Saturday, January 19, 2013

Silver demand continues to rise/silver rises in price/gold falls/

Good morning Ladies and Gentlemen:

Gold closed down $3.80 to $1686.60, whereas silver refused to fall as it ended the day up eleven cents at
$31,90.  Silver spend part of the day north of the $32.00 mark but the bankers were hell bent trying to contain it's strength.  We have many stories to you on the strength of silver especially on the Mint's decision to cut off manufacturing due to lack of silver blank supplies.  The sales for silver eagles have already surpassed 6 million oz.  The German repatriation story refuses to leave the airwaves as many commentators realize that in all probability the USA has run out of gold and the only way Germany will get gold from USA soil is through future mining.  It also looks like France has sold Germany's gold probably under the wishes of the USA. As for leasing of gold, I am sure that the Bundesbank was well aware of problems and that is why they asked for their gold back from London in 2001.  The Germans realize that the remaining gold in England will be impossible to retrieve unless you are willing to cause the Bank of England to default.I guess the major question is this:  smaller countries are witnessing this farce and they will no doubt ask the USA to ship it's gold back.  Will the USA officially say no to all?  What will China and Russia do?  I can just imagine that many players at the LBMA will not roll over their paper gold/silver contracts and just take delivery immediately and that will put added pressure on the huge 100 fold derivatives per oz left behind.  We have many stories on these two fronts to relay to you today but first let us go over to the comex and see how trading, deliveries and the position levels of our major players fared:

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

The total comex gold OI rose by a considerable 9277 contracts as the bankers supplied the necessary non backed paper. The OI rests Friday night at 452,828 compared to Thursday night's level of 443,551.  The non active January contract month remained constant at 92.  We had 0 delivery notices on Thursday so we neither gained nor lost any gold standing for the January contract month.  The next big active delivery month for gold is February which is two weeks away.  The OI for the February contract month rests at 187,059 a loss of only 219 contracts.  The estimated volume today was a very weak 108,223.  The confirmed volume on Thursday was excellent at 231,263.

The total silver OI behaves quite differently to gold.  In silver, the total OI fell by 1119 contracts from 141,023 down to 139,904.  The silver complex still hovers around the 140,000 mark. Obviously we had some short covering yesterday. The non active January contract month saw it's OI rise by one contract.  We had 10 delivery notices filed on Thursday so in essence we gained another 11 contracts or an additional 55,000 oz of silver will stand for delivery in January. The next big delivery month is March and here the OI actually rose by 1024 contracts from 75,690 up to 76,714.  The estimated volume on Friday was shallow at 37,904 compared to an excellent Thursday volume registering 58,782 (confirmed).

Comex gold figures 

Jan 18.2013    The  January contract month

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
Deposits to the Dealer Inventory in oz
0   (nil)
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
 64    (6,400 oz)
No of oz to be served (notices)
27 (2,700 oz)
Total monthly oz gold served (contracts) so far this month
966  (96,600 oz) 
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

316,767.55 oz
We had a totally uneventful day at the gold vaults.

The dealer had no deposits and no    withdrawals.

We had 0   customer deposits

total deposit:  zero oz

We had 0 customer withdrawals:

Total customer withdrawal:  zero oz

We had 1 adjustment:

at the HSBC vault:  6,172 oz was adjusted out of the customer and landed into the dealer account at HSBC,

Thus the dealer inventory rests tonight at 2.276 million oz (70.79) tonnes of gold.

The CME reported that we had 64 notices filed for 6,400 oz of gold.The total number of gold notices standing thus rises at 966 for 96,600 oz of gold. To obtain what is left to be served upon, I take the OI for January  (93) and subtract out Wednesday's delivery notices (64) which leaves us with 29 notices or 2,900 oz of gold left to be served upon our longs.

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

96,600 oz (served)  +  2900 oz (to be served upon) =   99,500 oz or 3.10 tonnes.
we  neither gained nor lost any  gold standing for the January delivery month.

Generally, January is a very weak delivery period for both gold and silver and thus the 3.10 tonnes of gold is quite a surprise.


January 18.2013:   The January silver contract month

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory  114,500.5 oz (CNT,Delaware, Scotia)
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory   205,496.000 oz (CNT)
No of oz served (contracts)13  (65,000 oz)
No of oz to be served (notices)14  (70,000 oz)
Total monthly oz silver served (contracts)695  (3,545,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month2,465,925.6
Total accumulative withdrawal of silver from the Customer inventory this month4,398,514.5

Today, we  had fair sized activity  inside the silver vaults.

 we had no dealer deposits and no dealer withdrawals.

We had 1 big customer deposits of silver:

iii) Into CNT:  205,496.000 oz (another perfectly round number into CNT)

total customer deposit; 205,496.000 oz

we had 3 customer withdrawals:

i) out of Scotia:  64,943.18 oz  

ii) out of Delaware: 9,422.32 oz

iii) Out of CNT;  40,135.000 oz (another perfectly round number at CNT)

total customer withdrawal:  114,500.5 oz

we had 0  adjustments: 

I have still not received any answer from the CFTC  regarding the round numbered deposits/withdrawals in gold and silver we have been witnessing lately, especially from the CNT vault. 

When you see massive deposits and withdrawals you know that there is turmoil inside the silver vaults. 

Registered silver remains today at :  37.975 million oz
total of all silver:  152.093 million oz.

The CME reported that we had  13  notices filed for 65,000 oz of silver.The total number of notices filed so far this month total 695 for 3,475,000 oz.  To obtain what is left to be served upon, I take the OI standing for January (27) and subtract out Friday's delivery notices (13) which leaves us with 14 notices or 70,000 oz left to be served upon our longs.

Thus the total number of silver oz standing for the month of January is as follows:

3,475,000 oz (served)  +  70,000 (oz to be served upon)  = 3,545,000 oz
we  gained 55,000 oz of additional silver  standing for January. This is turning out to be a great delivery month for silver as we now surpass the  3 million oz mark in amounts  standing heading towards 4 million 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.

Total Gold in Trust:   Jan 18.2013 



Value US$72.323   billion

Jan 17.2013:



Value US$71.746 Billion

Jan 16.2013:

Jan 15.2013:



Value US$72.211   billion

Jan 14.2013:



Value US$71.658  Billion

Jan 11.2013:



Value US$71.274  Billion

we neither gained nor lost any gold at the GLD

and now for silver:

Jan 18:2013:

Ounces of Silver in Trust345,137,860.600
Tonnes of Silver in Trust Tonnes of Silver in Trust10,734.99

Jan 17.2013:

Ounces of Silver in Trust345,137,860.600
Tonnes of Silver in Trust Tonnes of Silver in Trust10,734.99

Jan 16.2013:

Ounces of Silver in Trust326,759,768.600
Tonnes of Silver in Trust Tonnes of Silver in Trust10,163.36

jan  15.2013:

Ounces of Silver in Trust325,792,488.600
Tonnes of Silver in Trust Tonnes of Silver in Trust10,133.2

Jan 14.2013:

ounces of Silver in Trust325,792,488.600
Tonnes of Silver in Trust Tonnes of Silver in Trust10,133.28

Jan 11.2013:

Ounces of Silver in Trust325,792,488.600
Tonnes of Silver in Trust Tonnes of Silver in Trust10,133.28

Jan 10.2012:

Ounces of Silver in Trust325,115,347.800
Tonnes of Silver in Trust Tonnes of Silver in Trust10,112.22

Jan 9.2013:

Ounces of Silver in Trust325,115,347.800
Tonnes of Silver in Trust Tonnes of Silver in Trust10,112.22

we neither gained nor lost any silver inventory at the SLV  

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

Sprott and Central Fund of Canada. 

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

1. Central Fund of Canada: traded to a positive 3.9 percent to NAV in usa funds and a positive 3,7%  to NAV for Cdn funds. ( Jan 18 2013)   

2. Sprott silver fund (PSLV): Premium to NAV rose to 1.83% NAV  Jan 18./2013
3. Sprott gold fund (PHYS): premium to NAV  rose to 3.13% positive to NAV Jan 16/ 2013..

 Now we witness the Central fund of Canada  gaining big time in its positive to NAV, as we now see CEF at a positive 3.9% in usa and 3.7% in Canadian.This fund is back in premiums to it's former self with respect to premiums per NAV. 

The silver Sprott fund announced a big silver purchase and this reduces the premium to NAV temporarily.  It seems that the bankers are picking on Sprott to short their funds trying to cause an avalanche in selling in the precious metals.  They are foolhardy in their attempt. I am happy that finally we are witnessing the gold PHYS rise in yield after huge purchases of gold by Eric Sprott.

It looks like England may have trouble in finding gold and silver for its clients.
It is worth watching the premium for gold at the Sprott funds which is a good indicator of shortage as investors bid up the premiums.



At 3:30 pm the CME released its COT report where we see position levels of our major players.

First, let us head over to the gold COT and see what he can glean from it:

(the report is from Jan 8.2013 through to Jan 13.2013):

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

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, January 15, 2013

Our large speculators:

Those large specs that have been long in gold, pitched a tiny 914 contracts from their long side.
Those large specs that have been short in gold, covered a rather large 3222 contracts.

Our commercials:

Those commercials that have been long in gold and are close to the physical scene added a rather large 3907 contracts to their long side.

Those commercials that have been perennially short in gold added a monstrous 10,548 contracts all of which is non backed gold.

Our small specs:

Those small specs that have been long in gold added a rather large 3489 contracts to their long side.
Those small specs that have been short in gold covered a smallish 844 contracts.


Our commercials went net short an additional 6647 contracts and thus bearish from that commercial standpoint. No doubt the boys added more contracts to their short side, on Wednesday through Friday.


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

Our large speculators:

Those large specs that have been long in silver added another large 1125 contracts to their long side.

Those large specs that have been short in silver added a huge 2127 contracts to their short side.

Our commercials:

Those commercials who are long in silver added 1360 contracts to their long side.
Those commercials who are short in silver added a rather large 2127 contracts.

Those small specs;

Those small specs that have been long in silver, added 1072 contracts to their long side
Those small specs that have been short in silver added 783 contracts to their short side.

Conclusion:  mildly bearish as the commercials went net short by 767 contracts.


And now for the major physical stories we faced today:

Important points:

1. gold will be supported due to the fiscal cliff and debt ceiling issues in the USA
2. Gold with respect to yen hit a new high equivalent to 4911 grams/yen.
3. Silver is up against all currencies this week.
4. Silver's rise especially in sterling shows the world is quite concerned with what is going on in England.
5. The German repatriation of gold correctly is bringing out the "conspiracy theorists"..
(is that what they call us?) stating that the gold in NY is either not there or that this gold has seen major paper sell obligations on the gold in situ in NY.   Why the wait for 7 years?

“Gold Will Prove A Haven From Currency Storms” – OMFIF Study

Tyler Durden's picture

From GoldCore
“Gold Will Prove A Haven From Currency Storms” – OMFIF Study
Today’s AM fix was U.S.D 1,690.00, EUR 1,265.82, and 1,060.49 GBP per ounce.
Yesterday’s AM fix was U.S.D 1,683.25, EUR 1,260.11 and GBP 1,050.85 per ounce.
Silver is trading at $31.79/oz, €23.91/oz and £20.04/oz. Platinum is trading at $1,695.25/oz, palladium at $723.00/oz and rhodium at $1,150/oz.

Gold rose $7.00 or 0.42% in New York yesterday and closed at $1,686.90/oz. Silver fell to a low of $31.038 in early New York trade, but then it surged to a high of $31.891 at about 1800 GMT and finished with a gain of 0.7%.
Gold is higher in all currencies this week. It is up 1.7% in dollar terms, 1.5% in euro terms, 2.4% in yen terms and 2.8% in pound terms.
Some investors see the recent sell off as overdone and are buying gold on the dip in anticipation of further gains in 2013. While gold looks poor from a technical point of view, after a series of weekly losses, its fundamentals of robust investment and central bank demand remain intact. 
The almost certain higher weekly close today may embolden bulls who are expected to come back into the market.
Gold will be supported by the U. S. political standoff about the debt ceiling and expectations of continual quantitative easing.
Gold trading on the Tokyo Commodity Exchange hit a new high of 4,911 yen a gram when the yen plummeted to a 2 ½ year low against the dollar and a 33 year low against gold. 
Silver has surged in all currencies this week. It is up 4.5% in dollar terms, 4.2% in euro terms, 5% in yen terms and 5.4% in pound terms.
Sterling’s sharp falls against gold and particularly silver are due to increasing concerns about the outlook for sterling – including concerns of a currency crisis. 
Palladium hit a 16 month high on Friday and platinum was near the 3 month high hit in the prior trading session.
Gold bullion approached a 1 month high on economic data from China and the U.S. yesterday and more importantly as traders digested the surprising German gold repatriation news. 
CNBC reports that traders are concerned about the German repatriation of gold (see video). 
The concern is that the U.S. Federal Reserve and other central bank gold reserves are not backed ounce for ounce. This is fertile ground for so called “conspiracy theorists” and the Bundesbanks’s actions have ironically highlighted the issue and led to deeper suspicions. 
Questions are being asked regarding the extremely long delay of 7 years to repatriate just some of their gold from the U.S. Federal Reserve's subterranean vault in flood prone lower Manhattan.
Venezuala managed to have all their reserves transferred from the Bank of England to Caracas in weeks.
A lack of trust regarding central bank gold reserves could lead to a form of a run on central banks gold reserves. The concern is and it is alleged that they are, in effect, fractional like our modern banking system.
U.S. housing and labour market data out yesterday were somewhat better than expected and China broke the pattern of 7 quarters of contraction – although the data out of China in particular is being examined more recently.  
The U.S. Mint has already sold out its 2013 American Eagle silver bullion coins due to soaring demand in the first two weeks of January.   
The jump in the silver ETF holdings to a new all time high shows how some investor's see poor man's gold as a cheaper alternative to the yellow metal and are allocating to it. Yet, allocations to silver remain very small which suggests that the holdings could go higher resulting in higher silver prices again in 2013. 
Demand for gold is likely to rise as the world heads towards a multi-currency reserve system under the impact of uncertainty about the stability of the dollar and the euro, the main official assets held by central banks and sovereign funds.
This is the conclusion of a wide-ranging analysis of the world monetary system by Official Monetary and Financial Institutions Forum, (OMFIF), the global monetary think-tank, in a report commissioned by the World Gold Council, the gold industry’s market development body.
The report warns of “twin shocks” to the dollar and the euro and of a “coming dollar shock” and points out how gold would be a safe haven in a dollar crisis.
“Gold has a lot going for it; it correlates negatively with the greenback, and no other reserve asset seems safe from the coming dollar shock.”
“The world is preparing for possible twin shocks from the parlous. position of the two main reserve currencies, the dollar and the euro. As China weighs up its options for joining in the reserve asset game, gold – the official asset that plays no formal part in the monetary system, yet has never really gone away – is poised, once again, to play a pivotal role. 
Many dismiss gold as a relic of the past or as an inadequate hedge against inflation. But from an asset management point of view, as well as on the basis of political analysis, gold has a lot going for it; it correlates negatively with the greenback, and no other reserve asset seems safe from the coming dollar shock.”
The OMFIF offers a confidential, convenient and discreet forum to a unique membership of central banks, sovereign funds, financial policy-makers and market participants who interact with them.
They note that “western economies have attempted to dismantle gold's monetary role. This has failed.”
The report says China's yuan is emerging as a genuine international currency.
“As China aspires to take the lead politically and economically, it is unlikely to be satisfied with storing its wealth simply in liabilities of other countries.”
"The world is headed toward uncharted waters of a durable multi-currency reserve system," it said. 
During this uncertain transition period, central banks around the world are expected to increase their interest in gold.
They believe “that the role of gold in the international monetary system will be further enhanced in the coming 10 years as a result of basic uncertainties over the dollar and the euro.”
“For central banks, concerned with preserving value and naturally politically cautious, gold will prove a haven from currency storms.”
GoldCore have long pointed out the real possibility that the world will return to some form of gold standard. Not through a decision of the U.S. Federal Reserve, ECB or BOE but rather through a decision by the People’s Bank of China or the Bank of Russia.  They may bring some form of gold backing to their currencies. This would force the hand of western central banks and make them follow suit in order to maintain faith in their currencies.
The unchartered waters and choppy seas of today’s international monetary system make owning physical gold more important than ever.   
For breaking news and commentary on financial markets and gold, follow U.S. on Twitter.
Gold, The Renminbi and the Multi-Currency Reserve System- Official Monetary and Financial Institutions Forum, (OMFIF) via World Gold Council


It is totally amazing that after the first two weeks of silver eagles sales, the mint announces that they have sold out and they may resume sales likely at the end of the month.

Half way through the December sales month, the Mint cut off 2012 sales knowing pent up demand for the 2013 year would drive sales northbound. And that is exactly what happened in that the first day of sales almost matched the entire month of Jan 2012 sales. Sales for silver eagles have surpassed 6 million oz for the first two weeks of January.

Dave from Denver from his Golden Truth site: 

"The U.S. Mint is required by law to mint as many silver eagles as the market demands. They KNEW there would be an avalanche of pent up orders for 2013's."

Why didn't they mint enough silver coins?  
Probable answer:  they ran out of silver blanks.

You may see a commercial failure in silver shortly as we hearing many stories of shortages in silver everywhere.

First story, Gata  announces USMint sold out of silver eagles:

(courtesy USA mint/GATA)

U.S. Mint sold out of silver eagles again

2:50p PT Thursday, January 17, 2013
Dear Friend of GATA and Gold (and Silver):
Mike Zielinski reports at Coin Update that 2013 U.S. silver eagles are again temporarily sold out at the U.S. Mint, likely until the end of the month:
A nice picture of the coin is still posted at the Mint's Internet site here --
-- and might be nice to print out for stapling to your SLV share certificates.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Zero hedge also comments on the suspension of sales:

(courtesy zero hedge)

US Mint Out Of Silver Coins - Suspends Sales

Tyler Durden's picture

As we noted earlier this month, the demand for both gold andsilver 'physical' coins has been record-breaking as 2013 began. So much so, that now after selling over 6 million silver coins in 2013 so far, the US Mint has run out of silver eagles and has suspended sales. Furthermore, the Mint is saying that it will not restart sales until January 28th! With all asunder proclaiming victory and crisis averted based on the nominal price of stocks at five-year highs, Swiss interest rates no longer negative, and Spanish bond yields at 5%, it seems there are still a few that demand the wealth-preserving safe-haven of hard assets as the escalation of the currency wars shows no sign of abating.
Authorized Purchasers,

The United States Mint has temporarily sold out of 2013 American Eagle Silver Bullion coins.  As a result, sales are suspended until we can build up an inventory of these coins.  Sales will resume on or about the week of January 28, 2013, via the allocation process.

Please feel free to call us if you have any questions.


Jack A. Szczerban
Branch Chief, Precious Metals Group
Department of the Treasury
United States Mint

Peter Cooper of Arabian money discusses the halting of minting silver eagle coins:

(courtesy Arabian Money)

US Mint halts sales of silver coins flagging up a fundamental shortage of physical silver

Posted on 18 January 2013

The US Mint is unable to keep up with surging demand for silver coins from investors and has suspended sales until the end of the month to catch up. The American Eagle coin manufacturer appears woefully ill equipped to deal with the demand now coming from investors who want to protect against a devaluing US dollar with a silver one.
On Day One for 2013-dated Silver Eagles the Mint got orders for 3,937,000 of the one ounce coins, probably the highest one-day sales history. The demand continued and dsales stopped at 6,007,000 said the Mint’s website.
Low supply, high demandArabianMoney really has only one comment to make on this. That’s about $180 million of one ounce silver coins sold in two weeks in the United States. It’s still an incredibly small sum in investment terms. Consider what the daily turnover on the NYSE would be for example.
What happens when the crowds really show up wanting to buy silver? The price has jumped by more than five per cent since the start of the year. If everybody suddenly piles into this relatively rare resource then the price is going to go sky high.
The US Mint can’t handle orders for more than six million silver coins without taking a pause to catch up. What if the demand was for sixty or six hundred million ounces?
Lack of supplyCan anybody find that amount of physical silver to deliver to investors? It’s not the demand for the US Mint silver American Eagles that is significant it is the lack of supply.


From our friends over at the silver doctors web site:



apple silver shortageSilver expert Ted Butler has long predicted and awaited an eventual industrial shortage of physical silver, and a resulting panic silver buying that terminates the bullion bank cartel’s manipulation of the silver market.  
Butler may be about to be finally proven correct, if an Apple contractor is right that Apple has delayed production on the new 27” iMacs over an industrial silver shortage in China.
With the US Mint sold out of Silver Eagles and production shut down for the 2nd time in 2 weeksand shortages of nearly all retail silver products rapidly developing along with spiking physical premiums, it appears that a widespread retail, and perhaps industrial physical silver shortage is developing and escalating by the hour.


A very important interview with GATA secretary treasurer Chris Powell on the Bundesbank's partial gold repatriation.  GATA's position is similar to mine in that both the USA and France just do not have the gold and that the only way Germany can get this gold is from future mining operations.

you must hear this audio...(courtesy Turd Ferguson/Chris Powell/GATA

TF Metals Report interviews GATA secretary about Bundesbank's partial gold repatriation

5:25p PT Friday, January 18, 2013
Dear Friend of GATA and Gold:
Turd Ferguson of the TF Metals Report today interviewed your secretary/treasurer for about 20 minutes, largely about the Deutsche Bundesbank's announcement that it will repatriate a small part of its foreign-vaulted gold over the next seven years, thereby raising suspicion that the gold is not clearly available on account of swaps, leases, and other impairments. Audio of the interview is posted at the TF Metals Report Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Another important article and video for you to see

(courtesy SGT report)

MUST WATCH: The Frightening Truth About Germany’s PHYSICAL Gold Move Pours Out on CNBC

by SGT,
If the gravity of the recent move by the Bundesbank to demand a portion of its gold back from the NY Fed, and all of its gold back from the bank of France is lost on you, check this out.
The horrifying reality of the worldwide central banking monetary sham is beginning to cut through, even on CNBC. Although mockingbird host Melissa Lee tries her best to diffuse the outpouring of truth in this ‘Market Mystery’ segment, she fails miserably. Lee kicks off this must-watch clip by asking, “Why is Germany moving gold out of the United States? Why don’t they trust us any more?
CNBC’s Guy Adami goes on to break it down in a way that surely must have left Mr. Geithner and the Bernank reaching for their red direct-line phones to CNBC censors.
If you think Germany’s going to be the last, they’re not. People will line up and do this, and you talk about runs on banks? Well, this could potentially be exactly that because if everyone wants there metal back at once you better hope A.) that it’s THERE, and B.) that we’re able to do it. And I’m telling you, the act itself is not bullish gold necessarily but the act itself sends messages about what’s going on in the world.
At the conclusion of Adami’s rant, Lee sheepishly asks, “Is there maybe not enough gold in the bank?” To which the response is, “Yeah, potentially.” Lee responds, “You sound like a real conspiracy theorist.”
It’s too late for that nonsense Ms. Lee. The cat has been outta the bag for quite some time, and even CNBC’s brainwashed mainstream audience is beginning to see the truth now: The Western fiat banking system is mortally wounded, and this broken paradigm will soon come to an end.

At the conclusion of Adami’s rant, Lee sheepishly asks, “Is there maybe not enough gold in the bank?” To which the response is, “Yeah, potentially.” Lee responds, “You sound like a real conspiracy theorist.”
It’s too late for that nonsense Ms. Lee. The cat has been outta the bag for quite some time, and even CNBC’s brainwashed mainstream audience is beginning to see the truth now: The Western fiat banking system is mortally wounded, and this broken paradigm will soon come to an end.

And now for the major paper stories:

First, early morning sentiment:

Major points:

1.  Chinese 4th quarter GDP growth came in slightly better than anticipated at 7.9% vs 7.8 (year/year)

2.  Whole year GDP growth for China also measured 7.8% year over year.

3. Chinese industrial production higher than expected at 10.3% (y/y)
4. Chinese retail sales higher as well:  plus 15.2% on expectations of 15.1%
5. the central bank of China states that it cannot lower rates for fear of rampant inflation and fear of importing everyone else's inflation.

6. Japan's Nikkei outperformed all Asia gained 2.9% as Japan announces additional easing
7. The continued talking by the Japanese head honchos continues to drive the USA/Japan cross higher (lower yen value)
8. Again, Japan states that they wish to have an inflation rate of 2% and engage in open ended government bond purchases.
9. As the yen weakens so does inflation on key products and services rise  over 3% in the same period of time.
10 Deutsche Bank provides details on what to expect in the days ahead.

(your early morning sentiment/courtesy zero hedge)

China, Japan Do Their Best To Add To The Overnight Multiple Expansion

Tyler Durden's picture

China’s monthly data dump was the main macro update overnight, which however with ongoing mockery of the Chinese data "goalseeking" and distribution methodologies, most recently by the likes of Goldman, UBS and ANZ, had purely political window dressing purposes for the new Chinese politburo. Sure enough, that all the data came precisely Goldilocks +1 was enough to put a smile on everyone's face. To wit - Q4 GDP growth came in just higher than consensus (+7.9%yoy v +7.8%). On a full year basis the economy grew by 7.8%, also a tad above expectations. Then we got industrial production, also just higher than expected (+10.3% v +10.2%) and retail sales -just higher as well (+15.2% v +15.1%). Much more important than meaningless, jiggered numbers, was the announcement from the PBOC that in light of the entire world going "open-ended" on easing, China - which now can't afford to lower rates for fears of rampant inflation together with importing everyone else's hot money - announced it will start short-term liquidity operations as additional tool for controlling liquidity, engaging in a reverse repo on a daily basis, which will have a maturity of less than 7 days. This way the central bank will be able to react almost instantly to any inflationary spikes across the economy, as it too has no choice but to ease although not by the conventional inflation targeting methods now used by everyone else.
Overnight, Japan also shared the spotlight as far as market price action is concerned. The Nikkei (+2.9%) aggressively outperformed other Asian bourses helped by earlier headlines that Bank of Japan is preparing to announce additional easing measures at its meeting next week. This of course is not news, however the BOJ has certainly adopted the ECB's posture of talking and talking and talking, knowing well every time there is a flashing red headline, the algos will take the USDJPY higher, and once the actual announcement by the BOJ happens, it will be sell the news. Reuters yesterday reported that the BoJ may pledge open-ended asset buying until 2% inflation target is reached. For the n-th time. Overnight headlines following a three-way meeting between the Finance Minister Aso, the Economy Minister Amari and the BoJ Governor Shirawaka are also adding fuel to the rally.
As Deutsche reports, Japanese media noted that Aso and Shirakawa exchanged views on closer cooperation and have made significant progress in producing a joint policy accord statement. The statement may be published after the two-day BoJ meeting beginning on Monday. Meanwhile, the government’s economic advisor Mr Hamada, who met with PM Abe today, said that the central bank has no choice but to ease next week. Although Hamada added that USDJPY at 95 or 100 is not  problematic for the Japanese economy he interestingly said that 110 was a level to be concerned about. In overnight trading the USDJPY briefly  breached the 90 level after jumping 2.1% in the last 24 hours.
The bigger problem, as we reported, is that while the USDJPY has reached its preliminary target of 90 in two short months, so has inflation, which for several key products has jumped over 3% in the same period! This will only continue as more and more goods and services prices soar leading to a popular backlash as once more people realize there is no such thing as a free lunch.
More on the market recap from Deustche Bank
Asian markets are trading stronger this morning taking cues from the Chinese data as well as the positive US lead yesterday. The Hang Seng, Shanghai Composite and the KOSPI are all higher by 0.88%, 1.4% and 0.31% respectively. Asian credit markets are also trading firmer with IG bonds opening 1-2bp tighter. The UST 10-year is steady at 1.877% after having moved 6bp higher yesterday following a risk-on move in markets.
Returning briefly to yesterday’s US session, for the first time in a week the S&P 500 started the day on the front foot to rally +0.4% shortly after the opening bell on the back of a strong set of housing and jobless claims data. The index closed 0.56% higher, with just Financials (-0.1%) closing lower on the back of some mixed results from Bank of America and Citigroup.
Taking a slightly closer look at the data, Housing starts rose 12%mom to 954k (vs 851k previous and 890k expected) which our US economists partly attribute to unseasonably warmer weather and Hurricane Sandy. Meanwhile, building permits were little changed on the month (903k vs. 899k previous) suggesting that much of the improvement in housing starts was indeed weather-related. Jobless claims were encouraging, falling 37k to 335k for the week ending January 12th which is the lowest reading since January 19, 2008.
The market looked through a disappointing Philly Fed print though as the index fell to -5.8 for January (vs. 8.1 prior and 5.6 expected due to poor current condition readings. The fiscal cliff uncertainty around year-end may have had an impact but the silver lining was that the 6- month outlook for business activity (+29.2 vs. +23.7) and new orders (+32.5 vs. +28.3) were both higher.
Turning to Europe, German Finance Minister Wolfgang Schaeuble said on Thursday he was very concerned about an expected further easing of monetary policy in Japan. In a speech to the Bundestag, Scheuable said that "When you think of the surplus of liquidity on global financial markets, it is fuelled further by a wrong understanding of central bank policy." (Reuters). Italy’s La Republicca reported that Mario Monti and leader of the Left, Bersani, have reached a deal on an “anti Berlusconi” alliance following the upcoming election. Elsewhere, the Portuguese government said that they have decided to tap the debt markets before the end of February, after a successful bills auction on Wednesday, according to domestic media.
Moving on to the day ahead, Italian industrial orders, UK retail sales will be the main data print in the Eurozone. British PM David Cameron was originally scheduled to make a highly anticipated speech on Europe today but that has been postponed following the tragic events in Algeria last night. Elsewhere in Europe, final campaigning will take place in Germany ahead of state polls in Lower Saxony on the weekend. The data calendar will be light in the US today with the UofM consumer confidence index being the only highlight. Morgan Stanley will report today but all eyes will be on bell-weather General Electric as the company reports its results before the opening bell.


1.  Poor retail sales in Britain brings down the pound with a -.1% reading vs expected .2% gain.
Year over year gain has been only .3%
2. The Swiss Franc has been the weakest currency of all falling 2.25% against the dollar.
3. There is talk that the Swiss Franc vs Euro floor will be lifted to 1.25 SF/Euro from 1.20
The negative rates are certainly having a toll on the SF currency.
4. The German state election in Lower Saxony is this weekend and we will witness the popularity of Merkel and FDP leader Roessler.

Your early morning talk on currencies:

(courtesy Marc to Market)

Dollar Finishing Week on Firm Note

Marc To Market's picture

The US dollar is trading firmly.  The official verbal commentary this week by Europe's Juncker and Japan's Amari were more disruptive noise a true signal.  These mis-directional cues whipsawed short-term participants and served to obscure what was really happening. 
One of the most important take aways, it seems, from this week's action is the narrowing of the breadth of the dollar's decline.  It is really limited to only the euro, with itself appears to have stalled near $1.34.  Weighed down by a poor retail sales reports today (-0.1% vs consensus +0.2%, leaving the year-over-year rate at 0.3%, half of what was expected), sterling has broken the uptrend going back to last June's low near $1.5270.  There is immediate support near $.1.5900, the real target is the $1.5830 low from mid-Nov.   The $1.60 area, which had offered support is now resistance. 
The dollar-bloc has generally not participated in the recent move against the dollar.   The Australian dollar is off half a cent today and making new lows from the week below $1.05.  Even the firm data from China, indicating that the world's second largest economy stopped slowing failed to lift the Aussie.  
The US dollar is also making new highs for the week against the Canadian dollar.  For the fourth day running the US dollar is setting higher lows and higher highs against the Loonie and is now flirting the CAD0.9900.  The near-term risk extends toward CAD1.00.
The Swiss franc not the yen has been the weakest currency this week, falling roughly 2.25% against the dollar and the euro climbed to its highest level since May 2011.  Negative interest on franc deposits and some talk under pressure from industry the SNB could raise its euro floor to CHF1.25 from CHF1.20 appears to have been the hook for leveraged participants, who are thought to be the main drivers of the price action.  We expect the SNB to neither raise the euro floor nor unwind some of the reserves it has accumulated.    The SNB does not have to do a thing.  The last five centime euro rise has come to it very cheaply. 
Another important take away from this week has been the relative underlying resilience of the US economy in the face of the fiscal cliff in late 2012.  We do expect GDP to slow considerably from the 3.1% pace in Q3, but this is more reflective of the accounting function.  Manufacturing napped back from the storm related Oct decline, rising 1.3% in Nov and 0.8% in Dec.  Housing starts are at multi-year highs, accelerating from 728k pace in July to 954k in Dec.  Lastly, one of the most important high frequency data, weekly initial jobless claims and the four week moving average, used to smooth out some of the volatility, is at new recovery lows.
Lastly, we note that German election in the state of Lower Saxony this weekend.  The importance for investors lies with the implications for the national stage.  The key in this regard is how the FDP, the junior partner in the national coalition.  If the FDP does not secure 5% of the vote to be represented in state parliament, FDP leader and Economic Minister Roesler could resign.  It would also raise the prospect that despite the popularity of Merkel, without a stronger FDP, the CDU could be forced to into a grand coalition with the SPD.  The next state election is not until Bavaria hold's its in Sept and steep CDU losses are anticipated. 
This week the German government has cut its 2013 GDP forecast to 0.4% from 0.7%, the same now as the BBK.  A deeper or more protracted downturn (and rise in unemployment) could also emerge as an important electoral consideration.


Again the Bank of Japan pounds the table on open ended asset buying to lift Japan out of its deflation

(courtesy Reuters)

Bank of Japan may pledge open-ended asset buying

They might want to get some gold first.
* * *
By Leika Kihara and Tetsushi Kajimoto
Thursday, January 17, 2013
TOKYO -- The Bank of Japan will consider making an open-ended commitment next week to buy government bonds and other assets until 2 percent inflation is in sight and the economy is on a more solid footing, according to sources familiar with its thinking.
The central bank will also consider scrapping interest it pays on banks' reserves, the sources added.
Faced with relentless pressure from Prime Minister Shinzo Abe to do more to pull Japan out of deflation, the BOJ is expected to double its inflation target and possibly boost its long-running asset-buying scheme at a two-day policy review that ends on Tuesday.
Any steps beyond that, however, would come as a surprise for investors, possibly putting the yen under more selling pressure and further boosting Japanese stocks, which have bolted to their highest levels in nearly three years on hopes of bolder policy measures.
The Bank of Japan and the government are in final talks on the contents of a joint policy statement they aim to issue on January 22, and both have already agreed on the 2 percent inflation goal, deputy economics minister Yasutoshi Nishimura told Reuters in an interview on Friday.
Governor Masaaki Shirakawa "has been saying that 1 percent inflation would be in sight before long but we have not reached that stage yet," Nishimura said. "If we share 2 percent inflation as a common objective, we expect the BOJ to do something very aggressive."
But it has not been decided whether the statement will include job growth as the central bank's mandate and how to describe the timeline for achieving the inflation target, although it is unlikely to set a specific deadline, he said.
Abe, who led his Liberal Democratic Party to a landslide victory in a December 16 election with promises of aggressive budget and monetary stimulus, has suggested adding job creation to the BOJ's policy goals and making 2 percent inflation a medium-term goal that should be achieved in two to three years.
Both are problematic for central bankers, who argue monetary policy alone cannot achieve those goals and are wary of committing to binding targets and deadlines.
But aware that investors have already priced in the new inflation target and another expected increase of 10 trillion yen ($112 billion) in the BOJ's asset buying and lending scheme -- since October 2010 its main policy tool -- central bankers are discussing other unconventional steps to maximize market impact, sources told Reuters.
One option would be to replace incremental increases in the asset programme with a U.S. Federal Reserve-style open-ended pledge to continue buying assets until the inflation goal is within reach, without setting a deadline for completing the purchases, the sources said.
Another idea would be to pledge to maintain the balance of the programme even beyond its end-2013 deadline, they said.
The BOJ will also consider scrapping the 0.1 percent interest paid on financial institutions' reserves held with the central bank, according to the sources, who spoke on condition of anonymity due to the sensitivity of the matter. That rate has effectively served as a floor to money market rates and kept them from falling to zero.
Such a proposal from BOJ board member Koji Ishida was voted down by 8-1 at the December meeting, but another board member, Sayuri Shirai, said in a recent speech that the idea was worth considering as a way to further push down interest rates and help further weaken the yen.
The new government's push for more public spending -- it approved 10 trillion yen in extra spending last week -- and aggressive monetary easing has helped reverse the yen's gains, setting off stock market rally led by exporters and construction firms.
But many economists warn the stimulus may give the sluggish economy only a temporary jolt at best if Abe's government fails to follow through with politically more difficult economic reforms needed to lift Japan's long-term growth potential.
They also warn that the push to reflate the economy long-trapped in sub-par growth and low-grade deflation could backfire if the new government's medium-term fiscal plan due in mid-2013 fails to convince markets that it can get Japan's ballooning debt back under control.
Shirakawa met with Finance Minister Taro Aso and Economics Minister Akira Amari on Friday to narrow their differences over the statement they aim to issue next week. The ministers are due to fine-tune the statement with Abe once he returns from a trip to Southeast Asia, according to a government source.


Perhaps, one of the best analyst out there on Japan is Kyle Bass.  He states that Japanese citizens have been the major purchasers of Japanese bonds even with tiny yields.  These citizens have been buying these bonds knowing full well that deflation would still be around and thus the rise in bond prices would make up for the lousy yield.

Now if Abe forcefully tries to inflate Japan, then these citizens will unload these bonds in a hurry as their prices will fall dramatically and this is the "Japanese Debt Time Bomb"

Japan's debt is 2400% of Japanese tax revenues.  Japanese debt is 240% of GDP.  Ninety Five percent of all bonds are held by Japanese citizens.

Kyle Bass gives Japan 18-24 months before implosion.

a must view video

(Kyle Bass/zero hedge/CNBC)

"Detonating The Japanese Debt Time Bomb" With Kyle Bass

Tyler Durden's picture

The hyper-correlation of Japanese stocks and the JPY have led many to believe that Abe's miracle promise will be just the ticket to bring the nation's two-decade slump to an end - a 2% inflation target is all you need. However, in a brief CNBC interview, Kyle Bass explains that not only are 99.9% of people wrong about the crisis (explaining the critical aspect of the abrupt turn of twenty years of the 'procylicality of thought' - that deflation is the norm), but Abe's actions have actually brought forward the date of the "detonation of Japan's Debt Time Bomb.
It is the Japanese institutions that own JGBs and they own them at meager rates of interest simply because of the ingrained belief in deflation; when the government begins to target 2% inflation, the swing in forward expectations (he notes tomonitor inflation swap breakevens) will be the trigger for Japan's implosion. Bass warns that "Japanese debt is around 24x central government tax revenue and when you sail into the zone of insolvency, nothing you can do will help," though he realizes that calling the end of the 70-year debt super-cyle to a specific date is naive, he does expect the 'bomb' to explode within 18 month to two years.
All of the components for this [bomb] to go off 'all of a sudden' are in place. The clock has started on the qualitative shift in participants' minds that the situation is untenable as the realization that Japan spends 25% of revenue on interest now - and with higher rates (via this supposed inflation) the entire situation becomes farcical as every 1% rise in their cost of capital (or rates) costs them another 25% of revenue!.

On JPY devaluation - The signs are already there that elites are exiting the JPY - with recent M&A transactions - he warns. 20% of exports go to China; this could be halved given the tensions, and a JPY devaluation is not going to restore the competitiveness of that secular decline.
On Japanese stocks - The people buying Japanese stocks, are picking up dimes in front of a bulldozer.
Bass goes on to discuss the US Housing stabilization, European stress, and China's economic opacity.


As we told you before the Greek has a gap of 9.5 billion euros next year.
Greece's GDP will shrink by 4.2 Billion euros this year and somehow miraculously grow to .6% in 2014
The IMF is demanding haircuts on Greek bonds again something that the ECB will not allow.
The IMF recommends keeping interest rates on Greek bonds at zero.

(courtesy IMF/zero hedge)

IMF Sees Greek Funding Gap Up To €9.5 Billion in 2014

Tyler Durden's picture

All commentary at this point on the infinite monetary sinkhole of Southern Bavaria, f/k/a Greece (whose lack of privatization efforts have angered Mother Merkel, who is now demanding more Greek assets be sold to "willing buyers") is now worthless:
Has the IMF hired Armstrong yet?

A very important article on the importance of France and England to the success of Europe and the Euro:

France under Sarkozy was a good partner for Germany.  However the socialistic ways of Hollande is putting lots of pressure on the Euro zone.

England has been the supplier of capital to Europe and yet most citizens there want England out.

A very dangerous game.

(courtesy John Brown/Euro Pacific Capital)

France and the UK Could Be the Lynchpins of Europe

By: John Browne
Senior Market Strategist, Euro Pacific Capital, Inc.

-- Posted Friday, 18 January 2013 | Share this article | Source:

Over the past two months, Europe's problems seem to have disappeared from the headlines. However, the new French Socialist government is pushing ahead with policies that favor significantly higher government spending, greater regulation of business and commerce, and severely higher taxes on high earners. The long term effects of these policies, which I believe will lead to further economic decline, may be given fresh scrutiny if France is drawn into a lasting conflict in West Africa as a result of its surprise intervention in Mali last week. The financial discussions that will certainly accompany a longer term strategic commitment to the region may finally make clear that one of Europe's largest economies is heading down a dangerous fiscal path.

The pressures on France are coming at a time when internal British politics point towards increasing chances that, for the first time, the people of the United Kingdom will be given a referendum vote on their continued membership in the European Union (EU). France is a partner with Germany in the two-nation Axis which effectively runs the EU. Second only to Germany, the UK is a key provider of funding for the EU. If either France faces an economic bailout or the UK votes to leave, the EU likely will begin to disintegrate. Despite massive central bank support, the euro would threaten collapse and cause panic in many markets.

These issues should be looming large on national economies. Instead, investors and the media are focused on some signs of economic recovery in the U.S. Encouraged perhaps by the impact of the Federal Reserve's unprecedented quantitative easing policies, which have kept interest rates near all-time lows, consumers have spent more freely in recent months. This, possibly combined with government propaganda and misleading statistics particularly regarding inflation and unemployment, has persuaded corporations to spend more. Automobile sales are up and real estate prices appear to be recovering slightly.

This seemingly good news has tabled fears of an imminent crisis. At the same time, and with fantastical schemes like the trillion dollar platinum coin attracting attention, more observers are coming to grip with America's intractable financial shortfalls. These concerns appear to outweigh ECB president Mario Draghi's promises to create as much synthetic euro currency as is necessary to support the sovereign debt obligations of all Eurozone member nations. As a result, the euro has staged a remarkable "return to normal" rally, gaining 7.5% against the dollar in the second half of 2012. At present the euro currency is nearing a 10 month high. 

Fearing debasement of the U.S. dollar and the Japanese Yen, the euro has become a de facto second reserve currency. Indeed, the fact that the euro exhibited such strength in 2012, when the future of the Eurozone and even that of the EU was threatened, suggests the global insistence that the euro survive. But the situation in France and the UK may test this resolve.

French President Sarkozy was a Europhile. He conducted French policy in lock step support of German initiatives. However, his successor, President Fran├žois Hollande, is an ardent Socialist. His policies are leading France towards a possible economic disaster on par with those facing Portugal, Italy, Greece and Spain (PIGS). Intimating that France was a potentially mortal threat to the EU, the Economist's cover for the November 17th - 23rd 2012 issue carried the headline, 'The time-bomb at the heart of Europe.' An open ended commitment to defend France's former West African colonies against Islamist incursions from the Sahara could fast track a fiscal crisis. Whereas the economies of most of the PIGS were small enough to be bailed out, France has the world's sixth largest economy. It is far too big for a bailout without threatening the economies of Germany and the UK.

The UK is a major funding source for the EU, second only to Germany. However, despite the fact that the UK is not a member of the Eurozone, the recent Eurozone banking bailouts have involved payments by British citizens via membership of the ECB and the IMF. Naturally this has proved very unpopular. Today, anti-EU feeling is running high. The United Kingdom Independence Party (UKIP) under Nigel Farage, its dynamic leader, now has taken over from the Liberals as the third political party in the UK. Indeed, it looks set to be the first UK party in the next European elections with a platform offering the UK's withdrawal from the EU.

So while the problems of Europe appear to be contained, under the surface the problems are getting more dire by the day.

John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.


Your early Friday morning currency crosses;


This morning we  see major euro weakness  against the dollar. The yen still remains very weak against the dollar.  The pound, this morning shows  considerable weakness against the USA dollar with the Canadian dollar also down  against the dollar.  We have a slight  risk is off situation as most European bourses  are in the red. Gold and silver are  down in the early morning 

Euro/USA    1.3311 down  .0091
USA/yen  89.90  up .092
GBP/USA     1.5915 down .0062
USA/Can      .9903  up .0045


your closing 10 year bond yield from Spain: 

(back down in yield)



5.079000.05200 1.01%
As of 01/18/2013.


Your closing Italian 10 year bond yield: 
slight decrease in yield.

Italy Govt Bonds 10 Year Gross Yield

 +Add to Watchlist


4.167000.03100 0.74%
As of 01/18/2013.


Your 5:00 pm Friday currency crosses:

The Euro weakened early in the morning and then held the 1.3311 level  throughout the day. 
The Yen weakened terribly  in the afternoon falling to it's low point of the day at 90.08 yen to the dollar. The pound also weakened terribly; the  Canadian dollar slightly fell against the dollar.
Currency wars was the highlight of the day.  

Euro/USA    1.3311 down    .0063
USA/Yen  90.08   up  0.27
GBP/USA     1.5864  down .0113
USA/Can      .9917  up .0059


Your closing figures from Europe and the USA:
England slightly in the green, the Dow rallies into the green late in the day.
The rest deeply in the red:

i) England/FTSE up   22.05  or 0 .36%

ii) Paris/CAC down 2.53 or  0.07% 

iii) German DAX: down 33.23 or .43%

iv) Spanish ibex: up 24.9 or 0.29%

and the Dow: up 53.68 points or .39% 


And now the major USA stories of the day:

Wolf Richter tackles the question of whether a bank is too big to fail.

You will enjoy this article:

(courtesy Wolf Richter/

How Big Is “BIG”?

testosteronepit's picture

“Repression” is what Richard Fisher, President of the Dallas Fed, called “the injustice of being held hostage to large financial institutions considered ‘too big to fail.’” He sketched out the destructive impact of these TBTF banks that, as “everyone and their sister knows,” were “at the epicenter” of the financial crisis—“whose owners, managers, and customers believe themselves to be exempt from the processes of bankruptcy and creative destruction.” These banks “capture the financial upside” of their bets but are bailed out when things go wrong, he said, “in violation of one of the basic tenets of market capitalism.”
In his speech, “Ending ‘Too Big to Fail’: A Proposal for Reform Before It’s Too Late,” he offered a “simple” plan that would allow the nation to come to grips with these banks. But in the process, he did something else: he defined BIG.
For example, Dodd-Frank is BIG. Alone its name: Dodd–Frank Wall Street Reform and Consumer Protection Act. The congressional effort to address the nightmare of TBTF “has clearly benefited many lawyers and created new layers of bureaucracy,” Fisher explained. But other than that, it “has made things worse, not better.” It has failed “to constrain” the megabanks’ advantages. “Indeed, given its complexity”—he later called it copious amounts of complexity—“it unwittingly exacerbates them.”
The Act’s “mumbo-jumbo” is spelled out on 848 pages, which “spawned” 8,800 additional pages of proposed regulations, with many more pages of regulations to come. Complying with them would eat up—“conservatively, in my view,” Fisher added—2,260,631 labor hours per year. In other words, Dodd-Frank created 1,130 full-time jobs, assuming they’re working regular hours, not banking hours.
And these 1,130 jobs would be spread over the 5,600 banks that make up the US banking industry. So the burden on each bank wouldn’t be unbearable. But approximately 5,500 of these banks are small to tiny community banks with less than $10 billion in assets. While they make up 98.6% of all banks, they control only 12% of the assets in the banking industry. Another 1.2% of the banks are regional banks with up to $250 billion in assets. These 70 banks hold 19% of the assets in the banking industry. Should any of them fail, it would entail mostly routine “private-sector ownership changes and minimal governmental intervention,” Fisher said.
The rest (0.2% of the banks) are megabanks with assets exceeding $2.3 trillion at the top end. There are 12 of them, and they control 69% of the assets in the industry. But with them, BIG also means complex, inscrutable, and intertwined. When one of them pops, run for the exits--if there are any exits. Due to the “threat they could pose to the financial system and the economy,” Fisher said, they’re considered TBTF.
So how big is BIG? JPMorgan Chase is the largest of Fisher’s “big five” with $2.36 trillion in assets, amounting to 15.7% of GDP. Up from $2.27 trillion a year ago. Getting bigger is their mission. It has $983 billion in “nondeposit liabilities,” or 6.3% of GDP, Fisher pointed out. And it sports a mind-boggling 5,183 subsidiaries in 72 countries!
The other members of the big five: Bank of America with 4,647 subsidiaries in 56 countries; Goldman Sachs with 3,550 subsidiaries in 53 countries, Citigroup with 3,556 subsidiaries in 93 countries; and Morgan Stanely, the baby, with 2,718 subsidiaries in 64 countries. Nondeposit liabilities of the big five amount to 26.3% of GDP.
By contrast, Lehman Brothers was only big, not BIG. In 2007, its total liabilities—not just nondeposit liabilities—amounted to $619 billion. It maintained a mere 209 subsidiaries in 21 countries. Next to the big five, it suffered from an outright lack of complexity. And yet, four years after its collapse, its bankruptcy proceedings are still ongoing.
Which begs the question: exactly how many of JPMorgan Chase’s 5,183 subsidiaries could CEO Jamie Dimon possibly be familiar with? OK, he has people working for him who have people working for them who have a lot of people working for them, and some of them (we hope) might be familiar with some of these subsidiaries and what they’re up to and what they’re hiding in their closets. But how the heck do you manage something like that?
Well, management by TBTF, of course. A new paradigm. Problems no longer matter. TBTF “exerts perverse market discipline on risk-taking activities,” Fisher said, as the “implicit government guarantee” induces unsecured depositors and creditors to “offer their funds at a lower cost to TBTF banks than to mid-sized and regional banks that face the risk of failure.” He called TBTF “an unfair tax upon the American people.”
Alas, Fisher has been up in arms about TBTF since July 2009, without visible effects—other than that the members of the financial cartel have gotten even bigger, even more complex, and even more inscrutable. And Congress isn’t about to change that.
Another powerful cartel, OPEC, however, is keeping a wary eye on Congress. In its January report, OPEC predicts that the US will post the highest oil production increase among non-OPEC states in 2013, while production from some OPEC members is declining—and Congress is playing with a monkey wrench. Read.... Why OPEC Is Worried About The US Congress.


The all important Michigan confidence index suffers a big fall to 71.3 from 72.9
Confidence in the USA is waning:

(courtesy Dow Jones newswires)  

DJ Early-Jan Reuters/Mich Sentiment Falls to 71.3 vs 72.9 in End-Dec

Fri Jan 18 10:07:40 2013 EDT

U.S. consumers started 2013 feeling more worried about the economy, according to data released Friday. Consumers may be responding to their thinner paychecks, a result of the fiscal-cliff deal.
The Thomson-Reuters/University of Michigan consumer sentiment index's early reading for January fell to 71.3--the lowest reading in more than a year--from 72.9 at the end of December, according to an economist who has seen the report.
Economists surveyed by Dow Jones Newswires had expected the early-January index to increase to 75.0.
The current conditions index dropped to 84.8 early this month from a final-December reading of 87.0, while the expectations index fell to 62.7 from 63.8. The latest reading is the lowest since November 2011.
Sentiment may have soured because of shrinking take-home pay. The fiscal-cliff deal brokered at the start of 2013 ended the payroll tax holiday for workers. As a result, all workers saw their withholding for Social Security rise by 2%.
Within the Michigan survey, the one-year inflation expectations reading increased to 3.4% from 3.2% at the end of December. The inflation expectations covering the next five to 10 years remained at 2.9%.


It seems that the Republicans are willing to raise the debt ceiling, however there must be a budget.

Interesting times:

(courtesy zero hedge)

Boehner To Obama: "No Budget, No Pay"

Tyler Durden's picture

And the game continues as Speaker Boehner appears to be kicking the can across the corridor to the Senate (and implicitly the Democrats) as he quite specifically advises them that with no budget, there is no talk of debt-ceiling extensions. The principle is simple, he notes, "no budget, no pay." As Dow Jones reports, the 'compromise' deal is that the House will propose a three-month extension of the debt-ceiling in exchange for a budget (i.e. spending cuts from the Senate)- which of course is all but impossible given the years of inability to pass a budget anyway. Check to Obama (though we know the response)...
Following are excerpts of House Speaker John Boehner’s (R-OH) closing remarks as at the House Republican members retreat today, as prepared:
“Before there is any long-term debt limit increase, a budget should be passed that cuts spending. The Democratic-controlled Senate has failed to pass a budget for four years.  That is a shameful run that needs to end, this year.

“We are going to pursue strategies that will obligate the Senate to finally join the House in confronting the government’s spending problem.  The principle is simple: no budget, no pay. ...

“A long-term increase in the debt limit that is not preceded by meaningful and responsible reductions in government spending might avert a default, but it would also invite a downgrade of our nation’s credit that damages our economy, hurts families and small businesses, and destroys jobs.”
Via Dow Jones:


I will leave you this weekend with this great commentary from Hugo Salinas Price
in Mexico:

Ambrose Evans–Pritchard beats about the bush

-- Posted Friday, 18 January 2013 | Share this article | Source:

By Hugo Salinas Price

To argue with Ambrose Evans-Pritchard is risky. He is well-informed, he has travelled much, writes well and has a sharp intellect. Yet, I must affirm that he is mistaken in some of the opinions expressed in his recent article at “The Telegraph” “A new Gold Standard is being born” January 17, 2013.
In the article he refers to the “(old) Gold Standard dynamic at work with all its destructive power, and the risk of sudden ruptures always present.”
I take it that he refers to the pre-WW I Gold Standard, and the financial chaos that broke out in 1930, to which he refers as “the destructive power” of the Gold Standard. That chaos should not be attributed to the Gold Standard as it existed, but to the previous expansion of credit in violation of the rules of the Gold Standard. The pain of the 1930’s was the correction which the Gold Standard imposed upon the financial diddling with credit expansion which the Powers had adopted; what was “destructive” was their policy of credit expansion beyond savings. If you stick your finger in the fire, don’t blame fire for its “destructive power”; just refrain from doing that.
Ambrose writes: “The global system is supple. It bends to pressures.”
Actually, there is no “global system”. There is at present only a global process.
A system has, by definition, parameters. A system is like a billiard-table with no pockets. The parameters are the boundaries of the table beyond which the billiard balls cannot move. The parameters of a system ensure its stability and endurance through time.
A process, on the other hand, has a beginning, a mid-point and an end, like cooking a steak, or like a fire-cracker. You light a fire-cracker; then you have the explosion as the powder ignites instantaneously. The process ends when the exploding gases collapse. A process does not endure.
From Bretton Woods (1944) to 1971 the world had a system, albeit a defective and fragile system. There was a parameter which could not be violated: the US solemnly promised to redeem dollars held by foreign central banks for gold at the rate of $35 dollars per ounce. That was a system that held world credit expansion down to a modest rate up until 1971, when Nixon decided to renege on the promise. See graph of “International Central Banks, excluding gold”.
Since 1971, there is no “monetary system” for the very simple reason that there is no longer any parameter to credit expansion.
What we have had since 1971 is an explosive process of credit creation in the world. Total world debt is calculated to be 350% of world GNP.
The explosion – like the explosion of a fire-cracker – is now entering its collapse phase. There is no way to avoid the collapse: world debt of 350% of world GNP is unsustainable. There is absolutely no way out of this. The world has not put just a finger in the fire. It has put its whole body in the fire. The pain of the coming collapse will be ghastly.
It will be educational to see how those responsible for the present disaster explain away the cause: unlimited world credit expansion.
Ambrose praises the global “system”: “The global system is supple. It bends to pressures.” Yes indeed, it does “bend to pressures” – another way of saying that there exist no parameters, and that what we have is an explosive process of credit creation, not a system. We shall learn in the near future, that the process of collapse of credit has “destructive power” in spades.
Ambrose guesses about the nature of “any new Gold Standard”. He says gold “will take its place as a third reserve currency”, but “not so dominant that it hitches our collective destinies to the inflationary ups […..] and downs of global mine supply. That would indeed be a return to a barbarous relic.” In other words: “Yes but No; the world will muddle through, somehow”.
The global mine supply that Ambrose mentions is a negligible factor with regard to the value of gold. If mine supply should double, or if mine supply should disappear completely, the effect upon the price of gold would be imperceptible. Ambrose is not aware that the world supply of gold is not just what comes from mines annually, but somewhere in the region of 170,000 tonnes, because all the gold ever mined – except what has sunk to the bottom of the sea in shipwrecks or what remains hidden in buried treasures – has an owner and is potential supply.
The ratio of stocks to gold-production is the lowest of any commodity. Mine production of about 2,400 tonnes per annum is about 1.5% of total supply. It would take some 67 years at the current rate of gold production, to double the world’s supply. Compare with copper: the above-ground supply of copper is about three month’s of copper consumption. The price of copper is very susceptible to changes in supply and demand. Gold is the paragon of stability.
Ambrose closes by saying: “Let us have three world currencies, a tripod with a golden leg. It might even be stable.”
Ambrose waffles. He is in favor of a Gold Standard, as long as it does not interfere with credit expansion, by means of which modern states pretend that they are Welfare States until they go broke and people riot in the streets.
You can’t have it both ways, Ambrose! The world will either establish a gold standard and immediate settlement of trade in gold, or it won’t. And if the world does not get a gold standard, then we can kiss industrial civilization good-bye.
I realize that putting things in such drastic terms goes against the British aesthetic which regards clarity as boorish and as evidence of a lack of suitable education. But with regard to gold, it is not possible to “muddle through” as the Brits put it.
Gold is so highly prized in the real world (uninhabited by Keynesian economists, financial oligarchs and lapdog politicians) that it will never, ever function as a world currency, as long as other fiat currencies exist, for the simple reason that no one in his right mind will want to use gold for payment, if he has any other means at hand with which to pay a debt or settle a transaction. Gresham the Brit dixit.
Gold will not be used as money until some nuclear power that is seller of essential goods demands payment exclusively in gold, and other lesser powers fall in line. In the meantime, gold is doing and will go on doing what it did when the Roman Empire entered its decline, and what it did during the French “Assignat” follies (1790 – 1797): it is going into hiding.
If the French experience with gold during the French Revolution is any guide, we have yet to see the last spasms of desperation of the big powers: persecutions, confiscations, executions, imprisonment of anyone holding gold. When the dust settles, as it must, I think we shall see an un-democratic world run by military men, among whom the most enlightened may perhaps opt for gold and silver as money, and have done with such nonsense as “suppleness and bending to pressure”.


I wish you all a grand weekend, and I will see you Monday.


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