Saturday, February 2, 2013

Smaller than expected jobs report/4th largest Dutch bank fails/Only 3 billion euros tendered on second LTRO

Good morning Ladies and Gentlemen:

Gold closed up on Friday by $8.80 to $1669.40.  Silver also advanced by 60 cents to close the comex week at $31.94. Gold and silver were all over the board on Friday as the bankers tried to contain these two precious metals  It seems that their plan to suppress the prices failed as both finally advanced by closing comex time.

In the delivery schedule for gold we lost some gold to the avarice of Blythe Masters but not much as 42.1 tonnes of gold still stands for delivery. You will recall previous months that after first day notice, the first few days we witnessed a considerable drop in gold ounces standing.  Not this month!

Dave from Denver noted that in Shanghai a total of 31 tonnes of gold stood for delivery Thursday night.
If you add the comex gold to Shanghai delivery gold we have 73 tonnes of gold standing which represents almost 40% of annual gold production. It seems to me that the physical markets are truly on fire!

The big news from Europe was the failure of the 4th largest bank in Holland, Dutch SNS.  It will be nationalized immediately. Also the ECB announced that only 3 billion euros were repaid back to the central bank, much smaller than expected.

In other news, the Euro skyrocket northwards almost touching the 1.37 mark.  The Yen continues to be trashed coming very close to the 93 handle settling at 92.83 yen/dollar.  The big European exporters are frantic as prices for their goods escalate while Japanese prices plummet.  Bruce Krasting provides a great illustration of pricing of German vs Japanese cars so you get a good idea why Germany is angry.

The big news from this side of the pond was the jobs report whereby 157,000 jobs were created instead of the expected 175,000.  Dave from Denver does a great job dissecting the report and giving us a clearer picture of what is really going on.

We will discuss these and many other stories but first let us head over to the comex and assess trading today............

The total comex gold open interest fell by a rather large 6987 contracts to settle the weekend at a rather low 424,150.  The OI gold complex Thursday night rested at 431,137.  It seems that the constant raids orchestrated by the bankers has had an effect on total open interest.  The active February contract month saw it's OI lose 8266 contracts falling from 13,910 down to 5644.  We had 7588 contracts on first day notice so we lost a tiny 678 contracts or 67,800 oz of gold.  This may be due to the largess of Blythe Masters or late rollovers. The non active March contract month saw it's OI rise by 24 contracts up to 1235.  The next active gold month is April and here the OI lowered by only 619 contracts to 255,662.  The estimated volume at the gold comex on Friday was good at 182,267.  The confirmed volume on Thursday was also in the same ballpark at 182,430.

The total silver comex lowered by a small 1826 contracts from 151,680 down to 149,854.  The raid did not scare too many silver players. The non active February contract month saw it's OI fall from 85 down to 20 for a loss of 65 contracts.  We had 65 notices filed on Thursday so we neither lost nor gained any silver ounces standing for delivery. The estimated volume at the silver comex on Friday came in at 56,280 which is pretty good.  The confirmed volume on Thursday was even better at 62,760.

Comex gold figures 

Feb 1.2013    

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
72,340.747 (Scotia)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
2,989.95 oz (HSBC)
No of oz served (contracts) today
 1554    (155,400  oz)
No of oz to be served (notices)
4090  (409,000) oz
Total monthly oz gold served (contracts) so far this month
9,142  (914,200 oz) 
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month


We had some activity at the gold vaults.
The dealer had no deposits and no    withdrawals.

We had 1   customer deposit:

Into HSBC:  2,989.95 oz

total deposit:   2,989.95 oz

We had 1 biggy customer withdrawal:

out of Scotia:  72,340.747  (2.25 tonnes

total withdrawal:  72,340.747 oz

We had 0 adjustments:

Thus the dealer inventory rests tonight at 2.925 million oz (90.97) tonnes of gold.

The CME reported that we had 1554 notices filed for 155,400 oz of gold on Friday.   The total number of notices so far this month is thus 9142 contracts x 100 oz per contract or 914,200 oz of gold.  To determine how much will stand for February,  I take the OI standing for February (5,644) and subtract out Friday's notices (1554) which leaves me with 4090 notices or 409,000 oz left to be served upon our longs.

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

914,200 oz (served second day notice) + 409,000 oz (to be served upon) = 1,323,200 oz or 41.15 Tonnes.

we lost 678 contracts or 67800 oz of gold.

The bankers are scrambling!!


February 1.2013:   The February silver contract month

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory  nil
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory   2,550,785.257  (CNT,HSBC,JPM,Scotia)
No of oz served (contracts)1  (5,000  oz)  
No of oz to be served (notices)19  (95,000  oz) 
Total monthly oz silver served (contracts) 66  (330,000  oz) 
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal of silver from the Customer inventory this month19,617.61

Today, we  had huge activity  inside the silver vaults.

 we had no dealer deposit and no dealer withdrawal.

We had 4  customer deposits of silver:

i) Into CNT: 599,810.14   oz  (amazing..they are now including the decimals)
ii)Into HSBC:  616,558.707 oz
iii) Into JPMorgan:  530,483.60 oz
iv) Into Scotia:  803,932.27 oz

total deposit:  2,550,785.257 oz

we had 0 customer withdrawal:

total customer withdrawal:  nil  oz

we had 0  adjustments:


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

Registered silver remains today at :  37,180 million oz
total of all silver:  157.127 million oz.

The CME reported that we had  1  notice filed for 5,000 oz of silver on this second day notice for the February contract month. To obtain what is left to be served upon our longs, I take the OI standing for February (20) and subtract out Friday's notices (1) which leaves us with 19 notices or 95,000 oz left to be served upon our longs. 

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

325,000 oz (served)  +  100,000 oz (to be served upon)  =  425,000 oz

We neither gained nor lost any silver oz standing on Friday.

You can bet the farm however, that this number will increase as the month progresses.

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:   Feb 1.2013:



Value US$71.235     billion 

Jan 31.2013:



Value US$71.054   billion

Jan 30.2013:



Value US$71.599    billion

Jan 29.2013:



Value US$71.002   billion

Jan 28.2013:



Value US$70.704  billion

Jan 25.2013:



Value US$70.952  billion

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

and now for silver:

Feb 1:2013:

Ounces of Silver in Trust335,175,993.900
Tonnes of Silver in Trust Tonnes of Silver in Trust10,425.14

Jan 31.2013:

Ounces of Silver in Trust335,756,245.200
Tonnes of Silver in Trust Tonnes of Silver in Trust10,443.19

Jan 30.2013

Ounces of Silver in Trust335,756,245.200
Tonnes of Silver in Trust Tonnes of Silver in Trust10,443.19

Jan 29.2013:

Ounces of Silver in Trust335,756,245.200
Tonnes of Silver in Trust Tonnes of Silver in Trust10,443.19

Jan 28.2013:

Ounces of Silver in Trust335,756,245.200
Tonnes of Silver in Trust Tonnes of Silver in Trust10,443.19

we  lost 581,000 oz of silver from the SLV vaults.


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 4.2 percent to NAV in usa funds and a positive 4.1%  to NAV for Cdn funds. ( Feb 1 2013)   

2. Sprott silver fund (PSLV): Premium to NAV rose to 1.97% NAV  Feb 1./2013
3. Sprott gold fund (PHYS): premium to NAV  rose to 2.85% positive to NAV Feb 1/ 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 4.2% in usa and 4.1% 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 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.



Friday night saw the release of the COT where we get to see position levels of our major players from Tuesday Jan 22.2013 until Jan 29.2013.

Let us head over to the gold COT and see what we can glean from it.

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 29, 2013

In a nutshell, you see criminal behaviour at its best:

Our large speculators:

Those large speculators that have been long in gold got fleeced again by our criminal banks as they pitched an enormous 14,692 long positions.

Those large specs that have been short in gold  added a massive 10,257 contracts to their short much to glee of the bankers. They supplied much of the needed paper

Our commercials:

What more can I say:

Those commercials that have been long in gold and are close to the physical scene, added a rather large 6728 contracts to their long side.

Those criminal commercials that have been short in gold, collusively covered a monstrous 22,125 contracts from their short side.

Our small specs;

Those small specs that have been long in gold, pitched a rather large for them 2546 contracts from their long side

Those small specs that have been short in gold added another 1358 contracts on the short side helping the banks supply the needed short paper.

Conclusion:  Now massively bullish as the bankers go net long to the tune of 15,353 contracts.
Remember that these figures are up to this past Tuesday.  

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

Tuesday, January 29, 2013

And now for our silver COT: (please note the difference between gold and silver)

Our large specs:

Those large specs that have been long in silver added another 1807 contracts to their long side in a total contrast to the gold players.

Those large specs that have been short in silver did not like the lay of the land so they covered a huge 1904 contracts from their short side, again in total contrast to the gold players.

Our commercials;

Those commercials that have been long in silver, and are close to the physical scene added 614 contracts to their long side
Those commercials who have been short in silver from the time of Alexander the Great, (and please get a load of this) ADDED A MONSTROUS  3483 contracts to their short side.

In other words, in gold the bankers covered on the raid, in silver they could not as demand for contracts overwhelmed supply

Our small specs;

Those small specs that have been long in silver pitched 826 contracts from their long side
Those small specs that have been short in silver added a very tiny 16 contracts to their short side.

Conclusion:  From a commercial standpoint, very bearish as the bankers go deeper and deeper on the short side.  They went net short by another 2869 contracts.

It looks folks of Eastern persuasion are circling the bankers' wagon which happens to be void of silver.

And now for the major physical stories we faced today:

First gold trading from Europe and Asia courtesy of Goldcore.

Major points of interest:


And now for the major physical stories we faced today:

First gold trading from Europe and Asia courtesy of Goldcore.

Points of interest:  JPMorgan talking about South Africa and the Middle east:

(courtesy Goldcore)

JPMorgan Sees Gold At $1,800 By Mid 2013 As South Africa “In Crisis” And “Escalating Instability” In Middle East

-- Posted Friday, 1 February 2013 | Share this article | Source:

Today’s AM fix was USD 1,665.00, EUR 1,217.99, and GBP 1,052.46 per ounce.
Yesterday’s AM fix was USD 1,674.50, EUR 1,234.88, and GBP 1,058.47 per ounce.

Cross Currency Table – (Bloomberg)

Gold fell $11.70 or 0.7% in New York yesterday and closed at $1,664.80/oz. Silver slipped to a low of $31.09 and finished with a loss of 1.66%.

Gold Spot $/oz, 60 Days, 30 Minutes – (Bloomberg)
For the month, the falls yesterday led to gold being 0.4% lower in dollar terms in January. It was also lower in euro terms but eked out strong gains against the pound and Japanese yen both of which saw falls on international markets.

On the week, while gold is lower today it looks set for a small weekly rise in dollar terms and by more in other currencies. It is currently 0.45% higher in dollar terms and 0.35% higher in sterling terms but has seen stronger gains in other paper currencies - 1.1% higher in euro terms, 1.9% higher in yen terms and 2% higher in Swiss franc terms.

While the euro has strengthened against the dollar and pushed the dollar index to its lowest level since the end of December – both currencies look vulnerable to further falls against gold in 2013.
Gold Spot $/oz, 5 Days, Tick – (Bloomberg)
A higher close this week may help the negative technical and overall sentiment towards gold due to the recent price weakness.

U.S. nonfarm payrolls are published at 1330 GMT and a negative number should see more safe haven gold buying as was seen after the poor GDP number this week.
The CME Group said it will add platinum and palladium options onto its Globex electronic platform starting towards the end of February. They intend to cater for the increasing investor interest in platinum group metals.
New research confirms that having gold in a portfolio acts as a currency hedge and will protect investors from currency volatility in emerging markets.

The World Gold Council, examined eight periods of “crisis conditions” and found returns from portfolios that included gold in hedging were 2.4% higher than investments lacking measures to counter exchange-rate risk. Gold beat currency hedges by 1%, according to the Council.
Economic growth in emerging markets, along with “aggressive” monetary policies in developed countries, led to increases in interest-rates disparities and more expensive exchange-rate hedging costs, they noted.

The World Gold Council has long been at the forefront of providing excellent research showing gold’s importance as a hedge, diversification and store of wealth for investors and savers.
JPMorgan Sees Gold At $1,800 By Mid 2013 As South Africa “In Crisis” And “Escalating Instability” In Middle East  J.P. Morgan Chase & Co. said gold will rise to $1,800 an ounce by the middle of 2013, with the mining industry in South Africa “in crisis,” according to Bloomberg.
South Africa, once the largest gold producer, faces industrial unrest, high wage inflation and adverse regulatory changes for local mines, Allan Cooke, an analyst at the bank, said in a report dated today.

Gold will get a boost from prospects of more stimuli from the U.S., Japan and Europe, the potential for escalating instability in the Middle East and low interest rates, according to the report.

Geopolitical risk from the Middle East and the risk of war between Israel and Syria and Iran remains seriously underestimated by market participants and will provide support for both oil and gold.

Only yesterday the crisis intensified after Israel stepped into the Syrian conflict by bombing the outskirts of Damascus. Russia condemned the attack and Syria has threatened retaliation.

Webinar on Gold and Silver in 2013
Dominic Frisby, Money Week’s gold expert and GoldCore's Head of Research, Mark O'Byrne conducted a one hour webinar on Wednesday which discussed the outlook for gold and silver in 2013 and beyond.
Central Bank Gold Buying May Lead To Higher Prices in 2013 – GoldCore Webinar Slide

Frisby and O’Byrne presented a series of interesting slides. Both remain bullish in the long term but were cautious about the short term – primarily due to the poor recent technical action.

The webinar was extremely well attended and question and answers were again increasingly popular. Some of the interesting and important questions posed to both Frisby and O’Byrne were

>> What is your opinion of the reasons for the German gold repatriation & why do you think it is going to take 7 years to do so?

What is your opinion regarding tungsten gold bars?

>> Do you believe the gold market is manipulated by bullion banks and central bankers who do not want to see gold going up? 

If metals are going so high why only recommend 5, 10, 15% allocation in portfolio?
Why not +50%?

The  webinar can be watched and listened to by registering to view the recording at this 
NEWSGold headed for weekly rise; US jobs data in focus - Reuters
Gold futures rise ahead of U.S. jobs data – Market Watch
COMMODITIES - Profit taking hits grains, gold; index up 3% in January – ReutersLBMA, IGE urged to end Iran-Turkey Gold trade – Bullion StreetGold Seen Countering Emerging Market Currency Risk - Bloomberg

Gold mitigates foreign-exchange risk when investing in emerging markets – World Gold Council
A Wager on Metal's Silver Lining – The Wall Street Journal
Forget the slowdown in the US – the UK is the real worry – Money Week
The 10 Minute Gold Standard: It’s Much Easier Than You Think - Forbes
Rush To Safety: Americans Buy Nearly Half a Billion Dollars Of Gold and Silver In January – 24H Gold
Video: Should You Buy Precious Metals? - CNBC 
14 Fitzwilliam Square
United Kingdom:
No. 1 Cornhill


Ben Traynor adds his thoughts on early morning gold trading from Europe:

(courtesy Bullionvault)

"End of an Era" for Gold as S&P 500 Records Best January Since 1997

-- Posted Friday, 1 February 2013 | Share this article | Source:

London Gold Market Report
From Ben Traynor

THE U.S. DOLLAR gold price recovered some of its losses from the previous day Friday, edging higher to $1666 an ounce by the end of the morning in London, while most stock markets also edged higher ahead of US nonfarm payrolls data due out 08.30 Washington, DC time.

A day earlier, gold dropped 1% during Thursday's US session, in what one analyst describes as "a remarkable display of schizophrenic volatility".

A few hours later there was "little buying on the physical side" in Friday's Asian session according to one Hong Kong dealer quoted by newswire Reuters.

"There's some buying from mainland China...but I think gold is a bit tired after it failed to break $1700 an ounce."

European stock markets edged higher this morning, with exceptions in Italy and Spain. Spain's IBEX 35 index extended recent losses and was down 1.4% on the day by lunchtime today, the first day of trading after a ban on short selling dating from last July came to an end yesterday. Spanish stocks have now erased their gains from January.

The S&P 500 by contrast has seen its best start to a year since 1997, rising 5.2% last month.

"Earnings are strong, the economies around the world are bottoming and valuations are attractive," reckons Paul Zemsky, head of asset allocation at ING Investment Management in New York.

BNP Paribas today became the fifth big bank to follow Goldman Sachs and cut its 2013 gold price forecast by up to $100 per ounce. 

The French bank's analysts now believe gold will average $1790 per ounce this year.

Credit Suisse meantime published a note today entitled 'Gold: The Beginning of the End of an Era', arguing that the 2011 gold price peak could prove to have been the high "in this cycle" as the financial crisis grows less acute.

Like gold, silver also edged higher this morning, ticking above $31.40 an ounce, while other commodities were broadly flat.

China's manufacturing sector meantime continued to expand in January, though at a slower rate than the month before, according to official purchasing managers' index data published by Beijing Friday.

China's official manufacturing PMI fell to 50.4 last month, down from 50.6 in December, with a figure above 50 indicating sector expansion.

HSBC's manufacturing PMI by contrast rose to 52.3, up from 51.9 a month earlier, implying an accelerated growth rate. The HSBC PMI is more heavily weighted towards small and medium enterprises than the official PMI, which places greater emphasis on the views of purchasing managers at larger state-owned enterprises.

"Overall, I will put more weight on today's official PMI, largely because the current recovery is still rather narrowly based," says Li-Gang Liu, chief China economist at ANZ.

"We believe the state sector tends to benefit from this round recovery much more than the SME sector, a sector that tends to dominate the HSBC sample. The HSBC PMI also has a pattern of pro-cyclicality. When the markets are optimistic, the HSBC often becomes more so, and vice versa."

Over in Europe, Germany's manufacturing PMI rose from 46.0 in December to 49.8 last month, while for the Eurozone as a whole the manufacturing PMI rose from 46.1 to 47.9.

"Providing there are no further setbacks to the region's debt crisis, these data add to the expectation that the Eurozone is on course to return to growth by mid-2013," says Chris Williamson, chief economist at Markit, which produces the European PMI data.

In the UK meantime, manufacturing PMI fell last month to 50.8, down from 51.2 a month earlier. Similar PMI data for the US are released later today.

The US Senate Thursday approved legislation to extend the federal debt ceiling until May 19. The legislation now needs to be signed into law by President Obama.

The US Mint meantime reported a record monthly volume of silver American Eagle bullion coin sales for January. Just under 7.5 million ounces of the silver coins – which are produced specifically for investment purposes – were sold last month. Sales of gold American Eagle coins were their highest since July 2010 at 150,000 ounces.

Ben Traynor

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben can be found on Google+

(c) BullionVault 2013


The Reserve Bank of India will do anything to get its citizens to buy paper gold instead of the real stuff:

(courtesy Chris Powell/GATA/Reuters)

Reserve Bank of India devising products for turning gold into paper

Alankrita, see how this IOU looks around your neck.
* * *
India to Take Baby Steps Toward Gold-Linked Products
By Suvashree Dey Choudhury and Siddesh Mayenkar
February 1, 2013
MUMBAI -- The Reserve Bank of India plans to introduce three to four gold-linked products in the next few months in an effort to bring 20,000 tonnes of gold held in households into the banking system, but the measure is unlikely to cut bullion imports sharply, a senior official said.
India is the largest importer of gold, which is its second biggest import item after oil and contributes around 10 percent to the total import bill.
Large gold imports are a worry for the government and the RBI, with the current account deficit shooting to a record high in the September quarter, pressuring the rupee and adding to inflationary pressures.

The RBI plans to mobilise the unused gold by lending it to importers and exporters of the yellow metal, in a move it hopes will bring down the demand for physical gold.
It wants banks to encourage products linked to accepting physical gold as deposits and investing public money in gold related products, and extend loans against gold as collateral.
Indians own about 20,000 tonnes of gold, or three times the holdings of the U.S. Federal Reserve, in jewellery, bars, and coins.
"Overnight there won't be any reduction in imports, but people need to be made curious about new products," the RBI official with direct knowledge said.
"The main conduits of gold imports are banks, forming 50-60 percent of the total imports and supplies to jewellers. The way banks are suffering from huge non-performing assets, this is a good product to work on."
The RBI is likely to release next week its final report on issues related to gold imports and gold loans, the official said.
The RBI is designing products that could replace physical gold demand to yield similar returns, with easy liquidity and documentation.
Indian banks' total gold loans are worth 1 trillion rupees. Manappuram Finance and Muthoot Finance, two of the top gold loan financing institutions, together have loan books of 500 billion rupees, the official said, indicating a large business opportunity.
"The problem of gold imports can be solved only when the economy enjoys inflationary and macroeconomic stability," the official added.
Headline inflation has been above 7 percent in the last three years, prompting savers to invest in gold, stocks, and real estate, which yielded higher returns compared with bank deposits.
The RBI estimates gold imports to fall by 25 percent in the current fiscal year ending March to 750 tonnes from a record of 1,079 tonnes in the previous year due to a high import duty, a jump in prices, a slowdown in economic growth, and a month-long jewellers' strike.
India's current account deficit would had been lower by $6 billion at 3.9 percent in 2011-12 instead of 4.2 percent, had imports grown by an average of 24 percent instead of 39 percent, the RBI said in a recent report.


I am so sad to see the nitwit go:

(courtesy Chris Powell/Kitco)

Kitco cans analyst Nadler; gold rises $5.50

Kitco Reshuffles Commentary Lineup
By Kitco News, Montreal
Friday, February 1, 2013 has added two names to its roster of prominent commentators. Peter Hug, Global Trading Director for Kitco Metals, and Jim Wyckoff, senior analyst for Kitco Media, will be regularly featured under the site's popular commentary section.
"The addition of these two names just adds even more of a reason to come to for all precious metals analysis," said John Dourekas, Kitco's Media Director. "Peter is a seasoned trader with more than 30 years' experience in the business, and Jim has spent more than 25 years involved with stock, financial, and commodity markets."
Hug and Wyckoff are no strangers to the Kitco Internet site, as both have weekly shows on Kitco's Video News Channel. Hug is the star of "For Pete's Sake," which takes a look inside the mindset of a seasoned trader, and Wyckoff stars in "Technically Speaking," which sheds light on key trading levels for precious metals.
Other changes to the site include the departure of Jon Nadler, a long-time consultant and regular contributor. Nadler started his collaboration with the company in 2006 and was a cornerstone of the contributed commentaries section of and a regular on the trades how circuit.
"We appreciate Jon's contributions to the company and wish him well," Dourekas said. "We are dedicated to having the best-of-the best expert analysis on, and solidifying our role as the go-to site for all precious metals information. We have the most frequently quoted analysts and that is a reflection of our commitment to content, accuracy, and speed."
For media looking to interview Peter Hug and Jim Wyckoff, please

And now for your major paper stories which will have a strong influence on the price of gold and silver:

First your overnight sentiment.

Major points:

1.  Huge dollar and yen devastation which started fresh of the gate Thursday night and then onto early morning trading.  First the yen imploded into the "92" handle.  The Euro skyrocketed towards the 1.37 handle.

2.  All futures immediately shot up with no opposition as bad news was totally ignored such as the Chinese PMI coming in at only 50.4 below expectations of 50.6 ( in conflict with the HSBC flash number of 52.3)

3,  Europe PMI manufacturing numbers came in line with expectations with Italy, Spain and Germany coming in higher.  The entire European complex came in higher at 47.9 from last month's 47.5.  Expectations were for 47.5.  However it should be noted that these numbers were with the Euro below the 1.33 level.  One can just imagine the implosion next month.

4. The big story of the morning:  the second LTRO repayment came in at only 3.48 billion euros
repayment.  Many had expected that the two LTRO repayments would total 200 billion euros.
The total of the two repayments is 140.5 billion euros with only 27 banks involved in the second repayment. Thus we have far less contraction of the ECB's balance sheet than was thought to happen.

5, This immediately raised questions on really how healthy are the European banks if they are repaying less on a total blended basis than previously thought.

6. The big Dutch bank, SNS Real NV was nationalized Thursday night, Hollands, second nationalization of any bank due to big real estate losses.

7. the world awaits the jobs numbers

8. details from Deutsche bank

(courtesy zero hedge/Deutsche bank)

Key Acronyms Of The Overnight Session: PMI, LTRO, USDJPY And EURUSD

Tyler Durden's picture

After two consecutive down days in the market, it was time to get real, and like clockwork the dollar and yen devastation started right out of the gate in overnight trading, when first the USDJPY exploded higher, followed promptly by the EURUSD, both of which hit new period highs, of over 92, and just wide of 1.37 respectively. And with not one funding currency around to push risk higher, but two, futures have ramped enough to undo all of yesterday's losses and then some. Bad news was either promptly ignored, such as China's official PMI coming in at 50.4, below expectations of the 50.6 print, or offset by conflicting data, with the HSBC China PMI print moments after at 52.3, higher than the 52.0 expected, taking us back to early 2012 when the Chinese PMI was contracting and expending at the same time.
Speaking of PMIs, it was Europe's turn to release its final PMIs, which came in line with expectations, with Spain and Italy posting yet another modest increase, Germany rising from 48.8 to 49.8, and above the expectations of an unchanged number, and the consolidated Eurozone Manufacturing PMI printing at 47.9, up from the previous and expected 47.5: an 11 month high. Then again all these gains took place under a weak Euro regime - it now remains to be seen how European manufacturing operates when the EURUSD is on its way to 1.40, and when both Germany and France are now warning about the inevitable hit to their exports. Concluding the economic picture in Europe was the unemployment print which remained flat at 11.7%, the same as the revised prior number.
And then, under an hour ago, we had the star event of the day, the second 3 Year LTRO repayment announcement, which was a dud. With expectations soaring, and some expecting as much as €200 billion to be repaid following last week's €137 billion repayment, the ECB shocked the market when it reported that just €3.484 billion would be repaid by 27 banks on February 6, which in turn means a far less than expected contraction in the ECB balance sheet, and a dip in the EURUSD from overnight highs. This has immediately prompted questions of just how healthy are the European banks if they are now repaying less on a total blended basis than had been expected previously.
On the other hand, how one can talk about ECB balance sheet "contraction" when Draghi has pledged unlimited balance sheet support should Europe need it, still boggles the mind, and is precisely that it is unquantifiable that the algos tracking the relative sizes of the European and US balance sheets are unable to parse this in terms of the EURUSD pair. Of course, sooner or later even the ECB will have to enter the global currency war and grow its own balance sheet. At that point the unlimited off-balance sheet support will have to shit to very limited on-balance sheet, and the cycle will repeat anew as the two biggest currency pairs resume their dance, only this time with the USD getting stronger for an indefinite amount of time.
Finally, in the "not all is great news" category, and confirming the LTRO perspective that European banks are far from out of the woods, Dutch bank SNS Reaal NV was nationalized overnight, the country’s second banking nationalization since 2008, as real-estate losses brought the bank to the brink of collapse.
“I scrutinized all alternative solutions involving market parties,” Finance Minister Jeroen Dijsselbloem said. “Yesterday night I found myself compelled to conclude no acceptable total solution was offered. I therefore had to use the instrument of last resort, which is nationalization.”

The lender, which acquired ABN Amro Holding NV’s property- finance unit in 2006, has been hurt by losses on real estate loans that have left it struggling to repay a government bailout before next year’s deadline and bolster capital buffers. The nationalization includes all issued shares, core tier 1 capital securities and subordinated bonds, the ministry said.

SNS shares were suspended in Amsterdam. They last traded yesterday at 84 cents, valuing the company at 242 million euros, and have declined 57 percent in the past year.
And with Europe largely out of the way, it is now the US' turn, where all eyes turn to the non-farm payrolls number to be released at 8:30 am, which will be great if it is bad, as it means much more unlimited QE, and greater if it is good, as it means the "recovery" is sustainable, and the manufacturing ISM just after.
Some more on the overnight action from DB
The first payrolls report of 2012 is expected to deliver a modestly better headline number than the one in December. Indeed the market consensus is for a headline of +165k versus +155k previously. Private payrolls and the unemployment rate are expected to remain broadly steady at +168k and 7.8% though. One interesting theme to watch in 2013 is if the seasonals again dominate the data and indeed payrolls. Joe LaVorgna pointed out that in each of the last two years, employment started the year on a strong note only to weaken noticeably by the third quarter.
There has been talk of the financial crisis distorting seasonal adjustments. Payroll reports are obviously now going to be watched even more closely in 2013 given the current Fed’s policy in linking QE to labour market conditions. This does leave the rates market vulnerable to strong prints. Volatility on payrolls Friday could be significant this year.
Employment data aside the US ISM manufacturing is expected (Bloomberg) to remain largely steady in January versus last month (50.6 v 50.7) but the stronger than-expected Chicago PMI yesterday (55.6 v 50.5) might raise some hopes. In Europe, Italy’s PMI manufacturing is expected (Bloomberg) to rise modestly to 47.4 from 46.7 last month while Spain’s is expected to also improve a smidgen to 45.5 from 45.3. Steady improvements in these two countries is needed. The problems will arise if we start to plateau before we get close to 50.
In terms of markets, the highest Chicago PMI print since April with solid improvement in the underlying details did little to enthuse month end trading. The S&P 500 traded down to close -0.26% lower on the day. A fairly downbeat outlook from UPS and a higher-than-expected initial jobless claims data (368k v 350k) probably didn’t help although it was a mixed day for data watchers. Personal income rose more than expected (+2.6% v +0.8%) in December largely driven by dividend income ahead of scheduled tax increases although Personal Spending stats were a little below expectations (+0.2% v +0.3%). UPS’s shares fell 2.4% on the day despite announcing a larger share buyback programme this year which was viewed as a credit negative by the rating agencies. In other markets the CDX IG pulled back from its recent wides to outperform equities for the first time in many days. The index closed 1.5bp tighter while HY credit also saw some support yesterday.
Asian equities are mixed overnight. Gains are being led by the Shanghai Composite (+0.5%) and the ASX200 (+0.87%), while the Hang Seng (-0.3%) and KOSPI (-0.2%) lag. The official Chinese manufacturing PMI for January fell short of market consensus (50.4 v 51.0) and also down from the 50.6 print seen in both December and November. Meanwhile, the final HSBC version (52.3 v 52.0
expected) came in stronger...
The Nikkei (+0.3%) is also outperforming helped by further JPY weakness (92.2). The US Treasury 10-year yield added 2bp and is currently trading a shade over 2.00%.So all eyes will be on Payrolls and the ISM/PMI numbers and crucially the reaction in the rates market.


The lack of noise on Japan, allowed the yen to fall overnight to 92.30 to the dollar and it continued to fall throughout the day.  The 10 year USA treasury is close to 2%.

The Euro zone got favourable data from the PMI which caused the euro to rise through the 1.36 handle almost touching 1.37.

Germany seems to strengthening and France weakening in data.

(early morning currency discussion by Marc to Market):

Data Strengthens Current Drivers

Marc To Market's picture

The latest developments are serving to strengthen existing forces driving the foreign exchange market and producing a clear divergence of performances against the US dollar. 
The firmness in the US 10-year yield near 2%, the lack of much push back from G7 officials about the yen's weakness, and soft Japanese economic data (unexpected rise in unemployment and larger than expected decline in household spending) provided the latest incentives to  encourage the push the dollar to new highs against the yen to JPY92.30. 
The euro is posting strong gains that began in Asia even before the favorable euro area economic data and is poised to challenge the $1.37 area.   The PMI data supports ideas that the worst of the recent economic downturn is over.  The final manufacturing PMI was reported at 47.9, which compares with the 47,5 flash reading and 46.1 reading in Dec.  This is the highest in nearly a year.

There are a few high-level take aways.  First, the Germany recovery appears to be gaining momentum at the start of Q1.  The manufacturing PMI rose to 49.8 from the 48.8 flash.  Output and orders are back above the 50 boom/bust level.  Second, the weakness of the French economy and its divergence from Germany, which we think is a critical development in the euro area, continued.  France confirmed its 42.9 flash reading, a four month low.   Third, while Italy and Spain readings remain below 50, they are at there highest levels (47.8 and 46.1 respectively) since mid-2011.  Fourth, Ireland surprised on the downside, slipping to 49.5 from 50.9 in December and is worth monitoring to see if it is signaling a broader economic weakness. 
The euro area also reported an unchanged unemployment rate for December at 11.7%, after the Nov figure was revised down.  The consensus had been for an increase to 11.9%.   Taken together with the PMI data,  the market may conclude that the ECB is unlikely to  lean against the passive tightening of financial conditions that has seen Euribor rise around 25 bp since early December.  That passive tightening continued as the ECB announced that banks will return another 3.5 bln euros from the LTRO.
Another theme that the market has been following is the weakness of the UK economy and sterling's move out of the euro-orbit to some extent.  The CIPS manufacturing survey was disappointing and the Dec report was revised lower.  The Jan reading of 50.8  compares with 51.2 in Dec, which was revised from 51.4.  Sterling fell to session lows on the news, just above $1.58.  However, we suspect the market may be a bit too negative.  It is the first back-to-back reading above 50 since March-April last year. Output itself rose to 54.2 from 53.4, which is the highest since Nov 2011.  New orders rose for the third consecutive month. 
A case can be made that the weakness in Q4 GDP was also a bit of a fluke (like the US, though for different reasons).  For example, without the closure of two North Sea oil platforms, GDP would have been positive.  The talk of a triple-dip seems a to misconstrue the recoveries.  The UK economy has not recovered.  US and German GDP, in contrast, is above pre-crisis levels.  That is not true of the UK.  The economy is broadly stagnant in a trough.  The government insists on its austerity agenda and the BOE is currently saying that there is little more than it can do.
Doubts about the recovery of the Chinese economy were sparked by a unexpected decline in the official PMI and this contributed to the extension of the Australian dollar to new lows for the year near $1.0360.
The US jobs and PMI will be the economic highlights of the North American session.  In some ways, given the Fed's commitment on QE3+, the data needs to be significantly different from expectations to alter the forces at work.    US jobs growth is expected to be steady around the 3 and 6 month averages of 150-160k, which is shy of the 200k thought to be needed/desired.  The US manufacturing sector remains a bright spot of the economy and this should be reflected in the ISM reading.  The consensus is for a 50.6 reading after a revised 50.2 in December. 


Bruce Krasting details how the rapid change in value of the Euro and the rapid decline in the yen has on prices of goods.  He looks at the Audi A 8 and the Lexus LS 460 both 80,000 dollars 3 months ago and then today.  The difference is remarkable.

He demonstrates quite clearly why Germany is angry at Japan for trashing their yen:

(courtesy Bruce Krasting)

Rate Of Change

Bruce Krasting's picture


Say you're a Doc, working out of NYU Hospital on 1st and 34th, and on October 29 you park your car in the lot next door. Sandy rolls in, and the next morning your car is 20 feet underwater. You've got insurance, so a week later, check in hand, you look at new cars and narrow it down to two. A decked out Lexus LS460 and very nice Audi A8. The walk out price on both cars comes to 80 grand. Which one do you choose?

That was just three months ago. At that time the relative value of these cars was equal. If you assume that 80% of the cost of the car was the imported value, then you were "paying" 50,394 Euros for the Audi and 512,000 Yen for the Lexus. At the exchange rates in early November, the Euro component of the Audi was $64,000 (80,000 X 80% X EURUSD 1.27). The Yen cost was also $64,000 (80,000 X 80% /80.00). The EURJPY exchange rate was 102.
Today the EURJPY FX rate is 1.2650. The dollar cost of those Euros and Yen have changed substantially. $68,900 is now the Euro component of the Audi (+3,900). The dollar cost of the imported Lexus has fallen to $55, 350 (-$8,649). Looking at just the FX rate changes, the cost of the Lexus is down to $71,350, the Audi is up to $84,910. In three months there is a $13,560 price gap. Now which one do you choose?

I bring this up to make the point about how very rapidly the terms of trade have turned against Germany (all of the EU) and in favor of Japan. What is striking, is how quickly the adjustment has been. Consider this 15 year chart of the EURJPY:


What jumps out in the chart is the huge drop in the FX rate that occurred staring from July of 2008, and ending in February 2009. I discount that period of extreme volatility as it was marked by global instability. During those same months the S&P fell 50%. Everything was going wild.
If you exclude (or diminish) the 2008-09 experience, then you could could say that the movement in the EURJPY over the past six months is the most violent (vertical lines) in recent history.

The period from 1999 to 2004 is notable as an "up" period for EURJPY. The trend for that period was driven by steady currency intervention by the Bank of Japan. So the spikes higher for the EURJPY are quite different than what we are witnessing today. The Yen is not weakening because of a forceful Central Bank. If anything, the BOJ has "disappointed" on what it has promised to do.
What we are witnessing is Yen weakness (yes, coupled with Euro strength vs the $). The rate of change has been very substantial, arguably, this is the most volatile period in FX over the past 15 years.

Compare the prior periods of FX upheaval to today. In many ways, what has happened of late with the Yen versus the major currencies is unique to history. What is also amazing (to me) is that this FX violence is happening at a time when equity markets are soaring.
From 1999 - 2003 NASDAQ fell 70%, the S&P got clipped for 40%. 2008 - 2009 was a horror show. Today, the equity markets are thriving on the FX instability.

Are in we in one of those "New Paradigm" things with markets again? A financial world that can go through a very turbulent period in FX, while there is no fallout anywhere else?
For what it is worth, I didn't believe in the New Paradigm in 2000, I don't believe in it today.



The big news of the day: the 4th largest bank in Holland succumbs and will be nationalized due to massive real estate losses:

(courtesy zero hedge)

Dutch SNS Bank Fails On Real Estate Losses: First "Too Big To Fail" Nationalization In Five Years

Tyler Durden's picture

Earlier today we got one hint that not all is well in the European banking system, as far less than the expected €200 billion was tendered back to the ECB in the second LTRO repayment operation, when just 27 banks paid back some €3.5 billion. Another, perhaps far bigger one, comes courtesy of AAA-rated Netherlands, which just experienced its first bank failure since 2008 following the nationalization of SNS Reall NV, as the previously announced bad loan writedown finally claimed the bank. As a reminder, half a month ago we got news that "SNS Reaal NV (SR), a Dutch bank and insurer struggling to wind down a money-losing real estate lending unit, fell the most in more than two months after a report said it may have to post a 1.8 billion-euro ($2.4 billion) writedown on property-finance loans." Today we got the inevitable conclusion: nationalization, one which will cost taxpayers about $5 billion to avoid contagion to what many see as Europe's "strongest" banking system.
From Bloomberg:
The move, aimed “at stabilizing the SNS Reaal group,” will cost taxpayers 3.7 billion euros ($5 billion), the Dutch Finance Ministry said in a statement today. SNS’s property- finance unit will be separated from the company.

“I scrutinized all alternative solutions involving market parties,” Finance Minister Jeroen Dijsselbloem said. “Yesterday night I found myself compelled to conclude no acceptable total solution was offered. I therefore had to use the instrument of last resort, which is nationalization.”

The lender, which acquired ABN Amro Holding NV’s property- finance unit in 2006, has been hurt by losses on real estate loans that have left it struggling to repay a government bailout before next year’s deadline and bolster capital buffers. The nationalization includes all issued shares, core tier 1 capital securities and subordinated bonds, the ministry said.

SNS shares were suspended in Amsterdam. They last traded yesterday at 84 cents, valuing the company at 242 million euros, and have declined 57 percent in the past year.


The state will inject 2.2 billion euros of capital into SNS Reaal, write down 800 million euros on its earlier aid package and use 700 million euros to put the real estate portfolio at arm’s length.

“Nationalization would safeguard financial stability and prevent serious damage to the economy,” Dijsselbloem said. “I want the private sector to contribute as much as possible.”

SNS Reaal is the smallest of four Dutch banks designated as “systemically important,” or too big to fail, by the Dutch central bank. It had 32.5 billion euros in savings at the end of the third quarter, according to a Nov. 15 presentation. ING, Rabobank Groep and ABN Amro are its three largest competitors.
So if one of the most stable banking systems in Europe is not quite as stable as expected, one can only imagine what is going on in Spain and Italy, and how many hundreds of billions more in taxpayer aid will have to be shelved out once the soaring bad loans in these two countries can no longer be swept under the rug. 


The Italian Bank scandal now spreads to the other big Italian banks.
Berlusconi is turning out to be the big winner.  Remember he wishes to remove Italy from the EU altogether.

(courtesy zero hedge)

Italian Bank Scandal Spreads To Other Banks: Berlusconi Big Winner

Tyler Durden's picture

As we warned last week when the BMPS fraud story broke, this is highly likely to be the canary in the Italian banking system coalmine; and sure enough today, Reuters reports that:
Italian bank stocks (still under short-selling bans) are plunging (and the EUR is dropping) but, as Reuters notes, the winner in this growing debacle is Berlusconi as Italians blame the Democratic Party for the problems at the banks. Most pollsters, however, still think it unlikely that Berlusconi can overtake Bersani with little more than three weeks to go - after being more than 15 points behind in early December. And just as a reminder Mario Draghi was running the Bank of Italy during this era of evasion.

Today in Italian Banks...
and YTD...

Charts: Bloomberg


Your early Friday morning currency crosses;  (8 am)


Friday morning we  see the euro increase it's strength  against the dollar quite dramatically from the close yesterday. The yen this the morning fell badly  against on the dollar, retreating this time  into the "92" column .    The pound, this morning  shows tiny weakness against the USA dollar along with the Canadian dollar   We have a risk is on situation  this morning with most European bourses in the green. Gold and silver are  both up  in the early morning, with gold trading at $1665.20 (up 4.60)  and silver at $31.38 (up 4 cents)

Euro/USA    1.3657 up  .0046
USA/yen  92.13  up  .416
GBP/USA     1.5843  down .0026
USA/Can      .9987 up .0020


your closing 10 year bond yield from Spain: 

( back up in yield again)



5.210.03 0.48%

As of 11:59:00 ET on 02/01/2013.

Thursday's close:



5.180.04 0.80%

As of 11:59:55 ET on 01/31/2013.


Your closing Italian 10 year bond yield: 
 basically the same as yesterday. (the Banca Monti dei Paschi di Sienna problems didn't help today)

Italy Govt Bonds 10 Year Gross Yield


4.330.02 0.42%
As of 12:00:00 ET on 02/01/2013.


Your 5:00 pm Thursday currency crosses:

The Euro strengthened on Thursday night then weakened a touch in trading Friday afternoon but still it had a great 24 hours against the dollar.  The Yen weakened terribly against the dollar coming very close to the 93 handle .  The pound was pummeled in the afternoon  against the dollar. The Canadian dollar stayed rose above par to the USA . This afternoon it was all about the dollar and it had a very tough day against the Euro. The Yen had it's trouble against all currencies and the pound also landed in the doghouse against all.  Currency wars at its finest!!!!  

Euro/USA    1.3637 up    .0026
USA/Yen  92.83  up 1.12
GBP/USA     1.5689  down .0180
USA/Can      .9962  down .0013


Your closing figures from Europe and the USA:
everybody in the green except Spain, as investors are waking up to the fact that this nation is in deep trouble.

i) England/FTSE up 70.36  or 1.12%

ii) Paris/CAC down 40.93 or  1.10% 

iii) German DAX: up  57.34  or 0.74%

iv) Spanish ibex:down another whopping 132.6  or 1.59%

and the Dow: up 149.21 points or 1.59% 


And now the major USA stories of the day:

Tyler Durden reports on the big jobs report for January:

157,000 Jobs Added In January, Unemployment Rate At 7.9%

Tyler Durden's picture

The goldilocks economy continues as January nonfarm payrolls number comes in right as expected, or 157,000, a tiny miss to expectations of 165,000, down from the upwardly revised 196,000 (was 155,000 previously), leading to an unemployment rate of 7.9%, higher than the 7.8% expected. The seasonal adjustment for January was in line with expectations, or 2.120 million, as the actual decline in jobs December to January was a whopping 2.84 million. The NSA Birth/Death adjustment subtracted some 314K jobs in January.
From the Household survey:
The number of unemployed persons, at 12.3 million, was little changed in January. The unemployment rate was 7.9 percent and has been at or near that level since September 2012. (See table A-1.) (See the note and tables B and C for information about annual population adjustments to the household survey estimates.)

Among the major worker groups, the unemployment rates for adult men (7.3 percent), adult women (7.3 percent), teenagers (23.4 percent), whites (7.0 percent), blacks (13.8 percent), and Hispanics (9.7 percent) showed little or no change in January. The jobless rate for Asians was 6.5 percent (not seasonally adjusted), little changed from a year earlier. (See tables A-1, A-2, and A-3.)

In January, the number of long-term unemployed (those jobless for 27 weeks or more) was about unchanged at 4.7 million and accounted for 38.1 percent of the unemployed. (See table A-12.)

Both the employment-population ratio (58.6 percent) and the civilian labor force participation rate (63.6 percent) were
unchanged in January. (See table A-1.)

The number of persons employed part time for economic reasons, at 8.0 million, changed little in January. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-8.)
And from the Establishment survey: 
Total nonfarm payroll employment increased by 157,000 in January. In 2012, employment growth averaged 181,000 per month. In January, job gains occurred in retail trade, construction, health care, and wholesale trade, while employment edged down in transportation and warehousing. (See table B-1.)

Employment in retail trade rose by 33,000 in January, compared with an average monthly gain of 20,000 in 2012. Within the industry, job growth continued in January in motor vehicle and parts dealers (+7,000), electronics and appliance stores (+5,000), and clothing stores (+10,000).

In January, employment in construction increased by 28,000. Nearly all of the job growth occurred in specialty trade contractors (+26,000), with the gain about equally split between residential and nonresidential specialty trade contractors. Since reaching a low in January 2011, construction employment has grown by 296,000, with one-third of the gain occurring in the last 4 months. However, the January 2013 level of construction employment remained about 2 million below its previous peak level in April 2006.

Health care continued to add jobs in January (+23,000). Within health care, job growth occurred in ambulatory health care services (+28,000), which includes doctors' offices and outpatient care centers. This gain was partially offset by a loss of 8,000 jobs in nursing and residential care facilities. Over the year, health care employment has increased by 320,000.

Employment increased in wholesale trade (+15,000) in January, with most of the increase occurring in its nondurable goods component (+11,000). Since the recent low point in  May 2010, wholesale trade has added 291,000 jobs.

Mining employment increased (+6,000) over the month; employment in this industry has risen by 23,000 over the past 3 months.

Employment edged down in transportation and warehousing in January (-14,000). Couriers and messengers lost 19,000 jobs over the month, following strong seasonal hiring in November and December. Air transportation employment decreased by 5,000 in January.

Manufacturing employment was essentially unchanged in January and has changed little, on
net, since July 2012.
The labor force participation rate remained the same:
Birth death adjustments: 


Follow-Up From Yesterday - Non-Farm Payroll Report

Take the "L" out of BLS (Bureaus of Labor Statistics) and you get pure BS

I'm not going to focus on the enormous revisions the BLS made to the past monthly employment reports.  If anything, it shows just how unreliable are the BLS' monthly preliminary guesstimates, as well as its follow-up revision the next month.

As most of you have read by now, the non-farm employment report released this morning came in at 157,000 LINK  vs the consensus expectation of 175,000.  As absurd as it is to discuss and debate this number, as it will change over time and no one really understands how those changes come about, the report contained some of the inconsistencies with reality that I noted we might see yesterday.

First, the BLS is claiming that the retail trade added 32,600 (Table B-1 in the link above) jobs in January, with 15,000 of those added by electronics and clothing retailers.  And yet, I linked an article yesterday which listed the top-5 retailers in terms of store closings planned.  Three of the top 5 were Best Buy, JC Penny and Sears.  In fact, I would argue that - given the reports I've been reading and hearing regarding retail sales on either coast - it is highly probable that the retail industry experienced a significant decline in jobs.  This would be especially true since the last of the seasonal workers hired for the holiday season would have been dumped in January.

In addition to this, a couple of factors make the underlying substance of the employment report appear quite weak.  If you look at Table A of the Household data, the number of people unemployed in January actually increased by 126,000 over December.  Also, the number of people unemployed for 27 weeks or longer increased in January over December by 146,000 (not seasonally-adjusted).  If you go to Table B-8, you'll see the average weekly earnings of production and non-supervisory employees declined from December to January.  This is the heart of our middle class economy and taxable base of W-2 earnings.  Not good.

The precious metals spiked on the release of the unemployment report then did a u-turn lower when one of the Federal Reserve governors made the comment that QE could end even if the unemployment rate was in the low 7%.  After the market figured out that this was just another case of a trapped policy-maker trying to jawbone the dollar higher and metals lower, the metals bounced back toward their highs of the day and the mining stocks staged a nice rally.

The ability of the bullion banks to keep a lid on metals prices using fiat paper surrogates like Comex contracts and LBMA forwards is starting to decline at these price levels.  Enormous physical appetite out of India and China is occurring at these price levels.  In fact, a report to which we subscribe reported that 31 tonnes of gold were delivered on the Shanghai gold exchange last night.  Clearly the eastern hemisphere physical metal buyers are taking advantage of this price level.

Unfortunately, based on a lot of the non-mainstream media economic reports that I peruse on a daily basis, it would appear that the grassroots economy is stalling and will likely start to plunge pretty hard.  We are seeing more signals of impending troubles in the global financial system with the recent bank blow-ups in Italy.  These banks are going insolvent on derivatives positions.  I guarantee that derivatives are a growing problem for Euro/U.S. big banks in general.  

What this means is more QE, more debt accumulation by Governments and consumers and - most important - higher gold/silver/mining stock prices.


As the stock market roars past 14,000, Kyle Bass reminds the cheerleaders about Zimbabwe.
"By far, the best performer of the decade has been Zimbabwe", the problem is that "your entire portfolio buys 3 eggs"

(courtesy Kyle Bass/CNBC/zero hedge)

Kyle Bass Tells 'Nominal' Stock Market Cheerleaders: Remember Zimbabwe

Tyler Durden's picture

Amid the euphoria of today's crossing of the Dow's Maginot Line at 14,000, Kyle Bass provided a few minutes of sanity this morning in an interview with CNBC's Gary Kaminsky. Bass starts by reflecting on the ongoing (and escalating) money-printing (or balance sheet expansion as we noted here) as the driver of stock movements currently and would not be surprised to see them move higher still (given the ongoing printing expected). However, he caveats that nominally bullish statement with a critical point, "Zimbabwe's stock market was the best performer this decade - but your entire portfolio now buys you 3 eggs" as purchasing power is crushed. Investors, he says, are "too focused on nominal prices" as the rate of growth of the monetary base is destroying true wealth. Bass is convinced that cost-push inflation is coming (as the velocity of money will move once psychology shifts) and investors must not take their eye off the insidious nature of underlying inflation - no matter what we are told by the government (as they will always lie when its critical). Own 'productive assets', finance them at low fixed rates (thank you Ben), and finally, on HLF, don't bet against Dan Loeb.

Q4 Earnings Season Will Be The Worst Of 2012: Earnings Set To Decline 1% Over Prior Year

Tyler Durden's picture

One can stretch and spin the Q4 earnings reality to suit their particular sales pitch, or one can look at the facts. And the facts, as we first showed a week ago in "Q4 Earnings Season: Far Worse Than Most Suspect", is that before the start of Q4 earnings, the S&P 500 was expected to make $25.51 in earnings. Three weeks later, after half the companies had reported, the number declined to $24.03, with some $9.70 of actual reported earnings and the balance estimated. Now, a week later, the latest revision shows even more deterioration in earnings, which with 66% of companies by market cap reporting are now just $23.48, 8% lower than the estimate at the start of earnings season, with under $10 of earnings left in estimated EPS and the balance already in the books. As Goldman explains what this means for earnings on a year over year basis: "Our interim revised 4Q 2012 EPS estimate is now $23.48 implying negative 1% growth versus 4Q 2011($23.73)."
Another way of showing the transformation of Q4 from myth to reality: an inverse hockey stick as shown in the chart below, which also means that full year 2013 earnings will grind lower and lower as future optimism is also reacquainted with gravity.
Ironically, with Q4 initially expected to be the best quarter of 2012 (as expected - after all it was the last quarter of the year and this the most back-end loaded), it ended up being the worst, with its $23.48 EPS set to be below the $24.24 in 1Q, $25.43 in 2Q, and $24.00 in 3Q.
The earnings reality is even uglier when one excludes core, unflinching staples such as utilities, and the "magical" earnings from the financials, the bulk of which is loan-loss reserve releases, one-time charges, non-recurring, non cash impairments, and other accounting gimmicks. When looking solely at the S&P ex Fins and Utilities, Q4 will post a whopping 4% decline in earnings year over year!
But don't worry, the future is fantastic and earnings will soar, probably as a result of the payroll . At least that's what the always wrong sellside believes. This is the Q1-4 2013 earnings forecast was supposed to look a week ago when Goldman was still forecasting Y/Y growth in Q4 earnings. We now know that it will be a -1% drop.
Some comments from GS on why Q4 is merely the latest earnings disappointment.
  • Management guidance indicates downside to 2013 EPS. 73 companies with fiscal-year ends between November and January provided full-year 2013 guidance following their 4Q earnings announcements. 64% of firms have guided below consensus expectations, in-line with history (65%). The median company provided guidance 1% below consensus expectations.
  • Bottom-up consensus full-year 2013 estimates are down 1% since the start of earnings season. Consensus forecasts S&P 500 EPS of $112 in 2013 implying 15% growth versus full-year 2012. Consensus lowered Health Care and Information Technology earnings estimates by 4% and 3%, respectively, since the start of earnings season.
  • Using a mix of realized and consensus earnings, 4Q EPS is tracking 8% below the consensus estimate at the start of reporting season, $23.48 vs. $25.51.
  • Accounting and definition differences have lowered index-level results. Results comparable to consensus analyst estimates may differ from the Standard & Poor’s definition due both to accounting differences and definitions of earnings from operations. These differences are usually small, but pension charges had a significant impact in 4Q.
And we are supposed to believe that these EPS, and cashflow-strapped companies are hiring left and right?

The Biggest Mistake the Fed Ever Made

Phoenix Capital Research's picture

As powerful as it may be, the Fed is not the market. And since the Fed failed to restore trust in the system by forcing all bad debts to light, the financial world has grown increasingly volatile and broken as investors grow increasingly distrustful of the system and begin to pull their money from it: see market volumes continuing to plunge.

Nowhere is the lack of trust more apparent than in the financial sector. Indeed, it was a lack of trust between banks (inter-bank lending) that caused the credit markets to jam up in 2008, which resulted in the Crash.

That lack of trust continues to this day. In the post-Lehman collapse, instead of forcing real derivative and credit risk out into the open, the Federal Reserve and regulators instead suspended accounting standards and allowed financial firms (and other corporate entities) to continue to lie about the true state of their balance sheets.

As a result of this, the financial sector remains rife with fraud and impossible to accurately value (how can you value a business that is lying about its balance sheet?).

Those times in which a company was forced to value its assets at market prices have always seen said values losing 80%+ value in short order: consider Washington Mutual, which sported a book value north of $70 billion right up until it was sold for… $2 billion.

This type of fraud is endemic in the system. Indeed, we got a taste of just how problematic a lack of transparency can be with MF Global’s bankruptcy, in which a firm with $42 billion in assets lost over 80% of its value since August only to reveal in bankruptcy that it had stolen over $700 million worth of clients’ money.

That MF Global engaged in fraud and stole clients’ money is noteworthy. However, the far more important issue is:  HOW did this company receive primary dealer status from the NY Fed nine months before imploding?

The Primary Dealers are the banks that actively engage in day to day activities with the New York Fed regarding the Fed’s monetary policies. Primary Dealers also participate in US Treasury auctions.

Put another way, Primary Dealers are the most elite, well-connected financial firms in the world.  They have unequal access to both the Fed and the US Treasury Dept. In order for MF Global to have attained this status it must have passed through a review by:

  1. The New York Fed
  2. The SEC

This is not a quick nor superficial process. According to the NY Fed’s own site:

Upon submission of a formal application, a prospective primary dealer can expect at least six months of formal consideration by the New York Fed. That consideration may include, among other things, on-site reviews of front, middle, and back office operations, review of compliance programs and discussions with compliance and credit risk management staff, discussions with senior management about business plans, financial condition, and the ability to meet FRBNY’s business needs, review of financial information, and consultation with primary supervisors and regulators.

MF Global passed through all of these reviews to became a primary dealer in February 2011. A mere nine months later, the firm is in Chapter 11 and has admitted to stealing clients’ funds to maintain liquidity.

These developments reveal, beyond any doubt, that financial oversight in the US is virtually non-existent. This returns to my primary point: that trust has been lost in the system. And until it is restored, the system will remain broken.

A final note on this: the NY Fed is the single most powerful entity in charge of the Fed’s daily operations. How can anyinvestor believe that the Fed can manage the system and restore trust when the NY Fed granted MF Global primary dealer status a mere nine months before the latter went bankrupt?

If the NY Fed cannot accurately audit a financial firm’s risks during a six month review, then there is NO WAY an ordinary investor can do so.

This is one of the biggest risks in the system: that no one has a clue what financial entities are sitting on in terms of garbage derivatives and debts. As MF Global proved, this risk can result in a TOTAL loss of funds.

This type of fraud will continue until the system breaks. At that point hopefully the bad debts will finally clear from the system and we can actually lay a foundation for growth.

Phoenix Capital Research

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