Chinese 1- And 2-Week SHIBOR Rates Surge Over 9%, Highest Since 2007 

And while the developed world wonders whether or not Greece will default (it will), the real news continues to come from the new "White Knight" and IMF replacement, China, which according to the China Securities Journal is about to see an unprecedented surge in inflation, making life for the schizophrenic PBoC (on one hand handing out liquidity, on the other reeling it back in with rate hikes), untenable. Market News reports: "The Chinese central bank will need to raise interest rates in the near future if it is to tackle inflation pressure, despite the potential hit to economic growth, the official China Securities Journal said in an unsigned, front-page editorial Thursday. The newspaper said the central bank will move in the near future because the monetary conditions that are driving inflation are still in place, while negative rates are driving money out of the banking system, and putting those funds outside of the scope of reserve requirement adjustments. "The China Securities Journal believes that the current monetary conditions driving inflation haven't been reversed (and) the central bank will raise interest rates to address this," it said. Consumer inflation in June is very likely to exceed 6% y/y following May's 5.5% rise, the newspaper warned." Just as importantly, "real interest rates [have been pushed] into negative territory and triggered a drain of funds from the traditional banking system in search of yield. The newspaper said that M1 and M2 are no longer reliable indicators of fund flows within the economy because of this drain and said "it is urgent that interest rates are raised to reverse negative rates and guide funds to return to the banking system." Which simply said means that the liquidity crisis we have been following every day for the past week is about to get far worse. Indeed, as of tonight, both 1 and 2 week SHIBORs are above 9%. The highest 1 week Shibor has ever been is just over 10% back in 2007, right after the quant crash in August of that year. We are confident this all time high will be taken out in a few days.

Global Tactical Asset Allocation Q3 Update: Currencies 

Submitted by Tyler Durden on 06/23/2011 00:20 -0400

The always insightful market observers at Global Tactical Asset Allocation have released their third Q3 update compendium following equities and credit, this time focusing on FX, which is a must read for everyone trading currencies. Not surprisingly, the US Dollar is the fulcrum currency of choice: "The USD is becoming increasingly undervalued against most currencies and ridiculously so against some. It is at a 40 year low on a real broad trade-weighted basis. Its economy is much more dynamic and has started to rebalance earlier than other developed economies. Companies have been cutting costs aggressively and are much more competitive in the international markets. They are many challenges ahead but currencies are not an absolute bet on a country but a relative one...The 2 main problems remain are that: 1. the Fed is suppressing real government bond yields through quantitative easing. Ceteris paribus, the USD will have to be more undervalued on a PPP basis to be in equilibrium. Indeed, the deficit of interests payment foreigners are receiving has to be compensated by a lower price I.e. lower USD (this is another reason, beside the Balassa-Samuelson effect, why emerging markets with negative real yields have very undervalued currencies on a PPP basis). At current levels we think the compensation is large enough. 2. Uncertainties regarding future fiscal initiatives and long-term deficit reduction plans are high and foreign investors do not like incertitude." Naturally the result leads to Fx warfare, and other undesirable yet very exciting developments in FX trading. For everything one needs to develop an opinion on a given currency, including valuations, sentiment, liquidity, trade, seasonality, and more technical analysis that is healthy, this is the presentation for you. 

Senate To Vote Tomorrow On Bill To Repeal Government Authority To Provide Loans To IMF 

Submitted by Tyler Durden on 06/22/2011 23:59 -0400

Tomorrow, in an amendment to bill S.679, aimed at streamlining presidential appointments, proposed by Jim DeMint, the Senate will vote around noon as to whether or not to end the "U.S. government's authority to provide loans to the International Monetary Fund (IMF) and rescind related appropriated amounts." Another fun amendment to the same bill comes from David Vitter, whose amendment "would end the ability of the White House to appoint policy "czars," and prohibit funds for salaries and expenses for appointed czars." But it is the DeMint amendment that will be the focus of attention, since should the US, as primary source of capital for the IMF, which itself is a key contributor of funds to the Troica, so desperately needed to bail out Greece, no longer have legislative freedom to use taxpayer funds to bailout European countries, things in Greece and in half of Europe, may soon turn very ugly.

Another Exchange Halts Levered OTC Gold And Silver Trading 

Submitted by Tyler Durden on 06/22/2011 23:49 -0400

Last week it was Forex.com, now it is Oanda. As a reminder "Forex.com, a large retail foreign-exchange operation, on Friday told clients it will discontinue its gold and silver over-the-counter products marketed to retail investors who are U.S. residents. It asked investors to close their positions by July 15." This was first reported on Zero Hedge. "Trading gold and silver over the counter -- bypassing a futures exchange -- offered investors a chance to enter a highly speculative, leveraged market that also left many investors at risk of fraud, according to one trade group. “In order to trade, it needs to be done in a exchange, or it can’t be done at all,” said Dan Driscoll, a vice president with the National Futures Association. The industry group asked Congress for such changes, due to numerous cases of fraud in such contracts. Doing business with a futures exchange offers retail investors more protections and transparency, he said." There you go: it's the extensive fraud that did it. And just as we predicted, this is only the beginning to heard all PM investors into the waiting clutches of the CME's margin demands.

 

Central banks don't have the gold they claim, Embry tells King World News

 

 

Thursday's hearing on U.S. gold reserve transparency will not be televised

 

 

Jim’s Mailbox

June 22, 2011, at 10:06 pm
by Jim Sinclair 

Jim Sinclair’s Commentary

Or a reason why Greece will be papered over.

Hi Jim,

The New York Times came out with this article today regarding the unknown derivative exposure of unnamed banks in the event of a Greek default.
It sounds like we all need to fasten our seat belts and put on our helmets for the next few weeks.
Best regards,
CIGA Black Swan


Contracts Cloud Who Has Exposure in Greek Crisis By LOUISE STORY
Published: June 22, 2011
It’s the $616 billion question: Does the euro crisis have a hidden A.I.G.?
No one seems to be sure, in large part because the world of derivatives is so murky, but the possibility that some company out there may have insured billions of dollars of European debt has added a new wrinkle to the sovereign default debate.
In years past, when financial crises in Argentina and Russia left those countries unable to make good on their government debts, they simply defaulted. But this time around, swaps and other sorts of contracts have become so common and so intertwined in the financial markets that there are fears among regulators and financial players about how a Greek default would play out among derivatives holders.
The looming question is whether these contracts — which insure against possibilities like a Greek default — are concentrated in the hands of a few companies, and if these companies will be able to pay out billions of dollars to cover losses during a default. If there were a single company standing behind many of these contracts, that company would be akin to the American International Group of the euro crisis. The American insurer needed a $182 billion federal bailout during the financial crisis because it had insured the performance of mortgage bonds through derivatives and couldn’t pay on all of them.
Even regulators seem unsure of whether a Greek default would reveal such concentrated risk in the hands of just a few companies. Spokeswomen for the central banks of both Europe and the United States would not say whether their researchers had studied holdings of such contracts among nonbank entities like insurance companies and hedge funds — and they would not say what would occur among large players if Greece or another European country defaulted.
More…

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