Lehman

Gene Arensberg of the Got Gold Report says that the COT data “suggests that dips for gold and silver should be exceedingly well bid just ahead.  Indeed, the structure of the COT is about as bullish as we have seen it for silver futures.” The supply demand fundamentals remain very sound with gold demand expected to exceed supply again this year, according to the World Gold Council who have said that gold has bottomed or close to bottoming. Gold will extend annual gains for a 12th year as bullion is “near” a bottom and demand will keep exceeding mine output, according to the World Gold Council. Mine production will grow 3% this year from last year’s 2,800 metric tons, while demand may be unchanged or slightly lower from a record 4,400 tons, said Marcus Grubb, managing director of the WGC in an Bloomberg interview in Tokyo. Mine supplies will remain in a deficit “for a foreseeable future,” Grubb said.  Bullion is “near to the bottom at current prices, indicating gold will move back up again,” he said. Recycling has risen to make up for the gap between demand and mine output, he said.  “Some of the drivers of the increase in demand are structured, central banks for example, the rise of Chinese demand and the wealth increase in Asia, including India and China as well as smaller economies,” he said. Central banks have increased gold purchases on concern about the dollar, the euro and the sovereign debts, Grubb said. The banks’ net purchases last year were the most since 1964. In 2010, they turned to a net buyer for the first time in 15 years.

As anyone who has ever traded CDS (or any other OTC, non-exchange traded product) knows, when you have a short risk position, unless compliance tells you to and they rarely do as they have no idea what CDS is most of the time, you always mark the EOD price at the offer, and vice versa, on long risk positions, you always use the bid. That way the P&L always looks better. And for portfolios in which the DV01 is in the hundreds of thousands of dollars (or much, much more if your name was Bruno Iksil), marking at either side of an illiquid market can result in tens if not hundreds of millions of unrealistic profits booked in advance, simply to make one's book look better, mostly for year end bonus purposes. Apparently JPM's soon to be fired Bruno Iksil was no stranger to this: as Bloomberg reports, JPM's CIO unit "was valuing some of its trades at  prices that differed from those of its investment bank, according to people familiar with the matter. The discrepancy between prices used by the chief investment office and JPMorgan’s credit-swaps dealer, the biggest in the U.S., may have obscured by hundreds of millions of dollars the magnitude of the loss before it was disclosed May 10, said one of the people, who asked not to be identified because they aren’t authorized to discuss the matter. "I’ve never run into anything like that,” said Sanford C. Bernstein & Co.’s Brad Hintz in New York. “That’s why you have a centralized accounting group that’s comparing marks” between different parts of the bank “to make sure you don’t have any outliers” .... Jamie Dimon's "tempest in a teapot" just became a fully-formed, perfect storm which suddenly threatens his very position, and could potentially lead to billions more in losses for his firm.

We're talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.

"Just when we think the worst is over - and let's face it we have been in this crisis for five years - we get the second half; are the Europeans about to start the second half our Great Depression with massive bank runs" are the Jaws-music-inspired words that recent media-favorite (yes, us too) Niall Ferguson uses in an interview with CBC. His main concern is that this kind of (bank-run) event can quickly spiral out of the control of even the ECB as he uncomfortably conjures the image of the initial US stabilization that occurred in 1930 to May 1931 only to be knocked back into a greater depression by the failure of Credit-Anstalt, which set off bank failures and eventually defaults in 1932 on many government debts. The deposit run potential is the single-biggest reason to care about Greek-exit - in itself it is not large enough economically to interfere with global growth but it is the message and contagion that it sends that is critical in bringing forth a pan-European banking crisis and implicitly spilling over to the US and Asia via global trade and banking transmission channels. An excellent brief interview that summarizes the exact fears that face Europe and implicitly the US, explains the rather simple solution of fiscal federalism and the fact that today's German politik is very different from 1989's Helmut Kohl-era with regard to their commitment to the Federal outcome. His conclusions are worrisome. Germany is the key - and there is not a good understanding of financial markets in Berlin.

In a brief clip from a lengthier discussion between historian Niall Ferguson and ex-Greek PM George Papandreou at this week's Zeitgeist conference, the effusive Englishman lays out perfectly what many are missing with regard to Europe: "Greece is not the problem - it is a symptom of a much more profound malaise that affects the entire monetary union." - just as Lehman Brothers was not the 'cause' of the US's problems. The wasted energy spent moralizing about the 'work habits' of Mediterranean citizens as being the problem is incorrect as this is a European-wide problem - a systemic crisis of European banking and public finance. Papandreou pipes in by noting, in typical toe-the-line manner, that Germany must swerve (in the game of chicken) or there is a major danger of disintegration because "there will be contagion".

Newedge: "Last thing I asked before I went traveling was "try not to break anything" while I’m away. I get back this morning and it looks like a bunch of teenagers have had a particularly messy drug-fuelled rave in the market’s front room. The day-on-day charts hide the roller-coaster ride we've seen on the back of the Euro. Bond markets are in lock-down awaiting what-ever-next “liquidity bomb” the authorities can find to drop. Aside from some minor bond crosses, there has been zip activity outside zero-coupon bunds, gilts and treasuries. There is more liquidity in the Atacama desert."

• This is the solution? - Germany Writing Six-Point Plan for Europe Growth, Spiegel Says (Bloomberg)
• JPMorgan Gave Risk Oversight to Museum Head Who Sat on AIG Board (Bloomberg)
• Vatican bank president Gotti Tedeschi ousted -statement (Reuters)
• Bribery, crime and stupidity pays. From this: SEC Staff Ends Probe of Lehman Without Finding Fraud (Bloomberg)
• To this: Lehman to buy remaining Archstone stake for $1.58 billion (Reuters)
• Governments must restore faith in debt sustainability: ECB's Praet (Reuters) - by issuing more debt
• IMF Helping EU Explore Alternatives to Euro Bonds (WSJ)... such as US-funded bailout bonds?
• China Banks May Miss Loan Target for 2012, Officials Say (Bloomberg)
• Facebook market makers' losses total at least $100 million (Reuters)
• World Bank’s Sri Mulyani Says Asean Is Resilient to Europe Woes (Bloomberg)
• Time to flip "The Scream" - Tiffany Cuts Full-Year Profit Forecast (Bloomberg)
• Definitely Maybe: Italy's Monti says Greece will probably keep euro (Reuters)

The volume of searches for the phrase 'Bank Run' has just hit an all-time high - higher now than even during the peak of the Lehman Brothers 'moment'. While English dominates the language choices, the Europeans (Dutch, Germans, and French) are extremely 'interested' as are the Chinese...but it appears the Singaporeans are running the most scared (as we noted here) is perhaps not surprising, followed by the Irish and the Americans - with Germany a disappointing 10th - perhaps they really do not care as much as everyone's bluff-calling hopes. It seems the fears of real 'bank runs' are becoming virtually 'viral' - not a good sign for the stability of the fictional-reserve-banking-dependent status quo.

The story of Facebook’s disappointing IPO is a gripping tale, and it holds some valuable lessons. But it concerns an event that has already happened. Forget Facebook — there are far more interesting events in play and that will affect you, if only at the margins. They haven’t happened yet, and they may not happen at all. But if they do, you’d sure as hell better have a plan.

Did France, Italy and Greece think they are the only ones who can float strawmen in the media? No. Once again, Germany shows us how it is done. From Tomorrow's edition of Deutsche Wirtschafts Nachricthen: "The Greece-exit is a done deal: According to the German economic news from financial circles EU and the ECB have abandoned the motherland of democracy as a euro member. The reason is, interestingly, not in the upcoming elections - these are basically become irrelevant. The EU has finally realized that the Greeks have not met any agreements and will not continue not to meet them. A banker: "We helped with the Toika. The help of the troika was tied to conditions. Greece has fulfilled none of the conditions, and has been for months now." So more posturing? Or is Germany truly just so sick and tired of bailing out not just Greece (which pockets between 0% and 20% of any actual bailout cash), and indirectly French banks which as of this moment are the biggest pass thru beneficiaries, and of course the ECB with its tens of billions in old par GGB holdings, that this article is, gasp, founded in reality? Is Europe approaching its own Lehman moment when everyone says "just screw it", and let the dice fall where they may? Many said Lehman could never be allowed to fail. They were wrong. Just as many are saying that Europe will never let Greece leave as the costs to the continent are just too great. Well, judging by tonight's epic fiasco of a Euro-summit, the last thing we would attribute to Europe's leaders is clear and rational thought.

Just when one thought it was safe to come out of hiding from under the school desk after the latest nuclear bomb drill (because Europe once again plans on recycling the Euro bond gambit - just like it did in 2011 - so all shall be well), here comes David Rosenberg carrying the launch codes, and setting off the mushroom cloud.

All you need to read.

One can come up with massively complicated explanations for why the Chinese commodity bubble is popping including inventory of various colors, repos, etc, but when all is said and done, the explanation is quite simple, and is reminiscent of what happened in the US with housing back in 2007: everyone was convinced prices would only go up, and underlying assets was pledged as debt collateral at > 100 LTV... and then everything blew up. Precisely the same thing is happening in China right now, where buyers of commodities thought prices could only go up, up, up and instead got a nasty surprise: prices went down. Big. As a result, many are not even waiting for their orders to come in, but are defaulting on orders with shipments en route.

All you need to read.

Name the plunging bond shown on the left. If you said some sovereign or corporate issue based out of Spain, Italy, Ireland, Portugal, or even Greece you would be close... but no cigar. No - the bond in question is an issue of Caisse Centrale du Credit Immobilier de France (3CIF), which together with its sister entity CIF Euromortgage (CIFE), is  a 100% subsidiary of Credit Immobilier de France Development (CIFD), which as Fitch describes it, is a French "housing loans specialist, with business exclusively directed to France." CIFD is in turn owned by Procivis Group, which just happens to be France's second largest full-service real estate group.