Monday, November 7, 2011

Meanwhile "Global Bailout Fallback Plan B" China Is Pumping 1 Trillion RMB Into Its Banks

Yesterday, Barclays' Ben Powell of macro sales sent out the following note to clients, which referenced a as of then unconfirmed report in the China Securities Journal: "China putting 1Tr RMB into its banks?? Very positive no? The attached bloomberg story suggests that China may inject >Tr1 Yuan into its banks deposits before the end of the year. This is a meaningful number vs the Tr7.5 RMB that the banks are expected to lend in 2011 as a whole. So what? 2 things. Most obviously this is cheap liquidity to Chinese banks that should see SHIBOR continue to fall and banks shares to rise. And secondly more broadly this would seem to suggest (again) that the rumours of easing are true. This will add fuel to the soft landing argument that I have been pushing. Remain long Chinese banks on very simple easing + bearishness = up thesis." Granted the Barclays spin was to go long China (incidentally just in time for the biggest drop in the Chinese market since October 20), but the real take home here is that China is now actively pumping money to bail out its own banks once again! And not just token money - €158.2 bilion. So how much money will be left to fund the European bailout which is oh so contingent on Chinese generosity? The short answer? Pretty much nothing, as confirmed by the fact that today's €3 billion EFSF deal was underbid and the underwriters were left holding about €500 million of the total issue. As usual, good luck Europe with your multifunctional Swiss EFSF Army knife.

China Takes Advantage Of September Price Drop; Imports Record Amount Of Gold

Remember how virtually all "experts" speculated that the drop in the price of gold would set off a liquidation cascade in China, where everyone was "loaded to the gills" and at the first hint of deflation would dump all holdings (not to mention that economic Ph.D. proclaimed the gold "bubble" popped two months and $200 lower)? It seems that as so often happens when all experts agree on something, it is precisely the opposite that happens. The FT reports that "Chinese gold imports from Hong Kong, a proxy for the country’s overall overseas buying, leapt to a record high in September, when monthly purchases matched almost half that for the whole of 2010....After hitting a nominal all-time high of $1,920.30 a troy ounce in early September, the yellow metal fell to a three-month low of $1,534 an ounce later in the month. Chinese investors snapped up the metal as prices fell." Fair enough: this means the natural bid under gold will pretty much always be there, especially since the SHCOMP plunged at the same time, and if there was truly cross asset liquidation, imports would hardly rise. Which begs the question: if not China, then who sold? Was the move purely a function of fears that Paulson was liquidating? Or were rumors that various central banks are liquidating gold, actually true? We will likely find out when the next WGC report is filed. WE will also know that the Chinese number for total gold holdings is grossly underreported.

Did Kyle Bass Turn Bullish On Housing, And Does It Mean Substantial Upside For Mortgage Insurers?

For some actually relevant news, instead of market kneejerk reaction comments, we turn to the WSJ, whose Nick Timiraous points out an important inflection point, namely that Kyle Bass, one of the best hedge fund managers of his generations, may have turned moderately bullish on housing. To wit "A closely followed hedge fund manager known for correctly betting on the housing market’s collapse four years ago purchased a small stake in the nation’s largest mortgage insurance company in a bet that the housing market has neared bottom. J. Kyle Bass, portfolio manager at Dallas-based Hayman Capital Management LP, bought the 4.9% stake in MGIC Investment Corp, according to federal filings. He said on Monday the bet reflected his view that the housing market’s losses had largely been absorbed. “You can see that the pig has moved through the python in terms of U.S. housing losses,” he said. Shares of MGIC are about 10.2% higher in Monday afternoon trading, to $2.82." The Heyman Capital filing can be found here.

HUI continues its strong showing

Trader Dan at Trader Dan's Market Views - 2 hours ago
Mining shares are getting a very strong bid in today's session taking the HUI up sharply through the 600 level, a psychological resistance level. As you can see on the chart, the index is moving ever closer to the top of the recent chart gap created last month when the shares were sold off during a downdraft in both the gold and silver bullion markets. I would expect the perma bears in the shares to try to make an effort to hold the index BELOW this resistance level. If they fail, I believe there will be enough momentum in the sector to mount a move back to the recent all time high. ... more » 

The German Government Wants Its Gold

Dave in Denver at The Golden Truth - 2 hours ago
*If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around (these banks) will deprive the people of all property until their children wake up homeless on the continent their fathers conquered - *Thomas Jefferson Interestingly Ben Bernanke testified under oath in front of Congress that gold is not a currency and that Central Banks stockpile gold out of tradition. So if Germany could help fix Europe's current situation by unloading its gold reserves, why wouldn'... more » 

While Banks Are Being Shorted With Impunity On Euro Sovereign Debt Panic, Did Someone Forget About BlackRock?

Why? Primarily because of this innocent statement by former R3 scion and former Lehmanite Rick Rieder, currently employed by the firm that ostensibly has more clout than even Goldman Sachs: BlackRock. From October 21 "BlackRock Inc. Chief Investment Officer Rick Rieder said the world’s biggest money manager remains a buyer of Italian government debt as European policy makers gather to address the region’s sovereign debt crisis. "Italy is attractive,” Rieder said during an interview on “InBusiness With Margaret Brennan” on Bloomberg Television. “As long as we are moving toward solutions, we think Italy is very reasonable at these levels. BlackRock, which manages about $3.66 trillion in assets, has also been buying debt issued by financial firms and high- yield bonds, Rieder said. As with the Italian bonds BlackRock has bought, the financial debt will benefit “as soon as you see stability,” Rieder said." Uh, Rick, you are marking to market right? Because Your P&L would be a 100% correlation to the following chart, which shows BTP prices since October 21.

Here Is Today's 3pm Rumor...

In true save-the-market style, as 3pm ET comes around we have another rumor from Europe. This time it purports to be the creation of an investment fund, as a subsidiary of the EFSF, which will 'attract' external capital sources, via tranching of returns, to enable the purchase of sovereign debt in primary and secondary markets. Headlines, via Bloomberg, for now suggest this is yet another strawman and given the concessions on this morning's EFSF issue, just who exactly is going to be investing in this levered product and why? Equity markets remain 'exuberant' relative to credit though HY is slowly catching up to the intrday heights of the S&P 500 futures. It really doesn't sound like anything but the beginnings of the structure of the SIV for the EFSF that we have been discussing for a couple of weeks now.

In The News Today

Dear CIGAs,
This is sad but very true.

Jim Sinclair’s Commentary

Gold is now headed, with violence, into the $2000s.

Europe drives investors to gold Nov 7, 2011 – 9:31 AM ET
By Susan Thomas

LONDON — Gold rose more than 1% on Monday as investors piled into the traditional safe haven asset as Europe’s debt crisis intensified on concerns about political instability in Italy and Greece.
Worries about Italy, where Prime Minister Silvio Berlusconi is battling party rebels threatening to bring down his government, have overshadowed a coalition deal in Greece to help secure its latest bailout package.
With Italy’s debt levels at 120% of GDP, the debt problems of the eurozone’s third-largest economy would pose a much bigger risk to the financial markets than Greece.
Spot gold touched an intraday high of US$1,775.04, its highest since Sept. 22, before easing to US$1,772.29 by 1207 GMT, according to Thomson Reuters data.
U.S. gold rose to US$1,777.20, also its highest in six and a half weeks, before giving up some gains to trade at US$1,775.60.
“The European issue is still very prominently there. So as long as that remains the case gold is going to remain firm,” said Ross Norman of Sharps Pixley.
“But even aside from that, there is a general fear factor at the moment. Clearly there is a lot of fear in the system and gold is doing what it should do.”

Jim Sinclair’s Commentary
Oh how the barrel has rolled from 2003. There once was a time that gold might be sold to finance the Christmas party.

German Gold Reserves ‘Untouchable’ for EFSF, Roesler Says By Tony Czuczka and Gabi Thesing – Nov 7, 2011 2:36 AM MT
Germany won’t let its central bank’s gold reserves be used to bolster the power of the rescue fund for indebted euro-area countries, Economy Minister Philipp Roesler said.
“The German gold reserve must be untouchable,” Roesler said in an interview on Germany’s ARD television network today, echoing Chancellor Angela Merkel’s chief spokesman, Steffen Seibert.
Seibert denied a weekend newspaper report that using the Bundesbank’s gold and currency reserves was mooted as part of a debate on boosting the rescue fund, known as the European Financial Stability Facility, at the Group of 20 summit in France.
Germany rejected a proposal by some participants at the Nov. 3-4 meeting in Cannes to use the International Monetary Fund’s special drawing rights to bolster the EFSF, Seibert said in an e-mailed statement on Nov. 5, responding to the report in the Frankfurter Allgemeine Sonntagszeitung newspaper. “At no point in time” were the Bundesbank reserves on the table, he said.
“We are familiar with the plans and we oppose them,” a spokesman for the Frankfurt-based Bundesbank said.

Denial, Delusion and MSM Disinformation

By Greg Hunter’s
Dear CIGAs,
What is going on in the world today is both frightening and historic.  It is frightening because the amount of debt accumulated is orders of magnitude more than ever before.  It is historic because the way this finally shakes out will be considered a major turning point in modern history.  I see this, but most people in the world are either in denial, delusional or just a victim of disinformation by the mainstream media (MSM).  If you read this site often, you know I heavily source what I write about.   I do this because I want people to have solid information and analysis.  For example, just last week, a Morgan Stanley analyst named Joachim Fels sent a research note out to clients that talked about the EU sovereign debt crisis.  Here is part of what Mr. Fels said, “This past week, by raising the possibility that a country might (be forced to) leave the euro, core European governments may have set in motion a sequence of events which could potentially lead to runs on sovereigns and banks in peripheral countries that make everything we have seen so far in this crisis look benign.”  (Click here to read the entire story from  
This Morgan Stanley analyst is taking about bank runs and is painting a calamitous picture of the EU sovereign debt problem.   I believe that most people haven’t a clue about what is going on and how their lives are going to change for the worse.  If they do, then they just refuse to believe that the government will let anything bad happen.  I got a comment from a reader by the name “In4mayshun” on a post I wrote last week titled “Two Financial Nukes Explode.”  It was about MF Global and Greece.  Both situations are far from over and sorted out.  The comment is below:
While I appreciate the time and research you put into the article, I feel it is a little over dramatic. At first you equate the bankruptcy of MF Global to a financial nuclear explosion, and then you reduce it to a canary in a coal mine. Well which one is it? I think this is why so many main stream individuals dismiss alternative media as dooms-dayers, always claiming the sky is falling. To a point this is accurate. Anyone with a brain can see that our financial system is slowly crumbling, but it could take 10-20 years for this thing to play out. Meanwhile, you have everyone with a blog forecasting the next financial apocalypse. Pretty soon, no one takes any forecast seriously.


Jim’s Mailbox

Hi Jim,
The news just broke a few hours ago that Greece got its act together enough to keep the markets propped up for a while longer.
It would be nice if it lasts for more than 24 hours before the next bombshell.
Best regards,
CIGA Black Swan

GLOBAL MARKETS-Euro steady, S&P futures up on Greece coalition By Chikako Mogi
Sun Nov 6, 2011 6:31pm EST

TOKYO (Reuters) – The euro steadied and stock futures rose in early Asian trade on Monday after Greek politicians agreed to form a coalition government to approve a euro zone bailout, easing fears that the debt-ridden country faced an imminent default.
The euro was little changed against the dollar and steadied above $1.38 after Greek Prime Minister George Papandreou and opposition leader Antonis Samaras agreed on a new coalition government to approve the bailout plan before elections.
Papandreou and Samaras had been scrambling to reach a deal before finance ministers of euro countries meet in Brussels on Monday, to show that Greece is serious about taking steps needed to stave off bankruptcy.

Greece Will Form National Unity Government to Secure EU Emergency Payment By Marcus Bensasson, Maria Petrakis and Natalie Weeks
Nov 6, 2011 5:41 PM ET

Greek Prime Minister George Papandreou agreed to step down to allow the creation of a national unity government that will secure international financing and avert a collapse of the country’s economy.
Papandreou met with Antonis Samaras, leader of the main opposition party, and agreed to form a government intended to lead Greece “to elections immediately after the implementation of European Council decisions on October 26,” according to an e-mailed statement yesterday from the office of President Karolos Papoulias in Athens. Papandreou already stated he won’t lead the new government, the statement said.
“A lot is already being asked of the yet-to-be-formed coalition and markets could be wary of any splits that appear, especially over the tougher decisions yet to be taken,” Thomas Costerg, an economist at Standard Chartered Bank, said in comments made before yesterday’s announcement. “Greece is still not out of the woods.”
Both sides will meet again today to decide who will be the head of the new government with a separate meeting to discuss the time frame and the government’s mandate, the statement said. Papoulias will also host talks with all political party leaders today as well.

Morgan Stanley cuts Europe equities to underweight CIGA Eric
Distribution in the Euro suggests that the market has been downgrading Europe since 2008
Euro ETF (FXE) clip_image001
Headline: Morgan Stanley cuts Europe equities to underweight
MADRID (MarketWatch) — Morgan Stanley on Monday downgraded European equities to underweight from neutral, saying October’s bounce will likely prove short-lived. The firm cited four reasons for the downgrade, including a still-insufficient policy response to the Europe crisis and deteriorating economic growth. Among the others, the firm said corporate profits are coming under increasing pressure from deteriorating margins and market-timing indicators are no longer in "buy" territory. They’re further underweighting financials and adding to defensives such as pharmaceuticals and consumer staples. "We believe investors should look to use any residual strength in stocks and sectors as an opportunity to construct an even safer and more secure portfolio — at this time the prime goal of investors should be wealth preservation rather than wealth generation," the analysts wrote.


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