Flight To Safety, Liquidations Resume On Fresh European Stability Concerns

Tyler Durden's picture

Yesterday's last minute short covering rally has been all but eliminated and then some, on fresh European concerns following a Deutsche Bank report that the agreed writedown of 21% from the July 21 second Greek bailout agreement could be executed, and that instead an orderly default with an up to 50% haircut is being considered. Generally, broad concerns that Greece can and will go bankrupt any minute once again dominate and have undone any favorable market sentiment from yesterday's G20, also known as the Full Tilt Ponzi Group, announcement, which was also followed up by an ECB statement that the central bank would do everything to prevent further contagion. Judging by the risk waterfall this morning, and the liquidations in gold (driven by a vague but ever stronger rumor of a winddown at a GLD-heavy hedge fund that is now down 50% YTD), virtually nobody believes anything coming out of any European institution. Alas, this is what two years of relentless accrued lying will do to your reputation. Adding fuel to the fire is a report from Credit Suisse that the chance of a "general European break up" is about 10% and that European banks would fall by about 40% on a disorderly Euro breakup and that peripheral European banks' net foreign liabilities would rise by €800 billion. In other words, European banks would blow up, which is nothing really new. Next, we hear from Dexia which yesterday got annihilated and today is down another 2.5% despite promises from the Belgian central bank governor Luc Coene that the bank is not in trouble and has not sought dollars from the ECB in a long time: obviously an attempt to prevent an all out attack on the insolvent bank, which as is well known bypasses the ECB and goes straight to the Fed for emergency funding. Overall, there is a very distinct sense that it's the end of the world as we know it, and the market does not feel all that fine anymore.

A summary of the market conditions from Bloomberg's TJ Marta is as follows:

  • 3-mo Euribor/OIS spread wider to 0.8870%, level exceeded only during worst of 2008-9 crisis
  • 1-yr euro basis swap -1.325bps to -76.75; on a closing basis, exceeded only in Sep. to Dec. 2008 period
  • 3M USD Libor rises to fresh year high at 0.360% from 0.358%, probably a second straight month of consecutive rises, even as banks are not able to borrow in the interbank market and have to pay the ECB 1% for direct USD loans.
  • All major equity indexes lower, led by Nikkei -2.0%, OMX (Nordic) -1.4%; US futures mixed in narrow range
  • Most sovereign 5-yr CDS wider; Germany’s +5.3bps to record 108bps, Portugal’s +24bps to 1162bps, near record 1178bps
  • Gold, silver lower, could be profit taking as market participants pare risk, liquidate positions to account for losing stock trades
  • German, US yields mixed as markets stall, likely as traders hesitate near record lows
  • FX mixed in moderate ranges, with growth/risk currencies both outperforming (Mexican peso, A$) and underperforming (C$, Swedish krona)

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Thepnr's picture

Ahhhhhhhhh, love the smell of fear in the morning. First denial....Then acceptance.... Finally ......capitulation. Game on.

Spirit Of Truth's picture

Jeepers....we're still in the denial stage from what I can tell.

Temporalist's picture

And it's only lasted 3 years.

mcguire's picture

i remember the days (august) when flight to safety meant an increase in gold prices... 

now the liquidation story is back.. where were the liquidators then???

the drop in PMs over the past 48 hours has been poorly accounted for...

even leading up to the FOMC meeting, the PM markets were fading that this was going to happen, even though equities "priced in" something more.. 

glad i have some bullets left, but still disappointed... the ersatz disappointment of a great buying opporunity.. guess i have to scotch tape my nuts back on.  lol.


kito's picture

Buy the dip???? What dip??? I see a plunge. Deflationary period setting in amigo. Our biggest chink in the gold/silver plated armour.....as i posted yesterday night, it may be lights out for pms. Nobody wants to print. They will sacrifice the weak for the precious fiat!!!!!

Tater Salad's picture

They will print, they have no other option now.

Going Loco's picture


Kito is right. So was Tyler when he called the gold price risk. In this phase cash is King, and that means either banknotes or Treasuries, nothing else. See http://ftalphaville.ft.com/blog/2011/08/11/650656/when-a-government-bond-becomes-a-giffen-good/

Of course this is just a phase. This is Ruffer's "moment of deflationary fear" and it is only after we have experienced that phase that his "inflation of currency compromise" will make PMs the safe haven.



Motley Fool's picture

If you are American perhaps. Paid any attention to the forex markets lately? :P

mayhem_korner's picture

Short-term perhaps.  Physical PMs will carry the day over time.  There is nothing surprising going on here.  The last two bubbles to burst are the debt bubble and the dollar bubble.  The debt bubble has been burst; it's evidence has simply been forestalled by protracted manipulation of monetary policy.

All of the prior bubbles have migrated to the banks' balance sheets as toxicity.  The last three years has been a transfer of those toxins to the CBs, who have only the ability to dilute/paper over.  So again, asset bubbles beget debt bubble begets fiat bubble.  The equation has not changed - there is way more debt than real asset value and the piper will be paid somehow.

I'm heavy physical and cash, so I just wait it out.  :D

junkyardjack's picture

The volume in gold has been signaling a crash for a while. Anytime volume came in the price tanked vs driving prices up meaning supply was outstripping demand.  Once people had a reason to sell there is no demand there to pick it up so expect a collapse.  I'll be looking to buy in again when it stabilizes at its new bottom whatever that may be but I sold out yesterday.

achmachat's picture

It's a little early. You will recognize the dip when silver goes up 2%, then back down a little less than 2% the next day.
(that is, if it continues behaving like before... Then again, you never know these days)

Minoan's picture

3 month low for lithium exploration-penny stock of the year.

Now that's a fear index.

??'s picture

at the 7 oclock hour there was an interview on Bloomberg TV with Terence Keeley an MD at Blackrock who's at the G20. 

If there was any doubt, any doubt at all that the banksters are in charge watch this interview and your blood will run cold (I'll post the link when it is up)

Arius's picture

nevertheless everything is fine ... just keep cool!

on unrelated news .... NO MORE SOUP FOR YOU!


wombats's picture

It's ALL ON SALE Today!!!   Look at AG < 33!!

Arius's picture

give it a few more hours ... it will be 28.5

BeerGoggles's picture

going cheap. it will be 35 by eod

ThatGuyEhler's picture

I just wish I had the cash on hand to BTFD.....

WonderDawg's picture

Sometimes luck is better than brains.

Landotfree's picture

The Federal Reserve Z1 report shows the problem, you can't expand at an exponential rate forever about 60-80 years and thats it.  


Robslob's picture

And que futures "Up" on bad news...if it gets anyworse we could have a 400 point up day!

hungarianboy's picture

Looks like the PM market ( Silver and Gold etc ) become a big ponzi to :-)

Actually it is a big ponzi. long long long blah blah blah. yer right. Long my ***

baten's picture

Silver is not going to stop here - remember 2008, it fell more than 50% from its high.

BeerGoggles's picture

come on, this is just forced selling so that banks can buy cheap. I suggest you buy with them in the low 30s.

WonderDawg's picture

Might want to take off the beer goggles. Silver might bounce a little from the low 30's, but then it will fall again. A lot of people are getting burned and it's probably going to get worse before it gets better.

GoldbugVariation's picture

"Profit-taking" in PMs? Silver is -10% on the day today (and same yesterday), going parabolic to the downside.  That stinks of margin calls everywhere and going bidless.

hungarianboy's picture

Next up is gold :-) Already can't wait for the big plunge and all those pumpers finnaly STFU.

I feel sorry for the bag holders tho, but that's life. the moment central banks buy you better get out and sell the crap to them. It is as it is. cycles. next 20 year is down.

Going Loco's picture

Hungarianboy - what you said is bollocks. This is just a phase. Damn hard to trade these markets - I sold our gold except for the "enmergency" coins - a while before the blow-pff top and i am now trying to time re-entry but it's very difficult. Those who take the long view should sit tight and ignore the price, just accummulate with regular purchases (and ideally not brag about interim peaks in the price). Sell to the central bankers for paper and walk away for good like you seem to suggest? No. Bollocks to that. Either learn to trade or quietly accummulate. But in the end the paper money is going to zero.

The Limerick King's picture



Hungarian Boy is a twit

I troll who will just never quit

When the whole system tanks

From the greed of the banks

I'll use fiat to wipe off my shit

Motley Fool's picture

:D !

I'm sad I can't give up more green arrows. In this case I'd like to make a exception.

Mitzibitzi's picture

There, you can borrow my green pointy-uppy thing.

The Limerick King's picture



The metals are under attack

The system is starting to crack

They need metals low

Should the whole system blow

So that equities might just come back

Motley Fool's picture

Haha, another awesome limerick. :)

janus's picture

kudos on that en, your majesty!



aleph0's picture

Nigel Farage on EUR and Gold :



MP3 interview link at bottom.

swiss chick's picture

Just love Nigel Farage, always a pleasure to hear him or read him...

Sambo's picture

Full Tilt Ponzi Group can go take a hike in the Alps...

Tater Salad's picture

Smelling an intra-day reversal soon, maybe today even of mythic proportions.  Careful out there!

Ned Zeppelin's picture

Don't underestimate TPTB.  Armageddon will not be showing up anytime soon. 

ZippyBananaPants's picture

Michelle carousa cabaere (I really don't give a fuck if I spell it right) is an idiot with lips and tits.

pvmuse's picture

Michelle is a complete wise-ass, know nothing, idiot, tits yes, lips, not so much.

Mitzibitzi's picture

She always looks to me like she's regretting not taking the diocalm before the show. Nice norgs, though, I agree.

PivotalTrades's picture

Buying 50% position in Dec Silver @32.70 

Looking for 1635 to enter 50% Gold.

bob_dabolina's picture

Better buy the physical. That contract will expire worthless. A return of some capital is better than a return of no capital.

sudzee's picture

Silver and gold will need to go much lower to clear a couple of trillion of pm derivatives before the world goes strctly physical. We may see silver at 5 bucks and gold at 250 for a few months before a reset. 1's and 0's created never went into economies, except thru bank bonuses, so economies have no way to pay the fake debt. If you can get some physical cheap, do so, as all will go underground till after the reset.

BeerGoggles's picture

ahhahahah hahahahha ahahhaha aggh.

hahahahahahahaa. agh