Deciding The Fate Of The Euro

As Euro area policymakers continue to ‘muddle through’ the crisis, everyone's favorite FX Strategist - Goldman's Thomas Stolper, summarizes the decline in the EUR so far as due to slower growth and easier monetary policy, together with growing EUR short positions. Of course, the root cause of both developments is the political crisis in the Euro area. The uncertainty about the stability of the institutional framework of the Euro area forces front-loaded fiscal tightening, which in turn damages growth. In response, the ECB eased policy more than expected, while the Fed, did not ease as much or as early as many projected. Despite today's ecstacy in EURUSD, Stolper believes the EUR is unlikely to strengthen materially as long as this situation persists especially as the potential for the ‘fiscal risk premium’ to rise on the back of daily headlines that are dominated by disagreement and dispute remains. In an effort to clarify his thinking, Stolper identifies eight key issues that will determine the outlook for the Euro. Most of them relate to the Euro area crisis. The most interesting ones are possibly the timing of a recovery in the periphery, the ability of France and Germany to develop a common vision for further integration, and the evolution of fiscal policies in major economies outside the Euro area. He concludes that the risks in the near term remain substantial.

Step-By-Step: How To Fix Europe

With record low Treasury yields it is clear that the bond markets think we are about to embark upon a difficult journey while the equity markets are still regaling in the quarters past. The bond markets have read the charts and looked at the weather ahead more correctly he fears and the length of our European journey changes nothing about the difficulty of the upcoming passage. Having been asked so many times and by so many people over the last couple of years how to fix Europe that the question is now commonplace in Grant's thinking, here is the must-read reality short version. The main issues bended about in a number of significant ways would be the total and uncompromising loss of all of the nations’ sovereign status. There would be virtually no more Spain, France, Italy et al. Every nation and their cost of funding and their standard of living would have to merge at some average or mean. So we ask Europe; are you prepared for this? Do you want this? Are you willing to pay the price for this because if you are not then we suggest you end the charade and protect your own interests before you fall down the rabbit hole that you have created by your own political and economic deceit!

Swiss 2Y Rates Plunge To -43bps As All Trust Is Lost

A near-record single-day plunge in rates for Switzerland's 2Y interest rate has driven it to a spectacular -43.1bps this morning. The German 2Y also has cracked to record low interest rates at -5.2bps. With Gold big over $1585 also, it seems the safety trade - or escape from risk as JPM exposes the reality of the world in which we live - is dramatically on.

JPM Admits CIO Group Consistently Mismarked Hundreds Of Billions In CDS In Effort To Artificially Boost Profits

Back on May 30 we wrote "The Second Act Of The JPM CIO Fiasco Has Arrived - Mismarking Hundreds Of Billions In Credit Default Swaps" in which we made it abundantly clear that due to the Over The Counter nature of CDS one can easily make up whatever marks one wants in order to boost the P&L impact of a given position, this is precisely  what JPM was doing in order to boost its P&L? As of moments ago this too has been proven to be the case. From a just filed very shocking 8K which takes the "Whale" saga to a whole new level. To wit: 'the recently discovered information raises questions about the integrity of the trader marks, and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio during the first quarter. As a result, the Firm is no longer confident that the trader marks used to prepare the Firm's reported first quarter results (although within the established thresholds) reflect good faith estimates of fair value at quarter end."

Here Is What Happened The Last Time A Trader Was Caught Manipulating CDS Marks

Just because the market is so stupid it completely ignores what the news of the day is: namely that JPM engaged in what Jacob Zemansky on TV just called criminal behavior when it consistently mismarked its CDS book, as it itself admitted 10 minutes before releasing its earnings today, an act that in itself is nothing short of what Barclays is in the 10th circle of hell for due to blowing up Lieborgate sky high, here is a stark reminder of what happened the last time a trader was caught fudging his CDS book...

Honey Badger Market Completely Ignores 2012 Lowest Consumer Confidence

As JPM takes off, US equities go vertical, and EURUSD overdoses on erectile dysfunction stop-hunting-algo medicine, the good old US consumer - that bastion of demand and foundation of all things GDP-based just said sentiment levels are the worst of the year so far. UMich Consumer Confidence Sentiment just printed 72.0 against expectations of 73.4 - the biggest miss since December 2009. Worst still is the plunge in expectations (economic outlook) to the lowest in 7 months as the 2-month drop is the biggest in a year. It would appear all is not well on Main Street - as the massive schism between ISM Composite relative strength and the reality of the economy remains. As an aside, given this morning's hotter than expected inflation data, 1 year ahead forecasts for inflation fell to their lowest in 19 months.

Global Economic Outlook

Admin at Marc Faber Blog - 3 minutes ago

Europe is in recession already, the US is slowing down, but a large portion, say 40 percent of the S&P 500 Index earnings come from overseas and about half of that is from Europe. So they will be affected by the European recession. Secondly, I think people underestimate the ongoing slowdown of the economy in China. - *in a recent podcast* * * *Related: SPDR SP 500 ETF (NYSE:SPY), iShares FTSE/Xinhua China 25 Index (ETF);* * * *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.*

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More Optimistic About Agriculture Than Anything Else

Admin at Jim Rogers Blog - 27 minutes ago

I'm more optimistic about agriculture than anything else, just because of the price. Most agriculture, I feel very depressed on the risk side basis. Sugar is 75 percent below where it was 38 years ago. There's not much in the world that's as depressed as agricultural current prices. So, I would say agriculture. - *in Business Insider* * * *Related: PowerShares DB Agriculture Fund (NYSE:DBA), sugar futures;* * * *J**im Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune,... more » 

 

Note From Europe: Spain Has Its 'Let Them Eat Cake' Moment

US government records $904.2B deficit through June

Eric De Groot at Eric De Groot - 2 hours ago

Pick and number, any number, because a deficit balanced on a knife's edge of liquidity and confidence could prove to be highly unpredictable. Billions have become trillions without as the game of sweep the problem under the rug continues without much public concern (or awareness). The rising secular trend in gold says, if the economy slows at the margin, even a little, the CBO 2012 full year... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

 

NFA Ignored Warning Signs On PFGBest. What a Surprise!

CBC: For Past 30 Years Most Economic Gains Have Gone to Top One Percent

 

The "New Normal" FX Rip

This is how a completely news-less FX move looks like under the new normal, at precisely the moment when market opens. Did we say no news? Yes. 80 pips move in minutes on absolutely nothing, but an avalanche of very specific stop limit triggers. And since the EURUSD is the highest levered fulcrum security, and since shorts have piled in aggressively in the last few days, ramping the pair to the stratosphere is why risk is soaring, once again on no positive news. And now that the market move has happened, the news to explain it will come fast and furious. One wonders if all of the now unwound CIO capital has moved into JPM's most recent prop trading addition: the CFXO.

JPM's Punshiment: Two Years Of Clawbacks For Three Traders

Behold Newton's 3rd law of Fraudics: Every gross fraudulent action has a laughably inadequate and unequal wristslap reaction. For years of mismarking CDS and the CIO 'Mistake', which incidentally everyone at JPM knew about for quarters, and where JPM thought it could manipulate any market it wants simply by sheer scale and due to being the market itself (just like the Fed), the response is: 2 years of clawbacks for the key exec responsible. In other words, just like Goldman paid a "massive" SEC fine of a few hundred million for activity that allowed it to make billions in profits, so those who have made tens of millions for years end up having to pay back one or two years of ill-gotten gains. And all shall be well.

Deja 2011 Vu Part 2: Goldman Sees Another US Downgrade In 2013

Two of the three major credit ratings agencies have recently affirmed their outlook on the US sovereign credit rating, but all three continue to hold a negative outlook on the rating. In Goldman's view there is little likelihood that additional ratings actions will be taken this year, but the possibility of a ratings change is another risk posed by the "fiscal cliff," debt limit, and related debate over medium-term fiscal reforms that looks likely in 2013. All three rating agencies look likely to reassess the rating over the next year or so. In light of the recent announcements and upcoming fiscal events that could influence the rating, Goldman Sachs Economics team provides some updated thoughts on the intersection of fiscal policy and the US sovereign rating, in Q&A form.

Peak Gold

Peak oil is a phenomenon many will be aware of – peak gold remains a foreign concept to most. Peak gold is the date at which the maximum rate of global gold extraction is reached, after which the rate of production enters terminal decline. The term derives from the Hubbert peak of a resource. Unlike oil and silver, which is destroyed in use, gold can be reused and recycled. However, unlike oil gold is money, a store of value and a foreign exchange reserve and gold is slowly being remonetised in the global financial system and indeed may soon play a role in a new international monetary system. Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970. Peak gold may not have happened in 2000. Nor may it have happened in 2011. However, the geological evidence suggests that it may happen in the near term due to the increasing difficulty large and small gold mining companies are having increasing their production. The fact that peak gold may take place at a time when the world is engaged in peak fiat paper and electronic money creation bodes very well for gold’s long term outlook.

Key JPMorgan Charts

For those strapped for time, here are the key charts from the numerous JPM slidepacks just released.

Full JPM Earnings Call Slideshow Dump

When fraud has been exposed, one is best advised to baffle everyone with lots and lots of data, figures, numbers, and generally meaningless information overflow. Sure enough, as part of the Q2 earnings call, JPM has released a record 8 pdfs to go alongside Jamie Dimon sounding very confident, and pretending he knows what he is talking about. Remember: when in doubt, baffle them with bullshit.

Define Irony: "The J.P.Morgan Guide To Credit Derivatives" By Blythe Masters

As readers enjoy JPM squirm his way through the JPM conference call (webcast live) explaining how it is that he not only was fooled by the CIO traders to the tune of billions, but more importantly to mismark hundreds of billions in CDS over the years, here is some delightful irony: "The J.P.Morgan Guide To Credit Derivatives" By Blythe Masters. Because it is truly ironic that the firm which created CDS will be the one responsible for destroying them.

JPM Release Earnings: Announces $4.4 Billion CIO Loss, $3.1 Billion In "Profits" From Loan Loss Reserves, DVA

In light of the just announced huge 8-K which has JPM admitting it was mismarking hundreds of billions in CDS, in effect destroying the CDS market for everyone (as we predicted 2 months ago would happen), the firm's earnings (and CIO losses) are very much irrelevant. But here they are regardless: $5 billion in Net Income, which includes a $4.4 billion in CIO losses offset by $1.0 billion from "securities gain in CIO investment securities" i.e., asset sales; also in Q2, the firm took a $2.1 billion "benefit" from reducing loan loss reserves (the usual accounting gimmick), and $0.8 billion DVA "profit" as a result of its CDS blowing up. Finally JPM also announced $0.5 billion gain on a "Bear Stearns related first loss note." In summary, expectations were for $0.76 in EPS; reported EPS Ex-DVA were $1.09, and ex-all one time gains, $0.67. In other words, JPM's bottom line is totally meaningless, as the bulk of profits are from totally garbage and meaningless numbers. The real question is how much net income is now forever gone as a result of i) the unwind of the CIO's synthetic division, aka the most profitable group at JPM, and ii) the fact that the entire firm's CDS marks were made up and will now have to reflect reality. Now, back to the main news of the day: the fact that JPM just threw the entire CDS market under the bus, and England's Lieborgate just arrived in the US courtesy of CDS-gate.

With JPM Set To Report, Rest Of Whale Team Leaves Company

As JP Morgan prepares to report how much the blow up of its CDS in Q2 "boosted" earnings, not to mention how much "improving" conditions forced it to reduce loss reserves, the WSJ reports that the rest of "whale team", or those responsible for the CIO's $5 billion loss, have left the firm.

'Anti-Goldilocks' China Data Not Enough To Move Needle

A fractional miss of estimates for GDP growth (printing at +7.6% vs expectations of +7.7%) coupled with a just-as-fractional beat in Retail Sales (+13.7% YoY vs expectations of +13.4%) seems to be the perfect remedy for a global-depression-expecting and/or massive-stimulus-hungry market. GDP growth was its slowest since March 2009 but it appears the 'sell the rumor, buy the news crowd' are disappointed. S&P 500 futures popped a few pts and then faded back - remaining around +3pts for now (and EUR rallied into the number, sold off on the print and is now limping back higher). As we noted earlier, this is not the data you have been looking for - instead focus on hot money flows and the property pop, as the Chinese continue to impress with their 'data' showing the first engineered 'soft-landing' in history.







Today’s Items:

First…
U.S. moving submersibles to Persian Gulf to oppose Iran
http://latimesblogs.latimes.com

Officially, the Navy is rushing dozens of unmanned underwater craft, that are four feet long and about 100 pounds, to the Persian Gulf to help detect and destroy mines.   Unofficially, the U.S. is arranging its pieces for the upcoming world war.

Next…
Gold for Oil
http://freebeacon.com

Turkey has exchanged nearly 60 tons of gold for several million tons of Iranian crude oil. By using gold instead of money, Turkey is able to skirt Western sanctions on Iran’s oil trade. How long will it before U.S. forces will invade err…. liberate Turkey?

Next…
More Stimulus Needed
http://www.bloomberg.com

A few Federal Reserve policy makers said the central bank will probably need to take more action to boost the labor market and meet its inflation target.  These same policy makers are saying that additional bond purchases may have negative consequences.   You think!?!   It’s called printing money out of thin air.   They went on to say that it is a low risk at present.   Yeah, low risk because it is the Euro that is in the spotlight.

Next…
Gold Market Manipulation
http://www.gata.org

Thanks to LIBOR, more commentary that the gold, and by extent… the silver, market is probably manipulated by central banks is turning up more frequently now.   After disasters, like MF Global, people are becoming very concerned about the financial institutions.   The LIBOR scandal only shows, where there is smoke, there is fire. When they see that the gold market is nothing but paper…   That is when there will be five alarm fires at those institutions supposedly holding physical gold.

Next…
Last Great Scandal Will be Allocated Gold Account Raids
http://www.silverdoctors.com
http://kingworldnews.com

From MF Global to LIBOR, the signs of economic chaos are all around.   With that said, do not expect allocated gold to be safe when things get really desperate.   There may be far more than 20,000 metric tons of gold bullion that has been replaced by worthless certificates.   Stephen Leeb, of Leeb Capital Management, believes that the gold, that customers have been paying banks to have on deposit, is already gone.

Next…
We Don’t Want You Steenkin’ Free Cash
http://www.zerohedge.com

Bank of America has sent letters to 60,000 struggling homeowners with a so-called generous offer to slice an average $150,000 off their loans.   The response… silence.   These homeowners are tired of the games that the bank is playing with their finances and their lives. You know things are bad in the banking industry when people are asking what ‘strings are attached’ this time?

Finally, Please prepare now for the escalating economic and social unrest. Good Day

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