Monday, November 7, 2011

The Question(s) Of Italy's 2451.8 Tons Of Gold

As the following update from the World Gold Counsel reminds us, at the end of October, Italy had 2,451.8 tonnes of gold, or roughly $61 billion dollars at today's price. We doubt we are the only ones keeping track of all this gold (most of it almost certainly 'safe and sound' about 150 feet deep under the infamous LIberty 33 location). We also doubt we are the only ones curious about its future, which we see as have five distinct possible outcomes: i) nothing; ii) it is currently being shipped quietly from The New York Fed to Italy for "general corporate purposes); iii) it has already been shipped and is currently being loaded up in Silvio's private jet; iv) the G-20 is already preparing to launch a formal demand that in order to remain in the Eurozone and to find the EFSF, which will be used to buy Italian bonds, Italy will have to do its patriotic duty and remit it to the ECB, an extortion attempt which was tried with Germany last week and which failed spectacularly; or v) it is being lent out to other countries who have long since sold their gold and continue to pretend they have some hard asset backing to the currencies issued by their own central banks. We hope to get an answer shortly.



Morgan Stanley cuts Europe equities to underweight

Eric De Groot at Eric De Groot - 8 minutes ago
Distirbution in the Euro suggests that the market has been downgrading Europe since 2008 Euro ETF (FXE) 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... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

10 Year BTP = 6.66%; Italian Treasury Cancels November 10 Bill Auction

Save this one for the archive files: The Italian 10 Year yield is now at precisely 6.66%. Alas, we doubt it will stay here for long: the Italian Treasury just announced it was cancelling its November 10 3 Month BOT auction due to, wait for it, "lack of specific cash requirements." Stick a fork in it.

Is 6% The Point Of No Return?

With Italian 10 year bonds crossing the 6% yield threshold, it is worth seeing how other bonds behaved. It is too early to tell what path Italy will follow, but at least for the other countries, they traded similarly prior to the breach, and followed similar paths after the breach.  Italy is too big, that I don’t think it can turn like Ireland did.  If Italy moves much further, I think it will follow Portugal and Greece.  They don’t have months to fix this, they have weeks, and they have been squandering them.

Italian Cash 5s10s Curve Inverts For First Time Since 1995

What was that Hugh Hendry quote that everyone loves?

Financial Cancer: Our Financial System Is Intrinsically Fraudulent and Unstable

First there are the more legitimate skim sources - interest payments, management fees, IPO fees, M&A fees, trade commissions. Then there are the less legitimate bank sources: penalty credit card interest rates, late fees, usage fees, over-the-limit fees, late payment fees, bounced check fees, low balance fees. And the capital markets sources - front-running, insider trading, account churning, manipulation of the news cycle, the captive analyst "ratings game", trading against your own client's order book, forex trades which are marked at the day high or low irrespective of when the trade took place, market manipulations at options expiration, stuffing your managed client accounts full of dubious IPOs and new issues that your organization is earning fees from originating. Bucket shops and ponzi schemes take it even a step further - no actual financial activity takes place. Its simply robbery. And now we add the new stuff: credit default swaps without margin, fraudulent loan origination, sliced & diced mortgages, mark to myth accounting, foreclosure halts to avoid realizing losses, extend & pretend, quote stuffing, HFT trading activity that boils down to denial of service attacks on exchange computers causing delays in pricing information, highly complex derivatives sold to unsuspecting but optimistic public servants, too big to fail status providing cheap backup in the event of trouble, and increased organizational size that facilitate cartel-like control over government and regulators. But if that's not enough, there is the structure itself: they aren't doing this with saved capital, but rather with freshly printed and/or borrowed capital. Its all done with 12:1 leverage at a minimum... And if the bet goes bad, the Fed will ride to the rescue with low-cost money. But usually the bet goes well, because ordinarily the number of sources of fraud today is so HUGE, its practically impossible not to succeed.

Five Times Is Not The Charm For ECB BTP Intervention Today

UPDATE: BTP +483 over Bunds now as Px drops below EUR 87.5 as all ECB buys are now underwater
As 10Y BTP spreads to Bunds hover around 25bps wider on the day, the ECB's bluff has not only been called but they have been the sucker at the table no less than five times already today. With the spread between 2Y and 10Y BTPs also having dropped (yield curve flattened) over 30bps, the Italian bond complex is sending some rather disturbing messages. And for all those who feel the need to blame speculators - CDS is actually outperforming bonds as real money leaves Berlusconi's Bonds in a hurry.

And Now, For Some Great Economic News

Who says we focus only on the bad stuff (which is pretty much everything, if one were to strip out the tens of trillions in "one-time" support from fiscal and monetary authorities)? Here is some actual good news, from Bloomberg:
We are confident our readers in Zuccotti park will be delighted to hear this. So will the Ferrari dealership at 55th and Park.

From MF Global To Jefferies To... Barclays?

Earlier today, Jefferies made it all too clear that anyone found holding any PIIGS sovereign debt exposure, net AND gross, will be promptly punished by the market all the way down to the circuit breaker halt, until such party promptly offloads its GROSS exposure to some other greater fool, in the process gutting its entire flow trading desk. Courtesy of Bloomberg we may now know who the market will focus its attention on next: "Barclays has $12.5 billion sovereign risk, $20.1 billion of risk to corporations and another $10.2 billion to financial institutions. It also has $66.6 billion of exposure in its retail business, 86% of which is to Spain and Italy. Group and corporate-level risk mitigation (sovereign CDS, total return swaps) may reduce these exposures." Or, as the Jefferies case study demonstrated so vividly, it may not, and the only option will now be for Barclays to post daily releases with CUSIP breakdowns which will achieve nothing until Barclays follows in Jefferies footsteps and liquidates (at what is likely a substantial loss) all or at least half of its gross exposure. Thank you Egan Jones for starting a hot-potato avalanche that will keep banks honest. And woe to the last PIIGS sovereign debt bagholder.

Fears Of Iran Nuclear Weaponizing Lead To Brent Break Out

What is today's most underreported news of the day, and the reason Brent is breaking out, is that according to WaPo, IAEA is about to report that Iran is on the verge of becoming a nuclear state: needless to say this is just the green light all of its enemies need to launch a pre-emptive strike (not to mention, GDP-boosting). Below is some must read commentary from Emad Mostaque of Religare Capital Markets on what this IAEA finding will mean for the region, for the world and for what really matters: capital markets.

All Generations Are Interconnected

Eric De Groot at Eric De Groot - 41 minutes ago

What the hell is wealth anyways? Is it correctly defined as the production and productive capacity of a nation? From this vantage point, the young are rich beyond their dreams in comparison to the old. They have the time to think about, explore, challenge, and discover today’s unknown and inconceivable. Yet headlines often imply that wealth must be shared, some say redistributed from those... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

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