz was adjusted out of the dealer and back into the customer account of JPM.

iii) Out of CNT:  364,449.10  oz was adjusted out of the customer and into the dealer account of CNT

Thus we have the following:
Registered silver  at :  46.651 million oz
total of all silver:  165.956 million oz.

The CME reported that we had 116 notices filed for 580,000 oz today. 
To calculate what will stand for this active delivery month of July, I take the number of contracts served thus far this month at 2336  x 5,000 oz per contract = 11,680,000 oz  + 959 notices left to be served upon our longs x 5000 oz per contract = 4,795,000 oz to give us a total of 16,475,000 oz

we lost 1 contracts or 5,000 oz of silver oz will not stand this month.
Thus  here are the standings:


2336 contracts served x 5000 oz per contract (served) or 11,680,000  oz +  959 notices x 5,000 oz or  4,795,000 oz  =  16,475,000 oz

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

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

July 11.2013:  we lost no gold today



Value US$38.789  billion

July 10.2013:  we lost .68 tonnes of gold today



Value US$37.913  billion

July 9.2013:  we lost another huge 7.21 tonnes of gold



Value US$37.911  billion

July 8.2013:  (we lost an astronomical 15.03 tonnes of gold)



Value US$37.586  billion

July 5.2013:  we lost 2.7 tonnes



Value US$37.488   billion

July 3.2013: zero lost



Value US$38.7506  billion

July 2.2013: another bleed of 3.61 tonnes



Value US$38.8289  billion

July 1.2013:



Value US$38.670  billion

June 28.2013:  



Value US$37.137,611  billion

June 27.2013:



Value US$38.408  billion

June 26.2013: 



Value US$38.517  billion

June 25.2013:



Value US$39.850  billion

June 24.2013:



Value US$40.764  billion

June 21/2013:



Value US$41.210  billion

June 20.2013



Value US$41.348  billion

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

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 the total comex gold fell   7.142 million oz  (222.14 tonnes)

GLD gold:  939.07 tonnes.


And now for silver:

July 11;2013: we had a big gain late last night of: 2.894 million oz

Inception Date4/21/2006
Ounces of Silver in Trust325,525,703.100
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

July 10:2013: no far we have not lost any silver oz

Inception Date4/21/2006
Ounces of Silver in Trust322,631,213.100
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

July 9.2013:  we lost 530,000 oz

Inception Date4/21/2006
Ounces of Silver in Trust322,631,213.100
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

July 8.2013:

Inception Date4/21/2006
Ounces of Silver in Trust323,161,899.300
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

July 5.2013:  we gained 2.894 million oz

Inception Date4/21/2006
Ounces of Silver in Trust323,161,899.300
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

July 3.2013:

Inception Date4/21/2006
Ounces of Silver in Trust320,267,163.300
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

July 2/2013:  no change

Inception Date4/21/2006
Ounces of Silver in Trust318,481,348.700
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

July 1.2013:  no change

Inception Date4/21/2006
Ounces of Silver in Trust318,481,348.700
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 28.2013:

And now for the ETF  silver SLV:  

Inception Date4/21/2006
Ounces of Silver in Trust318,481,348.700
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 27.2013:

Inception Date4/21/2006
Ounces of Silver in Trust317,998,855.700
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 26.2013:

Inception Date4/21/2006
Ounces of Silver in Trust317,709,349.100
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

June 25.2013:

Sponsor's Fee0.50%
Inception Date4/21/2006
Ounces of Silver in Trust317,709,349.100

June 24.2013:

Sponsor's Fee0.50%
Inception Date4/21/2006
Ounces of Silver in Trust317,709,349.10

June 21.2013:

Inception Date4/21/2006
Ounces of Silver in Trust323,885,835.500
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 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.

Tonight we  gained 2.894 million oz silver into the vaults of SLV.  It arrived late last night.


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)

I will update Central fund of Canada and Sprott's premiums to NAV later tonight.

1. Central Fund of Canada: traded  at negative 3.2% percent to NAV in usa funds and a negative 3.3%  to NAV for Cdn funds.(July 11.2013)

*2. Sprott silver fund (PSLV): Premium to NAV rose to positive 1.20% NAV July 11/2013
*3. Sprott gold fund (PHYS): premium to NAV  rose to negative-0.31% to NAV July 11/ 2013



And now for the major physical stories we faced today:

gold trading from early this morning:

It seems that the media has picked up on the story of the huge removal of Brink's comex gold.:

(courtesy goldcore)

Gold Surges $50 Or 3.3% - Brinks Sees 55% Decline In Gold Inventories In Week

Published in Market Update  Precious Metals  on 11 July 2013
By Mark O’Byrne

Today’s AM fix was USD 1,280.75, EUR 981.87 and GBP 848.91 per ounce.
Yesterday’s AM  fix was USD 1,252.25, EUR 977.02 and GBP 840.78 per ounce.
Gold climbed $2.70 or 0.22% yesterday and closed at $1,251.10/oz. Silver fell $0.07 or 0.36% and closed at $19.15 prior to some sparks that were seen in after hours and Asian trading. 
Gold surged 3.3% or nearly $50 from $1,248/oz to $1,298/oz after Federal Reserve Chairman Ben Bernanke admitted that the U.S. economy continues to need a highly accommodative monetary policy and will do for the “foreseeable future”.
Gold climbed for a fourth day to the highest level in more than two weeks due to safe haven buying after Bernanke also admitted, what many more realistic analysts have been saying for some time, that the 7.6% unemployment rate probably "overstates the health of the labor market."
Gold’s record 23% fall last quarter was attributed to Bernanke’s “jawboning” when he again claimed that the Fed would reduce its $85 billion of monthly asset purchases this year. Minutes of that meeting released yesterday showed many officials wanted to see more signs that employment is improving before backing a trim to bond buying.
This is  gold bullish and suggests that gold’s recent fall is overdone.
The Fed, in conjunction with the BOJ, ECB and BoE is set to  continue pursuing extremely accommodative monetary policies which should see fiat currencies continue to fall in value versus gold. 
Record high gold borrowing costs due to significant physical demand, especially in China and much of Asia, continues.
Although Bernanke’s comments are the ostensible reason for gold’s price rise, a more fundamental reason, and less reported upon, is likely to be the continuing decline of COMEX gold inventories. 
Bullion buyers internationally and particularly in Asia are taking delivery of physical gold which is draining inventories on the COMEX. COMEX inventories fell another 1.5% yesterday (see table).
Brinks has seen a massive decline in its gold inventories in recent days. The huge decline in Brinks inventories is being seen soon after a similar decline in JP Morgan’s gold inventories.
Brinks inventories have fallen from 570,000 ounces on July 3rd to 257,000 ounces today which is a drop of 313,000 ounces - a drop of 55% in just one week.
The entire inventories on the COMEX, of bullion banks and depositories is now just 7.096 million ounces and is worth just $9.1 billion at today’s prices. This is a very small amount vis á vis the amount of money in stocks, bonds, cash and other assets today throughout the world and in Asia where much of the gold seems to be flowing East.
This has all the hallmarks of a ‘run’ on the COMEX and needs to be monitored. A default on the COMEX would see the price of physical gold rise substantially and potentially in a very short period of time. 
Has Gold's 'Bubble' Burst Or Is This A Golden Opportunity? Our recent well-attended webinar has been uploaded to YouTube.
Topics covered in the webinar included:
* Outlook For Gold And Silver This Year and Coming Years
* Learning From 1970s Bull Market & 1975/76 Price Collapse
* Safest Way To Own Gold And Silver
* Paper and Digital Gold
* Knowing When To Reduce Allocations Or Sell
* Safest Way To Own Gold And Silver
* Extremely Negative Sentiment Towards Gold
For breaking news and commentary on financial markets and gold, follow us on Twitter.


(courtesy Chris Powell)

Gold leasing is a fraud because central banks haven't wanted their metal back

3:21p ET Thursday, July 11, 2013
Dear Friend of GATA and Gold:
Gold leasing is a fraud and conspiracy, Jeff Nielson of Bullion Bulls Canada writes today, since central banks that lend gold know that it eventually will be sold into the market to diminish the value of the asset, which isn't really their own but something they hold in trust for their nations:
But the bigger fraud here is on the gold and currency markets. For while gold is an asset of central banks, its value is the reciprocal of assets far more important to them -- their currencies and government bonds.
When they have lent gold in recent decades, Western central banks have not really wanted it back; rather they have wanted the gold price suppressed or controlled and the value of their currencies and bonds thereby supported.
That is probably why, throughout the last decade, the gold price rose steadily even as practically every week brought announcements of gold sales by Western central banks or the International Monetary Fund. No new gold was hitting the market in these "sales." Rather, most likely the "sales" were just cash settlement cancellation of leases for gold that had hit the market many years before and could not be recalled without spiking the market upward too fast for the comfort of the market riggers.
That is also probably why Barrick Gold claimed to be the agent of central banks when it borrowed and sold their gold to finance its operations --
-- and why Barrick often boasted that its central bank gold loans not only had 15-year terms but were renewed every year so they became "evergreen," or perpetual, as was explained in this Barrick financial report from 2006:
That is, Western central banks have mobilized their gold surreptitiously as part of a comprehensive scheme of rigging the currency markets, as they acknowledged in a secret report prepared by the staff of the International Monetary Fund in 1999:
Your secretary/treasurer has long suspected that the current era of gold price suppression would end the way the last era ended, the era of the London Gold Pool --
-- when the gold reserves of the participating central banks were depleted to whatever was considered the critical point. Gold sales and leasing would stop, gold would be more or less officially revalued much higher, and the central banks that had lost their metal through sales and leasing would buy it back at the higher price and begin the next era of price suppression.
When will this happen? Of course the Western central banks won't be letting GATA know in advance, but the recent startling repositioning of their agents in the gold market --
-- indicates that those agents have been told and that the new era is drawing near.
Happy as the change of eras may be for gold investors, central banking won't be any less totalitarian. It will continue to strive to control surreptitiously the value of all capital, labor, goods, and services in the world -- strive to control the whole world -- and thus it will still have to be fought. But at least it will look better with a bloody nose.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Eric King talks with Stephen Leeb

(courtesy Kingworldnews/Stephen Leeb)

Fed talks dollar down but West still fights gold, Leeb says

2p ET Thursday, July 11, 2013
Dear Friend of GATA and Gold:
Fund manager Stephen Leeb today tells King World News says the Federal Reserve has begun trying to talk the U.S. dollar down, that the West probably will keep trying to hold gold down for the near future, and that China's accumulation of the metal will make that increasingly difficult. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Historic explosion in gold likely imminent, Turk tells King World News

10:36p ET Wednesday, July 10, 2013
Dear Friend of GATA and Gold:
GoldMoney founder and GATA consultant James Turk tells King World News tonight that Federal Reserve Chairman Ben Bernanke acknowledged in his comments today that the U.S. economy is not strengthening much, that unemployment is worse than officially reported, and that "quantitative easing" won't be ending soon. Turk adds that the recent smashing of the gold price has pushed the metal into strong hands that aren't likely to be selling easily even as a short squeeze develops. The recent low in gold, Turk says, is likely a historic turning point and well may be comparable to the low in 2008, which preceded an explosion in prices. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Here we go.

Chairman Bernocchio spoke yesterday and said what we knew all along...MORE QE, MORE printing and "we were just kidding about tapering" because the economy just isn't that strong.  Really?  What was your first clue?  The Fed has become a laughing stock of the world as different governors are trotted out who contradict each other on a daily basis.  Tapering, no tapering, beginning this year, not beginning until at least 2015 blah blah blah.  They have already lost control of the markets that they so dearly want locked down.  Volatility has exploded and will go terminal.
  It looks like the "plan" to extricate the U.S. banks from their poisonous short positions in Gold futures was a winner.  U.S. banks have gone from 106,000 net short contracts to 45,000 net long.  This "long" position was created by duping the "specs" into going short a record
Source: CFTC CEI Gold Non-Commercial Short Contracts/Combined, CMXOGNCS
130,000 gross shorts.  Look at this chart for a moment, the last 3-4 months is when the spike in "paper shorts" took place.  They were selling Gold that they do not (nor ever will) have.  Now as my title implies "here we go"...because these positions represent locked in and guaranteed buying to cover.  THIS is not "potential" buying power, no, this IS buying power.  Yes I know, it is only in the "paper markets" but now the physical market will no longer have the headwind of manipulation to fight, the "manipulation" will be the first tailwind the Gold market has had in over 15 years!
 Of course this "tailwind" from the paper short covering positions will coincide with the physical demand that it created in the first place.  The backwardation in London is now in day 4, the previous two occasions, 1999 (Washington Agreement) and 2008 (Lehman systemic flush) only lasted 2 days each time.  I mention this because back in 1999 and 2008 there WAS "official" metal that was still available to "release" into the marketplace, I suspect that this is no longer true.  I believe this is no longer true because the banks have switched from short to long because they "somehow" know or were "told" that the bottom of the barrel was within sight.
  I do also want to mention that with the physical shortages that now exist, owners of far out futures will be induced into selling those futures and moving up to the current spot month or even the cash market itself.  Fear of not receiving delivery will inspire this action which will be self feeding and fulfilling.  Nothing creates a shortage better than a shortage.  I know, it sounds funny but when you are told that you may not or can not have want it all the more...AND you want it now!  I suspect the that the current backwardation will not be a short term event and the negative basis has much further to go before this is all over. 
  It took 3 months for Gold and Silver to be "collapsed" so that the banks could reposition themselves, as I mentioned this happened with, and created more, HUGE global physical demand.  Now, we will see not only physical demand but also paper demand which will compete with each other.  I will be shocked if it takes more than 3 months to recoup all...and then some...  It looks to me like the "tapering talk" was merely a Trojan horse used to help the banks extricate themselves from their shorts, it worked!
  No matter what Bernocchio Ben has to say in his waning months as Fed Chairman, please understand that interest rates have already risen nearly 80% from their lows and oil is now $15 per barrel higher than they were 6 months ago.  These will act as headwinds or taxes to the real economy, the Fed MUST continue to print, they MUST continue to purchase Treasury bonds and they MUST continue at full speed debauching the currency.  ALL of this is good for Gold and Silver, only now the banks will make money when Gold and Silver increase in price.  Nothing has changed.  The fundamentals that were "in place" 3 months ago are still there, the only thing that has changed is that the banks are now, finally after more than 15 years...LONG and will benefit from higher prices! 
  It had to happen sooner or later, the "bottom of the physical barrel" had to be reached.  It looks like this has finally happened.  But, lo and behold the banks will benefit...what are the odds of this happening?  The "markup" phase that I have spoken of so often is now fueled and ready on the launch pad, Ben just pushed the button.  The price movement will shock many (most) and the amount of time for this to happen will be allow as few as possible either in or back in.  Get ready because "here we go"!  Regards,  Bill H.


Dave Kranzler of the GoldenTruth comments on the 4th day in a row for negative GOFO:

(courtesy Dave Kranzler/theGoldenTruth)

4th day in a row of negative GOF

Although the negative rates are only 1-3mos. Yesterday was out 6 mos. But, I believe 4 days in a row is unprecedented. Yesterday's 3 days in a row may be unprecedented. Not including yesterday, in which there was a small deposit of gold into GLD, over 28 tonnes had been removed from GLD in the past 7 days. That's what's being used to alleviate the GOFO negative rates. In the past 3 instances in the last 14 years, it only took 1-2 days to alleviate the stress.

It tells us just how short the market it is. It also confirms my thinking over 8 years ago that GLD would eventually be used as a source of gold for the bullion banks to cover extreme short positions. Little did I ever suspect that the hedge funds would squeezed like that. This chart shows you how desperate the situation is:

Source: CFTC CEI Gold Non-Commercial Short Contracts/Combined, CMXOGNCS

Got gold? This is how tight the market is:

Last week I got an email from a guy in Chicago who runs a bullion fund. He had ordered 40 maple leafs from Tulving a week earlier. After a week he called to find out where they were and they told him two more weeks.

My business partner just got a call from a friend who bought maple leafs from Tulving. He was told they would be delivered by last week. He called today and was told they would come next week.

There is a shortage of bullion coming from the mints. This is part of the reason the GOFO has been negative an unprecedented four days in a row. As events continue to unfold, bullion is going to become more scarce.

In fact, think about it. THE biggest untold story of 2013 so far is the fact that - between all gold ETFs and the Comex - close to a 1000 tonnes of gold bars have disappeared from sight. Just think about that for a moment. Where did it go? Who wanted it and why?

I have a feeling that when the catalyst for this "disintermediation" of gold from the system becomes apparent, it will not be pleasant.

And now for our major paper stories today which will influence the price of gold and silver:

Major points:

1.Bernanke's speech set the tone for Asia and Europe including bourses and currencies.
2.Euro/USA ramps up 300 basis points, identical ramp up with initial QE I March 2009
3. Bernanke's comments caused broad based rally in all stock exchanges 
4. Portuguese President Silva suggested his economy is awful and they may ask for another bailout.
5. Portuguese bourses fell on that news. 
6. Crude Oil still rests at $106.00 per barrel

Early morning snapshot of events:

Markets snapshot:
  • EUR/USD 1-Mo. Risk Reversals Keep Going Up as Spot Trims Gains
  • Spanish 10Y yield up 7bps to 4.87%
  • Italian 10Y yield up 4bps to 4.49%
  • U.K. 10Y yield down 5bps to 2.37%
  • German 10Y yield down 5bps to 1.61%
  • Bund future up 0.3% to 143.01
  • BTP future down 0.26% to 110.17
  • EUR/USD up 0.6% to $1.3063
  • Dollar Index down 1.15% to 83.08
  • Sterling spot up 0.55% to 1.5097
  • 1Y euro cross currency basis swap up 1bp to -17bps
  • Stoxx 600 up 0.62% to 296.66

7.  Details from Bloomberg.Jim Reid of Deutsche bank

(courtesy zero hedge/Deutsche bankJim Reid/Bloomberg/Soc Generale)

Bernanke Sends Stocks To New All-Time Highs

Tyler Durden's picture

The only story this morning remains Bernanke's after hours speech, which solidly trumped the FOMC minutes in market impact, and which, in addition to ramping US equity futures to just about new all time highs, sent the EURUSD soaring by almost the same amount (+300 pips) as the actual QE1 announcement on March 18, 2009. Such is the power of verbal currency warfare, when Bernanke hasn't acctually done anything and merely hinted the Fed is as confused as ever about what to do. Of course, as Commerzbank notes this morning, the U.S. economy would have to lose a lot of momentum for the Fed to cancel tapering, and the central bank would only expand the purchase program if the economy collapses, but none of that matters to the "wealth effect" for the 1% where economic destruction simply means more wealth.
Obviously Bernanke’s comments underpinned a broad-based rally in risk overnight. Generally speaking, equities are higher, the dollar is lower against major currencies while EM assets are firmer across the board. Starting with equities, strong gains have been posted on the Hang Seng, Shanghai Composite and KOSPI. S&P500 futures are currently trading at +1% or 1664. In currencies, the USD index is down well over 1%. EURUSD is up 1% this morning after spiking 1.5% late yesterday as Bernanke spoke. The Australian dollar is also enjoying strong gains despite a mixed Australian employment report that saw the jobless rate edge up to 5.7% (vs 5.6% previous). 10yr US treasury yields are down 6bp to 2.57% in the overnight session. Yields are poised to close lower for the fourth straight day which has not happened since February this year. EM equities are also solidly firmer this morning.
The Bank of Japan last night raised its assessment of the economy, with Kuroda saying the economy is starting to recovery moderately, even as the central bank lowered its CPI forecast for both 2013 and 2014. Sadly with the Nikkei 225 linked to the USDJPY which tumbled on Bernanke's USD-crushing comments, it traded red for most of the session and only managed to eek out a feeble +0.4% in the last hour of trading.
In China, the SHCOMP ramped another 3.5% on both the Bernanke speech as well as comments from Premier Li and reports that regulatory relaxation in the property sector may be forthcoming. Xinhua reported that China may soften its stance on monetary policy after Li said the nation's economic growth and employment must stay above a certain floor. Elsewhere, the China Securities Journal reported that recent statements signal financing policies for property companies may be relaxed in the future, lifting the real estate sector.
In fact, the global Euphoria is so great that only Portugal appears to be in the red following overnight reports citing president Silva who said that the risk of the country requesting a new bailout package is considerable, especially since he refused to say when or if a cabinet reshuffle would take place implying the country is caught in a political vacuum. But Portugal is very much irrelevant in a world driven forward by central bank jawboning.
Crude continues to trade above $106 with Brent just a hair over $2 above it, and gas prices starting to move solidly higher and on pace to hit all time record highs for this time in the year.
The key overnight news highlights in bulletin format via Bloomberg:
  • Treasuries gain as Bernanke said “highly accomodative policy” would continue “for the foreseeable future”; USD falls against all major counterparts, touching 3-week low vs EUR, declines below 100 vs JPY.
  • The Fed chairman spoke just three hours after minutes of June FOMC showed about half of 19 participants wanted to halt QE by year end
  • BOJ maintained course on its unprecedented monetary stimulus and upgraded its view of the economy, referring to a recovery for the first time since before a record 2011 earthquake
  • China may soften its stance on monetary policy after Premier Li Keqiang said the nation’s economic growth and employment must stay above a certain floor, Nomura said
  • Bundesbank’s Jens Weidmann said the ECB’s forward guidance to keep rates at current levels or lower for an extended
    period of time “shouldn’t exclude that the benchmark rates will be raised in the future if inflation pressure becomes apparent”
  • U.S. and European financial regulators are poised to announce an agreement on how they’ll jointly oversee the $633t global swaps market, according to three people familiar with the deal
  • Week’s Treasury auctions conclude with $13b 30Y bonds, yield 3.61% in WI trading; stopout yield at that level would be highest since August 2011
  • Sovereign yields mostly lower; exceptions are Portugal, Spain and Italy. Asian stocks higher, Shanghai +3.2%, Nikkei +0.4%. European stocks, U.S. index futures gain. WTI crude falls, gold and copper gain
Markets snapshot:
  • EUR/USD 1-Mo. Risk Reversals Keep Going Up as Spot Trims Gains
  • Spanish 10Y yield up 7bps to 4.87%
  • Italian 10Y yield up 4bps to 4.49%
  • U.K. 10Y yield down 5bps to 2.37%
  • German 10Y yield down 5bps to 1.61%
  • Bund future up 0.3% to 143.01
  • BTP future down 0.26% to 110.17
  • EUR/USD up 0.6% to $1.3063
  • Dollar Index down 1.15% to 83.08
  • Sterling spot up 0.55% to 1.5097
  • 1Y euro cross currency basis swap up 1bp to -17bps
  • Stoxx 600 up 0.62% to 296.66
Socgen's summary of main macro catalysts
G10 currencies and rates traded in a range ahead of the FOMC minutes yesterday but it was fireworks after that and the Bernanke speech as the chart of the day illustrates. Fade Bernanke or not? The Fed is on track for tapering later this year, that is the view of ‘about half' of the FOMC members as we learned from the minutes published prior to Bernanke's dovish headline. The mortgage market (and hence the US housing market) in particular will breathe a sigh of relief after the minutes indicated that the Fed would not sell agency MBS as part of the normalization process. Clearly the USD had moved a long way helped along by dovish ECB, BoE et al but until we learn of slowing employment growth in the US, which so far has not been the case, the USD is an attractive buy at the overnight levels.
Bernanke's soothing words added even more suspense to the emerging markets and Turkey in particular where the central bank's failed intervention worth USD1.3bn to prevent a further weakening of the Lira caused interest rate volatility to jump. The 1y cross currency swap surged to over 8.00, extending the move from 6.54 on 1 July. USD/TRY has spiked over 10% since early May and with inflation accelerating to 8.3%, our colleagues from the EM team now see the risk of the central bank coming forward with emergency rate hikes to stop the currency from falling further as direct FX intervention fails to get any traction. The moves are reminiscent of 2011 when the overnight rate was hiked by 350bp between September and October. This story is certain to continue to make waves today.
In G10 we stay with a familiar menu of ECB speakers and US jobs data, though the Italian debt auction will garner close interest following the ratings downgrade yesterday by S&P to BBB. One-year bills were sold yesterday at 1.078% vs 0.962% at the June 12 auction. The downgrade was not without consequence for other periphery nations like Spain where the 10y bono/bund spread returned over 315bp. Comments by ECB member Coeure and Weidmann may bring some relief today with their comments adding to the list of council members who have reaffirmed and clarified the dovish stance since the introduction of forward guidance last week.
The relief bounce in CAD, AUD, NOK and SEK accelerated in the wake of Bernanke but there's no strong conviction to believe that the moves will stick for long. Currencies are off the overnight highs. With respect to the EUR, we continue to favour selling rallies vs the USD but are mindful of the support level at 1.2735 area which has proved very resilient since Nov-12, and after last night could take more time to break down. Seasonals favour a lower EUR/USD in July before enjoying pocket of relief in August.
DB with the remainder of the overnight recap:
The highly anticipated FOMC minutes left markets little changed as we all debated whether the latest set of minutes were dovish or hawkish. But there was much less ambiguity about the tone of Bernanke’s Q&A which came later last night in his speech in Boston. Indeed his comments, which were after US equity markets had closed, sent the dollar sharply lower against major crosses and the S&P futures soaring +1%. We’ll recap the FOMC minutes below but first we’ll review what was said by the Chairman himself.
The overall message from Bernanke was one of reassurance that “highly accommodative monetary policy” will continue “for the foreseeable future”. In terms of the Fed’s dual mandate Bernanke repeated the message that the Fed was not on target on its employment objectives, and low inflation signalled that more stimulus was needed. There was additional emphasis on low inflation when he said that the Fed remained committed to defending both an undershoot and overshoot in inflation. On the topic of fiscal policy, he added that it was too early to say whether the US had weathered the fiscal restraint in Washington - this perhaps ruling out the start of tapering in the summer. When asked if he would have done anything differently following the June 18th/19th FOMC, Bernanke indicated that he wouldn’t. He said the market volatility of the past six weeks could have been much worse if he had kept silent on their plans for tapering, misleading investors into thinking the asset purchases could go on forever. Another interesting part of the Q&A came when he discussed financial conditions. Here the Chairman said that financial conditions had tightened and it’s something that the Fed was watching. He added that “if financial conditions were to tighten to the extent that they jeopardise the achievement of inflation and employment objectives, then we would have to push back against that”.
Bernanke’s comments have underpinned a broad-based rally in risk overnight. Generally speaking, equities are higher, the dollar is lower against major currencies while EM assets are firmer across the board. Starting with equities, strong gains have been posted on the Hang Seng (+2.1%), Shanghai Composite (+2.3%) and KOSPI (+2.5%). As we go to print, S&P500 futures are trading at +1% or 1665. In currencies, the USD index is down 1.9% as we type. EURUSD is up 1.2% this morning after spiking 1.5% late yesterday as Bernanke spoke. The Australian dollar (+1.3%) is also enjoying strong gains despite a mixed Australian employment report that saw the jobless rate edge up to 5.7% (vs 5.6% previous). 10yr US treasury yields are down 6bp to 2.57% in the overnight session. Yields are poised to close lower for the fourth straight day which has not happened since February this year. EM equities are firmer this morning including in Indonesia (+2.1%). The
new Indonesia 10yr USD bond is trading more than a 1pt better in the secondary helped by a sold bid for EM credit this morning.
Coming back to the FOMC minutes, the minutes were initially thought of as being dovish judging by the market reaction, as the S&P500 rose to a session high of +0.35% shortly after its release. Probably driving that reaction was the line that “many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases”. Fed policymakers did not have the June employment data at the time of the meeting so it is possible that at least some of the FOMC members might be feeling more confident in the labor market outlook now than they were at the time of the meeting. A few minutes later, equities ticked lower and the S&P500 ended unchanged on the day as markets began focusing on the more hawkish elements of the minutes. Probably one of the more hawkish lines in the minutes was the  line that “About half of participants indicated that it likely would be appropriate to end asset purchases late this year”. It would be fair to say that an end to purchases this year is an earlier time-frame than virtually all expect. So something for everyone last night but it ended on a dovish note.
Elsewhere overnight, the BoJ left its policy settings unchanged. The Nikkei (-0.7%) is a clear underperformer in Asian markets today weighed by the USD’s slide against the yen (-0.9% this morning after -1.5% yesterday). Governor  Staying in Asia, there is increasing chatter about some form of stimulus plan or targeted policy support being formed by the Chinese government in order to prevent growth from slipping too much (Bloomberg). Chinese equities were boosted yesterday by reports that the PBoC could cut bank’s reserve requirement ratios in order to increase liquidity in the system. The recent events in the Chinese banking system took an interesting twist yesterday when the South China Morning Post reported that more than 1000 people had besieged the PBoC’s branch in Guangxi province after false reports had spread that the central bank would grant interest-free and subsidised loans to those who show a credit report.
The immediate focus of the day ahead will be the market reaction to Bernanke’s comments which came after Europe and US had shut. If the Asian market reaction is any guide, risk should do reasonably well today. There’s not much on the data calendar today outside of US jobless claims and US government’s monthly budget update. The next catalyst will probably be the start of the bank earnings season when JP Morgan and Wells Fargo report tomorrow.


Immediately after Bernanke spoke at 5 pm yesterday currencies went beserk.
Here is what happened immediately as he spoke:

(courtesy zero hedge)

Currencies Go Berserk As Bernanke Kills King Dollar

Tyler Durden's picture

We noted earlier the brief chaos that the minutes created but - following Bernanke's promise to print moar - the after-hours collapse in the USD against every major (and minor) currency pair in the world is tremendous. USDJPY is over 200 pips off the day's highs (JPY surging below 98.50), GBPUSD is getting smashed higher (+275 pips from pre-close), and EURUSD is screaming higher (up 220 pips from the US close breaking above 1.3200). Retaliation for Carney and Draghi's comments? Who knows... but the currency wars are back on(and the 'other' currency is surging to $1290 per ounce).

and a little context...

For those who want a comp of the magnitude for the EURUSD's nearly 300 pip move so far, the EURUSD moved just a little more, or 370 pips, on March 18, 2009, when the Fed announced QE1!

Charts: Bloomberg


A great article from Ambrose Evans Pritchard who goes over the financial affairs of Portugal, Greece, Spain and Italy and he concludes that the wheels are coming off the whole of Europe

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

The wheels are coming off the whole of southern Europe

Europe’s debt-crisis strategy is near collapse. The long-awaited recovery has failed to take wing. Debt ratios across southern Europe are rising at an accelerating pace. Political consent for extreme austerity is breaking down in almost every EMU crisis state. And now the US Federal Reserve has inflicted a full-blown credit shock for good measure.
A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin.
 By Ambrose Evans-Pritchard
8:50PM BST 10 Jul 2013
Telegraph UK
None of Euroland’s key actors seems willing to admit that the current strategy is untenable. They hope to paper over the cracks until the German elections in September, as if that is going to make any difference.
A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin. It alleges that Greece lacks the “willingness and capacity” to collect taxes. In fact, Athens is missing targets because the economy is still in freefall and that is because of austerity overkill. The Greek think-tank IOBE expects GDP to fall 5pc this year. It has told journalists privately that the final figure may be -7pc. The Greek stabilisation is a mirage.
Italy’s slow crisis is again flaring up. Its debt trajectory has punched through the danger line over the past two years. The country’s €2.1 trillion (£1.8 trillion) debt – 129pc of GDP – may already be beyond the point of no return for a country without its own currency.
Standard & Poor’s did not say this outright when it downgraded the country to near-junk BBB on Tuesday. But if you read between the lines, it is close to saying the game is up for Italy.
Its point is that if “nominal GDP” remains near zero, Rome will have to run a primary surplus of 5pc of GDP each year to stabilise the debt ratio. “Risks to achieving such an outturn appear to be increasing,” it said.
Indeed. The International Monetary Fund has just slashed its growth forecast for Italy this year to -1.8pc. The accumulated fall in Italian output since 2007 will reach 10pc. This is a depression. Yet how is the country supposed to get out of this trap with its currency overvalued by 20pc to 30pc within EMU?
Spain’s crisis has a new twist. The ruling Partido Popular is caught in a slush-fund scandal of such gravity that it cannot plausibly brazen out the allegations any longer, let alone rally the nation behind another year of scorched-earth cuts. El Mundo says a “pre-revolutionary” mood is taking hold.
A magistrate has obtained the original “smoking gun” alleging that Premier Mariano Rajoy accepted illegal payments as a minister. The Left is calling for his head but so are members of the Consejo General del Poder Judicial, the justice watchdog.
“Citizens cannot tolerate a situation where the prime minister has received undeclared payments,” said José Manuel Gómez, a Consejo member. Much of the ruling party appears tainted by a network of covert funding. If proved, said Mr Gomez, it poses a “very grave” threat to Spanish democracy.
Portugal is slipping away. Professor João Ferreira do Amaral’s book - Why We Should Leave The Euro – has been a bestseller for months. He accuses Brussels of serving as an enforcer for Germany and the creditor powers.
Like Greece before it, Portugal is chasing its tail in a downward spiral. Economic contraction of 3pc a year is eroding the tax base, causing Lisbon to miss deficit targets. A new working paper by the Bank of Portugal explains why it has gone wrong. The fiscal multiplier is “twice as large as normal”, or 2.0, in small open economies during crisis times.
What is new is that Vitor Gaspar, the high priest of Portugal’s shock therapy, has thrown in the towel. He blames the fainthearted for refusing to slash with greater vigour. Needless to say, he still refuses to accept that a strategy of wage cuts and deflation in a country with total debt of 370pc of GDP was always likely to fail.
If Portugal does pull off an “internal devaluation” within EMU it will shrink the economic base. Yet the debt burden remains. This is the dreaded denominator effect. Public debt has jumped from 93pc to 123pc since 2010 alone.
The Gaspar exit has closed a chapter. The junior coalition partners are demanding a change of course. I write before knowing whether President Anibal Cavaco Silva will call a snap election, opening the way for a Left-leaning anti-austerity government.
The Portuguese press is already reporting that the European Commission is working secretly on a second bail-out, an admission that the wheels are coming off the original €78bn EU-IMF troika rescue.
This is a political minefield. Any fresh rescue would require a vote in the German Bundestag, certain to demand ferocious conditions if this occurs before the elections.
Europe’s leaders have given a solemn pledge that they will never repeat the error made in Greece of forcing an EMU state into default, with haircuts for banks and pension funds. If Portugal needs debt relief, these leaders will face an ugly choice.
Do they violate this pledge, and shatter market confidence? Or do they admit for the first time that taxpayers will have to foot the bill for holding EMU together? All rescue packages have been loans so far. German, Dutch, Finnish and other creditor parliaments have never yet had to crystallize a single euro in losses.
All this is happening just as tapering talk by the Fed sends shockwaves through credit markets, pushing up borrowing costs by 70 basis points across Europe. Spanish 10-year yields are back to 4.8pc. These are higher than they look, since Spain is already in deflation once tax distortions are stripped out. Real interest rates are soaring.
By doing nothing to offset this, the ECB is allowing “passive tightening” to occur. Mario Draghi’s attempt to talk down yields with his new policy of forward guidance is spitting in the wind. The ECB needs to turn on the monetary spigot full blast – like the Bank of Japan – to head off a slide into deflation trap and enveloping disaster by next year. This is not going to happen.
Der Spiegel reports that the German-led bloc fought vehemently against a rate cut at the last ECB meeting, even though Germany itself has slowed to a crawl as China and the BRICS come off the rails.
Markets have reacted insouciantly so far to these gestating crises across Club Med. They remain entranced by the “Draghi Put”, the ECB’s slowly fraying pledge to backstop Italian and Spanish debt, forgetting that the ECB can only act under strict conditions, triggered first by a vote in the Bundestag.
These conditions can no longer be fulfilled. The politics have curdled everywhere.
Sooner or later, this immense bluff must surely be called.


Reuters covers events in Greece as the new aid will last until September and then the fun begins:

(courtesy Reuters)

New aid gives Greece summer respite before showdown

ATHENS | Thu Jul 11, 2013 1:40am EDT
(Reuters) - Greece has scraped through its biggest political and financial challenge this year by securing a tranche of aid from international lenders but the reprieve may only be temporary.
Crunch time for Athens will come at the end of September when EU and IMF inspectors are expected to return to discuss how to plug a budget gap for 2015 and 2016, raising the specter of more austerity cuts that may spark a new political crisis.
Even if it survives that, Greece will still need more debt relief from the euro zone before it can get back on its feet.
On Monday the lenders approved 6.8 billion euros from an emergency bailout put together in 2012 to keep the economy afloat and prevent a deepening of the regional debt crisis.
The money spares Greece from defaulting on its debt in August and tides it over until after elections in Germany in September.
But Greece will only get the full amount if the coalition government led by Prime Minister Antonis Samaras speeds up reforms to get them back on the agreed schedule.
"It's certainly going to get tougher both economically and politically," said Fredrik Erixon, director of the European Centre for International PoliticalEconomy in Brussels.
"They're kicking the issue a couple of months into the future ... we're going to continue with this charade between the troika and the government where everyone knows what's going on - that it's entirely unrealistic for Greece to live up to its expectations, both in the short and long term."
After nearly crashing out of the euro last year, Greece's debt crisis appeared to have largely abated this year and Samaras had even started to talk about a nascent "Greekovery".
But the seven-month lull came to an abrupt end last month when the government nearly collapsed over the closure of its state broadcaster and 10-year bond yields shot up to over 11 percent from the single digit levels seen earlier this year.
The latest bailout review then showed that after three years and 200 billion euros in aid Greece remains in trouble. Public sector reforms are elusive, tax collection is anemic, and debt is set to top 175 percent of gross domestic product this year.
Even if Greece can get through its next review, it faces a financing gap that is only likely to be resolved by additional debt relief, this time borne by euro zone states long fed up of Greece's seemingly unending funding needs and failure to reform.
Complicating matters further, the IMF increasingly faces a questions over whether it can keep supporting a program that may not bring Greece's debt down to a sustainable level.
With European paymaster Germany unwilling to risk a flare-up in the euro zone crisis before a national election, Greece faces its next major test in September when it must outline savings worth 4 billion euros to bridge a fiscal gap in 2015 and 2016.
Trying to plug it with more austerity could mean the end for Samaras's shaky two-party coalition, which already lost a junior ally in June when he tried to meet public sector layoff targets by shutting the state broadcaster ERT and firing 2,600 staff.
Samaras has already ruled out any further austerity measures for a nation faced with a 27 percent jobless rate and the Socialist PASOK party - his only remaining ally - has made it clear it will not support another round of painful cuts.
"The economy and society can't take any more measures," a PASOK official said was the main message to the EU and IMF.
Previously agreed austerity plans are already showing the strains in Greece - municipal workers have called a series of strikes while ERT workers have mounted a successful legal appeal and continue to broadcast from their occupied headquarters.
With just a five-seat majority in parliament, Samaras will find it difficult to find a way to plug the budget hole while keeping his coalition intact, analysts say.
"The flexibility of introducing additional austerity measures over and above those in the current program would be an extremely difficult task for the government given the state of the economy and unemployment," said Platon Monokroussos, an economist at Eurobank.
Instead of socially explosive layoffs or wage and pension cuts, the government could try and bridge the gap by extending special taxes and levies when they expire or through higher revenues from tax collection, though whether that will be enough to convince the troika remains to be seen.
If the government survives that review without a fresh crisis, the focus will shift to closing the year with a primary surplus before interest payments. This would qualify Greece to seek further debt relief, which the IMF has been pushing for but the euro zone wants to avoid discussing until spring 2014.
After a restructuring last year of privately-held debt, over 90 percent of Greece's outstanding public debt of about 300 billion euros is in the hands of official creditors, mainly euro zone states and the European Central Bank.
Many economists believe restructuring that debt is inevitable to make the numbers add up over the long term, not least because Greece's economy has consistently missed growth projections, and few believe there is any other way to bring debt to below the 120 percent of GDP target level by 2021.
"From the Greek side, tidying up fiscally is not enough, structural changes in the economy are needed," said Nikos Vettas, chief of Greek think tank IOBE.
"From the part of creditors, action is needed so that the debt problem does not become a brake on growth - in other words relief commensurate to the course of reforms."
In addition, funding from Greece's bailout ends in 2014, but Athens' assertion that it could start tapping the bond markets from next year to tackle its future funding needs have appeared premature since yields soared in June.
The IMF - which does not expect Greece to return to markets before the end of 2016 - estimates Greece could face a funding gap of between 5.5 and 9.5 billion euros over 2015-2016.
Greece has relatively modest levels of debt maturing after 2014 - less than 10 billion euros annually until over 60 billion euros of debt comes due in 2042 so a small amount of debt relief to extend maturities could make a big difference.
But given Greece's history of failed reform efforts and missed targets there are many doubts about the future.
"What has the country really achieved? Fiscal adjustment and a reduction in labor costs. What they haven't achieved is structural reform across the board," an EU official said.
Even with reforms and economic growth, Greece may have to stay under a bailout program for longer than currently foreseen, the official said.
(Additional reporting by John O'Donnell in Brussels and Lefteris Papadimas in Athens)


1.Greek unemployment rises from 26.8 to 26.9% overall.
2. Youth unemployment remains at 60%
3. The big news is the huge jump in non performing loans to 29% of all loans or 66 billion euros.
This will look great on the balance sheet of Greek banks and on the ECB who swapped this garbage for fresh euros.

Greek Unemployment, Non-Performing Loans Soar To Fresh Record Highs

Tyler Durden's picture

It wouldn't be the new normal if the collapse in Q2 US GDP to sub-1% wasn't met by a new record high in the Dow Jones. And it certainly wouldn't be the new abnormal if a day of resplendent green in European bourses didn't have some "matching" economic news out of that perpetual reminder that Keynesianism in the end always fails: Greece. Luckily, validating that all is unwell and stocks can proceed to soar to record highs unbothered, on one hand the Greek Statistics Office reported that Greek unemployment in April just rose to a new all time high of 26.9%, up from 26.8% in March, and up from 23.1% a year ago, while Kathimerini reports that Non-performing loans: those perpetual thorns of insolvency in bank balance sheets, just surged to €66 billion, amounting to a whopping 29% at the end of March from a "manageable" 24.2% at end-December. That's a ridiculous 20% increase in total NPLs in three months that was only exposed due to the Troika's stress testing!Just how atrocious is the reality on European bank books anyway?
First, from Elstat:
Unemployment rate in April 2013 was 26.9% compared to 23.1% in April 2012 and 26.8% in March 2013. The number of employed amounted to 3,636,042 persons. ?he number of unemployed amounted to 1,337,621 while the number of inactive to 3,337,051. The corresponding figures for April 2008 to 2013 are presented in Table 1.

The number of employed decreased by 159,955 persons compared with April 2012 (a 4.2% rate of decrease) and increased by 43,668 persons compared with March 2013 (a 1.2% rate of increase).

Unemployed increased by 194,746 persons (a 17.0% rate of increase) compared with April 2012 and by 24,025 persons compared with March 2013 (a 1.2% rate of increase).

Inactive persons –that is, persons that neither worked neither looked for a job– decreased by 23,770 persons (a 0.7% rate of decrease) compared with April 2012 and by 20,218 persons compared with March 2013 (a 0.6% rate of decrease).
A chart which may be confused with the S&P:
Youth unemployment was... well, here it is:
As for the insolvent Greek banking sector which keeps getting insolventer:
Nonperforming loans (NPLs) issued by Greek banks soared again in the first quarter of the year, as according to a draft report by the representatives of the country’s creditors, delayed loans amounted to 29 percent at the end of March from 24.2 percent at end-December. This has taken their sum to 66 billion euros, although some 40 percent of that (26 billion) is covered by the banks’ provisions.

The representatives of the European Commission, the European Central Bank and the International Monetary Fund – known as the troika – do note however that the rate of creation of new bad loans has slowed, adding that the quality of banks’ portfolios is continuing to deteriorate owing to the recession.

In that context, the banks’ stress tests, to be conducted in the fall, constitute the next major challenge that local lenders are set to face.

According to the troika’s draft report, the upcoming stress tests represent the next main action to determine the strength of domestic lenders vis-a-vis the crisis and their capital adequacy ahead of macroeconomic developments and forecasts in terms of the country economic state of affairs.
We are confident that Greek banks will pass all tests, stress or otherwise, with flying colors both now, and when NPLs finally hit 100%. After all, they can only go down from there.

Egypt has less than two months worth of imported wheat left:

(courtesy Reuters)

Exclusive: Egypt has less than two months imported wheat left - ex-minister

CAIRO | Thu Jul 11, 2013 7:11am EDT
(Reuters) - Egypt has less than two months' supply of imported wheat left in its stocks, ousted President Mohamed Mursi's minister of supplies said, revealing a shortage more acute than previously disclosed.
Speaking to Reuters near midnight in a tent at a vigil where thousands of Mursi supporters are protesting against the Islamist president's removal, former Minister of Supplies Bassem Ouda said the state had just 500,000 metric tons of imported wheat left. Egypt usually imports about 10 million metric tons a year.
Two and a half years of political turmoil have caused a deep economic crisis in Egypt, scaring away investors and tourists, draining foreign currency reserves and making it difficult to maintain imports of food and fuel.
Egypt is the world's largest importer of wheat, half of which it distributes to its 84 million people in the form of heavily subsidized saucer-sized flat loaves of bread, which sell for less than 1 U.S. cent.
Bread has long been a sensitive issue in Egypt. Former President Hosni Mubarak faced unrest in 2008 when the rising price of wheat caused shortages.
Although it also grows its own wheat, Egypt needs huge quantities of foreign wheat with higher gluten content to make flour suitable for bread.
The ousted government closely guarded figures about its foreign grain stores even as a shortage of cash halted its imports.
The United Nations Food and Agriculture Organization (FAO) said on Thursday that civil unrest and dwindling foreign exchange reserves meant Egypt could have serious food security concerns. Its import requirements next year would be equal to this year, it said.
Since Mursi was toppled last week, the United Arab Emirates, Saudi Arabia and Kuwait have promised $12 billion in cash, loans and fuel, which economists say buys Cairo several months of breathing room to fix its finances.
Egypt had halted its purchases of international wheat since February - its longest absence from the market in years - until the eve of Mursi's overthrow, when the state grain buying agency, the General Authority for Supply Commodities (GASC), bought wheat under Ouda's instruction.
"In spite of all the political differences between the parties, the international price of wheat was very nice, we bought about 180,000 metric tons of wheat," Ouda said.
Mamdouh Abdel Fattah, vice chairman of GASC, was not immediately available to comment.
Apart from imports, Ouda said the government had bought 3.7 million metric tons of home-grown wheat from a harvest that is now finishing. It still has 3 million metric tons of domestic wheat left in its stores, having begun milling the domestic crop in May.
Egypt normally mixes its domestic wheat with equal parts foreign wheat to produce flour. Ouda said Mursi's government had tried to increase the ratio of domestic wheat, which would make the country less dependent on imports.
"Our plan was to increase the contribution of the local wheat. We hoped to reach 60 percent," Ouda said.
Mursi's government said on June 26 it had 3.613 million metric tons of total wheat but did not reveal how much of that was imported.
Earlier this week a report issued by a U.S. Department of Agriculture (USDA) attaché in Egypt said domestic wheat stocks would last through October at current consumption levels. It gave no estimate for when foreign wheat would run out.
In the past, Egypt maintained stocks of both imported and local wheat that would cover at least six months' needs.
While the Gulf Arab states' cash injection is expected to help Egypt replenish its wheat stocks, it will need to start buying soon and in large quantities.
"I think the aim of the Arab countries is to make sure Egypt doesn't fail with respect to food security and financial commitments with the international banking system, so I would think they will push to get the aid through quickly," said Kisan Gunjal, economist and food emergency Officer at the FAO.
The USDA attaché's report said it takes Egypt 2-3 months from announcing a tender to getting the wheat distributed to flour mills.

(Additional reporting by Maha El Dahan in Abu Dhabi and James Mackenzie in Rome; Editing by Peter Graff)


The President of Portugal threw a bomb today and refuses the coalition of the two major parties.
Thus it looks like an early election:

(courtesy zero hedge)

Portuguese President Re-Ignites "Time-Bomb"; Threatens Early Elections

Tyler Durden's picture

Despite being told last week of the successful solution that the politicians of Portugal had procured - and thusly seeing Portuguese bonds and stocks surge in a renewed bluster of hope and faith that all is well again; it seems that, shocker, nothing is fixed. As Reuters reportsPortugal's political crisis re-deepened today after the President rejected a plan to heal a government rift and critics accused him of igniting a "time-bomb' by calling for early elections. Anibal Cavaco Silva rejected a cabinet re-shuffle, and proposed a coalition to guarantee support for the Troika-imposed austerity measures (which theoretically means Portugal will exit its bailout next year) to be followed by elections - implicitly showing little faith that any party can rule effectively through the middle of next year. "The announcement... comes as a surprise, ... adding anothe problem to the one that already existed," noted one analyst.

Portugal's political crisis deepened on Thursday after the president rejected a plan to heal a government rift and critics accused him of igniting a "time bomb" by calling for early elections next year.

President Anibal Cavaco Silva proposed a cross-party agreement between the ruling coalition and opposition Socialists to guarantee wide support for the austerity measures needed for Portugal to exit its bailout next year, followed by elections.

The decision was a warning shot to all the leading parties and it indicates that the president does not think any of them is capable of ruling effectively until the bailout is due to finish in June 2014.


"The president of the republic decided to overcome the political stalemate between the parties in the ruling coalition by adding another problem to the one that already existed," wrote daily Publico in an editorial. "He decided to take power."

Such accusations are not made lightly in the country that had western Europe's longest dictatorship under Antonio Salazar.

Under Portugal's constitution, the president has the power to dissolve parliament and call elections.

Cavaco Silva said the coalition government remained in office but he rejected a proposed cabinet reshuffle by the ruling Social Democrats and their junior coalition partner, the rightist CDS-PP party.


A senior cabinet minister in the former Socialist government, Pedro Silva Pereira, said the president's intervention had thrown the future into doubt.


"After the turmoil of last week when it seemed a solution had been found, the announcement of the president comes as a surprise," said analysts at Espirito Santo Research in a note.




As of 02:32:00 ET on 07/11/2013.


closing yield:  Thursday night  6.90%..(a rise of 15 basis points from this morning!!!..not good)



6.900.13 1.98%
As of 11:59:00 ET on 07/11/2013.



6.770.04 0.61%
As of 11:59:00 ET on 07/10/2013.


your closing Japanese 10 year bond yield for Thursday morning: 

down 2 basis point from Wednesday closing

Japan Govt Bond Year to maturity 10 Year Simple Yield


0.840.02 2.68%
As of 00:00:00 ET on 07/11/2013.


Your opening 10 year USA 10 year bond Thursday morning:

(down 7 basis points in yield)

US Generic Govt 10 Year Yield


2.560.07 2.62%
As of 07:14:00 ET on 07/11/2013.

The USA index is down early this Thursday morning by 1.04 cents at 82.97.  


Early Thursday  morning currency crosses   (7 am)

Thursday morning we  see a better  euro strength against the dollar from the close on Wednesday  with this time  trading well above  the  1.30 mark at 1.3066.  The yen this  morning, is a lot stronger  trading up 65 basis points to 99.20 yen to the dollar (dollar down).   

The pound, this morning is a lot stronger against the USA dollar, with this time still trading just above  the 1.51 column at 1.5115. The Canadian dollar currency is a lot stronger against the dollar trading above the 1.04 column at 1.0422.  We have the sentiment this morning with a risk is ON situation with almost all bourses in the green.  The Nikkei this morning  finished up by 56 points or 0.39%. The Japanese 10 year bond yield finished down in yield by 1 basis point to .86%. 

Gold this morning is trading at 1283.0 and silver at 19.82.

Euro/USA    1.3066 
USA/yen  100.11  down .651
GBP/USA     1.5115 
USA/Can      1.0422 down  .0043


Your closing Spanish 10 year government bond:  Thursday night

(  rise in yield of 1 basis points)



4.820.01 0.23%
As of 12:00:00 ET on 07/11/2013.


Closing Italian 10 year bond yield:  a rise of 2 basis points tonight

Italy Govt Bonds 10 Year Gross Yield


4.470.02 0.38%
As of 11:59:00 ET on 07/11/2013.


Your closing Thursday night 10 year USA 10 year bond yield: a drop in yield of 1 basis points.
from this morning.  Still dangerous with respect to interest rate swaps.

US Generic Govt 10 Year Yield


2.580.05 1.76%
As of 15:32:00 ET on 07/11/2013.


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

Euro/USA    1.3109 

USA/Yen  98.76   

GBP/USA     1.5207

USA/Can      1.0378 

The Euro strengthened dramatically this afternoon again closing this time  just above the 1.31 mark at 1.3109.  The yen  proceeded to dramatically strengthen  in the afternoon in value finishing just below the 99 barrier to 98.76. The yen carry traders are blown up again.  The pound regained a lot of lost ground  , closing way up at 1.5207. The Canadian dollar strengthened throughout this afternoon against the dollar finishing the day at 1.0378.

The USA index was down 42 cents at 82.66 



Closing bourses figures for Thursday

i) England/FTSE  up 38.45 points or  0.59% 

ii) Paris/CAC up 28.45  points or  .74%
iii) German DAX: up 92.32 pts or  1.14%  
iv) Spanish ibex up  35.70  points or 0.45% 

v) Italian bourse (MIB) flat.  or  .000%

and the Dow up 169 points (1.11% )....


And now for USA news:

Initial claims rises back to 360,000..the highest in two months

(courtesy zero hedge)

Initial Claims Spike To 360K: Highest In Two Months

Tyler Durden's picture

Now that Bernanke has thrown in the towel and reverted back to the old bad news is good news regime (or did he - GETCO's vacuum tubes at least sure seem to think so), there was hardly anything more the market could ask for than a horrible Initial Claims print. It got just that with today's initial unemployment claims which soared from last week's upward revised 344K (only +1k revision this time) to 360K, well above the consensus (and Joe LaVorgna) forecast of 340K. Sure enough, the BLS said the July claims were difficult to seasonally adjust, so let's look at the NSA claims which jumped by 49,778 in the week ended July 6 to 384,829 making one wonder if the BLS' instruction in the holiday shortened week was to actually represent a worse economic reality unlike during the Obama pre-reelection months. The only other notable item in the report was the ongoing drop in Extended claims, with EUCs down by 23K to just 1.6 million, 1 million less than a year ago as claims exhaustion means ever more people drop out of the official labor pool. Permanently.

The rats are leaving the ship:

(courtesy zero hedge)

Fed Governor Elizabeth Duke Resigns

Tyler Durden's picture

A harbinger of what will happen to the Chairsatan perhaps? Or is this just a logical response of what the "other half" of the Fed, those who  demanded an end to QE by the end of 2013, think about Bernanke's latest public statement. If Dick Fisher quits next, watch out.
Elizabeth A. Duke submitted her resignation Thursday as a member of the Board of Governors of the Federal Reserve System, effective August 31, 2013.

Duke, who has been a member of the Board since August 5, 2008, submitted her letter of resignation to President Obama. She has made no announcements about her future plans.

"Betsy has made invaluable contributions to the Federal Reserve and to the country during her five years at the Board," said Federal Reserve Chairman Ben S. Bernanke. "She brought fresh ideas grounded in her deep knowledge of the banking industry and the real-world dynamic between borrowers and lenders. I wish her the best in her future endeavors."

Duke, 60, was appointed to the Board by President Bush to fill an unexpired term that ended January 31, 2012. During her time on the Board she served as Chairman of both the Committee on Consumer and Community Affairs and the Subcommittee on Supervision and Regulation of Community and Small Regional Banking Organizations.

Before joining the Board, Duke was Senior Executive Vice President and Chief Operating Officer of TowneBank, a Virginia-based community bank. Prior to that, she served as an Executive Vice President at Wachovia Bank and as an Executive Vice President at SouthTrust Bank. Earlier in her career, Ms. Duke was President and Chief Executive Officer of Bank of Tidewater, based in Virginia Beach, Virginia.

A copy of her resignation letter is attached.
Letter:  see zero hedge.


Today we witnessed two huge carry trade succumb:

i) the buy Aussie/(commodities) and short Japanese yen  (Aus/Yen)
ii) all other currencies, bonds etc/yen

they faltered with the huge rise in the yen.

The Day The Carry Trade Died (Again)

Tyler Durden's picture

Another day, another 3-sigma swing in one of the biggest and most important FX carry-trades. AUDJPY is collapsing this morning as the smell of leveraged trades being tapped on the shoulder is all too fresh. Critically, carry trades are predicated on leveraging low returns in a low-volatility world; the shocks from a few weeks ago saw carry unwinds en masse - but all it took was a handful of Fed officials and Draghi/Carney's chatter and they are backing up the truck of the carry-express once again - that is until yesterday when the Minutes and Bernanke stepped up the currency wars once again. This kind of incredible volatility - unless everyone in the world is now a non-MtM trader - means fewer carry trades (or perhaps just a shift to another leveragable position).

Charts: Bloomberg


I will leave you tonight with this Seth Klarman offering:

(courtesy Seth Klarman/zero hedge)

Klarman Clarity: "If The Government [Still] Can't Allow Failure Then We Are Indeed Close To Collapse"

Tyler Durden's picture

One of the most insightful comments explaining what happened last night, when Bernanke just killed all credibility that the economy may soon be able to stand up on its own two legs, comes from Seth Klarman who crushed the logic (or lack thereof) behind proclaiming any recovery in a world in which the only marginal factor preventing an all out collapse in the stock market and thus economy is, and continues, to be the Federal Reserve which has not only destroyed the market's discounting function, but with every passing day is taking over both the entire US economy (the Fed's balance sheet is now 25% of US GDP) and the US bond market (currently in possession of 30% of all 10 Year equivalents).
To wit:
If the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse
And the rest of Klarman's sermon, serving as the perfect counter to the voodoo shamans operating their Keynesian religion in the Marriner Eccles building. From Seth Klarman of Baupost:
Is it possible that the average citizen understands our country's fiscal situation better than many of our politicians or prominent economists?

Most people seem to viscerally recognize that the absence of an immediate crisis does not mean we will not eventually face one. They arewary of believing promises by those who failed to predict previous crises in housing and in highly leveraged financial institutions.

They regard with skepticism those who don't accept that we have a debt problem, or insist that inflation will remain under control. (Indeed,they know inflation is not well under control, for they know how far the purchasing power of a dollar has dropped when they go to the supermarket or service station.)

They are pretty sure they are not getting reasonable value from the taxes they pay.

When an economist tells them that growing the nation's debt over the past 12 years from $6 trillion to $16 trillion is not a problem, and that doubling it again will still not be a problem, this simply does not compute. They know the trajectory we are on.

When politicians claim that this tax increase or that spending cut will generate trillions over the next decade, they are properly skeptical over whether anyone can truly know what will happen next year, let alone a decade or more from now.

They are wary of grand bargains that kick in years down the road, knowing that the failure to make hard decisions is how we got into today's mess. They remember that one of the basic principles of economics is scarcity, which is a powerful force in their own lives.

They know that a society's wealth is not unlimited, and that if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse. For if you must rescue everything, then ultimately you will be able to rescue nothing.

They also know that the only reason paper money, backed not by anything tangible but only a promise, has any value at all is because it is scarce. With all the printing, the credibility of our entire trust-based monetary system will be increasingly called into question.

And when you tell the populace that we can all enjoy a free lunch of extremely low interest rates, massive Fed purchases of mounting treasury issuance, trillions of dollars of expansion in the Fed's balance sheet, and huge deficits far into the future,they are highly skeptical not because they know precisely what will happen but because they are sure that no one else--even, or perhaps especially, the  policymakers—does either.
That is all.


That about does it for tonight
I will see you Saturday morning or late Friday night.


1 comment:

Jo said...

Harvey; once again you report on gold contract deliveries for July but the deliveries for May and June has yet to occur? What is wrong with that picture? What is the use in reporting what isn't being delivered? Shouldn't there an outcry from the contract holders asking where their gold is from JPMorgan from May and June? Why is that bank allowed to skirt the law by not fulfilling their obligations? What's going on here? Why hasn't anyone complained that JPMorgan hasn't settled their contracts?

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