06-Mar (Reuters) — Political risk in the Middle East has increased significantly with war between Iran and Israel almost inevitable, and precious metals and equities investments offer some safety, Swiss money manager and long-term bear Marc Faber said on Tuesday.

“Political risk was high six months ago and is higher now. I think sooner or later, the U.S. or Israel will strike Iran – it’s almost inevitable,” Faber, who publishes the widely read Gloom Boom and Doom Report, told Reuters on the sidelines of an investment conference.

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06-Mar (USAGOLD) — Gold has come under renewed deleveraging pressures as Eurostat confirmed that the European economy contracted by 0.3% in Q4 and was just +0.7% y/y. On the heels of yesterday’s downward revision to China’s growth outlook and continued worries that the Greek PSI deal is on the verge of collapsing, the increasing likelihood that Europe is slipping back into recession has sparked a jump in risk aversion.

According to a CNBC article: “A collapse in household spending, exports and manufacturing sucked the life out of the euro zone’s economy in the final months of 2011, the EU said on Tuesday, showing the scope of the downturn that looks set to become a fully fledged recession.”

The dollar and US Treasuries have benefited on flight to (perceived) quality flows, which is adding impetus to the decline in the precious metals. However, as we have seen time and time again, these initial moves out of stocks and into the perceived safety of the greenback and bonds tend not to be particularly sticky. While paper representations of gold tend to follow the tack of risk assets initially, these types of sell-offs tend to attract strong interest in actual physical gold.

The yellow metal has slipped back below the 200-day moving average, further eroding the technical picture. However, the underlying fundamentals remain sound and gold is still more than 9% higher for the year.

• Canada Ivey PMI rose to 66.5 in Feb, well above market expectations of 61.5, vs 64.1 in Jan.
• Eurozone Q4 GDP (sa) – 2nd Release confirmed at -0.3% q/q; +0.7% y/y.
• Eurozone Q4 household consumption – 1st Release -0.4% q/q; government expenditure -0.2% q/q.
• Eurozone Q4 Exports – 1st Release -0.4% q/q, vs negative revised 1.4% in Q3.
• Eurozone Q4 Imports – 1st Release -1.2% q/q, vs negative revised 0.7% in Q3.
• UK BRC Retail Sales – All +2.3% y/y in Feb, vs +2.1% y/y in Jan; same store -0.3% y/y, below expectations.
• UK Halifax House Prices (sa) -0.5% in Feb, vs +0.6% in Jan; -1.9% 3M/Yr (nsa).
• Australia Q4 Current Account Balance -A$8.4 bln, vs -A$5.8 bln in Q3.
• RBA holds official cash rate steady at 4.25%.

06-Mar (Bloomberg) — The European Central Bank’s balance sheet surged to a record 3.02 trillion euros ($3.96 trillion) last week, 31 percent bigger than the German economy.

Lending to euro-area banks jumped 310.7 billion euros to 1.13 trillion euros in the week ended March 2, the Frankfurt- based ECB said in a statement today. The balance sheet is now more than a third bigger than the U.S. Federal Reserve’s $2.9 trillion (FARBAST) and eclipses the 2.3 trillion-euro gross domestic product of Germany, the world’s fourth largest economy.

The ECB last week awarded banks 529.5 billion euros for three years in the biggest single refinancing operation in its history, adding to the 489 billion euros it lent in December. The flood of money, which aims to combat Europe’s sovereign debt crisis by unlocking credit for companies and households, has increased the risk exposure of the 17 euro-area central banks that together with the ECB comprise the Eurosystem.

“With the dramatic expansion of its balance sheet since last summer, the ECB has become the most active central bank in the world,” said Klaus Baader, chief euro-area economist at Societe Generale in London. “The ECB’s measures are absolutely justified, but it has to be aware of the risks on its balance sheet and think of an exit strategy.”

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PG View: I’m guessing the ECB has absolutely no clue how its going to shed itself of these assets over time. How did this happen to this extension of the staid Bundesbank?

06-Mar (Finacial Times) — A patch of global growth angst is weighing on sentiment and encouraging traders to pare positions in riskier assets after their recent good run.

The FTSE All-World equity index, which last week hit a near seven-month high on easing eurozone debt tensions, hopes for the US economy and expectations of continued central bank largesse, is lower for the third consecutive session, down 0.8 per cent.

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PG View: Paper gold is going along for the deleveraging ride (we’ve seen this before), but physical buyers take interest on such sell-offs.

By Ambrose Evans-Pritchard
05-Mar (The Telegraph) — The Spanish rebellion has begun, sooner and more dramatically than I expected.

As many readers will already have seen, Premier Mariano Rajoy has refused point blank to comply with the austerity demands of the European Commission and the European Council (hijacked by Merkozy).

Taking what he called a “sovereign decision”, he simply announced that he intends to ignore the EU deficit target of 4.4pc of GDP for this year, setting his own target of 5.8pc instead (down from 8.5pc in 2011).

In the twenty years or so that I have been following EU affairs closely, I cannot remember such a bold and open act of defiance by any state. Usually such matters are fudged. Countries stretch the line, but do not actually cross it.

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PG View: Rajoy will undoubtedly gain popular support within Spain (and perhaps elsewhere in the periphery) for thumbing his nose at EU austerity demands. Nonetheless, things are going to remain crumby in Spain even under Rajoy’s more lenient 5.8% debt/GDP target, although arguably things would be much worse under the EU’s 4.4% target. I wonder if Rajoy has gone so far as to consider who then might fund Spain’s larger deficit moving forward…and at what price.

03-Mar (NY Times) — That was the message delivered last Thursday to Americans who today make almost nothing on the savings in their bank accounts.

It came from Sarah Bloom Raskin, an insider at the Federal Reserve. Ms. Raskin, one of the governors on the Fed board, made the usual disclaimer that her comments reflected her own thinking. But Fed watchers said her remarks probably mirrored views inside the central bank.

The issue — as anyone looking for income-producing investments knows — is that the Fed drove down interest rates to almost zero to shore up big banks and an economy that those banks helped drive off a cliff. Now savers, who did nothing to create the financial crisis, are being punished.

This is one of the more troubling paradoxes of the Fed’s rescue of the financial system. And, according to Ms. Raskin, it is likely to continue for some time.

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PG View: One can mitigate the punishment the Fed is doling out by choosing to save in gold.

02-Mar (BBC) — Spanish Prime Minister Mariano Rajoy has said his country will miss its budget deficit target for this year, just as EU leaders agree a new treaty to enforce budget discipline.

Mr Rajoy said Spain’s deficit would be 5.8% of total economic output in 2012, higher than its agreed target of 4.4%.

He said the higher target still represented “significant austerity”.

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PG View: Apparently not significant enough, despite an unemployment rate of 23.5% in Feb.

04-Mar (MarketWatch) — Gold futures retreated Monday, extending a selloff started in the previous session and following weekly losses of 3.7% for the metal.

Gold for April delivery declined $5.80, or 0.4%, to trade at $1,703.90 an ounce on the Comex division of the New York Mercantile Exchange.

“Following last Wednesday’s sharp price slide, gold has not yet been able to resume its upwards trajectory,” analysts at Commerzbank said in a note to clients.

“There is additional scope for correction” as managers who had flocked to gold earlier leave the trade, but the correction is likely to be temporary, they added.

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04-Mar (Bloomberg) — Greece expects bondholders to accept a one-time offer to write off about 100 billion euros ($140 billion) of Greek debt and is ready to force them to participate if necessary, Finance Minister Evangelos Venizelos said.

“This is the best offer,” Venizelos said in a Bloomberg Television interview with Nicole Itano in Athens today. “This is the best offer because this is the only one, the only existing offer.”

…“If we can avoid the triggering of CDSs this is the best solution,” said Venizelos. “With a near universal participation it’s not necessary to activate CACs. But this clause exists in our legal order and we are ready to implement the legislation if necessary.”

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04-Mar (USAGOLD) — Gold slipped back toward the low end of last week’s range, after China’s revised its 2012 growth forecast to 7.5%. In recent history China has targeted 8.0% growth, although has with great regularity overshot that projection.

Additional uncertainty surrounds Thursday’s looming deadline for private Greek bond holders to “volunteer” for the proposed debt swap. Greece needs about 95% participation in the swap, or they will likely implement collective action clauses (CACs) that will shatter the charade that the is a voluntary deal and therefore not a default. The bond holders seem to be coming to the realization that Greece has no better chance of paying off on the new bonds than they do on the old bonds. If the bond holders have insurance in the form of credit default swaps (CDSs) they might have a better chance of recovering some of their losses by that avenue, but of course that may also trigger the next Lehman-esque systemic event.

The euro caught a little bid in earlier trading, prompting a modest retreat in the dollar. However, the short-term tone in the single currency remains defensive after last week’s gains faltered ahead of 1.3500.

US nonfarm payrolls for Feb comes out on Friday. While the market is eager to see some confirmation of the strong number from January, the Gallop employment survey from Feb raised some concerns. Nonetheless, the median forecast is running around +210k jobs, which would leave the jobless rate unchanged at 8.3%.

• US ISM- NMI rose to 57.3 in Feb, above market expectations of 56.5, vs 56.8 Jan.
• US factory orders -1.0% in Jan, above market expectations of -1.5%, vs upward revised +1.4% in Dec; inventories +0.6%.
• Switzerland retail sales +4.4% y/y in Jan, vs big upward revised +1.7% in Dec from +0.6% previously.
• Eurozone Markit PMI – Composite lower at 49.3 in Feb, vs 49.7 advance print.
• UK CIPS Services PMI falls to 53.8 in Feb, below market expectations of 55.0, vs 56.0 in Jan.
• Eurozone retail sales +0.3% in Jan, above market expectations of -0.1%, vs negative revised -0.5% in Dec; 0.0% y/y.
• Russia CPI 3.7% y/y in Feb.
• South Korea FX Reserves rise to $315.8 bln in Feb, vs $311.3 bln in Jan.
• Taiwan FX Reserves rise to $394 bln in Feb, vs $390.3 bln in Jan.
• Taiwan CPI tumbles to 0.25% y/y in Feb, vs 2.4% y/y in Jan.
• Singapore PMI improves to 50.4 in Feb, vs 48.7 in Jan.

04-Mar (The Wall Street Journal) — Some very large banks are clashing with the Federal Reserve over how much detail the central bank will reveal about them when it releases the results of its latest stress test.

The 19 biggest U.S. banks in January submitted reams of data in response to regulators’ questions, outlining how they would perform in a severe downturn. Now, citing competitive concerns, bankers are pressing the Fed to limit its release of information—expected as early as next week—to what was published after the first test of big banks in 2009.

…This time around, the Fed has pledged to release a wider array of information, including annual revenue and net income under a so-called stress scenario in which the economy would contract and unemployment would rise sharply.

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05-Mar (BBC) — China expects economic growth of 7.5% this year as it looks for more sustainable expansion, prepares for a change in leadership and rides out a global slowdown.

Premier Wen Jiabao unveiled the target at the start of the annual National People’s Congress.

Despite setting a target of 8% growth over the past eight years, China has regularly grown more quickly.

This has caused problems including high inflation and a widening wealth gap.

Last year, China’s gross domestic product (GDP), or annual economic output, grew by 9.2%. In 2010 gross domestic product grew 10.4%.

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PG View: Weaker growth prospects in China are weighing on gold today.

02-Mar (Bloomberg) — China expanded a trial of yuan settlement for exports to all companies qualified for foreign trade from a list of designated participants, the nation’s central bank said on its website yesterday.

The change is aimed at promoting trade and the Chinese currency’s cross-border use, the People’s Bank of China said, citing a combined directive with the ministries of finance and commerce, the customs and taxation bureaus and the China Banking Regulatory Commission.

[source]

Gold Remains Up Nearly 12% This Year, Despite Wednesday’s Plunge

02-Mar (USAGOLD) — Gold is displaying a more defensive tone this morning, amid persistent concerns about Greece. The euro has tested back below 1.3200, and the corresponding rise in the dollar is weighing on the yellow metal. Additionally, the market continues to speculate about exactly what happened on Wednesday to prompt an intraday plunge in gold greater than $100. Without a clear answer, buyers may be tentative until there are some technical assurances that a base is in place.

There is a growing realization that the latest Greek bailout deal, which presumably is still inching its way toward an actual payment of some sort to Greece, is nothing more than another attempt to buy some additional time. Recent data — most notably Feb PMI, which plunged to a series low 37.7 — makes it increasingly difficult to believe that Greece has any chance of making good on the new bonds that they will swap for the old bonds. With the PSI deal still hanging in the balance, this is surely an inconvenient truth.

It was reported yesterday that the ISDA had deemed that the Greek debt swap is somehow not a credit event, and therefore will not trigger Greek credit default swaps. That delusion becomes very difficult to defend if Greece starts enforcing collective action clauses (CACS). At that point, the alleged “voluntary” debt swap is pretty obviously coercive, especially with Greek bonds on the ECB balance sheet already getting more favorable treatment. Yet I somehow wouldn’t be surprised if the ISDA miraculously finds that implementation of CACS is not a credit event either; so that the writers of the CDSs don’t have to pay and governments and/or central banks don’t have to then come in and bailout those counterparties.

This CDS fiasco is just another illustration of the dubious nature of paper instruments.

Meanwhile investors continue to reflect on who might have been the big seller of paper gold on Wednesday. The latest speculation comes from Dennis Gartman of the Gartman Letter, one not predisposed to suggestions of market manipulation. An apparently trusted and well-placed source told Mr. Gartman that an undisclosed seller dumped the equivalent of 3 million ounces of gold at the London PM fix on Wednesday with the explicit instruction that it all be done within a few minutes. Gartman’s source believes “it was indeed official selling.”

Initially rumors suggested someone sold 1 million ounces worth of futures contracts, but whether we’re talking 31 tonnes, or 93 tonnes, what really changed hands on Wednesday was nothing more than a few grams of paper — or perhaps more accurately a bunch of “1s” and “0s” between computers. As one of my friends in Switzerland pointed out, there aren’t many counterparties on the planet that could come up with 31 tonnes of actual physical gold…and be willing to part with it.

In my opinion, whatever the volume of selling truly was, the market absorbed it pretty well and gold remains up nearly 12% since the beginning of the year. And based on the Wednesday’s PM fix at 1770.00, gold even managed to eke out a 1.49% gain in Feb.

02-Mar (Gartman Letter via GATA) — Moving on to the gold market, we remain bullish of gold in yen terms, and having made that statement yet again, we note something wholly out of the ordinary on our part: the prospects that something manipulative and perhaps even nefarious took place Wednesday in the gold market.

The market’s plunge may not have been solely the result of pure market forces, but may have been the result of a very real effort to “manipulate” the market lower … perhaps on orders of a central bank hoping to break the market in order to buy gold more cheaply after the surge of selling, or perhaps on the order of a government wishing to drive gold down for the “optics” of weaker gold prices.

…[A] note we received yesterday from a very longstanding friend and client of The Gartman Letter caught us off when it raised the very real possibility that something untoward took place Wednesday morning. Our friend, whom we’ve known for years and is not given to such speculation but who is at the center of such events, wrote:

“Dear Dennis, hope you are well. Regarding yesterday’s action in the precious metals, I have a different take on this than you do. As I have very intimate details of yesterday, I think it was indeed official selling. At the London fixing, an order came in to sell 3 million ounces of gold and it was explicitly ordered to be done in just a few minutes. No investor or speculator would 1) handle it this way and 2) do it at the fixing only.

“This [has] happened this way three times in the last year, yesterday being the fourth time. Ben Bernanke had done nothing yesterday to trigger this the way it happened. I [have done] this now for 30 years and this was no free market yesterday. We will find out one day.”

We offer this explanation as it stands, but certainly it has our interest piqued. It may be idle speculation on our friend’s part. It may even be wrong. But certainly it is interesting and worthy of some consideration. We shall leave it at that and we wish not to comment any further … to the press, to clients, or to anyone else; nor shall we.

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PG View: Speculation about what happened on Wednesday persists, but if the market really did absorb 3 million ounces in paper sales as Gartman’s source suggests — rather than the originally rumored 1 million ounces — I think it actually has held up remarkably well.

The European Union leaders who have been meeting in Brussels since last night are due to finalize the terms of the second Greek bailout today, though there are signs that the process may yet drag on for another week. It’s easy to get lost in the details, abbreviations and acronyms that have surrounded the package since negotiations began last summer. But make no mistake, this remains a terrible deal for both Greece itself and European taxpayers, and it has laid a major political and economic time-bomb that could explode in a few years’ time.

Of the €282.2 billion marked for the various measures now on the table to save the stricken country—including EU bailouts and interventions by the European Central Bank—only €159.5 billion, or 57%, will actually go to Greece itself. The rest will go to banks and other bondholders to cushion the blow of “private-sector involvement,” or private creditors’ losses on their Greek holdings.

This would have been acceptable if not for one nagging detail: The plan won’t actually save Greece.

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02-Mar (Bloomberg) — Holders of credit-default swaps on Greek bonds shouldn’t tear up their contracts after yesterday’s ruling against a payout.

The International Swaps & Derivatives Association said the swaps hadn’t been triggered by the European Central Bank’s exchange of Greek bonds for new securities exempt from losses taken by private investors. The group will now probably be asked to determine whether collective action clauses, or CACS, being used by Greece to impel investors to participate in a wider exchange of bonds that would trigger the swaps.

“They will have to enforce CACS,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “At that point the exchange will become coercive and that will be a restructuring event for CDS.”

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By TIM GEITHNER
01-Mar (The Wall Street Journal) — Four years ago, on an evening in March 2008, I received a call from the CEO of Bear Stearns informing me that they planned to file for bankruptcy in the morning.

Bear Stearns was the smallest of the major Wall Street institutions, but it was deeply entwined in financial markets and had the perfect mix of vulnerabilities. It took on too much risk. It relied on billions of dollars of risky short-term financing. And it held thousands of derivative contracts with thousands of companies.

These weaknesses made Bear Stearns the most important initial casualty in what would become the worst financial crisis since the Great Depression. But as we saw in the summer and fall of 2008, these weaknesses were not unique to that firm.

…Remember the crisis when you hear complaints about financial reform—complaints about limits on risk-taking or requirements for transparency and disclosure. Remember the crisis when you read about the hundreds of millions of dollars now being spent on lobbyists trying to weaken or repeal financial reform. Remember the crisis when you recall the dozens of editorials and columns against reform published on the opinion pages of this newspaper over the past three years.

…We cannot afford to forget the lessons of the crisis and the damage it caused to millions of Americans. Amnesia is what causes financial crises. These reforms are worth fighting to preserve.

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PG View: What Mr. Geithner fails to address in his op-ed is that the actions of his Treasury Department, the Fed and Congress make this “amnesia” possible. They essentially rewarded bad behavior, allowing ‘too big to fail’ banks to quickly return to ‘business as usual’, chasing yield further out on the risk curve. In fact, the collapse in Treasury yields pretty much forced them out along the curve. Hey, but that process has now pushed the Dow back above 13,000, so it’s all good…right?

01-Mar (ZeroHedge) — SNB +230%; Fed +222%, BOJ +125%, BOE +87%, PBOC +93%, ECB +51%.

PG View: Pretty strong evidence that the rally in bonds — and perhaps by extension the rally in stocks — is nothing but a charade.

Kind of surprised to see the Fed is not #1.

01-Mar (Bloomberg) — Greece will probably default this year on European governments’ holdings of its sovereign debt, according to Jacob Kirkegaard of the Peterson Institute for International Economics.

The country published the formal offer last week for its agreement to exchange bonds for new securities, with private- sector investors taking a loss of 53.5 percent. While the European Central Bank won’t take direct losses from the swap agreement, the writedown may make it more politically feasible for governments to lose money on Greek debt, Kirkegaard said.

…“If I were a buyer of industrialized sovereign credit- default swaps, I would strongly begin to doubt that I would ever get a payout,” he said.

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