Saturday, August 11, 2012

Harvey's blogspot - commentary and selected non redundant articles of interest....

http://harveyorgan.blogspot.com/2012/08/china-cpi-risescorn-at-all-time.html

SATURDAY, AUGUST 11, 2012

China CPI rises/Corn at all time highs/Spanish 2 yr bond yields back above 4%/Spanish 10 yr bond yields and Italian yields rise again/

Good morning Ladies and Gentlemen:


Before beginning Jim Sinclair just received his tax return from the IRS and they are puzzled because of the number of dependents claimed by Mr Sinclair.  You have to love Jim:

(courtesy Jim Sinclair)
 just received my tax return for 2011 back from the IRS. It puzzles me!!! They are questioning how many dependents I claimed. I guess it was because of my response to the question: “List all dependents?”I replied: 12 million illegal immigrants; 3 million crack heads; 42 million unemployed people on food stamps, 2 million people in over 243 prisons; Half of Mexico; and 535 persons in the U.S. House and Senate.” Evidently, this was NOT an acceptable answer. I KEEP ASKING MYSELF, WHOM DID I MISS?




Gold closed up by $2.60 to $1619.70.  Silver finished the comex session down by 3 cents.
The day started with the bankers trying to hammer silver and gold.  You could tell that the raid was initially on as the bankers hit gold and silver badly in the access market Thursday night.  They continued throughout the night until the comex opened when the news came from Bill Murphy of massive purchases of physical from London.  Immediately gold and silver jumped and held their gains.  Silver was up most of the day and fell only after London was put to bed.
From Bill Murphy as to why gold and silver rose:


"Finally, the answer. HUGE buying at the PM London Fix, as it rose to $1618.50 after an AM Fix of only $1608.50. Somebody wanted a lot of physical gold and they wanted it NOW. That development is VERY constructive because that gold is not coming back on the market as spec buying can due to a Gold Cartel raid. This also explains why gold shot up so quickly, and silver remained stagnant.
Silver began to play catch up by rising to $28.39 before going back down." 

During the European session Spanish 2 yr bond yields rose above the 4% level causing much grief for Rajoy as he loses this very important funding opportunity.  Draghi jawboned the 2% yield down to low levels with the hope of a bailout.  When this fades away, the 2 yr yield gets it on the chin. Rajoy is seeing his popularity fall to 36.6% and if Spain is forced to seek a bailout, it certainly does not want to face an angry populace.
Italy also is facing higher borrowing costs.

Greece has experienced another rise in its unemployment of its youth under 24 years at 55%. Only 38% of the population have jobs in Greece as these poor souls must support the rest of the population and government.  It is basically hopeless in Greece. In comparison, the USA has an employment ratio of 58% so you get the idea of how bad it is in Greece.

China experienced its weakest industrial output since 2009 and this month saw its exports to Europe plummet by 16.2% Both Europe and China are in the midst of a deep recession.  We will go over all of these stories but first......
Let us head over to the comex and assess trading on Friday.
The comex gold open interest fell by 593 contracts as gold rose on Thursday.  So again we probably lost a few bankers along the way. The August gold contract saw its OI fall from 299 contracts from 2637 to 2338.  We had 283 notices filed on Thursday, so in essence we lost another 16 contracts or 1600 oz of gold standing. The September gold contract saw its OI fall by 45 contracts to 1415. The next official delivery month is October and that month is traditionally a very slow month as most players bypass this month and head straight into December.  The OI for October fell by 205 contracts from 28,037 to 27,832.  The estimated volume Friday was  weak at 117,902.  The confirmed volume on Thursday was also an extremely anemic 75,023.

The total silver comex OI again performs to a different drummer.  It's OI rose by 922 contracts from 124,569 to 125,491.  The gradual rise in OI in silver from its lows of 90,000 to its current level is causing our bankers nightmares as they cannot shake our silver leaves to fall from the silver tree.  The August silver month saw its OI rise by 10 contracts from 1 to 11.  Since we had 0 notices filed on Thursday, we gained a full 50,000 oz of additional silver standing.  The next delivery month is September (also a very slow month) and here the OI marginally fell from 49,665 to 48,324 as these guys rolled into December.  The estimated volume today was pretty good at 50,961.  The confirmed volume yesterday was very anemic at 33,627. 

****  

At 3:30 pm the CME releases the COT report which relates to us position levels of our major players.  First, let us see the gold COT.  All COT reports are from Tuesday to Tuesday
This reports is of Aug7.2012:


Gold COT Report - Futures
Large Speculators
Commercial
Total
Long
Short
Spreading
Long
Short
Long
Short
163,082
47,582
21,030
149,011
295,429
333,123
364,041
Change from Prior Reporting Period
-8,249
2,315
-1,267
-6,344
-15,938
-15,860
-14,890
Traders
160
65
62
48
43
236
151


Small Speculators




Long
Short
Open Interest



55,131
24,213
388,254



711
-259
-15,149



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, August 07, 2012
This is quite a report.

Our large speculators;

Those large speculators that have been long in gold, succumbed to the wishes of the banking cartel as they covered a rather large 8249 contracts from their long side.

Those large speculators that have been short in gold added another 2315 contracts to their short side and this weekend, they are not happy campers.

Our commercials;

Those commercials that have been long in gold pitched a rather large 6344 contracts from their long side.

Those commercials that have been perennially short in gold decided it was time to massively cover 15,938 contracts from their short side. The crooked bankers fleeced our large speculators again.

Our small specs:

Those small specs that have been long in gold, like the lay of the land and bought another 711 contracts to add to their long side and they are very happy campers.

Those small specs that have been short in gold, covered a tiny 259 contracts from their short side.

Conclusion:  hugely bullish as our bankers went net long this week.  A guess the tourniquet is getting a little tighter on Jamie Dimon and friends as they decided to cover some more of their short positions.


and now our silver COT:


Silver COT Report: Futures
Large Speculators
Commercial
Long
Short
Spreading
Long
Short
31,421
17,741
26,680
44,595
66,447
27
-617
999
897
1,387
Traders
60
46
44
36
34
Small Speculators
Open Interest
Total
Long
Short
124,276
Long
Short
21,580
13,408
102,696
110,868
544
698
2,467
1,923
1,769
non reportable positions
Positions as of:
121
104

Tuesday, August 07, 2012
  © SilverSeek.com  

By goodness, where is everybody with respect to silver?
Our large speculators:
Those large speculators that have been long in silver added another tiny 27 positions to their long side.

Those large speculators that have been short in silver are probably a little nervous about things as they decided to cover 617 contracts from their short side.
Our commercials;
Those commercials who are long in silver and are close to the physical scene added a fair size of 897 contracts to their long side.
Those commercials who have been short in silver from the beginning of time and are led by Jamie Dimon and Blythe Masters of JPMorgan added another 1387 contracts to their short side as nobody else would supply the paper.

Small Specs:
Those small specs that are long in silver liked what they saw and bought another 544 contracts to their long side.

Those small specs that have been short in silver also went more short by 698 contracts and helped the bankers by supplying the necessary paper.

Conclusion: a tiny bearish as the bankers slightly went net short. The holders of silver seem to be impervious to price as they withstand many banker raids.

*****

From Spain, the Wall Street Journal reports heightened austerity backlash.  The Andalusian Union of Workers, which represents rural labourers in Southern Spain, raided two supermarkets. Also public workers students,taxi drivers and others have taken to the streets against the Rajoy government's austerity push.

(courtesy Wall Street Journal)

Austerity backlash heats up: The WSJ discussed the heightened austerity backlash in Spain. It noted that on Tuesday, hundreds of members affiliated with the Andalusian Union of Workers (SAT), which represents mainly rural laborers in southern Spain, raided two supermarkets, taking dozens of shopping carts of food from one and forcing the other donate a similar amount the next day. The paper said that while thus far an anomaly, the raids highlight the growing frustration with the Rajoy government's austerity push. It added that public workers, students, taxi drivers and others have been taking the streets to protest on a near-daily basis, while unions are pushing for a referendum on the austerity plans and gearing up for possible nationwide strikes later this year. However, it also pointed out that while the ruling Popular Party's poll numbers have declined since the November elections, it still has a comfortable majority in parliament and the main opposition Socialist Party has been unable to gain any traction.


******

The German President of the Bundesbank is extremely worried that Draghi's plan will have disastrous consequences for Europe if they introduce Eurobond purchasing or grant the new ESM a banking license:

(courtesy Reuters)

Analysis: Weidmann tries to muffle not spike Draghi's ECB guns



By Paul Carrel
FRANKFURT | Thu Aug 9, 2012 10:14am EDT

(Reuters) - Isolated but unbowed, German central bank chief Jens Weidmann is using all the soft power he can muster to stop the European Central Bank sinking into the political quagmire he fears from a new round of sovereign bond buying.
Weidmann is worried a plan ECB President Mario Draghi has hatched for the central bank to buy the sovereign bonds of Spain and Italy to lower their crippling borrowing costs would ease the pressure on those countries to put their finances right.

Such a plan also risks dragging the ECB into the business of financing governments, in which it is supposed to play no part.

Weidmann, who took the Bundesbank helm last year after his predecessor quit over a previous round of ECB bond buying, is acutely aware that he must uphold Germans' faith in the Bundesbank and the ECB, or else lose their support for the euro.
With Berlin pledging billions of euros in taxpayers' money to bail out debt-ridden euro zone countries, German voters expect the Bundesbank to act as their economic rock - and for Weidmann to play the role of "stability anchor" at the ECB.

But it is unlikely he could scupper Draghi's plan, given the German central bank is only one of 17 constituents at the ECB, albeit the first among equals.

Nor is it clear he would want to if the euro zone was pushed back to the edge of a precipice. Break-up of the currency bloc would be hugely costly to Germany and the Bundesbank.

Rather, Weidmann wants to keep the heat on indebted euro zone countries to reform and to pin as much of the burden as possible for dealing with the bloc's crisis on governments.

"His current opposition to bond-buying does not prevent the ECB from doing it, but it does signal to member states that they are still on the hook for crisis management. If the crisis were to take a turn for the worse, Weidmann would not block a greater role for the ECB provided this was done in concert with government action," said Mujtaba Rahman, analyst at political risk consultancy Eurasia Group.

One senior central banker told Reuters there was a "game of chicken" between the ECB and governments over who carries the burden for tackling the crisis, with the central bank ultimately ready to step in rather than see the currency union fall apart.

But just how far the ECB steps in is crucial.

"We could do something, with the ESM (bailout fund)," said another senior ECB policymaker, who expressed sympathy for Weidmann's position and was similarly reluctant to be drawn into a major bond-buying operation.

One of Weidmann's goals is to erect enough hurdles to any fresh bond buying in order to give him cover at home, where he faces pressure from Bundesbankers past and present and from academics led by Hans-Werner Sinn, head of the renowned Ifo research institute.
These conservative voices regularly paint any ECB action beyond inflation targeting as misadventure and a threat to the Bundesbank's role as guardian against the 1920s experience of hyperinflation that still scars the German national psyche.

Otmar Issing, one of the founding fathers of the euro and a former ECB chief economist, said on Thursday the latest plan would drag it into the political realm.

"This ultimately makes the central bank a prisoner of politics," Issing said. "This is a process that is very difficult to stop, because where do you set the limit?"

As well as retaining the public's trust, Weidmann must deal with conservative elements within the Bundesbank -- still employer to almost 10,000 people compared to 1,600 at the ECB -- who think they know better than their peers across town.

As one senior euro zone official put it: "If Weidmann can drag the Bundesbank into the euro zone era during his presidency, he will have done well."

SOFTLY, SOFTLY

Back in the 1990s, any one of the Bundesbank's board members could move global markets. Now Weidmann must use his guile - and leverage the domestic pressure he faces - to push his agenda.

The softly spoken 44-year-old has had some success.

After pledging on July 26 "to do whatever it takes to preserve the euro", Draghi a week later stopped short of the 'shock and awe' response markets were looking for and instead tasked three committees with exploring ideas the bank's policymakers could then decide to pursue.
In the interim, Weidmann had met Draghi one-on-one and again at last Thursday's meeting of the ECB's Governing Council, after which Draghi larded his plan with caveats and conditions.

The ECB was issuing "guidance" rather than taking a firm decision at this stage, Draghi said. It "may" undertake outright open market operations, but only if governments activated the euro zone bailout funds to buy bonds first - and even if the funds did so, ECB action would not follow automatically.

Draghi singled out Weidmann at his news conference last Thursday: "It's clear and it's known that Mr. Weidmann and the Bundesbank ... have their reservations about programs programs that envisage buying bonds."

What could have been construed as a hostile act, probably helped Weidmann show his domestic audience that he is holding back the ECB. One person who attended the policy meeting said: "My feeling is they had agreed with Weidmann on how he (Draghi) does it."

The conditions built in allowed Weidmann to express reservations rather than opposing the plan.

The Bundesbank chief has remained silent since. This is crucial to the success of any ECB plan to intervene in markets.

Any signal Weidmann might send opposing the plan would blunt its impact - as happened when his predecessor, Axel Weber, undermined the ECB's previous bond-buy plan by opposing it from the outset.

AT ODDS WITH MERKEL

In contrast to Weidmann, the German government appears to have few reservations about Draghi's intervention.
The leaders of Germany and France swung in behind him a day after his "whatever it takes" declaration with their own vow to do all in their power to protect the euro.

Georg Streiter, deputy spokesman for the German government, said Chancellor Angela Merkel was not worried about possible threats to the independence of the ECB.

"You can assume that the government approves of everything that is currently taking place," Streiter said.

Analysts at Citigroup said the mini-standoff suited Berlin.

"They welcome the fact that the ECB is helping in the heavy lifting in order to support periphery countries, while at the same time they want to see that the ECB and the Bundesbank are keeping the German population relaxed about fears of inflation," they said.

A former top economics adviser to Merkel, Weidmann has distanced himself from her since returning last year to the Bundesbank - where he worked before moving to Berlin - to stress his central banking independence.

Even if he is in the minority, Weidmann is ready to take the time to explain his views to other policymakers on the ECB's Governing Council, rather than resign as Weber did last year in protest at the SMP.

"In my view, Weidmann is absolutely clear and strict factually, but engaging in style," said Manfred Neumann, a monetary theorist who was Weidmann's doctoral adviser and remains close to him and compares him favorably to Weber.

Weidmann projects a more modern demeanor than his predecessors. He speaks fluent English and French, held an internship with the National Bank of Rwanda, and spent a big chunk of his career away from the Bundesbank.
But his earlier years at the Bundesbank and his economics background, honed by a spell at the International Monetary Fund, ensured the German central bank's thinking is ingrained in his DNA.

"Of course Weidmann doesn't want to go down in history as the man who bust the euro," said David Marsh, author of 'The Euro: The Politics of the New Global Currency' and co-chairman of think tank OMFIF.

"But he will take his cue from (former Bundesbank chief Helmut) Schlesinger, with two powerful principles: if in doubt, go for 'stability first'; if under pressure, get German public opinion on your side, and use this as a lever over governments at home and abroad."

In a highly symbolic move, Weidmann conducted a joint interview with Schlesinger that the Bundesbank released on the eve of the ECB's meeting last week and which features prominently on its website.

Governments expect too much of the ECB, Weidmann said in the interview, adding: "If a central bank also has to work against public opinion, things get difficult."

Weidmann wants to serve out his full Bundesbank term, preferring to stay in the ECB's policymaking room and try to win over others rather than quit. A solid performance as Bundesbank chief would put him in contention to succeed Draghi.

When Juergen Stark, another German, followed Weber and resigned last year as the ECB's chief economist in protest at the bank's policies, Weidmann was only more determined to carry on in his role.

"I see no reason to follow Stark," Weidmann said. "I feel this has strengthened my conviction in the ECB to work towards monetary stability and independence of the central bank."
******

Your important read for the day...

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



Surveying The Landscape

Tyler Durden's picture
Submitted by Tyler Durden on 08/10/2012 08:19 -0400



Via Mark E. Grant, author of Out of the Box,
Surveying the Landscape

Look around. Take a good long and hard look because the data is becoming unsettling and it is pouring in from all over the world. In China, where a hard landing was thought to have been avoided; one moment please, not so fast. China’s industrial output is now the weakest since 2009 and the latest figures represent the seventh consecutive quarter of deceleration. Most troubling is that China’s sales to Europe declined -16.2% last month which is a huge drop off and shows clearly the recession that is taking place and worsening on the Continent. Estimates for Chinese third quarter growth are being reduced on an almost daily basis and loan demand has taken a drubbing. The world’s growth engine is sputteringand there will be consequences. In the other driver of Asian growth Japan is markedly weakening. GDP expanded at 2.3% in the last quarter which was down almost 50% from the first quarter of this year. A Bloomberg survey places growth at just 1.00% for this quarter and there may be a negative number by the fourth quarter.
In Europe the situation is dramatically worsening with virtually every country in a recession with the notable exception of Germany though I predict they will join the club by the fourth quarter of this year or by the first quarter of next year. Italy just reported out their GDP at -2.5% for the second quarter and their prospects are not good with the third quarter likely to be down more than three percent in my estimation. Borrowing costs are also beginning to weigh on Italy as they have a two trillion dollar sovereign debt where their ten year is +441 to Germany and not likely to get better anytime soon. Even if you are a believer in some new ECB/ESM scheme the German courts will not opine on the ESM until September 12 and then there are still a number of countries that have not approved the plan so that any actualization of some scheme is unlikely to come before late in the third quarter or in the fourth quarter. It is an interesting side note that when Monti took office that the Italian/German ten year spread was just +78 bps so I think it can be said with accuracy that his tenure, as demonstrated by the numbers and not the hyperbole, has not been the rose garden so often praised by Germany and France. In another interesting side note Goldman reported that it had cut its holding of Italian sovereign debt by 92% and if one considers their CDS exposure they have actually gone to a position of almost one billion negative from a plus $2.4 billion position in March.

While the Prime Minister of Spain dances around and shouts at Don Quixote’s windmills I think that it is quite likely now that Spain will be forced to officially ask for aid and that it will be soon. Then I think that Italy will follow suit which will rest the funding squarely on the shoulders of Germany and France and with economies totaling just $6.33 trillion or 56% of the United States, there will be real consequences and real pain as the allocations grow for these two countries and as Greece and Portugal line up again at the till. Short term solutions and liquidity do not overcome the fundamentals in the end and paying off debt with an ever increasing mountain of more debt is a concept that historically has often proved to be a failure. I fear that Germany and France face more downgrades and the reality of Germany’s 160% debt to GDP ratio, my calculation, will begin to drive capital out of Germany as the actual numbers are appreciated and considered.

Sometime in October, if not sooner, rhetoric is going to be put aside and either another $50 billion is going to be handed to Greece or the charade will stop. The country cannot pay their debts under any scenario imagined and it is just a question if the game will go on a bit longer or not. Of one thing I am sure; it cannot go on indefinitely and when it finally does stop it will not be the “manageable” event that some European politicians contend. It is going to be one sloppy mess that will affect the ECB which will require re-capitalization, it will hit many banks in Germany and France and losses will have to be taken by the EU’s Stabilization funds if not the IMF. Everyone is campaigning for everyone else to take the losses of course and eventually someone will take them and the debts have been allowed to grow big enough so that the hits will not be insignificant. The tension is increasing in both Greece and Europe and the accusations have not been pretty and will get worse so that I think some tipping point will be found before year end. There is now too much strain for the great “Muddle” to continue much longer and as the economy in Greece continues its freefall and as the unemployment numbers spike into the Uganda latitudes; something is bound to crack. Remember that everything is fine up until the day it is not and then it is really, really unfine!
For those that think that the Fed will save the day, if not the planet, I suggest to you that you may be in for an unpleasant surprise. There is only so much they can do now and each Fed action is being met by a less and less reaction in the markets and of a shorter duration. The proposed ECB/ESM scheme will also not be that panacea thought by many in my opinion regardless of the hype broadcast out of Europe. The nations that need funding are clearly squared up with the nations that could fund and I remind each of you that those with the gold make the rules. Beggars may shout and scream and appeal to whomever and whatever might get them the money but it is not their decision to make in the end. For those that think America lives in some kind of off-the-world existence and will not be affected by all of this then I invite you back to the planet Earth. With equity volumes declining to five year lows and a range that is bound more by hopes and prayers than actual considerations of earnings or of our GDP I find if highly probable that we will break to the downside while Treasuries continue their march higher in price again as the fiscal dangers become more pronounced and appreciated.

For a kick in yield try the trups/hybrids of the British banks. The American bank and finance hybrids and trups have appreciated markedly in recent weeks while the British ones have lagged considerably. Here is a small space than can be taken advantage of now in my opinion.

*****

We now are witnessing that 55% of Greek youths under the age of 24 are unemployed:

(courtesy EUobserver.com/Ed Steer)


More than half young Greeks are unemployed




Greek youth unemployment figures released on Thursday (9 August) by the Hellenic Statistic Authority marked another record high at 54.9 percent in May compared to around 41 percent to the same period last year.
“It is indeed a matter of deep concern for the commission and the unprecedented level of unemployment in Greece, in particular for youth unemployment,” European Commission spokesperson Olivier Bailly told reporters in Brussels.
Bailly said the ‘troika' - the EU, European Central Bank and International Monetary Fund (IMF) - along with the Greek authorities will need to address the rising unemployment issue among its youth.
This story, filed from Brussels, showed up on the EUoserver.com website yesterday afternoon local time...and I thank Roy Stephens for sending it. The link is here.
****

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