Today’s Winners and Losers

TheDailyGold - Mon, 2012-03-12 16:50
 GDX fell by-1.63%  while GDXJ  fell  by -1.62% and SIL fell  by -1.62%

Here are today’s best  performing Silver and Gold stocks:

Wall Street Strategists Remain Bearish - Mon, 2012-03-12 14:45

Even though the stock market has gotten off to one of its best starts to a year in decades, Wall Street strategists aren't buying into the hype.  Bloomberg surveys strategists on a weekly basis, and along with asking them for their year-end S&P 500 price targets, they also ask for their recommended portfolio weightings into stocks, bonds and cash.  As of last week, the consensus recommended stock weighting stood at 57%. 

To put the current 57% recommended weighting into context, below is a historical chart of the reading going back to 1997.  As shown, while stocks are up big in 2012, strategists have actually cut their recommended equity weighting this year. 

If strategists as a whole were particularly prescient, this would be a bearish sign, but fortunately that's not the case.  The peak recommended stock weighting came just after the peak of the Internet bubble in early 2001, while the lowest recommended weighting came just after the lows of the financial crisis.

Brussels Presses Spain for Budget Details on How Spain Will Reduce Deficit to 3% of GDP; Threatens 2 Billion Euros Fine

EMU officials in Brussels want to see specific details on how Spain will reduce its budget deficit to 3% of GDP in 2013. Given Spain's 2011 deficit was 8.5% of GDP, EMU officials do not believe Spain can meet a goal of 3%, nor should anyone else. The targets will not be met.

Moreover, some in Brussels accuse Spain of artificially inflating the 2011 deficit so as to better meet its interim target.

Those are contradictory accusations actually. If the deficit is artificially inflated, it should be easier to make the targets.

Should Spain come up with the numbers to show it can hit a 3% target in 2013, then the EMU bureaucrats may give Spain some leeway on the dates and interim targets. Otherwise Brussels threatens to fine Spain .2% of GDP, roughly 2 billion euros.

From El Economista via Google Translate: Brussels Presses Spain for Budget Cut Details
The finance ministers of the eurozone on Monday asked the Spanish representative, Luis de Guindos, to announce all the cuts and adjustments Spain will make in budgets this year and next to reduce the deficit from 8.5% in 2011 to 3% in 2013.

If Spain introduces "new and real measures" that will not endanger the fulfillment of the Stability Pact, then the Eurogroup would be willing to negotiate relaxing the deficit target this year (which the Government has placed unilaterally in 5.8% instead of 4.4% agreed with the EU).

However, if De Guindos does "not convince" the EMU that Spain will respect its commitments, the Eurogroup will leave the way open for the Vice President of the Commission responsible for Economic Affairs, Olli Rehn, to reactivate the excessive deficit procedure penalty that could ultimately a fine of up to 0.2% of GDP (about billion euros).

The Eurogroup believes that the prime minister, Mariano Rajoy, has created "surprise" and "much confusion" by announcing unilaterally after the Spring European Council the new deficit target for 2012. The normal thing would have been negotiations with the Commission at the technical level to "seek a solution" with the Eurogroup with "no drama". Rajoy has done the opposite.

"Most of the Eurogroup states are now afraid that the Spanish case sets precedent" just as the EU has just adopted a tightening of the Stability Pact and a new treaty to strengthen fiscal discipline."

The Eurogroup also looks more explanation on the reasons for the budgetary slippage of 2.5 points in 2011, especially considering that "some analysts, say this figure is inflated by domestic political reasons."

EMU officials want detailed and specific measures as to how Spain will reduce its budget deficit from 8.5% to 3%, given an adjustment of 5.5 points is "very difficult".Spanish unemployment exceeds 23% with youth unemployment at 49%. Austerity measures to further reduce the budget deficit from 8.5% to 3% over two years simply are not realistic.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Platinum/Gold Ratio Back to 1:1 - Mon, 2012-03-12 13:32

With platinum up $12 today to $1,697/ounce and gold down $12 to $1,699/ounce, the ratio of platinum to gold is about as close to one as it can get.  As shown in the chart below, the ratio moved to its lowest level ever at the end of 2011, but it has been creeping higher towards one over the first few months of this year.  Based on the historical average ratio of 1.73 since 2000, the ratio still has a long way to go to get back to "normal" levels.  That means platinum has a lot of outperforming to do.

“Battered” Gold Drops Below $1700, US Speculative Positions Fall After “Severe Blow”, But “Aggressive Monetary Policy” Makes Long Term Trend “Broadly Positive”

TheDailyGold - Mon, 2012-03-12 12:45

Monday 12 March 2012, 09:00 EDT

“Battered” Gold Drops Below $1700, US Speculative Positions Fall After “Severe Blow”, But “Aggressive Monetary Policy” Makes Long Term Trend “Broadly Positive”

THE DOLLAR gold price fell back through $1700 an ounce as US markets opened on Monday, continuing its slide begun when Asian markets opened several hours earlier.

The silver price dropped to $33.63 per ounce – a 2.0% fall on last week’s close – while stocks and commodities edged lower and US Treasury bond prices gained.

By Monday lunchtime in London, the gold price was 1.2% below where it closed on Friday.

“Gold’s latest behavior has been rather volatile over the past week,” says the latest commentary from Swiss precious metals refiner MKS, adding that gold last week was “battered by the economic news.”

The gold price ”continues to look vulnerable on the charts,” MKS adds.

“Gold looks to have recovered from last week’s technical dip,” says a note out Monday from ANZ Ban, “but remains vulnerable to correction within a broadly positive longer term trend.”

On the gold futures and options market, the net long difference between bullish and bearish contracts held by so-called speculative gold traders dropped 22% in the week ended last Tuesday, the latest figures from the US Commodity Futures Trading Commission show.

“As expected, net speculative length was dealt a severe blow,” says Marc Ground, commodities strategist at Standard Bank.

“This was mostly the liquidation that occurred after market expectations of liquidity growth were undermined by Fed chairman Bernanke as he failed to mention further quantitative easing in his address to US lawmakers the previous week.”

The Federal Reserve Open Market Committee is due to announce its latest monetary policy decision tomorrow, with some in the market wondering whether there will be a third round of quantitative easing.

“If there’s no QE3, then there will be disappointed selling again,” reckons Ronald Leung, director of Hong Kong-based Lee Cheong Gold Dealers.

Over in China, the world’s second-biggest gold consumer in 2011, exports in February fell 23.6% from the previous month – while year-on-year growth slowed to 18.4% – according to figures published Saturday. The fall in exports contributed to a trade deficit of $31.5 billion, “the largest monthly deficit since at least 2000″ according to the Wall Street Journal.

“It is still very much necessary that the policymakers in Beijing provide sufficient support for funding for investments in the coming period,” reckons BNP Paribas economist Ken Peng.

During the last three months, the People’s Bank of China has twice cut the reserve requirement ratio for banks, which dictates how much money they have to hold as reserves as a proportion of total assets.

“Theoretically speaking, there is much room for RRR cuts,” PBOC governor Zhou Xiaochuan said Monday.

“But there are restraints, and we are paying particular attention to the possible impact on capital flows, especially in a time of economic globalization.”

Zhou said last week that the Yuan should be allowed to fluctuate in a wider range against other currencies, a move seen by some analysts as a way of encouraging Chinese firms to get used to managing exchange rate risk.

After Saturday’s export data however, the PBOC set the Yuan’s midpoint against the Dollar 0.33% lower on Monday. The move represented the second-biggest one day fall for the Yuan since China set up its foreign exchange market in 1994, with the biggest being the Yuan’s 0.36% fall in August 2010, newswire Reuters reports.

US lawmakers last year proposed a bill that would see tariffs imposed on Chinese imports into the US if China continued what some US politicians have called exchange rate manipulation.

In Japan meantime prime minister Yoshihiko Noda said today that the Yen remains “somewhat overvalued” despite falling around 8% against the Dollar since the start of February.

Japanese authorities intervened in the currency markets several times last year in an attempt to halt the appreciation of the Yen.

Japan’s finance minister Jun Azumi today added that the authorities “will take firm action against excessive and speculative moves” by currency traders.

Here in Europe, the International Swaps and Derivatives Association confirmed Friday evening that the use of collective action clauses by the Greek government to force some investors to go along with a bond swap constitutes a credit event. An auction has been scheduled for March 19 to determine the recovery value of outstanding Greek debt, and thus determine how much credit default swaps should pay out.

Eurozone finance ministers meantime are due to sign off Greece’s €130 billion second bailout when they meet today, enabling Greece to meet maturing bond payments next week. Finance ministers are also expected to discuss Spain, which last week said it will ignore its European Union deficit target for 2012.

Over in the US, the national average price for a gallon of gasoline rose above $3.80 on Monday, up from $3.77 last week and $3.51 a month back, according to motoring organization AAA.

The Organization of the Petroleum Exporting Countries (OPEC) said Friday that it is still exceeding its production target despite a fall in production from sanctions-hit Iran.

The value of all commodity assets under management rebounded in January to $366.8 billion – equivalent to over 2% of US GDP – according to a report by French investment bank Societe Generale.

The report adds that “aggressive monetary policy” should benefit gold and silver prices, news agency Bloomberg reports.

Ben Traynor

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Long Bond Future Flatline - Mon, 2012-03-12 12:34

While volatility in the stock market has declined drasticlaly so far in 2012, parts of the Treasury market have been even more contained.  As shown in the chart below, following last Fall's strong surge, the US Long Bond Future has practically flatlined.  Over the last four months, the spread between the intraday high and low has shrunk to 4.6%.  Last October, the high/low range was more than 20%, and even before the big move, the four month high/low range was above 8%.

Asset Class Performance Over the Last Three Years - Mon, 2012-03-12 09:30

Last Friday the S&P 500 celebrated the 3-year anniversary of the bear market low.  Below we highlight our key ETF performance matrix, which shows the performance of various ETFs across all asset classes since 3/9/09.

Out of the entire matrix, the best performing ETF since the March 9th, 2009 market low has been the Mexico ETF (EWW) with a gain of 176.64%.  The Consumer Discretionary ETF (XLY) is up the second most with a gain of 173%.

The Nasdaq 100 (QQQ), Midcap 400 (IJH) and Smallcap 600 (IJR) ETFs have performed the best out of the US index ETFs.  These are all up more than 140%, while the Dow (DIA) and S&P 500 (SPY) ETFs are both up around 100%.

Looking at the commodity ETFs, silver takes first place with a gain of 160% since 3/9/09, while natural gas (UNG) is down the most of any ETF in the matrix at -85%.  Gold (GLD) is up half the amount of silver at 83%.

The fixed income ETFs are all up around 10% over the last three years, with the exception of the inflation protected T.I.P.S. (TIP) ETF, which is up 22%.


Sentiment Turns Slightly Bullish - Mon, 2012-03-12 09:15

This is the fourth week that we've conducted our market sentiment poll, and it's the first time that there have been more bulls than bears.  After three straight weeks of more bears than bulls, as shown below, 51% of participants said the market will be higher a month from now, while 49% said lower.

Sarkozy Threatens to Limit Immigration, Delivers Ultimatum to EU, Proposes "Buy European Act"; Help Wanted, French Citizens Only

French President Nicolas Sarkozy delivered an ultimatum to the EU on immigration, complete with a "Buy European Act" and a threat to suspend the Schengen Agreement that allows passport-free travel among 25 European nations.

Hollow Threat for Political Reasons or the Real Deal?

Given how badly Sarkozy trails in recent polls to challenger François Hollande, it's difficult to know for sure if this is some political stunt to revitalize his sinking chances, or if he has really turned isolationist.

Please consider Sarkozy Threatens to Exit Schengen Agreement.
French President Nicolas Sarkozy delivered a stern ultimatum to the European Union at an election rally Sunday, saying he will withdraw France from the Schengen accords, which allow free circulation within most of the bloc's borders, unless the E.U. hardens its immigration policy.

The incumbent president, who is trailing Socialist rival François Hollande in polls, also said that if re-elected he will demand EU partners pass a "Buy European Act" similar to the "Buy American Act" adopted by the U.S. in 1933, which required the government to prefer U.S.-made products in its purchases. Failing significant progress within the year, France will apply the rule unilaterally, he said.

"I want a political Europe that protects its citizens," Mr. Sarkozy said in the largest rally to date of his campaign, with an estimated 50,000 gathered in a hangar at the Paris fair, close to the city's airport.

The French president, who is hoping to kickstart his flagging re-election campaign, said that unless significant progress is made within twelve months to cut the number of foreigners allowed to enter EU borders, France will leave the Schengen area, a move that would deal a blow to the free circulation of people within the union.

"At a time of economic crisis, if Europe doesn't pick those who can enter its borders, it won't be able to finance its welfare state any longer," he told the rally. "We need a common discipline in border controls...We can't leave the management of migration flows to technocrats and tribunals." To help translate what Sarkozy is really saying, please consider the following map of the Schengen Agreement area.

Schengen Agreement Countries

"Buy France"

That pretty much looks like Europe to me, minus the UK, Ireland, and trade-insignificant Eastern Europe. Thus, my take is Sarkozy is really saying is "Buy France".

How well does that bode for the survival of the Eurozone?

One of the major weaknesses of the EMU, aside from the all-important lack of a fiscal union is language barriers. To help understand the significance, compare California to Greece.

In the United States, someone in California can easily move and take a job in Texas or seek better opportunities in any of 50 states.

However, it's safe to say the average Greek does not speak Finnish, German, and French even if the average person is multilingual. For someone in Greece seeking better opportunities elsewhere in the Eurozone, linguistic barriers are monumental. So are cultural barriers, and so are issues related to national pride.

Help Wanted, French Citizens Only

Sarkozy, has now threatened to take those already huge difficulties one step further with a policy that is tantamount to "Help Wanted, French Citizens Only".

These are exactly the kinds of disputes that ensure that the eurozone as constructed cannot possibly survive.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

ECB Calls for "Naming and Shaming" of EMU Budget Violators; Public Warnings, My Goodness!

After years of violating the 3 percent maximum budget deficit restriction as stated in the Maastricht Treaty, Germany is finally a solid citizen.

The Spiegel Online notes German Budget Deficit Plunges to 1 Percent of GDP.
Greece, Portugal, Italy and Spain may hog most of the negative press when it comes to debt in Europe. But Germany too has been in violation of European Union budget rules in recent years, posting a deficit of 4.3 percent of gross domestic product (GDP) in 2010, well above the 3 percent maximum imposed by the Maastricht Treaty.

On Friday, [February 24, 2012] though, Germany's Federal Statistics Office announced that the country's deficit plunged in 2011 and, at 1 percent, is now well within EU limits.Toot the Horns, Blow the Whistles

Now that Germany has gotten its act together, it's time for "Naming and Shaming" of everyone else.

The Financial Times reports ECB calls for tougher rules on budgets
The European Central Bank has sharpened its hardline stance on eurozone fiscal policy by urging the still-tougher policing of member states’ public finances, including by “naming and shaming” the worst offenders.

Europe’s newly agreed rules provided “the ‘pillars of trust’ between countries”. “This trust is essential for the monetary union,” Mr Draghi told reporters in Frankfurt last week. “In order to continue, the monetary union needs . . . the willingness to be subject to a discipline that cannot be changed by any government whatsoever.”

Among the proposals in the report dated March 7, the ECB suggests the surveillance of countries that run into difficulties in the future should be strengthened by public warnings for the most recalcitrant.

“The threat of publicity, if a member state is unco-operative, may provide an incentive to the member state to take more action,” the report says.

Where a country under surveillance is threatening the eurozone’s financial stability, there should be an automatic recommendation that it seeks financial assistance, the ECB says. It also backs the EU sending a “permanent resident adviser” to countries in difficulties.Public Warnings, My Goodness!

Obviously these fools do not know how ridiculous they sound and how useless their proposals are. The Maastricht Treaty was useless and the Merkozy Treaty is just more of the same. Moreover, French presidential candidate Francois Hollande (and likely next French president), has vowed to make changes to the treaty.

Spanish prime minister Mariano Rajoy has already announced his own budget target of 5.8% of GDP in 2012, ignoring the EMU mandate of 4.4% on the way to an alleged 3% in 2013. Rest assured 4.4% will not be met, nor will 5.8%.

Last year's deficit was 8.5% and with Spain heading into a monster recession, 7.0% might be a more reasonable expectation for 2012.

"Naming and Shaming" will not do a single bit of good, but it does make for a good song.

Shame, Shame

Link if video does not play: Shame, Shame - Magic Lanterns

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Congressman Norm Dicks, Ranking member of House Appropriations Committee, Steps Aside Following Allegations by Tacoma Lawyer, Doug Cloud; Corruption and Influence Peddling Explain Why Deficit is Out of Control

I am pleased to report that Republican candidate Doug Cloud has finally brought down Democrat Congressman Norm Dicks, ranking Democrat on the powerful House Appropriations Committee.

Scandals surrounding Norm Dicks are long, and deep. However, it was a Freedom on Information request by Doug Cloud, involving FBI files from the lobbyist PMA Group that finally caused Dicks to step aside.

Here is a bit of background on the now defunct PMA Group:

Guess who else is in those FBI files.

If your guess is Norm Dicks, your guess is a good one according to Official Wire, in their version of the story One Of America's Most Powerful Congressmen Suddenly Retires.
At the sentencing U.S. District Court Judge T. S. Ellis III called the scandal "one of the most extensive and long-running campaign finance schemes ever," telling [PMA Group Lobbyist] Magliocchetti, "You made this choice for one reason: greed."

This scandal took down Rep. John Murtha, but, miraculously, Norm Dicks skated again.

And it would have likely stopped then and there if not for the tenacity of a Tacoma lawyer and opponent of Dicks by the name of Doug Cloud. Cloud filed a Freedom of Information Act request that the Obama administration denied during the 2010 congressional race to get more of the records.

But Cloud tenaciously responded to the denial with a lawsuit to compel release of records and files pertaining to the FBI investigation of Congressman Norm Dicks.
Powerful, Corrupt Officials Not Easily Dislodged

At long last, and only out of fear of what is in FBI records on the PMA Group, Norm Dicks decided to throw in the towel and step aside at the end of his term.

I supported Doug Cloud in the last election. He was one of only a handful I gave free space to on my blog.

It was not to be. Corruption and power are not easily dislodged.

Doug Cloud Press Release

I am pleased to report Doug Cloud is once again going after the seat of Norm Dicks according to his this press release.
Doug Cloud today announces his candidacy for Congress in Washington's sixth Congressional District. Doug is seeking the position currently held by retiring 18 term incumbent Norm Dicks.

In 2010, Cloud received 42% of the votes cast in his race against Dicks. The 2010 campaign, and its aftermath, ended Dicks career. During the 2010 campaign Cloud hammered at Dicks' frequent practice of rewarding campaign contributors and family members with beneficial legislation. He made the link between Congressional "bailouts" and Congressional corruption. Cloud pinned our economic problems on this type of Congressional arrogance.

"Rewarding your favorites in return for campaign cash is bribery. Allowing people like Dicks to take money from those who earned it and give it to those who didn't has ruined our economy. If Congress picks the winners and losers in our economy, we all lose."

In September, 2011, Cloud filed suit against the Department of Justice, seeking to force release of the agency's FBI investigation files pertaining to Dicks' involvement in the huge PMA lobbying and influence buying scandal. Cloud knew that the Department of Justice position, that the files were not a matter of overriding public interest, was indefensible. The only possible way Dicks could keep the files sealed was to return to private life. On March 2, 2012 Dicks made the only decision he could. His career was done. Cloud explained as follows:

"Dicks was no doubt informed by the Department of Justice that they could not keep the files secret while he was the ranking minority member of the Appropriations Committee. He had two choices, stay in Congress and wait for the files to be released, or leave Congress and claim there was no longer a public interest in the investigation reports. He chose the latter."

Doug Cloud knows what our country and economy needs to prosper. Our country needs honest leaders who understand that our economy cannot thrive by stealing from the public and rewarding political insiders.

"True wealth comes from ingenuity and work. Why make the effort if Congress is just going to steal it from you? If you let people thrive on their own, we will all thrive together," Cloud said yesterday. Personal Message From Doug Cloud

I was aware of much of this in advance of the Cloud's press release, and asked for for a couple of statements. Here are a few select quotes.
Hello Mish

The reason I was so persistent on this issue is because this type of corruption is what is really ruining our economy. Selling Congressional votes to the highest bidder leads to economic disaster because our wealth is given to con men and political schemers instead of naturally flowing to those who innovate and create the goods and services the rest of us desire.

The confidence game run on the public by senior members of Congress goes something like this: "Vote for me so I can keep my seniority. If you don't, the federal money spigot will close to this district. You are beholden to me, and don't forget it."

Mr. Dicks was no exception. Today, the type of blatant influence peddling practiced by Dicks, can no longer be tolerated. The economic injustice of bailing out failing businesses on the backs of productive citizens and businesses has nearly brought this country to its' knees.Corruption and Blatant Influence Peddling is Why Deficit is Out of Control

Doug Cloud is correct. Whether you are a Republican or a Democrat, no one is served by those taking bribes for votes.

It's time to put an end to corruption and vote buying. Please Support Doug Cloud for representative of Washington State U.S. Congressional District 6, Tacoma and the Olympic Peninsula.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Global liquidity peak spells trouble for late 2012

Ambrose Evans-Pritchard - Sun, 2012-03-11 15:00
The global liquidity cycle has already rolled over. Assuming that no fresh action is taken, world economic growth will peak within a couple of months and then fade in the second half of the year - with grim implications for Europe's Latin bloc.

Dude, where’s my gold?

TheDailyGold - Sun, 2012-03-11 12:22

Dude, where’s my gold?

MAR 9 2012 by JAN SKOYLES in 

Amid reports of Germany and Switzerland requesting their gold from the United States, Jan Skoyles asks why do they want it back considering their monetary policies?  The repatriation of gold is a growing topic of interest since Venezuela demonstrated how much value they place on their gold reserves. With escalating gold prices, growing gold investment demand and faltering Western economies is it any wonder German and Swiss politicians are asking where their gold is.


At the end of January Venezuela received the last of their 160 tonnes of repatriated gold reserves. Many, including some of the country’s own economists thought Chavez was mad to bring back the gold; that it was an expensive and unnecessary operation.

But now it seems distance makes the heart grow fonder for other countries as well with reports of both Germany and Switzerland on the verge of requesting the return of their gold from the United States. This is not surprising considering both countries were at the forefront of the increased gold demand in Europe in 2011. Germany particularly saw an increased demand for physical bars in allocated accounts.

It is interesting that whilst governments and their central banks choose to implement Keynesian-based policies when trying to quickly fix their economies, they cannot bring themselves to rid their country’s reserves of the barbarous relic. No domestic prices, in the West, are currently tied to gold, ‘nor does gold sit in reserve for any of the West’s currencies. So why are they so concerned?

The people’s gold

In Switzerland, as in Germany, it is the citizens who seem to be most concerned as to the location of their gold. It is, after all, theirs as the four parliamentarians presenting the ‘Gold Initiative’ point out. The Initiative stated the Swiss people should vote on the following:

i)                    The gold of the Swiss National Bank must be stored physically in Switzerland;

ii)                   The SNB does not have the right to sell any more of its gold reserves;

iii)                 The SNB must hold at least 20% of its assets in gold.

In Germany a Parliamentary Budget Committee is set to investigate how the country’s gold reserves are managed. At present the gold reserves represent 42% of money held in reserves. The investigation has come about as a result of the German Federal Audit Office’s criticism of Bundesbank’s management of the country’s 3,396.3 tonnes of the yellow metal. The Audit Office is said to have buckled to the pressure of German citizens and politicians interested to know where their gold is.

It is believed 60% – 70% of the country’s gold reserves are kept at 33 Liberty Street, the Federal Reserve Bank of New York. The official line is; it is kept here to facilitate trade and payments. German newspaper, Bild, report that Germany’s gold reserves in the US have not been audited by the Bundesbank since 2007 – a clear breach of the law. Bundesbank President Jens Weidmann, is reported to have said that the gold bar list is kept secret and any demands on the New York Federal Reserve bank would ‘endanger the trust between alliance bank and the Fed.’

Untouchable gold

When Germany’s economy minister Philip Roesler, was asked why Germany’s gold reserves couldn’t be used to boost the Eurozone’s bailout funds he responded by saying the country’s gold must remain ‘untouchable’ perhaps he hadn’t realised just quite how untouchable.

But why the worry about the country’s gold now? Why have the Federal Audit Office only just started asking questions as to where the country’s gold is?

In 2009, the ECB’s director of market operations stated “there are four ideas behind those gold holdings [of the Eurozone]: The economic security; the capacity to face unexpected needs; the question of confidence; and the risk diversification issue.” So have one of these issues now become relevant?

Gold possession

Many are commenting online as to what the countries’ motives are for (almost) making such a move. Some question if it’s because they don’t trust the US government for keeping the gold where they say it is, or if it is there, how do they know it’s theirs?

Charles de Gaulle famously sent air freight carriers, between 1962 and 1966, to New York to collect France’s $3 billion worth gold. President de Gaulle wanted the gold back because he did not trust the US government’s motives in the monetary system. The Frenchman wanted an international monetary system which did not “bear the stamp of any country in particular.”

One man very close to the American government also doesn’t believe the gold is there – Congressman Ron Paul. In 2011 he a sponsored a new Bill, ‘The Gold Reserve Transparency Act of 2011’ in the hope of directing the Treasury to ‘conduct a full assay, inventory, and audit of federal gold reserves, including an analysis of the sufficiency of the measures taken for their security.’ But once again, if governments don’t see a role for gold, as Keynesian economics states, then why worry if it is there or not?

Weak dollar, strong gold

The other concern is obviously the weakness of the US dollar, particularly with the increasing amounts of QE alongside record levels of low interest rates. The US’ s sovereign debt downgrade last summer and the rumoured new plan ‘reverse repo’ or its MOPE plan (Management of Perspective Economics), have most likely got other countries asking if the Americans really have got this under control.

Warren Buffet recently explained to investors that the dollar has lost between 80-90% of its value in the last 30-50 years. Inflation figures, according to Congressman Ron Paul last week, sit at 9%, day after day the US dollar loses value, and Americans are feeling it. It’s an election year, with several of the GOP candidates calling for a review into the use of gold in the monetary system. That extra gold in the US’s vaults could come in very handy.

Other reasons for the growing concerns for Germany’s gold are due to the fact that they are effectively backing the Euro. Should the ECB and Euro collapse, the gold, held by the US, could easily transfer into US ownership as collateral for the previously agreed dollar swap arrangements with the ECB. The World Gold Council has long cited the euro area sovereign debt crisis as the reason for the net gold buying activities by Central Banks, but this may not be much use if your gold isn’t in your own vault.

Believe in gold

Whatever the reason for Germany’s new found interest in its gold it goes to show that the security gold offers us, is a feeling intrinsic to us all. The thought of a country losing its gold feels like a threat to national security – unsurprising as this is a common event during warfare.

Throughout years of economic lessons I was taught that gold no longer circulates as money due to the restrictions it places on the central banks when it would like to inflate the money supply. We were basically taught that the Central bank would be a much more successful steward of our monetary system than something which has successfully been in the job for two thousand years. So why do governments even keep gold?

The possession of gold implies that central bankers and governments are unable to fully support the idea that treasury bills and bonds, or the value of the PIIGS’ sovereign debt really are of any value to a country’s monetary system. It seems as though those at the top have forgotten the serious lesson of mainstream neoclassical economics – gold is of little use to a country (apparently).

Or have they purposefully forgotten this? Have they now realised that gold is safer than fiat money, or a country is trusted if it holds gold, or a country is seen as more reliable should it hold gold? Most of all, they seem to have purposefully forgotten that a gold backed monetary system is a barbarous relic. Economists from the Austrian school are having a good laugh…

For more information about using gold and silver as alternatives to the fiat money system, and for howgold investment fits into this bigger picture, follow us on Twitter and ‘Like’ us on Facebook. You can also watch interviews with politicians, academics, professional investors and traders on our YouTube channel.

Spain's Two Largest Unions Call for General Strike; Mood of the Nation

The Spanish economy is deteriorating rapidly, and a general strike will not help matter any. Nonetheless, strikes, and I am willing to bet increasing violence, will soon befall Spain.

Please consider Spain’s new government faces first strike
Spain’s two largest unions, Comisiones Obreras and UGT, voted on Friday to call for a general strike on March 29 against reforms they called “the most regressive in the history of Spanish democracy”.

The labour reforms of Mariano Rajoy’s government grant employers greater flexibility to pay lower compensation when they fire workers, a change Mr Rajoy argues is crucial to increase Spain’s economic competitiveness, but one that has enraged the country’s unions.

Spain is struggling with more than 5m people, a fifth of its workforce, unemployed. The government argues that strong support from employers for the labour reforms demonstrate that it is taking the right steps to tackle joblessness.

The previous general strike in Spain, called in September 2010 against the Socialist government of José Luis Rodríguez Zapatero for raising the national retirement age, saw 7.5 per cent of all state workers walk out, according to the then government.

“There is no precedent for a decision this brutal, that puts us on an unknown road without considering the consequences,” said Cándido Méndez, head of the UGT union. “It is a general strike both just and necessary.” Work Rule Changes Desperately Needed

The irony in this sad mess is that work rule changes and pension reform are desperately needed.

However, with Spanish unemployment at 23.3% and youth unemployment at 49%, few are going to see it that way.

Making far matters worse, the balance sheet problems of Spanish banks and debt problems in Spanish regional governments are both dramatically understated. There is no way Spain can meet the EU demanded 4.4% deficit target, or even Rajoy’s higher target of 5.8%.

For more on the problems confronting Spain, please see

Bond Yields Still Show Stress

The Spanish 10-year bond yield is down from a peak near 6.7% to 5%, but that is a steep premium to a 10-year German bond yield of 1.79%.

The 2-year government bond yields of Spain and Germany are 2.33% vs. 0.16% respectively.

Mood of the Nation

My friend Bran who lives in Spain writes "Here we have a general strike announced for the 29th, and the political sniping and arguments are going on as usual. I expect some initial protests this week. The sad situation is an unusual confrontation of ethics and abilities that is hard to describe. The strike on the 29th will show the mood of the nation - for now not obvious how it will be."

Indeed. And it will be the mood of the nation (over time, not just on the 29th), not the mood of bureaucrats in the EMU and IMF, that decides the ultimate fate of Spain.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

My Interview with WallStforMainSt 3/9

TheDailyGold - Sat, 2012-03-10 16:46

Click the link below for our 30 minute interview with WallstforMainst.

We discuss the equity market, Oil, Gold, Inflation, consolidation in the miners and gold miners technical condition.

Interview here


This past week in gold

TheDailyGold - Sat, 2012-03-10 16:45


GLD – on sell signal.
SLV – on sell signal.

GDX – on sell signal.
XGD.TO – on sell signal.
CEF – on sell signal.

Long term – on major buy signal.
Short term – on sell signals.
Our positions were stopped out, and shall now wait for the cycle to bottom before taking on new positions.

We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.

There Will Be Contagion

John Mauldin - Sat, 2012-03-10 12:38

Sarkozy: Problem Solved, Or… Germany to Sarkozy: It’s Not Over
The ISDA Steps Up
No Winners in Ugly Greek Debt Deal, Only Lessons
And By the Way, Close Your Borders
The Next Greek Tragedy
Orlando, Stockholm, Paris, and Staying Young

… (December 11, 2009) – Greece's prime minister, George Papandreou, told reporters in Brussels on Friday that European Central Bank President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker see "no possibility" of a Greek default, Bloomberg News reported. Papandreou also said that there was no possibility of Greece leaving the euro area, according to the report.

… (January 29, 2010) – There is no bailout and no "plan B" for the Greek economy because there is no risk it will default on its debt, the European monetary affairs commissioner, Joaquin Almunia, insisted on Friday.

… (September 16, 2010) – "Restructuring is not going to happen. There are much broader implications for the eurozone should Greece have to restructure its debt. People fail to see the costs to both Greece and the eurozone of a restructuring: the cost to its citizens, the cost to its access to markets. If Greece restructures, why on earth would people invest in other peripheral economies? It would be a fundamental break to the unity of the eurozone." – George Papaconstantinou, former Greek Finance Minister

… (March 9, 2012) – ISDA EMEA DC Says Restructuring Credit Event Has Occurred With Respect To Greece

… (This week) – Take your pick from scores of quotes from various EU leaders: "A Greek default has no real impact on the rest of the Eurozone. No other countries are at risk." Or: "The contagion 'domino effect' from Greece no longer threatens the rest of Europe, according to Marco Buti, the director general for economic affairs at the European Commission. In addition, Portugal and Ireland were said to be 'in a much better place,' while the credibility of Spain and Italy had 'increased.'"

The headlines are about Greece, but the real story is not Greece but who is next. European leaders were right to be worried only a short while ago about contagion effects of a Greek default to the entire Euro system, which of course they now say doesn't exist. This week we look at Europe, and sort through the ever more fascinating implications of the news in today's headlines.

Sarkozy: Problem Solved, Or…
Germany to Sarkozy: It's Not Over

Greek is having an "orderly" default. The taxpayers of Europe are in theory going to lend €130 billion to Greece to pay back €100 billion in Greek debt that is owed to private lenders. Greece has to pass several difficult tests in order to get the money. €100 billion of debt to private lenders will be written off. Thus the net effect will be that they owe €30 billion more. How does this help Greece, except that they get €30 billion more they cannot pay?

The "new" debt is already trading in the market, even though it has not actually been issued. (Don't bother traders with messy details, just do the deal.) This page from Bloomberg is just too delicious not to print, sent to me courtesy of Dan Greenhaus of BTIG. It shows the new Greek bonds trading at over a 71-79% discount, depending on the length of maturity. Note this is AFTER the 53% haircut already imposed. That reads to me like the market value of original Greek debt is now between 12 and 14% of the original face value. Didn't I write in this letter early last year that Greek debt would ultimately get a 90% haircut? Let me suggest to my critics that what was pessimistic back then may prove to have been optimistic at the end of the day.

Over 90% (some unconfirmed reports of as much as 95.7%) of Greek bondholders offered their bonds in the swap. The remaining bond holders will be forced by the Greek government to take the deal under a collective action clause, or CAC. But that 90%+ participation rate of bond holders willing to take their lumps may be suspect, according to Art Cashin, writing this morning:

"Some savvy (but very cynical) traders think the heavy participation may have been structured. They posit that in order to keep the deal from falling apart, some banks, on government instructions, may have paid a premium to the 'reluctant' participants. That would get them out of the way and allow for more tenders by the buyers. No proof – just conjecture."

Greece itself is in free fall. The "benefits" of austerity have not become apparent, as the Greek economy saw growth rates of -0.2% in 2008, -3.3% in 2009, -3.4% in 2010, -6.9% in 2011, and...? The 4thquarter of last year saw a GDP fall of 7.5%. Do you see a trend here? The Greek economy is down by almost one-fifth in less than five years. Unemployment has risen to 20%, and 50% among young people, many of whom are leaving the country. Resentment has grown among ordinary Greeks over the austerity medicine ordered by international creditors, which has compounded the pain. Greek papers are full of stories blaming Germany for their problems.

By any standard, what will soon be a 20% drop can be classified as a depression. There is nothing on the horizon to suggest things will turn around any time soon. The country's public debt-to-GDP ratio currently stands at 160% of nominal gross domestic product, AFTER the debt restructuring. If Greece can find someone to lend them more money, it will only get worse.

The current agreement with the EU will not improve the economy, but require even more wage cuts, government spending cuts, and higher taxes and unemployment. The problem is that if Greece leaves the euro, those problems do not go away, they just take a different form. There is still a great deal of economic pain for Greece as a consequence of past decisions. It is sad, but there is no other choice, unless the rest of Europe or the world, through the IMF, simply gives Greece all the money they want. But then where do you stop?

The citizens of California have chosen to let a series of cities enter bankruptcy, severely cutting police and fire, health, and other services. Europe has had about all the pleasure of bailing out Greece that it can handle, and is clearly ready to say, "Enough!" It is all very sad, but that is the consequence of too much debt and leverage. And every nation is subject to that consequence if it does not keep its own fiscal and economic house in order. Every nation.

The ISDA Steps Up

The ISDA (the International Swaps and Derivatives Association) declared today that Greece is in official default. This is a derivatives-industry committee of 15 members, representing the largest banks and derivative buyers – all the usual suspects. I started to write last week about their hesitancy, but it was very technical and I thought it likely they would issue the ruling they did this week. There are a few things we should note about this decision.

First, there is a widespread misunderstanding that the ISDA is the final answer to whether a nation is in default. The correct answer is, it depends. Credit default swaps are contracts between two private parties . The actual original contract is the governing document. While most contracts named the ISDA as the final arbiter of default, there are many that did not. Some experts told their clients there was a problem with choosing a self-interested industry group to be the final judge, and were very specific in their contracts as to what constituted a default. (Thanks to Janet Tavakoli, who spent an hour late one night patiently explaining the arcana and minutiae of credit default swaps. She literally wrote the book – and not just one but three of them – on swaps.)

It does not take a finance major to understand that if you do not get your money paid back to you, there was a default of some kind. If the ISDA had not confirmed a default by Greece, they would have ceased to be relevant in any future contracts that were written. It will be interesting to see how contracts are structured in future.

Secondly, the number that keeps showing up in the press is that there are only $3 billion of credit default swaps on Greek debt. That is only half true. The reality is that there is a NET $3.2 billion of CDS on Greek debt. The total or GROSS amount of swaps written is estimated to be about $60-70 billion (Dan Greenhaus, Chief Global Strategist, BTIG). This is in the 4,323 contracts that are known about.

Of the net exposure, the loss is likely to be less than the $3.2 billion, unless Greek debt goes to absolute zero. But that does not tell the whole story. For instance, just one Austrian state-owned "bad bank," KA Finanz, faces a hit of up to 1 billion euros ($1.31 billion) for the hole Greece's debt restructuring punches in its balance sheet. That loss, which will be borne by Austrian taxpayers, is someone else's gain. The net number means nothing to them – they lose it all, over a third of the expected total loss.

Every bank and hedge fund, insurance company, and pension fund has its own situation. Care to wager that the larger banks won't win on this trade? My bet is that there will be $30 billion in losses, out of which maybe someone will make $27 billion in gains.

Will the counterparty that holds your offsetting CDS be able to pay? Will all taxpayers be so accommodating as Austria's? Does anyone think that taxpayers will bail out a hedge fund that cannot pay its debt, if it sold protection and has to default?

Would that it was "only" a $3 billion loss spread among the largest losers. That would be trivial in the grand scheme of things. Will Greece really stress the system, as it was stressed in 2008? The answer is, not likely, since European taxpayers have found €100 billion to cover the debt and the ECB has printed over €1 trillion, which has postponed any debt crisis for the immediate future. But the question that we must ask in a few paragraphs is, how many more countries will have to restructure their debt?

No Winners in Ugly Greek Debt Deal, Only Lessons

Just a few hours ago, as I was finishing this letter, I came across this blog by Michael Casey at the Wall Street Journal, called "No Winners In Ugly Greek Debt Deal, Only Lessons." It is very to the point, so let's look as his opening comments:

"Technocrats in Athens, Berlin and Washington Friday are no doubt congratulating each other for designing a bond swap that slashed more than EUR100 billion off Greece's debt mountain.

"But let's not kid ourselves: the two-year story behind this debt restructuring is an ugly one of politicking and wasted time. There are no winners here, and there are already more losers arising from its far-reaching ramifications.

"There are, however, lessons to be learned from this unseemly string of events. The most important is that our financial system is still trapped by the dilemma posed by Too-Big-to-Fail banks – four years since the U.S. mortgage crisis. Financial sector lobbyists who argue that now is not the time to fix that dysfunctional system should have a thorough reading of the Greece story.

"Officials will crow that a higher-than-expected 83% of Greece's old bonds was voluntarily tendered into this debt swap and so claim justification for triggering the collective action clauses that will force the remaining holders of Greek law securities into the exchange. But without those CACs hanging like Damocles' Sword over them, and without the pressure that governments and national central banks brought to bear on banks and pension funds from Greece, Germany and France, would so many have willingly accepted a 73%-plus write-off?

"As Commerzbank CEO Martin Blessing recently put it, this deal was as 'voluntary as a confession during the Spanish Inquisition.'

"Truth be told, Greece can rightly argue it had no choice but to use coercion. Any less than 95% participation and the European Union would not have approved the latest EUR130 billion bailout, leaving the country unable to pay its bills and thrust into a more damaging, disorderly default."

And By the Way, Close Your Borders

The fabric of the European Union is becoming frayed around the edges. George Friedman of Stratfor has pointed out in writing for this site that immigration is a much higher priority among many European voters than maintaining the euro. It is not talked about in polite circles, but it shows up in the polls. In line with that thought, my friend Dennis Gartman, who has never been accused of being politically correct, asks some very hard questions. In a few paragraphs with the provocative heading "And By the Way, Close Your Borders Too While Your At It…" He writes:

"The enmity between Greece and her northern European 'cousins' such as Germany and Austria is already high and wide, but it is growing higher and wider by the moment. It is almost to the point where the polite bounds of political correctness are about to be broken asunder, for German and Austrian political figures are now asking that Greece seal her borders and stop the flow of 'foreigners' through Greece and into the rest of the EU.

"Yesterday, the Austrian Home Affairs Minister, Ms. Johanna Miki-Leitner, minced few words and opened the rather racist front when she said, 'We need to put real political pressure on

Greece to implement their asylum authority as rapidly as possible. This border is as open as a barn door.'

"There you have it … out in the open for all to see: northern European dissatisfaction and open disdain for the South and for 'foreigners' generally. And it is not just Greece that the Austrians and Germans fear as a port of entry for 'foreigners' into Europe; they fear Italy too, for Italy has been a port through which North Africans, fleeing the lesser chaos of Tunisia but the greater chaos of Libya and of Egypt, have arrived in shockingly large numbers to European shores. Indeed, more 'foreigners' have gotten access to Europe through Italy than have through Greece, but for the moment it is easier for an Austrian official to take on Greece than it is to take on Italy, and so Greece bears the burden at this point.

"As the German Minister of Justice, Mr. Hans-Peter Friedrich, rather ominously said yesterday, 'The question remains, what happens when a country is not capable of securing its borders, as we see in Greece. Is it possible to reinstate border controls? I want to clarify that this is still part of our discussion.'

"Which then raises the question: Will Germany take it upon itself to secure Greece's borders? My word but we don't want to go down that path now, do we?"

The Next Greek Tragedy

As noted above, European leaders are falling all over themselves to tell us that the Greek default does not in any way suggest that it is possible for another country to default.

Kiron Sarkar makes the following points, with which I agree, so let's jump to him:

"Spain unilaterally set its 2012 budget deficit at 5.8% of GDP, much higher than the 4.4% previously agreed with the EU. The budget deficit came in at 8.5% last year, once again higher than the target of 6.0%. A 'discussion' between Spain and the EU is inevitable, especially as (to date) the EU has insisted that Spain stick to its prior commitment. Quite an interesting development, particularly as it has come on the same day that 25 out of 27 EU countries (excluding the UK and the Czech Republic) signed up to the 'fiscal compact' which, once approved by each country's national Parliament (Ireland will need a referendum), will introduce the German-inspired 'debt brake' into their constitutions – basically commits the 25 EU countries to reduce borrowings and, indeed, balance their budget deficits.

"Spanish unemployment rose by a massive +2.4% MoM in February, with youth (under 25) unemployment over 50%, yep that's 50%. The EU has a tough task. If it offers concessions to Spain, expect Portugal, Ireland, etc., etc. to submit their own 'requests.' However, I just can't see how Spain can meet its prior commitment. Officially, GDP is forecast to be -1.0% to -1.7% this year, though in reality the actual outcome will be closer to (indeed may exceed) the more pessimistic forecasts."

And the report from Portugal is not much better. This from Lew Rockwell (Feb. 3, 2012):

"Things are also unraveling very quickly in Portugal. Now there is talk that private investors will be required to take a 'haircut' on Portuguese debt as well.

"The following is from a recent article in the Telegraph...

"'A report for the Kiel Institute for the World Economy said Portugal would have to run a primary budget surplus of over 11pc of GDP a year to prevent debt dynamics spiralling out of control, even in a benign scenario of 2pc annual growth.

"'Portugal's debt is unsustainable. That is the only possible conclusion,' said David Bencek, the co-author, warning that no country can achieve a primary budget surplus above 5pc for long. 'We won't know what the trigger will be, but once there is a decision on Greece people are going to start looking closely and realize that Portugal is the same position as Greece was a year ago.'"

"Sadly, that article is exactly right. Portugal is marching down the exact same road that Greece went down. The yield on 5-year Portuguese bonds is now up to an all-time record 19.8 percent. A year ago, the yield on those bonds was only about 6 percent. This is the same thing that happened to Greece. A year ago, the yield on 5-year Greek bonds was about 12 percent. Now the yield on those bonds is more than 50 percent."

The world is facing a debt crisis unlike anything ever seen before, and Europe is right at the center of it.

Italy can pull out of its tailspin, but it will need help from the ECB in the form of debt issued at lower than current market rates. But if you give it to Italy, must not you do the same for Spain and Portugal? And while their economies are markedly worse, their government debt-to-GDP ratios are nowhere near as bad. And don't even get me started about France, which becomes a crisis of biblical proportions by the middle of the decade. Let me note that France is not Greece. It actually is too big to save. France will make a difference when it enters its problem period. And the probable election of Hollande does nothing to alleviate any concerns. (Note: this will not prevent me from enjoying Paris in a few weeks, nor a hoped-for vacation in future years in the Loire Valley.)

There are only two ways that countries in Europe can get their deficits under control and begin to shrink their debt-to-GDP ratios. They can either grow GDP faster than the growth of their debt, or reduce their debt. How can Spain, with 20% unemployment and a projected 6% deficit, grow enough? Certainly not in the next few years. Portugal has the same problems. Austerity at the levels they will need will soon make growth even less likely, but borrowing more money is going to mean ever higher interest rates, unless the ECB is willing to print or Europe is willing to tax northern European countries to bail out the southerners. Try selling that one in an election campaign.

Because of the current willingness of European leaders to tap their taxpayers and of the European Central Bank to print money, a crisis has been averted, at least for the moment. For that, the US and the world can be grateful. The probability of a recession this year in the US is falling, as a crisis in the EU could have been the trigger that pushed a slow economy into recession.

But let's make no mistake. The sovereign debt crisis is not over. Not in Europe, not in Japan, and not in the US. It is in a lull period. And don't give me that old shibboleth, "The market is telling us that the crisis is over." The market knows a lot less than many pundits believe. What did the market know in mid-2007? Not very much, although the warning signs were clear, at least to some of us.

Sadly, the focus of the crisis will now move on to other countries in Europe. The economic arithmetic of the peripheral countries is not much better than that of Greece only a few years ago. The pronouncements and assurances from European leaders are about the same as they were a few years ago. Total European debt is at 443%, well above US debt of 350%. European banks are leveraged over 30 to 1, at least double that of US banks, which are nerve-wracking enough.

It is the time of the Endgame. There will be contagion. It just comes with the territory.

Orlando, Stockholm, Paris, and Staying Young

I fly to Orlando for less than 24 hours tomorrow morning for a speech I will do with Endgame co-author Jonathan Tepper. It will be good to see him, and the conference (a private one) has several people I want to hear, as well. Then the next week to Stockholm and the following week staying over in Paris to attend the GIC conference on central banking, where I will be there just to learn. The title of the conference is Re-Examining Central Bank Orthodoxy for Unorthodox Times: Inaugural Meeting of The Global Society of Fellows (this is also a link, if you want more information). There are a few spots still left. It will be a most fascinating time to talk about central banking in Europe.

And then back to Texas for a few days, and the following weekend in San Francisco for the Life Extension Conference. I will make a few short remarks, but again am there mostly to learn. My intention is to be writing this letter for a very long time.

I am researching and writing away on the book on employment, and my suspicion is that the next month or so this letter will reflect that. I love the internet. You search something, which leads to something else, which leads… I am learning a great deal and hope to be able to get it into a smallish and very readable book.

This weekend we celebrate Tiffani's birthday, with most of the kids gathered. Hurrah! As I close, I should note that Paris has seen more than a few crises over the centuries. I expect that it will survive the current problems just fine. I think a trip to the Louvre will be in order. And good times with both old and new friends. I am really looking forward to it.

It is time to hit the send button, as it is either late at night or early in the morning. My bed is calling, but I will get up and hit the gym. Have a great week.

Your really ready to write about something other than Greece analyst,

John Mauldin

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Another Plunge in 3-Month Rolling Average of Petroleum and Gasoline Usage

The following chart shows U.S. petroleum and gasoline usage for December-February compared with the same three months in prior years. Chart is courtesy of reader Tim Wallace.

Note that petroleum usage is back to December 1995 thru February 1996 levels. Gasoline usage is back to December 2001 thru February 2002 levels.

click on chart for sharper image
All data derived directly from the Data 10 section of the EIA download.

The daily average of each week in the listed month adds to the monthly total. Some months have four weeks others five, but over three months this tends to average out.

Contrary to popular belief, the decline in gasoline usage has little or nothing to do with cash-for clunkers or improved gas mileage in cars unless one fantasizes that gas mileage improvements started precisely in 2007.

Wallace comments "If this trend lasts for the rest of the year, Obama's stated goal of a 15% reduction in greenhouse gases based off 2005 numbers may be met this year instead of his 2015 goal."

Should that happen, I wonder how many will be happy with the economic result.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Gold and Silver Down on Week, Stocks and Dollar Rally Following Nonfarms Release, Chinese Inflation News “Could See Boost for Gold’s Value”

TheDailyGold - Fri, 2012-03-09 21:05

Friday 9 March 2012, 09:10 EST

Gold and Silver Down on Week, Stocks and Dollar Rally Following Nonfarms Release, Chinese Inflation News “Could See Boost for Gold’s Value”

SPOT MARKET gold prices fell by over $20 an ounce within one hour Friday lunchtime in London, while stock markets rallied along with the Dollar immediately following the release of monthly US jobs data.

Dollar gold prices fell over 1% to below $1680 per ounce, while silver prices fell to $33.25 per ounce, while other commodities were relatively flat on the day.

Government bond prices meantime fell along with the Euro Friday morning, after news on Thursday night that Greece’s bond swap should go ahead successfully.

The US Bureau of Labor Statistics nonfarm payrolls report revealed Friday that the American economy added 227,000 non-agricultural private sector jobs last month, compared to the analysts’ consensus expectation of around 210,000.

The US unemployment rate remained static at 8.3%.

Heading into the weekend, Dollar gold prices were down 1.9% on the week by Friday lunchtime, while silver was down 4.5%.

“It’s difficult to see what would make gold push higher,” said Citigroup metals research analyst David Wilson Friday, speaking ahead of the nonfarms release.

“[It] seems odd because you would want to be buying gold if Europe is still a big risk and the US isn’t but that is not how it’s been trading.”

Greece secured the biggest sovereign debt restructuring in history last night, after more than 95% of its private sector creditors agreed to a bond swap deal that will see them lose 70-75% on their Greek debt holdings.

Private creditors who did not agree are expected to be compelled to comply with the deal after Athens confirmed it plans to activate retroactively inserted collective action clauses (CACs).

The International Swaps and Derivatives Association’s  Determinations Committee was meeting Friday lunchtime to decide whether the bond swap, with its CACs, constitutes a credit event, and therefore whether credit default swaps bought as a hedge against Greek bond default should pay out.

“It almost now certainly going to trigger CDS,” said Nick Stamenkovic, Edinburgh-based bond strategist at RIA Capital Markets, speaking before the ISDA meeting.

“If this doesn’t trigger it, nothing will.”

The bond swap should ensure Greece receives its €130 billion second bailout and avoid default when it has to pay maturing bonds on March 20.

Elsewhere in Europe, Spanish unions on Friday voted for a general strike to be held March 29, after negotiations with government on labor reform failed to find a compromise. Spain’s government was negotiating to make it easier to fire workers and harder to link salary increases to inflation.

Germany’s largest bank Deutsche Bank borrowed up to €10 billion from the European Central Bank at last week’s three year longer term refinancing operation (LTRO), Reuters reported Friday. The bank reportedly used the funds for its operations in Spain and Italy.

“It is essential for banks to strengthen their resilience further,” said ECB president Mario Draghi Thursday, speaking to reporters after the ECB’s Governing Council had announced its decision to hold Eurozone interest rates at a record low of 1%.

“The soundness of banks’ balance sheets will be a key factor in facilitating an appropriate provision of credit to the economy.”

At the press conference, Draghi “adopted a significantly less dovish tone [on inflation]” says Holger Schmieding, chief economist at Berenberg bank in London.

“[Draghi dropped] anything that could hint at any additional non-standard measure or a further rate cut to come.”

“Further rate cuts seem to be off the table,” agrees Carsten Brzeski, Brussels-based senior economist at ING Group.

“[However], the new anti-inflation rhetoric is probably rather lip service to soothe the Bundesbank than a serious intention to hike rates anytime soon.”

Over in China, the world’s biggest gold consumer in the last quarter of 2011, consumer price inflation fell to 3.2% last month – down from 4.5% in January – according to official figures published.

“A lower headline inflation number means that the central bank can continue to be very accommodative, which means printing more money,” reckons Jeremy Friesen, Hong Kong-based commodity strategist at Societe Generale.

“The more money it prints versus the gold out there, the more it should raise the value of gold versus that money.”

“I believe inflation will again pick up in the second half, because of the monetary easing the Chinese government will adopt now,” adds Shen Jianguang, chief economist for Greater China at Mizuho Securities Asia, who also cited recent wage rises in China.

China’s central bank last month cut its reserve requirement ratio, which dictates how much money banks have to hold as a proportion of their assets.

“I don’t think there’s any room for cutting interest rates for China this year,” Shen says.

“Last cycle they hiked RRR twelve times, but they only hiked interest rates five times.”

Elsewhere in China, industrial production growth slowed to an annual rate of 11.4% last month – down from 12.8% in January – while annual retail sales growth dropped from 18.1% to 14.7% over the same period, official data show.

Earlier this week, data from Hong Kong’s government revealed that Chinese gold imports from Hong Kong dropped by 15% between December and January.

Ben Traynor

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

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