Borrowing Costs

South Africa's gold output fell again in January and was down a very large 11.3% in volume terms in January.  Annual gold production is set to be close to 220 tonnes which is a level of gold production not seen since 1922 (see chart below). The falls were seen only in the gold market with production of other minerals holding up with total mineral production down only 2.5% compared with the same month last year. South Africa as recently as two decades ago was the world's largest producer of gold by a huge margin. Only 40 years ago South Africa produced more than 1,000 tonnes of gold per annum but will only produce some 220 tonnes in 2012. Production peaked in 1970 and has been falling steadily and sharply since. The nearly 80% fall in South African gold production has led to it being recently overtaken by China, Australia and the U.S.  It is now even at risk of being overtaken by Russia. The massive 11.3% decline in South Africa was more than even that seen in December when gold output fell by 8.2%. The continuing output decline is due to many of the country's biggest gold mining operations having reached the ends of their lives and having closed down.

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Going into the US open, European equity markets have carried across some risk appetite from last night’s Wall Street news that 15 out of 19 major US banks had passed the Fed’s stress test scenarios. This risk appetite is evident in Europe today with financials outperforming all other sectors, currently up over 2%. Data released so far today has been relatively uneventful, with Eurozone CPI coming in alongside expectations and Industrial Production just below the expected reading for January. Taking a look at the energy complex, WTI and Brent crude futures are seen on a slight downwards trajectory so far in session following some overnight comments from China, highlighting the imbalance in the Chinese property market, dampening future demand for oil. Looking ahead in the session, the DOE crude oil inventories will shed further light on the current standing of US energy inventories.

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Today is supposedly the day. The initial deadline for Greek PSI will occur later today (unless of course it is extended somehow - but will be released here) and while CAC activation (and hence eventual 90% participation) is the consensus most likely outcome for bonds under Greek law (but not for all bonds under English law) - which the market appears to be very comfortable with given overnight trading - there are still risks, as BofA notes, that a number of low risk but high impact events unfold with extremely negative connotations. Clarifying expectations and market implications, it does seem that while BofA is a little more sanguine than us on this initial deadline, that the market's complacency is extremely high.

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As good news appears to be bad news for now and the hopes of imminent dovish QE3-gasms gets pushed off a week or two, we thought it useful to dig into the mysterious central bank go-to play in a little more detail. Morgan Stanley's European Economics Team asks and answers five of the most frequently discussed questions with regard quantitative easing. From whether QE has worked to inflation fears and concerns over policy normalization and what happens if the public lose confidence in central bank liabilities, we suspect these questions, rather dovishly answered by the MS team, will reappear sooner rather than later, and as they interestingly note, the deployment of central bank balance sheets is, in essence, a confidence trick.

Today's second most important event is the testimony of Bernanke before the House Financial Services Committee (yes, Maxine Waters will be there). Lawmakers will  question him about the Fed's plans on avoiding inflation and the current unemployment rate. Committee members are also expected to inquiry about fiscal policy, the status of the nation's economic recovery, the impact of rising gas prices, and the debt crisis in Europe. Most importantly, Benny will be asked to testify on when more QEasing is coming as the markets need their fix. Watch it live at C-Span after the jump.

Yep! If you push that sausauge too far in an attempt to hide it, it's bound to start hurting someone... somewhere... 

Greece has been the most pillaged country in Europe this Depression, among other reasons, because no one in any leadership position seems to have learned lessons from the 1930s. Plus, banks have more power now than they did then to call the shots. Despite no signs of the first bailout working – certainly not in growing the Greek economy or helping its population - but not even in being sufficient to cover speculative losses, Euro elites finalized another 130 billion Euro, ($170 billion) bailout today. This is ostensibly to avoid banks’ and credit default swap players’ wrath over the possibility of Greece defaulting on 14.5 billion Euros in bonds. Bailout promoters seem to believe (or pretend) that: bank bailout debt + more bank bailout debt + selling national assets at discount prices + oppressive unemployment = economic health. They fail to grasp that severe austerity hasn’t, and won’t, turn Greece (or any country) around. Banks, of course, just  want to protect their bets and not wait around for Greece to really stabilize for repayment.

Everything you always wanted to know about LTRO but were afraid to read.

It seems like it was only yesterday [technically it was September] that David Bianco "departed" his latest employee, Bank of America, where he landed following his "departure" from UBS back in 2007. Today, courtesy of Business Insider we learn that following an extended garden leave, or just a rather choppy job market, Bianco his finally found a new happy place: right in the cave of joy and happiness, also known as Deutsche Bank (aka the bank whose assets are about 80% of German GDP and which recently 'magically' recapitalized itself). Here he will be joined by the two other pillars of perspicacity - Binky Chadha and Joe LaVorgna. What to expect? Who knows - but lots of twisted humor is certainly in store. For the sake of simplicity we present some of the salient soundbites from Bianco and his colleagues over the past 5 years.

Not only is the large bank-GSE cartel preventing millions of Americans from refinancing, but these same cartel players are also thwarting Fed monetary policy and hurting all our economic prospects.

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Federal Reserve Board Chairman Ben Bernanke will testify at House Budget Committee (Chairman Paul Ryan, R-WI) full committee hearing on "The State of the U.S. Economy." The highlight of today's hearing will be watching Bernanke face his nemesis runner up, Paul Ryan, who will surely grill Blackhawk Ben with questions that are far more intelligent than the press corps could come up with during the last FOMC canned remark presentation. Watch the full testimony live at C-Span after the jump.