Goldman Pops The "Deus GrEx Machina" Balloon

While hard information is scarce, concerns about deposit flight from Greek banks have increased since the 6 May elections. To the extent that such flight arises from liquidity concerns, the ECB can contain it (or its impact) via its various monetary policy and ELA operations. But, as Goldman Sachs notes in its Focus today, the ECB cannot deal with concerns about bank solvency and/or deposit currency redenomination. That requires a pan-Euro area guarantee of the Euro value of bank deposits by the fiscal authorities.  Politically, it will not be domestically popular in Germany (inter alia) to extend such guarantees, however much Germany may benefit from arresting the financial instability deposit runs may cause. And institutionally, in order to contain the threat of free-riding on the guarantee of others, entering into a pan-Euro area deposit guarantee would need to be associated with a deepening of the pan-Euro area system of financial supervision and regulation. This would involve substantial loss of sovereignty relative to the status quo and require significant institutional innovation. However, attractive in principle, even Goldman agrees with our skeptical perspective that it is unlikely that such a guarantee can be implemented credibly in short order. So, what would you do with your hard-earned deposits? Demand them or leave them at the bank on the basis that the EU leaders will do what they promise - this time is different.

The Ultimate "Buffett-Black-Swan" Short

We are always on the look-out for low-cost long-vol trades with lots of convexity (large upside, low downside). We think we've found the 'ultimate' black-swan trade. Warren Buffett's Berkshire Hathaway bought Burlington Northern and implicitly assumed its debt which caused the company's CDS to collapse (risk to plunge dramatically as one would expect) to extremely low levels of insurance cost of only 15bps (or only $15,000 per year to protect $10,000,000 of debt - while gaining or losing ~$5,000 per bps shift in BNI's risk). However, as risk has picked up in the last week or so, BNI's CDS has risen by 7bps (just under 50%) to 22bps and looks set to go even wider if Buffett's Big Bullish 'Bernanke' Bet doesn't pay off. Buying BNI protection at 22bps seems like the ultimate cheap expression of the "All aboard the 'I wrote billions of naked puts just before 2008 market crash' train" trade.

Wall Street Banks Are Secretly Building A Mega Private Army

by Alexander Higgins, The Truth is Now:

Wall Street banks have secretly taken over US firearms and ammunition manufacturers and the world’s largest mercenary firms in a stealth build up private military force.
A Daily KOs article reveals that Wall Street banks have used private equity firms to acquire and launch a massive stealth takeover of private security firms, US ammo and gun manufacturers, uniforms, silencers and an army of mercenaries to build what amounts to the world’s largest private army.
At the same time the private mercenary companies they now control, which include the likes of Dynacorp and the notorious name changing Blackwater/Xe Services/Academi, have been authorized under Department of Defense DIRECTIVE NUMBER 3025.18 to actually conduct policing operations inside the United States.
The article reveals Citi Bank, Bank of America, Barclays, and Deutsche Bank have provide huge amounts of funding to two private Wall Street equity firms, Cerebus and Veritas Equity, which in turn have used umbrella companies such as Freedom Corp., to engage in stealth takeovers and weapons stockpiling which has consumed the likes of several gun manufacturers and ammunition manufacturers including Remington, Cobbs, H&R, Marlin, Dakota, and Bushmaker.
Read More @ Thetruthisnow.com.com

Guest Post: Dollar Backwardation

The current financial crisis, may progress to a phase where people demand and hoard dollar bills but take electronic deposit credits only at a discount which increases until electronic deposit credits are repudiated entirely. The Federal Reserve would be powerless to solve the problem, because while they can create unlimited electronic deposit credits they can’t create unlimited paper dollar bills, “money you can fold” as Professor Antal Fekete calls it. There would be a glut of electronic deposits, but a shortage of dollar bills. Before the financial crisis metastasized in 2008, Fekete wrote a paper that I think is underappreciated and under-discussed: "Can We Have Inflation and Deflation at the Same Time?" In his paper, he discussed the “tectonic rift” between paper Federal Reserve Notes (i.e. dollar bills) and electronic deposits. By statute, the Federal Reserve cannot print dollar bills without collateral (e.g. Treasury bonds). Also, they have limited printing press capacity that is insufficient to keep up with a catastrophic crisis.

Continuous Commodity Index - Fed Operation "Push Down Commodities" Successful

Trader Dan at Trader Dan's Market Views - 59 seconds ago

I have been convinced for some time now that the Fed is growing increasingly concerned about the impact from both the Eurozone and the slowdown in China on the US economy. The swooning equity markets in the US ( the S&P 500 is almost negative on the year as of the low today) are heralding investor fears and uncertainty over when the next round of stimulus might be coming. Yet the Fed continues to remain relatively silent when it comes to committing to any definitive date for another round of bond purchases even as the yield on the Ten Year Note is now close to 1.70%, having clearly... more »

 

 

Fed's Kocherlakota: I Reject Your Reality and Substitute My Own

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Key Comex Dates For Gold In the Next Two Weeks

 

 

Biderman On Bad Data And China's Recession

"The next big financial crisis we will face will not come from Europe", Charles Biderman of TrimTabs notes, "but rather from China." In a brief but thought-provoking clip, Charles takes on the corruption in the 'manufactured' GDP data and outlines three more critical real-time (hard-to-fake) data points (electricity consumption, railcar-loadings, and bank-loans) that suggest China is potentially already in a recession. "Most investors do not even think this is possible", he adds, as China is the hope that so many market participants hold on to as the engine of global growth. Add to this the collapsing real-estate bubble, on which the TrimTabs-Truthsayer provides some interesting color - relating to private-public relationships and demand (and prices) are dropping rapidly. This dismal (and somewhat shocking) conclusion that China could already be in recession only stokes the fires of money-printing-expectations of course - though Charles does add (and in keeping with our 'there's no such thing as decoupling' meme) - "What a mess this world is becoming as Europe and now China is contracting - leaving very little to justify global stock prices to be as high as they currently are" and while collapse may not be imminent, Biderman ends by stating that "The Central Banks cannot levitate asset prices forever" - leaving the question of when not if the drop occurs.

World Gives Uncle Sam A Five Year Loan At Record Low Yield

It may not be quite the 0% coupon which Germany got yesterday for its 2 year bonds (soon realistically going negative if the demand is there), but lending $35 billion to Uncle Sam at a cash interest of 0.625% and a record low yield of 0.748% is still quite remarkable. Because with this auction, total US debt/GDP is now almost 103% (rounded up). But who cares: when one needs to parks cash in a hurry, one will do just what the herd is doing, consequences of groupthink be damned. The internals: 2.99 Bid To Cover, higher than the TTM average of 2.924%, but of note was the slide in Indirect Bidders which bought "only" 42.6% of the auction, and Directs, who only purchased 6.5% of the total. This means that for the first since June 2011, Primary Dealers, who promptly take the proceeds and flip it for cash into the limbo that is the custodial repo market, amounted to over half of the total takedown, or 50.9%: hardly a ringing endorsement when one strips away the ponzi apparatus that is the PD bid. That said: Uncle Sam will take it, and will certainly take another $29 billion in 7 year bonds tomorrow, which will also likely price at an all time low yield.

Borowitz Does It Again: Introducing PhoneBook

It just never gets old...

ECB gold reserves drop to $432.74 billion euros

In its regular weekly consolidated financial statement ECB said net foreign exchange reserves in the Eurosystem of central banks rose by 0.2 billion euros to 224.9 billion euros.
from Bullion Street:
FRANKFURT(BullionStreet): European Central Bank (ECB) said gold and gold receivables held by euro zone central banks dropped by 1 million euros to 432. 704 billion euros in the week ended May 18.
In its regular weekly consolidated financial statement ECB said net foreign exchange reserves in the Eurosystem of central banks rose by 0.2 billion euros to 224.9 billion euros
Read More @ BullionStreet.com

 

Is It Grexit Time?

from Chuck Butler, Casey Research:
Grexit… That’s what is being talked about this morning… Grexit is a “Greek Exit”… See how I put the two together? Simply genius, eh? HA! Seriously… this talk of a Grexit has really put the euro against the ropes, where it hopefully can perform some serious rope-a-dope… This talk of a Grexit is really beginning to get loud, folks… But let me be perfectly clear here… Leaving the euro is NOT the answer to the Greek problems… And I truly believe that a few years from now, the Greeks will regret this Grexit…
Bloomberg had a great article this morning that listed what the Greeks would have to do in a 46 hour period should they decide to leave the euro… “over two days, leaders would have to calm civil unrest while managing a potential sovereign default, planning a new currency, recapitalizing the banks, stemming the outflow of capital and seeking a way to pay bills once the bailout lifeline is cut. The risk is that the task would overwhelm any new government in a country that has had to be rescued twice since 2010 because it couldn’t manage its public finances.”
Read More @ CaseyResearch.com

American Crossroads: America’s 4th Greatest President Strikes Again

AmericanCrossroads:

SIX BILLION DOLLAR BET

How Corzine Steered Regulators To Protect MF Global Strategy
by Jason M. Breslow, PBS:
When Jon Corzine took the reins of MF Global in 2010, the Wall Street brokerage was a deeply troubled firm. Revenues weren’t covering expenses, money was being lost, and rating agencies were threatening a downgrade.
Reversing the tailspin would not be easy, but if anyone was up to the task, it seemed to be Corzine. At age 47, the former U.S. Marine became the youngest CEO in Goldman Sachs history. In 2000, New Jersey voters elected him to the Senate and six years later, they elected him governor. When Barack Obama won the White House in 2008, Corzine was rumored to be on the shortlist for Treasury secretary.
At MF Global, his strategy was simple: “We are transforming from sort of an old-like brokerage firm into an investment bank,” Corzine told CNBC’s Maria Bartiromo. Key to his plan was a massive bet on European government bonds – a bet that would swell to more than $6 billion, and ultimately lead to MF Global’s collapse.
At the same time, Corzine was using a finance strategy known as “internal repo.”* In essence, MF Global was borrowing money from the firm’s own accounts and using it to fund trading in another part of the firm. During the summer of 2011, however, just months before MF Global filed for bankruptcy, internal repo was a strategy regulators were hoping to do away with.
Read More at pbs.org

Now Greece Goes? Bad Decade for Elite Memes

The Daily Bell:
Exclusive: Eurozone tells members to make contingencies for “Grexit” … Euro zone officials have told members of the currency area to prepare contingency plans in case Greece decides to quit the bloc, an eventuality which Germany’s central bank said would be “manageable”. Three officials told Reuters that the instruction was agreed on Monday by a teleconference of the Eurogroup Working Group (EWG) – experts who work on behalf of the bloc’s finance ministers. “The EWG agreed that each euro zone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro,” said one euro zone official familiar with what was discussed. – Reuters
Dominant Social Theme: This is just another one of those things …
Free-Market Analysis: The top elites that apparently want to run the world are not having a very good year, or even a very good decade.
What we call the Internet Reformation has taken its toll … in a big way. We try to keep track of this unacknowledged war because it is the CRUX ISSUE of our time.
Read More @ TheDailyBell.com

David Morgan: Fundamentals Continue to Improve for Bullion

We have seen or are very near the bottom for gold stocks
by Jim Puplava, Financial Sense:
Jim welcomes back to Financial Sense Newshour David Morgan to discuss the metals markets. David believes we have seen the bottom in gold stocks, or are very near the bottom. He believes investors must now decide the amount they wish to invest, and then focus on what to buy. David also discusses the battle between the paper and physical markets, and how the paper market is losing the battle.
Click Here to Listen to the Audio
Read More @ Financial Sense.com

 

In The News Today

May 23, 2012, at 11:17 am
by Jim Sinclair 

Jim Sinclair’s Commentary

Hollande is the game changer. Now let’s see what a coalition of the Left looks like.

Jim Sinclair’s Commentary

Take your pick as to which way it will resolve itself. QE to infinity is assured.

Congress staring over edge of ‘fiscal cliff’
Lawmakers face budget dilemma
By Stephen Dinan
For Congress, the outlines of the pending fiscal crisis are clear: Don’t do a thing, and watch the economy slip into a double-dip recession early next year. Or cancel the looming tax increases and spending cuts, watch the deficit rise, and push the government ever closer to a European-style debt crisis.
That decision was put in stark terms Tuesday by the Congressional Budget Office, which in a new analysis said the economy will plunge into a recession early next year if Congress lets taxes rise and spending be cut, as called for under the law.
But if Congress changes the law to keep taxes low and spending high, it could add more than half a trillion dollars to the deficit in 2013, marking a fifth straight year of trillion-dollar deficits and risking the patience of the country’s creditors.
The CBO numbers come just as the debate is heating up on Capitol Hill over how to handle the looming “fiscal cliff,” which Congress created by continually pushing off tough decisions on both taxes and spending.
Senate Majority Leader Harry Reid, Nevada Democrat, signaled Tuesday that he will allow the automatic spending cuts called for in last year’s debt deal to go into effect — culling billions of dollars from defense and domestic spending — unless Republicans agree to allow taxes to increase on at least some taxpayers.
More…

 

 

Jim’s Mailbox

May 23, 2012, at 11:15 am
by Jim Sinclair 

Dear Jim,

Here is an alert to all CIGAs.

Gold shares are trading at 2 standard deviations to the gold price. THIS has ONLY  HAPPENed 5 TIMES IN THE LAST 100 YEARS. \

Regards,
CIGA Luis Ahlborn Sequeira

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