Zurich

This is the question of the hour. Which way was it?

A few weeks ago we discussed the pressure the Greeks were under to source their energy needs from Iran since no one else would extend them credit. The European credit strain contagion now appears to be spreading rapidly as Europe's largest independent refiner by capacity, Petroplus Holdings AG, is suspending operations at three plants as banks freeze a $1bn revolving loan facility. S&P cut its rating from B to CCC+ citing a sharp deterioration in the firm's liquidity position. As a pure play refiner, meaning it needs to buy all of its crude supplies (on credit obviously) to feed its plants, it seems evident that both vendor- and bank-financing mechansims are starting to clog up very seriously. Bloomberg notes that refining margins are down considerably and we suspect that the closure of the Petroplus plants will help margins implicitly but as headlines show:

• *PETROPLUS SAYS TEMPORARY ECONOMIC SHUTDOWNS IN JAN. '12
• *PETROPLUS SAYS RESTART DEPENDS ON ECONOMIC CONDITIONS, CREDIT AVAILABLE

Even as Eurozone leaders attempted to instill some meager sense of accomplishment following the latest (but certainly not last) Euro summit culminating with yet another 7-page term sheet which achieved absolutely nothing, and in fact succeeded in alienating the UK even more, the real game continues behind the scenes. And it is a game which the euro looks set to lose. As Bloomberg reports, in the aftermath of the Telegraph's latest report confirming what has been said here all about the collateral crunch in Europe, Europe's CEO are now actively preparing for the worst case outcome: the end of the Euro (despite UBS' and other banks' repeated calls that such an event would result in an end of the world). To wit: "Grupo Gowex (GOW), a Spanish provider of Wi-Fi wireless services, is moving funds to Germany because it expects Spain to exit the euro. German machinery maker GEA Group AG is setting maximum amounts held at any one bank. “I don’t trust Spain will remain in the euro zone,” said Jenaro Garcia, founder and chief executive officer of Madrid- based Grupo Gowex, which provides Wi-Fi access in 15 countries. “We moved our cash and deposits to Germany because Spain will come back to the peseta"... Contingency planning for an unraveling of the currency involves cutting investment, moving money to Germany, transferring headquarters to northern Europe from southern, and even going out of business." And to all the chatterboxes on CNBC repeating ad inf that a Eurozone collapse would be "manageable" here is a person who actually knows what he is talking about: "“How do you control an explosion in a controlled way?” Fiat SpA (F) Chief Executive Officer Sergio Marchionne told reporters in Brussels on Dec. 2. “That’s a contradiction in terms.  This will be an implosion of some size with potentially disastrous consequences." He is right, and while the outcome is certain, it will not stop Europe's financial leader Germany from intervening in an attempt to prevent a surge in Deutsche Marks once the currency returns, and will likely set up capital control measures - that last bastion to every failing monetary system - to halt what is sure to be a record inflow of post-collapse DEM appreciating capital.

Now, Gold is getting interesting...

Not many know that you can trade physical gold & precious metals OTC through your brokerage account, and take physical delivery on demand. This is the first of several interviews that explores this model.

It is 17:03 in Zurich...and it appears that rumors of an SNB intervention have been once again greatly exaggerated. Either that or Hildebrand has pulled an Obama and is stuck in the sandtrap on the 18th. Immediate result: EURCHF down 40 pips on the lack of news, and will continue dropping to the 1.2250 level with every minute which confirms the SNB floor hike rumor was just that.

There's so many ways this could go wrong.

For those wondering just how UBS is planning on scapegoating its horrible quarterly loss on one, single, solitary trader, here is the update, and contrary to rumors and speculation, no EURCHF trades were harmed in the creation of this farce. To wit: "The loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months. The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio. However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS's risk limits."  Basically this is nothing but Kerviel 102, only this time with the added benefit of it being a non-recurring item to pretend that UBS will actually have had a profit instead of a loss in the quarter. We wonder just what the deposit account "offset" in an offshore Cayman account for Kabuki Owed Lo (obviously an anagram of the beneficiary) will be when he gets out of prison in 18-24 months?

UBS has started European trading off on the wrong track. 'Astonishingly', coming clean to a USD2bn loss on the back of unauthorized trading. No details on whether this was selling Greek credit protection or buying Portuguese bonds (for the yield) but the Bloomberg headlines, UBS equity price crash, and the ES reaction are clear.

Despite the mind-numbing mantra we constantly hear from our political leaders and central bankers that inflation does not exist, there are certain parts of our lives where even a freeze-dried coffee bean can see that prices are clearly rising: At the grocery store. At the doctor’s office. At the gas pump. One of these places is also our hallowed institutions of higher learning. It’s no secret that the cost of university education, especially in the United States, is staggering. Tuition at private schools in the US averages $30,000 annually, and students often graduate over $50,000 in debt. This leads to a fancy form of indentured servitude; students with this kind of debt load are forced to take the first paid work they can find, and they’ll work for the next 14-years of their life just to start back at zero.

Relevant news

Allow me a ramble down history lane to make a point.

They can strike... Or they can create post-modernist art. They appear to have taken the latter approach for now. Once they realize that artistically beheading fictitious clowns (whose burgers cost over $17 in Zurich, thank you stable dollar policy) does not pay the entitlement benefits, the former is next in the queue.

The Fed has helped print a new kind of currency, currency being a means of exchange that in and of itself offers no return whatsoever. This new kind of currency used to be referred to as notes and bonds. Please be mindful of this change if you plan on using the tired old phrase, “A man’s word is his bond”.  Remember to replace “word” with “money”, and you’ll be okay, at least until 2013. Money is freely available to those who don’t need it and don’t deserve it.  For everyone else there’s 29.99% Mastercard and Visa.

Lots of BS stories today. Also some bad reporting.