Feb 10

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold: $1231.10 down $9.20   (comex closing time)
Silver: $16.86 down 21 cents  (comex closing time)



In the access market 5:15 pm



Gold $1233.50
silver $16.90



Gold/silver trading:  see kitco charts on right side of the commentary.


Tomorrow we will finally see whether Europe shuns the Greeks.  Early in the morning, the Europeans tried a trial balloon which stated that they may be offering Greece a 6 month extension but that was later refuted by Schauble in the afternoon. We have two huge papers on what might happen tomorrow with respect to the Greek crisis and these are extremely important reads:  Bill Holter  and David Stockman.


Following is a brief outline on gold and silver comex figures for today:

The gold comex today had a poor delivery day, registering 0 notices served for 0 oz.  Silver comex registered 0 notices for nil oz .


Three months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 251.00 tonnes for a loss of 52 tonnes over that period.


In silver, the open interest  rose by 621 contracts as Monday’s silver price was up by 37 cents. The total silver OI continues to  remain relatively high with today’s reading at 167,346 contracts. The bankers are not happy campers tonight with respect to the high OI in silver.

We had 0 notices filed  for nil oz

In gold  we  had a surprisingly huge fall in OI as gold was up by $6.90 yesterday. The total comex gold OI rests tonight at 394,447 for a loss of 6663 contracts.  Today we had a 0 notices served upon for nil oz.




Today, we had no changes in gold inventory at the GLD/Inventory at 773.31 tonnes



In silver, /SLV  no change in  of silver inventory to the SLV/Inventory 320.327



We have a few important stories to bring to your attention today…

Let’s head immediately to see the major data points for today


First: GOFO rates: the crooks are no longer reporting.



Let us now head over to the comex and assess trading over there today.

Here are today’s comex results:



The total gold comex open interest fell by a gigantic 6663 contracts today from 401,110 down to 394,447 despite the fact that gold was up by $6.90 yesterday (at the comex close).  We are now in the big delivery month of the active February contract  and here the OI fell by 111 contracts  from 786 down to 675. We had 4 contracts served  yesterday.  Thus we lost 107  contracts or 10,700 oz will not stand for delivery for the February contract.  The next contract month of March saw it’s OI fall by 32 contracts down to 1312.  The next big active delivery month is April and here the OI fell by 6,499 contracts down to 269,660. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est)  was poor at 54,863. The confirmed volume yesterday ( which includes the volume during regular business hours  + access market sales the previous day) was awful at 101,753 contracts even with much help from the HFT boys. Today we had 0 notices filed for nil oz.

And now for the wild silver comex results.  Silver OI  rose by 621 contracts from 166,725 up to 167,346 as silver was up by 37 cents  yesterday. The bankers were not able to shake any silver leaves from the silver tree. I guess the CME needs to resort to another silver margin hike. We are now in the non active contract month of February and here the OI fell by 5 contracts down to 20.   We had 5 notices filed yesterday so we neither gained nor lost any silver contracts standing for delivery in this February contract month.   The next big active contract month is March and here the OI fell by only 5,438 contracts down to 84,804. The estimated volume today was awful at 18,974 contracts  (just comex sales during regular business hours). The confirmed volume yesterday was excellent (regular plus access market)  at 51,628 contracts.  We had 0 notices filed for nil oz today.

February initial standings


Feb 10.2015



Withdrawals from Dealers Inventory in oz nil oz
Withdrawals from Customer Inventory in oz 1,963.05 oz (Scotia,Brinks,Manfra)
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz nil
No of oz served (contracts) today 0 contracts (nil oz)
No of oz to be served (notices)  675 contracts (67,500 oz)
Total monthly oz gold served (contracts) so far this month  549 contracts(54,900 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month

Total accumulative withdrawal of gold from the Customer inventory this month

 107,298.5 oz

Today, we had 0 dealer transactions

we had 0 dealer withdrawals:

total dealer withdrawal: nil oz



we had 0 dealer deposit:



total dealer deposit: nil oz



we had 3 customer withdrawals

i) Out of Scotia:  1,607.500 oz (50 kilobars)

ii) Out of Manfra; 64.30 oz (2 kilobars_

iii) Out of Brinks:  291.25 oz


total customer withdrawal: 1963.06  oz



we had 0 customer deposits:


total customer deposits;  nil oz

We had 1 adjustment


i) Out of HSBC:  385.80 oz was adjusted out of the dealer and this landed into the customer account at HSBC



Today, 0 notices was issued from JPMorgan dealer account and 0  notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.

To calculate the total number of gold ounces standing for the December contract month, we take the total number of notices filed for the month (549) x 100 oz  or 54,900 oz , to which we add the difference between the OI for the front month of February (675 contracts)  minus the number of notices served today x 100 oz (0 contracts) x 100 oz = 122,400 oz, the amount of gold oz standing for the February contract month.( 3.807 tonnes)

Thus the initial standings:

549 (notices filed for the month x( 100 oz) or 54,900 oz + { 675 (OI for the front month of Feb)- 0 (number of notices served upon today) x 100 oz per contract} = 122,400 oz total number of ounces standing for the February contract month. (3.807 tonnes)


we lost 107 contracts or 10700 oz will not stand in this February contract month.


Total dealer inventory: 804,854.509 oz or 25.03 tonnes

Total gold inventory (dealer and customer) = 8.070 million oz. (251.01) tonnes)


Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 52 tonnes have been net transferred out. However I believe that the gold that enters the gold comex is not real.  I cannot see continual additions of strictly kilobars.







And now for silver

 February silver: initial standings

feb 10 2015:



Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory 32,039.1  oz (Delaware,  HSBC )
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory nil
No of oz served (contracts) 0 contracts  (nil oz)
No of oz to be served (notices) 20 contracts (100,000 oz)
Total monthly oz silver served (contracts) 381 contracts (1,905,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal  of silver from the Customer inventory this month  2,253,413.5 oz

Today, we had 0 deposit into the dealer account:

total dealer deposit: nil   oz


we had 0 dealer withdrawal:

total dealer withdrawal: nil oz


We had 0 customer deposits:



total customer deposit nil oz


We had 2 customer withdrawals:

i) Out of Delaware:  1,984.400 oz


iv) Out of HSBC: 30,054.700 oz




total customer withdrawal: 32,039.100 oz

we had 0 adjustments



Total dealer inventory: 67.890 million oz

Total of all silver inventory (dealer and customer) 176.569 million oz


The total number of notices filed today is represented by 0 contracts for 25,000 oz. To calculate the number of silver ounces that will stand for delivery in February, we take the total number of notices filed for the month (381) x 5,000 oz    = 1,905,000 oz  to which we add the difference between the OI for the front month of February (20)- the number of notices served upon today (0) x 5,000 oz per contract = 2,005,000 oz,  the number of silver oz standing for the February contract month

Initial standings for silver for the February contract month:

381 contracts x 5000 oz= 1,905,000 oz + (20) OI for the front month – (0) number of notices served upon x 5000 oz per contract =  2,005,000 oz, the number of silver ounces standing.

we neither gained nor lost any silver ounces standing in this February contract month.


for those wishing to see the rest of data today see:

http://www.harveyorgan.wordpress.com or http://www.harveyorganblog.com





The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.

There is now evidence that the GLD and SLV are paper settling on the comex.

***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:

i) demand from paper gold shareholders

ii) demand from the bankers who then redeem for gold to send this gold onto China

vs no sellers of GLD paper.




And now the Gold inventory at the GLD:


Feb 10 no change in gold inventory at the GLD/inventory 773.31 tonnes

Feb 9 no change in gold inventory at the GLD/Inventory 773.31 tonnes


feb 6/ no change in gold inventory tonight/inventory 773.31 tonnes

feb 5. we had another addition of 5.38 tonnes of gold to the GLD/Inventory tonight at 773.31 tonnes

Feb 4/2015; we had another addition of 2.99 tonnes added to the GLD inventory/Inventory tonight 767.93

Feb 3.2015: today a withdrawal  of 1.79 tonnes of  gold inventory removed from the GLD/Inventory at  764.94

feb 2/ a huge addition of 8.36 tonnes of “paper” gold inventory/Inventory tonight at 766.73 tonnes

jan 30. we had no change in gold inventory/Inventory at 758/37 tonnes

Jan 29/we had an addition of 5.67 tonnes of gold inventory at the GLD/Inventory at 758.37 tonnes

Jan 28/no changes in gold inventory at the GLD/Inventory at 952.44 tonnes

Jan 27.we had a monstrous “paper” addition of 9.26 tonnes of gold into the GLD tonight/Inventory at 952.44 tonnes

Jan 26.2015: another volatile day as they added  1.79 tonnes/743.44 tonnes of gold.

Jan 23/the action at the GLD is very volatile:  today they added 1.20 tonnes of gold to their inventory/Inventory 741.65

Jan 22 no change in gold inventory at the GLD/Inventory 740.45 tonnes

Jan 21.2015: Tonight, we lost 1.79 tonnes of gold from the GLD/Inventory 740.45 tonnes





Feb 10/2015 /no change in   gold inventory at the GLD/

inventory: 773.31 tonnes.

The registered vaults at the GLD will eventually become a crime scene as real physical gold departs for eastern shores leaving behind paper obligations to the remaining shareholders. There is no doubt in my mind that GLD has nowhere near the gold that say they have and this will eventually lead to the default at the LBMA and then onto the comex in a heartbeat (same banks).

GLD : 771.31 tonnes.






And now for silver (SLV):



Feb 10 no change in silver inventory at the SLV/inventory at 320.327 million oz



Feb 9  no change in silver inventory/SLV inventory at 320.327 million oz



Feb 6  no change in silver inventory/SLV’s silver inventory at 320.327 million oz.


Feb 5.we had no change in silver inventory/320.327 million oz/


Feb 4/we had a small withdrawal of 136,000 oz of silver from the SLV vaults/Inventory/320.327 million oz

feb 3.2015: we had a good addition of 1.149 million oz of silver inventory/inventory 320.463 million oz

Feb 2 no change in silver inventory at the SLV/inventory at 319.314

million oz.

jan 30  no change in silver inventory at the SLV/inventory at 319.314

million oz

Jan 29/no change in silver inventory/SLV inventory at 319.314 million oz

Jan 28/no changes in silver inventory/SLV inventory at 319.314 million oz

Jan 27/no change in silver inventory/SLV inventory at 319.314 million oz

Jan 26.2015: no change in silver inventory/SLV inventory at 319.314 million oz

jan 23/2015/ a  huge addition of 1.053 million oz.  This entity is also being quite volatile/Inventory at SLV 319.314 million oz.

Jan 22 a huge reduction of 6.75 million oz/Inventory at 318.261 million oz

Jan 21 no change in silver inventory/Inventory at 325.011 million oz




feb 10/2015 we had no change in silver inventory/

SLV inventory registers: 320.327 million oz






And now for our premiums to NAV for the funds I follow:

Note: Sprott silver fund now for the first time into the negative to NAV

Sprott and Central Fund of Canada.
(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)

1. Central Fund of Canada: traded at Negative  5.0% percent to NAV in usa funds and Negative 4.6 % to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 61.5%

Percentage of fund in silver:38.0%

cash .5%


( feb10/2015)


2. Sprott silver fund (PSLV): Premium to NAV falls to + 2.83%!!!!! NAV (Feb 10/2015)

3. Sprott gold fund (PHYS): premium to NAV falls to +.11% to NAV(feb 10 /2015)

Note: Sprott silver trust back  into positive territory at +2.83%.

Sprott physical gold trust is back into positive territory at +.11%

Central fund of Canada’s is still in jail.








And now for your most important physical stories on gold and silver today:




Early gold trading from Europe early Tuesday  morning:

(courtesy Mark O’Byrne)


Syriza Stands Defiant, US tries to calm EU stance while Greenspan predicts Grexit

– Tsipras to push ahead with counter-reforms “in their entirety”

– Dijsselbloem tells Syriza it must comply with Troika this week or have funding cut from February 28th

– Varoufakis calls the Eurogroups bluff – does not believe EU would risk expelling Greece from Euro

– US apply pressure on EU to keep Greece in the fold, fears “Grexit” would push Greece into Russia’s arms

– Greeks buying gold as insurance against uncertainty

Despite attempts last week by EU technocrats to browbeat the new and inexperienced Greek government into submission, Syriza appear to have grown even more resolute to fulfil their mandate.

Alan Greenspan has thrown down the gauntlet and predicted a Greek exit from the Euro. Noting the contradiction at the heart of Europe Greenspan pointed out that without political unity you can not have a fiscal unity.

“The problem is that there is no way that I can conceive of the euro of continuing, unless and until all of the members of the eurozone become politically integrated – actually even just fiscally integrated won’t do it.”

Greenspan’s words may prove to be prophetic as European rhetoric has become increasingly polarized and the only leader with any real power, Merkel, seems to be captured by special interests within the financial services apparatus. The  contagious effects of a Greek exit could be catastrophic for the EU as other debt laden countries eject centrist technocratic parties in favour of new nationalist parties, typically filled with nuevo politicians with very little experience. Watch for swift elections in Italy, Portugal, Spain and Ireland. Should Europe sneeze then the United States could catch the cold. An exit and its repercussions could make Lehman look like a picnic.

Varoufakis and Dijsselbloem

In a speech to the Greek parliament on Sunday night, Prime Minister Tsipras made what London’s Telegraph described as a “declaration of war” on the Eurogroup of finance ministers and the EU hierarchy.

Mr. Tsipras stated that Syriza would proceed to raise the minimum wage, raise pension payments for the poorest and reverse the privatisation of state assets among other things.

He also said he would pursue Germany for €11 billion in reparation payments for the plundering of Greece during the Nazi occupation from 1941 to 1944.

Tsipras’s first official act in office – visiting the Kaisariani rife range where the Nazi’s executed 200 Greeks – reflects how any left-leaning greeks view the European project in it’s present guise.

While finance minister Varoufakis has tried to downplay the significance of the visit, saying it was a message to new Golden Dawn and other fascist groups in Greece, the fact remains that many Greeks view the EU as a tool of a new wave of German imperialism.

During the Nazi occupation somewhere between 250,000 and 300,000 Greeks starved to death as the country was plundered to feed the war machine. The cost of living rose, on average, 722% each month following the invasion. For over three years Greeks suffered immense deprivation.

As such, the bitterness and resentment that had lain dormant resurfaced when austerity was foisted upon ordinary greeks, apparently at the behest of German banks. The emotional charge behind the Syriza movement should not be underestimated.

For Syriza, succumbing to the troika is not an option. National pride in the face of the old enemy is at stake.

Meanwhile, the Eurogroup chair Jeroan Dijsselbloem has warned Greek finance minister Varoufakis that Greece must reengage with the troika at tomorrow’s meeting of EU finance ministers or Greece will be shut off from funding from February 28th.

This would effectively force Greece out of the Euro and back onto the Drachma. Varoufakis response was “we will not roll over”.

London’s Telegraph reports,

“Exit from the euro does not even enter into our plans, quite simply because the euro is fragile. It is like a house of cards. If you pull away the Greek card, they all come down,” he said.

“Do we really want Europe to break apart? Anybody who is tempted to think it possible to amputate Greece strategically from Europe should be careful. It is very dangerous. Who would be hit after us? Portugal? What would happen to Italy when it discovers that it is impossible to stay within the austerity straight-jacket?”

The Greek government seem intent on calling the EU’s bluff. They have received some encouragement from the Obama administration who are applying political pressure on the EU to find an acceptable resolution lest Greece, locked out of the Euro, are forced to seek assistance elsewhere.

Again from the Telegraph,

In Washington, President Barack Obama has already warned EMU elites to be careful. “You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits,” he said.

Russia have already indicated that they would assist Greece if asked. The BRICS have formed their own IMF/World Bank style development bank with $100 billion in reserves.

Were Greece forced to access such funds it would greatly enhance Russia’s influence in Europe. Peripheral might reject the Troika in favour of better terms from the BRICS bank.

It will be very interesting to watch how this all plays out. Can the EU afford to expel Greece? Can they afford to keep Greece and renegotiate knowing that Spain and Italy will be watching very carefully and expecting similar concessions.

Such concessions could bring down the banking system and the Euro. Failure to grant concessions could lead to the dismantling of the EU as aggrieved nations look East.

In the longer term it is difficult to see how the Euro can survive. Without fiscal and political integration the currency will lurch from crisis to crisis. The possibility of further integration grows more remote as discontent festers.

Whatever the outcome of the current phase of the accelerating global economic crisis it is clear that great uncertainty lies ahead. Greeks have been preparing for the worst in recent months.

British Gold Sovereigns were a common store of wealth during the war and are familiar to Greek people. In recent months the Royal Mint has seen an upsurge in demand for sovereigns from Greece.

“There has been a noticeable increase in demand in this last quarter,” Lisa Elward, head of bullion sales at the Royal Mint, said in an e-mail to Bloomberg News. “We tend to see an upsurge in sales at times of political and financial uncertainty.”

At the same time, the Bank of Greece saw a dramatic increase in demand for sovereigns.

Bloomberg reports,

The Bank of Greece sold 5,849 Sovereign coins in January, according to an e-mail from the central bank, which said the numbers do not show any “abnormal activity.” While it didn’t provide monthly figures for comparison, government data show sales of 7,857 coins in the last quarter of 2014.

A serious crisis in the Euro currency is looming. Bank-runs, currency collapse and break up of the currency union are possibilities. The response from the EU include bail-ins of bank deposits. We, as always, advise clients to prepare for the worst by holding an allocation of physical gold outside of the banking system while hoping for the best.


Today’s AM fix was USD 1,237.50, EUR 1,096.78 and GBP 812.97 per ounce.
Yesterday’s AM fix was USD 1,242.25, EUR 1,096.18  and GBP 816.20 per ounce.

Gold rose 0.41 percent or $5.00 and closed at $1,240.70  yesterday, while silver climbed 1.67 percent or $0.28 closing at $17.03.

The likelihood of Grexit from the eurozone has increased since Prime Minister Alexis Tsipras has taken a tough stance over government debt. Tsipras has insisted that Greece would not extend its reform-linked bailout.

European Commission President Jean-Claude Juncker warned Greece not to expect the Eurozone to bow to Tsipras’ demands in a growing battle that spooked financial markets and prompted pleas for compromise from the U.S. and Canada.

This uncertainty is still leading to safe haven demand for gold bullion. Gold was last trading at 1,097 in euros up  0.35%. Gold in dollars is off marginally near $1,237.70. Silver and platinum are also trading down from the open at $16.86 and $1,215.52.

The Chinese Lunar New Year (Year of the Goat) begins on February 19th. Traditionally there is an increased demand over this time. Shanghai Gold Exchange withdrawals surged to 255 tonnes in January ahead of the holiday period.

SGE total withdrawals for the week ending January 30th reached 53.67 tonnes, following two consecutive weeks of 70 tonnes or more being delivered from the vaults, records show.

Crude oil or ‘black gold’ had its biggest two-week rally in 17 years on speculation that a drop in rig count will curb U.S. production growth. Price volatility rose to the highest in nearly six years. Brent crude jumped 18 percent in the last 10 trading days, the most since March 1998.

Breaking News and Updates Here




Ronan Manly’s 3rd installment:


(courtesy Manly/GATA

Ronan Manly: Coin bars, ‘melts,’ and the Bundesbank


1:15p ET Tuesday, February 10, 2015

Dear Friend of GATA and Gold:

In the third installment in his series “The Keys to the Gold Vaults at the New York Fed,” gold researcher and GATA consultant Ronan Manly describes the history of high-purity and low-purity gold bars and suggests that the latter are used in transactions between central banks when gold supplies are under strain, as they seem to have been lately when the German Bundesbank purported to be repatriating some of its gold from the Federal Reserve Bank of New York. Manly’s analysis is headlined “Coin Bars, ‘Melts,’ and the Bundesbank” and it’s posted at the Bullion Star blog here:


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





Grant Williams’ new project, ‘Real Vision,’ has gold focus and more


3:28p ET Tuesday, February 10, 2015

Dear Friend of GATA and Gold:

Our friend Grant Williams, publisher of the popular, painstakingly researched, and entertaining “Things That Make You Go Hmmm. …” financial letter, has undertaken a new project of market insight — exclusive and detailed Internet video interviews with the best financial minds, produced weekly and accessible only by subscription.

The project is called “Real Vision” and it already has produced more than a hundred such interviews, with interviews being added at a rate of three of four per week. A new series of interviews, titled “The Chain,” has investment greats interviewing each other, and it starts this week with a 50-minute interview with gold-friendly fund manager Kyle Bass, founder and president of Hayden Capital Management in Dallas, whose anticipation of the subprime mortgage collapse may turn out to be the most profitable market insight of this century.

In the interview with “Real Vision,” Bass observes (pretty congenially for GATA supporters) that “traditional macro-analysis just doesn’t work when the central banks have the training wheels on the market.” Bass adds that he thinks 2015 will be the year of “policy divergence” when “macro analysis” starts to work again and gold moves higher.

The “Real Vision” library already contains a series of interviews examining gold particularly, including talks with Tocqueville Bullion Reserve’s Simon Mikhaelovich, Gold Switzerland’s Egon von Greyertz, William Kaye of Pacific Group Ltd. in Hong Kong, and even your secretary/treasurer, who isn’t quite sure how he stumbled into such respectable company, but don’t worry — it’s not likely to happen again.

Also pretty congenially for GATA supporters, Real Vision says it means “to combat the dumbed-down approach to finance in traditional media,” a dumbed-down approach that in GATA’s view ferociously prohibits examination of the most critical issues, particularly surreptitious intervention in markets by central banks, the most sinister form of what even some central bankers themselves have called “financial repression.”

A subscription to “Real Vision” costs $400 per year, but GATA supporters can get a $100 discount by using promotion code GATA-RV when they subscribe.

Check it out with the interview with Bass, which can be viewed in the clear at the “Real Vision” Internet site here:


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




Part ii

(courtesy/Bill Holter/Miles Franklin)


A spade can never be called a spade!



Yesterday we looked at the situations in both Ukraine and Greece, and how they are both out of money which makes them potential “flash points” for reality to set in.  What I’d like to talk about today are the various “slights of hand” and why a spade can never be called a spade.
  Currently in the U.S., some (but certainly not all) of the recent economic numbers are showing an absolutely booming economy.  All you need to do is look at Friday’s unemployment numbers, they were clearly bogus.  The biggest driver of employment over the last five years has been the boom in the oil patch …which is now busted with 1,000’s of pink slips being handed out.  BLS revised the November and December numbers to show the fastest growth of employment for any three month period …so far this century!  Really?  Do you believe this in any fashion at all?
  The economic and financial lies are getting bigger and bigger while the economy is shrinking and the financial position is more perilous.  The gap between the reality and the true conditions have never before in history been this wide.  Stocks are not allowed to drop, institutions are not allowed to fail, heck, financial institutions have been “told” not to mark to market as this would expose failures.  Inflation is understated, employment is overstated, gold is not allowed to rise and the game continues. Everything you now see and hear has one goal behind it, hide the reality at any and all costs.
  The situation with Greece is very sticky for the West for several reasons.  Each and every one of them is because a Greek failure will expose the very ugly reality that the West is one big and interconnected series of Ponzi schemes constructed in pyramid fashion.  Greece cannot be allowed to fail because of what, how much, and who they owe.  In order for the reality to stay hidden, Greece absolutely must be forced to borrow more money so they have the ability to pay past debts.  Already this morning, a six month “trial balloon” extension has been floated.  If Greece is allowed to fail, other central banks (including and particularly the ECB) and many commercial banks will take some very real losses.  This CANNOT be allowed to happen because of the leverage factor and the fact that no more collateral exists within the system that’s not already encumbered.
  You see, many assets have been hypothecated (lent/borrowed against) many times over, including Greek debt.  In case you don’t see the problem here, I will spell it out.  When something is “lent” out or “borrowed” more than one time, it is theft pure and simple.  This truth cannot in any fashion come to the surface because it will create a “call”.  The original owners will flood in and ask for their security, their asset, (think gold) back.  What do you think the world will look like when 100 or so “owners” of the same asset decide they will not be one of the suckers who are left with nothing?  This will be a bank run on a system-wide basis and include nearly any asset type you can think of.
  The following analogy sums it up pretty well I believe.  This game works well …for a “while”.  It works “while” everyone is confident and no one asks any questions.  It works while no one at the poker table decides to cash in and leave with their chips.  It works well for as long as no one believes anyone else is cheating.  Actually, it even works when everyone knows that everyone else is cheating …as long as everyone is winning.  The problems begin when people start asking questions.  Questions begin when people start to lose money.  The answers are brutally ugly when discovered so it is imperative that no questions are allowed to be asked… and this is where we are today.  This is exactly what “official policy” is today.
  The Chinese, the Russians, The BRICS nations and 135 other nations tagging along ALL know what the “answers” are.  They fully understand the casino is 100% rigged.  They understand that everything of value has already been borrowed against and in many instances, several times over.  This is why there have been so many trade and currency deals signed over the last year and a half …without U.S. involvement, approval or even “dollars”.
  My personal opinion is this, a spade will very soon be exposed as the spade it is and all the theft, corruption and intentional fraud will be uncovered.  The relevant event could be anything.  It could be Greece failing to pay, leaving the EU or even being kicked out.  It could be a local currency blowing up which bankrupts someone in derivatives.  It could be the failure of a debt auction somewhere in the world.  It could be something already well known or not.  It could be a war.  It could come from the West or the East, and it could be an accident or even an intentional event.  It doesn’t matter “why”, the event is coming.  The event is coming because everyone knows that everyone knows the system is fraudulent.
  Please don’t reply to me saying “no, not everyone knows, the sheeple are as asleep as always”.  I am talking about “countries”.  I am talking about the players that count.  The East et al absolutely knows they are dealing and trading in a lopsided and unfair system.  They know the West is massively leveraged and has been dealing unfairly for many years.  Even Western countries know this to be true, for example, why are countries repatriating their gold?  Because they hope there is enough still in the vault to cover what they originally deposited.  Like I said, everyone knows that everyone knows.
  As mentioned yesterday, it is my opinion the East would prefer to allow the West’s failure to occur “naturally” and not force the issue.  Time alone will do this.  The U.S. has been pushing for war at every turn.  A war will be pointed at as “the reason” everything failed.  A war will also be used to cover the tracks of the fraud.  This is not new thought and only the way it has always been.  Distract, pretend, and extend!
  If you believe the meme of “recovery” or “growth”, all you need to do is look at this.  The Baltic dry index has just dropped to ALL-TIME lows!  This index is very basic and when broken down reflects the state of global trade.  Global trade has collapsed since the 2008 crisis began, unlike ever before.

                                                             courtesy Zerohedge
This, after huge global deficit spending and monetization.  “Magic Policy” which we were assured would cure all ills has failed miserably and no amount of bogus economic reports can mask this fact.
  Expect out of control markets, unimaginable financial failures and ultimately a breakdown of distribution and society itself.  The truth is, we have lived in financial fantasyland since 2007.  2008 came along, markets collapsed and the reset which should have occurred was aborted …only to become a much bigger and far more painful “inevitable” event now.  More debt, more money supply and of course less gold in Western vaults.  We in the West have spent, frittered, and given away 100’s of years worth of labor and savings of our forefathers.  This in an effort to resist living within our means and calling a spade a spade.  Spades are almost all that is left, all the other suits have been spent, lent and borrowed 100+ times over!  Regards,  Bill Holter



Koos does a thorough research on audits of gold by the Fed and finds that they were not serious at all


you will enjoy this…


(courtesy Koos Jansen)




Posted on 9 Feb 2015 by

Second Thoughts On US Official Gold Reserves Audits

This post is a sequel to “A First Glance At US Official Gold Reserves Audits”.

What is not often covered in the media or blogosphere are the audits of the US official gold reserves stored at the US Mint, which is the custodian for 95 % (7716 tonnes) of the stash – also referred to as deep storage, and at the Federal Reserve Bank Of New York that safeguards the remaining 5 % (418 tonnes). The lawful owner of the US official gold reserves is the US TreasuryPart one covered the most recent records I could find published by the US government, in this post we’ll examine more historical records and approach this matter from a more critical angle. Because of the amount of information I found this post is split in multiple parts.

What Is A Gold Audit?

From Wikipedia:

Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. In any auditing the auditor perceives and recognizes the propositions before him for examination, collects evidence, evaluates the same and on this basis formulates his judgment, which is communicated through his audit report.

Due to constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits.

To be sure, I’ve asked several bullion dealers about how their audits are being conducted. They all agreed an audit involves three parties: the owner of the gold, the custodian and an external (independent) auditor. The external auditor examines the gold, compares its findings with the statements of the custodian and then reports on the accuracy of the statements of the custodian to the owner of the gold. An example of an audit report by such an external auditor can be found here.

The fact that the auditor is an external party is essential; if the custodian itself would perform the audit it could easily falsify the reports and lend gold that isn’t often transferred in and out of the vaults.

What Is A Gold Assay?

Assaying gold is done to test the purity of the metal; to make sure a bar contains at least the amount of fine gold disclosed on its inscription. For assay tests often samples are taken from random bars (not from all bars of a specific inventory). From Wikipedia:

A metallurgical assay is a compositional analysis of an ore, metal, or alloy. Raw precious metals (bullion) are assayed by an assay office. Silver is assayed by titration, gold by cupellation and platinum by inductively coupled plasma optical emission spectrometry.

Ron Paul

Allegedly the deep storage gold at the US Mint is stored in 42 vault compartments at three different locations in the US. 4,583 tonnes is stored at Fort Knox, Kentucky, 1,364 tonnes in Denver, Colorado, and 1,682 tonnes at West Point, New York.

The last time the US official gold reserve audits were publicly discussed was in 2011 when Ron Paul, who was a well informed member of the US House of Representatives, proposed new legislation at the time to have a full audit of the US holdings: The Gold Reserve Transparency Act (H.R. 1495, not enacted). Strangely Dr Paul wasn’t up to date of the audit and assay procedures performed since 1974, while he was in politics because of gold since 1971. FromWikipedia:

When President Richard Nixon “closed the gold window” … on August 15, 1971, Paul decided to enter politics and became a Republican candidate for the United States Congress.

Only during the preparation of the congressional hearing Dr Paul became aware of the audit and assay procedures. From Paul’s opening statement at the hearing June 23, 2011:

For far too long, the United States Government has been less than transparent in releasing information relating to its gold holdings. Not surprisingly, this secrecy has given rise to a number of theories about the gold at Fort Knox and other depositories.

Some people speculate that the gold has been involved in gold swaps with foreign governments or bullion banks. Others believe that the gold has been secretly shipped out of Fort Knox and sold. And, still others believe that the bars at Fort Knox are actually gold-plated tungsten. Historically, the Treasury and the Mint have dismissed these theories rather than addressing these concerns with substantive rebuttals.

The difference between custody and ownership, questions about the responsibility for U.S. gold held at the New York Fed, and that issue of which division at Treasury is ultimately responsible for the gold reserves are just some of the questions that have come up during the research for this hearing. In a way, it seems as though someone decided to lock up the gold, put the key in a desk somewhere, and walk off without telling anyone anything. Only during the preparation for this hearing was my office informed that the Mint has in fact conducted assays of statistically representative samples of gold bars, and we were provided with a sample assay report.  

While the various agencies concerned have been very accommodating to my staff in attempting to shed some light on this issue, it should not require the introduction of legislation or a congressional hearing to gain access to this information.

Why did Dr Paul not know about this? Why did it take a congressional hearing to get the details of the audit and assay tests? Why wasn’t this information easily accessible to him and the American people?

Gold Audits At Fort Knox

The construction of the notorious gold depository was finished in 1936 at the Fort Knox army base in Kentucky; large quantities of gold were first deposited in 1937. After President Roosevelt had ordered the people of the United States to sell all their gold coins and bullion for $20.67 per fine ounce to the Federal Reserve in 1933 through Executive Order 6102 (the great gold confiscation), a fortress was needed to store the bars that were coming out of the smelters of theseized gold. The bars that were melted from gold coins are approximately 90 % pure, the majority of the bars in Fort Knox are coin bars.

US Official Gold Reserves

The Gold Reserve Act of 1934 required the Federal Reserve to transfer ownership of the official gold reserves to the Department of the Treasury, in return it received gold certificates (that are mere redeemable for dollars). The US Mint was assigned to safeguard the Treasury Department’s gold, silver and other assets at several depositories across the US, among others at Fort Knox and Denver.

Trains from New York and Philadelphia arrive in Kentucky to unload the gold, 1937 2

Trains from New York and Philadelphia arrive in Kentucky to unload the gold, 1937
Trains from New York and Philadelphia arrive in Kentucky to unload the gold. It took 552 train wagons to complete the transport.
Trucks arrive at the back door loading docks of the Fort Knox gold depository
Trucks arrive at the back door loading docks of the Fort Knox gold depository.
Local farmers were hired to unload the gold at Fort Knox, 1937
Local farmers were hired to unload the gold.
News paper article announcing when gold would arrive at Fort Knox 1937
Newspapers announced when gold shipments would arrive at Fort Knox in 1937.


To research the integrity of the audits performed at Fort Knox (and the other depositories) in all of history, we’ll start from the beginning and work our way to the present. The first audit I could find dates from 1953, when total US reserves accounted for roughly 20,000 tonnes. Many researchers that have worked on this subject in the past refer to the first and last full audit of 1953. However, the audit in 1953 was anything but full.

During my research I came across many articles of researchers that have investigated Fort Knox audits – Ed Durell, James Turk and Tom Szabo, to name a few. Often these articles contained dead web links to documents on US government websites. Everything that was still accessible during my research I copied to my own servers to secure access to them at all times.

The next quotes are from the official report of the gold audit in 1953 (download here).

Fiscal Year Ended June 30, 1953



…The audit was performed in accordance with procedures which were recommended by an advisory committee of consultants appointed jointly by the present Secretary and his predecessor in office. Members of the advisory committee were W. L. Hemingway, Chairman of the Executive Committee of the Mercantile Trust Company, St. Louis, chairman; Wm. Fulton Kurtz, Chairman of the Board, The Pennsylvania Company, Philadelphia; Sidney B. Congdon, President, National City Bank of Cleveland, Cleveland; and James L. Robertson, Member, Board of Governors, Federal Reserve System, Washington. As had been suggested by the advisory committee, the audit was conducted under the general supervision of a continuing committee representing both incoming and outgoing Treasury officials. Representatives of the Comptroller General of the United States observed the audits at each of the various audit sites.

In accordance with a recommendation of the advisory committee the special settlement committee at the Fort Knox depositary opened three gold compartments, or 13.6 per cent of the total of twenty-two sealed compartments at that institution containing 356,669,010.306 fine ounces [11,094 metric tonnes] of gold valued at $12,483,415,360.28. All of the gold contained in the three sealed compartments opened, amounting to 34,399,629.685 fine ounces [1,070 tonnes] valued at $1,203,987,038.94 or approximately 88,000 bars, was counted by members of the settlement committee and found in exact agreement with the recorded contents of the compartments. Slightly in excess of 10 per cent of the total gold values so counted, or some 9,000 bars weighing approximately 130 tons, was further verified through weighing upon special balance scales indicating exact weights to the 1/100 part of a troy ounce. All gold weighed was found in exact agreement with the recorded weight thereof. Further, test assays were made of 26 gold bars selected at random from the total gold counted. The reported results of the test assays indicated, that all gold tested was found to be of a fineness equal to or in excess of that appearing in the mint records and stamped on the particular gold bars involved. Gold samples used for test assay purposes were obtained through drilling from both the top and bottom of each representative gold bar. In final confirmation of the verification of the gold bullion asset values held in the Fort Knox depositary the special settlement committee reported in part as follows:

“0n the basis of assays, your committee can positively report that the gold represented, according to assay, is at the depositary. We have no reason, whatsoever, to believe other than, should all melts be assayed, the results would be the same.”

“We, the undersigned, found the assets verified, to be in full agreement with the assets as indicated by the joint seals affixed to the respective compartments on January 26, 1953.”

“It is the opinion of this committee that the same agreement would be found should all of the compartments be verified.”

In short; an advisory committee of “consultants” assembled special settlement committees that, under the supervision of Treasury officials and Representatives of the Comptroller General, audited 3 of in total 22 compartments filled with gold (it’s likely Fort Knox has many more compartments in total). 13.6 % – 1,070 tonnes – of all the gold bars held at Fort Knox was counted, of which 9,000 bars were weighed upon special balance scales and 26 bars were assayed. The document notes procedures at other depositories closely paralleled those employed at Fort Knox, though no numbers are disclosed.

In 1953 the US Treasury held approximately 1,300,000 gold bars at multiple depositories of which 88,000 were counted, 9,000 were carefully weighed and 26 bars (0.00002 %) were assayed; no external auditing firm was present. This was not a full audit.


The other full audit that keeps buzzin around in the media was the one in 1974, because the media was actually allowed to enter the fortress back then. On September 23, 1974, roughly 100 journalists were allowed entrance, accompanied by 9 members of Congress.

Media allowed in Fort Knox 1974

When the total US official gold reserves had declined by 11,500 tonnes from 1953 to 1974, many Americans began to doubt if the US actually had any gold left at all, especially after Nixon had temporarily suspended the convertibility of dollars for gold at the US Treasury in 1971. The amount of gold at Fort Knox had dropped from 11,094 tonnes (stored in 22 compartments) to 4,585 tonnes (stored in 13 compartments). In an attempt to reassure the American people not all gold was gone a new audit was scheduled.

From several sources we know for the visual inspection by the press and congressmen only one compartment was opened, in which 368.2 tonnes was stored. I edited a small video clip from a History Channel documentary for us to take a look inside Fort Knox.

Whether one or multiple compartments were opened is actually irrelevant, unqualified people looking at a wall of yellow bricks and weighing a few bars will not pass as an audit.

The director of the Mint in 1974, Mary Brooks, did a remarkable confession when the press asked if there is a tunnel to the vault. She showed a narrow tunnel, the size of a sewer pipe, which could only be opened from inside the vault in case someone was trapped – no pictures were allowed to be taken from the tunnel. The escape could only be made outside the vault, not the building itself, she said. There are thus three connections to the vault, the front door, the back door and the tunnel.

The real audit started the day after, on September 24, 1974. This audit was performed by “a committee including auditors from GAO and from Treasury’s Office of the Secretary, Bureau of Government Financial Operations (BGFO), U.S. Customs Service, and Bureau of the Mint. The committee also included Bureau of the Mint technicians trained in assaying and weighing gold bullion”. No external auditor was hired; the US Mint, a department of the US government, can audit the gold in cooperation with thousands of other government departments, only an external auditing party can ensure the integrity of an audit.

Again three random compartments were opened (theoretically one or two could have been the same compartments that were opened as in 1953 as no compartment numbers have been disclosed in the audit reports). From the official audit report published in 1975 (download here):  

Mint regulations require that a special settlement committee be established to inventory and maintain physical control over the gold as it is being inventoried, weighed, and sampled. We selected the compartments to be audited, and we did not disclose this information until the inventory began. The committee opened 3 compartments and counted and inspected 91,604 bars representing about 31.1 million fine troy ounces [967 tonnes] of gold valued at about $1.3 billion, or approximately 21 per cent of the gold stored at the depository. From a random sample of all melts in the 3 compartments, the committee weighed 95 melts to the 100th part of a troy ounce. The committee also compared the weights and physical characteristics of all gold … inventoried to inventory records.

To verify the gold’s fineness, a bar from each melt weighed was assayed. Gold samples were obtained by taking a tetrahedron-shaped chip, weighing about four-tenths of an ounce, from both the top and the bottom of the representative gold bar. We assigned control numbers to the sample chips, because the assayer could possibly determine, without assay, the gold’s fineness if he knew the value or melt number from which the chips came. The New York assay office assayed the gold and gave us the results for comparison with inventory records. We observed the assaying of the first samples. The results of the assays indicated that the recorded finenesses were within the tolerances the Mint established.

No assay report was included.

Screen Shot 2015-02-05 at 11.09.19 PM
Note the irony in the “bottom line”: Keep Freedom in Your Future With U.S. Savings Bonds

In 1975 a Committee was appointed for the Treasury’s continuing audits of U.S.-owned gold stored at the Mint. The operation was designed to audit 10 % of the Treasury’s gold per annum. Inspector General (IG) Eric Thorson stated in 2011 during the hearing by Ron Paul:

In June 1975, the Treasury Secretary authorized and directed a continuing audit of U.S. Government-owned gold for which Treasury is accountable. Pursuant to that order, the Committee for Continuing Audit of the U.S. Government-owned Gold performed annual audits of Treasury’s gold reserves from 1975 to 1986, placing all inventoried gold that it observed and tested under an official joint seal.

The committee was made up of staff from Treasury, the Mint, and the Federal Reserve Bank of New York.The annual audits by the committee ended in 1986 after 97 per cent of the Government owned gold held by the Mint had been audited and placed under official joint seal.

These continuing audits would be the first to examine such a large share of the US official gold reserves, 97 % of all the gold held by the Mint equals to 7,485 tonnes, or 92 % of total US official gold reserves. At the same time, this is where the confusion starts. Let’s find out all there is to know about the continuing audits conducted from 1975 to 1986, as this should be what we’re after, the audit of (nearly) all US official gold reserves.

From the full report that came out of the congressional hearing in 2011, the US Treasury’s best defense I assume, these are the audit reports in existence since the early seventies:

Fort Knox US mint audit list published 2011 1

Fort Knox US mint audit list published 2011 2

We are not interested in the audits of financial statements of the Mint, but in audits of the “custodial deep storage” gold.

At first sight we can see there are no reports on the list from all years the continuing audits were supposedly performed (1975 to 1986). Only the following audit are disclosed:

  1. 1974 (released by the GAO 2/10/1975)
  2. 1977 (released by the GAO 5/5/1978)
  3. 1980 (released by the GAO 10/1981)
  4. 1985 (released by the OIG 4/25/1986)
  5. 1986 (released by the OIG 4/24/1987)

The continuing audits report of 1981 notes audits have been performed in 1975, 1976, 1978 and 1979, but no reference is made to audit reports. Only the amount of gold audited in each year of those years is mentioned.

Additionally, the list from 2011 is entitled “List of audits of US gold holdings” suggesting these are the only audits performed. If more audits were conducted they surely would have been disclosed on the 2011 list, right? Also the ones from 1981, 1982, 1983 and 1984). Or were audits conducted, but no reports drafted? More on this later, for now, we’ll focus on the content of the audit reports from the list:

The first audit report (1974) on the list we’ve discussed above, let’s have a look at the second from 5/5/1978 that covers the audit performed in 1977 (download here).


Reading the report unveils a few problems:

  • No external auditor was present.
  • 11.7 % , or 536 tonnes, of the gold at Fort Knox was audited, but it’s not mentioned how many bars were counted, weighed and assayed.
  • The assay tests found irregularities. From the report:

Two sample melts showed the gold was below the fineness (5 parts per 10,000) permitted by the Bureau. Because of this problem, the vault had to be opened twice more in the presence of the Joint Sealing Committee and the gold reevaluated. This involved considerable time and expense, but was necessary because the fineness of gold must be precisely determined.

On July 29, 1977, bore samples, rather than chips, were taken from the questionable melts and sent to two assay offices for independent evaluations. Half of the samples reassayed were still unacceptable. The Bureau decided that the two melts from which the samples were taken had to be remelted and reassayed. This was done on November 16 and 17, 1977. This time, the gold was within the prescribed level of fineness but below the fineness listed on the inventory schedule. The difference in the original and revalued fineness resulted in a $158.77 adjustment to the records, which was considered insignificant. Previous discrepancies in fineness were attributed to improper melting and casting of the melts in 1920 and 1921. Bureau officials said the remelting process confirmed the validity and integrity of their audit procedures and assays.

  • We can ascertain the assay tests at Fort Knox in 1953 were done by drilling holes through the bars; in 1974 and 1977 the assay tests were changed totaking a tetrahedron-shaped chip, weighing about four-tenths of an ounce, from both the top and the bottom of the representative gold bar”. When this method ‘failed’ in 1977, the committee decided to drill holes, but why was the method of initial assaying changed from drilling holes through the bars, into taking chips from the top and bottom of the bars? When in 1977 the bore samples failed to proof the purity on the inventory list, both melts in question were remelted. But, who processed the remelting? How do we know the metal wasn’t refined/supplemented into higher purity gold? The report states that after the remelting,“This time, the gold was within the prescribed level of fineness but below the fineness listed on the inventory schedule. The difference in the original and revalued fineness resulted in a $158.77 adjustment to the records”. To me it’s not clear what this means. Some kind of adjustment was made and the auditors decided to move on? Didn’t this ring any alarm bells, if irregularities were found in two melts why wasn’t more gold assayed?
  • Apart from the negative assay test, the 1977 audit report is not reliable because it doesn’t disclose any information about how many bars were counted, weighed or assayed.

In the next part we’ll continue from the 1981 audit.

Koos Jansen
E-mail Koos Jansen on: koos.jansen@bullionstar.com







And now for the important paper stories for today:



Early Tuesday morning trading from Europe/Asia

1. Stocks mixed on major Asian bourses  / the  yen falls  to 119.09

1b Chinese yuan vs USA dollar/ yuan slightly strengthens  to 6.24689
2 Nikkei down 59.25  points or 0.33%

3. Europe stocks mostly in the green except London   // USA dollar index up to 94.87/

3b Japan 10 year yield huge rise to .40%/ (Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.09/everybody watching the huge support levels of 117.20 and that level acting as a catapult for the markets.

3c Nikkei now  above 17,000/

3e The USA/Yen rate still  below the 120 barrier this morning/
3fOil: WTI 52.18 Brent: 58.08 /all eyes are focusing on oil prices. This should cause major defaults as derivatives blow up.

3g/ Gold down /yen down;

3h/ Japan is to buy the equivalent of 108 billion usa dollars worth of bonds per MONTH or $1.3 trillion

Japan’s GDP equals 5 trillion usa/thus bond purchases of 26% of GDP

3i Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt (see Von Greyerz)

3j Oil slightly rises this morning for  WTI  and Brent

3k Chinese inflation rate minimal at .8% year over year/heading into deflation.

3l  Greek 10 year bond yield :10.76% (up 22 basis points in yield)

3m Gold at $1237.50. dollars/ Silver: $16.90

3n USA vs Russian rouble:  ( Russian rouble  down slightly per dollar in value)  65.75!!!!!!

3 0  oil  into the 52 dollar handle for WTI and 58 handle for Brent

3p  ECB removes Greek sovereign collateral in their investment strategy (on Feb 11). This leaves only ELA funding for the next two weeks. Maximum allowed 60 billion euros for this funding. They also limit the amount of treasuries that Greek can issue.  Greece rejects any more EU funds and thus rejects the European ultimatum to accept this funding!!

3Q  SNB (Swiss National Bank) intervening again driving down the SF/window dressing/Swiss rumours of intervention to keep the  soft peg at 1.05 Swiss Francs/euro and major support for the Euro.

3r the world awaits the Greek decision tomorrow. trial balloon floated to give Greece 6 month extension.

3s Merkel and Hollande in Moscow fail in trying to obtain a ceasefire in Eastern Ukraine/talks with Putin

4. USA 10 yr treasury bond at 1.99% early this morning. Thirty year rate well below 3%  (2.57%!!!!)/yield curve flattens/foreshadowing recession
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid



(courtesy zero hedge)/your early morning trading from Asia and Europe)


Market Wrap: Stocks Drift, Dollar Stronger, Oil Snaps Rally, Treasurys Slide On Microsoft Deal


So far it has been largely a repeat of the previous overnight session, where absent significant macro drivers, the attention again remains focused both on China, which reported some truly ugly inflation (with 0.8% Y/Y CPI the lowest since Lehman, just call it deflation net of the “goalseeking”) data (which as usually is “good for stocks” pushing the SHCOMP 1.5% higher as it means even more easing), and on Greece, which has not made any major headlines in the past 24 hours as patience on both sides is growing thin ahead of the final “bluff” showdown between Greece and the Eurozone is imminent. The question as usual is who will have just a fraction more leverage in the final assessment – Greece has made its ask known, and it comes in the form of 10 billion euros in short-term “bridge” financing consisting of €8 billion increase in Bills issuance and €1.9 billion in ECB profits, as it tries to stave off a funding crunch, a proposal which will be presented on the Wednesday meeting of euro area finance ministers in Brussels. The question remains what Europe’s counterbid, if any, will be. For the answer: stay tuned in 24 hours.

In Europe, traders also appear tentative as they await tomorrow’s Eurogroup emergency meeting to discuss the stand-off with Greece’s new anti-austerity government before the current bailout programme is due to expire at the end of the month. Ahead of this, European equities have trended lower this morning with the energy sector the underperformer, weighing on the FTSE, while over in Athens, the stock exchange is up by 1.8% and the GR/GE 10 year spread is tighter by 34bps asyesterday’s commentary about a bridging facility have helped support local assets.

T-notes continue to edge lower, with the US 10yr yield breaking back above 2% for the first time since the beginning of the year, the weakness driven by long-end interest hedging as a result of the Microsoft $10.75 billion deal, the largest so far in 2015. As a consequence USD/JPY is now trading back above the 119.00 level supported by yield differential flows. UK Gilts have underperformed core European paper this morning as they play catch up to late selling in US and GE paper after the UK close yesterday.

Asian equities trade mostly lower after tracking yesterday’s losses on Wall Street amid the ongoing Greek led Eurozone concerns. Nonetheless, the Shanghai Comp (+1.50%) rose after reversing earlier losses amid speculation of further easing from the PBoC following disappointing Chinese data. January CPI slipped to a 5yr low (Y/Y 0.8% vs. Exp 1.0% (Prev. 1.5%)) while PPI saw its biggest decline in 5yrs to post a 35th consecutive monthly contraction (Y/Y -4.3% vs. Exp. -3.8% (Prev. -3.3%)). Nikkei 225 (-0.33%) fell despite a raft of positive earnings reports weighed on by a mildly firmer JPY.

In FX, the USD has dictated play in much of the price action in FX markets this session, strengthening by 0.3%, hampering both the EUR and the GBP prior to UK Industrial and Manufacturing production (-0.2% vs. Exp. -0.1% (Prev. -0.1%) and 0.1% vs. Exp. -0.1% (Prev. 0.7%, Rev. 0.8%) respectively) which saw GBP strengthen, however the pair failed to hold onto these gains, with the ONS stating that the data will not have any impact on UK GDP. AUD fell during the European session as the PBoC reiterated their regular ‘prudent monetary policy’ phrase, without making any actual monetary change, therefore cooling speculation of stimulus, which saw overnight strength in AUD/USD despite Chinese January CPI slipping to a 5yr low while PPI saw its biggest decline in 5yrs to post a 35th consecutive monthly contraction.

Ahead of today’s API crude oil Inventories, WTI is on course to snap its 4th consecutive day of positive trading despite fairly bullish comments from IEA, who forecast overnight that the build in oil inventory over the last few months is to end as soon as mid-2015 and the market is to begin tightening substantially. IEA also stated during today’s session that output from OPEC in January fell to 30.31mln due to the decline in output from Iraq and Libya, while prices have risen in January as market participants take note of the recent decline in US rig count.

Elsewhere copper is the laggard in the metals complex, falling in tandem with AUD on the back of a cooling in speculation of PBoC stimulus, which saw prominence yesterday after the above mentioned weak CPI and PPI data. Precious metals are seen weaker across the board as a result of strength in the greenback.

In Summary: European shares rise, currently near session high, with tech, telcos outperforming, oil & gas and banking sectors underperforming.  G-20 ministers and central bankers to conclude meeting in Istanbul, Schaeuble, Weidmann brief press around 6.30pm CET. The Swiss and U.K. markets are the worst-performing larger bourses, Italy the best. The euro is weaker against the dollar. Japanese 10yr bond yields rise; Greek yields decline. Commodities decline, with WTI crude, nickel underperforming and natural gas outperforming.

On the calendar today: In terms of this morning
the likely highlights will be the manufacturing and industrial
production readings out of both France and the UK whilst we also get the
industrial production print for Italy. Later calendar picks up in the US with the NFIB small business optimism survey
due along with wholesale inventories and trade sales due for the
December period. We also see the influential JOLTS job opening print.
The Fed’s Lacker will also be due to speak at some point today.

Market Wrap

  • S&P 500 futures up 0.2% to 2045.5
  • Stoxx 600 up 0.2% to 371.3
  • US 10Yr yield up 1bps to 1.99%
  • German 10Yr yield up 1bps to 0.37%
  • MSCI Asia Pacific down 0.3% to 140.8
  • Gold spot down 0.2% to $1236/oz
  • Euro down 0.4% to $1.128
  • Dollar Index up 0.42% to 94.84
  • Italian 10Yr yield down 1bps to 1.65%
  • Spanish 10Yr yield up 3bps to 1.6%
  • French 10Yr yield up 1bps to 0.68%
  • S&P GSCI Index down 0.5% to 415.2
  • Brent Futures down 0.6% to $58/bbl, WTI Futures down 1.6% to $52/bbl
  • LME 3m Copper down 1.7% to $5575/MT
  • LME 3m Nickel down 1.5% to $14930/MT
  • Wheat futures down 0.8% to 525.8 USd/bu


Bulletin Headline Summary From RanSquawk and Bloomberg

  • European equities are feeling the consequence of WTI snapping its 4 day winning streak as participants remain tentative ahead of tomorrow’s Eurogroup meeting
  • USD has dictated play in much of the price action in FX markets this session, strengthening by 0.3%, hampering both the EUR and the GBP
  • Looking ahead, there is wholesale Inventories, the US crop report, Fed’s Lacker (Voter, Hawk) speaking on the economy and a US USD 24bln 3yr Note auction
  • Treasuries decline before quarterly refunding auctions begin with $24b 3Y notes; yield 1.060% in WI trading vs 0.926% award in Jan.
  • The risk of a clash between Greece and its euro partners grew as Merkel signaled little willingness to compromise over the conditions attached to the country’s bailout
  • U.K. Chancellor of the Exchequer George Osborne said the danger of a miscalculation leading to a “very bad outcome” between Greece and the euro area is increasing, and G-20 finance ministers are urging a solution
  • Ukrainian troops staged a new offensive against pro-Russian separatists as the U.S. examined aid options for the government in Kiev and European leaders prepared for new peace talks
  • The Ukraine crisis is set to spur Western rearmament as concerns about Russian aggression prompt governments to boost military budgets and reverse years of diminishing combat capability, arms-maker Saab AB predicated
  • The U.S. is in talks with Australia about “basing” Navy vessels in its main South Pacific ally, Chief of Naval Operations Admiral Jonathan Greenert said, a move that would risk inflaming tensions with China
  • China’s CPI rose 0.8% from a year earlier, below 1% median estimate in Bloomberg survey; slide in factory gate prices deepened to 4.3%, extending a stretch of declines to 35 months
  • U.K. factory production increased 0.1% in Dec., better than forecast, capping its best annual performance since 2010
  • Yields on some Puerto Rico bonds climbed to records Monday after a judge threw out a debt-restructuring law that lawmakers passed last year
  • The difference between the price at which traders are willing to buy and sell major currencies has widened to the most since the 2008 financial crisis amid the most foreign- exchange volatility in over a year, according to data from JPMorgan
  • Sovereign yields mostly higher; Greece 10Y falls ~34bps. Asian, European stocks mostly higher, U.S. equity-index futures gain. Brent, WTI, gold, copper fall



DB’s Jim Reid concludes the overnight recap




It does look likely that volatility will stay around for a while yet as plenty of complicated issues remain unresolved. The “Grexit” chatter is starting to rise, the Fed and the market are far apart on expectations for the path of rates, China growth looks vulnerable, nobody quite knows whether the next 20% move in Oil will be up or down and the Russian situation could go either way quite quickly. The good news for European assets is that with QE, the tolerance for bad news is higher than it should be but clearly they can’t be completely impervious to negativity in the list of themes above.

You can add the risk of deflation and what it means for markets to the above list and overnight China has given us more food for thought. Indeed sentiment is firmer there as a subdued inflation print has raised hopes of further policy easing. The +0.8% yoy reading was down from +1.5% previously and below expectations of 1%. DB’s Zhiwei Zhang noted that a large extent of the decline was driven by food prices, which Zhiwei in turn believes is partly driven by weak domestic demand. Our colleagues believe that the number opens the way for further policy easing and they expect an interest rate cut in March and another in Q2, along with a RRR cut in Q2. So it’s fair to say that although a prolonged flirtation with deflation would be bad, a brief dalliance might be good if it leads to further global easing. It’s a delicate balance though. As we type Hang Seng is unchanged and Shanghai Composite (+0.86%) firmer on stimulus bets whilst the Nikkei (-0.54%) and Kospi (-0.57%) are weaker, more influenced by yesterday’s moves. Credit markets in the region are around half a basis point firmer though.

Markets were unsurprisingly weaker yesterday following PM Tsipras’s somewhat defiant speech over the weekend. We’ll take a look at the price action shortly but in terms of the latest on Greece, Bloomberg is reporting that Greek finance minister Varoufakis is set to request an €8bn increase on the cap on T-Bill issuance at this Wednesday’s Eurogroup meeting, as well as the disbursement of €1.9bn in profits that euro-area central banks have supposedly made on their Greek bond holdings. The proposal would in effect form the basis of a financing ‘bridge’ that Greece is looking for before more concrete proposals are made. In response to Sunday’s dramatic events, German finance minister Schaeuble was reported as saying on Reuters that ‘without a program, things will be tough for Greece. I wouldn’t know how financial markets will handle it without a program – but maybe he knows better’ in comments aimed at Tsipras. Meanwhile, in the same report EC President Juncker said that ‘Greece should not assume that the overall mood has changed so that the euro zone will adopt Tsipras’s government program unconditionally’.

Speaking at a G20 meeting yesterday, German Chancellor Merkel was quoted in the FT saying that the focus remains on the current program and that this is ‘the basis of any discussion that we have’ before going on to say that ‘what counts’ is the ‘proposal that Greece puts on the table’ ahead of Wednesday.

Interestingly, French finance minister Sapin appeared to take a more conciliatory tone towards Athens than his European counterparts, quoted at the same G20 meeting as saying that ‘in the short term, we need to put together what some may call an extension, or the Greeks might want to call a bridge’. Finally the UK PM Cameron yesterday organized a meeting of senior officials to discuss a potential ‘Grexit’ according to the BBC.

Yesterday Greek equities finished -4.75% weaker led by a further decline for banks (-9.57%). Just on the banks, Moodys yesterday downgraded five of Greece’s largest banks over fears of reduced government support. 3y Greek yields yesterday rose to their highest level since 2012, finishing over 300bps wider to now yield 21.1%. All eyes on tomorrow’s meeting but with the current political standoff, it looks set to be a bumpy ride.

Expanding further on markets yesterday, in the US the S&P 500 finished -0.42% at the close, just off the lows for the day. Oil continued to rebound with WTI (+2.26%) and Brent (+0.93%) firming for the third consecutive session to $52.86/bbl and $58.34/bbl respectively. In fact both markets have now closed in positive territory for the seventh time in eight days with renewed hopes that we will soon be seeing evidence of a slowdown in production. Markets yesterday were given a boost by the news that OPEC has cut its oil supply growth for non-OPEC members. OPEC expects non-cartel members to produce around 850k barrels a day in 2015, a reduction of around 420k barrels on previous forecasts with the US leading the cuts. Energy (+0.18%) was the only sector to finish in positive territory yesterday.

In fixed income markets Treasuries were particularly volatile yesterday. The 10y benchmark yield had initially traded lower intraday touching 1.882%, only then to weaken into the close to finish at 1.978% and 2.1bps wider on the day. It was a weaker day for the Dollar too with the DXY finishing -0.26%. Elsewhere it was a particularly data light calendar in the US with just a slightly softer labour market conditions index with the reading falling to 4.9 in January from 7.3 in December. Finally there were some relatively dovish comments out of the Fed’s Powell yesterday who commented that he still needs evidence of inflation moving back towards 2% and that ‘patience is the appropriate term’.

Before all this, closer to home in Europe the weaker sentiment around Greece weighed on equity markets with the Stoxx 600 closing 0.74% lower although it had initially dropped as much as 1.4% in early trading. The DAX closed -1.69% weaker and the CAC finished -0.85%. Peripheral markets also suffered with the IBEX (-1.97%) and FTSE MIB (-1.90%) both dropping. Fixed income markets fared little better as Crossover weakened 11bps and 10y yields in Spain (+8bps), Italy (+8bps) and Portugal (+11bps) all widened. 10y Bunds however closed 2bps tighter at 0.353% and the Euro, perhaps surprisingly, finished relatively unchanged at $1.133. Like the US, the data calendar was light however the Sentix investor confidence reading for the Euro-area firmed with the 12.4 print for February rising 11.5 points from the January reading – and more importantly the first reading since the announced ECB QE programme. Elsewhere Germany reported a better than expected trade surplus driven by a bounce in exports (+3.4% mom vs. -2.2% previously) and French business sentiment ticked up a notch to 98 (from 97), the joint highest reading since February last year.

Elsewhere, following Merkel’s meeting with President Obama yesterday in Washington over the Ukraine crisis, the BBC has reported that Obama is considering the option of supplying arms to Ukraine should we see no resolution from the latest round of efforts. Specifically, Obama was quoted as saying that ‘if, in fact, diplomacy fails, what I’ve asked my team to do is to look at all options’ and that ‘the possibility of lethal defensive weapons is one of those options’. Tomorrow’s peace talks will certainly be a big focus.

Taking a look at the calendar today, in terms of this morning the likely highlights will be the manufacturing and industrial production readings out of both France and the UK whilst we also get the industrial production print for Italy. Later this afternoon the calendar picks up in the US with the NFIB small business optimism survey due along with wholesale inventories and trade sales due for the December period. We also see the influential JOLTS job opening print. The Fed’s Lacker will also be due to speak at some point today.






Did Europe just fold on the Greek situation as Greece states that it may get funds from Russia?  Greece seeks 10 billion euros of bridge financing. It does not want an extension of 6 months:


(courtesy zero hedge)


Europe To Propose 6 Month Extension After Greece Warns It May Get Funds From Russia Or China




* * *


Did Europe just fold?

Moments ago Bloomberg blasted a headline which has to be validated by other members of the European Commission as well as Merkel and the other German (and may well be refuted, considering this is Europe), which said that:


So did Greece just win the first round of its stand off with Brussels? It remains to be confirmed but congratulations to Greece if indeed it caused Merkel and the ECB to fold. But what caused it? Well, it wasn’t the laying out of the Greek ask, which as we noted earlier was the following:

Greece will seek about 10 billion euros ($11.3 billion) in short-term financing as it tries to stave off a funding crunch while buying time to push its creditors to ease austerity demands. Greece’s Finance Minister Yanis Varoufakis will present a proposal at a Wednesday meeting of euro area finance ministers in Brussels that will ask for an 8 billion-euro increase in the stock of Treasury Bills the country is allowed, said a government official who asked not to be named as the negotiations are confidential. It will also seek the disbursement of 1.9 billion euros of profits that euro area central banks made on their Greek bonds holdings.

No, that’s not it. What emerged as the biggest point of leverage overnight was the following threat reported hours ago by Reuters, citing the Greek defense minister Kammenos, who essentially threatened to go to Russia and/or China if Europe decline to cooperate. Per Reuters:

Greek Defence Minister Panos Kammenos said that if Greece failed to get a new debt agreement with the euro zone, it could always look elsewhere for help.


“What we want is a deal. But if there is no deal – hopefully (there will be) – and if we see that Germany remains rigid and wants to blow apart Europe, then we have the obligation to go to Plan B. Plan B is to get funding from another source,” he told Greek television show that ran in to early Tuesday. “It could the United States at best, it could be Russia, it could be China or other countries,” he said.

Of course, it clearly wouldn’t be the US which would never act against the interest of its European “allies”, so the real threat was very clear: converting Greece from a member of the Eurozone to an expansion of the Eurasian economic zone and a landing pad for both Russia and China into Europe. This is also a possible outcome we hinted at two weeks ago in “Putin’s Unexpected Victory: Europe Furious That Greece Is Now A Russian Sanctions Veto.”


Kammenos is the leader of Independent Greeks, a nationalist anti-bailout party that is the junior coalition partner of Prime Minister Alexis Tsipras’ radical left Syriza party.


Greece is seeking a new debt agreement with the euro zone that will allow it to shake off much of the austerity that has been imposed by a European Union/International Monetary Fund bailout since 2010.


The euro zone, particularly Germany, has shown no willingness to ease its requirement that Greece make deep budget cuts and economic reforms.

As noted above, this is after all Europe, which means Eurozone ministers always float trial balloons headlines ahead of major meetings like the one tomorrow, gauge the market reaction, then quickly retract them. Well, the market test has been conducted…


… with the EURUSD jumping 50 pips, and US equity futures surging by nearly 1%. And now, we await the denial of the “trial balloon” because when it comes to the way Europe operates, some things never change.




You have to love the following:  Socialist senator Bernie Sanders demands that the Fed should bailout Greece and its 11 million people:


he states that the USA has given trillions to bail out the ECB, why can’t they bailout the country of Greece and prevent massive starvation and also the new threat of Nazism.


please view the video..


(courtesy zero hedge)





US Senator Demands A Federal Reserve Bailout Of Greece

It should hardly come as a surprise when a hard-core US socialist comes out with demands that his socialist peers in Greece be bailed out by none other than the Federal Reserve: in fact, it does show why while so many quasi-socialists hate when the Fed bails out the “loathsome” banks, they love when the Fed bails out everyone else. And yes, socialists are known to demand for bailouts – in fact the more often, and the more frequently, the better .

And yet, perhaps in asking for a Federal Reserve bailout of Greece, everyone’s favorite Vermont socialist does make some sense: after all if the Fed is bailing out European banks, and just European banks, on an ad hocbasis, and usually quite well hidden (see for example: “How The Fed’s Latest QE Is Just Another European Bailout“), does it really matter if the Fed spends what amounts to one daily POMO amount to save some 11 million Greeks?

In retrospect it may be the most “social” thing the Fed will have ever done.











This is interesting;  in February very little euros were removed from Greek banks.  The ECB cut off funding early in February trying to orchestrate a run on Greek banks, but somehow not many took out their money.  This was stated by Greek officials, so take the figures with a grain of salt:




(courtesy zero hedge)



Despite The ECB’s Worst Wishes, Greek Deposit Outflows Said To Slow To A Trickle In February

While Greece may or may not have won its initial bluff with Europe, setting the stage for all future negotiations (which would also be a position of weakness for Merkel, which is why we doubt Europe will concede at this point), now that it has explicitly invoked the Russia and/or China card as sources of funding, the reality is that nothing has been resolved for Greece yet, which means that the old paradigm still stands: one of gauging whose leverage is bigger on a daily basis.

And, as explained previously, the simplest way of calculating leverage for the two counterparties is very simple – with the Eurozone, Germany and ECB all eager to squash all non-conciliatory rhetoric by Greece, what they are now doing is trying to put a liquidity squeeze on not only the Greek banking sector but its government. The thinking goes that if the people’s money is cut off, they will force Tsipras and Varoufakis to soften their tone.

On the other hand, Greek leverage is measured by the level of the EURUSD and the Stoxx50/600 (and also the S&P 500). This explains why central bank intervention in markets in the past week has been truly staggering, starting with the SNB, through the ECB and the BOJ: it is inconceivable to admit to Greece that the contagion risks are not contained, and is why central banks will do everything in their power to offset market nervousness, no matter how hard-line the Greek position becomes. Ironically, it has gotten so bad even UBS admitted yesterday that “A Market Dislocation Is Necessary To Focus Minds.”

All this was summarized very simply in the following tweet:

And since central banks are there 24/7 and on site to intervene and “eliminate” Greek leverage at any flashing red headline, it is up to Greece to create a narrative that the European leverage in turn is also weaker, which means to project, whether based on truth or otherwise, that Greek bank deposit outflows are slowing.

That is precisely what Reuters reported moments ago when it reported, citing Greek bankers, that deposit outflows have slowed so far in February after a sharp increase estimated for a month earlier, but savers are still uneasy over the new leftist government’s standoff with its official lenders.

More from the report, which is nothing but even more jawboning and political gamesmanship:

There has been some concern in financial markets and political circles that Greece’s current standoff with its international lenders could worry depositors, causing them to make more withdrawals. But the senior banking sources said there was relative calm.


“We are seeing smaller outflows so far in February compared with January’s 11 to 12 billion euros drop in deposit balances.” said a senior Greek banker who declined to be named. “I estimate outflow at about 1 billion so far in February,” he said, expecting household and business deposit balances to have fallen below 150 billion euros last month.


The Bank of Greece, the country’s central bank, is expected to release official January deposit data on Feb. 26.


“Outflows have decelerated so far in February,” the chief executive of one of Greece’s top four commercial banks told Reuters. “There is adequate liquidity in the banking system.”


“Since the election, we have seen outflows slow down,” said another.

Which, of course, is i) precisely what Greece would say to offset European liquidity pressure leverage and ii) just the opposite of what one would expect.

This also means that one should take all Greek deposit numbers with a grain of salt, as the true state of the liabilities side of the Greek banks’ balance sheet will not be known with any certainty until after the Greek negotiations with Europe are concluded, for better or worse.





Schauble this afternoon completely shoots down the extension report as “wrong”.


(courtesy zero hedge)


Schauble Shoots Down Stock Surge Catalyst, Says 6 Month Report Is “Wrong”, Says If No New Programme “All Over”


When we reported about the latest trial balloon floated by the European commission, namely that Greece may be granted a 6 month extension, we said very clearly, because we knew precisely what was coming, that this report “has to be validated by other members of the European Commission as well as Merkel and the other Germans (and may well be refuted, considering this is Europe)” and “this is after all Europe, which means Eurozone ministers always float trial balloons headlines ahead of major meetings like the one tomorrow, gauge the market reaction, then quickly retract them. Well, the market test has been conducted.”

Case in point:


And here is Europe drawing a red line:


No Europe, they are not laughing with you. Laughter aside, this of course, means that Greece now once again has full liberty to engage Russia and China as sources of funding right?


And the market reacts…

The Greek Finance Minister Yanis V. warns that it does not need an extension but a new agreement with bridge financing:
(courtesy zero hedge)

Greek FinMin Varoufakis Warns “Be Ready For A Clash”

Germany’s Steinmeier reiterated that “Greece needs to respect its bailout pledges,” but Greek Finance Minister Varoufakis told lawmakers that “the post-bailout period for Greece begins today,” warning that…


Demanding a new loan contract with partners, Varoufakis concluded that Greece “seeks an honest anti-bailout agreement.” Not what the EU wants to hear…

Varoufakis added:


*  *  *





EU officials state that the real  Greek negotiations are totally “beserk”.  There is no plan and the Greeks are digging their own graves.


(courtesy zero hedge)



The REAL Greek Negotiations: Situation Is “Berserk”, “There Is No Plan”, “Greeks Digging Own Graves”

Forget any conciliation: what is going on behind the scenes a day ahead of the Eurogroup meeting is nothing short of disaster.  

“The Greeks are digging their own graves,” warns one EU official, according to MNI, with another exclaiming the Greek plan as “hopeless” and added “how can you have a plan when you make no payment obligation till the autumn and then you probably scrap that.” Simply put, speaking on condition of anonymity, an EU official described the situation as “berserk” adding “there is no plan.”

As MNI reports, EU officials are “infuriated” by ‘wildly misleading’ Greek claims…

The carefully orchestrated dance between the new Greek government and its European creditors appeared to crack Tuesday, with top Brussels officials infuriated by what they see as wildly misleading claims coming from Athens.



A senior European official, who spoke on condition of anonymity, described the situation as “berserk” and said, “there is no plan.”



“The Greeks are digging their own graves,” the EU official said.


At the start of the Tuesday, Greece floated its latest funding plan via press leaks, including to the Kathimerini newspaper,  proposing a bridge financing programme that would lead to a “new deal” with creditors from September onwards.


There were reportedly four parts to the new deal: 30% of the existing memorandum with the Troika will be cancelled and replaced with 10 new reforms agreed with the OECD; Greece’s primary surplus target would be cut from 3% of GDP this year to 1.49%; Greek debt would be reduced via an already announced swap plan; and the “humanitarian crisis” would be alleviated via policies announced by Prime Minister Alexis Tsipras Sunday.



The first official described the plan as “hopeless” and added “how can you have a plan when you make no payment obligation till the autumn and then you probably scrap that.”


An exchange between the new Greek finance minister Yanis Varoufakis and Europe’s representatives, Thomas Wieser and Declan Costello, on Sunday was not successful, according to a source with knowledge of the encounter. The source said the Greek side gave the impression that if the Eurogroup did not agree with its stance, then the creditors could “go to hell.”



“For the Eurogroup to just agree new liquidity puts an awful lot of faith in a new government, without knowing what’s planned,” he said. “The ECB has stopped support, the EFSF and ESM need programmes and bilateral loans would be hard to pass domestically.”



And finally…

Meanwhile, the only advisor to the new Greek government, the investment bank Lazard, is not seen as playing a positive role by the EU side to date.


One EU official described the Lazard bankers as “incompetent” and “counterproductive.”


Meanwhile, we may have just hit peak trial balloons. Too bad the ECB can’t monetize those when it runs out of Bunds to buy.





Tomorrow is the big day..


(courtesy zero hedge)

Tomorrow Greece Decides: Europe… Or Russia

There was much confusion earlier today surrounding the immediate fate of Greece, when first thing in the morning Bloomberg reported a rumor that the European Commission would grant Greece a 6 month extension, sending futures surging, and then several hours later, futures surged some more when Germany’s finance minister crushed the first rumor, saying “it was wrong” and that without a Greek program, it was “all over.

Which means that the only relevant overnight news when stripping away the endless trial balloons and BS that Europe covers itself with before every important economic summit, was what the Greek defense minister said asreported by Reuters, namely that Greece now has a Plan B if Europe refuses to budge – the same “plan” we hinted last month:

Greek Defence Minister Panos Kammenos said that if Greece failed to get a new debt agreement with the euro zone, it could always look elsewhere for help.


“What we want is a deal. But if there is no deal – hopefully (there will be) – and if we see that Germany remains rigid and wants to blow apart Europe, then we have the obligation to go to Plan B. Plan B is to get funding from another source,” he told Greek television show that ran in to early Tuesday. “It could the United States at best, it could be Russia, it could be China or other countries,” he said.

In other words, a threat that if Europe doesn’t need Greece (as the EuroStoxx50 and S&P500 are so giddy to confirm), then Greece also doesn’t need Europe for the only reason it has needed it for the past 6 years: to provide funding.

Not only that, but Greece would also promptly default on debt held by the ECB and launch the contagion that UBS described earlier, with the only question being how quick it would spread across what is left of the European “Union” and Eurozone.

Western observers were certainly not amused at the Greek comments. As Newsweek reported, Dr Jonathan Eyal from defence and security think tank the Royal United Services Institute (RUSI) called Kammenos’ statement an “unbecoming threat from a NATO member state.”

He told Newsweek: “It’s another reminder that the Greeks have never offered the kind of solidarity to Europe that Europe has shown to Greece.”


“It’s very obvious the Russians have an opportunity to subsidise a country that can stop a consensus that is required to keep up sanctions on Russia. It’s very grave indeed. The repercussions of this could be quite serious depending on what Greece do in return.”

This would lead to the unthinkable: should Greece pivot to Russia it would permit Putin to build Russian bases on NATO soil!

Eyal was not impressed: “It’s possible although it’s a farfetched. If you were to see Russian bases in NATO territory it would obviously raise serious concerns.” Or, as Putin would call it, victory. Of course, just because on the surface this possibility appears “farfetched” is why the western punditry is refusing to completely ignore it.

We bring this all up because as everyone by now knows, tomorrow night is the emergency Eurogroup meeting when, among other things, Greece will ask for a bridging loan to cover funding needs until August, something which Germany has already suggested is a non-starter, and yet hopes remain that somehow a compromise will emerge. Furthermore, while there are future meetings in the immediate future, as a reminder Europe’s 10 day ultimatum to approve the bailout program is ticking, and runs out just in time for the next meeting, after which all bets will be off. So for all intents and purposes, tomorrow is when Greece must get some much needed clarity on what happens next: whether Europe is ready to compromise or, if not, consider Plan B.

And while most are aware of all of the above, it is the Plan B aspect which few have considered. It is here that as Kathimerini reported yesterday, things are indeed getting serious, to the point where one may be forced to even think about the “unthinkable.”

As Greek Kathimerini reported, “Greece’s Foreign Minister Nikolaos Kotzias is to visit Moscow on Wednesday to hold talks with his Russian counterpart Sergei Lavrov, Russia’s Interfax and TASS news agencies reported on Monday citing a source in the Russian Foreign Ministry.”

In other words, at precisely the same time as the FinMin is in Brussels discussing the fate, or lack thereof, of Greece in the Eurozone, the new Greek foreign minister will be in the Kremlin, getting instant updates from Brussels and perhaps discussing the fate of Greece in the Eurasian Economic Union.

Which means that as soon as tomorrow night, if the Eurozone is indeed intent on kicking Greece out as some have suggested, we may know if not Russia but Europe is who suddenly becomes more “isolated”, as one of its current member flips allegiance to the man most hated by the entire “developed” world.

Or put in the simplest of terms, tomorrow Greece will decide: Europe, or Russia.



Middle Eastern affairs:
It seems that Jordan wishes to put boots on the ground in Iraq:
(courtesy zero hedge)

Invasion Imminent: Jordan Stations “Thousands” Of Troops On Iraq Border

A week after the release of a clip with sported professionally produced, near Hollywood-level editing and effects, showing the brutal burning of a Jordanian pilot hostage, Jordan announced it has deployed “thousands” of ground troops to its border with Iraq as it ramps up a campaign against ISIS militants, two Jordanian government officials told NBC News on Tuesday.

As NBC reports, the troops were sent to prevent the infiltration of ISIS fighters into Jordan and as a show of force, according to the sources who spoke on condition of anonymity. In other words, what would formerly have been seen as an overt act of territorial incursion, or as it is also known, a sovereign invasion, is now interpreted as a defensive act, one seeking to “prevent” infiltration by the same ISIS, that only exists due to US intervention in Syria in 2013.

Jordan’s King Abdullah last week threatened to make ISIS pay for the death of Muath al-Kasasbeh’s after video of the military pilot’s murder emerged. He vowed to wage a “harsh” war against ISIS “because this terrorist organization is not only fighting us, but also fighting Islam and its pure values.”

Abdullah also pledged to hit ISIS militants “hard in the very center of their strongholds.”

One wonders why the need for the land grab, pardon, defensive incursion, when as previously reported, Jordan has already unleashed up to 20 missions per day by Jordanian jets targeting the militant group’s positions in Syria.


“We are determined to wipe them from the face of the Earth,” Maj. Gen. Mansour al-Jobour told NBC News on Sunday, citing the need for “revenge” after al-Kasabeh’s killing.

That much is clear. The question is what else is Jordan “determined” to do once it has military boots on the ground first in Iraq and soon, inevitably, in Syria which as a reminder, is what this is all about.



The USA embassy in Yemen is shutting down and the ambassador will leave by tomorrow
(courtesy zero hedge)

The Coup Is Complete: US Embassy In Yemen Shutting Down, Ambassador To Leave By Wednesday

Another US-friendly regime has folded completely, and after bumbling US foreign intervention in Libya and Egypt made the countries into terrorist breeding grounds where Americans are kidnapped on sight or worse, it is now Yemen’s turn: another country in the Middle East whose president until recently was backed by the US government, and which will now be nothing more than civilian casualty fodder for remote-controlled US drones.


For those Americans who are still on location, fear not: you are in good hands:


And now it’s time for Obama to discuss just how “isolated” Putin really is.




Oil related stories:
Oil is back down in to the 50 handle:
(courtesy zero hedge)

Great News America: Oil Prices Are Tumbling Once Again – WTI $50 Handle

Oil prices tumbling ‘was’ great news for Americans– all those juicy tax cuts to spend on stuff that is not gas (in an entirely zero-sum game of economic value added).. but then prices started to rise. A new meme was created… rising oil prices are great news for Americans – they get to keep their high-paying drilling jobs and gas prices are cheap-ish… Following yesterday’s misunderstood statement from the Saudis (that demand for their oil will rise – because US Shale is hosed), theIEA warned this morning that another big build in inventory is likely due to a “dramatic” gain in US stockpiles. That has sent WTI back into the $50 handle range and creates a rather ominous double-top in the crude complex…


It appears the short-squeeze has run much of its course as volumes fade on each spike…


Perhaps it’s time for Energy stocks to fall back from hope-ville…


IEA warned…

While the U.S. will pump 200,000 barrels a day less crude this year than previously estimated, drilling from hard-to-penetrate rock formations will still add about 1.6 million barrels to global markets by 2020, the Paris-based IEA said Tuesday.


Excess supply will persist to the middle of the year, when oil inventories in industrialized nations may test a record high of 2.83 billion barrels reached in August 1998.

Charts: Bloomberg




Oh great!! Halliburton to cut up to 6500 jobs as oil reverses to the 50 dollar level:


(courtesy zero hedge)




Halliburton To Cut Up To 6,500 Jobs As Crude Carnages To Crucial $50 Level


But everything was supposed to be fixed?


WTI is tumbling down 5%, nearing the crucial $50 level…


As The Houston Business Journal reports,

Houston-based Halliburton Co. (NYSE: HAL) confirmed it will cut anywhere from 5,000 to nearly 6,500 jobs companywide because of slumping oil prices and the resulting decline in oil and gas exploration and production.


Halliburton said Feb. 10 it will cut 6.5 percent to 8 percent of its global headcount. The company reported having about 80,000 global employees last year, including 8,600 in the Houston region.


In a new email to employees, Halliburton Chairman and CEO Dave Lesar stated that no one is immune.


“We value every employee we have, but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment,” Halliburton spokeswoman Emily Mir said in an email response. “The impact will be across all areas of Halliburton’s operations.”

And this won’t help…


Your more important currency crosses early Tuesday morning:



Eur/USA 1.1305  down  .0019  (with every country on earth buying euros to support it due to the Greek crisis)

USA/JAPAN YEN 119.09  up .489

GBP/USA 1.5231 up .0016

USA/CAN 1.2466 down .0003

This morning in Europe, the euro is down, trading now just above the 1.13 level at 1.1395 as Europe is supported by other nations keeping the Euro afloat,  Europe reacts to deflation, announcements of massive stimulation and the Greek crisis .   In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen continues to trade in yoyo fashion as this morning it settled  down again in Japan by 49 basis points and settling just above the 119 barrier to 119.09 yen to the dollar. The pound was down this morning as it now trades just above the 1.52 level at 1.5231.(very worried about the health of Barclays Bank and the FX/precious metals criminal investigation/Dec  12 a new separate criminal investigation on gold,silver oil manipulation). The Canadian dollar stopped its descent and today it is up a fraction  and is trading  at 1.2466 to the dollar. It seems that the 4 major global carry  trades are being unwound. (1) The total dollar global short is 9 trillion USA, and as such we now witness a sea of red blood on the streets as derivatives blow up with the massive rise in the dollar against all paper currencies.We also have the second big yen carry trade unwind as the yen refuses to blow past the 120 level.(3) the Nikkei vs gold carry trade. (4) short Swiss Franc/long assets  (European housing), the Nikkei, etc. These massive carry trades are terribly offside as they are being unwound. It is  causing deflation as the world reacts to a lack of demand. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT.

The NIKKEI: Tuesday morning : down 59.25 points or 0.33%

Trading from Europe and Asia:
1. Europe stocks mostly in the green except London

2/ Asian bourses mixed  Australia  … Chinese bourses: Hang Sang in the green ,Shanghai in the green,  Australia in the red: /Nikkei (Japan) red/India’s Sensex in the green/

Gold very early morning trading: $1237.50



Early Tuesday morning USA 10 year bond yield: 1.99% !!!  up 1  in basis points from Monday night/ (and the trend is moving higher)

USA dollar index early Tuesday morning: 94.87  up 43 cents from Monday’s close.



This ends the early morning numbers.




And now for your closing numbers for Monday:




Closing Portuguese 10 year bond yield: 2.58% up 6 in basis points from Monday


Closing Japanese 10 year bond yield: .40% !!! up 5 in basis points from Monday and this is worth watching


Your closing Spanish 10 year government bond,  Tuesday up 5 in basis points in yield from Monday night.

Spanish 10 year bond yield: 1.62% !!!!!!
Your Tuesday closing Italian 10 year bond yield: 1.67% up 1 in basis points from Monday:



trading 5 basis points higher than Spain.




Closing currency crosses for Tuesday night/USA dollar index/USA 10 yr bond:

Euro/USA: 1.1318  down .0007

USA/Japan: 119.43 up .835

Great Britain/USA: 1.5256 up .0042

USA/Canada: 1.2568 up .0094



The euro rose slightly  this afternoon but it was still down by 7 basis  points finishing the day well below  the 1.14 level to 1.1318. The yen was well down in the afternoon, and it was down badly by closing  to the tune of 84 basis points and closing well above  the 119 cross at 119.43 and closing in on our key yen carry trade of 120. The British pound gained considerable  ground during the afternoon session and was up on  the day closing at 1.5256. The Canadian dollar fell apart  again today due to the lower oil price.  It closed at 1.2568 to the uSA dollar

As explained above, the short dollar carry trade is being unwound, the yen carry trade , the Nikkei/gold carry trade, and finally the long dollar/short Swiss franc carry trade are all being unwound and these reversals are  causing massive derivative losses. And as such these massive derivative losses is the powder keg that will destroy the entire financial system. The losses on the oil front will no doubt produce many dead bodies.



Your closing 10 yr USA bond yield: 1.99 up 3 basis points from Monday

Your closing USA dollar index: 94.70 up 25 cents on the day.



European and Dow Jones stock index closes:


England FTSE  down 8.03 points or 0.12%

Paris CAC up 44.57 or 0.96%

German Dax up  90.32 or 0.85%

Spain’s Ibex up  135.20 or 1.30%

Italian FTSE-MIB up 358.99 or 1.76%



The Dow: up 139.55 or 0.79%

Nasdaq; up 60.43 or 1.28%



OIL: WTI 50.57 !!!!!!!

Brent: 56.98!!!!



Closing USA/Russian rouble cross: 65.09 up  3/4  rouble per dollar on the day. (even though oil fell today)



And now for your more important USA economic stories for today:


Your New York trading for today:


(courtesy zero hedge)


Stocks Spike To 2015 Highs: AAPL Trumps Oil Dump & Greek Slump


Forget Oil patch job cuts, forget the highest inventory-to-sales ratio since Lehman, forget Chinese deflation data, forget record low Baltic Dry, forget slumping US macro, forget slumping US earnings, forget dumping oil prices, forget credit spread widening…. and forget Greece (Storm in a teacup… small… contained…)… stocks rally to green YTD and highs of 2015 for Nasdaq PROVE “everything is awesome”…


And if you don’t believe it – you’re a cynic – and probably unpatriotic.

Stocks melted up during the European session on rumors of an extension for Greece (i.e. EU folds)… which then saw stocks dump it all back as various EU leaders denied its existence and Varoufakis explained that they would never accept it… and then stocks just went vertical for USDJPY shits and giggles… (note that the afternoon meltup managed to perfectly take out the EU ramp highs)…


Some argued that the ramp occurred as a few headlines crossed on a Minsk Summit peace accord deal but given the success of the last one – and Obama’s rhetoric – we suspect that was not the driver of this idiotic algo ramp.

Here’s the real reason for today’s post-European melt-up – AAPL.. (which ripped higher on the back of issuing CHF debt)


In other words – the company that single-handedly moved the entire market’s Q4 EPS, just did a mini-LBO of the entire market.

*  *  *

From The “Deal” rumor… as soon as Europe closed, AAPL took over the US equity markets and everything correlated…


From Friday, stocks are mixed with Trannies and Small Caps lagging and AAPL-heavy NASDAQ leading…


And everyone’s excited post-payrolls


Even The Russell 2000 briefly got green YTD as NASDAQ soared to 2015 highs…


Stocks love low oil prices (and high oil prices)…


The rate-lock-driven selling pressure on bonds continues but today’s rate trade was very sideways and rangebound – unlike stocks… with 10Y tagging 2.00% (but closing at 1.99%)


While The USDollar was flat on the day and slightly lower on the week (major CAD weakness vs Cable and SEK strength)…


JPY appears to have decoupled from stocks too…


All commodities dropped on the day – led by the plunge in crude…


Which took it back to a $49 handle briefly…


*  *  *

It would appear the manipulators want to make it clear that GREXIT is cointained… “Go Ahead Tsipras… Make My Day”


Charts: Bloomberg






Bruce Krasting has been warning us on this for quite some time.  It now looks like Puerto Rico might default on its bonds:


(courtesy zero hedge)



Puerto Rico Is Not Greece, But Their Bonds Are Yielding Almost The Same


While PRexit is yet to hit the headlines, Puerto Rico bonds joined an illustrious club of ne’er-do-wells today with its10Y yield spiking above 10%…



The surge comes after a judge threw out a debt-restructuring law that lawmakers passed last year.As Bloomberg reports,

The steepening borrowing costs come at a crucial time for the U.S. territory: Officials want to sell $2 billion of petroleum tax-backed debt to pump cash into the Government Development Bank, which lends to the island and its localities.


Puerto Rico and its agencies have $73 billion of debt, more than all U.S. states but California and New York. Most of the securities are tax-free nationwide and held by investors around the country. General obligations maturing in 2035 traded with average yields above 10 percent, the highest since they were issued in March 2014. The securities changed hands for as low as 81 cents on the dollar.


The selloff is “putting pressure on liquidity for the commonwealth, which has implications for just about everything they do,” said Bill Black, who helps manage Invesco Ltd.’s $7.5 billion High Yield Municipal Fund.


U.S. District Judge Francisco A. Besosa ruled Feb. 6 that the restructuring law that Governor Alejandro Garcia Padilla signed in June would take away protections provided under federal bankruptcy code, presenting an “irreconcilable conflict.”


Puerto Rico plans to appeal the ruling,Secretary of Justice Cesar Miranda said in a statement Monday. The law would have allowed certain Puerto Rico agencies, such as its power utility, to negotiate with bondholders to reduce their debt. By strengthening the hand of those investors, the decision may leave less cash available for Puerto Rico general obligations, said Black at Invesco, which owns some of the utility debt.


“It is important that the commonwealth’s creditors, other constituents of political entities and the public interest that these entities serve, benefit from mechanisms necessary to adjust their debts in an orderly manner at an economic cost that is prudent and in the best interests of the commonwealth,” Melba Acosta, president of the GDB, said in a statement.


Throwing out the restructuring law restores bondholders’ ability to force Puerto Rico and its agencies to raise taxes or electricity rates, cut staff and negotiate fuel contracts, said Daniel Hanson, an analyst at Height Securities LLC, a Washington-based broker-dealer.


“Puerto Rico is now in a meaningful position of weakness with respect to its bondholders,” Hanson said. “It forces the government’s hand in public-policy questions. They either make decisions that are bond-friendly or they’re forced to make decisions later on by courts.”

*  *  *

Chart: Bloomberg






Let us conclude tonight, with this offering by David Stockman.

It is very long but accurate.

Read it at your leisure late in the evening.  He is bang on!!


(courtesy David Stockman/Contra Corner Blog/zero hedge)



Europe’s Greek Showdown: The Sum Of All Statist Errors

Submitted by David Stockman via Contra Corner blog,

The politicians of Europe are plunging into a form of ideological fratricide as they battle over Greece. And “fratricide” is precisely the right descriptor because in this battle there are no white hats or black hits—-just statists.

Accordingly, all the combatants—the German, Greek and other national politicians and the apparatchiks of Brussels and Frankfurt—- are fundamentally on the wrong path, albeit for different reasons. Yet by collectively indulging in the sum of all statist errors they may ultimately do a service. Namely, discredit and destroy the whole bailout state and central bank driven financialization model that threatens political democracy and capitalist prosperity in Europe——and the rest of the world, too.

The most difficult case is that of the German fiscal disciplinarians. Praise be to Angela Merkel and her resolute opposition to Keynesian fiscal profligacy and her stiff-lipped resistance to the relentless demands for “more stimulus”   from the likes Summers, Geithner, Lew, the IMF and the pundits of the FT, among countless others. At least the Germans recognize that if the EU nations are going devote 49% of GDP to state spending, including nearly a quarter of national income to social transfers, as was the case in 2014, then they bloody well can’t borrow it.

Notwithstanding the alleged German led austerity regime, however, that’s exactly what they are doing. Germany has managed to swim against the surging tide of EU public debt, lowering its leverage ratio from 80% to 76% of GDP in the last four years. Yet the overall debt ratio for the EU-19 has continued to soar—meaning that the rest of the EU drifts ever closer to fiscal disaster.

Euro Area Government Debt As % of GDP

quick view chart

Indeed, Germany’s frustration with the rest of the European fiscal sleepwalkers is more than understandable, as is its fanatical resolve not to give an inch of ground to the Greeks. Or as Merkel’s deputy parliamentary leader, Michael Fuchs told Bloomberg,

There is no way out” for Greece from its treaty obligations….. conditions set for Greece by The Troika (EU, ECB, IMF) for bailout funds “have to be fulfilled…. That’s it, very simple.”

This isn’t just teutonic rigidity. It’s actually all about the so-called capital contribution key—-the share of the EU bailout fund that must be covered by each member country in the event of a default.

At dead center of Greece’s $350 billion of debt is $210 billion owed to the Eurozone bailout mechanism. Germany’s share of that is 27% or roughly $57 billion. Yet the prospect of tapping the German taxpayers for some substantial part of that liability in the event of a Greek default is not the main problem—-even as it would mightily catalyze Germany’s incipient anti-EU party.

The real nightmare for Merkel’s government is that the next two largest countries in the capital key are on a fast track toward their own fiscal demise. So what puts a stiff spine into its insistence that Greece fulfill the letter of its MOU obligations is that if either France or Italy is called upon to cover losses, the whole bailout scheme will go up in smoke.

There is not a snowball’s chance that the already faltering governments of either country would survive a capital call from the EU bailout funds. Indeed, the prospect of a partnership with Marine Le Pen and Beppe Grillo is undutedly what was on German Finance minister Schaeuble’s mind when this picture was snapped during his meeting with Varoufakis.

Just consider the delusionary partners Germany has at present—even before any Syriza-style election upheavals. In another of his patented outbursts of truth over the weekend, the Greek finance minister suggested that Italy was next and that it too, will discover “it is impossible to remain inside the straightjacket of austerity.”

That drew an immediate response from Italy’s Economy Minister, Pier Carlo Padoan, who tweeted to the world that Italy’s debt is “solid and sustainable”.  

Is he kidding? Italy’s GDP is dead in the water and has been since 2007. Yet it has continued to run massive budget deficits—about $75 billion this year alone–so its debt to GDP ratio has gone nearly vertical.

Indeed, the very notion that the trend shown below has any resemblance to a “solid and sustainable” fiscal posture is indicative of  the sheer corruption of discourse that has been introduced by the Keynesian commentariat and the policy apparatchiks of the EU, IMF and Washington.

Their specious claim that all is well in Italy rests on the fact  that it has close to a “primary surplus” before interest payments.

So what! The undeniable fact is that Italy is borrowing heavily year after year to pay its interest, and is thereby impaling itself in a debt trap. That is, a situation so hopeless that no imaginable Italian government can stop the fiscal hemorrhage—- owing to the fact that the vast scale of the tax increases and spending cuts that would be necessary to reverse the debt spiral would be too toxic politically to accomplish.

And that’s the crucial point. The Keynesian modelers can always make the debt curve bend downward by assuming that the vigorous application of more of the same poison—deficit finance—can magically cause Italy’s “aggregate demand” and GDP to spring upwards and grow out from under the debt. But Europe’s fiscal crisis is no longer about whiteboard policy options; its about the absolute breakdown of fiscal governance.

Historical Data Chart

To their great credit, the Germans do not believe in magic napkins of either the supply side or Keynesian varieties. Accordingly, the last thing they want to test is the capacity of Italian politicians to come up with even a tiny fraction of the approximate $37 billion of Greek debt they have guaranteed. For avoidance of doubt, here is the post-crisis trajectory of Italy’s real GDP—–a curve which is heading, not surprisingly, in a decidedly southward direction.

Historical Data Chart

Moreover, Germany’s nightmares as to who will ultimately pay the piper most surely do not end with the Five-Star Movement descending on Rome. France’s share of the Greek debt is appximately $42 billion. But like the case of Italy its economy is flatlining, having gained only 1% in real terms since its crisis peak.

Historical Data Chart

The truth is, the French state has been meandering toward economic stasis and fiscal bankruptcy for several decades under governments of the left and right. With the state now consuming nearly 60% of GDP, it cannot reasonably expect any measureable economic growth. None. Capitalism doesn’t function when it is smothered by taxes, bureaucracy, cronyism and welfare state torpor.

Historical Data Chart

So France is now experiencing a breakdown long in the making. Its rapidly deteriorating  fiscal condition has nothing to do with the financial crisis or the current flurry of so-called deflation. Its economy has finally succumbed to the destructive toll of statist economics, while its public debt continues to rise inexorably. Accordingly, it too has a debt to GDP burden that is rapidly heading beyond the 100% level.

Historical Data Chart

So Germany’s unbending position on the Greek debt is understandable. If the default barrier is breached, it will start a EU-wide voter run on the parliaments.Even the Dutch would be stranded high and dry in the event of a capital call—-finance ministers Dijsselbloem’s lectures to Varoufakis about fiscal rectitude notwithstanding. Indeed, just how long would he and the current Dutch government remain in office after a capital call given the debt spiral already in motion?

Historical Data Chart

In short, the EU outside of Germany and rounding error states like Finland has passed the point of no return on the fiscal front. No government that has to raise it share of the default cost will survive.

Germany will be left holding the entire bailout bag. And that serves them exactly right.

Merkel and her disciplinarians may be fiscally virtuous, but they are downright dense on the matter of central banking and the monetary order. In fact, they don’t have a clue about what capitalism in the financial system even means.

To be sure, they jabber endlessly about the impermissibility of central bank finance of “state deficits”. But this whole ideology amounts to a ritualized and intellectually vacant assault on a monetary straw man. Germany went along with the ECB’s $1.3 trillion LTRO program, for instance, apparently because it did not involve the “purchase” of sovereign debt.

In fact, the ECB injected into the European financial system this massive flow of cash made from thin air by advancing three-year discounts to EU banks that were strictly collaterized by the public debt of Germany, France, Italy, Spain etc. Accordingly, the credit risk assumed by the ECB was not that of BNP-Paribas, for example, but that of the French state bonds it hocked.

Needless to say, that’s state financing by any other name. Moreover, this is not merely evidence of German hair-splitting hypocrisy on the monetary policy question.

Had they really been committed to sound money they would never have permitted the ECB to go on the money printing rampage that occurred after German governments mesmerized by the “European Project” swapped the monetary quietism and rectitude of the Bundesbank for what quickly became the energetic, Keynesian macro-management regime of the ECB.

During the 10 years culminating in Draghi’s “whatever it takes” ukase of July 2012, the balance sheet of the ECB exploded by nearly 4X. It matters not one wit that this eruption was based on sovereign collateral rather than “outright” purchases of government debt, and whether the underlying cash injections to the EU banking system were deemed to be permanent or multi-year “temporary” loans.

Under today’s worldwide money printing mania, central bank balance sheets never shrink; they metastasize endlessly. The differences between outright purchases and repo-style transactions are merely technical.

Like all central banks, the ECB has become a monetary roach motel right under Germany’s nose. The bonds go in, but they never come out. And as explained below, the recent nominal shrinkage of the ECB’s balance sheet, which Draghi has now vowed to reverse with full German concurrence, was an accounting illusion, anyway.

The fact is, the ECB has been engaging in monetization on a massive scale from its inception. So doing, it has drastically distorted price discovery in the euro bond markets and thereby aided and abetted the fiscal profligacy that rages over the entire continent.

Historical Data Chart

As indicated above, the fact that the ECB’s balance sheet appeared to shrink sharply (by about 1 trillion euro) during the two years after Draghi’s ukase, and in consequence of the pay down of the LTRO discounts, was merely an exercise in monetary sleight-of-hand. The ECB’s massive haul of assets was just temporarily parked off balance sheet in the accounts of hedge fund punters and national bank fellow travelers.

These speculators were more than eager to front run Draghi’s warranted word that the ECB would implicitly monetize any and all sovereign issues that might be required to keep the debt markets open to EU borrowers at the most congenial rates imaginable. Since this included, especially, all of the fiscal profligates of the periphery, the front-runners feasted heartily. Capturing the soaring value of the bonds they had funded on zero cost repo or deposits, they essentially rented their balance sheets to the Frankfurt apparatchiks at what amounted to obscene profits.

Yet none of the explicit bailout of Greek debt, or the defacto bailout of Italian, Spanish, Portuguese etc. debt via the Draghi ukase, would have happened had the ECB enabled honest price discovery in the debt markets during the phony boom years prior to the crisis. In effect, the ECB became a tool of the EU superstate, flooding member state ministries and parliaments with false prices on their sovereign debt.

Actually there was no reason for government bond rates to fall drastically during the decade run-up to the 2010 crisis. Prior to the recent downward blip of the euro zone CPI owing to the global oil and commodity crash, the trend level of inflation had not changed since the turn of the century. So in massively inflating its balance sheet by nearly 4X between 2002 and 2012, the ECB was the active agent that unleashed fiscal profligacy throughout the EU.

Over that period, the euro zone CPI rose relentlessly at a 2.3% compound annual rate, while public leverage ratios climbed steadily. There was no reason, therefore, either by way of declining inflation or improving fiscal performance for bond rates to fall— in the periphery or the core for that matter.

In fact, under a sound money regime, the ECB balance sheet would have grown hardly at all after the turn of the century. What the EU countries needed more than anything else was an honest bond market to bring home to its constituent governments the true cost of permitting public debt to spiral in the face of faltering growth and a relentless tide of crippling demographics. That is, a soaring population of social insurance recipients versus plunging birth rates and future labor force shrinkage.

Stated differently, the EU states desperately needed a monetary regime that required their deficits to be financed out of private savings and capital inflows, not the central bank printing press. That would have caused a visible “crowding out” of private investment, rising interest rates and political opposition to fiscal free-booting in the EU capitals.

Indeed, central bank financial repression and monetization of sovereign debt is the arch-enemy of Germanic fiscal rectitude. But the successive governments in Berlin had no clue and still don’t.

Not surprisingly, peripheral country interest rates during the post-2000 course of the ECB’s massive monetization became a snare and delusion. In this context, it doesn’t matter whether the ECB was actually buying Italian or Greek debt at the time (it wasn’t) or what the precise composition of its balance sheet eruption actually entailed. Debt market instruments are arbitraged and fungible. The adverse impact of the ECB drastic financial repression would have happened whether it was buying Italian debt, Spanish road bonds or Greek seashells.

Spanish 10-Year Bond

Historical Data Chart

Italian 10-year Bond

Historical Data Chart

Greek 10-Year Bond

Historical Data Chart

Needless to say, there is always a counter-party. By the time the peripheral debt crisis reached fever-pitch in 2010-2012, European banks and insurance companies had gorged on the vastly mispriced debt that had been enabled by the ECB’s drastic financial repression. Accordingly, that was the moment when the scales should have fallen from Berlin’s eyes, and when its should have recognized that the cause of the crisis was not merely profligate Latin politicians, but the Keynesian money printers at the ECB which had tossed the Bundesbank’s sound money standards into the dustbin of history.

Instead, it stumbled into a monumental error. At the peak of the crisis, all of the big German, French and Italian banks were economically insolvent because the embedded mark-to-market losses on peripheral sovereign and private debts alike were orders of magnitude larger than the balance sheet equity of these institutions.

In the case of Deutsche Bank, for instance, its $1.9 trillion balance sheet at the end of 2010 was balanced precariously on just $34 billion of tangible equity. In effect, it was leveraged at 56X. The big French banks were not much better. BNP-Paribas had $60 billion of tangible equity pinned beneath $2.1 trillion of assets including more than $600 billion of exposure to high risk loans and bonds.

Yet the insane leverage ratios sported by the big EU banks were the product of another statist policy scheme in which the German fiscal conservatives were fully complicit. Namely, the regulatory regime known as risk-based asset accounting. Under the latter, sovereign debt is not counted for the purpose of computing capital adequacy.  In short, the ECB midwifed vast losses on drastically mispriced sovereign debt and the EU bank regulators said not to worry. It doesn’t count!

Outside the primitive world of Keynesian GDP flow mechanics where financial markets and balance sheets do not even exist, there are three extremely dangerous “givens” in the real world of finance.

The first is that banks are not free market institutions, but dangerous wards of the state that must be strictly regulated and supervised lest they gamble recklessly with depositor funds, investor capital and the various insurance and safety net schemes of the state.


The second is that politicians must face the true economic cost of borrowing or they will be endlessly tempted to perpetuate their power and prerogatives by dispensing free lunch entitlements, subsidies and tax subventions to organized interest groups and crony capitalist plunderers. State borrowing has to hurt real world constituencies, not merely offend the requisites of fiscal virtue.


Finally, financial markets are the vital core of capitalism, but by their very nature they attract gamblers and risk-takers. Accordingly, the most dangerous enemy of capitalist prosperity is not really the political left. Instead, it is the insuperable “moral hazard” that results when agencies of the state—-including the fiscal authorities and central banking branches alike—-bailout the mistaken wagers, soured bets and excesses of reckless greed that inexorably arise in the financial markets.

It goes without saying that the German fiscal disciplinarians ignored all three of these cardinal rules when they partnered up with the Keynesian apparatchiks in Brussels and Frankfurt to bailout the entirety of the soured peripheral country debt at 100 cents on the dollar. So doing, they committed an immense act of statist folly.

In the first instance, they stripped European financial markets of whatever vestiges of discipline and honest price discovery which then remained; allowed the financial executives and traders responsible for loading their institutions’ balance sheets with drastic losses to go unscathed; and taught the gamblers unleashed by the ECB and EU bailouts that the sky was the limit.

No longer was their any risk of loss. In the event of even brief spats of market turmoil and modest sell-offs, the Germans made it clear that the EU superstate would come running with safety nets and subventions. The sorry spectacle of the hedge fund gamblers buying up Italian and Spanish bonds, and even Greek bank equities prior to Syriza’s emergence, and riding them for massive gains after Draghi’s ukase was the inevitable result of what amounts to the EUs quasi-nationalization of the sovereign debt markets.

Yes, this papered over the insolvency of Europe’s banking sector. But even on that score, the Germans are deeply culpable. There was no necessity whatsoever to shield banks and other investors from losses on their holdings of Greek and other peripheral debt. If they had wanted to protect purportedly innocent depositors and the financial system generally, they could have permitted Greece to tumble into bankruptcy back in 2010 and the losses to be taken on other peripheral debt in the years thereafter—and then recapitalized the banking system with public money, new leadership and an effective and honest regime to insure bank safety and soundness going forward.

At the end of the day, the statist road chosen by the Germans has become a dead end. And it was the German government that ultimately choose the route of money printing and bank bailouts because no other EU country had the financial resources and credibility to make it happen.

The massive transfer of bank and speculator losses to the peripheral nations has inherently resulted in the destruction of democratic sovereignty in the bailed-out nations. And this  extends far beyond the blatant usurpation that occurred when Brussels virtually deposed the elected governments of Italy and Greece during the heat of the crisis.

The fact is, the hated Troika “program” and MOU would not exist absent the statist depredations of the Germans. In its absence, by contrast, the elected governments of the bankrupt EU nations would have needed to design and impose their own “austerity” programs in order to compensate for the absence of borrowed cash and to earn their way back into the capital markets on the basis of their own credit profile.

So Syriza is right to say that the devastated citizens of Greece do not owe Deutsche Bank and the rest of the bankers and punters a dime for the Greek bonds that their earlier governments imprudently issued and which the traders and managers of these institutions foolishly bought. The fact that German government caused these debts to be transferred to their own taxpayers is Berlin’s problem, not Athens’.

Indeed, that is the towering irony of the current fiasco. At the end of the day there will be no “mutualization” of the bailout debt of Greece or any other peripheral nation. It will all end up on Germany’s account because any other government which attempts to pay its share will end up like the Samaras government two weeks ago—that is, running off with the state’s internet passwords and office supplies in the middle of the night.

So the bailouts were one of the greatest acts of fiscal folly of all time—performed by the only fiscal disciplinarians left in Europe.

There could now be only one greater act of statist folly left on Berlin’s docket. The German’s could loose their nerve, allow Greece to stay in the EU without adherence to its commitments, and embrace Syriza’s out-and-out socialist plan for a modern day “New Deal” in the entire EU funded by the European Investment Bank (EIB).

Well, that would be debt mutualization of an even more cancerous type. Surely by now Frau Merkel has learned her lesson and will decline the offer to jump from the fiscal frying pan she has created into the raging fires that the populist left in Europe will otherwise stoke-up if given the chance.

In short, Germany has no choice except to let Greece go and to allow the entire EU bailout state to unravel, and then to pay the piper for its statist follies.

The alternative is an all-powerful superstate in Brussels and Frankfurt that will necessarily extinguish whatever remains of political democracy and capitalist prosperity in Europe.

The latter would also permanently bury German taxpayers in other people’s debt. The fiasco in Greece has already proven at least that much.



We  will see you on Wednesday.

bye for now




  1. […] READ MORE […]


  2. john mcmullan · · Reply

    the owners of the private central banks are the only one’s that bury taxpayer’s in debt. abolish private central banking globally. the leaders of the new Greek government ROCK ,not our navy seals.Putin stands head and shoulders above all others,I will rember him in my Christian prayers. thanks Harvey.


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