Wednesday, May 23, 2012

Items from Harvey's blogspot - non redundant items of interest ..... of particular note , if nothing else is read from today's missive , you have to read the Jim Willie piece. Not only is JPM a dead bank limping if Jim is correct , but it underlines that there is going to be the need for a dire distraction !
Good evening Ladies and Gentlemen:

Gold closed down by $30.00 to $1548.10  Silver fell by 51 cents to $27.51.
What really stuck out today was the price in the gold and silver shares which have been terribly beaten up over these past few months. Agnico Eagle closed up $2.02 to $39.19 (NYSE), Newmont hit $48.57 up $1.38 and Silver Wheaton rose 95 cents to $26.41.  The HUI index advanced 16.51 points to 421.91.
The closely watched XAU rose 6.10 to 156.88. The day started badly in Europe with more depressing news from Greece as it's bonds fell below the 50 cent level indicating a loss to holders of swapped bonds to greater than 90%.  However rumours of a Pan European guarantee on European deposits saved the day and the Dow rebounded from a 100 point plus loss to only 6 points on the negative ledger. The DTCC derivative figures are out today and zero hedge believes that the losses to JPMorgan will be 8 billion usa.
Spain had their hand out today as they are desperately in need of cash to help in the bailout of their banks.

From Jessie of Americancafe:

to get some perspective on how tiny the Silver market is, the American Silver Eagle (the most popular coin in the world) has sold a little over 300 mil. coins from inception (1986) or about $9 bil. at today's prices. By comparison, the marketcap loss on the Facebook IPO from the low $40s to the low $30s is equal to roughly the same amount.


and key dates to mark on your calender:

Key Comex Dates For Gold In the Next Two Weeks

Here are some key dates on the Comex for the Gold Futures and Options.

Tomorrow is the June Gold Options Last Trade and Settlement Date

Next week is the Last Trade and Settlement for the Gold futures contract.

This is historically a heavy physical delivery period for gold and silver.

I suspect that this latest price action is less about Europe and Greece, and more about Chicago and New York.

May 24
OG - June 2012 Gold American Options - Last Trade Date
OG - June 2012 Gold American Options - Settlement Date

May 29
QO - June 2012 COMEX miNY Gold - Last Trade Date
QO - June 2012 COMEX miNY Gold - Settlement Date
GC - May 2012 Gold - Last Trade Date
GC - May 2012 Gold - Settlement Date

May 31
GC - May 2012 Gold - Last Delivery Date
GC - June 2012 Gold - First Notice Date

June 1
GC - June 2012 Gold - First Delivery Date


And finally this commentary from John Embry with KingWorld News.
We have had many comments from our readers as to whether this was allocated or non allocated gold.
What we have learned is that the Swiss bank in question was  charging the gentleman sums of money for storage and insurance and had listed the bar numbers with weights in its bill to the client.  I can assure you that Von Greyerz knows the difference between allocated and non allocated  as he has written many papers on this.It may have been a bank error in moving the gentleman;s allocated gold thinking it was unallocated.

However, I feel that I must bring this to your attention and let you decide for yourself:

Also pay attention to what John Embry states at the end of the interview:

(courtesy KingWorld News/John Embry/GATA)

Banks are lending even 'allocated' gold, Embry tells King World News
Submitted by cpowell on 05:47AM ET Wednesday, May 23, 2012. Section: Daily Dispatches
8:45a ET Wednesday, May 23, 2012
Dear Friend of GATA and Gold:
Interviewed by King World News, Sprott Asset Management's John Embry adds a telling detail to the story conveyed to KWN by gold fund manager Egon von Greyerz about a gold investor who discovered that his bank did not have his supposedly "allocated" gold. When the gold was delivered to the investor at last, Embry says, the bars were hallmarked from 2011 even though the investor had owned the "allocated" gold for many years. An excerpt from Embry's interview is posted at the King World News blog here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Rajoy is no dummy, as he asks the ECB for 'assistance'

(courtesy sharecast)

Rajoy to ask for ECB assistance, according to reports

LONDON (ShareCast) - Spanish President Mariano Rajoy will ask for assistance from the European Central Bank (ECB), Spanish daily El Mundo reports citing a conversation between Rajoy and Socialist leader Alfredo Perez Rubalcaba yesterday. Rajoy will be traveling to Brussels today to meet with European leaders after meeting with French President Francois Hollande in Paris. He is expected to ask the ECB to buy Spanish sovereign debt to help calm the urgent liquidity problems. The monetary authority has not intervened in the secondary debt markets for the last ten weeks as it has resisted calls for a more active role. The leaders will continue to debate between austerity and growth. Rajoy is expected to side with German Chancellor Angela Merkel's stance that there cannot be growth without austerity first. MG

and tying in nicely is a piece from Mark Grant........

Mark Grant enjoying a holiday in Norway reflects on what is going to happen next. Greece is done, as it's 1 trillion euro debt (1.3 trillion usa dollars) has no hope of every being paid. The total of all sovereign debt  , bank debt, municipal debt, 90 billion dollars worth of derivatives gone bad, corporate debt, Target 2 imbalances, and other government obligations --all gone bad.

And now it is Spain's turn as we outlined above, as Rajoy heads for Brussels with a begging hand. And again we witness a state with huge sovereign debt obligations, massive bank debt problems, huge regional government debt coupled with municipal debt that cannot be paid.   Derivatives on all of these debt obligations are huge  and also as in Greece we see large Target 2 imbalances.
Mark Grant sees no hope of salvation in this mess:

(courtesy Mark Grant  Out of the Box and Onto Wall Street)

By Mark Grant, author of Out of the Box
Sitting at the Edge of the World
“Very few beings really seek knowledge in this world. Mortal or immortal, few really ask. On the contrary, they try to wring from the unknown the answers they have already shaped in their own minds -- justifications, confirmations, forms of consolation without which they can't go on. To really ask is to open the door to the whirlwind. The answer may annihilate the question and the questioner.”

                                -Anne Rice.
I highly recommend hanging out in Norway at the edge of some fiord to find clarity. The snow capped mountains glisten in the afternoon sun and the blue-green water running through the long scratch marks in the earth brought about by the ice age sparkle with the light reflecting off of the mountain peaks. The air smells like some wintergreen forest high up in the protected positions where the snow does not reach. The sea birds dart this way and that way in the afternoon breeze and one cannot help but smile at the adventure of life. There is nothing else to do actually except smile and ponder the trivialities of man as we pass from the opening gate to the finish line leaving our descendants to take the reins. Yet, while here, we have the opportunity to play in the Great Game and thank what gods you hold dear but, for me, I offer thanks to those that may choose to listen.
One way or another, left or right, the funder or the funded; Greece is going. The situation is just not sustainable and $1.3 trillion in debt is going to be refuted and refuted with consequences that one only hopes the European Union acknowledges and is prepared for past the drivel that they spew out in the Press like Mount Vesuvius throwing up the phlegm of the world on some ashen afternoon in Rome. Sovereign debt, bank debt, municipal debt, $90 billion in derivatives, corporate debt and other obligations of the government left out to dry as Germany reeks with the stench of boars head gone bad.  This is about to be the way of it.
The poor, the impoverished, line up for bread and Eurobonds and Berlin frowns and mumbles the appropriate phrases which all equate to the great finality, “We are not going to pay.” It would be amusing, I suppose, if France and the alms seeking nations somehow managed to pass Eurobonds while Germany was left fluttering in the wind and, if they did, one might see the Berliner Bear head back into its cave and if not directed by Frau Merkel then by someone else who would appear on the stage and demand some sort of religious conversion. Do not be mislead by the passage of time. What has been delayed, what has required ever larger amounts of money, has only caused the canker sore to grow in size so that when it bursts it will expel far more fluid that it would have had it been adequately dealt with at inception. Do not for one moment assume that the additional minutes that have transpired will do anything except to make matters worse; do not be fooled by those moments which have come and gone and solved nothing. The Barbarians will soon enough arrive at the gate.
“And some things that should not have been forgotten were lost. History became legend; legend became myth.”

                             -The Lord of the Rings
As the Prime Minister of Spain publicly acknowledged today that he is going to personally ask the ECB to buy the bonds of his nation I note the stirrings of fear and the kind of desperation that was felt just prior to Greece, Ireland, Portugal unveiling their begging bowl and asking the rest of Europe for some type of fiscal porridge that is always served cold and with a certain amount of malice by those that still retain sustenance in their cupboard. If you listen carefully you can hear the tremors in the Spanish voices, the inflections of need, the beginnings of sentences not quite finished. Spain has arrived at the wall; now all that is left is the public announcement. There is no other conclusion now; addition and subtraction are still functioning elements of our grade school educations and the use of them will lead me, you, anyone, to the correct conclusions.  that they spew out in the Press like Mount Vesuvius throwing up the phlegm of the world on some ashen afternoon in Rome. Sovereign debt, bank debt, municipal debt, $90 billion in derivatives, corporate debt and other obligations of the government left out to dry as Germany reeks with the stench of boars head gone bad.  This is about to be the way of it.
It is to be Treasuries to higher prices, risk/credit assets widening against Treasuries. European debt/equities down precipitously and wider and then far wider against their American counterparts. Recession in Europe forthcoming to the American shores. The Euro down against the Dollar and bonds denominated in Euros gaping out against their counterparties in the United States so that “home law” spreads to “home currency” and the lessons learned must be applied one more time. It is to be risk off and then any sort of repellent to keep any sort of risk away. It will be cash and Grant’s Rules 1-10 “Preservation of Capital” that will stand as the golden orbs lighting the way so that keeping what has been obtained will be the mantra and the only mantra during the coming battles with the denizens of the dark as directed by the long ago songs of the sirens wailing about the end of an Empire. What cannot be seen by many will be uncovered once again as the old truths, the old adages, find practical use in the days ahead.
Whether it is the EU running to the G-20, nations in Asia, the IMF or Spain and Italy and their brethren calling for Eurobonds the distinction is easily made; you pay or you pay or you pay because I cannot. That is the cry in the wilderness as politely, very politely, quite politely everyone says, “No thank you.” The curtain is going down on the show and the normal pleas are being made to keep the spectacle in operation but the pocketbooks are closed and Germany and the rest are not going to bet the family farm when the final act draws nigh. The Elves in the boulders cackle and the “invisible people” move on and sigh as the ending of one more chapter is inscribed in the Book of Life.
“May God forgive you for what you've done...

Father, if God has issues, they won't be with what I've done. They will be with what I'm about to do.”

                      -Dan Brown, Angels and Demons

From Reuters, tomorrow we get details on the Spanish bailout for the big bank Bankia. Where on earth will the funding come from?

Spain to outline Bankia plan, may announce bailout size

(courtesy Reuters)
Tue May 22, 2012 6:00pm EDT
* De Guindos to address parliamentary committee at 1600 GMT
    * He will outline plan to restructure nationalised Bankia
    * Negotiations still under way on size, form of bailout

    By Julien Toyer and Jesús Aguado 
    MADRID, May 23 (Reuters) - The Spanish government is set to
outline on Wednesday its plan to restructure the recently
nationalised Bankia and announce how much additional
money it will pump into the ailing lender, government sources
told Reuters on Tuesday. 
    One of the sources said talks on the size and form of the
bailout - through loans, equity or cash injection - were being
held between the economy ministry, the Bank of Spain, Bankia and
Goldman Sachs, which was hired last week to value the lender. 
    A final decision may not be made before Economy Minister
Luis De Guindos address a parliamentary committee at 1600 GMT to
inform on the take-over of Bankia and the restructuring plan for
the lender, although he will want to give key details of the
government's strategy, the source said. 
    "De Guindos will present the main elements of the plan to
the parliament. His intention is to also give a figure but the
talks are not finished yet," the source said. 
    A second source said De Guindos was very likely to announce
the final taxpayers bill of Bankia's rescue. 
    Spanish banks have been weighing heavily on Spain's public
finances and many analysts fear Madrid will be forced to seek
international aid to recapitalise them. The government has
denied any such possibility in many occasions. 
    Spain last week injected 4.5 billion euros into Bankia and
its parent company BFA (Banco Financiero y de Ahorros). The 
bank will need more funds to fully clean up bad loans and rotten
assets from a decade-long real estate bubble that burst four
years ago, analysts say. 
    The government is expected to lend or give Bankia, Spain's
fourth-biggest lender, about 10 billion euros in additional aid,
although bank analysts believe it will need more. 
    De Guindos on Monday said Bankia needed to find about 7.5
billion euros by the end of year to comply with two financial
reforms presented by Spain's centre-right government in February
and last week. 
    It also needs to raise about 1.3 billion euros by June to
meet stringent European Banking Authority capital rules. 
    Several financial and government sources told Reuters last
week that the strategy of the Spanish authorities would be to
clean up, downsize and sell Bankia within three years. 
    The plan could however derail if the several capital gaps
identified in the accounts by the lender's auditor Deloitte were
too large, the sources said.  
 (Reporting by Julien Toyer; Editing by Andrew Hay)


USTBond Tower of Babel Teeters

By: Jim Willie CB,

-- Posted Wednesday, 23 May 2012 | Share this article | Source:

The Biblical story is told of a tower built ever higher in order to achieve contact with the heavens, lest they be scattered upon the earth. They were scattered when the tower fell. Fast forward to today, where the earth has a multitude of tribes, languages, and several major alphabets. When the Lehman Brothers failure occurred, and the Fannie Mae and AIG activities were to be concealed under court orders, the land turned barren, and a financial plague befell the Western nations led by the United States. They were after all, the keepers of the ark (printing press for USDollars). But a plague of debt locusts was cast upon the US nation, with annual $1.5 trillion deficits. The Americans in their unending arrogance, chose to speak from the tower top and to proclaim 0% forever, suspending gravity. They have attempted to force free money to finance their USGovt debts, to preserve power, to ensure privilege, but in doing so they defy nature in testing gravity itself.

The recent losses from JPMorgan have proved to be much more based upon suspending gravity with 0% official rates in the Delta-Hedging complex game tied to the vast over-burdened Interest Rate Swap contracts, rather than the European sovereign bonds as first claimed. The Jackass is on record on May 11th, aided by the indefatigable forensic analyst Rob Kirby, in pointing to Interest Rate Swap stresses from the sudden March and April movement in the 10-year USTreasurys within the strained bloated USGovt sovereign bond market. The IRSwap setbacks were the underlying cause of the JPM losses. The giant bank does not want attention give to this derivative tool which controls the bond market in a devious artificial manner. As far as debt is concerned, the United States is Greece times 100. It is Italy times 20. It receives a pass from the bond market, precisely because the nation prints the money and controls the vast Interest Rate Swap support mechanism. But the tower is finally exposed.

The IRSwaps act like giant buttresses to support the evergrowing USTreasury Tower of Babel that stretches to the sky. Every year, the expansive tower grows another $1.5 trillion higher. Every year, the challenge grows exponentially for the JPMorgan master financial engineers to apply their control panel magic to achieve equilibrium. Every year, the degree of difficulty becomes more arduous. Every year, the tower must withstand the high winds from Europe, where the bond market is doing more than undergoing stress. It is crumbling before our eyes. In a way, Europe helps to conceal the great strains from the broken USTreasury Bond market, held together by interest derivatives. Few analysts connect the failure of the Draghi LTRO funds to the JPMorgan losses. They do not grasp the gravity of the USTBond problem. They prefer to focus on FINREG for regulatory changes centered on the Volcker Rule, or on the division of proprietary trading. They focus on the personalities of the so-called Whale. Now a new verb has entered the lexicon, as a firm was just "Iksil-ed" to mean they suffered massive leveraged losses in a high risk game of playing god in the financial markets. JPMorgan cannot hedge since THEY ARE THE MARKET. What the Whale or JPMorgan do is attempt to maintain balance of the USTreasury Tower of Babel, which grows every year to try to touch the sky, to achieve the perfect world. They scrape the devil's attic door instead.
Without any doubt whatsoever, the ultimate problem is that the bond market cannot defy the natural forces (gravity on the tower) from enormous new supply coming to the USTBond market (higher tower) in the form of $1.5 trillion deficits, and keep the bond yield at 0% for the FedFunds and under 2.0% on the TNX. Essentially the 0% rate is an engineering display of the most extreme arrogance. It is tantamount to placing the buttress support structure at a very low position. The sovereign bonds of Southern Europe with their 5% or 6% bond yields have the equivalent of buttresses place in very high positions, sufficient to endure the whips and sways from the high winds and routine vagaries dealt by the never-ending global financial crisis. In my opinion, the global financial crisis is far more than that. It is instead a global monetary war, to preserve the USDollar supremacy at all costs, with victims being the Western banking systems and the Western economies. The entire platform that supports the major fiat currencies is collapsing, namely the sovereign bonds. The platform is breaking at its weakest points, where it has non-homogeneous planks in Southern Europe that do not fit together. Imagine how the USTreasury Bond market would look if all 50 states had their own sovereign debt as components to the entire USGovt. Imagine each year the $1.5 trillion in debt were apportioned as 15% to California, 4% to Texas, 8% to New York, 8% to Florida, in shared responsibility. Imagine each state had its own bond traded in a market that strived for equilibrium, each with a unique bond yield, all tethered to the USDollar. The United States would fracture in six months from the stress, not the least factor for which would be the apportionment of syndicate banker benefit and divvying up the war costs. That is Europe in parallel.

Back to the ultimate problem. The USTreasury Bond market cannot defy the natural forces from enormous new supply coming to the USTBond market in the form of $1.5 trillion deficits, and keep the bond yield at 0% for the FedFunds and under 2.0% on the TNX. To add strain to the tower, the foreign buyers have removed themselves due to the grand debasement of the USDollar from the program. Too much hidden USDollar output comes behind the curtains. They are disgusted that the US bankers make unilateral decisions on central bank monetary policy, like setting the 0% rate, like monetizing another $1 trillion in USTBonds or USAgency Mortgage Bonds, like consenting to lavish executive bonuses to those responsible for fracturing the global financial ramparts, all done without consulting foreign creditors. Their significant US$-based bond holdings are eroding in value, not earning a yield in compensation for risk. The 0% payout is an insult to creditors, especially during constant QE initiatives. The published CPI measure of 2% to 3% is another insult, when 8% to 10% is the reality.
Many inexperienced observers, naive bank analysts, clueless fund managers, and deceptive news anchors fail to ask the basic question of how the USTBond market can continue with 0% when supply is an annual flood of $1.5 trillion in new debt while the demand is vanishing from the absent foreign creditors. It is hardly a mystery. The visible piece is the USFed itself with its awkwardly named Quantitative Easing initiatives, which make it sound so sophisticated and professional. Its bond monetization is highly destructive, since it is effectively pure hyper monetary inflation. The wayward financial market mavens crave even more QE, even more monetary inflation flows to aid the market, without realizing the utter destruction of capital. They might notice out of the corner of the eye some rising costs, but they minimize them in their mental process. They deceive themselves into thinking that the financial assets will rise in value also. Except valuation is greatly distorted. The end result is that the cost structure is rising without benefit of rising incomes. In many cases, where liquidation is often the rule, the end products are not rising in price. So profit margins are squeezed, businesses are shut down, equipment is taking offline, and workers are cut along with incomes. The zinger is the globalization concept, when China hit the scene. The Western economies cannot withstand the competition. The West has in effect replaced much of its legitimate income sources with debt from dubious areas like home equity. The home foreclosure movement is a direct consequence of Chinese industrialization.

The hidden tool to maintain the 0% interest rate when supply grows by $1.5 trillion annually, and when dependence on the USFed for bond monetization picks up the slack, is the Interest Rate Swap contract. JPMorgan would prefer that the public not learn about it. Back in December 2010, Morgan Stanley added $8 trillion to its Interest Rate Swap book in a single quarter. Look to see the wondrous effect from that lever pulled behind the curtain. Bear in mind that the accounting for the derivative book, listed in the Office of the Controller to the Currency, is quarterly and tallies the past quarter of activity. My belief is there is more lag to the proper accounting. Notice how the 10-year USTreasury Bond yield (aka TNX) went from a threat to the 4.0% mark in early 2010 and rallied hard all the way down to the 2.4% mark by summer's end. The US financial press hailed a grand flight to safety in the USGovt Bond securities. No such flight to safety like a thundering herd was part of the reality landscape. Let the chart be shown with GREEN text to reflect the application of USDollars from the financial engineering rooms.

What the Interest Rate Swap does is to create artificial demand for the end product USTBond, no real buyer, in a magnificent display of 50:1 leverage, sometimes as much as 100:1 leverage. Repeat that -- no real buyer of the USTBond, all artificial, all coming from the IRSwap device. Few bond experts even realize this fact of bond life. The pronounced effect on the US bond market brought about a change in sentiment, and reinforced the phony notion that investors were flocking to the USTBond market for safety. The reality was the exact opposite. Bill Gross of PIMCO was exiting the USTBond market. A slew of foreign creditors exited the USTBond market. The bank analysts were confused, unable to explain the rally in USTBonds and falling bond yields when supply was growing in a big way, but demand was vanishing. The USFed had to admit its bond purchases within its QE initiative in order to explain the inconsistency. The huge annual deficits and departure of bond buyers forced the USFed into the open, where they had to admit their QE and its hyper monetary inflation.
In early August 2011, the debt rating agency Standard & Poors downgraded the USGovt debt. It was an insult of high order, delivered during the Greek Govt Bond crisis, as the Southern European bond market was under great scrutiny and strain. The JPMorgan situation room was obviously tipped off, pressed into action, and ready at the Interest Rate Swap lever. The result was profound as the TNX fell from 3.2% down to under 2.0% by the time the dust cleared. Notice a near accident in June in the USTBond market just before the big decline in bond yields, a big oops! The TNX jumped from 2.88% to 3.20% in a single week, a hefty 32 basis point scare. The JPM situation room responded quickly. Word leaked out about the S&P debt downgrade, the first in US history. The market move was becoming clear, a selloff. The Interest Rate Swap lever was yanked, and the effect pulled down the TNX significantly, as the financial press obediently proclaimed a victory over the S&P defiant downgrade. It was all phony, again!! The USGovt barkers even pounded the tables to point out a grand market contradiction of the Standard & Poor debt downgrade of the USGovt debt. Victory over the marketplace was won, and no big debt insurance contract rise either. All hail the IRSwap weapon in private Wall Street offices, of course without recognition of its heavy usage.

By this time, in late summer 2011, the financial market sentiment had solidified its phony psychological notion of the USTreasury Bond being a reliable safe & secure place to hide. The USFed was repeating its assured interest yield paid to Excess Bank Reserves, another false story. In reality, the USFed was paying the big US banks to place their Loan Loss Reserves at the USFed in order to conceal the insolvency of the USFed balance sheet. The big US banks compounded the flagrancy of the action by removing loss reserves later, calling them profit, in order to conceal their own business decline and deep deterioration. They did so because they became dangerous illiquid.

Something happened in March 2012. It is not entirely clear. Perhaps it was simply the stupidity of the Bernanke Fed in declaring the need to embark on an Exit Strategy at some point soon. Once more, Professor Bernanke is a poor economist, unaware that he is stuck in the 0% corner forever. That bears repeating. THE USFED IS STUCK WITH AN OFFICIAL ZERO PERCENT RATE FOREVER, NEVER TO RISE. It can never rise due to the extreme increase in borrowing costs that would hit the USGovt deficit tally. The amount would equal the endless war costs. However, the USFed is stuck at 0% forever, due also to a very different hidden market force. Any rise, even a moderate rise, in the USTBond yield would result in multi-$trillion losses from the derivatives hidden at work. The vast Interest Rate Swap would deliver massive blows like a machete across the entire financial sector. Every big US bank involved in heavy IRSwap enforcement as bond market intervention would suffer losses in the multiple $trillions. That process is starting to be seen. The Jackass has warned about the potential losses for three years, explaining the permanent corner the USFed has found itself, a result of its own failure. The USFed talked about an Exit Strategy in 2009, and the Jackass correctly rejected the notion as lunatic wishful thinking. The USFed backed off, and worse, assured the banking sector of zero percent policy almost forever. You see, the big US banks are earning easy money in the USTreasury carry trade, borrowing short and investing long. If the USFed were to hike rates, they would remove the US bank income stream, since they sure are not earning it the old fashioned way, with IPOs and debt offerings. They are not so much investment banks anymore, just plain speculative houses. They love their High Frequency Trades in the stock market too.
The USEconomy has lost its potential traction, since it forfeited the bulk of its industry to China in the last decade, after forfeiting much more in the 1980 and 1990 decade. Back then it was called the migration to the Pacific Rim. Therefore, the USEconomy cannot respond to 0% rate, does not take advantage of the low rate to expand business investment, to kick start the various industries as it did in past recessions. This recession is both permanent and a march to the cemetery. At the end of this current cycle is a massive implosion of the big US banks, followed by global isolation of the USDollar, ending with an inevitable USGovt debt default. The implosion of the big US banks has begun, with JPMorgan making its defensive deceptive admissions of serious loss and worse, lost control. The isolation of the USDollar is a new chapter underway, in response to the ill-fated Iran sanctions. The East is mobilizing.

The USGovt debt default, laughed off by the same clowns who expected the subprime mortgage mess to be contained, will come in the form of global rejection of USTBond debt and a grand summit conference to restructure the debt. The many debt downgrades handed out in recent months to Europe, today to Japan, and elsewhere have carefully avoided the United States. The second downgrade will come, this time with the Interest Rate Swap machine in view at the side of the stage, and with JPMorgan executives at center stage. They will be fumbling to explain their losses and the backlash of the IRSwap machinery. It is their special tool (buttress) to hold the sprawling USTBond Tower of Babel upright, and to prevent it from falling in a heavily populated urban location.

Again, something happened in March 2012. It is not entirely clear. Perhaps it was simply the stupidity of the Bernanke Fed declaring the need to embark on an Exit Strategy at some point in the not too distant future. Bond investors might have sold bonds in heavy volume in anticipation of the lunatic professor actually hiking rates in the face of annual $1.5 trillion deficits and a vast overhang of derivatives. They might have feared a great unwind of leverage that could have gone out of control easily. Perhaps the USFed itself conducted some active Stress Tests on the derivative complex, with some arrogant assurance from JPMorgan's CIO office that they could handle anything that came their way. Perhaps the arrival of Volcker Rule adaptations, reorganizations, and disruptions took the JPM IRSwap team off guard. Perhaps something more sinister occurred, like China acting to kick one leg from under the stool, selling a vast block of USTBonds to awaken the Wall Street megalomaniacs. It could be that China sold a big block of USTBonds without malice of forethought, but instead expedience in dealing with its own economic slowdown and pervasive banking holes. Maybe they just did some rebalancing of their huge SAFE Fund and other sovereign wealth funds that must be approaching $3 trillion in size.

On May 10th, the JPMorgan machine issued some deceptive public comments in response to a large estimated $2 billion loss. The deception was from putting blame on the European sovereign bonds and their instability, wreckage, and chain effects. The other deception was not admitting the fuller extent of losses, and giving empty assurance of being in control. The JPMorgan machinery could not properly and accurately assess and measure their losses unless a full audit were to be conducted that spanned three months at least. They have lost control. In a radio interview with Turd Ferguson (CLICK HERE), the Jackass pointed a finger at the USTreasury Bond tower, the Interest Rate Swap support mechanism, and offered an argument that the losses for JPMorgan were closer to $18 billion. Furthermore, an argument was made that the losses would top $100 billion in a year's time. Tyler Durden of Zero Hedge correctly boasts that their excellent publication first broke the story of the outsized JPMorgan losses, even the possibility of greater losses. But it was the Jackass that first pointed to the Interest Rate Swap to defend the outrageous USTBond tower during a March whipsaw event. The Jackass pointed to the tame European sovereign bond yields during the six weeks in question where JPMorgan offered their typical deception. PIGS bond yields were tame over those six weeks. During the interview, a big hat tip was given to Rob Kirby who exposed me to the tame bond market in Europe, and with emphasis to the whipsaw of high winds against the USTBond market in March. He identified the location of the source of disturbance. It caused a big shock wave that knocked the JPM machine off its footing. It has been suffering from loose cargo ever since.
One must ask a preliminary question, of why with national security exceptions, the JPMorgan loss had to be admitted at all. It could have been swept under the rug, doctored on the balance sheet with the help of the USDept Treasury and USFed. The regulators would look the other way as they always do. Something unusual in the parental rules has occurred, and it is not certain. My guess is a new sheriff is in town, fresh off a jet from the East, who read the riot act to its wayward debtor, and did so recently. What else has changed? To be sure, the big US banks are operating under big illiquidity problems from European sovereign debt, along with troubles in FOREX currencies, drainage from mortgage bonds, even litigation costs from bond investor lawsuits. They suffer from a panoply of losses. A private source reports the big money center banks in New York are all under great strain from lack of cash, as in they are broke. The trouble with standing as insolvent structures is the grand risk of an illiquidity bout. The longstanding rule in banking is that INSOLVENCY plus ILLIQUIDITY equals BANKRUPTCY. Last and hardly least, the JPMorgan losses and financial strains admitted confirm something for a Grand Jury. They scream out a Prima Facie case for the MFGlobal client fund thefts, establishing a motive.

Some truly devastating implications. My European banker source shared a dire opinion. He fully expects the total loss to be several 100 $billion in JPM losses. He shared his $18 billion figure two weeks ago that tipped me and Rob Kirby off. That figure seems to be the target being approached. Early last week, the JPMorgan talking heads revealed they are struggling to provide an accurate estimate of their outsized loss. In truth, they cannot estimate it, since the IRSwap and other Delta-Hedging mechanisms are dynamic and too complex. They revealed the loss was closer to $3 billion, not the original $2 billion cited. At least they have started the process of upgrades toward truth. Then late last week, the Wall Street Journal reported that the loss might be around $8 billion. But the WSJ revealed something more important, that the loss stemmed from the Delta-Hedging program that involves the Interest Rate Swap contracts in their vast derivative book. The JPMorgan derivatives contain about $57.5 trillion in interest rate derivatives. They are teetering, like the USTBond Tower of Babel. Bingo!! The IRSwap is on the table as the culprit in the outsized JPM losses, precisely as the Jackass (and RKirby) concluded on May 11th.

My European banker source shared an update this week. He believes the ultimate JPM loss will reach several hundred $billion and grow with time. He mentioned a trigger having gone off in a chain reaction that is not stoppable, which will bring down the USTreasury Bond market and topple the USDollar. Refer to the USTBond Tower of Babel.
Notice the progression of truths. Within one week, JPM admitted the loss was $3 billion, but difficult to calculate. One week later, CEO Dimon admitted Interest Rate Swaps involved in Delta-hedging to defend with the Interest Rate Swap, as the estimated loss reached $5 billion. A few days later, Zero Hedge dissected the post-LTRO2 loss, as they called it, with an updated estimate of $8 billion and some dire warnings of still naked unhedged huge positions. Let me share my own overall impression of the IRSwap and its handiwork.

Never lose sight of the fact that 0% is absurd in the USTreasury Bond market with annual $1.5 trillion deficits, held together with the USFed monetary inflation glue. Never lose sight of the fact that negative real interest rates (actual rate minus price inflation) is the powerful fuel for the gold bull market. It is no coincidence that the gold bull market began with the advent of negative real rates back in 2002 when the Greenspasm Fed pushed the FedFunds rate down hard to avoid a financial sector collapse. The negative real rate of interest has remained, and even gone more negative, since the Quantitative Easing programs hit in 2010.


Ferguson is an alert analyst, capable of piecing the puzzle together. Some call it connecting the dots. He has come up with a simple deduction. The New York Fed as part of their shoddy Bank Stress Tests this January made a conclusion (directive) that JPM would have to suspend their stock buyback and dividend payouts, IF THEIR DERIVATIVE LOSSES EXCEEDED $31.5 BILLION. Well lookie here!! The JPMorgan colossus just announced no more stock buyback or dividends. Although not a necessary & sufficient condition of the outsized losses, we have an indication of over $31.5 billion in losses. It will all come out gradually, especially since the trigger has been hit. The internal breakdown of the USTBond reserve banking system from has been hit with a shock, and the internal breakdown of the USDollar toll taker system from has been hit with mounting defection and avoidance. The alternative trade settlement systems are coming online, with bilateral swap facilities, settlement in gold, and eventually a rival method to the SWIFT bank settlement. Nations are actively seeking out the alternatives.  
A great urgent need has come for a rally to 1.5% in the TNX (10-year USTreasury yield) in order to save the IRSwaps from implosion. The Tower of Babel is teetering. A bond rally would thus render the tower wider at the base. The final losses will be in the hundreds of $billions in the next several months, eventually possibly to top the $1 trillion mark by next year. My source from Europe wrote, "An event driven chain reaction has been triggered deep inside the system, with Interest Rate Swaps at the center. This has already gone viral. They will have to trigger some mega-crises, most likely in Europe & Greece, as a diversionary tactic. They need to have something to blame things on. Once Greece implodes, so will the big French banks and likely some Italian banks. It is all so obvious and predictable."

Look also for losses to London banks, enough to topple one or more. Hats off to Rob Kirby for correctly concluding the Interest Rate Swaps were at the center of the mega mushrooming JPM losses. It is coming to light slowly. Many analysts naively believe the USFed can monetize whatever ails the system. Not so, when the biggest credit market in the world (USTBonds) is involved. They can use the 0% money to paper over the hurricane for a while. In the May Hat Trick Letter report, several times it was repeated that the central problem is 0% rate with annual $1.5 trillion deficits, held together by hyper monetary inflation at the hands of the USFed central bank. The report contains a full 12-page chapter on JPMorgan alone and its events, traps, and basis for future loss. The USTBond Tower of Babel is very narrow and tall, like a tower that grows higher and higher each year, subject to the heavy winds. The recent bond market volatility has acted like slamming a hedge hammer into the Babel Tower base when strong winds from Europe hit the sides. The vagaries and complexity and wreckage of the sovereign bond market have begun to topple the tower. The tower will fall, and fall in a heavily populated urban area. It is going to be the most dangerous and exciting event in modern financial history, that climaxes with the death of the USDollar and announcement of the USGovt debt default. The main tough questions are timing of events. But as usual, the sequence will be from an event schedule. It has begun, and cannot stop.

When the USTBond tower topples, it will lead to the great release upward in the Gold price. A grand Gold bull market is near. As the safety and security of the USTreasury Bond market is unmasked (an asset bubble), enduring a devastating wreck, the global funds will flock into Gold. The timing will be simultaneous with the rejection of the USDollar in trade settlement, and the end of the famed Petro-Dollar. The Gold cartel cannot stop the price rise, because they will have no physical gold. They are being raided of their gold bullion by the East, to the tune of 5000 (five thousand) metric tons since the end of February. That figure was confirmed by my source, who also claims that the major banks are short well over 20,000 metric tons after illegally grabbing the Allocated gold accounts held in their custody. Law suits are occurring in Switzerland to this effect.