07-Dec (CNBC) — After three years of watching the U.S. economy sputter along at stall speed, it seems long overdue to start revving up.

Don’t bet on it.

There’s been plenty of debate over the past few years: has the U.S. Federal Reserve been doing too much or not enough to revive the economy; did the $787 billion government stimulus package help, or was it a waste of money; is a double-dip recession in the wings; should we be worried about inflation or deflation; is Washington killing the economy with regulation or is business simply gun shy; is tight lending because of a lack of demand, cautious banks, tougher regulations, or all of the above?

The answers almost don’t matter when the upshot is that the current recovery is poised to be long and painful.

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08-Dec (CNBC) — Fiscal transfers from Germany to other countries in the euro zone will be essential to resolving the euro zone debt crisis in the long term, Erik Britton, director at Fathom Consulting told CNBC.

“What needs to happen is the bitter pill needs to be swallowed. In particular Germany needs to accept the need for a fiscal transfer from itself to other countries in the euro area,” Britton said.

He said the transfer would need to be large and continue for an indefinite period to be effective.

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PG View: I can hear the German’s gagging already…

08-Dec (The Wall Street Journal) — Gold slumped as investors sought safety in the U.S. dollar after the European Central Bank’s latest efforts to shore up the euro-zone financial system fell short of market hopes.

The contract for December delivery fell $31.10, or 1.8%, to settle at $1,709.80 a troy ounce on the Comex division of the New York Mercantile Exchange, the lowest settlement since Nov. 25.

Futures climbed early Thursday after the ECB cut its benchmark interest rate and announced a new set of crisis-fighting measures, steps viewed as easing the risk of a credit crunch in the currency union.

But gold gave up those gains after ECB President Mario Draghi said at a news conference that the central bank wouldn’t buy unlimited quantities of the debt of distressed European countries. Mr. Draghi also said the ECB would respect a treaty that prevents it from giving monetary financing to governments.

…In the long term, the ECB’s moves could be supportive to gold prices, analysts said.

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07-Dec (Finacial Times) — A dash for cash by European banks in a little watched corner of the gold market has accelerated this week, highlighting the continued scarcity of dollar funding even after a co-ordinated intervention in the market by the world’s largest central banks.

Gold dealers said that banks – primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars in the past week.

The rush has pushed gold leasing rates – the implied interest rate for lending gold in the market in exchange for dollars – to record lows, according to Thomson Reuters data.

…Edel Tully, precious metals analyst at UBS, said banks were “looking to offload metal either for balance sheet reasons or funding – or both”.

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08-Dec (The Wall Street Jouornal) — The European Central Bank embarked Thursday on a series of unconventional measures in a step to fight the euro-zone’s debt crisis.

At a regular press conference following the bank’s monthly rate-setting meeting, new President Mario Draghi unveiled the measures: two new operations offering unlimited 36-month credit to euro-zone banks, a cut in the reserve requirement for commercial banks to 1% from 2% and the loosening of collateral requirements for ECB loans.

“This will free up liquidity,” Mr. Draghi said.

The new refinancing operations are the longest ever from the ECB. The new facility will first be offered Dec. 21 and will replace the 12-month operation that was to be offered the same date.

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08-Dec (USAGOLD) — It’s been a busy morning already. Central bank action has been pretty much as expected. The BoE held steady on both rates and its asset purchases. The ECB cut the refi rate by 25 bp back to a record low 1.00%, in-line with expectations.

ECB President Mario Draghi began the press conference by announcing a number of new temporary “non-standard” measures aimed at juicing liquidity: The central bank will conduct two LTRO’s with 36-month maturities (the market had been expecting 24-month repos). They will ease collateral requirements on ECB loans, and halve the reserve requirements for commercial banks from 2% to 1%.

The euro, stocks and gold all liked the news initially, with the yellow metal moving within $10 of last week’s high at 1762.70. However, Draghi kept talking…

The ECB lowered its growth forecast while simultaneously raising the inflation outlook. Draghi also severely tempered expectations of further ECB bond buying and then proceeded to shoot down the recurring rumor about the ECB lending money to the IMF so they could in turn buy eurozone bonds.

Let’s be honest here, additional liquidity measures are all well and good, but what the market really wanted to hear was that by hook or by crook the ECB was going to launch real quantitative easing measures. With such hopes largely dashed by Draghi, the euro, stocks and gold collapsed back into their respective ranges.

On the bright side; US initial jobless claims came in at a 9-month low of 381k for the week ended 03-Dec, versus an upward revised (they all get revised higher) 404k in the previous week.

As for entertainment, Jon Corzine, the former CEO of bankrupt MF Global will testify before the House Agriculture committee. All the entertainment will come from the committee members as litigation is likely to prompt Corzine to exercise his Fifth Amendment rights.

In a statement prepared for today’s testimony, Corzine said, “I simply do not know where the money is, or why the accounts have not been reconciled to date. I do not know which accounts are unreconciled or whether the unreconciled accounts were or were not subject to the segregation rules.”

That’s a pretty damning indictment of internal controls at a major broker-dealer and FCM. It is also a damning indictment of clearing firm controls and NFA audits. It should give everyone that has funds at a broker-dealer or FCM pause. It is also another in a long lists of reasons that every investor should have a portion of their portfolios allocated to a physical asset…like gold.

• US initial jobless claims -23k to 381k in week ended 03-Dec, well below market expectations of 399k, vs upward revised 404k in previous week.
• Canada housing starts tumble to 181.1k in Nov, well below market expectations at 197k, vs 208.8k in Oct.
• ECB cut refi rate by 25 bp to 1.00%, in-line with expectations. New “non-standard” liquidity measures announced at presser.
• BoE holds repo rate steady at historic low of 0.5%. Asset purchase target unchanged at £75 bln.
• Japan machinery orders (ex-Elec&Ship) -6.9% m/m in Oct, vs -8.2% in Sep.
• Bank Indonesia holds policy rate steady at 6.0%.
• BoK holds repo rate steady at 3.25%.

08-Dec (USAGOLD) — ECB President Mario Draghi has announced a new raft of “non-standard” measures to pump liquidity into the system.

07-Dec (Barron’s) — Standard & Poor’s, which just can’t seem to satisfy its urge to downgrade things these days, warned Wednesday of possible downgrades to its ratings on some of the largest rated banking groups in the eurozone, adding that similar rating actions on other large banks in the eurozone will follow soon, and warned that it might downgrade its ratings on the European Union itself.

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PG View: This really ramps up the pressure on the EU to do something real and meaningful at the summit that begins tomorrow. And vague expectations that a new treaty will be agreed to by oh, say March…probably ain’t going to provide the reassurance that markets are looking for.

07-Dec (The Wall Street Jounal) — A day ahead of a crucial gathering of European Union leaders in Brussels, French President Nicolas Sarkozy and German Chancellor Angela Merkel outlined their detailed plan for solving the euro crisis through deeper fiscal integration.

In an open letter to European Council President Herman Van Rompuy, Mr. Sarkozy and Ms. Merkel issued an ultimatum to the 27 EU governments, saying they must decide whether they will accept greater central control over their national budgets.

Should some countries decide not to participate, the 17 countries in the euro zone will press ahead with a more integrated union by signing a new agreement outside EU treaties, they said.

“We are convinced that we need to act without delay,” the two leaders said in the letter. “We need to make a decision at our next European Council meeting in order to have the new treaty provisions ready by March 2012.”

…[senior official in the German government]: “I am more pessimistic than I was last week on the chances of total agreement,” the official said on condition of anonymity.

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06-Dec (Washington Post) — Senior U.S. officials are playing a behind-the-scenes role in efforts to contain the European debt crisis, cajoling the region’s leaders to take more steps to calm markets and trying to mediate among European governments with competing interests.

U.S. officials have served at times as a quiet intermediary between European political leaders and the powerful European Central Bank, which tries to stay out of the political fray. In particular, according to U.S. officials, Americans have passed along information about how much money European governments might be willing to contribute to a rescue fund, a crucial question for the central bank as it considers its actions.

Since the European crisis began last year, Treasury Secretary Timothy F. Geithner has urged reluctant countries to create a large rescue fund, U.S. officials said.

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07-Dec(Reuters) — Banks took more than $50 billion from the European Central Bank on Wednesday in its first offering since slashing the cost of borrowing dollars, a sign that some euro zone banks have problems finding dollar funding as the region’s debt crisis intensifies.

Top central banks last week acted to ensure banks outside the United States have easier access to dollars, which banks in Europe have more difficulty obtaining in the market as investor concerns about their exposure to the debt crisis have grown.

…The demand was well above the $10 billion median forecast in a Reuters poll of money market traders.

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PG View: The stress indicated by much greater than expected dollar demand and German rejection of a plan to combine the EFSF and the ESM have spurred renewed widening in eurozone yield spreads.

07-Dec (MarketWatch) — The German government opposes combining the euro-zone’s interim bailout fund, the 440 billion euro ($593.1 billion) European Financial Stability Facility, and the permanent 500 billion euro European Stability Mechanism, news reports said Wednesday. An unnamed German official told reporters in Berlin that it has already been decided that the ESM will take over from the EFSF at an appointed time, Bloomberg reported.

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07-Dec (Bloomberg) — The European Central Bank may announce a range of measures tomorrow to stimulate bank lending, said three euro-area officials with knowledge of policy makers’ deliberations.

Options on the table include loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer-term loans to grease the flow of credit to the economy, said the officials, who spoke on condition of anonymity because the discussions are private. Two said an interest rate cut is likely, with only the size of the reduction to be determined for the monthly decision tomorrow.

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06-Dec (World Gold Council) — During a period of extraordinarily serious economic uncertainty in the eurozone, continued concerns about economic growth in the US heading into an election year, and the possibility of an economic slowdown in China, we wanted to examine the relevance of gold as a strategic asset for euro-based investors to protect their portfolios and to mitigate the systemic risks being faced.

…The findings suggests that an optimal strategic allocation to gold for euro-based investors ranges from 2-3% for the most diversified and lowest risk portfolios, to between 4-9% for portfolios split 50/50 between equities and bonds and as high as 10%, for portfolios with the majority of assets in equities.

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05-Dec (Bloomberg) — Japanese Finance Minister Jun Azumi will be rewarding investors who buy more than 10 million yen ($129,000) in reconstruction bonds with gold in the government’s latest attempt to bolster demand for the debt.

Individual investors who hold the bonds for three years will be eligible for a gold commemorative coin valued at 10,000 yen, the Finance Ministry said in Tokyo today. At 15.6 grams, (0.55 ounces), it would be worth about $948 based on prices for the precious metal. Only a limited number of coins will be issued, the Finance Ministry said in a statement.

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PG View: Current yield on 3-year JGB is 0.17%… Why not just eschew that crummy yield (mispriced risk) and the 3-year lock-up and buy the golden enticement instead?

06-Dec (Der Spiegel) — Many Greeks are draining their savings accounts because they are out of work, face rising taxes or are afraid the country will be forced to leave the euro zone. By withdrawing money, they are forcing banks to scale back their lending — and are inadvertently making the recession even worse.

Georgios Provopoulos, the governor of the central bank of Greece, is a man of statistics, and they speak a clear language. “In September and October, savings and time deposits fell by a further 13 to 14 billion euros. In the first 10 days of November the decline continued on a large scale,” he recently told the economic affairs committee of the Greek parliament.

With disarming honesty, the central banker explained to the lawmakers why the Greek economy isn’t managing to recover from a recession that has gone on for three years now: “Our banking system lacks the scope to finance growth.”

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03-Dec (BullMarketThinking) — I had the great pleasure this week to speak with Mark Cutifani, CEO of $16B AngloGold Ashanti, and it was an incredibly fun interview to say the least. Mark has been in the commodities business for decades, and was COO at CVRD Inco., before it became “Vale”, now valued at $119B. Given Mark’s global commodities background & network depth, his insights into the commodities & precious metals markets are razor sharp, and quite telling of the global picture.

What I thought was the most fascinating of Mark’s comments during the interview, was his observations of major gold buyers emerging from the Middle East & Asia. “People are coming directly to us,” for large gold purchases he said. “People who want tonnes of physical gold, people with serious financial muscle…because they’re finding it’s very difficult to secure the volume of gold they want…That’s something we’ve noticed over the last 18 months, and it’s been increasing in the last 6 months. I think people are finding its hard to get physical gold.”

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02-Dec (Bloomberg) — Commodities may rally as central banks boost money supply further and cut interest rates to combat slowing economic growth, according to Renaissance Asset Managers, a unit of Moscow-based Renaissance Group.

“Money will continue to be plentiful and free, and that will continue to underwrite a commodity cycle,” said Chief Investment Officer Plamen Monovski, who oversees about $2.2 billion and formerly co-managed as much as $9 billion at BlackRock Inc. (BLK), the world’s biggest asset manager.

Central banks are undertaking the broadest reduction in borrowing costs since 2009 to avert a global slump stemming from Europe’s sovereign-debt turmoil. The U.S., the U.K. and nine other nations, along with the European Central Bank, have bolstered monetary stimulus in the past three months. While commodities have rallied this year, global equities have dropped.

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06-Dec (HousingWire) — House prices dipped 1.3% on a month-over-month basis, according to the CoreLogic (CLGX: 13.81 +0.51%) October home price index, the third consecutive monthly decline.

Prices declined 3.9% compared to year-ago figures that include distressed sales. Excluding distressed sales, year-over-year prices declined 0.5% in October. Distressed sales include short sales and real estate owned transactions.

“Home prices continue to decline in response to the weak demand for housing,” said Mark Fleming, chief economist for CoreLogic. “Looking forward, our forecasts indicate flat growth through 2013″

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01-Dec (Forbes) — The massive risk-asset rally generated by a global central bank liquidity-bailout on Wednesday pushed gold back onto center stage. The yellow metal just hit a two-week high after having suffered a massive correction from its early-September peak and will average $2,025 an ounce in 2012, according to HSBC’s head of precious metals research, Jim Steel.

…“Gold rallies when markets question where the government is going with its currency” explained Brooks. “As the value of the dollar is reduced, by headline inflation, nominal depreciation, or whatever, purchasing power falls, pushing investors to look for alternative hard assets,” said the economist.

…The bullish case for gold is a reflection of the global economic environment. Low real interest rates push investors out of safer Treasuries, forcing them on the hunt for return (year-to-date, gold is up 22.4%).

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PG View: This makes a nice companion piece to our recent special report entitled Saving Gold.

S&P Ups the Ante of EU Summit

06-Dec (USAGOLD) — Gold remains defensive, back below the midpoint of the broad 1920.50/1534.06 range. The yellow metal initially came under pressure yesterday on the seeming progress toward the next grand bargain to save Europe. German Chancellor Merkel and French President Sarkozy announced on Monday that they had completed a bilateral agreement premised on a new treaty. Now if they can just get the rest of Europe to agree to being hamstrung…

Ah, but any sort of progress on Europe — whether real or imagined — is cause for celebration these days and gold dutifully retreated on the perception that the need for a true safe-haven was on the wane. However, late on Monday S&P rained on the parade by announcing they had put 15 European nations on negative watch for downgrades. And that included France and Germany; citing “continuing disagreements” among policymakers. This is reminiscent of the reasoning behind S&P’s downgrade of the US this past summer, amid what they described as a weakening of the “effectiveness, stability, and predictability of American policymaking.”

When you consider the erosion in the effectiveness, stability and predictability of policymaking world-wide, it becomes rather obvious why everyone is looking at the central banks to do something. The “something” at the disposal of (most) central banks is their ability to create fiat money out of thin air and then use it to intervene in asset markets — most notably the bond markets.

S&P dealt Europe a follow-on blow by putting the EFSF bailout fund on negative watch for a downgrade. Of course it’s logical that if the sovereigns that underwrite the bailout fund are downgraded, the fund itself would have to be downgraded. All of this sort of re-spooked the market. The euro retraced Monday’s gains and the corresponding rebound in the dollar kept the yellow metal under pressure. However, by the same token, the downside in gold is thought to be limited by persistent systemic concerns and fresh worries that the EU summit at the end of the week wont provide the true solution to Europe’s woes that the markets are demanding.

In heaping on the negative watches and downgrade warnings, S&P has certainly amplified the significance of the EU summit. Now we’ll just have to see if eurozone policymakers can overcome their differences and put the EU on a sustainable path. If — like all the previous meetings and summits — we get more jawboning and half-measures, my guess is that the markets won’t be very forgiving this time around.

• Bank of Canada leaves policy rate unchanged at 1%, in-line with expectations; neutral policy stance maintained.
• Canada building permits +11.9% in Oct, well above market expectations of +1.3%, vs -4.1% in Sep.
• UK BRC Retail Sales slow to 0.7% y/y in Nov, vs 1.5% in Oct; same store weaker than expected at -1.6% y/y.
• UK Halifax House Prices (sa) weaker than expected at -0.9% m/m in Nov, vs 1.2% in Oct.
• Switzerland CPI -0.2% m/m in Nov, below market expectations, vs -0.1% in Oct; -0.5% y/y.
• Eurozone Q3 GDP – 2nd Release (sa) confirmed at 0.2% q/q; 1.4% y/y.
• Germany manufacturing orders (preliminary) +5.2% m/m in Oct, well above market expectations of +0.7%, vs negatively revised -4.6% in Sep; 5.4% y/y.
• RBA cuts official cash rate 25 bp to 4.25%, in-line with expectations.

06-Dec (Reuters) — Standard & Poor’s said on Tuesday it is considering downgrading the European Financial Stability Facility, the euro zone’s bailout fund that is financed by member governments, after saying it could downgrade the majority of euro zone nations on Monday.

The EFSF could be downgraded by one or two notches, and the lower rating would depend on whether the six triple-A rated nations in the euro zone are cut.

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