Tuesday, June 7, 2011

How China Just Implemented A Stealth Bailout Bigger Than One And A Half TARPs

Submitted by Tyler Durden on 06/07/2011 12:18 -0400

While the rest of the world is transfixed by the latest pocket change bailout of the Eurozone, China has stealthily conducted an economic rescue bigger than than one and a half TARPs. Dylan Grice's latest note focuses on the key news out of China from last week which oddly received very little media attention, namely the onboarding by the Local Government Financing Vehicles (LGFV) of $463 billion in bad loans made to various infrastructure and development projects as part of the Chinese stimulus package. This is nothing short of a bailout the likes of TARP when Paulson transferred billions of toxic debt to the government's balance sheet. The reason why this is actually a much bigger deal than perceived is that as Grice notes, a "bail-out of $463bn is half the size of the TARP, introduced by Paulson at the nadir of the 2008 crisis, for an economy which is only one-third the size of the US. So adjusted for GDP, China has just announced an emergency bail out of one and a half TARPs!! If we calibrate the magnitude of the economic crisis with the size of the bail-out, one and a half TARPs implies a financial crisis one and half times the order of magnitude of 2008." In other words, China very quietly and stealthily buried a massive bailout with just one passing Reuters mention. And nobody cares... Or more specifically, those who have long held a very bearish view on China, should certainly care, as what happened is that the unwind catalyst, so critical for most China bearish theses, was just pushed back by several years. And since China is full to the gills with excess dollars, all that happened was that the government effectively diverted money that would have been otherwise recycled to purchase US paper, in the form of a government fund to bail out it own. Crisis averted as another centrally planned regime managed to do what the Fed and the ECB have been doing so well for nearly 3 years now.





Dealers Bid Up $32 Billion 3 Year Auction In Advance Of Flipping It Back To The Fed

Submitted by Tyler Durden on 06/07/2011 13:23 -0400

The Treasury just priced $32 billion in 3 Year bonds (CUSIP QS2) in another "strong" auction which was dominated by Dealers who took down 55.2% of the total amount, as they prepare to flip the bulk of its right back to the Fed, just as in last month's 3 year "strong" auction which as we noted yesterday, saw half of the Dealer takedown flipped to Brian Sack in 3 weeks. The yield dropped to 0.765%, just wide of the When Issued, and the lowest since November 2010, even as the Bid To Cover came at 3.279, a touch weaker than May's 3.289, and the 4th strongest BTC in the history of the auction. Indirects came precisely in line with the LTM average of 35.6%, with the balance, or 9.2%, going to Directs. The Indirect bid was actually weaker than the take down number indicated. As Stone McCarthy points out: "the Indirect bid declined to $17.8 billion this month from $18.9 billion last month That accounted for 17.0% of the overall bid, compared to a 17.8% average over the prior year. The Indirect hit ratio was close to average, but the smaller bid still left Indirect bidders with a slightly below average 35.6% of the auction." Overall another irrelevant auction as there will be at least 3 Year targeting POMOs before the end of QE2 in 3 weeks, meaning PDs will be able to flip the full amount of the OTR they don't want back to the Fed. When it will get interesting it toward the end of June when the distribution of POMOs across the curve starts getting sparse and then ends on June 30. As usual, look for CUSIP QS3 to be the most monetized CUSIP in the next two 2014-targetting POMOs.




Gene Arensberg: When big sellers of silver futures seem timid








Live Webcast Of The Obama-Merkel Press Conference

Submitted by Tyler Durden on 06/07/2011 11:28 -0400


Expect the usual:(LIES) more promises of Marshall Plans, more FX liquidity swaps, more US taxpayer commitments to keep Europe afloat and the Greek retirement age under 60, etc. 

The Fed Just Telegraphed Not To Expect Much If Anything From Bernanke's 3:45pm Speech

Submitted by Tyler Durden on 06/07/2011 11:19 -0400

Is the Fed telegraphing that today's 3:45pm speech, expected by many to presage some form of monetary easing preannouncement by the Chairman, will leave many disappointed? That could well be the case based on the just disclosed data from the Fed's mouthpiece, Jon Hilsenrath, who spoke to Chicago Fed's Evans. In the interview, we find that the Fed president decided to cut its outlook (long overdue), but more importantly, Evans, a diehard dove and a big fan of additional easing, announced that he "doesn’t want to add to [QE]." In other words, as we have been warning, the S&P will have to drop at least another 25% before the "high threshold" for more money printing is reached. Ironically, for the first time, discounting even near certain future events does not work, courtesy of Central Planning, which needs the market to act in a centrally planned way and drop despite the inevitable Zimbabwe reaction. 

66% Of Las Vegas Mortgages Are Underwater, 27.7% Of Total US Housing Debt Has Negative And Near-Negative Equity

Submitted by Tyler Durden on 06/07/2011 09:33 -0400


Following yesterday's news out of Zillow of a 0.77% drop in April home values compared to March, today we get an update from CoreLogic which in turn looks at the latest trends on "underwater" (or negative equity) mortgages in the US. In summary: "10.9 million, or 22.7 percent, of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2011, down slightly from 11.1 million, or 23.1 percent, in the fourth quarter. An additional 2.4 million borrowers had less than five percent equity, referred to as near-negative equity, in the first quarter. Together, negative equity and near-negative equity mortgages accounted for 27.7 percent of all residential properties with a mortgage nationwide. In the fourth quarter, these two categories stood at 27.9 percent." The most impacted state is Nevada, which has 62.6% of all mortgages underwater (with another 4.8% in near-negative), followed by Arizona, Florida and Michigan. California is fifth with 30.9% of all homes underwater. We doubt these millions of "homeowners" are benefiting much from the wealth effect.




Janet Tavakoli: "Greater Global Risk Now Than At Time Of LTCM"

Submitted by Tyler Durden on 06/07/2011 12:38 -0400
The current situation may indeed be different from that presented by Long Term Capital Management, but it may be even more alarming, not less alarming. Due to the use of structured products and derivatives, hedge funds can take on hidden leverage above and beyond that which can be explained by polling prime brokers. Furthermore, illiquid structured products will experience a classic collateral crash when hedge funds try to liquidate these assets to meet margin calls or collateral "cures". Since 2000, assets invested in hedge funds have more than tripled to around $1,500bn. While on average leverage may appear manageable, some hedge funds - Amaranth to cite a recent example - employ high degrees of leverage. A potential source of a "great unwind" arises from a trigger event affecting highly leveraged hedge funds, and another potential source is systemic risk that effects a larger cohort of hedge funds.





China currency regulator warns that U.S. could pursue weak dollar policy

 

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Paul Farrell Explains Why America Needs An "Evil Plan" In Advance Of The Next Revolution

Submitted by Tyler Durden on 06/07/2011 10:00 -0400

Unlike many of his colleagues at MarketWatch, Paul Farrell has never hidden his contempt for the broken financial and social system currently imploding at every step, although courtesy of enjoyable and distracting $0.99 apps and semi-soft porn dancing shows on primetime, few seem to care or notice. For those who do notice, however, Paul has some words of caution: prepare an "evil plan" - Farrell explains: "Got your “Evil Plan” yet? You really need one. For self-defense, attacks, plain old survival. Why? Things are bad folks. And they’re going to get much worse. Trust no one. Believe nothing you hear. Nothing....While reading Hugh MacLeod’s best-seller “Evil Plans: Having Fun on the Road to World Domination” over Memorial Day I ran across a Newsweek feature, “Mad As Hell,” an ominous warning screaming: “The anger that fueled the Arab Spring is now boiling over in Europe. Could club-wielding protesters be in America’s future too?. What’s an “Evil Plan?” For MacLeod it started as personal, years ago when he broke free of corporate life, became an entrepreneur, made “a good living, doing what you love, without being accountable to some larger company.” That triggered a revolution." Alas, if only it was as easy for most as it is for MacLeod...




China May Have Problems But The US And The UK Are Bankrupt.
Jim Rogers Blog - 4 hours ago
There's going to be huge downsides, there's serious problems. Where am I gonna put my money? US? the UK? They're bankrupt. Why would I take my money out of a place that is having a dip and put it into a ba...
 
 
 
 

The Coming Simultaneous European Banking Collapse

Watching international financial policy persisting on a concept to fight debt with more debt in an environment where official GDP growth rates only remain positive because of ridiculously low deflators, while interest rates apart from those central bank help for banks via laughingly low interest rates begin to surge everywhere else, this observer begins to wonder if one can expect anything else than a fast-rolling, simultaneous European banking collapse. Engulfed in more exponentially rising debt on public and private levels than ever before there simply cannot be another end of the longest growth cycle in history than a simultaneous collapse of international banking when lending freezes up due to fears about the real creditworthiness of the respective counter party. Globalization will have made it possible. 
 
 
 
 

Dollar At One Month Lows On PBOC Advisor Comments That Chinese FX Formation Mechanism Needs "Drastic" Reform

Submitted by Tyler Durden on 06/07/2011 07:12 -0400

Appeals for changing the fixed CNY exchange mechanism are now coming not only from the office of Chuck Schmuer. In a column in China's Caixin website, Zhou Qiren, a central bank advisor, said that China's yuan exchange rate formation mechanism needs drastic reform. "The central bank has used too much money to intervene in the foreign exchange market, so modest reform is not going to help," said Zhou, a member of the Monetary Policy Committee under the People's Bank of China, in his special column on the Caixin website. "We need drastic measures," he said. Zhou said the growth of China's monetary base is largely decided by the central bank's purchase of foreign exchanges, which in turn is fueling inflation. The comments resulted in dollar weakness overnight as soon as they hit the wires, sending the DXY to one month lows of about 73.616, a level last seen on May 5. The statement offset some carry currency weakness overnight after the RBA decided to keep rates unchanged at  4.75% in a widely expected decision, though a hike is still thought likely in coming months to combat inflation amid a massive trade and mining boom. Additionally, courtesy of further rumormongering out of Europe, which today has been with a EUR-bullish bias, the EURUSD has continued its uptrend, and is now also trading at one month highs, appreciating by 700 pips since recent lows of under 1.40 on May 23, last printing at 1.4666. As usual, Greek newsflow will dominate the EURUSD, and thus, the general market.





ECB Has €444 Billion PIIGS Exposure, A 4.25% Drop In Asset Values Would Bankrupt European Central Bank

Submitted by Tyler Durden on 06/07/2011 07:23 -0400
As if insolvent European private banks were not enough to worry about (and with banking assets of 461 percent of GDP in the UK, 178 percent in Germany, and 820 percent in Switzerland, there is more than enough to worry about), a new study by Open Europe has found that at the heart of the insolvency argument is none other than the only hedge fund that is even worse capitalized than the US Federal Reserve: the European Central Bank. "With Greece forced to seek a second bail-out to avoid bankruptcy, Open Europe has today published a briefing cataloguing how the eurozone crisis could drive the European Central Bank itself into insolvency, with taxpayers likely to pick up a big chunk of the bill.  The role of the ECB in the ongoing eurozone and banking crisis has been significantly understated. By propping up struggling eurozone governments and providing cheap credit to ailing banks, the ECB has put billions worth of risky assets on its books. We estimate that the ECB has exposure to struggling eurozone economies (the so-called PIIGS) of around €444bn – an amount roughly equivalent to the GDP of Finland and Austria combined. Of this, around €190bn is exposure to the Greek state and Greek banks. Should the ECB see the value of its assets fall by just 4.25%, which is no longer a remote risk, its entire capital base would be wiped out." It seems that in crafting "prudent" capitalization ratios courtesy of Basel 1 through infinity, the global NWO regulators totally let the ECB slip through the cracks. The finding also confirms what we have been saying all along: there is no way that any form of voluntary or involuntary phase transition that will require the ECB to mark down assets that it has on its books at par (yet are worth 50 cents on the dollar) can ever occur: such an event would result in the immediate insolvency of the European lender of first and last resort, and, in turn, the unravelling of the Eurozone.





IMF Says Is Open To Delaying Greek Bailout Loan Repayments

Submitted by Tyler Durden on 06/07/2011 08:02 -0400

The soap opera begins early today (at least in the US), after the Irish Times reports that the IMF is open to delaying Greece's repayment of its international loans but believes a major restructuring of its debt would create untold problems in the euro zone, a senior IMF official said today. "Athens has made progress in tackling its debt crisis but cannot afford to relax the pace of reforms, Bob Traa, the International Monetary Fund's senior representative in Greece, told a banking conference. "If you want a debt restructuring that will really make a difference, it will need to be very large. Such a large debt restructuring would create untold problems not just in Greece, but also in the euro zone," Mr Traa said. But he did hint that the IMF was open to other solutions. "Stretching out payment terms, for instance in loans from euro area partners and the IMF, is a reasonable thing to think about because we have amortisation right at the end of the programme. This is a technical issue we can think about," he said." Unfortunately, as the rating agencies have made clear by now, such a move would be considered a technical default, and thus is unworkable as the very simple matter at the heart of the whole eurozone crisis is the forced marking of debt from mythical par levels (where the ECB has it) to market values (around half): a development which would lead to the insolvency of the ECB, something discussed minutes ago. All Europe wants is a phase transition that allows it to keep marking Greek bonds at par, and how this is achieved is irrelevant.





Moody's Says "Voluntary" Debt Rollover Would Be Credit Event

Submitted by Tyler Durden on 06/07/2011 08:08 -0400

Yep, yhe headline barrage continues - from Reuters:
  • Moody's sovereign head says more likely than not that Greek debt roll-over would be a credit event
  • Moody's sovereign head says hard to see how any Greek roll-over would be truly voluntary, would therefore be a default
  • Moody's sovereign head says any Greek restructuring would to big to be effective therefore disruptive for ECB, Banks
  • Moody's sovereign head says impossible to have orderly and effective Greek debt restructuring
  • Moody's head of sovereign risk says Euorzone, ECB has resources to contain short term financial pressures
  • Moody's says current Greek rating sees 50% default risk in 3-5 years
Naturally, unless this changes and Moody's is bribed with enough worthless paper to keep its mouth shut, this means game over for the "voluntary" bailout track as we predicted, as it implies an event not so much of default (which certainly will occur), which is largely irrelevant, but of remarking of ECB Greek bond collateral, which will certainly be greater than the 4.25% haircut needed to push the ECB into insolvency.





Disapproval Of Obama's Handling Of The Economy Hits Record

Submitted by Tyler Durden on 06/07/2011 08:35 -0400

In case anyone was wondering why Goolsbee was the latest sacrifice at the altar of public discontent with Obama's economic "policies" here it is: "Americans' disapproval of how President Barack Obama is handling the economy and its growing budget deficit has reached new highs amid broad frustration over the slow pace of economic recovery, according to a Washington Post-ABC New poll released on Tuesday. The ratings Obama's approval rating bounced to 56 immediately after bin Laden was killed last month. Fifty-nine percent, a new high, gave Obama negative marks for his handling of the economy, up from 55 percent a month earlier. Obama's approval rating on the deficit issue hit a new low of 33 percent, down 6 points since April. The state of the economy poses a huge challenge for the president, whose re-election in 2012 may depend on his ability to convince voters that his economic policies have been successful." Unfortunately Goolsbee's departure means that the one sacrificial lamb left in the Obama economic circle (now that Mark Zandi seems a shoo in for at least one position on Obama's staff), Tim Geithner, will be kept in Obama's back pocket until QE 3 (which will come - Obama has nothing else left up his sleeve) proves to be an abysmal failure and be fired once the Fed's balance sheet hits about $4 trillion, roughly $1.3 trillion higher than where it is now. 
 
 
 
 
 

Moody's Puts Sino-Forest Ba2 Rating On Downgrade Review, Does Not Cite Its Own Due Diligence Incompetence As A Factor

Submitted by Tyler Durden on 06/07/2011 09:39 -0400

Moody's joins every other sellsides who forgot to actually perform any due diligence on the company Buy rating notwithstanding, and has just put the company's Ba2 rating on downgrade review. This is more bad news for Paulson who is rumored to have not only a big position in the company's stock, but substantially exposed to its debt as well. Moody's cites: "allegations surrounding the accuracy of Sino-Forest's audited accounts and its business model" as the reason for the downgrade. Great job Moody's: feel free to piggyback on the work of 2 guys in a small office somewhere who did your job for you. Now when is Mark Zandi taking over Goolsbee's job? 
 
 
 
 
 

OPEC Stand Off As Saudi Arabia Tries To Help Obama's Reelection Chances By Hiking Crude Output; Iran, Venezuela, Iraq Not Convinced

Submitted by Tyler Durden on 06/07/2011 10:29 -0400
Contrary to ongoing wideranging skepticism, Saudi Arabia continues to posture that not only does it have substantial excess capacity, but that it will bring it online any... minute...now. After all, Saudi owes the US a big favor (i.e., lower gas prices) in exchange for America's (or rather its Fifth Fleet) continued presence in Bahrain, which even those living in a cave know has been under a full media blackout to keep the ongoing religious tensions under wraps and keep the Saudi-Bahrain border safe (not to mention the Ghawar oil field). So even as Saudi had promised to hike its output as Libyian production went offline only for it to be discovered that the country had in fact lowered production, so now too the song and dance has hit fever pitch. Reuters reports that "Saudi Arabia is planning to lift oil output sharply in June, whatever policy OPEC adopts this week, in an effort to rein in high fuel prices. Riyadh expects to lift production by more than 500,000 barrels a day in June to its highest for three years, a senior Gulf industry official familiar with Saudi oil policy told Reuters." We can't wait to hear how Saudi's unilateral plan to boost Obama's reelection chances is met by other OPEC members such as Iran, Venezuela, Iraq and Libya. "Worried about the impact on economic growth of inflated energy costs, Saudi will act alone if necessary to keep a lid on prices now at $114 a barrel for benchmark Brent crude." Wait, isn't OPEC a "cartel", or a place where unilateral decisions are not allowed, for precisely this reason? Of course, at the end of the day, with recent Wikileaks disclosure that Saudi Arabia admitted it has overstated its reserves by some 300 billion barrels, or 40% of total, this latest ploy to push gasoline prices lower into the summer season will have a half life that is shorter than the SNB's FX intervention attempts. 





NJ Supreme Court Finds Source Shield Law Does Not Apply To Bloggers

Submitted by Tyler Durden on 06/07/2011 10:47 -0400

In another direct stab at the last remnant of truly independent (if often times quite incompetent) media, the New Jersey Supreme Court has just found that people posting opinions online don't have the same protections for sources as mainstream journalists. According to our secret sources at the AP, (also known as Copy and Paste), "The court ruled Tuesday that New Jersey's shield law for journalists does not apply to online message boards. The case involved a New Jersey-based software company named Too Much Media. It sued a Washington state blogger for defamation and wanted her to reveal sources she cited on message board posts." It is sad that the legislative has decided to invoke a tiering in the media world, which will most certainly backfire and bring even more eyeballs to the blogosphere, where while the bulk of the information comes in the form of CTRL+V information exchange, it does serve a critical role of being a non-conflicted (corporate advertising) source of much needed information. In the meantime, ever more blogs will find it necessary to offshore their operations (Iceland and Sweden are quite friendly in that regard) in order to avoid the encroaching US police state.





 
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Monday, June 6, 2011

Here’s a long-term dollar chart. There’s no vertical or horizontal scale, but I don’t think it really needs one.

clip_image002



Japan Finds Plutonium One Mile Away From Fukushima, Doubles Radiation Leak Estimate

Submitted by Tyler Durden on 06/06/2011 20:36 -0400
In a double whammy of bad news from the mainstream media blackouted Fukushima (or perhaps the general population just doesn't care any more) today we learn that not only did The Nuclear and Industrial Safety Agency (NISA) double its estimate of the radiation leak in the early days of the Fukushima catastrophe, something we had predicted would happen eventually courtesy of the secretive Japanese government, but that Plutonium from Fukushima has now been found in the town of Okuma, over 1 mile away from the stricken Nuclear Power Plant.



Precious Metals and Currency Dilution

As we saw recently during the May take-down of the gold and silver markets, not only was there a large cast of buffoons referring to the silver market (in particular) as a “bubble”, but an even greater number were asserting that at the least there had been a “top” in these markets. It is really difficult to envision a conclusion which demonstrates more fundamental stupidity.
When I head to the supermarket to do my grocery shopping, the same loaf of “premium” bread which I could purchase for about $2/loaf three years ago today costs me roughly $4 today. Obviously since it is the same loaf of bread, there can be no argument that I’m getting a “better” loaf of bread for twice the price. Instead, it is unequivocal that the purchasing power of the paper in my wallet has fallen by half in just three years.
I could come up with numerous other examples of items with such massive “price increases” (i.e. equivalent collapses in purchasing power) – especially with respect to food items. This broad-based explosion in prices totally rebuts any possible argument that particular items are “getting expensive”. The only exception to that would be with respect to goods where there are now acute shortages. In those cases however, prices have tended to explode by an even greater amount.
What this translates to is that the rampant inflation which has already sparked rioting (and revolution) in many poorer nations is totally a phenomenon of out-of-control currency dilution, which is the same thing as saying out-of-control money-printing. Yet we observe the inability of practically the entire body of “experts” to understand the concept (and effects) of currency dilution, despite the fact that these same individuals have no problem understanding the concept of “dilution” when it is applied to the share structure of a corporation.
Should the experts in our markets spot a company which is printing-up new shares at an excessive rate, these analysts will tell you to dump that stock faster than you can hit the “sell” button on your trading platform. And they won’t hesitate to tell you that only a “fool” would hang onto a company which is undermining shareholder value in that manner. Yet when these same experts watch Ben Bernanke running the Federal Reserve’s printing-press “white hot” year after year after year, at any given time roughly half of these clowns will be advising people to “buy dollars”.
The argument these esteemed financial advisors will use when they “recommend” that people increase their exposure to this rapidly-disintegrating paper is that “other currencies” (i.e. other paper) is supposedly even worse. Putting aside the fact that no paper is currently more worthless than the U.S. dollar, let us assume that the U.S. dollar would “win” a least-ugly contest. What does that imply?
With the same media talking-heads claiming that most European nations are near bankruptcy and Japan’s economy is in ruins, claiming the U.S. dollar is slightly less worthless than its “peers” is hardly an endorsement. Indeed, it is like watching two people being dropped out of an airplane on identical platforms – except that one platform was dropped a millisecond later than the other. And then the person perched on the slightly higher platform says to the person on the slightly lower platform “climb up here and save yourself.” Read more: Precious Metals and Currency Dilution 





 



Bob Rodriguez: The man who sees another crash.



Moody's Warns Big Banks Of Possible Downgrades






Treasury Continues to Dip into Retirement Accounts



BBC HardTalk:  Jim Rogers



Moody's Threat of US Downgrade Departure from S&P's Warning



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Must Read...Important...Harvey Organ, Monday, June 6, 2011

Massive Drain of Comex silver/almost all gold and silver at comex settled by paper

 


Comex Physical Silver Drops To Fresh All Time Low Of 28.8 Million Ounces, 3% Drop Overnight, 30% Drop In Six Week

Submitted by Tyler Durden on 06/06/2011 18:40 -0400
When we first started paying attention to the physical ("Registered") silver held in COMEX warehouses on April 20 following the explosion in the silver price, the total amounted to just over 41 million ounces. As of today, a short 6 weeks later, the total physical silver held throughout the entire Comex complex, has dropped by 30% over that period. As of close today, the total amount of Registered silver is now 28,773,375 ounces, a decline of 2.9% overnight from 29,636,513. This is due to a withdrawal of physical from both Brinks and Scotia Mocatta, as well as the ongoing reclassification of 438,708 ounces of Registered into Eligible silver over at HSBC (but wait, it will revert back to Registered any moment... we promise). At this rate of withdrawal and "adjustment", there will be no physical silver left in the entire Comex in about 5 months.




Guest Post: QE3 - Just A Matter Of Time

Submitted by Tyler Durden on 06/06/2011 18:59 -0400
QE3 - Just A Matter Of TimeThe media has been replete lately with a variety of different government officials saying that there will not be a third round of Quantitative Easing. Even the great Ben Bernanke himself on April 27th spoke against the possibility of QE 3. This isn't surprising, of course, because in order for something like QE to have the most effect it needs to be, well, a surprise. However, I am throwing down the gauntlet and making the call - there will be Quantitative Easing, and a big one most likely, by the end of summer. There I said it; of course, I have actually been saying this for the last couple of months and it doesn't take much of a real genius to figure it out considering that we are heading into a presidential election year. However, it most likely won't be called QE 3 since the term QE is now politically and socially almost taboo.

 

 

 Pelosi Calls For Weiner Ethics Inquiry


First we had the bread (or some other Oscar Meyer product)...Now comes the circus. Politico reports that Pelosi has just called for a "Weiner Ethics Inquiry." Um... What is there to inquire: the guy sent out pictures of his wiener in clear abuse of his political position (leaving his family drama aside) from a Twitter account that was obviously that of an elected official. It's unethical - period (to spare various other adjectives that come to mind). He should resign immediately. Then again, New Yorkers once again get precisely the representatives that they deserve. A far better inquiry (and thus use of taxpayer capital) would be to discover who else among the political elite does just the same on a daily basis (Weiner is certainly not alone), and has merely not been caught yet.




Quantifying The Treasury's Plunder Of Retirement Accounts: $80 Billion Between The G- And CSRD Funds Since Debt Ceiling Breach

Submitted by Tyler Durden on 06/06/2011 17:48 -0400


Last Thursday we attempted a rough estimation of how much the Treasury has been dipping, or as it is also known "disinvesting", into the G-fund and the Civil Service Retirement and Disability Fund (CSRDF). Courtesy of Stone Mountain, we now have a definitive number. Even we did not realize how bad it is: in a nutshell, since the debt ceiling breach in mid May, Tim Geithner has replaced one IOU (that of the Fed) with another (that of the Treasury) in the G Fund to the tune of $57 billion, and in the CSRDF of about $22 billion. In other words, retirement funds have seen a "disinvestment" of nearly $80 billion in the past 3 weeks just to make space for further funding of bloated government, defense spending, and healthcare benefits. But don't worry: Tim promises it shall all be well.


James Turk and his charts show gold smashing the currencies

 

 

Maybe Germany would write off Greek loans in exchange for the Parthenon

 

 

Financial Repression: A Sheeplez Shearing Instruction Manual





Dow-Gold Ratio Breaking Support: Investors Fleeing Equities For Hard Assets 




Waiting for Godot 




Guest Post: Those Who Break The Law Must Be Punished Accordingly…

Submitted by Tyler Durden on 06/06/2011 17:08 -0400

Panama is an example of how I see governments moving in the future– like Singapore, Chile, Hong Kong, and may others, Panama is the kind of place that seeks to attract foreigners, to compete for them by providing a number of incentives. Panama does this most pointedly with its retirement ‘pensionado’ program, but there are a number of other such programs. In fact, the country’s immigration law has so many different categories, it’s possible for just about everyone to find a way to move here. In other places, immigration is unfortunately a four letter word. The borderless Schengen area in Europe is on the verge of disintegration as a number of countries in the region begin to put up border checkpoints to restrict the free movement of people (and capital). In the United States, the government has been eager to show that it’s not slacking on the illegal immigration issue. The result has been an increase in the size and scope of its persecution against “undocumented workers” as well as the businesses which hire them. I can just imagine the conversations within the hallowed halls of government: “those who break the law must be punished accordingly…”



Ron Paul On Holding The President Accountable On Libya

Submitted by Tyler Durden on 06/06/2011 13:39 -0400

Last week, more than 70 days after President Obama sent our military to attack Libya without a congressional declaration of war, the House of Representatives finally voted on two resolutions attempting to rein in the president. This debate was long overdue, as polls show Americans increasingly are frustrated by congressional inaction. According to a CNN poll last week, 55 percent of the American people believe that Congress, not the president, should have the final authority to decide whether the U.S. should continue its military mission in Libya. Yet for more than 70 days Congress has ignored its constitutional obligations and allowed the president to usurp its authority....I believe these resolutions and amendments indicate that the tide is turning in the right direction. I am confident we will see Congress move toward ending our unconstitutional wars. The American people are demanding no less. The president's attack on Libya was unconstitutional and thus unlawful. This policy must be reversed.



Latest Insider Tally: 8 Buys, 111 Sells; Ratio Of Insider Selling To Buying: 69.3x

Submitted by Tyler Durden on 06/06/2011 12:35 -0400
The good news: this week's insider sales to buys were half of last week's 147x. The bad news: this week's insider selling to buying came at 69.3x. As a reminder, a baseline bearish indication occurs whenever the insider selling surpasses 30x. That it has surpassed that threshold for virtually every week in the past two years seems to continue to be lost on investors. There were 8 insider purchases of S&P 500 stocks for $3.4 million, the bulk of which was in Marshall & Ilsley stock for $1.7 million, while the sales were focused on Heinz, Iron Mountain, Agilent, Broadcom and NetApp, where insiders dumped a total of $86 million.



In The News Today

June 6, 2011, at 2:01 pm
by Jim Sinclair 
Jim Sinclair’s Commentary

The real number is over one quadrillion in OTC derivatives, not 600 trillion.
I have outlined this to you so many times.

Banks may need more cash to clear derivatives Reuters, Sunday June 5 2011
By Huw Jones
LONDON, June 5 (Reuters) – The world’s top 14 derivatives dealers may need extra cash to handle a surge in transaction clearing, especially in choppy markets, the Bank for International Settlements (BIS) said.
Clearing is being favoured by regulators because it is backed by a default fund that ensures a trade is completed even if one side goes bust, as with the collapse of Lehman Brothers during the financial crisis.
World leaders have agreed that chunks of the $600 trillion off-exchange derivatives market must be standardised and cleared by the end of 2012 to broaden transparency and curb risk.
Researchers at the BIS, a global forum for central bankers, looked at whether the "Group of 14" dealers (G14) that dominate derivatives trading would have enough capital to handle the anticipated surge in trades that will have to be cleared.
BIS concluded in a paper published on Sunday that "it seems unlikely that G14 dealers would have much difficulty finding sufficient collateral to post as initial margin".
"By contrast, dealers may need to increase the liquidity of their assets as central clearing is extended," BIS said.
Central clearing covers about half of $400 trillion in interest rate swaps, 20-30 percent of the $2.5 trillion commodities derivatives, and about 10 percent of $30 trillion in credit default swaps.
The G14 dealers comprise Bank of America-Merrill Lynch, Barclays Capital, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, RBS, Societe Generale, UBS and Wells Fargo Bank.
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Weiner Is Leaking On Live TV As Congressman Admits Tearfully He Got Caught

Submitted by Tyler Durden on 06/06/2011 16:26 -0400



Watch the pathetic confession from the congressman live here. Nonetheless, a very "regretful" Wiener refuses to step down.
 
 
 
 
Obama Is By Far One Of The Worst Presidents The US Has Had
Marc Faber Blog - 2 hours ago
He is by far one of the worst Presidents the US has had. I’m very upset that none of what he said he would do, mainly change, has actually occurred. So I think he’s certainly intellectually dishonest. And ...
 
 
 
 

Tim Geithner's Remarks To The International Monetary Conference On Systemic Risk

Submitted by Tyler Durden on 06/06/2011 14:13 -0400


Amid the usual meandering propaganda, Tim Geithner finally catches up to Zero Hedge from February 2010: "The three largest U.S. banks account for 32 percent of total banking assets in the United States, in comparison to 46 percent for the three largest in Japan, 58 percent in Canada, 63 percent in the UK, 65 percent in France, 70 percent in Germany, 71 percent in Italy, and 76 percent in Switzerland. And total banking assets are 461 percent of GDP in the UK, 178 percent in Germany, and 820 percent in Switzerland." Supposedly this is intended to indicate just how much less concentrated the US banking system is compared to other nations: "Some argue that the U.S. financial system is too concentrated, which could promote systemic risks.  But the U.S. banking system today is less concentrated than that of any other major economy.  And total banking assets in the United States today are only about the size of U.S. GDP – much lower than in other developed economies." So just because the entire system is broken beyond repair, it makes sense to tout that the US is broken just a little bit less than everyone else? Also, where is the mention of the fact that the bulk of these balance sheets are chock full of toxic US securitized detritus and that without the US selling its worthless crap around the world, we would not be in the predicament we are in now. In the meantime, here is what Zero Hedge presented in February of last year...





With A 3 Week Delay, Deutsche Bank Discovers That Q2 GDP Will Collapse Following Plunge In Car Production

Submitted by Tyler Durden on 06/06/2011 14:51 -0400

Nearly three weeks ago, on May 17, Zero Hedge, when analyzing the complete collapse in car and thus Industrial production made the following observations: "The immediate impact: the drop in the industrial production already seen, but the bulk of it due to delayed aftereffects will likely impact the May number, as the follow through from the Japanese supply chain halt starts ringing a loud alarm bell across Wall Street. Of course, this is another thing that all those calling for a 4% H2 GDP could have absolutely not foreseen (and in fact it was originally supposed to be positive for the economy, eh Deutsche Bank?). Expect to see drastic downward cuts to May Industrial Production and next, to Q2 GDP." Fast forward to today, when, in an example of poetic irony, none other than Deutsche Bank's grossly overpaid economists also known as Shaman witchdoctors in less than polite circles, have just come out with a note titled: "Quantifying the impact of autos on Q2 real GDP" in which they, gasp, discover that "a near 30% decline in motor vehicle production is consistent with roughly a two full percentage point drag on Q2 real GDP. In our forecast, we are assuming a decline of around 1.5% because we think that we might see a small bounce in June production that will push the quarterly decline in motor vehicle production to something closer to -20%." Well, better late and always cluelessly wrong, than never... and still cluelessly wrong.





Google Trends: "QE3"




Presented without commentary (well, we'll say one thing: for QE3 to work, it would have to be a surprise... so much for that). 
 
 
 
 
 
 

Juncker Says Euro Overvalued, As G-Pap Willing To Consider Referendum On Bailout Measures

Submitted by Tyler Durden on 06/06/2011 15:14 -0400

It appears Jean-Claude Jun(c)ker has been sniffing hallucinogenic Spanish cucumbers again:
  • JUNCKER SAYS EURO OVERVALUED VS OTHER MAJOR CURRENCIES
  • JUNCKER SAYS EURO AREA SHOULD HAVE EXCHANGE-RATE POLICY
The tautological question of whether he is lying we leave to the logicians. What is apparent is that Europe is finally getting pissed they are dead last in the FX race to the bottom. Cue Tim Geithner's strong dollar policy.
And in far more important news, Greece's G-Pap says that he is willing to consider a referendum on the Greek bailout measures. If so, it's goodbye EUR: a referendum has a snowball's chance in a Comcast business channel in passing.





 

S&P Technicals Update: Next Support At 1241



Now that both the early April swing support of 1283.75, which also happens to be the 150 DMA, have been taken out, the next support in the market is the 200 DMA, which is also the post-Fukushima March lows. A breach of that level would mean the market goes negative for the year. As a reminder: the next 30 minutes are NYSE circuit breaker coffee break time. 
 
 
 
 
 

ES Substantially Underperforms Broader Risk As Scramble Into Defensives Returns 4% in 3 Weeks For "QE Unwind" Basket

Submitted by Tyler Durden on 06/06/2011 16:11 -0400

Comparing ES to the broader RISK basket discussed extensively previously, it appears that following several days of decoupling of the S&P contract to broader risk, today we saw the opposite, when around 1 pm the two series diverged and never looked back. The selling pressure was certainly focused on stocks, led by financials and energy stocks. The shift to defensives is becoming palpable: following our pair trade advice to retrench into consumer staples and utilities while shorting discretionary and industrials (better known as the QE Unwind trade) would have returned almost 4% since inception on May 16. 
 
 
 
 

Handelsblatt Reports Second Greek Bailout Package To Be Delayed

Submitted by Tyler Durden on 06/06/2011 16:26 -0400

It seems that Europe once again shot its last bullet a few days too early (to use a more polite phrasing than the alternative) with the announcement from last week that the Greek bailout was a done deal. As we speculated, various complications will soon emerge for anyone who cares to read the fine print in the bond indentures which preclude the imposition of Collective Action Clauses, thereby making an enforcement of a "voluntary" maturity extension problematic if anything. Below we present an article that appeared in Handelsblatt in the last hour, which indicates that opposition to the rescue has emerged not only from Slovakia, but from the UK as well. The English is about as garbled as possible thanks to Google translate, but oddly enough far more understandable than the periodic soundbites of outright lies from the pathological troica of Rehn-Junker-Trichet. 
 
 
 
 
 




 
 
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US Economic "Surprise" Factor Plunges By Most Since 2009

Submitted by Tyler Durden on 06/06/2011 08:57 -0400


The below chart from SocGen demonstrates why the stock market, unlike bonds, is currently massively overpriced. The current economic surprise factor swing, from an all time record at +100 recently, down to about -100 (the third lowest in the past 5 years, and likely longer), a 200 point swing which only compares to the 2008-2009 Lehman collapse, was accompanied by just a 15% drop in stocks over the past 8 months, indicates two things: either the current "soft patch" is indeed "transitory" as the Fed would like us to believe, or that the market is pricing in QE 3. And while SocGen, which is the source of this chart, believes that the collapse is indeed "transitory" we completely fail to see what the factor will be that will push the global economy higher in Q3 and onward: Japan? Europe? Fiscal generosity in the US? China? No, no, no and no. Sorry, there is no catalyst that will provide an impetus for a hockey stick effect this time around. Except, of course, for more monetary easing, perhaps in Japan, but mostly in the US. Yet for that to happen, as we have been claiming for nearly half a year, stocks will need to plunge to their pre-QE2 levels, or about 900. Alas, the mutual funds which currently hold the lowest amount of cash in history, and are levered more than ever, are simply unable to sell without blowing themselves up. We are confident, more than ever, that an unstoppable desire for extend and pretend is about to hit an immovable force...

 


Fitch Blows At Greek Bailout House Of Cards, Says On Closing Of Distressed Debt Exchange Will Place Sovereign Rating Into Default

Submitted by Tyler Durden on 06/06/2011 10:32 -0400

As we speculated yesterday...
  • If in Fitch's opinion, an announced exchange offer constitutes a DDE, the sovereign issuer rating will be lowered to 'C', indicating that default is highly likely in the near term
  • Fitch will place the issuer rating of the sovereign into default, specifically 'Restricted Default' (RD) upon closing of a distrssed debt exchange.
  • Fitch says a potential Greek debt exchange if voluntary, could still be considered a default event
  • Fitch says Greek debt exchange would be a default if bondholders terms were worse than original terms
  • Fitch says stressed sovereign debt exchange with worse terms is a technical default even if deemed voluntary
The gist is clear: the great unknown of how the rating agencies will treat even a "voluntary" restructuring is still in the closet.




JS Kim on Max Keiser Discusses Banker Manipulation of Gold & Silver Futures
smartknowledgeu
06/06/2011 - 07:50
Please find below my interview with Max Keiser and our discussion regarding the Greek crisis and continued banker price suppression and manipulation schemes executed against gold and silver to prop up the US dollar and prevent a US dollar collapse. 
 
 
 
 

Greek Household Bank Deposits Drop By $3.5 Billion In April, As The "Central Government" Withdraws Another $4.3 Billlion

Submitted by Tyler Durden on 06/06/2011 09:42 -0400

While Greece may or may not receive Bailout #2 "any minute now", Greek depositors refuse to wait for the resolution. In April, bank deposits declined for the 4th consecutive month according to the central bank, a 1.2% decline M/M. From Reuters: "Bank of Greece data showed deposits fell to 196.8 billion euros ($288.2 billion) from 199.2 billion in March. A shrinking deposit base has added to the strains of Greek banks, which have become reliant on ECB funding for their liquidity needs as access to wholesale funding remains mostly shut on sovereign debt concerns. Deposits have shrunk by about 13 billion euros since the beginning of the year. In 2010, they contracted by 29.1 billion euros or 12.2 percent." In addition to the Reuters breakdown, a look at the source data indicates that overall deposits held by "Domestic Residents" dropped by €5.4 billion: the culprit was the Central Government which withdrew €3.1 billion in April, bringing the total from €14.3 billion to €11.3 billion. As usual, the best real-time proxy, if not completely accurate, to gauge the flow of capital in/out of Greek banks is to keep an eye out on the EURCHF. Today, it is a little higher. Over the past year, it is, well, not...





Sino-Forest Update: "Office Temporarily Closed"

Submitted by Tyler Durden on 06/06/2011 08:56 -0400

A harbinger of what the front office doors of various investors in Sino-Forest will soon look like... 
 
 
 
 
 
 
 
 

Obama Fed Board Nominee Peter Diamond Discovers His Nobel Prize In Economics Is Worthless, Pulls Nomination In Disgust

Submitted by Tyler Durden on 06/06/2011 08:07 -0400
In a move that is sure to send the infamous Fed "economist" (Ph.D., never forget) Kartik Athreya over the edge, Obama's nominee for the Fed Board, after unsuccessfully trying to enter the one circle that is just less exclusive than the Goldman partnership ranks for over a year, has decided to pen an Op-Ed in the NYT titled "When a Nobel Prize Isn't Enough", and disgusted with the fact that his utterly worthless Nobel prize in something or another can't even buy him one seat with those who decide the price of money, has pulled his nomination in utter disgust. "Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination. How can this be? " How indeed: could it be that, gasp, Nobel awards are merely a honorary award in groupthink, presented to anyone who perpetuates the status quo with little regard for actual merit-based contribution (one needs only recall Obama's Peace prize just as the President is contemplating opening up a 4th, or is that 5th, war front?). Most importantly: nobody tell Krugman his one validation of his life's work, has just been downgraded to junk.





Goldman Prepares To Fight Carl Levin Allegations Of Massive Housing Short, Will Release Trove Of "Evidence" It Is Innocent

Submitted by Tyler Durden on 06/06/2011 10:30 -0400

As Goldman stock probes new lows every day, and in passing news has just announced it would sell its largely irrelevant Litton Loan mortgage servicing unit to Ocwen financial (which was named so after the founders could not come up with a name so they inverted Newco, but that is a story for another day) for $264 million but retain any potential fraud liability, the firm is now expected to release its own trove of documents expected to "defend" the firm from the various allegations presented in the Carl Levin 639 page report. The report  has already served as the basis for a subpoena lobbed at Goldman, and which some predict will have a much lower threshold of proving guilt courtesy of New York's "Martin Act" has pushed the stock to a one year low. It was only inevitable that Goldman would come up with some jiggering of its numbers to prove that it was in fact innocent. We wonder if the report will also provide an explanation for the following words by one Deeb Salem, a Goldman trader in the structure products group: "We began to encourage this squeeze, with plans of getting very short again." Swenson, Salem’s supervisor, sent e-mails in May 2007 urging traders to offer prices that will “cause maximum pain” and “have people totally demoralized.” In interviews with the committee, Salem and Swenson denied attempting a short squeeze, the report said." Regardless, we can't wait to see the latest attempt to obfuscate the public opinion with the mixing of apples and oranges. Alas, Goldman may be surprised to find that the general population is not quite as dumb as it expects this time around, and there will be those who will gladly cut through the fluff of any posted rebuke within minutes.





Muddy Waters' Carson Block Discusses Sino-Forest, Says Will Keep Short In "Ponzi" Until Stock Hits Zero

Submitted by Tyler Durden on 06/06/2011 10:51 -0400


More color from Muddy Waters' Carson Block on why he believes the now infamous Sino-Forest is a ponzi scheme: "It's a Ponzi scheme in that the company perpetually issues securities in order to fund itself. Even by its own fraudulent numbers, the company does not generate any free cash and has not done so in sixteen years. Were the company be unable to issue additional securities to fund itself, it would collapse. That to me is the definition or epitomizes the definition of a Ponzi. "In this situation, the company appears to be investing for the 23rd century. It's sixteen straight years burning cash, no guidance as to what the rationale is to acquire so many trees so far ahead of customer orders. This is taking a capex fraud--we have found several of these in China--it's taking it to the next level where you're not constrained by the walls of a factory and no one is able to really see the movement of physical goods. It could grow to be infinite provided that the capital markets continue to fund it." 
 
 
 
 
 
 
 
 
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Sunday, June 5, 2011

What will Americans do for a substitute currency once the U.S. dollar has “greater value” as toilet paper than as money? The answer is “no one knows.”

By now, most informed readers have at least a general understanding of the concept of “hyperinflation”. It is the exponential increase in the prices of goods, directly caused by the collapse of the currency in which those prices are denominated. Thus, when the United Nations issued a warning last week of a possible “crisis of confidence” and/or “collapse” of the U.S. dollar, this was also a direct warning of the imminent risk of hyperinflation in the U.S. economy.





Greeks Grab Their Money from the Banks – Time is Running Out



Greek Bailout #2 Is Dead On Arrival: A Few Good Hedge Funds May Have Called The ECB's Bluff, And Hold The Future Of The EUR Hostage

Submitted by Tyler Durden on 06/05/2011 23:22 -0400
Even as the general market, dumb as a doorknob, had been following every headline out of Europe, soaking up the BS that Greece may after all end up being bailed out in some miraculous way, there were those who wondered about the legal basis of the Greek bailout #2, also known as the "Vienna initiative." The problem with the second "Deux Ex Machina" bailout is that there is absolutely nothing Deus about it, no Ex, and most certainly no Machina. In fact, as it now clearly appears, the whole rescue package is flimsier than a house of cards and a quick read through the indenture makes it all too clear. The key phrase (or two) in the proposed package: "Voluntary" and "Collective Action Clauses"... Well as the following excerpt from Citi explains, both of these critical (as in binary: without them, Greece is dunzo) assumptions are unworkable, and explains why every single Greek bond in recent weeks has been purchased by hedge funds who have remembered that the economics of "nuisance value" when the upside of bluffing the EUR printer is virtually unlimited. Which means that not only is Bailout #2 in jeopardy of not passing the Greek parliament, but that we may suddenly find ourselves in the biggest "activist" investor drama, in which voluntary restructuring "hold out" hedge funds will settle for Cheapest to Delivery or else demand a trillion pounds of flesh from the ECB in order to keep the eurozone afloat. In other words, the drama is about to get very, very real. And, most ironically, a tiny David is about to flip the scales on the mammoth Goliath of the ECB and hold the entire European experiment hostage...




Goldman Apologizes For Its Horrendous December "US Economic Renaissance" Call, Begins QE3 Discussion

Submitted by Tyler Durden on 06/05/2011 22:30 -0400
Back on December 1, 2010 Goldman announced it was "fundamentally" shifting its "bearish" outlook on the economy, when Jan Hatzius said "This outlook represents a fundamental shift in the thinking that has governed our forecast for at least the last five years" we accused the Goldman economics team, which we had previously respected, of "jumping the shark" and in describing the piece of fluff said it was nothing but "Hopium", concluding that "Jan Hatzius used to have credibility." Ten minutes ago, Hatzius just threw in the towel and apologized for this horrendous call. "Six months ago, we adopted the view that the economy was transitioning to a more self-sustaining recovery and predicted sequential real GDP growth of 3½%-4% (annualized) in 2011-2012. There were three reasons for our shift: a) a pickup in “organic” growth—GDP excluding the estimated impact of fiscal policy and inventories—to more than 4% in late 2010; b) visible signs of progress in private sector deleveraging, and c) another round of fiscal and monetary stimulus....It hasn’t happened." Needless to say, this apology has made us regain some confidence in Hatzius. Of course, we fully expect that he and his entire team will relinquish their 2011 bonus (and possibly a 2010 bonus clawback) following this massively wrong call, which only Zero Hedge had the guts to call out. Anyway, we can now move on... to QE3. Just as we predicted in January (but were late by a month, expecting this preliminary discussion would occur in May at the latest), Hatzius has just launched the first shot across Bill Dudley's bow. "So what is the hurdle for QE3?" Hatzius asks... And a very dovish Bill "You can't eat iPads" Dudley will answer very shortly. Next up: QE 3.




Another Chinese Rate Hike As Early As This Week Expected

Submitted by Tyler Durden on 06/05/2011 23:41 -0400

For anyone who was hoping that China would be the marginal source of liquidity in QE3 absentia (or until it actually does come, which it will), manifested by a halt to monetary tightening and a relapse into that good old methadone state of loose monetary policy, it may be time to pull those SHCOMP limit bids.  China Daily just announced tha "the People's Bank of China is likely to increase the interest rates banks must pay on deposits and the amount of money banks are required to hold in reserve to sop up the excess liquidity now found in the economy and slow inflation, said analysts. The changes in monetary policy may happen before the National Bureau of Statistics makes an expected announcement this week saying that the consumer price index (CPI), an indicator of inflation, hit a record high in May, they said."As a reminder, yesterday Goldman predicted a multi-year high inflation of 5.5% in May courtesy of the biggest drought in 50 years and surging food prices: it turns out that the PBoC, far more responsible that our own central planning charlatans, will not stand for that.





Chaos in Yemen Drives Economy to Edge of Ruin.



Israeli Border Sees Deadly Clashes

 

 




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The Real "Margin" Threat: $600 Trillion In Off-Exchange Derivatives Moving To Central Clearing, A Multi-Trillion Variation Margin Call, And What Collateral Will Be Used

Submitted by Tyler Durden on 06/05/2011 21:42 -0400

While the dominant topic of conversation when discussing margin hikes (or reductions) usually reverts to silver, ES (stocks) and TEN (bonds), what everyone is so far ignoring is the far more critical topic of real margin risk, in the form of roughly $600 trillion in OTC derivatives. The issue is that while the silver market (for example) is tiny by comparison, it is easy to be pushed around, and thus exchanges can easily represent the illusion that they are in control of counterparty risk (after all, that was the whole point of the recent CME essay on why they hiked silver margins 5 times in a row). Nothing could be further from the truth: where exchanges are truly at risk is when it comes to mitigating the threat of counterparty default for participants in a market that is millions of times bigger than the silver market: the interest rate and credit default swap markets. As part of Dodd-Frank, by the end of 2012, all standardised over-the-counter derivatives will have to be cleared through central counterparties. Yet currently, central clearing covers about half of $400 trillion in interest rate swaps, 20-30 percent of the $2.5 trillion commodities derivatives, and about 10 percent of $30 trillion in credit default swaps. In other words, over the next year and a half exchanges need to onboard over $200 trillion notional in various products, and in doing so, counterparites, better known as the G14 (or Group of 14 dealers that dominate derivatives trading including Bank of America-Merrill Lynch, Barclays Capital, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, RBS, Societe Generale, UBS and Wells Fargo Bank) will soon need to post billions in initial margin, and as a brand new BIS report indicates, will likely need significant extra cash to be in compliance with regulatory requirements. Not only that, but once trading on an exchange, the G14 "could face a cash shortfall in very volatile markets when daily margins are increased, triggering demands for several billions of dollars to be paid within a day." Per the BIS "These margin calls could represent as much as 13 percent of a G14 dealer's current holdings of cash and cash equivalents in the case of interest rate swaps." Below we summarize the key findings of a just released discussion by the BIS on the "Expansion of central clearing" and also present a parallel report just released by BNY ConvergEx' Nicholas Colas who independetly has been having "bad dreams" about the possibility of what the transfer to an exchange would mean in terms of collateral posting (read bank cash payouts) and overall market stability, and why a multi-trillion margin call could result in the biggest buying spree in US Treasurys... Ever.  




Summary Of Key Events In The Upcoming Week

Submitted by Tyler Durden on 06/05/2011 20:03 -0400
The week ahead brings a barrage of IP data for April from all round the world, the momentum of which will be closely examined after the sharp drops in the manufacturing business surveys last week. Expectations – both ours and the consensus – are a mixed bag, but broadly, we expect momentum to slow in April. The data will be dissected for evidence of supply chain issues – which probably should be faded given the Japanese production plans published last week – and for evidence of a broader slowdown. In addition, manufacturing orders data from Germany, Taiwan, Japan and Sweden will be watched similarly. Away from IP, the week brings a bunch of inflation prints, which are all broadly expected to show a further rise in the headline readings. Outside of the data, developments in Greece will remain on the radar screen, particularly any colour on a new package. 
 
 
 
 
 

"Escaping The Clutches Of Financial Markets" - An Essay On Europe's Debt-For-Democracy Prepackaged Bankruptcy

Submitted by Tyler Durden on 06/05/2011 19:46 -0400
In today's Europe, the people are no longer in control. Instead, politicians have become slaves to financial institutions and the markets. We are partly to blame -- and changes are urgently needed to nurse European democracy back to health.We are doing well. In fact, we're doing splendidly. The economy is booming, with 1.5 percent growth in the first quarter. We are as prosperous as we were before the crisis, which has finally been overcome. Congratulations are in order for everyone. The banks, Deutsche Bank above all, deserve particular congratulations. In the first quarter, it earned €3.5 billion ($5.1 billion) in pretax profits in its core business, and by the end of the year the bank will likely report a record €10 billion in pretax profits, its best results ever. That number is expected to rise to €11 billion or even €12 billion in two or three years. Less than three years after the peak of the crisis, it seems as if it never happened. That is true of the economy, but it also true of us as economic subjects. But is that all we are? No, we are also citizens and participants in a democratic society. As such, we have no reason to be celebrating. Instead, we ought to be sad and outraged. Democracy, after all, is not doing splendidly, or even well. It is gradually becoming a casualty of the financial crisis. 
 
 
 
 

Paulson's Flagship Fund Down 6% In May, Down Over 13% For The Year Following Latest Sino-Forest Debacle

Submitted by Tyler Durden on 06/05/2011 18:50 -0400

The halo of invincibility surrounding the world's largest hedge fund/smallest mutual fund (because last we checked a hedge fund that is $37 billion in size has about the same turn radius as Vanguard), Paulson & Co., is starting to wear thin. According to the FT's Sam Jones, Paulson's flagship fund, the $9 billion Advantage Fund, dropped "close to 6 per cent in May, echoing losses across the industry." May’s loss means that in the year to date, the $9bn Paulson & Co Advantage Plus fund is down 7.6 per cent. The average hedge fund lost 1.39 per cent over the month according to preliminary data from Hedge Fund Research, with “event-driven” strategies such as that operated by Paulson & Co’s main fund down on average 0.62 per cent.  Investors in the firm's other fund have little cause for cheer: "The Paulson & Co Gold fund dropped 6.39 per cent in May, erasing much of its 8.5 per cent April gain. The fund is up 0.9 per cent in the year. Paulson & Co is the world’s largest non-sovereign gold investor. Performance was better for the firm’s other funds. Its Credit fund was down 0.05 per cent for May, while the Recovery fund, which is geared to the prospects of the US economy, dropped 0.69 per cent. Paulson & Co declined to comment." Naturally, Paulson, who once upon a time saw Bank of America, soon to be embroiled in multi-billion dollar litigation to settle the fact that an unimaginable number of its mortgages are fraudulent through and through (thank you Agent Orange), would hit $30/share by the end of 2011 and soon will need a reverse stock split to get there, continues to be bullish: "In the firm’s most recent correspondence with investors Mr Paulson said difficulties for US banks had been a particular drag on his portfolios but that he remained optimistic...The US stock market could rally as much as 40 per cent from its first quarter level this year, he said." Sorry, John, not without QE 7 it won't.




Victory For Social Democrats - Follow Portugal's Irrelevant Election Results Live

Submitted by Tyler Durden on 06/05/2011 15:43 -0400


As expected, the Portuguese elections appear to be a massive victory for the Social Democrats' Pedro Passos Coelho, who is now guaranteed to replace Socrates as Portugal's next PM. The latest results indicate a 41.08% lead for the PSD compared to 28.77% for the PS. What will this change in terms of national policies for this latest IMF vassal state? Absolutely nothing (as discussed earlier). Follow the latest district by district data live here. 
 
 
 
 
 
 
 
 
 

Golden State is poised to outlaw gold prospecting

 

Gene Arensberg: Tired of 'dire'?

 

 

Jim Sinclair’s Commentary

This has the Formula written all over it.

US house price fall ‘beats Great Depression slide’ By Stephen Foley
The ailing US housing market passed a grim milestone in the first quarter of this year, posting a further deterioration that means the fall in house prices is now greater than that suffered during the Great Depression.
The brief recovery in prices in 2009, spurred by government aid to first-time buyers, has now been entirely snuffed out, and the average American home now costs 33 per cent less than it did at the peak of the housing bubble in 2007. The peak-to-trough fall in house prices in the 1930s Depression was 31 per cent – and prices took 19 years to recover after that downturn.
The latest Case-Shiller house price index was just one of a slew of disappointing economic data from the US yesterday, which suggested ebbing confidence in the recovery of the world’s largest economy. The Chicago PMI manufacturing index showed a sharp slowdown in the pace of expansion in May, missing Wall Street forecasts and sending the index to its lowest since November 2009.
And in the latest Conference Board consumer confidence survey more people expressed uncertainty over their future economic prospects. The confidence index fell unexpectedly to 60.8 from a revised 66.0, when economists had expected it to rise to 67.0. Falling house prices and negative equity combined with high petrol and food prices and a still-weak jobs market to raise consumers’ fears for the future.
Thomas Di Galoma, the managing director of government securities at Oppenheimer & Co, said: "Based on the weakness in housing prices, Chicago PMI and consumer confidence, it appears as though the economy could be headed for a double dip, especially as federal and state spending slows rapidly over the next six months."
More…



UK economic recovery on the verge of collapse 

By David Prosser, Business Editor
Saturday, 4 June 2011
The prospect of Britain’s economy moving decisively into recovery mode were dealt another blow yesterday, with two new reports highlighting mounting difficulties.
Markit, the analyst that compiles the closely watched monthly surveys of activity in the services, manufacturing and construction sectors, said its latest research suggested the UK economy was on target to record growth of just 0.3 per cent during the second quarter of the year, even more disappointing than the first quarter’s 0.5 per cent.
Figures published by Markit yesterday showed that the services sector, which accounts for more than two-thirds of Britain’s economy, continued to grow last month, but at a muchslower rate. The purchasing managers at services companies, who Markit surveys to compile a picture of activity in the sector, said their businesses expanded in May at their slowest rate for three months.
The downbeat services surveyfollows the depressed picture Markit revealed of the manufacturing sector earlier this week, with economists warning that the extra bank holidays last month could not fully account for the setbacks.
Chris Williamson, Markit’s chief economist, warned that the Bank of England’s most recent forecasts for economic performance this year, which had to be downgraded from its earlier estimates, might have to be cut once again. "There is an increased risk that growth in 2011 will fall below the 1.8 per cent expansion forecast in the latest Bank of England forecast," he said.
More…




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