Eric Sprott Lashes Out Against The "Tyranny Of A Rigged Paper Monopoly Over Silver Price Discovery" 

We have a very tough time understanding those bearish arguments against silver. We look at the real silver market, and based on the supply and demand data coming from the real, physical markets for silver, the fundamentals are only getting stronger. And yet there exists another silver market, which as we’ve shown, is not very connected to the physical realm at all. And though silver investors have for decades suffered the tyranny of a rigged paper monopoly over silver price discovery, it appears to us that the tides are turning. In the age of QE to infinity, investors are being more scrupulous with their capital and as such they are demanding physical silver in quantity. With more and more dollars flowing into the silver markets and a finite supply of physical to meet that demand, the theoretical losses for the paper silver short-sellers are near infinite. And with such a skewed and obvious risk/reward payoff vastly favoring the longs, we pose the following question. Who is most at risk in the silver markets: the buyers of a scarce and real asset that serves a growing multitude of purposes, or the sellers, who are short a quantity of silver which may very well not even be obtainable at anywhere near current prices? Let the Seller Beware! 

 

 

 

 

Goldman Trading Desk Sees Surge In Gold Prices Into Year End 

Submitted by Tyler Durden on 06/30/2011 08:12 -0400

While Goldman's traditional, client-facing sell-side research is terminally useless and empirical evidence suggests that doing the opposite of what is recommended yields profitable results more than two thirds of the time, what its trading desk releases to select clients is far more targeted, nuanced, and, in one word, correct. Which is why we were surprised to hear what Goldman's traders had to say about gold. To wit: "We are hearing anecdotes of strong physical demand already coming through in the last few days. Official sector buying is also likely to feature...Although having been rather wrong footed by this recent setback I continue to believe that gold will have a strong end of summer into q4 and that current price moves are creating another great buying opportunity." And unlike the reverse psychology in the research department, the sales guys are much more careful as they have named accounts they get make commission revenue from. Piss these off one too many times and you are cut off. Which makes us believe that Goldman is really long and strong here.

 

 

 

 

Treasury Complex Collapses To Celebrate Last QE2 POMO 

Submitted by Tyler Durden on 06/30/2011 10:31 -0400

The ever-recurring and oh so critical Bill Gross question, which the head of PIMCO retweeted earlier this morning for emphasis, is starting to demand answers. And once today's window dressing exercise in stocks is over (which alas will not do much for most hedge funds which continue to underperform their benchmarks by a wide margin), and when the world wakes up to the realization that crude prices are rapidly heading back to triple digit levels, not to mention the dramatic rise in interest rates, vacuum tubes and momos will need to think hard and long about what the next upside catalyst will be. 

 

 

 

 

 

Second Greek Budget Bill Passes 

Submitted by Tyler Durden on 06/30/2011 10:00 -0400

No TARP version 1-style surprises allowed:
PAPANDREOU HAS VOTES TO WIN SECOND BUDGET BILL; VOTING ONGOING
The Hamptons will be crowded this weekend. Keep an eye out for photoshopped receipts where hedge funds supposedly hold $100 million in accounts which only have $100,000 in FDIC insurance.

Chicago PMI Surges, Trounces Expectations, Despite Across The Board Responder Pessimism 

Submitted by Tyler Durden on 06/30/2011 09:57 -0400

Making a complete mockery of regional Fed indices, the June Chicago PMI just printed at a ridiculous 61.1 on expectations of 54.4, up from 56.6, in the process posting its 21st month of growth. Everything is now being done to prevent the all critical now ISM from printing below 50 and to extract as much juice as possible from the last QE2 POMO (the subsequent POMOs are part of the continuing QE Lite). From the report: "PRODUCTION and NEW ORDERS accelerated to mark nearly two years of expansion while their three-month averages declined; ORDER BACKLOGS diverged from improvements in PRODUCTION and NEW ORDERS; Breadth of inflation reported in PRICES PAID eased for a third month." Among the indexes that surged were Production (up from 56 .0 to 66.9), New Orders (from 53.5 to 61.2) and Capital Equipment (120.8 to 135.0). While prices paid declined modestly from 78.6 to 70.5, the biggest drop was in Inventories which plunged to 46.9 from 61.6: this is not good for the I in GDP, although everyone has now written off Q2 GDP so this is irrelevant.As usual the respondents provide the best color, and nobody captures it best than this guy: "The recession, the "recovery," and the disappearance of industrial arts in our schools seem to have diminished a formerly strong labor pool" and this: "Hopefully something will break or the 4th quarter is going to look sad."

Goldman Vs Pimco Round 2: Goldman Buying Belly Again As It Doubles Down On Client Call To Short The 5 Year 

Submitted by Tyler Durden on 06/30/2011 09:23 -0400

Three months ago, Goldman's Francesco Garzarelli released a note to clients advising them to short the 5 Year as follows: "We recommend going short 5-yr US Treasuries at 1.936% for a potential target of 2.30% and a close below 1.80%." Naturally, our cynical outlook on life prompted us to say the following: "As usual, since that would mean Goldman is now accumulating 5 Year inventory, it appears we will soon have a rather dramatic duel between the two biggest Wall Street titans: PIMCO and Goldman, at least as pertains to their outlook on rates." Well, Goldman won so far (its clients not so much). Today, Goldman is telegraphing that it is starting to accumulate the next batch of 5 years, which makes sense considering the point on the curve experienced its 3rd worst 3-day decline ever as reported yesterday. To wit: "Ahead of key data for June, starting with the June ISM report this Friday, we recommend initiating short positions in 5-yr UST at the current level of 1.70%, for an initial target of 2.00%, and stops on a close below 1.40%." Round two of Goldman vs PIMCO is now on. 

 

 

 

 

 

IEA Already Considering Extending Oil Release Period, Fireselling More Crude To China 

Submitted by Tyler Durden on 06/30/2011 09:01 -0400

Following the abysmal decision by the Obama administration, presented in IEA letterhead, to release crude stockpiles, the resulting lower prices lasted less than one week, and in the case of gasoline, the price has actually surged way above the decision day fixing. So what is an administration with no credibility to do? Why double down of course, and sell even more crude at firesale prices to the Chinese. Per Reuters: "The International Energy Agency could decide by mid-July whether the release of strategic oil reserves needs to be extended for a month or two, an official said." And there is that transitory word again: "Richard Jones, deputy executive director of the IEA, said he believed the release would be temporary since demand would likely drop in the fourth quarter." Well demand may drop, but the last time demand was actually relevant in price discovery was sometime in the 20th century. Welcome to the era of oil prices defined by monetary policy.

Initial Claims Disappoint Again, Print At 428K On Expectations Of 420K, Prior At 429K 

And the same old show and dance persists as initial claims continue confirming that at its core, the US economy is not improving one bit following the 12th consecutive claims pring over 400K. We still expect the June NFP consensus to be cut. The BLS reported that initial claims in the week ended June 25 were 428K, much higher than the expected 420K. Initial claims also missed expectations of 3,690K, printing at 3,702K. And guess what: this too is a drop from the upward revised 3714K, previously 3,697K. Both numbers this week will be revised higher next week, which will bring the rolling average far higher. 

 

 

 

 

Guest Post: What Could You Do With $20 Billion? 

Submitted by Tyler Durden on 06/30/2011 08:28 -0400

It is hard to define how much money Greece is getting. Is it the next tranche of IMF money? Is it the amount of cuts the Greek government agreed to take? Is it future promises of money from the Troika? It's hard to tell, but $20 billion seems to be about the amount that is being provided to get us through another 3 months...Let's assume the Lehman 2.0 and contagion crowd are correct. Is it realistic to assume that $3 per person is enough to save the world's entire economic model? If so, sign me up, I will contribute my $3. But the GDP of the U.S. $14.5 trillion (it is easy to remember since it is the same as the amount of U.S. debt outstanding). The GDP of the European Union is $16 trillion. Add in another $10 trillion for China and Japan and you have GDP of $40 trillion. The doomsayers are telling us that $20 billion is all that it takes to save a $40 trillion system? We have a $40 trillion global economy that hinges on getting $20 billion to Greece so they don't default. 

 

 

 

 

 

 

Initial Results In Allied Irish CDS Settlement Auction: Senior Bonds At 71.375, Subs At 12 

Submitted by Tyler Durden on 06/30/2011 07:38 -0400

Creditex has just reported the preliminary results in the CDS settlement auction of Allied Irish Banks. According to initial data submitted to ISDA (for more on the mechanics of CDS auctions read here) on behalf of buyers and sellers of CDS into the auction, the AIB senior bonds will see a final recovery value of about 71.375 while the sub will barely recover 10%, or 12 cents on the dollar to be precise. Alas this is likely indicative of market clearing levels on most European bank bond liabilities due to the incestuous circular nature of European bank assets and liabilities where everything is interconnected in one massive closed loop. And yes, one wonders just which regulating central bank allowed this bank's debt to be pledged as collateral for as long as it did. 

 

 

 

 

More Liquidity Tremors: Overnight EUR Libor Doubles To 1.78%, Highest Since Early 2009 

Whether the move in overnight Libor is due to an end of quarter window dressing scramble by the banks who in a Repo 105 fashion are doing their best to seem healthy, or it is due to the recent evaporation of European money market funds which are going into US securities, leaving Europe high and dry, is unclear; what is clear is that overnight EUR Libor just doubled, exploding by an unprecedented 85.5 bps to 1.78%, the highest it has been since early 2009 (see chart). Why is this troublesome: because the USD overnight Libor is at 0.128%, which is to be expected courtesy of the recent very much expected extension on the Fed's swap lines with European banks. But it does beg the question: instead of the traditional shortage of USD on every risk precipice, is there suddenly a massive black hole in overnight EUR funding, and has Chinese buying of euros by the bushel backfired and is about to further hobble European, and US, liquidity. As a reminder yesterday, General Collateral traded at the lowest rate ever, or -0.002%. Alternatively, this may be a function of the ECB providing less than expected euros in its latest 91 Day Long-Term Refinancing Operation, which saw 265 bidders scramble to secure €132 billion from the ECB. And meanwhile in China, despite all the recent attempt to reestablish liquidity in the market, the 7 and 14 Day SHIBORs both broke their recent downward trend. If this is all simple end of quarter liquidity shoring up, that's fine: thing should get back to normal tomorrow. If, however, the liquidity picture does not change on July 1, it may be time to step away from the keyboard and at least get to know where the nearest emergency exit is. 

 

 

 

 

Today's Economic Data Docket - Final Greek Austerity Vote And Final POMO 

Submitted by Tyler Durden on 06/30/2011 06:56 -0400
Once again the world will be watching Greece although with far less interest as the parliament is expected to pass the austerity bill with voting expected to commence on each individual point in the mid-term package at about 8 am Eastern. In the meantime there will be quite a bit economic data, such as Initial Claims, the critical Chicago PMI, the Kansas City Fed Index, as well as various Fed speeches. Most importantly, today is the day when the Fed stops adding net liquidity to the market with the last POMO due at 11:00 am. Expect another window dressing meltup into the afternoon at which point anything goes. 

 

 

 

 

 

In The News Today

June 29, 2011, at 5:31 pm
by Jim Sinclair 

Jim Sinclair’s Commentary

The international lender of last resort remains the last resort.
Hyperinflation in the form of currency induced cost push inflation is here and growing. That is the reason releasing oil on the market only greases the wheels of energy cost.

Fed Extends Lending Program for Central Banks By LUCA DI LEO
JUNE 29, 2011, 5:50 A.M. ET
WASHINGTON—The Federal Reserve, amid persistent worries about Europe’s sovereign debt crisis, last week quietly approved the extension of a crisis-lending program that allows the European Central Bank to tap the U.S. for dollars, Federal Reserve Bank of St. Louis President James Bullard said.
The Fed’s dollar-lending agreements with the ECB—as well as the central banks of England, Canada, Japan and Switzerland—were scheduled to expire Aug. 1. The Fed and other central banks haven’t yet disclosed renewal of the agreements, known as swap lines.
Fed officials voted to extend the program, which was first launched during the financial crisis, at their latest Federal Open Market Committee meeting June 21-22, Mr. Bullard said in an interview Tuesday.
Under the agreement, the Fed can lend an unlimited amount of dollars to foreign central banks for a fee, and they in turn lend them to local commercial banks. The program was launched during the crisis because many foreign banks, especially those in Europe, had trouble tapping short-term dollar loans in credit markets, yet they needed access to dollars to fund their holdings of mortgage bonds and other U.S.-dollar-denominated debt.
The Fed says it takes no risk in these swap lines because foreign central banks, not the commercial banks, are obligated to return the dollars. At the height of the financial crisis, foreign central banks tapped the Fed for more than $600 billion of these loans.
More…