14-Feb (The Wall Street Journal) — Twelve European Union member nations, including Italy, Spain, the U.K. and France, are suffering from significant economic imbalances that leave them vulnerable to further shocks, the European Commission said Tuesday.

In a press conference in Strasbourg, European Economics Commissioner Olli Rehn said that the EU’s executive arm will conduct an in-depth analysis into nearly half of the EU’s 27 members, which could eventually lead to demands for policy changes and potentially to sanctions for euro-zone countries.

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14-Feb (USAGOLD) — Gold remains narrowly confined within the recent range as it remains unclear whether Greece is inching toward its second bailout, or the progress has stalled completely and policymakers are simply stalling for additional time in the hope of controlling an inevitable default and prevent contagion. The EU’s Olli Rehn said today that a decision on Greece was coming “soon.” Yawn…whatever.

And speaking of ‘yawns’: Moody’s downgraded a number of European countries, including Italy, Spain and Portugal and warned that France, the UK and Austria where in jeopardy of losing their AAA ratings. This latest bunch of downgrades was largely ignored by the market, because like the obligatory daily rumor of an impending Greek deal, investors have become disturbingly accepting of downgrades.

Meanwhile, data were released today that confirms what was widely acknowledged; that Greece’s recession (at what point can we call it a depression?) worsened at the end of the year. The Greek economy contracted by 7% y/y in Q4, versus -5% in Q3. The FT pointed out in an article this morning that, “Greece’s economy has now shrunk in every quarter but one since mid-2008.” Given the dismal absence of growth — and the reality that the additional austerity being demanded is only going to make things worse — it is becoming increasingly clear that the €130 bln second bailout that Greece is seeking is simply not going to be enough…if it ever was…

Here in the US, headline January retail sales disappointed. The ex-auto number was better, but with negative Q4 revisions and softness in Dec business inventories, expectations that Q4 GDP would beat the advance 2.8% figure have evaporated.

Across the other ocean, the BoJ held its overnight call rates steady at 0-0.1%, but surprised the market by offering additional accommodations. The BoJ is now targeting near-term inflation at 1.0%. They also pledged an additional ¥10 trillion in asset purchases. So, the BoE increased asset purchases last week and the BoJ today…Fed, you’re up next! Of course many would like to see the ECB buying more bonds as well, but for the timing being they remain relegated to skulking around the secondary market.

• US business inventories +0.4% in Dec, in-line with expectations, vs 0.3% in Nov.
• US retail sales +0.4% in Jan, below market expectations of +0.7%; +0.7% ex-autos.
• US import prices +0.3% in Jan, above market expectations of +0.2%; exports +0.2%.
• Eurozone industrial production (sa) -1.1% m/m in Dec, in-line with expectations, vs upward revised unch in Nov; -2.0% y/y (wda).
• Germany ZEW Economic Sentiment improved to 5.4 in Feb, above market expectations of -12.2, vs -21.6 in Jan; Current Situation 40.3, vs 28.4.
• UK core CPI moderated to 2.6% y/y in Jan, vs 3.0% in Dec.
• Japan industrial production (sa) – Revised +3.8% m/m in Dec, vs -2.7% in Nov.
• BoJ holds rates steady at 0-0.1%, targets inflation at 1%, announces additional asset purchases.

14-Feb (CNBC) — Despite its recent slip, inflation will remain above the Bank of England’s 2 percent target in the UK for a long time, as the Bank is taking no action to bring price rises down, Andrew Sentance, a former member of the Monetary Policy Committee, told CNBC on Tuesday.

Figures released on Tuesday showed inflation fell to 3.6 percent in January from 4.2 percent in December as the effect of a rise in value-added tax faded, but Sentance said that since the middle of the years 2000, inflation has been at a “sustained high level” above target.

“I think it’s a sign of the times that when inflation falls below 4 percent it seems a good thing,” Sentance said.

The Bank of England decided last week to boost its asset-purchasing program, also known as quantitative easing, by 50 billion pounds ($79.3 billion), to kick-start the economy.

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14-Feb (MoneyNews) — Gasoline prices are headed for $5 a gallon in many locations in the United States this year, says John Hofmeister, founder of Citizens for Affordable Energy and the former CEO of Shell Oil’s U.S. operations.

Global demand will rise and pressure supply, while U.S. politicians aren’t doing anything to ease prices at home such as allowing for significantly more drilling.

“What’s really unprecedented is developing countries, particularly China and India, have this insatiable need for more oil and that has not been taken into account when we think of public policy in this country,” Hofmeister tells CNBC.

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PG View: Good thing the Fed doesn’t count something as trivial as gasoline prices toward its inflation target…

14-Feb (ZeroHedge) — European (like US) stocks remain in a narrow range just above the cliff of the unbelievably good NFP print of 2/3. US and European credit markets have lost significant ground since then and it seems equity investors just want to ignore this ‘uglier’ reality for now. The BE500 (Bloomberg’s broad European equity index) is unchanged from immediately after the NFP ‘jump’, investment grade credit is +10bps from its post-NFP tights, crossover (or high yield) credit is around 50bps wider, Subordinated financial credit is +50bps off its post-NFP wides at 382bps, and senior financial credit is an incredible 36bps wider at 225bps (by far the largest on a beta adjusted basis). The divergence is very large, increasing, and a week old now and perhaps most importantly as we look forward to LTRO Part Deux, LTRO-ridden banks have underperformed dramatically (40bps wider since 2/7 as opposed to non-LTRO banks which are only 10bps wider) – how’s that for a Stigma? Some ‘banks’ have suggested the underperformance of credit is due to ‘technicals’ from profit-taking in the CDS market – perhaps they should reflect on why there is profit-taking as opposed to relying on recency bias to maintain their bullish and self-interest positioning as the clear message across all of the credit asset class is – all is not well.

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14-Feb (Financial Times) — Greece’s recession worsened at the end of last year, new figures showed on Tuesday, adding to the pressure on a government caught between riots at home and pressure from eurozone leaders to force through deep spending cuts in exchange for a fresh €130bn bail-out.

The economy contracted by 7 per cent in three months to December compared with the same period in the previous year, a steeper decline than the 5 per cent recorded in the third quarter, according to preliminary data published by Elstat, the national statistics body. Greece’s economy has now shrunk in every quarter but one since mid-2008.

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PG View: And I repeat, €130 bln is no longer enough. If it ever truly was…

14-Feb (Reuters) — The Bank of Japan boosted its asset buying programme by $130 billion (82.5 billion pounds) on Tuesday and in the face of political pressure set an inflation goal of 1 percent, signalling a more aggressive monetary policy to pull an ailing economy out of deflation.

Bond futures jumped and the yen fell as the decision pointed to much faster asset buying in the central bank’s most determined effort to date to reinflate an economy that shrank last year and which has struggled with deflation for most of the last two decades.

The central bank kept its policy rate in a range of zero to 0.1 percent and pledged not just to maintain zero rates but to continue buying assets until 1 percent inflation is foreseen.

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The Cradle of Western Civilization Burns

13-Feb (USAGOLD) — The Greek Parliament passed the latest austerity measure on Sunday, but dissent within the parties has resulted in a call for a snap-election in April. Not surprisingly, the Greek people are not too pleased with having more austerity heaped upon the existing austerity and more than 100,000 of them expressed their displeasure in Athens, some violently. More than 45 buildings were set on fire as protesters battled with riot police. With the cradle of Western Civilization ablaze, one has to wonder if this is an ominous harbinger of things to come elsewhere in the western-world, where austerity is long past due.

Nonetheless, the markets initially viewed the Parliament’s agreement as good news, increasing the likelihood that Greece will eventually get its next round of bailout funds. However, the politicians in Greece are obviously under a great deal of pressure; the hoops they are having to jump through to secure that €130 bln are weighing heavily on the Greek economy and therefore the Greek people. Even if the additional €130 bln is green-lighted pretty rapidly, the requirements agreed to yesterday may all be in question if a new government comes to power in April. This may well give the keepers of the purse-string pause, but whether the money is forthcoming or not, it does nothing to resolve the underlying fundamental problems facing Greece.

Today, the Obama administration released their whopping $3.8 trillion fiscal year 2012 budget proposal, $1.33 trillion of which will be deficit spending. This is the fourth consecutive budget proposal that will result in a deficit in excess of a trillion dollars. While the budget projects a $4 trillion decline in the deficit over the next 10-years, this less-than rosy forecast is largely dependent on Congress agreeing to a $1.4 trillion tax hike primarily on households with income in excess of $250,000. In an election year, and given the rather adamant objections already expressed by the GOP controlled House, there is essentially no chance this budget will make it through Congress.

In fact, Senate majority leader Harry Reid has already said that, like the previous two-budgets, the Senate will not even bring this one up for a vote. A budget hasn’t cleared the Senate since April 2009. Basically, nobody wanted to vote for such massive deficit spending ahead of the 2010 midterms and the same is true for this year. So, we’ll operate without a budget once again.

I imagine that those in Washington — even those inclined to impose austerity here in the US — must be looking at events in Greece with some degree of dread. As both the weather and political rhetoric heats-up into the Spring and Summer, hibernating occupiers will undoubtedly be taking back to the streets of America. One has to wonder what the appetite for austerity might really be. And if there is no political will to foist austerity on the American people and no political will to meaningfully raise taxes, that will leave perpetuation of the American consumer machine in the hands of the Fed.

The Fed has already pledged to keep interest rates near 0% into late-2014, but trillion dollar deficits for years to come will likely obligate the central bank to maintain a zero interest rate policy far beyond 2014. In the absence if meaningful fiscal reform — that arguably must include some level of austerity — the Fed will likely turn to additional quantitative measures to pump additional liquidity in the market.

This will have a negative impact on the dollar, further eroding purchasing power and decimating savers. As we said in our latest Video Roundtable, saving in gold as an alternative to dollars, is a strategy that everyone should at least be considering.

13-Feb (Politico) — The White House rolled out its new $3.8 trillion budget Monday, promising major investments to spur a manufacturing revival in the U.S. while walking a fine line between the August debt accords and President Barack Obama’s fear that too much austerity now will spell trouble for the economy—and his own reelection chances in November.

From Justice to Defense and Homeland Security, as many as six cabinet level departments or agencies will see their budget shrink in compliance with the new appropriations caps. But Obama would also go outside the box by creating new mandatory spending initiatives costing tens of billions of dollars and for the first time, openly tap war savings to fund his domestic agenda.

…In the case of taxes, the budget never spells out Obama’s much-talked-about “Buffett rule”—-that all of the most wealthy must pay an effective tax rate of at least 30 percent. But his long-term deficit reduction plan rests very much on achieving $1.43 trillion in 10-year revenue increases at the households with income over $250,000.

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12-Feb (Reuters) — The Greek parliament approved a deeply unpopular austerity bill to secure a second EU/IMF bailout and avoid national bankruptcy, as buildings burned across central Athens and violence spread around the country.

Cinemas, cafes, shops and banks were set ablaze in central Athens as black-masked protesters fought riot police outside parliament.

State television reported the violence spread to the tourist islands of Corfu and Crete, the northern city of Thessaloniki and towns in central Greece. Shops were looted in the capital where police said 34 buildings were ablaze.

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10-Feb (NumberSlueth) — We here at NumberSleuth are all about exploring the world of numbers, and with this infographic we decided to take a look at the numbers behind the entire amount of gold in the world. Below are a series of questions that we began with and the answers we discovered in our research. We believe that this is the most thorough and in-depth resource about the world’s gold on the Internet and we hope you have as much fun reading through the information as we did in putting it all together.

From: Number Sleuth

10-Feb (The Wall Street Journal) — President Barack Obama’s budget request to Congress on Monday will forecast a deficit of $1.33 trillion in fiscal year 2012 and includes hundreds of billions of dollars of proposed spending on the nation’s infrastructure, according to draft documents viewed by Dow Jones Newswires and The Wall Street Journal.

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10-Feb (Bloomberg) — UniCredit SpA (UCG), Intesa Sanpaolo SpA and Banca Monte dei Paschi di Siena SpA (BMPS) were among 34 Italian financial firms downgraded by Standard & Poor’s, after the credit-ratings firm reduced the nation’s grade last month.

UniCredit, Italy’s biggest bank, and No. 2 Intesa had their long-term ratings lowered to BBB+ from A, S&P said today in a statement. Monte dei Paschi, the No. 3 bank, was reduced to BBB from BBB+. All three have a negative outlook, S&P said.

…“Italy’s vulnerability to external financing risks has increased, given its high external public debt, resulting in Italian banks’ significantly diminished ability to roll over their wholesale debt,” S&P said in a separate statement on the country’s financial industry. “We anticipate persistently weak profitability for Italian banks in the next few years.”

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10-Feb (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said the central bank’s efforts to spur economic growth are being blunted by impediments to mortgage lending, and he called for further steps to heal the housing market.

“We have helped lower mortgage rates to the lowest point in many, many decades,” Bernanke told homebuilders today in Orlando, Florida. “Yet we are not seeing as much activity as we would like to see.”

Bernanke, who repeated that the pace of the recovery has been “frustratingly slow,” didn’t discuss the outlook for monetary policy. He devoted part of his speech to recommendations from a Fed study on housing that was sent to Congress last month and which prompted criticism from some lawmakers, who said the Fed has overstepped its authority.

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PG View: Mightn’t Mr. Bernanke be greasing the skids for some more MBS purchases?

10-Feb (Der Spiegel) — Many economic experts agree that Portugal may be the next Greece. On Thursday evening, a senior European official seemed to confirm such fears. German Finance Minister Wolfgang Schäuble was caught on camera offering Portugal “adjustments” to its bailout program.

First Greece and then Portugal? That is what many skeptics of Europe’s handling of the ongoing debt crisis have long been saying. And on Thursday evening in Brussels, they appear to have received high level confirmation.

In a video clip apparently made without his knowledge at the meeting of euro-zone finance ministers, German Finance Minister Wolfgang Schäuble told his Portuguese counterpart Vitor Gaspar that Berlin would be willing to make adjustments to the Portugal bailout package. It was the first time that a high level euro-zone official had admitted that such changes may become necessary.

“If then there would be a necessity for an adjustment of the Portugal (program), we would be ready to do that,” Schäuble says in the video, which was posted on YouTube and on the website of the Portuguese television station tvi24. Gaspar responds: “That is much appreciated.”

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10-Feb (Der Spiegel) — Greek political leaders announced on Thursday that they were bowing to all European Union austerity demands. But euro-zone finance ministers are skeptical, saying several details need to be clarified. Even if Athens ultimately receives a new bailout package, however, its debt problems will not be solved.

Relief was certainly not the predominant emotion in Brussels on Thursday evening. In faraway Athens, Greek party leaders had announced that, following weeks of talks and delays, they had finally agreed to accept the stark austerity conditions imposed on them by their European Union partners. But euro-zone finance ministers were skeptical as they arrived for their pre-planned consultations in the European Council building on Thursday.

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10-Feb (USAGOLD) — Gold has come under pressure as the hope surrounding yesterday’s Greek political deal has evaporated. EMU spreads widened, the euro and stocks retreated, boosting the dollar, Treasuries and Bunds.

While much was made initially yesterday about Greek politicians agreeing to the latest troika demands in exchange for the release of the second bailout funds, it didn’t take long for the skeptics to surface and stark poking holes in the alleged deal. And sure enough, after eurozone finance ministers met yesterday and said that Greece needed to make additional progress before they could sign that €130 bln check. It sounds like they want Greece to find another €325 million in cuts.

With Greeks already taking to the streets in protest, pushing even deeper austerity through Parliament is not going to be easy. On top of that — as we’ve pointed out repeatedly — the second €130 bln bailout (originally agreed to in October) isn’t big enough any more due to cratering tax revenues. But even if a true deal is ultimately reached, it doesn’t resolve any of the underlying structural issues that precipitated the crisis. Greece will likely find itself right back in the same position at some point down the road.

While the dip in Chinese imports and exports in Jan are being largely blamed on the holiday effects of Chinese New Year, it has raised concerns about a slow-down in one of the last remaining economic engines firing on all cylinders.

• University of Michigan consumer sentiment (prelim) fell to 72.5 in Feb, below market expectations of 74.0, vs 75.0 Jan.
• US trade gap widened to -$48.8 bln in Dec, near expectations of -$48.0 bln, vs -$47.06 bln in Nov.
• Germany CPI (final) confirmed at -0.4% m/m in Jan; 2.1% y/y, vs 2.0% preliminary read.
• France industrial production -1.4% in Dec, well below market expectations of -0.6%, vs +1.1% in Nov; -1.3% y/y.
• France manufacturing production -1.4% in Dec, vs +1.4% in Nov; +0.8% y/y, vs positive revised +2.6% y/y in Nov.
• Switzerland CPI -0.4% in Jan, below expectations of -0.3%, vs -0.2% in Dec; -0.8% y/y.
• UK PPI: Output price inflation fell to 4.1% y/y in Jan (nsa), vs 4.8% y/y in Dec.
• India industrial production falls to 1.8% y/y in Dec, vs 5.9% in Nov.
• China exports -0.5% y/y in Jan, vs 13.4% in Dec: Imports -15.3% y/y.

10-Feb (Reuters) — Greece’s largest police union has threatened to issue arrest warrants for officials from the country’s European Union and International Monetary Fund lenders for demanding deeply unpopular austerity measures.

In a letter obtained by Reuters Friday, the Federation of Greek Police accused the officials of “…blackmail, covertly abolishing or eroding democracy and national sovereignty” and said one target of its warrants would be the IMF’s top official for Greece, Poul Thomsen.

The threat is largely symbolic since legal experts say a judge must first authorize such warrants, but it shows the depth of anger against foreign lenders who have demanded drastic wage and pension cuts in exchange for funds to keep Greece afloat.

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10-Feb (CNN) — Hooded youths tossed stones and police fired stun grenades Friday in front of the Greek Parliament as lawmakers faced tough new conditions they must meet before euro zone finance ministers will give them billions of desperately needed euros to bail out the debt-ridden country.

Greece needs the euro zone ministers to sign off on a new €130 billion ($172.6 billion) bailout deal.

As investors in markets around the world nervously watched the Greek Parliament, trade unions began a two day strike to protest the austerity measures the deal would require.

The main Greek party leaders agreed to a last-minute deal Thursday after lengthy negotiations, which was presented to the other 16 eurozone leaders by Finance Minister Evangelos Venizelos.

But the deal and new conditions imposed by Europe must still be approved by Parliament this weekend. The third member of the governing coalition made clear Friday that it would not support the deal.

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10-Feb (Reuters) — Gold prices slipped in Europe on Friday as the euro eased from a two-month high, coming under pressure as the optimism sparked by Greece’s agreement of the austerity measures it needs in order to receive a second rescue package dissipated.

Euro zone finance ministers are seeking further measures from Greece before signing off on a second bailout, keeping the threat of a chaotic default alive and pressuring risk appetite.

…”Even if a debt deal does come out, the complications are far from over. With an over 26 percent unemployment rate in Greece, austerity means further job cuts, and tax increases,” he added. “The key point on pensions are still to be finalized.”

Gold is still up 10 percent this year as traders bet U.S. monetary policy will remain accommodative this year.

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