07-Mar (HousingWire) — Home prices in January declined for the sixth consecutive month in a row, according to the latest data from CoreLogic ($14.89).

The Santa Ana, Calif.-based analytics firm says home prices, including those on distressed sales, fell 3.1% in January from a year earlier and dipped 1% from December. When excluding distressed home sales, prices fell 0.9% in January compared to a year earlier.

“Although home price declines are slowly improving and not far from the bottom, home prices are down to nearly the same levels as 10 years ago,” said Mark Fleming, chief economist for CoreLogic.

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PG View: The negative wealth effect associated with a decade of lost appreciation in home values does not bode well for consumption and the broader economy.

06-Mar (Washington Post) — In the wake of the 2008 financial crisis, the Obama administration helped negotiate a plan to give emerging economic powers increased say at the International Monetary Fund, while also having them contribute more to an enlarged pot of money for the fund.

But a brewing election year fight with congressional Republicans has put that plan in doubt and could restrict the IMF’s finances at a time when agency officials say they need a substantial boost to protect the world economy.

The dispute centers on Republican opposition to increasing the United States’ financial contributions to the agency, reflecting anger over IMF rescue programs in Europe that some GOP lawmakers argue have become too expensive and have put U.S. taxpayers at risk.

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07-Mar (The Wall Street Journal) — Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead.

Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed’s previous efforts to aid the recovery.

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PG View: Such an operation will be a goldmine for prime dealers like Goldman Sachs, Morgan Stanley, JPM, Citi et al and their shares are now outpacing the broader market.

07-Mar (Reuters) — Cash deposits to cover the declining value of guarantees posted against European Central Bank loans rose to their highest level ever last week, balance sheet data showed, a development which analysts pegged to the ECB’s move to exclude Greek government bonds from collateral use.

Deposits related to margin calls – money that banks place at the ECB after the market value of their collateral value declines – jumped to 17.1 billion euros at the end of last week from 2.9 billion the week before.

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Gold Finds Some Support as Greek PSI Deadline Looms

07-Mar (USAGOLD) — Gold is trading higher after falling in recent sessions. The yellow metal held up well as the EUR-USD rate probed below 1.3100 amid continued concerns that Greece is not going to be able to pull-off the PMI deal ahead of tomorrow’s looming deadline. When we see gold and the dollar rising in unison, we like to think that the safe-haven aspects of gold are starting to re-exert themselves. Time will tell.

The euro was also weighed on by a big slump in German manufacturing orders in January. Orders unexpectedly fell 2.7% m/m, well below market expectations of +0.5%, vs a negative revised +1.6% in December. The year-on-year pace tumbled to -4.9%, versus 0.0% y/y in December.

Bloomberg reported this morning that only about 39% of private bondholders had “volunteered” to swap their Greek debt for new bonds with a lower face value and much lower yields. This is not sufficient, and unless the buy-in improves dramatically before tomorrow’s 20:00GMT deadline, they will likely have to use collective action clauses (CACs) to force the swap on private bondholders. At that point, any pretense that the swaps are voluntary is shattered and the ISDA will have to (or will they?) declare a “credit event” that will trigger credit default swaps (CDSs).

The IIF warned that “it is hard to see how [the risks of a disorderly Greek default] would not exceed 1 trillion euros.” They worried about contagion risks to Spain and Italy, but nobody quite knows the true magnitude — nor the whereabouts — of the liabilities on the CDSs. Therefore, the ISDA may be obliged to find some new pretense for a Greek default not to be a Greek default. Certainly there’s going to be a lot more arm twisting going on over the next 26-hours or so…

Meanwhile the yield on Greek 1-year money surged decisively over 1,000%. The GGGB1YR has traded as high as 1,114.49300% intraday. Clearly the bond market — such as it currently exists — thinks that a Greek default is imminent, or has in fact already occurred.

The next day or so could be very interesting as policymakers across Europe scurry about trying to maintain at least the illusion that all is well and orderly. If they fail, the possibility of a financial crisis that would make the events of several years ago look like child’s-play is very real.

07-Mar (MarketWatch) — Gold futures edged higher Wednesday, finding support after tallying a decline of nearly 3% over the past three sessions, as U.S. stocks cheered upbeat data on private-sector jobs for February.

Gold for April delivery tacked on $5.20, or 0.3%, to $1,677.30 an ounce on the Comex division of the New York Mercantile Exchange.

The metal looked poised to end a three-session losing streak, during which it had dropped $50.10 an ounce, or 2.9% — including a drop of nearly $32 on Tuesday to gold’s lowest settlement in six weeks.

…For the long term, it’s “all about and always about the fundamentals” for gold, he said.

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06-Mar (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke spent six years pushing for an inflation goal. Now that he has it, some investors are betting he’ll breach the 2 percent target in the short run to lower unemployment.

The Fed chairman told lawmakers last week that an increase in energy costs will boost inflation “temporarily while reducing consumers’ purchasing power.” He also said the central bank will adopt a “balanced approach” as it pursues its twin goals of price stability and full employment, which it defines as a jobless rate of between 5.2 percent and 6 percent.

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PG View: It sure didn’t take long for that core-PCE target of 2% has become a “soft” target…

07-Mar (Bloomberg) — Gold gained for the first time in four days in New York as some investors bought the metal after its drop to the lowest level in almost six weeks.

Bullion slipped 1.9 percent yesterday as the dollar strengthened and commodities slid on concern slower growth will cut demand. The dollar was little changed versus the euro today before tomorrow’s deadline for a Greek bond exchange needed for the nation to receive a second aid package.

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06-Mar (Reuters) — A disorderly default in Greece would likely necessitate outside support for Spain and Italy to stop the threat of contagion, and could cause more than 1 trillion euros of damage to the euro zone, a group of bondholders warned.

“There are some very important and damaging ramifications that would result from a disorderly default on Greek government debt,” a document from the Institute of International Finance said. “It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed 1 trillion euros.”

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PG View: What a coincidence; €1 trillion is almost exactly what the ECB pumped into the European banking system via two LTROs over the last 3-months…

07-Mar (Bloomberg) — Investors with holdings amounting to 39.3 percent of the Greek bonds eligible for the nation’s debt swap agreed to sign on, moving the country closer to the biggest sovereign restructuring in history.

The 30 members of the private creditor-investor committee for Greece who plan to participate in the swap hold an aggregate 81 billion euros ($106 billion) of bonds, according to an e- mailed statement from the Institute of International Finance today. The offer ends at 10 p.m. Athens time tomorrow.

…Greece expects bondholders to accept the offer and is ready to force them to participate if necessary, Venizelos said in a Bloomberg Television interview in Athens this week. Compelling holdouts to take part will likely trigger insurance contracts on the debt known as credit default swaps, analysts said.

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PG View: So 39% participation in the PSI is not going to save Greece. The CACs will likely be enforced, which will them trigger the CDSs and all hell may well break loose. If by some chicanery the ISDA deems that enforcement of CACs is not a credit event, then all hell may well break loose because sovereign CDSs suddenly won’t be worth the paper they are printed on.

07-Mar (Bloomberg) — German lawmakers will review the Bundesbank’s management of the country’s gold reserves, Bild Zeitung reported, citing unidentified parliamentarians.

Parliament’s Budget Committee will assess how the central bank manages its inventory of the metal that is stored in Frankfurt, Paris, London and New York, the newspaper said. The Federal Audit Office has criticized the Bundesbank’s lax inventory controls, Bild said.

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PG View: Given the rising uncertainty, now might be a good time to make sure all your gold is where it’s suppose to be, and that you have control of those ounces. Arguably, that should have been done years ago.

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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