Selected items from Harvey's blogspot - non redundant items !

http://harveyorgan.blogspot.com/2012/05/spanish-10-yr-bond-yields-reach.html

Gold closed at $1563.40 for a gain of $14.80 on the day.  Silver rose by 19 cents to $27.96.
Both gold and silver were pummeled early in the session but for the 3rd time this month did an outside day reversal to the upside to close higher after early losses on both of our precious metals.  Europe opened with news that the Spanish 10 yr bond yield rose to 6.63% early in the morning and rose again in yield to 6.66%.
The Italians had a failed bond auction which triggered a rise in their 10 yr treasury bonds to 5.93% a touch below the key 6% level.  Early this morning the Euro/USA cross started the morning at 1.2456 and then as the day wore on, it retreated to fall below the huge resistance level of 1.24. At press time, the Euro/dollar cross is at a very low 1.2369.  The 10 yr USA treasury bond yield lowered to an amazing low 1.63%.  The German 10 yr bund yield finished the session at 1.3%.  It looks like a scorched earth policy on both ends of the pond.


and....


The following is a must see video from Charles Biderman of Trimtabs.  It seems that Spain has debts and future obligations that are totally unquantifiable.  Jim Bianco's sound bite for Spain is "no longer kicking the can down the alley" but "delay and pray" as Europe is rapidly descending into financial chaos. The country of Spain now states that its problems are  "unquantified" at the moment. He then travels to this side of the pond and discusses the shear lunacy of pension funds operating under the same "delay and pray" format as they hide the true returns on those funds.  An 8% return on funds is just not possible in this financial environment and the stealing of funds today is robbing the future generations.  As he correctly states:  "stealing from the future to cover the here and now" is exactly what it is "criminal fraud"

a must see  (courtesy Charles Biderman/Trimtabs)

Biderman On Europe's Unquantified 'Delay-And-Pray' And US Government Criminal Fraud

Submitted by Tyler Durden on 05/29/2012 22:24 -0400

• Charles Biderman
   
• Germany
   
• New Normal
   
• TrimTabs

Repress extend-and-pretend; dismiss the can-kicking; and forget fake-it-til-you-make-it; Charles Biderman of TrimTabs recalls Jim Bianco's quote of the day on Spain's 'Delay-and-Pray' as the new normal for what is rapidly moving beyond farce in Europe. Beginning with the nations' own 'silly' perspective that the problem is 'unquantified' at the moment - implying it is in the trillions (which we already knew, but as long as they don't actually quantify it, it's not real - like the tooth fairy) - Charles goes on to destroy the hope that Germany can save them all (too big a problem now) and with state and local debt mounting trouble upon trouble the only outcome is a failure of the Euro. But it's not just Europe, between benefit payments and deficits, unexpectedly low returns for pension funds (thank you Ben), and union ignorance, the US is set for just as big a problem (though given the printing press we may just last a little longer). This leaves our union pension and government offocials with the same solution of 'delay-and-pray' as they hide in ever more intricate ways how much they arestealing from the future to cover the here-and-now. Biderman's back and this time he's really 'ranty' right to the end as he calls them out for criminal fraud.

and....

We are concentrating on three major European countries, Greece, Spain and Italy whereby any two defaults by them will itself cause trillions of losses and trigger a major megaton implosion in credit default swaps.  As we witnessed, these headwinds from Europe whipsawed JPM, and thus it pierced the veil of their interest rate swaps enough to send in the FBI, the SEC and the CFTC enforcement into their offices searching for clues as to how these guys lost so much money (and depositors money).
Here are the first morning financial readings from Spain:
1. The 10 yr Spanish bond in early European trading hit 6.72% close to the critical 7% level.2. JPMorgan states that the total Spanish bailout will require 350 billion euros even though the kitty has only billion euros left.  Where on earth will this new fresh supply of euros come from?  We must be cognizant of the fact that one of the banks that was forced to reswap out their badly needed euros for the garbage sent to the ECB my be a big Spanish bank  (see yesterday's commentary)
3.  Two year Spanish paper is now over 5% as we witness an inversion curve for Spain (deep recession)
However the big news comes from Italy;
1, The catalyst: a failed Italian auction whereby only 5.73 billion euros were auctioned instead of a planned 6.25 billion euros.
2. The 5 yr treasury bond hit 5.66% but the 10 yr bond galloped to 6.03%

3.  The Italian credit default swaps widened by another 28 basis points.

and finally European confidence levels dropped from 91.9 to 90.6 setting the mood for trading today and even scarier is the European M3, the broadest measure of money supply dropped to just 2.5% from 3.1%.Europe is imploding.

The final tally in the European bourses this morning:

1. The DAX (German) down 1.8%
2. The Paris CAC down 1.4%
3. The British FTSE down 1.74%
4. The big STOXX 50 down 2.04%

and.....

With massive bank runs in Greece and Spain, talk turned to a deposit guarantee.
Only one major problem:  the total deposits in Europe exceed total GDP in Europe. In the USA, American deposits equals  68% of GDP. A default at PIIGS sovereigns will cause another Iceland who had bank loans equal to 400-500% or greater of their GDP.
(courtesy zero hedge)

Europe's Got 99 Problems And A Deposit Guarantee Scheme Is One

Submitted by Tyler Durden on 05/30/2012 10:52 -0400

• Barclays
   
• Eurozone
   
• Federal Deposit Insurance Corporation
   
• Gross Domestic Product
  
• Moral Hazard
   
• Reality

We have explained in the recent past just why the rotation from a professional European bond-run to a retail bank-run is critical to the euro-zone banking system - with deposit losses creating even more encumbered asset levels among European banks, which would then exaggerate contagion problems as funding pressures mount. The problem is existing deposit guarantee schemes are implemented at the national level and are not currently funded to handle a systemic crisis - this is why there has been so much chatter of a pan-Europe guarantee scheme. However, not only does a euro-wide guarantee rely on credible commitments from core European governments but it misses the redenomination risk - as unlike the US FDIC, it would need to explicitly guarantee the euro-value of deposits. Barclays shares our doubts on the implementation (short- and long-term) of such a solution, noting that Eurozone deposits are greater than eurozone GDP (as opposed to US deposits at ~68% of US GDP). Between operational difficulties, the size of redenomination losses, moral hazard, and the massive (deposit/GDP) contingent liability dependent on actual exit of a member state, we would urge any exuberance over 'talk' of a guarantee to be stymied once again by the dismal reality of implementation and agreement.

Via Barclays,

With increasing concerns about deposit flight following a potential Greek exit, investors have turned their attention to deposit guarantee schemes in the eurozone.

Current Eurozone Deposit Guarantees

One concern that has recently surfaced is the risk of deposit flight in peripheral Europe following a potential Greek exitfrom the eurozone

• Redenominated Greek deposits would undergo significant depreciation, imposing massive losses on household savings
• Depositors in other countries at risk of leaving the eurozone would likely respond by moving deposits to accounts in core Europe

The resulting funding pressure on peripheral European banks facing deposit outflows could become an additional source of contagion.

This problem is exacerbated by weaknesses in the current system of eurozone deposit guarantees

• Insurance is implemented at a national level
• Deposit insurance funds are not currently funded to handle a systemic crisis
• One possible solution to address the current shortcomings of the existing guarantee schemes is to implement a new euro-wide fund that is jointly backed by the eurozone nations
  
  Possible Solution: Euro-wide Guarantee
  • The current deposit guarantee system consists of national schemes funded independently by national banking systems, and may or may not include government guarantees
  • • However, in a crisis, the banking system and government may not be able to make depositors whole
    • A new deposit guarantee scheme jointly backed by the eurozone nations would solve this problem
    • The strength of the guarantee and the strength of the guarantors are key. The new system would need a credible commitment from core European governments
    But, What About Redenomination Risk?
    • To prevent deposit flight from fear of redenomination, the deposit insurance scheme would need to explicitly guarantee the euro-value of deposits
    • This type of scheme could solve both the guarantor credit-quality problem and the redenomination risk problem of the current system
    
    
    But while such a fund could, in theory, help prevent deposit flight, there are several key practical issues with implementing the fund
    
    Problems with a Euro-value Guarantee
    While a euro-value guarantee scheme could prevent deposit flight following a potential Greek exit from the eurozone, we see several problems with implementing this solution1. Operational difficulties

    • What currency are claimants paid in?
    • If they are paid in the new currency, how is the loss rate established?
    • How would capital controls impact settlement?

    2. Size of the potential redenomination loss

    • The redenomination loss would be greater than typical losses in FDIC insured bank failures
    • Potential losses are large enough to call the credibility of the guarantee into question

    3. Moral hazard problems

    • This type of guarantee scheme would make it less painful for peripheral European nations to leave the eurozone
    • Under a euro-value guarantee, a country could exit, massively reducing sovereign liabilities, while maintaining a substantial amount of household savings value

    4. Finally, a euro-value guarantee scheme would be a massive contingent liability for guarantors that only pays out after a member exit --not an ideal setup

    But apart from all that - it's a great idea... come on!!