We The Sheeplez- The Coming Economic Collapse.."A Nation Of Sheep Ruled By Wolves" Thomas Jefferson

European Credit Crunch Hits Broad Economy As M3, Private Loans Collapse

The primarily sovereign credit crunch in Europe, which has resulted in part due to the ECB's disastrous, and since reversed decision just like in 2008, to hike rates early in the year, only to go ahead and not only cut but expand its balance sheet by a record EUR 800 billion in the past six months, has finally started trickling down to the corporate, and more importantly financial levels, where as was just reported today, the broadest monetary aggregate, the M3, rose by a only 2.0% in November, dropping by a whopping 60 bps from October (keep in mind this is a huge amount on a number that is in the tens of trillions), which happened to be the biggest annualized contraction change since 2009. What is worse, and what confirms that the daily "near default" state Europe finds itself in every single day has sent shockwaves of uncertainty around the continent, is that the loans to private businesses grew at just a 1.7% rate in November, a plunge from October's 2.7% and missing expectations of 2.6% by a wide margin. Said otherwise, corporate credit (far more important than its sovereign equivalent) is being turned off. And as has been widely discussed without credit flowing, there is not only no growth, but the threat of imminent economic depression. Lastly, that this has happened even as the ECB's balance sheet has risen from EUR 1.9 trillion to $2.7 trillion in 6 months is truly humiliating from Trichet as none of the money he injected into the banks has made it to the broader public, and instead all has been used to prop up Europe's failing banks, something we know all too well here in the US.

Merkel Economic Advisor Does Not Exclude Eurozone Break Up

In an interview making the rounds this morning, which appeared in German "for the people" daily Bild, one of the German Council of Economic Experts, Beatrice Weder di Mauro, who is one of five economic advisors to Angela Merkel, put it in no uncertain terms (Bild readers don't like the kind of "political talk" other politicians are best known for) that while a breakup of the Eurozone in 2012 would be "bad for everyone involved" it can not be completely excluded. She also warned that unless the financial crisis is intercepted quickly, it can lead to a recession in Germany, with the economy contracting 0.5%, and leading to an increase in unemployment. Finally, she made it all too clear how Germany plans to deal with the PIIGS laggards: "Over-indebted euro-zone nations must submit to a long-term insolvency rule." Now granted this was google translated, but somehow we believe it captures the essence of the underlying thought quite succinctly. In other words, Germany is once again toying with the "expulsion" nuclear option, the same one that according to UBS analysts as recently as a few weeks back, would make precious metals, tinned goods and small caliber weapons the best investment option. How this will impact the EURUSD on this day when the currency is already at a near 2011 low is unclear, but will hardly be favorable.

The Cycle of Panic In Gold

Eric De Groot at Eric De Groot - 2 hours ago

The cycle of panic in gold is also known as ass whopping cycle is describe as follows: (1) “Money” positions ahead of the downside move. Commercial traders pile on their short positions (see red arrow), Gold London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Long & Short As A % of Open Interest The quiet reposition of funds on the futures... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

If I Were Buying Anything I’d Be Buying Agricultural Commodities

Admin at Jim Rogers Blog - 2 hours ago

If I were buying anything I’d be buying agricultural commodities. Going forward we’re going to have huge shortages of everything – including farmers – I think ag will be a great place for the next 10-20 years. - *in CNBC* *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.*

Silver unable to sustain price rallies

Trader Dan at Trader Dan's Market Views - 10 hours ago

Silver has become the victim of the deflationary mindset trade with RISK AVERSION leading to a significant outflow of speculative money from the grey metal. I have said repeatedly that Silver will not go anywhere as long as INFLATIONARY FEARS are *NOT* foremost in traders' minds. Note the following Gold/Silver ratio chart which details this exact thing. This ratio began moving in favor of Silver only after the Federal Reserve first announced and then began its Quantitative Easing programs back in late 2008. You can see the line beginning a steady decline as Silver appreciated at a ... more »

WSJ On DSK, DisUnion, And The Dismal Dithering In Europe

In an interesting history, today's WSJ points to a closed-door meeting in Washington on April 14th of this year as the moment that the attempts to 'save' Europe began to unravel. The player at the center of the debacle - one Dominique Strauss-Kahn - was pressing for more 'help' from Europe or else the IMF would not deliver more magic-money to the Greeks. The ultimatum drove a wedge between many competing camps over who should be on the hook for more or less of the money required to save this tiny sovereign. Critically, as we have pointed out again and again, it is not (in this case) size that matters, but the precedent that a nation leaving the socialist construct of the Euro 'breaks' the union and the WSJ weaves a torrid tale of this increasing tension and DSK's catalytic impact and timely 'dismissal' from the process. Furthermore, the clear 'dithering' they describe among these so-called leaders offers insights into what we can expect going forward as a new fiscal compact (same as the old one) begins to emerge with mid-March hard Greek deadlines looming fast.

Guest Post: Will "Tax the Rich" Solve Our Deficit/Spending Crisis?

If there is one stance that can gather non-partisan support, it's "tax the rich." If we look at tax revenues and income in a practical way, we find "tax the rich" will not close the widening $1.5 trillion gap between Federal revenues and spending. Clearly, $1.5 trillion annual Federal deficits to fund the Status Quo--fully 10% of the nation's GDP--is unsustainable. Eventually, the ad hoc "solutions" currently being pushed by the Federal Reserve--zero interest rates to keep borrowing costs artificially low and money-printing operations that buy Treasury debt--will encounter political and/or market pressures which will limit the marginal effectiveness of these interventions, and the real cost of these historically unprecedented deficits will trigger a host of unintended consequences--all negative. How about those soaring corporate profits? If we taxed 100% of the $1.5 trillion corporate profits, then we could close the $1.5 trillion budget deficit. But then Wall Street would have nothing to support those sky-high stock valuations.

Oil Inventories Jump And Kansas City Fed Manufacturing Drops To 28 Month Low

Yet another set of macro data that will keep 'em guessing as Oil inventories rose more than expected and the Kansas City Fed's Manufacturing index dropped to 28 month lows and went negative for the first time in two years. Oil inventories rose significantly (and WTI drops below $99) bucking the notable seasonal trend (and missed expectations dramatically). These two combined to be enough to take the edge off the rally in stocks and pull ES (the e-mini S&P futures contract) back to its VWAP.

Art Cashin On Yesterday's Market Air Pocket, And A Rasputin Anniversary Primer

Now that we have had a day to digest the move from yesterday, we go to the only voice in the market worth listening to, that of Art Cashin. Not surprisingly, he doesn' tell us anything we did not already report or know, but good to hear the confirmation nonetheless.

Goldman Says Good Riddance to 2011

"Not many market participants will lament the passing of 2011" is how Goldman starts a brief note today looking back at a year full of adverse shocks in order to judge the year-ahead's potential to destroy forecaster's perspectives. The 'shocks' as well as the known unknowns are summarized effectively as the experience of 2011 suggests that the global economy remains at a delicate juncture as we head into 2012. They note that by definition, shocks are unpredictable. But slowing growth (and in places outright contraction), public sector cuts, and a renegotiation of the social compact between state and society in different parts of the world is an environment ripe for political turmoil, and this may well be a source of more shocks as the year progresses.

After One Month Respite, Pink Slips Are Flying Again

Following 4 weeks of supposed improvements in the labor picture courtesy of declining initial jobless claims, even as we all know too well that Wall Street has been firing thousands and thousands of highly paid bankers and CNBC talking heads left and right (are bankers too good for that $400/week paycheck from Uncle Sam?) today initial claims for the week ended December 24 once again resumed their drift higher, printing at 381k, up 15k from the perpetually upward revised prior week total of 366K (previously 364K). And as usual, the Seasonal Adjustment process smoothed out a whooping jump in actual terminations of 69k, which rose from 421K to 490K. Continuing claims also rose by 34K, from 3567K (upwardly revised, duh) to 3601K. Finally, those on EUCs and Extended Benefits once again saw a net drop off from the 99 week cliff as more and more people fall out out of the workforce in perpetuity following 2 years of being unable to find a job. The total amount of jobless on extended claims is now down by 1 million from a year ago, down from 4.5 million to 3.5 million, and dropping. We for one, can't wait to hear what the media spin will be next month when employers put the pinkslipmobile on turbo boost next month and fire all those temp workers they has been stockpiling to help with the EOY inventory liquidations, and we get another 400K claims print.

Monti's Double-Speak On Welfare But Sure EFSF Needs More Juice

While the technocrats cling to their vision for a European Bloc (amid a tumbling 'stable' EUR), Italian Prime-Minister-in-lieu Mario Monti is spreading the good word. Presented with little comment, via Bloomberg headlines, from a press conference in Rome, the Goldmanite builds the bridge to nowhere that the Socialist construct is unsustainable, yet the EFSF needs more funding to ensure the unsustainable social welfare model remains, err, unsustainable?

*MONTI SAYS EUROPE MUST NOT GIVE UP MODEL OF SOCIAL WELFARE
*MONTI SAYS EUROPE CAN'T SUSTAIN CURRENT WELFARE SPENDING
*MONTI SAYS EFSF NEED `SIGNIFICANTLY MORE' FUNDING

Oh and this...

*MONTI SAYS NOTHING JUSTIFIES CURRENT ITALIAN SPREAD

Next Steps For The Euro?

Over the last week we have spent a lot of time focused on what drives markets. More specifically the notion that while earnings and 'confidence' are often driveled out by strategist after strategist as the drivers for why the S&P will hit 1525 next year, it is the credit impulse or credit creation that drives everything as Central Bankers try their hardest to out-create one another. Furthermore, exactly a week ago we indicated that the primary correlation for 2012 would be the relationship between the balance sheets of the ECB and the Fed and the level of the EURUSD. Sure enough RBC has taken our suggestion to the next level in predicting just what the next steps for the Euro will be. It seems evident that is the ECB continues to 'not print' at this rate, and its balance sheet expands by another 500-1000 billion, the next target for the EURUSD is about 1.10 - which of course leaves no choice for the Fed other than to print as well.

BTFD...

Gold And Silver Plunge As EUR Reaches 15 Month Lows

Submitted by Tyler Durden on 12/29/2011 - 07:32 Aussie Copper France Investment Grade Portugal Sovereigns

It seems funds left redemptions until the last minute in the vain hope that everything will be fine in the European dis-Union as we see renewed selling pressure in EURUSD - taking out the January 2011 swing lows (as a mediocre Italian auction and failed Hungarian auction weigh heavily on the expectations for a 'solution' or firewall). Gold and Silver are also legging down hard (the latter now -9.5% from Christmas Eve) and the former loses $1550. Gold took out its September 2011 swing lows back to near six-month lows.

Wall Street Response To Italian Auction

Here is the kneejerk Wall Street response to the key event of the day. Funny how the Italians think it was a good auction and everyone else kinda sorta disagrees.

Italy Sells Long-Dated Bonds To Weak Demand, 10 Year Prices Just Inside Of 7%, Bids To Cover Miss

Today's most anticipated economic headline - the sale of 3 and 10 Year Italian bond - auction has crossed, and judging by the selloff in the Italian secondary bond market (north of 7% now) and the drop in the EURUSD, now under 1.2900, it was a solid disappointment. Italy sold well below the targeted EUR 8.5 billion in 2014, 2018, 2021 and 2022 notes, with the key 10 Year 5% bonds pricing in line with the target EUR 2.5 billion, and optically successful at 6.98%, just inside the 7% critical level. The Bid To Cover was a weak 1.36, barely an improvement from the 1.34 from November 29, the day before the coordinated Fed bailout of Europe, when the same auction cost Italy 7.56%. And this was the good news: virtually all the other discrete auctions were far uglier than the headline indicated with demand weaker across the board.

ECB Deposit Facility Usage Declines Nominally, Still At Nosebleed Levels

Following yesterday's surge to an all time record high of EUR 452 billion, which confirmed that virtually all LTRO cash had been redposited back at the ECB to lose 75 bps as per the "inverse carry trade" first presented here, today's update shows that yesterday the cash held by banks at the ECB declined by EUR 15 billion to EUR 437 billion - a delta of just over the amount raised by Italy in its 6 month and Zero Coupon bond issues yesterday. And despite said successful auctions, today the Italian 10 Year BTP is once again over the critical 7% benchmark level, even as Italy prepares to issue between 8 and 11 billion in 3 and 10 Year bonds - an auction which will prove far more challenging as it falls outside the LTRO maturity date and thus leaves banks exposed to non-carry trade covered risk.

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Wednesday, December 28, 2011

Things That Make You Go Hmm, Such As Looking Back At The Key Events Of... 2012

With everyone and the kitchen sink busy sneaking away from the trading floor or holiday dinner to pen predictions for 2012 that will "hopefully" have a success rate of at least 50%+1 (or in Byron Wien's case, even just 1%), others such as Grant Williams have taken the opposite route, and in his latest Things that Make You Go Hmm, he has writen a retrospective, from the point of view of a man sitting on the edge of the end of the world, namely December 20, 2012, and looking back at the key events of the year. Among the primary "memories" of 2012 was the capitulation of Germany and the full backstop of the ECB of sovereign debt, the departure of Greece, Portugal and Spain from the Eurozone, the attack by the US of the Bushehr nuclear reactor leading to an oil price surge to $188 and $5 gas prices at the pump, the nail-biting electoral win of Hilary Clinton over Michael Bloomberg, the predicted but delayed municipal bond meltdown, the announcement of QE3 with $800 billion of MBS purchases in February followed by QE4 in which the Fed cut the rate on overnight reserves, this time however promptly followed by a spike in inflation, the parallel surge of gold to $2400, especially after the MF Global whistleblower revelation that gold had, after all, been manipulated all those years, the epic collapse of the Chinese housing market and the economy' hard sinking, and much, much more.

CNN/Time Poll Finds Romney, Paul Iowa Photofinish, PPP Has Paul In Lead For Second Week

When a week ago we reported the latest weekly data from the Public Policy Polling institute, many were stunned to learn that Ron Paul was in the lead in the Iowa caucuses. In light of the neverending media onslaught against the Texan, this is not very surprising. The discrepancy between PPP and other, more "accepted" polls such as the CNN/Time was borderline ridiculous, when it came to the standing of the anti-Fed crusader (attacks against whom have recently passed into the Twilight Zone as per this NYT article). Just released, however, is the latest CNN poll information, which is far more in line with what PPP predicts, namely an Iowa photofinish between Paul and Romney. "Twenty-five percent of people questioned say if the caucuses were held today, they'd most likely back Mitt Romney, with 22% saying they'd support Rep. Ron Paul of Texas. Romney's three point margin is within the poll's sampling error. The poll's Wednesday release comes six days before Iowa's January 3 caucuses, which kickoff the presidential primary and caucus calendar. The Iowa caucuses are followed one week later by the New Hampshire primary." In its previous poll, CNN had Gingrich in the lead with 33%, followed by Romney and Paul with 20% and 17%. So while CNN implicitly admits that Paul may well be in the lead net of sampling error, it masks this by making the story focus on something totally irrelevant: the fact that somehow Santorum's support is surging.

Iran Outlines Key Steps And Actors In A Potential Straits Of Hormuz Closure

While the Iranian war game naval exercises have been ongoing for almost five days, or half of the projected 10, tensions in the Straits of Hormuz region have been rising culminating with today's interchange between the head of the Iranian Navy and the US 5th Fleet (which for various reasons we can not present you with a status update today). One question that remains is just what would a closure of the Straits looks like. Luckily, the Middle East Media Research Institute's blog has caught a release by an Iranian website Mashreq News, which spells out the step by step details of just how such a closure would be enacted.

Italian bonds return to 7%. Markets plummet/Raid on gold and silver

Harvey Organ at Harvey Organ's - The Daily Gold and Silver Report - 5 hours ago

Good evening Ladies and Gentlemen: Today bourses around the globe were in the red as many see the insolvency of the situation and not the lack of liquidity. The German Dax was down over 2% and the Dow fell by 140 points. Our bankers hit paper gold and paper silver down big time as they knew that they have no opposition in the paper field due to investors leaving the comex because of the

HUI on Target for a Losing Year

Trader Dan at Trader Dan's Market Views - 7 hours ago

The mining stocks are on course for a losing year, one which has been extremely disappointing for those who bought the shares in anticipation of higher gold and silver prices, only to see that take place but then having to witness the spectacle of the shares themselves lagging poorly over the last 12 months. Between Hedge funds playing that infernal Spread trade and "Risk Aversion" related selling, they could not get anything going. Toss in the fact that more and more those looking for leveraged exposure to gold and/or silver, can buy the ETF's directly, thereby eliminating exposur... more »

Couch Time For Precious Metals Investors

Dave in Denver at The Golden Truth - 8 hours ago

*There is no doubt in my mind that the degree to which the bullion banks/Fed are hammering the precious metals reflects the relative severity underlying hidden problems in our system that will have to be papered over with printed money. But it also reflects the degree to which the metals will rebound once that printing gameplan is revealed.* A lot of metals/miners investors are starting to freak out. It's not easy watching an investment seemingly melt down the way the metals have in the last few weeks. Of course, if you take a slightly longer perspective than the one that the i... more »

Gold Daily and Silver Weekly Charts - Dr. Bernanke's Imaginarium

SP 500 and NDX Futures Daily Charts - Light Volumes

Jim’s Mailbox

December 28, 2011, at 1:36 pm
by Jim Sinclair in the category Jim's Mailbox |

Dear Jim,

It takes years of trading experience and a humongous pair of balls to make the calls and then stick to your guns in the face of universal opposition, which you have successfully done for as long as we’ve known you, and for which you have our greatest respect. Decisions made against the crowd make for a lonely business, indeed. We can barely imagine the volume of calls and public panic you must be dealing with.
I would think that you will be well qualified to be licensed with the state as a practicing psychiatrist, by the time this gold correction is done.
Kenny

Jim Sinclair’s Commentary

Under the fluff of day to day MSM MOPE the sum of all financial fears plods on.
Gold is our only protection against the intrigue that circulates at the foundation of finance in politics, not even touched on by talking heads, MSM and especially the herd of experts that babble every day.

The Foundations for Global Conflict
The increasingly contentious tenor of Anglo-American relations with Iran has remained a predominant feature in international relations over the past 5 years. Now, with the wind-down of American forces in Iraq, and the U.S. Administrations’ belated realization that Afghanistan will not evolve into a codified nation around a strong central government, but will instead require a devolution of power to localized Taliban forces, the focus has turned to Iran. Iran’s nuclear program, while remaining a prominent topic in the media, may, in fact, no longer be the focal point for western objectives. The singular objective of preventing Iran from obtaining an operational and deliverable nuclear weapon appears now to either have been contained, relegated to secondary status or perhaps even achieved through technological warfare, although the latter is hard for the lay-person to verify. However, what is clear is that the primary policy objective, that of regime change, conceived over a decade ago, is now ascendant. In dissecting the never-ending volley of verbiage that surrounds Iran’s diplomatic relations with the English-speaking world, the latest diplomatic ruptures and escalation of threatening rhetoric has unique features which indicate that the possibility of conflict is increasing significantly.
Primary amongst these is the termination of diplomatic relations with Britain. The attack on the UK mission in Tehran, and its obvious sanction by the Iranian government, may be seen as an attempt to drive a wedge between the Anglo-American sphere of influence that has been driving for an oil embargo against Iran, vs. the EU-centred desire to maintain such flows, and the Russian desire to delimit any potential military moves against Iran. One can surmise how the latest UK-EU rift over recent attempts by the Brussels to dominate the financial and political landscape at a time of ever increasing crisis may have, in fact, revealed its limits in the conduct of international trade and relations. The Anglo-American world is lining up against nascent French influence directed via Brussels (with the tacit support of Germany), over the conduct of the international oil trade. This is the exact diplomatic trajectory that preceded the invasion of Iraq, although crucially, German power was nowhere near as dominant as it is now.
While the mainstream press retains its’ focus on recent Iranian military exercises in the Persian Gulf and the question of whether Iran can or will attempt to close the Straits of Hormuz, the British diplomatic rupture with Iran, widely seen as a mere diplomatic idiosyncrasy takes on true significance. The concurrent British drive for EU-wide oil sanctions, already approved in Washington, has significantly increased the potential for military conflict. Iran has retaliated that if such sanctions are brought to bear on the lifeline of its economy, it will proceed with attempts to close the Straits, and terminate all shipments through the region. This would mean, most significantly, a large portion of Saudi crude, as well as the entirety of Kuwaiti and Iraqi crude being shut-in. The success of an Iranian backed closure of the Straits, even for a short period of time, could unleash regional chaos in an area already beset by public uprisings against the established order. Iraq, already divided by regional power-demarcation, could re-collapse into wholesale anarchy.
An EU-wide embargo of Iranian oil would destroy Iran’s economy in short order, and likely send crude oil prices significantly higher. The regime would be forced to act militarily to survive, despite its significant force inferiority. Here there are echoes of the Western policy pursued vis-à-vis Japan in the 1930s.
How the Franco-German axis lines up with Russia will be paramount to diplomatic considerations. If the resolution to an ever-increasing currency crisis in the Euro area is the restoration of a commodity-backed currency, Russia may play a role more significant than most expect. It has the tangible basis to offset its’ own lack of gold-reserves, and could offer currency stability via oil and natural gas, if the gold reserves of Europe, held in America, can not be physically recovered. As Russia is the primary energy supplier to Europe’s predominant economic power – Germany – it could be a natural fit. The survival of the Euro project could then effectively hinge on Russian support. However, if a German dominated EU backs the policy of Anglo-American oil sanctions, Russia will withdraw such support and, faced with increasing isolation, will not hesitate to use its energy-leverage with Germany. Germany is well aware of this. As such, it is hardly surprising that on the issue of an oil embargo against Iran, Germany is praying it can sit on the fence for an extended period of time. It is a luxury which may not last. Washington and London are pressing the matter. Germany, and not France, will decide the outcome of the EU’s position on an Iranian oil embargo. Support threatens relations with its primary energy supplier, lack of support threatens relations with its primary military ally. But, as German economic success relies less on exports to America, and more on trade with the world at large, its dependency on and vulnerability to Russia increases.
As the EU can hold the Iranian economy hostage through the threat of compliance with an Anglo-American based oil sanctions regime, Russia, firmly against such sanctions, could, at a minimum, make life hell for Europe at a time when energy costs could deliver the coup-de grace to a highly fragile world economy. That in turn would significantly jeopardize the continuation of the project for European Union and may even ultimately lead to its disintegration. The price of regime change in Iran could be increased Russian leverage in Europe and expanded hegemony in Asia. As serious as a Euro-disintegration may be, even this may be considered a secondary consideration when set against the potential for a wide spread series of regional proxy wars pitting Anglo-American influence against Russian influence, from Kazakhstan through Central Asia and ultimately into outright conflict in Iran. There are signs that these proxy wars have been regenerated. If Iran and the west begin hostilities, Russia will reassert its influence in areas of Central Asia where western interests have increased significantly in the past 20 years. This has been its historic reaction, and there is little reason to believe it has changed. Russian reassertion of regional hegemony as a response to an attack on Iran will demand the rollback of American petroleum interests in the region, where billions have been spent. Needless to say, this may be challenged. Although largely forgotten, Central Asia has long been a pivot point for global conflict. With the massive increase in the economic power of China, India and Turkey over the past generation, that role as a fulcrum for conflict has only increased. Along with the chaos sweeping the MENA region, as one power vacuum after another emerges, open conflict with Iran has ability to conflagrate into an all-out global conflict of potentially catastrophic proportions.
CIGA Pedro

Market Commentary From Monty Guild

December 28, 2011, at 1:34 pm
by Monty Guild in the category Guild Investment |

Dear CIGAs,

We are recommending taking profits in the U.S. Market after it’s recent rally.
Recommendation Tracker
(Please click image to enlarge)

Click here for More…

In The News Today

December 28, 2011, at 11:32 am
by Jim Sinclair

Jim Sinclair’s Commentary

There are those that always purchase gold on price weakness caused by unfounded fear of the gold’s price fostered by MSM.

Nation urged to increase holdings of gold
Updated: 2011-12-27 07:57
By Wang Xiaotian (China Daily)
BEIJING – China should further diversify its foreign-exchange portfolio and make more gold purchases when the metal’s price dips but is still at a relatively high level, a senior central bank official said on Monday.
“The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation,” said Zhang Jianhua, director of the research bureau affiliated with the People’s Bank of China (PBOC).
He made the remarks in an article in the Beijing-based Financial News, a newspaper run by the PBOC.
The spot gold price declined 16 percent over the past three months to less than $1,600 an ounce last week. It touched a record of more than $1,900 in early September.
Zhang said bleak economic conditions, increasing international liquidity as countries turned to monetary easing and the resulting high inflation had dampened investors’ confidence. He said that gold had become the only “safe haven” for risk-averse investors. “No asset is safe now. The only choice to hedge risks is to hold hard currency – gold.”
Zhang didn’t specify what proportion of China’s $3.2 trillion foreign reserves should be held in gold.
More…

MSM Pushing Turnaround for Economy

December 28, 2011, at 11:30 am
by Greg Hunter in the category USAWatchdog.com |

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

Over the last several days, I began hearing a new description of the economy by the mainstream media (MSM)—“turnaround.” I can’t tell you how many different ways this phrase was used, but it was enough to get my attention. I don’t know who comes up with this stuff or where it is hatched, but I think this phrase is the new “recovery” term. Remember when we started out with “green shoots”? That phrase turned yellow and died. Then, there was the “fragile recovery,” and that turned into just a “recovery.” After that, we hit a “soft patch” and that was just “transitory.” Now, we have moved on to the “turnaround.” Is the economy turning around? The data says no.
Sure, we had a recent uptick in consumer confidence, and there was some improvement in car sales, but both are way down from their highs before the 2008 meltdown. When it comes to home sales, well, the most recent numbers from the Case-Shiller index shows an ongoing disaster. In the 20 city survey of home values, all but one market was down—Washington, D.C. This is, of course, the home of the big spending government. How much were home prices up there?–a whopping 1.3%.   The average year over year decline in the entire 20 city survey was a negative 3.4%. Some markets, such as Tampa, Seattle, Minneapolis and Las Vegas, were down between 6% and 8.5%. In Atlanta, home prices were down by nearly 12%! (Read the entire Case-Shiller report by clicking here.)
Please keep in mind, these declines are happening despite a 30 year mortgage rate of around 4%. Many say this is an artificial rate that is being engineered by the Federal Reserve. What do you think will happen to home prices when interest rates rise to a modest 7% level? Can you say second leg of a housing crash? I’ll say it again, what “turnaround”?
The most recent estimates from the National Retail Federation are projecting holiday sales will be up 3.8% over last year. (We will know the actual numbers in few weeks.) I wonder how much of this increase will be attributed to inflation? According to the official government number, it is running at 3.4% annually. If you compute inflation the way the government did in 1980 and earlier, it would be 11% (according to Shadowstats.com.)

Speaking of Shadowstats.com, the latest issue is not showing the “turnaround” the MSM is crowing about. Here are two of the headlines from the most recent report that pretty much says it all: “GDI (gross domestic income) Indicates No U.S. Economic Growth in Either Second- or Third-Quarter 2011” and “Durable Goods Orders and New Home Sales Show Stagnation.” Are these the headlines that point to a “turnaround”?
More…

In The News Today

December 27, 2011, at 1:54 pm
by Jim Sinclair in the category In The News |

Jim Sinclair’s Commentary

In the midst of significant MOPE about improvement in housing, prices again dropped. Specialty retailers have high inventory and are floundering. Consider this in the dollar argument of the interview with Ellis Martin carried this morning here.

Jim Sinclair’s Commentary

Until you feel there is a route to some cure of the Western world debt problems, gold remains the financial insurance policy that will function.

Obama to ask for debt limit hike: Treasury official
WASHINGTON (Reuters) – The White House plans to ask Congressby the end of the week for an increase in the government’s debt ceiling to allow the United States to pay its bills on time, according to a senior Treasury Department official on Tuesday.
The approval is expected to go through without a challenge, given that Congress is in recess until later in January and the request is in line with an agreement to keep the U.S. government funded into 2013.
The debt is projected to fall within $100 billion of the current cap by December 30, when the United States has $82 billion in interest on its debt and payments such as Social Security coming due. President Barack Obama is expected to ask for authority to increase the borrowing limit by $1.2 trillion, part of the spending authority that was negotiated between Congress and the White House this summer.
More…

Jim Sinclair’s Commentary

The cold oil war could warm up.

IRAN: ‘Not A Drop Of Oil Will Pass Through The Strait’ If Sanctions Increase Robert Johnson | Dec. 27, 2011, 10:26 AM
Three days into their 10-day naval exercise, Iran announced it will shut the Strait of Hormuz and close off nearly one-third of all tanker-carried oil if sanctions against its own oil exports are enforced.
Al-Arabiya News reports Iranian Vice President Ahi Rah imi said “If sanctions are adopted against Iranian oil, not a drop of oil will pass through the Strait of Hormuz."
“We have no desire for hostilities or violence … but the West doesn’t want to go back on its plan” [to impose sanctions], he said.
The most recently imposed sanctions on Iran fell in November, which prompted the British embassy in Tehran to be stormed by militia members. But the U.S. is leading a push to restrict Iran’s oil exports, as well, which would cripple its national economy.
On December 1, the U.S. Senate sanctioned the Central Bank of Iran, a first step in limiting crude export.
Indira A.R. Lakshaman and Asijylyn at Businessweek report:
The Senate measure would give the Obama administration power to bar foreign financial institutions that do business with the central bank from having correspondent bank accounts in the U.S. If enacted, it could be much harder for foreign companies to pay for oil imports from Iran, the world’s third largest exporter of the commodity.
More…

Jim’s Mailbox

December 27, 2011, at 1:53 pm
by Jim Sinclair in the category Jim's Mailbox |

Folks,
Consider yourselves among this very small group:
"Let me tell you that when this year is over, the only hands left holding physical gold and gold shares are the strongest hands on the planet. Every possible weak hand has been shaken out. Every person with emotions even latently capable of overwhelming their intellect,
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Former Fed VP Accuses Bernanke Of Bailing Out Europe Via Currency Swaps

First it was Zero Hedge. Then Ron Paul joined in. Now it is the turn of a former Dallas Fed Vice President, Gerald ODriscoll, to outright accuse the Fed of bailing out Europe courtesy of "incomprehensible" currency swaps, and implicitly accusing Bernanke of lying that he would not bail out Europe even as he has done precisely that. And not only that: by cutting the USD swap spread from OIS+100 to OIS+50, the Fed has made sure it gets paid less than ever for extended Europe the courtesy of bailing it out all over again. Incidentally, O'Driscoll says, "America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here." One thing we can say proudly - it has been noticed loud and clear here...

Update On The "Non-Printing" ECB's Parabolically Rising Balance Sheet

While the surge in the ECB's balance sheet has been discussed to death on these pages, with a particular emphasis on what we believe the key correlation driver-cum-pissing contest of 2012 will be - namely the relative size of the ECB vs Fed balance sheets - it is often best to see things for oneself. Such as the fact that the balance sheet of the European Central Bank, which has been accused of not printing, has grown at the fastest non-pre apocalypse pace in history for a modern central bank (the only exception is the Fed, whose balance sheet grew from under $1 trillion to over $2.2 trillion in the aftermath of the money market collapse), increasing by EUR800 billion, or over $1 trillion, in six months, to E2.73 trillion (obviously an all time record). Annualized this is an increase of over $2 trillion or more than the Fed did in all of QE1. So, just what happens next year when the banks box Draghi in a corner and the Goldmanite decides to actually... print. Perhaps this is a question, as before, left best to our German readers, who unlike their detached from reality peers in the US, know that hyperinflation is and can be all too real.

Why ECB's LTRO Won't Stop Collateral Contagion

The details of the European liquidity crisis are generally reported, but for some reason no media source wants to pull the pieces together so everyone can see the magnitude and futility of the crisis. A growing Collateral Contagion is being shrouded in the apparent belief that the solution to the European Financial and Banking crisis is a grand change in Treaty governance. Obviously the European Central Bank (ECB) was well aware of the reality, when it was forced to deploy a historic and unprecedented LTRO (Long Term Purchase Operations) on Wednesday December 21, 2011. 560 banks desperately and immediately grabbed what they could, to the tune of €489B. The LTRO bought the EU private banks some time. It did nothing to solve the EU Sovereign Debt Crisis. Gordon T Long describes 13 symptoms of the stark reality that forced the ECB to offer unprecedented three year loans at absurd rates and most alarmingly, the acceptance of collateral that no other financial institutions will accept. The ECB has sacrificed its balance sheet in yet another EU "kick at the can". He argues correctly that the problem short term is a shortage of real collateral and that US dollar cash, versus 'encumbered' cash flow, is now king.

Rosenberg, Ryding, Zandi, Arbess, Zuckermann And Rickards All Chime In On The Future Of The Eurozone

When six out of five economists (thanks to the magic of Keynesianism... and self promotion from general counsel to general expert) all agree on the same topic, and the very definition of groupthink is that the Eurozone will survive, the glaringly obvious call is precisely the opposite. If there was ever an argument to say that 2012 is the year the Eurozone finally dies, the below video is it.

Guest Post: A Run On The Global Banking System - How Close Are We?

Nine weeks after its bankruptcy, the general public still hasn’t quite realized the implications of the MF Global scandal. Our own sense is, this is the first tremor of the earthquake that’s coming to the global financial system. And how the central banks and financial regulators treated the “Systemically Important Financial Institutions” that had exposure to MF Global—to the detriment of the ordinary, blameless customer who got royally ripped off in its bankruptcy—is both the template of how the next financial crisis will be handled, and an accelerator that will make the next crisis happen that much sooner. We critics of the current, corrupt state of affairs also sometimes confuse the SIFI’s with the system itself, whenever we say, “The whole system is corrupt!” But the system is not corrupt—it’s the regulators and SIFI’s who are corrupt. If nothing else, the handling of the MF Global bankruptcy has proven that, once and for all. That’s why we’re pulling out our money now—while we still can. Because once the general public catches on to what we already know . . . oh boy.

History Lesson

Greece Should Have Defaulted: It Would Have Sent A Message

Admin at Marc Faber Blog - 6 hours ago

"Greece should have defaulted; it would have sent a message that not all derivatives are equal because it depends on the counterparty." - *in Lew Rockwell* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.*

These Days Everybody Thinks There's A Free Lunch

Admin at Jim Rogers Blog - 6 hours ago

We did have more discipline and more understanding in the past few decades, but that's partly because of the history of those decades. We remembered the First and Second World War. We remembered the Great Depression. We remembered what happened when you got too leveraged and couldn't pay your bills. We knew what happened when you debased your currency. But now of course, since the Second World War, we have had two or three generations grow up who don't remember all of that, haven't read their history, politicians who didn't know anything about history at all and don't know anything ... more »

A Strategic Alpha Preview Of 2012: Hope And Expectations

The EU is still a massive risk to the global economy but so is political inaction, over- regulated or manipulated markets, high unemployment and geo-political shifts. QE is a concern as central banks abandon inflation targeting and indeed growth to maintain ratings. The EU is still throwing liquidity at a solvency crisis at both sovereign and banking level. EU banks not only have a cash problem, more specifically, as ECB President Mario Draghi says : "hoarding at the ECB signals that the problem afflicting the Euro-zone is not so much about the amount of liquidity but that this liquidity is not circulating around the region's banks". I am not surprised as they all know that each has a similar or worse problem sitting in the vaults.... In the first throes of the new deflationary cycle the Dollar will do well, as the fight intensifies and the US uses the Dollar as a monetary tool and prints more Dollars, it will fall precipitously. Correlations will break this year and many of the “relative value” trades will implode. Gold will break away from being pressured by a strong Dollar as the hunt for alternatives to Fiat currency explode. The likes of the AUD will fall steeply as the global growth story rolls over as we have suggested for a long time. But it is China that holds the key. Hard or soft landing is the question. Can they really have a soft landing if the developed world implodes? No chance.

Currency Wars Update

Yesterday, the fine folks of Tradition Analytics were kind enough to explain (once again) just how it is that the Fed has boxed itself into a corner, where in order to maintain the already outlierish growth rate of monetary supply, the Fed will have no choice but to print (same with the ECB), or else risk a massive economic collapse (thank you Austrian theory). Today, the same group provides an update on what everyone knows has been the status quo's only way of dealing with the deleveraging tsunami since March 18, 2009: currency warfare. In the note below, they provide a recap of the recent history of FX warfare, as well as an update of where we stand currently. Keep in mind, currency warfare only works to a point. Then it escalates into other, more violent forms, first trade wars, then real ones.

US Navy Says Any Disruption To Straits Of Hormuz "Will Not Be Tolerated"

Just out from Reuters:

U.S. FIFTH FLEET SAYS ANY DISRUPTION OF NAVIGATION IN HORMUZ STRAIT "WILL NOT BE TOLERATED"

Compare this statement with what an Iranian navy chief said earlier...

EUR Plunges In Thin Market, Below 1.3000

While it is unclear what just spooked the EURUSD, sending it lower by 70 pips in minutes, perhaps a better question is why the EURUSD is not thousands of pips lower to begin with. As a reminder every single large bank is pushing for a lower EURUSD on hopes that a EUR collapse will kill the market and send the ECB scurrying into printing money. The problem there is that the ECB just announced its balance sheet expanded to EUR 2.73 trillion, an expected increase of over EUR 200 billion in one week (since the LTRO), and a whopping EUR 800 billion in 6 months (that's $1.1 trillion... in six months)! As such, good luck selling to the Germans on the ECB board that EUR 1.6 trillion annualized is insufficient. Lastly, and as a reminder, here is the only correlation that matters in 2012.

Art Cashin Exposes The Behind The Scenes Panic In Europe

Think "all is fine" in Europe after today's largely irrelevant Italian bill auction (the auction was for 6 month debt - even Greece can raise that kind of money)? Think again. Here is the Fermentation Committee Chairman explaining why Europe is so hard pressed to create a fake sense of calm, allowing those who know the real story to take advantage of the situation while they still can, and sharing the behind the scenes truth you won't get anywhere else. Certainly not SWIFT.

The Italian Yield Curve Vs The Euro Basis Swap

Throughout this entire crisis (going back to 2007), the governments and central banks have made efforts to “fix” certain things. If LIBOR gets too high, then they take action, that at least temporarily improves LIBOR. Those who look at the “improved” data and think the problem has been fixed have been proven wrong, as the market exposes other holes and eventually even the government and central bank money can’t keep the prices artificial for too long without forever increasing the amount of public money at risk. There may be no better example of that phenomena than the Euro Basis Swaps. To some degree, this rate measures the difficulty that European companies (banks) have when trying to get dollars. The First “globally coordinated” action in September brought the rate back from-110 to -80. That faded until it hit an almost scary -160. The Second “globally coordinated” swap line action got us all the way back to -110 (about the same level that had sparked the first action). We retraced some of those gains, saw fresh gains on the back of LTRO, but again have stabilized at rates that are worse than what the policy makers have targeted. Where would these rates be without intervention? Should we be happy about the improvement, or should we be concerned that in spite of all the intervention, this is the best they could do?

Goldman Lowers Sears Price Target From $43.00 To $30.00, Reiterates SELL

As we said yesterday when Sears decided to very unprudently (if very conveniently) post an update of its revolver in its horrendous preannouncement, the company is about to experience some MF Global style "death shorting" having invited every short from miles around to sniff at just how (un)stable its liquidity is. Judging by the action in the pre-market session, where the stock is another 4% lower, we may have been correct. And just to make the lives of key shareholders Eddie Lampert and Bruce Berkowitz even worse, here is Goldman cutting its price target from $43 to $30, while still maintaining a Sell. Alas, this name is going far lower.

Themis Trading Flops Its 2011 Market Structure "Predictions"

Our friends at Themis Trading, who continue the good, if seemingly futile fight, for a fair and untiered market, refresh on their late 2010 market structure forecast, only to find that with a 1 out of 10 "success" track record, they have the same predictive hit rate as Byron Wien and Joe LaVorgna. Which, incidentally, is not a good thing: it simply means the US stock market is now more broken and corrupt than ever, a development that is not lost on US investors, who later today we will find have redeemed a near record amount of cash from US equity mutual funds in 2011, and have pulled cash for 34 out of 35 weeks in a row, leaving mutual funds with virtually zero cash buffer, massive leverage and dreading that day when the Santa rally coupled with low volume levitation is no longer sufficient to mask the massive capital hole in the heart of the S&P 500.

5 Reasons Why 2012 Will Not Be A Replica Of 2011... At Least Not For Europe

With many expecting 2012 to be a replica of 2011, at least for US stocks which the non-permabull consensus sees closing the year largely unchanged for the second year in a row, one open question is whether this will also be applicable to Europe. As a reminder, the EURUSD opened this year near the 52 week lows, only to rise by several thousand pips as concerns about European contagion were brushed away on hopes Europe's politicians had it "under control." They didn't, and the EURUSD returned to its year's lows recently. But is the same pattern in store for early 2012, where as we already noted, the bulk of gross debt issuance is due to take place, especially in January? Below are UBS' 5 other key reasons why the European resurgence (however brief) that was experienced early this year will not be recreated in the new year that is now just around the corner.

Frontrunning: December 28

BRIC Decade Ends With Record Fund Outflows as Growth Slows (Bloomberg)
U.S. says China not currency manipulator; chides Japan (Reuters)
Japan Deflation Returns as Production Slides (Bloomberg)
Record use made of ECB deposit facility (FT)
Irish May Pay Greek Price for T-Bill Market Return: Euro Credit (Bloomberg)
Italian 10-Year Bonds Rise, Stocks Advance After Debt Auction (Bloomberg)
Obama to nominate economist, banker, as Fed governors (Reuters)
Japan relaxes weapons export ban (FT)

Italy Successfully Sells Ultra-Short Maturity Debt

Despite European banks hoarding cash at the ECB at record levels as observed previously, Italy succeeded in selling ultra short maturity debt earlier today at interest rates that confirm Europe has managed to stabilize near-term expectations. Specifically, as Reuters reports, Italy sold 1.7 billion euros of 24-month zero-coupon bonds on Wednesday at an average 4.85 percent rate, sharply down from an auction yield of 7.8 percent a month ago. The Bid to Cover was 2.24 compared to 1.59 previously. Nonetheless, this amount was less than the maximum 2.5 billion euros targeted at the auction. Italy also sold 9 billion euros of six-month bills at an average yield of 3.25 percent on Wednesday, half of what it paid a month ago to sell six-month paper at a bid to cover of 1.69 compared to 1.47 previously. Lastly, the fact that Italy can place debt in under 2 years when the LTRO itself has a 3 year maturity means that the real issuance test will come tomorrow when Italy is on deck to sell 3 Year bonds. As for 10 year BTP, which were trading at over 7% as recently as overnight, that is a different story completely.

Abysmal Spanish Housing Market Gets Even Worse In October

If there is anything that the European banks' negative response to the LTRO's invitation to use "free money" and relever even as Europe faces a perfect storm of deleveraging in 2012 (a topic beaten to death by us here previously) is that the problem at the root of the European financial crisis is not a liquidity one - it is, and has always been one of solvency, or, said otherwise, a problem when bank assets do not generate enough cash flow to satisfy cash outflows from bank liabilities, period, the end. Everything else is irrelevant. And while the market is fascinated in complete noise such as at what price will Italian bonds price in minutes, what the real focus should be on is the state of the primary driver that led Europe into (and eventually will take it out of) the credit bubble- housing. Today, Bloomberg provides a quick update of the Spanish housing situation which can be summarized as follows: horrible and getting much worse, because as October data shows, lending has imploded, down nearly by half just from a year earlier, while the average price is down over 7%.

ECB Deposits Jump 10% More To Record EUR452BN

While sovereign spreads are leaking modestly tighter this morning as European credit markets emerge from the holiday hibernation, the ECB Deposit Facility surged 10% further to a LTRO-busting EUR452bn. While we assume there is some year-end 'management' involved here (and some will argue that putting the LTRO-carry-trade to work takes time), the sheer velocity and scale of the ramp in deposits suggests this is not a game-theoretically optimal use of this new-found cash (neg-carry-trade) but instead a clear message that banks will delever and remain risk averse no matter what the central banks 'suggest' is appropriate. Didn't we learn this lesson already in Japan (for two decades of debt minimization as opposed to profit maximization) and the US (Fed reserves skyrocketed as dealer bond inventories drop precipitously?). Also, those saying that banks are just waiting for the new year to start putting LTRO cash to use, there is no reason to wait - Italian BTPs are already at 7% - all banks are doing by delaying is giving up on days of free carry trade, thus this argument is pure rubbish. We are also seeing EUR-USD basis swaps starting to decompress (worsen) once again. In summary: since LTRO day, EUR187 billion of the 210 billion free money has been redeposited at the ECB.

Equities Unch As Financials Lag

Given the low volume day, it is hardly surprising that markets had some unusual actions today but the consistency with which financials lagged on the day, combined with the selling pressure we saw in HYG (which has increasingly seemed to dominate credit markets recently) offers little to 'buy into' from today. ES (the e-mini S&P 500 futures contract) oscillated up and back to VWAP all day long in a very narrow range as risk assets rose modestly (helped by the seemingly Iran-driven surge in Oil more than any other). FX carry did little, TSYs rallied (and 2s10s30s dropped) modestly, as Gold dropped on the day but credit (based on the IG and HY credit indices) outperformed equities by a little (more end of day liquidity than risk appetite) as the anchor of BofA (-2.5%) and MS (-2.9%) dragged financial stocks (-0.6%) to close at their lows of the day and seemed the most important factor of the day (even as corp bonds - as thinly traded as they were) saw net buying. Combine this move with the metals sell-off that stabilized only after Europe closed (collateral/liquidation needs?) and there is some food for thought even on a quiet day.

580 Morgan Stanley Soon To Be Former-Employees Learn They Are Redundant Courtesy Of The Dept Of Labor

Submitted by Tyler Durden on 12/27/2011 - 16:12 Citigroup Credit Suisse Morgan Stanley New York City Previously it was Credit Suisse and Citigroup. Now it is Morgan Stanley's turn, as 580 employees in the firm's three New York office learn they are about to get the boot courtesy not of the HR department but the DOL's WARN website, which just happens to be the best real-time indicator for observing the transition of the soon to be former 1% into the 99%.

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