12-Dec (The Wall Street Journal) — An unusual amount of U.S. government debt will be auctioned before year-end, but the unpredictability of the euro-zone situation likely means investors will scoop it all up without a hitch.

There will be seven Treasury coupon auctions in a span of eight days, about twice the normal frequency. Back-to-back auction weeks aren’t unheard of, but they are rare. Analysts say the schedule panned out this way because the government wanted to avoid selling debt during the holiday-shortened weeks. The Treasury Department wasn’t immediately available for comment.

[source]

PG View: The OECD has already pegged industrial nations’ debt issuance at $10 trillion for 2011. I’m not sure if that disturbingly huge figure is inclusive of everything the US will attempt to cram in before year-end or not.

12-Dec (UBS-via ZeroHedge) — On this day (-1) in 1930, American savers, the Federal Reserve and a Republican President all got a nasty surprise. The banking system had been shaky for a year or two but it looked like things might finally be beginning to stabilize. That is until today.

On this day, a major financial institution, The Bank of the United States went belly up. And, with it went the savings, “in whole or in part”, of over 400,000 depositors.

[source]

Gold Tumbles Back Below $1700

12-Dec (USAGOLD) — Gold is under heavy pressure amid broad-based deleveraging associated with the rapid evaporation of optimism that initially sprang from last week’s EU Summit. As has been the case of late, the ratings agencies have been rather quick to rain on any parade in Europe. This time it was Moody’s who squelched the optimism, saying that the “continued absence of decisive policy measures,” warrants a review of EU members. You may recall that S&P put just about every EU member on negative watch last week.

The other big story this morning stems from reports that European commercial banks have been selling borrowed gold to cover short-term dollar needs, despite rather unprecedented liquidity measures that allegedly were to provide unlimited dollar liquidity. Speculation is that the source of this leased gold is eurozone central banks and/or ETFs.

Both the deleveraging scenario and the gold leasing scenario are highlighted primarily by the selling of paper representations of gold. Physical buyers are grateful for the opportunity to buy gold at 7-week lows, and the movement of gold from weaker into stronger-hands bodes well for the long-term uptrend.

Finally, the sharp 5.1% drop in Indian industrial production in Oct was well below market expectations and a worrying drop from the negatively revised 1.9% increase in Sep. This raises concerns that the economy of the second largest gold consumer in the world may be slowing. This weighed heavily on the rupee and highlighted potential demand risks for the yellow metal.

12-Dec (Bloomberg) — Europe’s failure to agree on a comprehensive solution to the sovereign debt crisis threatens to consign AAA rated bonds in the region to history.

Top-rated agencies in the 17-nation euro area have at least 847.5 billion euros ($1.1 trillion) of debt outstanding, according to data compiled by Bloomberg, and will be at risk should their sovereigns be downgraded. Moody’s Investors Service said today it will review the ratings of all European Union nations after last week’s summit failed to produce “decisive policy measures,” while Standard & Poor’s announced Dec. 5 it may cut 15 euro members, including AAA rated Germany and France.

[source]

11-Dec (Financial Times) — It appears that the faulty plumbing connections in the euro area banking system are now creating something I have never seen before: a crisis of confidence in a monetary system that leads to a frantic sell-off in gold.

The partnership between the Federal Reserve and European Central Bank to provide hundreds of billions of relatively low cost dollars for euro area banks should have relieved the pressure to come up with greenbacks. Yet gold market people say European commercial banks are being driven to lend gold for dollars at negative interest rates just to raise some extra cash for a few weeks. There’s not a lot of transparency about where the banks are getting the gold they are lending out, but it could be lent to them by either their national central banks, or by gold exchange traded funds.

[source]

11-Dec (Financial Times) — Markets and governments face an uphill struggle to fund themselves next year amid extreme uncertainty over the eurozone and the global economy, as new figures reveal that the borrowing of industrialised governments has surged beyond $10tr this year and is forecast to grow further in 2012.

The Organisation for Economic Co-operation and Development, which represents the leading industrialised nations, will warn in its latest borrowing outlook, due to be published this month, that financial stresses are likely to continue with the “animal spirits” of the markets – their unpredictable nature – a threat to the stability of many governments that need to refinance debt.

[source]

09-Dec (USAGOLD) — The MNI bullet about official gold selling that was posted on this page yesterday was subsequently retracted by them.

From MNI:

The bullet that was posted was posted in error. We had one contact mentioning that this might be the case but when we called other more trusted sources later they said this was not the case and in fact selling by these institutions was totally unlikely.

We later put out a retraction shortly after the initial bullet

We apologize for any confusion.

We apologize as well.

09-Dec (TheBigPicture) — There is a fascinating new study coming out of the Levy Economics Institute of Bard College. Its titled “$29,000,000,000,000: A Detailed Look at the Fed’s Bail-out by Funding Facility and Recipient” by James Felkerson. The study looks at the lending, guarantees, facilities and spending of the Federal Reserve.

The researchers took all of the individual transactions across all facilities created to deal with the crisis, to figure out how much the Fed committed as a response to the crisis. This includes direct lending, asset purchases and all other assistance. (It does not include indirect costs such as rising price of goods due to inflation, weak dollar, etc.)

The net total? As of November 10, 2011, it was $29,616.4 billion dollars — (or 29 and a half trillion, if you prefer that nomenclature). Three facilities—CBLS, PDCF, and TAF— are responsible for the lion’s share — 71.1% of all Federal Reserve assistance ($22,826.8 billion).

[source]

09-Dec (Der Spiegel) — British Prime Minister David Cameron has completely isolated his country on the European stage — and many in his country applaud him for it. But he will soon have to prove that London still has clout in the EU, and that his no to fiscal union wasn’t just a bone thrown to euroskeptic conservatives.

The decision by British Prime Minster David Cameron to block a European Union treaty change by using his country’s veto power has sparked a festive atmosphere among euroskeptics in the United Kingdom. “At last,” Lord Norman Tebbitt, once one of Margaret Thatcher’s closest confidants, blogged on the Daily Telegraph’s website. Cameron, he wrote, has applied the very veto that former Prime Minister John Major should have used against the Maastricht Treaty, which created the euro. “We should just be grateful,” he added.

[source]

08-Dec (The Wall Street Journal) — The ailing housing market is unlikely to return to health before 2016 and is weighing on the two-year-old U.S. recovery, which finally is showing signs of picking up steam.
Charts and Full Results

That’s according to economists in the latest Wall Street Journal survey, who expect home prices will begin to increase in 2012 but—by an 8-to-1 margin—don’t see prices outpacing inflation over the next three years. That means that the value of the largest investment for most consumers—their home—would fail to keep pace with increases in the cost of other items, such as food, clothing and gasoline.

[source]

09-Dec (Bloomberg) — The euro-zone leaders adopted a pact to move toward fiscal union and stepped up stabilization measures to face the immediate crisis. This is progress, but as Thomas Mayer, chief economist at Deutsche Bank, told me this morning:

“The leaders have now defined the end point they want to reach in terms of fiscal governance, but it’s a long way to go there.”

He added:

“We’ll probably see more near-term tension and that will probably then trigger a more hands-on intervention by the ECB.”

The stabilization measures still come back to the European Central Bank, the one institution with the resources to provide the liquidity backstop to stem the crisis. Let’s take the 200 billion euros that could be given to the International Monetary Fund from Europe’s central banks: 150 billion euros from the euro zone and the rest from non-euro members. German Chancellor Angela Merkel says these could be bilateral credit lines.

[source]

09-Dec (USAGOLD) — Gold has been somewhat choppy this morning amid uncertainty about the outcome of the EU summit. Summit attendees are trumpeting a consensus toward treaty changes that may be signed by March. Yet there is still plenty of skepticism over whether Europe can be saved, even with the treaty changes. UK PM David Cameron held out for concessions to protect “the City” — London’s financial district — which ultimately undermined hopes for a treaty change for all 27 EU members, adding an additional level of uncertainty to the whole mess.

At the end of the day, as Chancellor Merkel and President Sarkozy touted their “breakthrough,” the market maintains a sense that only the ECB can truly save the day. There were in fact reports of aggressive ECB bond buying in the secondary market today, perhaps to give the illusion of a positive market response to the summit agreement. The market will likely continue pressuring the ECB to act, and as such hopes ebb and flow, so will asset prices.

PIMCO’s Bill Gross tweeted the following this morning: Oh what a tangled web the EU has weaved. Never ending story, hard to trust. Risk off.

• US University of Michigan sentiment (prelim) rose to 67.7 in Dec, above market expectations of 65.6, vs 64.1 Nov.
• US trade deficit narrowed to -$43.5 bln in Oct, in-line with expectations, vs -$44.2 bln in Sep.
• Canada Q3 productivity +0.3%, above market expectations of -0.2%, vs -1.0% in Q2.

by Wolfgang Münchau
09-Dec (Financial Times) — So we have two crises now. A still-unresolved eurozone crisis and a crisis of the European Union. Of the two, the latter is potentially the more serious one. The eurozone may, or may not, break up. The EU almost certainly will. The decision by the eurozone countries to go outside the legal framework of the EU and to set up the core of a fiscal union in a multilateral treaty will eventually produce this split.

…On Thursday night, Angela Merkel and Nicolas Sarkozy clashed with David Cameron in a familiar Britain-versus-the-rest diplomatic standoff. That itself is not new. But a determination to go outside the treaty to overcome the disagreements adds a new dimension to this long-lasting dispute.

The fiscal union likely to be agreed in March may not initially be very effective in resolving the crisis. It focuses on all the wrong issues, mostly fiscal discipline, which is not the real reason why the crisis has spread to Spain or Belgium, for example.

[source]

09-Dec (Financial Times) — European leaders are struggling to cope with a profound split over crisis plans for the eurozone, leaving the UK isolated as the rest of the European Union agrees to press ahead with new fiscal rules to balance budgets.

The measures are designed to restore confidence after a two-year crisis that has stalled growth in the world’s biggest economic bloc.

The refusal by David Cameron, UK prime minister, to agree to a full treaty change for all 27 EU members unless there were safeguards for UK financial services caused a standoff in the early hours of Friday morning with Angela Merkel, German chancellor, and Nicolas Sarkozy, French president.

[source]

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.

[source]

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.

[source]

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.

[source]

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”.

[source]

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.

[source]

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.