Archive - Feb 18, 2011 - Story

Meanwhile, not letting any parabolic blow off in silver crisis go to waste, the Criminal Reserve and the Criminal Dealers engaged in another gang rape of whatever is left of the US middle class. Today's POMO, which closed with $6.688 billion of 3 year bonds getting monetized (at a whopping 5.6x Submitted/Accepted ratio), basically consisted of just two cusips: the 912828PQ7 and the 912828QH6. Of these two, QH6 represented $5.285 billion or 80% of the entire POMO. Why is this interesting? Because this CUSIP was auctioned off ten days ago, with an actual issuance date of February 15. That's Tuesday. The Fed just monetized bonds that were eligible for trading for a whopping 3 days! The daylight robbery, and the PD fringe benefits, continue as nobody apparently has the guts or half the brain to understand just how criminal this set up is. Luckily, everyone will magically, and very retroactively "know" just how ominous this now daily occurrence was after the next and last crash.

We apologize for this most recent silver update, but it is rather exhilarating to watch the main Tri-Party repo clearer, and Fed's pet bank squirm. Silver is now above $32.70 as the unleashed squeeze is claiming victims left and right, and the metal is up 7% from yesterday's low. Jamie: it may be time to shelve those dividend plans for a year or two but at least you got your bonus you sly dog, you. As a reminder, margin calls in silver, and they will be, ahem, sizable, commence at 3pm Eastern.

Crude go whoosh. And just in case it is unclear where this is going, the WSJ reports that according to "diplomats" Iran is redoubling efforts to enrich Uranium by installing faster centrifuges, as it is supposedly seeking to overcome setback to nuclear program believed caused by the Stuxnet virus. Unclear how much information was fabricated in the creation of this latest war provocation (see Iraq WMD).

Presented without nominal (and certainly not real) commentary.

We thank Sean Corrigan of Diapason Securities for bringing our attention to the MIT Billion Price real time inflation Index (first reported here) who points out that based on the ongoing surge in prices, which have increased by 1.25% in the last 45 days (December 31, 2010: 101.085, February 14, 2011: 102.353), a simple annualization indicates a 10.6% increase in prices in 2011! With all undue respect to the Chairsatan (and other "disinflationists") it is time to bring Volcker out of the freezer once again. Look for the 30 Year to pass 5% in a few weeks. Oh yes, M2 surged to all new time highs again.

The situation in Bahrain is now critical, with live fire raining (literally: the army is shooting from helicopters on citizens and journalists) on protesters, resulting in dozens killed, even as Libya (9th largest crude reserves in the world) is rumored to be in a comparable situation. The countdown on Saudi Arabia is now on. Watch the latest development at Al Jazeera which is now broadcasting live from Manama.

And silver surges on margin hike news, taking out $32, and fresh 31 year highs. Something is very wrong. Our only question: how long before the American taxpayer has to repeat the AIG experience, and bail out JP Morgan over its billions in silver shorts. For our non tinfoil heat wearing friends in the various operating subsidiaries of the FT, we have one comment: "We have sold everything we can produce in silver and have demand for at least twice that volume,” said David Madge, head of bullion sales at the Royal Canadian Mint, which produces the silver Maple Leaf coin. Silver coin sales at the US Mint and the Austrian Mint also hit record levels in January"

Now that JPM is out of the picture, the last recourse of gold and silver price suppression is exchange margin hikes. Or was. The CME has announced, that as of close today, it will hike various gold and silver (and other metal) contract initial and maintenance margins by 50%.... And nobody cared. This means the CBs are well on their way to losing the imposed gold standard wars. Look for the USD to take a big step lower shortly as nominal values of everything do the inverse.This will naturally be promptly followed by a "sudden and dramatic deterioration in European conditions" as the EUR can not be far behind in the FX race to the bottom.

It's a day ending in Y. Meaning it is time for the ECB to go ahead and sweep another billion or so Portuguese bonds under the rug. Because you can't have the 10 Year yield at all time highs (as in yesterday) and for that relentless stream of lies emanating from every ECB bureaucrat's orifice to be taken seriously, can you. We give the ECB another month before they realize what the SNB figured out long ago: it's best to give up when it comes to direct market manipulation. We are confident Portuguese bonds will hit another all time high yield by the middle of next week. And at some point European taxpayers may just ask what all their money is being spent on.

The most amusing explanation we have read so far for the dramatic spike in punitive MLF borrowing over the past two days is that there has been a "fat finger" from a bank which indicated a too low allocation at the last term MRO. In other words, someone moved the decimal comma and now has to pay an additional 100 basis points of interest (annually) on €16 billion in borrowings. Citi's Jurgen Michels explains it best: "After the strong use of the ECB’s marginal lending facility yesterday by €15bn there is a further increase in the use of the facility to €16bn today. This suggests that some banks have not tapped enough liquidity in the ECB’s Main Refinancing Operation (MRO) on Tuesday, which was allotted on Wednesday. The MRO – which is still provided with full allotment – only had a modest use of €137 bn. Comment: Unless the ECB provides term-liquidity until the end of the running MRO (next Tuesday) we will continue to see a high use of the marginal lending facility." In other words: the ongoing surge in the MLF borrowings is now priced in. And to confirm just how clueless in reading market information CNBC is, the Comcast station looked at flat Euribor as an indication of market calmness. Unfortunately, as European banks have bypassed borrowing from each other (for about a year now) and go straight to the ECB either directly or via collateral pledges, as a lender of first and last resort, Euribor is about as useful as you know what on a nun. We present another stress indicator, which however is much more difficult to replicate: European Commercial Paper, denominated in dollars. And the surge there is unmistakable.

When one insolvent bank buys another insolvent bank, you know things are swell. National Bank of Greece, best known for being bankrupt, has just announced it will buy Greek Alpha Bank best known for also being bankrupt. Remember: when in doubt, use taxpayer capital to become TBTF, even as you have determined billions in bonus payouts (but not in a public filing of ourse). Worked great for John Thain...

• Mergers loom as "flash crash" back in spotlight (Reuters)
• A monetary regime for a multipolar world (FT)
• Split in Economy Keeps Lid on Prices (WSJ)
• Inflow of 'Hot Money' Hits $35.5 Bn (China Daily)
• Bahrain Military Takes Control of Capital (FT)
• Trade Judges See Flaw in China Policies (WSJ)
• German Banks' Debt Downgraded By Moody's on Restructuring Act (Bloomberg)
• Balls Warns King on Bank Credibility (FT)
• Looks Like Banks Lose on Risk Plea (NYT)

In yet another very unsurprising event, Ben Bernanke was speaking at the Banque de France Financial Stability Review Launch Event, where per his prepared remarks he once again defended easy money policies so critical at keeping the S&P a few thousand points above fair value over the past two years. Making it once again clear that Bernanke has no clue about how economics works, the Chairsatan was quoted as saying that "The rest of the world has an interest in the U.S. recovery that my policies are spurring." Of course by pursuing his ZLB/ZIRP policies (see, we can name drop too), the Fed is doing nothing but exporting inflation to those countries least capable of handling it, which tends to lead to such inevitable events as government overthrows and revolutions.

Here is how one offsets the aftereffects of concerns there may be a liquidity crisis in Europe: just make a few completely impossible statements about hiking interest rates and presto: your currency is back to unchanged. The EURUSD has surged by 60 pips in seconds following reports that the ECB's Bini Smaghi was quoted as saying that ECB may raise rates as price pressures mount. While it is great that more central planners are finally acknowledging inflation does exist (cotton is now firmly planted over $2), the probability of this happening is zero to negative, as it would put pressure on the short end, flatten the curve and otherwise pull the rug out from the ponzi "recovery" that has taken foothold in Europe, forcing even more involvement from the Fed to keep the European domino from going down. Elsewhere, Bund futures tumbled as the inflation genie is one step closer to being released from the bottle...

Markets modestly negative again this morning. Reports came out yesterday cited that the Fed ordered U.S. banks to undergo stress tests with unemployment rate at 11% in recession-like conditions. CPI released yesterday increased 0.4% MoM v 0.3%E, lightening expectations of deflation. The move contributed to inflation concerns among G-20 policy makers meeting in Paris this week. Nevertheless the prints gave no sign that the Fed would hike and the curve bull flattened as a result. The rise in LIBOR-OIS to 16.75bp from a BoY base of 12bp causes us some concern when viewed in light of the recent ECB borrowing facility jump. Though rates still feel in their “normal” range, we are definitely suspect of the funding undulations of the past few weeks.