Reuters

All you need to know.

Life goes on, so does the stock market. 

For anyone wondering how the abandonment of the dollar reserve status would look like we have a Hollow Men reference: not with a bang, but a whimper... Or in this case a whole series of bilateral agreements that quietly seeks to remove the US currency as an intermediate. Such as these: "World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", and now this: "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says." And ironically, the proposal to dump the greenback did not come from Iran. Per Bloomberg: "Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran’s state-run Fars news agency reported, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow. The proposal to switch to the ruble and the rial was raised by Russian President Dmitry Medvedev at a meeting with his Iranian counterpart, Mahmoud Ahmadinejad, in Astana, Kazakhstan, of the Shanghai Cooperation Organization, the ambassador said." Is Iran gradually becoming the poster child of an energy rich country that just says no to the dollar: "Iran has replaced the dollar in its oil trade with India, China and Japan, Fars reported." Next thing you know China, Russia and Japan will engage in bilateral trade agreements with the Eurozone in exchange for purchasing European or EFSF (which at last check are now forced to give 30% guaranatees) bonds, and bypassing dollars completely. But yes, aside from everyone else, virtually everyone (footnote 1) is still using the dollar as currency of global exchange.

UBS, which has been issuing ever gloomier forecasts over the past few months, with the sole intent of getting someone to bail out the European financial system, which despite the current stay of execution is increasingly more brittle (because solvency crises only get worse with time, never better), has just come out with its magnum opus. In a report released overnight, the firm's Global Rates Team has just jumped the shark, with a prediction that things in Europe are literally about to implode: "we anticipate that the crisis will deteriorate further than the stressed levels of late November. We do not believe that Greek PSI will take place in a “voluntary” fashion but instead expect coercive restructuring of Greek debt either before or soon after the March redemption, triggering CDS contracts. Greece is not likely to decide to leave the euro area in 2012, though the risks of that happening have certainly increased." And as we well know from previous UBS reports, a departure of a country from the Eurozone would lead to a mass splurge in purchases of guns, spam and gold. So is this merely a last ditch call for a bailout from someone, anyone: either Fed or ECB will do? Most likely. Because if while the general market continues to ignore Europe, and European banks are out there literally screaming the end is nigh, then the truth is surely somewhere inbetween. Especially, if as Reuters reports, Greece is just the beginning. "One of Portugal's most prominent business leaders has moved his family holding company to Holland partly because of uncertainty over whether the country will remain in the euro, Alexandre Soares dos Santos said in a newspaper interview on Saturday. Soares dos Santos, who is chairman of the board of Jeronimo Martins, caused a stir in Portugal this week when it emerged that his family holding company that controls the country's second largest retailer had moved to Holland...."I also don't know if Portugal will stay in the euro. And if it leaves, it will be to the escudo," Soares dos Santos told Expresso, referring to the escudo currency used by Portugal before it adopted the euro. "I have a right to defend my property."" So while everyone continues to expect the best, those who really matter are planning for the worst.

While the aftermath of the first 10 day Iranian wargame in the Straits of Hormuz is still lingering, especially in the price of oil, and the world is bracing itself for parallel exercises between a joint US-Israel operation and a concurrent Iranian effort in the weeks ahead, Iran is not waiting and has already started a brand new military exercise, this time inland and far closer to a key US strategic asset - Afghanistan (and its poppies). From Reuters: "Iran launched a military manoeuvre near its border with Afghanistan on Saturday, the semi-official Fars news agency reported, days after naval exercises in the Gulf increased tensions with the West and pushed up oil prices. Mohammad Pakpour, commander of the Revolutionary Guards' ground forces, said the "Martyrs of Unity" exercises near Khvat, 60 km (40 miles) from Afghanistan, were "aimed at boosting security along the Iranian borders," Fars reported." Naturally, this "reason" is bogus. That said, at this point we are at a loss as to which country it is that is desiring a military escalation more, because both sides appear hell bent on moving past the foreplay stage. Regardless, the whole situation is starting to smell more and more like the summer of 2008 when crude would move up in $5 increments on flaring tensions between Israel and Iran, coupled with Goldman predictions of near-quadruple digit Brent, only to have the entire energy complex implode in the aftermath of Lehman. The recent decoupling of oil from all other risk indicators (oil higher is not a good thing for the economy) is vaguely reminiscent...

• So very encouraging - IMF's Lagarde: euro likely to survive 2012 (Reuters)
• Drop Greek bond plan, urges ECB council member (FT)
• Soros says EU break-up would be catastrophic (Reuters)
• Japanese Banks Get 'Stress Tests' (WSJ)
• Hungary Pledges Compromise on IMF Loan (Bloomberg)
• Confidence in London property falls (FT)
• Fed nears an adoption of an inflation target as Bernanke pushes transparency (Bloomberg)
• Seoul and Tokyo seek to ease Iran oil ties (FT)

The selloff in crude yesterday, provoked by this Reuters article stating that Iran is ready to resume nuclear talks with the West, is now well over and the accumulation has again resumed, following (not so) stunning news that merely days after its 10 day Straits of Hormuz military exercise ended, the country is already preparing for yet another, "massive" naval exercise. As RT reports, "Iran is planning to hold new “massive” naval exercises near the strategic Strait of Hormuz within the next few weeks, the country’s Fars news agency has said, as Tehran’s tensions with the West continue to escalate following threats of new sanctions against the Islamic Republic over its controversial nuclear program." And this time the wargame comes with a twist - it will likely occur just across from a comparable drill ran jointly by the US and Israel: "The newly announced Iranian drills, codenamed The Great Prophet, may coincide with major naval exercises that Israel and the United States are planning to hold in the Persian Gulf in the near future. AP quoted on Thursday a senior Israeli military official as saying the drills would be held in the next few weeks." And since the Tonkin Gulf Resolution script is being used point by point, any lost escalation "chances" in the end of 2011 will surely be regained within days.

The head of the SNB Philipp Hildebrand has released his first public remarks over the allegation that he, his wife, or his daughter (it is still not quite clear just who frontran the Swiss Bank) profited massively by trading the CHF ahead of the SNB currency floow announcement. Below is a summary of his statement via Reuters and Bloomberg.

Looks like Europe plans (and we use the term very loosely) on pushing its fate literally to the wire. Yesterday we explained why for Greece March is D(eadline)-Day, and as Greece itself stated, absent bailout cash coming in, it is game over: for Greece, for the Eurozone, and for Europe as the serial chain of defaults and exits begins. Which is why we read with great surprise minutes ago that according to the European Commission, the entire Greek bailout package has been delayed by three months because of delays in payouts of the 2011 tranche! Naturally this is supposed to have the optics of punishing Greece for doing absolutely nothing to fix its fiscal situation but all it will do is send the market (the European one that is - America is still stuck in some idiotic limbo where it fools itself that it can exist in isolation from the world's biggest economy) even more into Risk Off mode, as the world will be forced to wait until the 11th hour and 59th minute to find out if the Euro and Eurozone will survive for a few more months. In the meantime, Mario Monti is off to Brussels to satisfy an unscheduled craving for Belgian beer and chocolate, or something.

• ECB Cash Averts ‘Funding Crisis’ for Italy, Spain (Bloomberg)
• Bailout talks in Greece ‘crucial’, Premier says (WSJ)
• Spain sees €50bn of new bank provisions (FT)
• Fed says expand Fannie, Freddie role to aid housing (Reuters)
• France’s Borrowing Costs Rise at Bond Sale (Bloomberg)
• Europe worries linger after French auction (Reuters)
• PBOC Suspends Bill Sale as Money Rates Rise Before Holiday (Bloomberg)
• Turkey warns against Shi'ite-Sunni Cold War (Reuters)
• New capital rules for banks ‘delayed to 2H’(China Daily)

Gold's fifth day of price rises is the longest rally we've seen in two months. Concerns about the solvency of European banks and sovereigns is overcoming the 'risk on' appetite of late 2011 and early 2012. The euro has fallen to 1.2840 USD and to €1,256/oz. Growing tensions with Iran including the European Union's preliminary agreement to ban Iranian oil, will fuel gold's  safe haven status for investors. Gold is trying to consolidate above psychological levels of $1,600/oz, £1,000 and €1,200/oz. The 200 day moving average is $1,631.60 which remains resistance. The intraday high hit $1,624.66, was gold's highest price since December 21. We expect gold demand to pick up ahead of the Chinese Lunar New Year, The Year of the Dragon, which begins on January 23.

Former Greek PM, and career politician, George Papandreou, is effectively retiring. Per Reuters: "Greece's former prime minister George Papandreou told his PASOK socialist party on Wednesday that he will step down as party leader and not seek re-election, a socialist deputy told Reuters. "He told us that he will resign as PASOK leader and that he will not run for prime minister again," said the deputy who attended a party meeting on the leadership succession. Papandreou stepped down as prime minister in November last year to make way for a coalition government to help Greece exit its biggest financial crisis in decades." Nothing like scurrying away in the last lifeboat just as your country is caught in the 21st century equivalent of the 22nd Catch, where your tax collectors, so critical for procuring the much needed tax revenue (sorry Greece, only America can "print" its revenues) are on what seems to be perpetual strike.

As if the situation in the Gulf was not enough on edge, here comes Europe with news, via Reuters, that EU governments have reached a deal to ban Iranian oil imports. The only thing pending is the determination of the starting date and other details. The result, as expected, is another leg up in crude. Sooner or later, this relentless rise higher will spill through to the pump, which according to the Michigan Bizarro confidence indicator will sent consumer optimism to historic levels. And now, the escalation hot grenade is back in Iran's court. Expect more missiles to be fired into the water and more rhetoric about Straits of Hormuz closure in 5...4...3...

• Iowa result leads to GOP confusion (FT)
• Romney ekes out Iowa caucus victory (FT)
• MF Global sold assets to Goldman before collapse (Reuters)
• China’s Wen Jiacao sees ‘relatively difficult’ first quarter (Bloomberg)
• German Scandal Adds to Pressure on Merkel (WSJ)
• US mortgage demand fell at year-end, purchases sag (Reuters)
• Bank worries hit Europe stocks, euro down (Reuters)
• Martin Wolf: The 2012 recovery: handle with care (FT)
• SNB Chief’s Wife Defends Dollar Trades (Bloomberg)
• China Home Prices Slide Amid Reserve-Ratio Speculation (Bloomberg)

The buck stops here and the votes begin: starting at 7 pm CST, more than 100,000 voters - only a small percentage of the state's electorate - are expected to gather across the state at more than 800 public spots, and cast their votes for their GOP candidate with only three: Paul, Romney and for some unknown reason, Santorum expected to have a fighting changes. Results should begin coming in within a few hours. For those following the caucus for the only important reason: to see how Ron Paul does, or is allowed to do, we have the following live feeds for our readers' disposal.