June 30 (Reuters) — In the Greek capital, gold is marking a divide between the “haves” and a growing number of “have nots.”

Many ordinary Greeks who prospered after the Mediterranean country entered the euro a decade ago are now being forced to sell their family treasures just to make ends meet.

“These are not poor folks. They are ordinary, middle-class Greeks: a woman with three kids who needs to sell her wedding jewelry just to send her kids to school.”

That is one side of the coin. On the other, many wealthy Greeks, worried by the political paralysis gripping their country, are pulling money out of the bank and buying gold, regarded as the ultimate safe haven in times of uncertainty.

Banks have lost around 8 percent of their deposits this year, with outflows accelerating in May and June as anxiety grew at the government’s dwindling parliamentary support, according to credit ratings agency Moody’s.

But the rest was due to wealthier Greeks, fearful of an impending financial collapse should the country default, sending money abroad, stashing it in safety deposit boxes, or buying gold coins, Moody’s said.

“The people with money are no longer buying land, they are buying gold and silver,” said Verykokaki. “Greeks are ignorant. It’s stupid because if they take the money from the bank, the banks won’t have enough to go around.”

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JK Comment: I find the comment by Verykokaki interesting….perhaps something missed in the translation. Yes, if the whole of the country moves away from the banking system, it will collapse….but can one honestly just stand by and hope it doesn’t happen, thereby risking everything?…and I certainly wouldn’t call protecting yourself against the possibility, “ignorant.” It seems this is a little bit of a chicken and egg argument. Is the banking system in Greece failing because Greeks are worried its going to fail (a crisis of confidence), or was it already failing, prompting this flight? In either event, I’m sure those who are fortunate enough to own gold, the “have’s” as this article states it, don’t feel ignorant at all.

Prime Minister David Cameron has insisted the labour changes are fair but inevitable, warning this week that the pension system is “in danger of going broke” faced with an ageing population.

Francis Maude, the minister who oversees the civil service, told BBC radio on Thursday: “You cannot continue to have more and more people in retirement being supported by fewer and fewer people in work. Long-term reform is needed.”

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Yields Jump, Gold Consolidates as QE2 Ends

The NY Fed monetized $4.94 bln in Treasuries today with maturities between Dec 2016 and Jun 2018 in the final operation of QE2. Bonds dove in reaction, suggesting the market remains supremely concerned that the demand void created by the exit of the Fed will be left unfilled. In fact, yields have seen significant upward pressure this week, after a series of poor Treasury auctions. While the rebound in stocks for the recent lows is undoubtedly contributing to waning interest in bonds, questions about the ongoing financing of the Federal government — even as the debt ceiling deadline looms — is likely to continue weighing on Treasuries.

To be sure, Fed asset purchases didn’t completely end today. The reinvestment of maturing securities on the Fed’s balance sheet is expected to commence next week. Such rollovers were deemed “QE-lite” in the period between QE1 and QE2. Given the size of the Fed’s balance sheet as a result of both the QE1 and QE2 operations, there’s a lot of maturing debt coming down the pike. Reinvestments over the next year are expected to be at least $300 bln. That’s half the size of QE2 if you exclude the QE1 rollovers! There’s nothing ‘lite’ about this next QE-lite, and yet doubts persist that it will be enough. Given the moribund nature of the economic recovery, stubbornly high unemployment and a double-dipping housing market, there are many who believe that it’s just a matter of time before the Fed announces QE3.

Bill Gross, of bond giant PIMCO, suggested last week that initial indications of QE3 could come as early as the Jackson Hole Economic Policy Symposium in August. A 14-Jun Twitter post by Gross created quite a stir, in which he said: “QE3 likely to take form of ‘extended period’ language or interest rate caps on 2-3-year Treasuries.”

The basis for the hint about capped yields comes from a 2002 speech by then Fed governor Ben Bernanke entitled “Deflation: Making Sure ‘It’ Doesn’t Happen Here.” In that speech, Bernanke said that “A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields.”

The Fed has made it abundantly clear that it stands ready to “act as needed” and “will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.” That pretty much leaves the door open for QE3.

June 30 (Financial Times) — Greece has cleared the way for fresh international financial aid to avert a damaging default after its government won a second, decisive parliamentary vote on implementing sweeping austerity measures.

George Papandreou, socialist prime minister, on Thursday secured approval for fast track implementation of €28bn ($40.6bn) in tax increases and spending cuts demanded by the European Union and International Monetary Fund.

[source]

PG View: I don’t know of anyone who really believes the new measures will actually have a €28 bln positive impact on the Greece’s balance sheet. Who really wins here? Certainly not the Greek people. Arguably its the bond holders (European banks) that avoid a drastic haircut in the absence of a default. And of course, the EU/IMF/ECB buys a little more time.

June 29 (www.ChrisMartenson.com) — This report lays out an investment thesis for gold and one for silver. Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well. My timing and logic for both entering and finally exiting gold (and silver) as investments are laid out in the full report.

The punch line is this: Gold and silver are not (yet) in bubble territory, and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.

[source]

June 30 (BBC) — Greece’s parliament is holding a second vote on its austerity programme, which it needs to implement to secure the country further financial support.

The vote is about putting into practice the tax hikes, pay cuts, privatisations and public sector redundancies approved in principle on Wednesday.

…After hours of discussing the measures, MPs started voting shortly after 1600 (1300 GMT); it is not clear how many votes will need to be held to push the bill through.

…the real challenge will come after the loan is secured, and there is concern about whether the austerity measures can be effectively implemented in the face of so much public hostility.

[source]

June 30 (Wall Street Journal) — Germany’s financial sector Thursday reached a draft agreement with the German government on how private bond investors will participate in plans to extend a new aid package to Greece.

The agreement, which follows a French plan reached last weekend, comes in time for euro-zone finance ministers discuss the aid program at a meeting in Brussels on Sunday.

[source]

Gold is consolidative this morning, trading comfortably above $1500. The dollar continues to retrace its recent gains, weighed by euro strength stemming from bolstered confidence that a deal for Greece is at hand.

Generally firm oil prices are helping to underpin the yellow metal as well. There are rumblings that OPEC will reduce oil production to offset the IEA oil dump that was announced last week. Oil has pretty much retraced all of the its recent losses.

On this last day of QE2, the NY Fed will purchase $4-5 bln in Treasuries maturing between Dec 2016 and Jun 2018. While QE2 will end, reinvestment of maturing securities will continue, to the tune of about $300 bln over the next year.

• US initial jobless claims -1k to 428k in the week ended 25-Jun, above market expectations. Previous week revised up to 429k.
• Canada GDP was unch in Apr, just above market expectations of -0.1%, vs +0.3% in Mar.
• ECB’s Trichet affirmed likelihood of July rate hike, saying ECB is in state of “strong vigilance.”
• Eurozone HICP inflation remained elevated at 2.7% y/y in Jun, matching expectations, vs 2.7% in May.
• Eurozone M3 money supply +2.4% y/y in May, a faster acceleration than was expected, vs +2.0% in Apr.
• German retail sales unexpectedly fell 2.8% m/m in May, well below market expectations of +0.6%, vs negatively revised 0% in Apr.
• UK GfK consumer confidence fell to -25 in Jun, below market expectations, vs -21 in May.
• Japan PMI eased to 50.7 in Jun, vs 51.3 in May.
• South Korea industrial production +8.3% y/y, well above market expectations, vs +6.9% in Apr.
• Taiwan hiked rates 12.5 bps.

June 29 (Reuters) – The United States would immediately have its top-notch credit rating slashed to “selective default” if it misses a debt payment on August 4, Standard & Poor’s managing director John Chambers told Reuters.

[source]

June 29 (Bloomberg) — Oil rose in New York, extending the biggest gain in six weeks, amid concern OPEC may reduce output in response to the International Energy Agency’s move to release oil stockpiles.

[source]

PG View: Brent spot has already retraced all of the losses that resulted from the IEA announcement last week. OPEC has far more ammo to retaliate with than the West has to flood the market with reserves.

PG View: Treasury pretty much went 0 for 3 this week — the last auctions before the end of QE2.

June 28 (NY Sun) — Here’s a hypothetical situation. Suppose you had $1.5 million. At today’s gold price that would buy approximately 1,000 ounces of gold. Suppose now that President Obama, the Congress, and the Federal Reserve began managing the American economy in such a way that by the end of President Obama’s second term, the dollar was back to where it was when President George W. Bush began his first term. Were that to happen, your $1.5 million could purchase 5,660 ounces of gold.

So, do you think you should have to pay taxes on the increase in the value of your money?

[source]

Gold Firms as Greek Parliament Agrees to Further Austerity

Embattled Greek PM George Papandreou secured the necessary parliamentary votes to condemn the people of Greece to at least five additional years of even more austerity in exchange for a second bailout, even as violent protests rages outside Parliament. The vote passed by a vote of 155 to 138; with 5 abstentions and 2 MPs apparently AWOL. The results were loudly booed by the protesters and there were reports that a fire broke out in the building that houses the Greek Finance Ministry. Coincidence? I think not. Many Greeks are clearly not pleased.

The vote is at best a kick of the can down the road — and perhaps a very short one. The Greek government is now likely to have to contend with escalating strikes and civil unrest, which is going to adversely impact tax revenue and of course the all-important tourist trade. Simultaneously, Greece along with the EU/IMF/ECB troika must find a way to roll Greek debt without triggering a credit event. The latest French plan of a “Off Balance Sheet MLEC-Style Debt Rollover” may prove to be an effective end-run around the rating agencies.

Even if Greece finds a way to extend the payment terms for its massive debt, you’d be hard pressed to find anyone who seriously believes that Greece will be able to grow its way out of the current crisis even with the estimated €100 bln in additional aid. Like the initial €110 bln bailout, this is simply a means of buying time. The first bailout was approved in May of 2010, so €110 bln bought Greece and Europe a little more than a year. My guess is that any new bailout now buys even less time because the severity of the crisis has grown. Many believe that Greece will be right back in the very same position in the not too distant future. If that does indeed happen, you can be assured that the taxpayers in solvent-Europe will be considerably less accommodating than they already are.

Additionally, once the second bailout for Greece has been approved, it sets a very dangerous precedent: If you acknowledge Greece must be bailed out again to save the global financial system, it is a tacit acknowledgment that Portugal, Ireland and Spain et al must too be bailed-out when/if the time comes.

June 29 (Wall Street Journal) — Greece’s Parliament has passed a controversial five-year austerity plan that the country promised its international creditors.

Passage of the additional €28.4 billion ($40.81 billion) in spending cuts and new taxes was set as a condition for another international bailout to keep Greece from defaulting on its debt.

Thousands of protestors outside parliament loudly booed the outcome as police tried to drive them away with batons and tear gas. Running battles with police continued after the bill passed.

[source]

PG View: Passage of the austerity vote is just another kick of the can — and perhaps a very short one — for Greece.

Gold is trading higher this morning, buoyed by a weaker dollar which was initially weighed by a firmer euro ahead of — and through — the Greek Parliament vote on additional austerity measures. That vote passed with a vote tally of 155 to 138, with 5 abstentions and apparently 2 MPs AWOL. However, in classic ‘sell the fact’ form, the euro has come under pressure in the wake of the vote, lifting the dollar and moving gold off its intraday highs.

• US calendar has May NAR pending home sales and Treasury will auction $29 bln in 7-year notes.
• Rumor circulating that US ADP payrolls survey was leaked a week early and it’s just +7k jobs in Jun. That would be well below +60k consensus.
• Canada CPI jumped to a 3.7% y/y pace in May, above market expectations, vs 3.3% y/y in Apr. Core rose to 1.8% y/y, also above consensus.
• Swiss KOF leading indicator slipped to 2.23 in Jun, below market expectations, vs 2.30 in May.
• Eurozone ESI economic sentiment eased to 105.1 in Jun, about what the market was expecting, vs 105.5 in May.
• Japan industrial production rebounded 5.7% m/m in May as recovery from earthquake/tsunami continues. That’s the biggest jump in nearly 60-years.

By LUCA DI LEO
June 29 (Wall Street Journal) — The Federal Reserve, amid persistent worries about Europe’s sovereign debt crisis, last week quietly approved the extension of a crisis-lending program that allows the European Central Bank to tap the U.S. for dollars, Federal Reserve Bank of St. Louis President James Bullard said.

[source]

PG View: An important reminder that the Fed remains the lender of last resort to the world.

Vote tally was 155 for and 138 against.

June 29 (Irish Independent) – Anti-austerity protests turned violent in Athens last night as the EU warned Greek lawmakers that the country faces immediate default unless they back an unpopular economic plan this week.

[source]

June 28 (CNBC) – France’s new plan to rescue Greece and forestall the looming global financial crisis has one important thing in common with all the previous efforts: It won’t work.

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June 28 (CNNMoney) – QE2 is just about done. But the Federal Reserve will still be buying massive amounts of long-term Treasuries.

In fact, the Fed’s purchases over the next year will likely be at least $300 billion. That’s half the size of QE2 — even if QE3 never takes place.

Think of it as QE2.5.

[source]

PG View: Don’t think for a second that the Fed’s asset purchases are coming to an end in two-days.

June 28 (Washington Post) – The International Monetary Fund on Tuesday chose French finance minister Christine Lagarde to be its next managing director, maintaining Europe’s long-standing hold on the agency’s top job and appointing the first woman to take over the global financial powerhouse.

[source]

June 27 (Der Spiegel) – In a SPIEGEL interview, leading German economist Stefan Homburg argues that euro-zone members should not bail out Greece, discusses who is making a profit from the crisis and explains why he himself is buying Greek bonds. “I believe in the boundless stupidity of the German government,” he says.

[source]

PG View: Homburg sides with the rating agencies on the “voluntary rollover” of Greek debt and he is spot-on regarding the moral hazards of bailouts in gerneral. I would quibble with one point though, I think there is at least one additional level of bailout for Europe and thy name is Fed. Click here for another possibility. It would seem that “boundless stupidity”…well, abounds.

UPDATE 29-Jun: Fed Extends Lending Program for Central Banks

June 27 (zerohedge) - It has been a long time since we had seen a 5 Year auction as ugly as today’s: printing at a 1.615% high yield, the 5 Year had a 3.5 bps tail off the bat to the 1.58% WI where it was trading before. The internals were just as ugly, with the Bid To Cover coming at 2.59 a plunge from May’s 3.20, and the lowest since June 2010. Not surprisingly, Indirect interest evaporated once again, tumbling from 47.1% to just 37.6%, with Primary Dealers having to take up more than half, or 52.1%, once again, the remainder going to Direct Bidders. Too bad they will have no more opportunities to flip these back to the Fed. Which as expected starts to confirm Bill Gross’ thesis that in the absence of the Fed monetizing, rates are about to go higher.

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PG View: Today’s auction harkens back to the question posed last week by our own Michael J. Kosares: Who will finance the U.S. government post quantitative easing?