8.5%

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There continues to be no coverage of silver in the non specialist financial media and little coverage of silver in the specialist financial media. However, both the Financial Times and Bloomberg cover silver today which might be a harbinger of short term weakness. The majority of articles on silver are bearish and most bank analysts remain bearish on silver again in 2012 – as they have been in recent years. Prices will average $37.50/ounce in Q4, according to a survey of 13 analysts by Bloomberg. The lack of coverage of silver and consequent “animal spirits” in the silver market is of course bullish from a contrarian perspective. Analysts look set to get the silver market wrong again as recent rocketing industrial demand for silver, from solar panels to batteries to medical applications and growing investor demand for coins, and small & large bars is “diminishing a supply surplus” according to Nicholas Larkin of Bloomberg.  This has led to silver’s best January gains in 30 years with silver up over 20% from below $28/oz to nearly $34/oz. Barclay's estimates that manufacturers will need a 2.5% increase of the metric tons used last year and investment demand continues to grow due to risks posed by both inflation and systemic risks. Silver supply shortages are something we and other analysts who are bullish on silver have been warning of for some time. This is because the silver market is small versus the gold market and tiny versus equity, bond, currency and derivative markets.  This is why we believe silver should rise to well over its nominal recent and 1980 high of $50/oz in the coming months.

Following the Fed's somewhat downbeat perspective on growth, confidence in investors' minds that the US can decouple has been temporarily jilted back to reality. It is of course no surprise and as the World Bank points out half of the world's approximately $15 trillion trade in goods and services involves Europe. So the next time some talking head uses the word decoupling (ignoring 8.5 sigma Dallas Fed prints for the statistical folly that they are), perhaps pointing them to the facts of explicit (US-Europe) and implicit (Europe-Asia-US) trade flow impact of a deepening European recession/depression will reign in their exuberance.

The week has started with a general risk averse tone as market participants remain somewhat disappointed in the progression of the Greek bond swap talks in spite of Venizelos, the Greek finance minister, suggesting that a compromise can be struck this week. The latest article writes that Troika believes Greece will need EUR 145bln of public money from the Eurozone bailout rather than the EUR 130bln originally planned. This however, has been swiftly dismissed by German lawmakers. In terms of the European equity market it is the banking stocks which have taken the brunt of the selling pressure which in turn has remained a supporting factor for higher prices in European fixed income futures. Meanwhile in the short end, Euribor, is trading higher following the release of the daily fixes which resumed a trend of sizeable declines in the 3-month fix. In other news, Italy came to market and raised EUR 7.5bln across four different BTP lines with decent demand and a fall in average yields paid. As such the Italian10yr spread over bunds has tightened from the morning’s highs with unconfirmed market talk suggesting that the ECB were also checking rates being noted by several desks. Looking ahead the main focus will likely remain on any updates regarding Greece as various European officials meet once again in Brussels. Aside from that, highlights come in the form of US personal income and spending for December with PCE data released at the same time.

In addition to telling everyone to short the euro and go long the dollar (wink) Goldman Sachs is kind enough to summarize what the recurring Eurocentric rumor-based headlines of the coming week will be: "The week ahead starts with the EU Heads of State Summit, where discussions will be focused on finalizing negotiations around the fiscal compact, where we think important progress has been made, not least by allowing individual countries to police each other's budget policies. Attention will also be squarely focused on Greece, where negotiations over PSI continue, in addition to negotiations between the Troika and the government. The IMF mission is scheduled to remain in Athens at least through Friday. The week also brings important bond auctions, starting with Italy on Monday (at 5- and 10-year tenors), followed by France and Spain on Thursday. Outside of Europe, key data include the slew of global PMI's on Wednesday. Consensus sees China's PMI slipping below the 50 threshold in January. We are slightly more cautious than consensus on the ISM, expecting an essentially unchanged reading. The week ends with the all-important nonfarm payroll release. We think nonfarm payroll growth probably slowed somewhat in January given less of a boost from favorable weather and seasonal factors. However, we think the pace of employment growth, combined with weak labor force participation, may still be enough to pull the unemployment rate down a touch."

Riskier assets advanced today, as market participants reacted to yesterday’s FOMC statement, as well as reports that Greece is making progress in talks for a debt-swap deal. However despite a solid performance by EU stocks, German Bunds remain in positive territory on the back of reports that the ECB has ruled out taking voluntary losses on its Greek bond holdings but is now debating how it would handle any forced losses and whether to explore legal options to avoid such a hit according to sources. As such, should talks between private creditors and other governing bodies stall again, there is a risk that Greece may not be able to meet its looming financial obligations. Of note, Portuguese/German government bond yield spreads continued to widen today, especially in the shorter end of the curve.

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• Fears Mount That Portugal Will Need a Second Bailout (WSJ)
• EU to Have No Deadline for End of Greek Talks (Bloomberg)
• Japan economy predicted to shrink in 2011 (AFP)
• Japan’s Fiscal Pressure Intensifies as Tax-Boost Plan Insufficent: Economy (Bloomberg)
• Berlin ready to see stronger ‘firewall’ (FT)
• Obama Speech to Embrace U.S. Manufacturing Rebirth, Energy for Job Growth (Bloomberg)
• EU Hits Iran With Oil Ban, Bank Asset Freeze in Bid to Halt Nuclear Plan (Bloomberg)
• China's Oil Imports from Iran Jump (WSJ)
• Croatians vote Yes to join EU (FT)
• Japan’s $130 Billion Fund Unused in Biggest M&A Year in More Than Decade (Bloomberg)
• Buffett Blames Congress for Romney’s 15% Rate (Bloomberg)

Just as certain as death and taxes, fading Goldman's FX "Strategist" has once again made everyone rich. Back on January 6 when the 0.000-batting FX guru said "With considerable downside risk in the short term, within our regular 3-month forecasting horizon, the key questions are about the speed and magnitude of the initial sell-off. If we had to publish forecasts on a 1- and 2-month horizon, we could see EUR/$ reach 1.20. In other words, we expect the EUR/$ sell-off to continue for now as risk premia have to rise initially." To which our response, naturally was: "In yet other words, if there is a clearer signal to go tactically long the EURUSD we do not know what it may be. We would set the initial target at 1.30 on the pair." Needless to say, following Stolper's recommendation, the EUR barely dipped further, and as of this morning has soared above 1.3000, helped not least of all by the record EUR IMM shorts we have been highlighting for weeks. With this, we now close our latest fade-Stolper trade at a profit of 317 pips. This is the 8th out of 8 closed and profitable "anti-Stolper" trades posted on Zero Hedge.

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There were two reasons for today's big initial market move: one was the realization that the next LTRO could be massive to quite massive (further confirmed by a report that the ECB is now seeking a "Plan B"), the second one was that, somehow, even though China's economy came in quite better than expected, and much better than whispered, the market made up its mind that the PBoC is now well on its way to significant easing even though inflation actually came in hotter than expected, and virtually every sector of the economy, except for housing, is still reeling from Bernanke's inflationary exports. While we already discussed the first matter extensively earlier, we now present some thoughts from Standard Chartered, one of the most China-focused banks, to debunk the second, which in a note to clients earlier summarized "what the economy is really doing and where it is going" as follows: "If anything, today’s data is another reason not to expect a quick move to further loosening. The economy is slowing, but not dramatically – so far." This was subsequently validated by an editorial in the China Securities Journal which said there was no reason to cut interest rates in Q1, thereby once again confirming that the market, which in its global Bernanke put pursuit of interpreting every piece of news as good news, and as evidence of imminent Central Bank intervention, has once again gotten ahead of itself. And as the Fed will be the first to admit, this type of "monetary frontrunning" ironically make the very intervention far less likely, due to a weaker political basis to justify market intervention, while risking another surge in inflation for which it is the politicians, not the "independent" central banks, who are held accountable.

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All you need to know.

Whether it is strong-USD-based forward revenue reductions for US corporations, rear-view mirror-based fuel-cost implicit tax-cuts, or unsustainable savings rate reductions, the recent US data has created a plethora of 'this time is different' decoupling theorists. We discussed David Rosenberg's perspective on this unsustainability last week and now his old employer (Bank of America) is notably out with a rather negative note on the chances of this 'local' European problem becoming a global issue and impacting US growth through both trade and financial linkages. In their view, we will see a steady deceleration in growth this year while the consensus sees a pick up and by the spring these negative revisions (from sell-side economists) will weigh heavily on stock markets and support bonds. They sum it up succinctly: 'Enjoy the recent price action while it lasts.'

Brief and concise summary of the week's key bullish and bearish events.