The Bernank Has Created The Ultimate Bondsy Scheme

Since January 2007, long-only equity funds have seen redemption of $545 billion. In the same period bond funds have seen inflows of $630 billion. In the last few months, cumulative flows into equity funds have retraced all the way back to 1996. While every day is a QuEasy day for stocks, it seems the 'financial repression' is working as instead of getting everyone else to do the opposite of what the Fed is doing by making yields on other 'riskless' assets meaningless, all that the Fed has succeeded in doing, is getting everyone in the world to frontrun it in buying bonds. Period

 

Jamie Dimon's Quandary: Now That JPM's Internal Hedge Fund Is Gone, Where Will 25% Of Net Income Come From?

Much has been said about JPM's CIO Loss (which so far has come at a little over $5 billion, just as we calculated in the hours after the original May 10 announcement). And with the so called final number out of the way, investors in JPM have breathed a sigh of relief and are stepping back into the company hopeful that a major wildcard about the firm's future has been removed. The issue, however, is that the CIO loss was never the question: after all JPM could easily sell debt or raise equity to plug liquidity shortfalls. The real issue is that just as we explained months before the loss was even known, the Treasury/CIO department was nothing short of the firm's unbridled hedge fund which could do whatever it chooses, and not be held accountable to anyone at least until its counterparties broke a story of an epic loss to the media. And thus the problem becomes apparent: now that every action of the CIO group is scrutinized under a microscope by everyone from management to auditors to regulators to analysts to fringe blogs, the high flying days of whale trades are forever gone. The question then is just how big was the contribution of the Treasury/CIO group, which until today was buried deep within JPM's Corporate and PE Group and not broken out. Thanks to the new breakout, reminiscent of Goldman starting to break out its own Prop Trading group some years ago, we now know exactly just how big the contribution to both revenue, but more impotantly, net income was courtesy of JPM's Hedge Fund.
The result is nothing short of stunning.

Low Volume Squeeze Takes Stocks To Green On Week

S&P 500 e-mini futures (ES) traded up to almost perfectly recapture their 415ET close from last Friday after a 15-point, 30-minute ramp out of the gates at the US day-session open recouped five days of losses - as once again - we go nowhere quickly. Just for clarity: China GDP disappointed and provided no signal for massive stimulus; JPM announced bigger than expected losses, cheating on CDS marks, and exposed just how large their CIO was relative to income; Consumer sentiment printed at its worst this year; and QE-crimping inflation printed hotter than expectations - and we get a more-than-30 point rally in the S&P. Whether the fuel was JPM squeeze or another big European bank biting the liquidity dust and repatriating cajillions of EUR to cover costs (or Austria needing some cash for a debt payment), what was clear was equity market's outperformance of every other asset class - with the late day surge for a green weekly close particularly noteworthy. Apart from unch on the week, ES also managed to close right at its 50DMA, revert up to credit's less sanguine behavior intra-week, and up to VIX's relative outpeformance on the week (as VIX ended the week with its steepest term-structure in over 4 months). Treasuries ended the week 6-9bps lower in yield at the long-end (2-3bps at the short end) but the USD's plunge, on the absolute rampfest in EURUSD, took it back to unch for the week. Despite the USD unch-ness, Oil and Copper surged (on the day to help the week) up 2.5-3% on the week while even Gold and Silver managed a high beta performance ending the week up around 0.5%. ES ended the day notably rich to broad risk assets - and wil need some more weakness in TSYs and carry crosses to extend this - for now, the steepness of the volatility slope, velocity of squeeze, and richness of stocks to risk makes us a little nervous carrying longs here.

Farage On The 'Scientology-Like' Cult Of The Euro

In an extended discussion with various pro- and con- European Parliamentarians, everyone's favorite (well, most forthright, for sure) British MEP, Nigel Farage, opined on entering the hallowed halls of Europe's Hogwarts-like hub in Brussels that he is surprised:

"After five (soon to be six) nations already bailed out, that so few people inside these institutions are even prepared to contemplate that there might be something wrong with the Euro project"

adding that he feels that:

"he is surrounded by some weird cult - that, even after disaster, continue to believe"

Friday Humor: JPMorgan Code, And Flow Chart, Of Conduct

 

THE GOOD NEWS IS THE COLLAPSE OF FIAT MONEY, THE BAD NEWS IS…

from SRSrocco, Silver Doctors:

This chart from my PEAK SILVER REVISITED article says it all.  The downside of the PEAK OIL chart is bad, but not as bad when we factor in the DECLINING EROI.  Basically, as energy gets more expensive to explore, drill and produce more and more of the percentage gets eaten up by the process leaving less for market.
That is why we will see PEAK SILVER much sooner than later.  Furthermore, the collapse of FIAT MONEY and going back to a GOLD BACKED SYSTEM will not keep the world’s economies from imploding.  That is why I differ from some of the rhetoric put out by the AUSTRIAN SCHOOL OF ECONOMICS….. they fail to comprehend the peaking of global oil and the falling EROI.
Read More @ SilverDoctors.com

Greyerz – Gold to Hit $3,500 – $5,000 in 12 to 18 Months

from KingWorldNews:

Today Egon von Greyerz told King World News, “The credit bubble we’ve had, for at least 40 years, is going to accelerate dramatically, and the failures in the system will continue.” Egon von Greyerz, who is founder and managing partner at Matterhorn Asset Management out of Switzerland, also said, “I see gold reaching $3,500 to $5,000 in the next 12 to 18 months.”
Here is what Greyerz had to say about the ongoing financial crisis and where we are headed: “There is a fire in almost every country in Europe. The US is going to catch fire also. There will be a catalyst coming soon, probably some concerted action of QE or money printing between the Fed, IMF and the ECB. That will happen as a result of the economies, worldwide, collapsing.”
“Just look at the unemployment. We’re looking at 25% unemployment in many countries. The US is at 23% (unemployment) if you count it correctly. Youth unemployment is 50% in many countries. This is a disaster for the world and the social side of this will be terrible.
Egon von Greyerz continues @ KingWorldNews.com

Gold Daily and Silver Weekly Charts - Up Again, Up Again, Jiggity Jig

SP 500 and NDX Futures Daily Charts - Excelsior

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Alternative Energies: Most Optimistic About Atomic Energy

Admin at Jim Rogers Blog - 3 hours ago

They all have pluses and minuses. I'd be most optimistic about the ones that are economically competitive. I guess atomic energy is most economically competitive. - in *IB Times* Related: PowerShares WilderHill Clean Energy (NYSE:PBW), First Trust Global Wind Energy (NYSE:FAN), First Trust NASDAQ Clean Edge (NASDAQ:GRID), Claymore/MAC Global Solar Index (NYSE:TAN), Market Vectors Glbl Alternative Energy ETF Trust (NYSE:GEX) *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, F... more » 

 

The Farmers Will Be In The Captain`s Seat

Admin at Jim Rogers Blog - 3 hours ago

It's the farmers, the producers, who are going to be in the captain's seat when the prices go through the roof. - *in The Australian Financial Review* *Jim 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, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.*

So, Exactly How Serious Is JP Morgan About This Clawback Business???

by Reggie Middleton, BoomBustBlog.com:
JP Morgan is now calling for a clawback of INA Drew’s excessive compensation. OF course, Sheila Bair (one of the few regulators whom I actually respect) declaresJamie Dimon’s compensation should face a claw back as well. Well, it’s apparent that Dimon’s lobbying and influence reaches a bit farther than Ina Drew’s, no? Ahhhh, regulatory capture at its best (as in How Regulatory Capture Turns Doo Doo Deadly).
BoomBustBlog readers remember this scenario from several years ago, to wit: Even With Clawbacks, the House Always Wins in Private Equity Funds. In said article, I explained that althought Blackstone instituted a clawback that returned funds to investors, the investors still got RIPPED OFF!!! Don’t believe me? Read the following excerpt and keep in mind that private equity and LLP investors are easily replaced by public equity investors in the JPM scenario!

I have written extensively on this topic. For one, the CRE bubble was obvious, but funds plowed ahead because they receive fees for deals done as well as performance fees. I warned about Blackstone and the Sam Zell deal blowing up back in 2007 as it was being done (see Doesn’t Morgan Stanley Read My Blog?). It was quite OBVIOUS that the top of the market was there , but it doesn’t matter if you get paid for both success AND failure, does it? They are often in a win-win situation. On April 15th, 2010 I penned “Wall Street Real Estate Funds Lose Between 61% to 98% for Their Investors as They Rake in Fees!” wherein I espoused much of my opinion on market manipulation and the state of CRE.

Read More @ BoomBustBlog.com

UN sanctions force Iran to trade in gold

by Simon Black, Sovereign Man :
In an attempt to force Iran away from pursuing nuclear research, the UN has emplaced extremely harsh economic sanctions preventing almost every country from trading with Iran. In addition to the financial hurdles it’s caused Iran and others who want their oil, it’s also created a complete shift in Irani monetary policy due to their low demand for US dollars. Free Beacon reports on why Iran is forced to use the gold standard and how it’s created trade loopholes:

Turkey has exchanged nearly 60 tons of gold for several million tons of Iranian crude oil, despite its promises to uphold Western sanctions on Iran’s energy sector, according to recent Turkish reports.
By using gold instead of money, Turkey is able to skirt Western sanctions on Iran’s oil trade, particularly those pertaining to SWIFT, the global money transfer service that until recently assisted the Central Bank of Iran and other Iranian financial institutions.
Read More @ SovereignMan.com

In The News Today

July 13, 2012, at 12:42 pm
by Jim Sinclair

Libor Rigging: The Tip of the Iceberg Rob Kirby

GATA was born in the late 1990’s – primarily on the back of fundamental research by Frank Veneroso regarding Central Bank Gold Leasing. Veneroso’s intellectual curiosity was aroused after being fed detailed data re: gold leasing by the Bank of England’s Terry Smeeton.
The fact that gold prices and interest rates were so highly “inter-related” was first publicized in the alternative media by Reg Howe in 2001. Howe alerted the world to academic accounts of the special relationship between gold and interest rates. He highlighted the body of economic law and observation associated with “Gibson’s Paradox” – something Lawrence Summers [later, U.S. Treasury Secretary and current senior economic advisor to Obama] wrote about with Robert Barsky while he was a professor at Harvard in the 1980’s.
The upshot of this Gibson’s Paradox economic theory goes something like this: real interest rates and the gold price are causal and inter-related with each other.
This is why Professor Lawrence Summers was summoned to Washington as assistant Secretary of Treasury under Robert Rubin [Clinton Admin. / 1993]. It was to implement HIS THEORETICAL WORK under the auspices of Treasury Secretary Robert Rubin’s mythical “Strong Dollar Policy”.
Conclusion: since 1994, the mythical Strong Dollar Policy had necessitated a two prong strategy: that of keeping rates low because weak currencies are typified by high interest rates; and the price of gold must be suppressed as it stands as an historical alternative settlement currency – and they don’t want the alternative to appear “strong”.
The interrelatedness of the gold price and interest rates helps to explain why – According to the Office of the Comptroller of the Currency – of the 302 Trillion in aggregate derivatives held by American Bank Holding Cos – 81 % of this is composed of interest rate products. This is due to the symbiosis that exists between gold and interest rates.
Libor – or the London Inter-Bank Offered Rate – is one of the lynch pins in setting [rigging] global U.S. Dollar interest rates. This is why a larger discussion needs to be had about the Libor rigging – it is not a London or Barclay’s centric story. It has EVERYTHING to do with making the American Dollar look viable as the world’s reserve currency.
When The Libor Story First Broke
It was Q3 2007 – post [Mar. 2007] Bear Stearns collapse – when credit markets “seized up” in response to the [Aug. 2007] sub-prime crisis, where triple-A-rated mortgaged bonded failed – stories first began circulating the mainstream financial press that “Libor” was “broken”.
The “tell-tale” that things were not right was A] the widening of the TED Spread [3 month Eurodollar future vs. 3 month U.S. T-Bill] – expressed in basis points, and B] the growing spread between Libor and the Eurodollar future – again, expressed in basis points:

Historically, a widening TED Spread has been referred to in credit terms as a “flight to quality”. It demonstrates how investors are more willing to buy sovereign 3 month government T-bills at ever decreasing yield relative to higher yielding products that do not carry sovereign guarantees. It is reasoned in cases like this that return of capital becomes more important to investors than return on capital.
But there are some problems with this conventional thinking.

With the U.S. Dollar Index collapsing, taking out major support levels and the dollar being abandoned – there was no “flight to quality”.
So what was really happening???
We get our clue from the widening disparity [in basis points] between the 3 month Eurodollar Futures contract and 3 month Libor. These two measures are proxies for one another and typically they trade virtually tic-for-tic with each other in terms of yield. Notice how the spread widened at the beginning of Q3/07 and then contracted at the conclusion of Q4/07:
The aberration first manifested itself as a Q3/07 trading phenomena. We get a clue as to what the underlying is when we examine the composition of J.P. Morgan’s derivatives book from a control period – Q2/07 – through to Q4/07:



Here we see the less than 1 year Swap component of Morgan’s book grow from 25.2 Trillion in Q2/07 to 32.8 Trillion in Q3/07 before reverting back to 24.7 Trillion in Q4/07. The 7.5 Trillion “bloat” in Morgan’s book – coupled with the plunge in rates and failing U.S. Dollar Index – in Q3/07 tells us the J.P. Morgan was a MASSIVE PLAYER in the very “short end” of the curve [centered on 3 month credit space]. We can discern that Morgan was an ENORMOUS purchaser of 3 month U.S. T-bills [likely as hedges for trades being conducted with the ESF brokered through the N.Y. Fed trading desk] – this is what caused the “blow-out” in the TED Spread as well as the Eurodollar Future/Libor spread and put the brakes on a major break down of the U.S. Dollar Index. Their book “re-coiled” 3 months later when these positions matured.
At the onset, commercial Banks – fearing a financial market meltdown – immediately became extremely risk averse and actually started to raise rates:

But the “Free Markets” were overwhelmed by J.P. Morgan’s rate rigging / defense of the dollar.
Ladies and gentlemen, 7.5 Trillion dollar interventions into the 3 month credit markets are not and never will be the work of Commercial Banks or Bank Holding Companies. Interventions of this kind are EXCLUSIVELY the work of National Treasuries / Central Banks.
The late 2007 dichotomy between Libor [Eurodollar Futures] and 3 month U.S. T-bills was brought on – not because Libor was “broken” – but by the U.S. Treasury’s Exchange Stabilization Fund [ESF] pursuing/inflicting Imperialist U.S. monetary policy – brokered through the N.Y. Federal Reserve – on the world through the trading desk of J.P. Morgan Chase.
Moving Forward to the Barclays Libor Rigging Scandal
Much of the recent guffaw about Libor fixing has centered on London based, Barclays Bank Plc. The gist of the allegations against Barclays being – in the aftermath of Lehman Bros. collapse in the fall of 2008 – Barclays consistently posted higher Libor rates than competing banks who are also polled daily by the British Bankers Association [BBA] for their Libor rates. It has been said by some, like Zerohedge, that Barclays was attempting to influence [rig] rates higher than they otherwise should have been:


Source: Zerohedge
Perhaps it is true that Barclays began setting their “Libor” rates higher in the aftermath of Lehman’s collapse – but that’s not the whole story – not by a long shot.
If you look closely at the Zerohedge chart above – you will notice that Barclays actually began posting higher Libor rates “BEFORE” the collapse at Lehman.
Reason: Barclays was the last bank to see the books of Lehman as they were at one point – in the late stages of the 2008 financial crisis – figured to be a likely acquirer of Lehman. When Barclays saw the state of Lehman’s books – they acted intuitively CORRECT – one might argue – and began raising rates, not wanting to lend, to preserve their capital.
Additionally, in the wake of the failed Barclays/Lehman arranged marriage – there was a “small issue” with a $138 Billion Post-Bankruptcy JP Morgan Advance to Lehman; At Least $87 B Repaid by Fed:
“Lehman Brothers Holdings Inc., the securities firm that filed the biggest bankruptcy in history yesterday, was advanced $138 billion this week by JPMorgan Chase & Co. to settle Lehman trades and keep financial markets stable, according to a court filing.
One advance of $87 billion was made on Sept. 15 after the pre-dawn filing, and another of $51 billion was made the following day, according to a bankruptcy court documents posted today. Both were made to settle securities transactions with customers of Lehman and its clearance parties, the filings said.
The advances were necessary “to avoid a disruption of the financial markets,” Lehman said in the filing.
The first advance was repaid by the Federal Reserve Bank of New York, Lehman said. The bank didn’t say if the second amount was repaid. Both advances were “guaranteed by Lehman” through collateral of the firm’s holding company, the filing said. The advances were made at the request of Lehman and the Federal Reserve, according to the filing.
Lehman disclosed the advances in a motion seeking court permission to give JPMorgan’s claims special status in its attempts to recover any advances. Lehman said that if that status isn’t granted, JPMorgan may not be able to make future advances needed to clear and settle trades.
“The granting of the relief requested is in the best interests of the estate and its stakeholders and the public markets,” Lehman said, adding the advances would be “essential to Lehman’s customers.”
JPMorgan may make future advances at its sole discretion, all of which would be guaranteed by Lehman under its agreement to pledge collateral, Lehman said.
JPMorgan said in a statement in court documents that it has had a clearing agreement with Lehman since June 2000, and had pledged its collateral under an Aug. 26 guarantee.”
While no in-depth reason has ever been offered to explain the “advance” outlined above, a degree in rocket science is not needed to figure out what trades were being done to “keep markets stable [err, rigged]”. From the looks of J.P. Morgan’s derivatives book over the 2 quarters Q4/08 through Q1/09 we see ANOTHER 8 TRILLION dipsy-doodle in the less than 1 year swap constituent of J.P. Morgan’s derivatives book – this time in Q1/09, post Lehman collapse – where the inflated J.P. Morgan short term swap positions have since remained elevated. It should be noted that the less than 1 yr. swaps component of J.P. Morgue grew from 23.9 Trillion to 32.0 Trillion [Q4/08-Q1/09] while their overall book contracted from 87.4 Trillion to 81.2 Trillion in the same time period:
source: Office of the Comptroller of the Currency table 8
source: Office of the Comptroller of the Currency table 8
So, while Lehman was in the death-throws of collapsing – after Barclays couldn’t be induced to touch them with a “barge pole” – J.P. Morgan “advanced” 138 billion [collateral perhaps?] to Lehman so they could “perform/settle trades” –– mostly, if not all reimbursed/paid for by the Fed. While this “stabilizing trade” was being instituted – short term rates simultaneously careened down to zero from 200 basis points [2 %]. Then, in the immediate aftermath of the collapse – J.P. Morgan’s less than 1 yr. component of their swap book grows by 8 Trillion in one quarter while their overall book was contracting by more than 6 Trillion in notional???
I hope I haven’t lost anyone here because these facts are MUCH STRANGER AND HARDER TO BELIEVE THAN FICTION.
What appears to have happened here: J.P. Morgan did not want to be identifiable as the originator of 8 Trillion worth of less than 1 yr. Swap instruments – so they pre-funded Lehman to strap these positions on – positions they KNEW IN ADVANCE they would inherit once Lehman’s collapse was official. This way – no more unwanted attention would be drawn to J.P. Morgan [the Fed / U.S. Treasury in drag].
Barclays clearly knew how bad the whole situation was – being the last ones to see the horror that was Lehman’s books – and were likely the only counterparty in the proceedings who acted in an informed, financially responsible manner.
More…




Jim Sinclair’s Commentary

Why all these Presidential orders unless you anticipate their use?

DHS emergency power extended, including control of private telecom systems By Shaun Waterman
The Washington Times
Thursday, July 12, 2012
The Obama administration has given the Department of Homeland Security powers to prioritize government communications over privately owned telephone and Internet systems in emergencies.
An executive order signed June 6 “gives DHS the authority to seize control of telecommunications facilities, including telephone, cellular and wireless networks, in order to prioritize government communications over private ones in an emergency,” said Amie Stephanovich, a lawyer with the Electronic Privacy Information Center (EPIC).
The White House says Executive Order 13618, published Wednesday in the Federal Register, is designed to ensure that the government can communicate during major disasters and other emergencies and contains no new authority.
“The [order] recognizes the creation of DHS and provides the Secretary the flexibility to organize the communications systems and functions that reside within the department as [she] believes will be most effective,” White House spokeswoman Caitlin Hayden said in an email. “The [order] does not transfer authorities between or among departments.”
She said the order replaced one originally signed in 1984 by President Reagan and amended in 2003 by President George W. Bush after DHS was set up and took responsibility for emergency response and communications.
More…

 

Jim’s Mailbox

July 13, 2012, at 12:39 pm
by Jim Sinclair

US government records $904.2B deficit through June CIGA Eric
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 forecast of $1.17 trillion will prove to be extremely conservative and naive in retrospect.
Headline: US government records $904.2B deficit through June
WASHINGTON (AP) — The U.S. budget deficit grew by nearly $60 billion in June, remaining on track to exceed $1 trillion for the fourth straight year. Through the first nine months of the budget year, the federal deficit totaled $904.2 billion, the Treasury Department reported Thursday. President Barack Obama is almost certain to face re-election having run trillion-dollar-plus deficits in each his first four years in office. That would likely benefit his opponent, GOP presumptive nominee Mitt Romney. Obama and congressional Republicans remain at odds over how to lower the deficit. Unless their disagreement is broken, a series of tax increases and spending cuts could kick in next year. Economists warn that could dramatically slow an already weak U.S. economy and even tip it back into a recession. The Congressional Budget Office predicts the deficit for the full year, which ends on Sept. 30, will total $1.17 trillion. That would be a slight improvement from the $1.3 trillion deficit recorded in 2011, but still greater than any deficit before Obama took office.
Source: finance.yahoo.com
More…

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