News that Matters – Market Close


  • S&P Revises U.S. Credit Outlook To "Stable" From Negative
  • Fed's Bullard Details How QE Can Be Cut
  • Fed Retreat From Bond Buying Expected By Fourth Quarter - Poll
  • U.S., Japan Leading Recovery In Major Economies - OECD
  • ECB's Draghi: ECB Will Not Buy Bonds To Save States From Going Under
  • Germany's Schaeuble: Global Monetary Policy Causing Big Problems
  • Canada Housing Starts Rise At Fastest Pace In 13 Months
  • Apple Unveils Revamped iOS, iTunes Radio
  • McDonald's May Sales Rise 2.6 Percent; Shares Up


High Noon for the euro in Karlsruhe court Commentary: German court could unmask ECB’s magic trickExpect this week the most gladiatorial of tussles between Germany’s Bundesbank and the European Central Bank at the German Constitutional Court — a High Noonepisode in long-running European psychological warfare to prevent full-scale unrest breaking out across monetary union.The eagerly awaited public hearing centers on the legitimacy of the ECB’s (so far unused) outright monetary transactions (OMT) proposition to buy weaker countries’ government bonds to heal the risk of euro EURUSD -.00%  break-up.As Mario Draghi, the ECB president, put it last week, the OMT “has been probably the most successful monetary policy measure undertaken in [the] recent time.” The OMT’s problem has also been its triumph, namely that the threat (or hope) that the ECB could undertake ‘unlimited’ support purchases of Italian or Spanish bonds, has not been turned into practice. Probably it never will be.


To the Fed, taper is a four-letter word “Taper” is not a word used in polite Federal Reserve circles.That’s according to the latest piece from Wall Street Journal Fed watcher Jon Hilsenrath. He points out the term has never been uttered out loud by Fed Chairman Ben Bernanke, or by influential New York Fed President William Dudley.It’s not that the Fed can’t foresee a time when it would reduce the current $85 billion per month rate of bond purchases. But the central bank is holding out the possibility it could also increase the rate. See full story (subscription required).As Hilsenrath writes:


Because Fed officials are uncertain about the economic outlook and the pros and cons of their own program, they might reduce their bond purchases once and then do nothing for a while. Or they might cut their bond buying once and then later increase it if the economy falters. Or they might indeed reduce their purchases in a series of steps if warranted by economic developments — but they don’t want the markets to think that’s a set plan. It is, as Fed officials like to say, “data dependent.”

Euro bailout Troika nears end of road with patchy record If the Troika that handles bailouts of distressed euro zone countries were a soccer team, it would probably be looking for a new manager after achieving a track record of one win, one loss and one draw.The uneasy trio of European Commission, International Monetary Fund and European Central Bank was assembled in haste in March 2010 after Greece’s public debt and deficit exploded and it was about to lose access to market funding.Last week’s IMF “mea culpa” report about the failures of the Greek program blew the lid off the fiction that the three institutions saw eye-to-eye on the rescue packages they designed and are enforcing in GreeceIrelandPortugal and now Cyprus.


Greece awakens from coma but recovery likely to be anaemic Greek business is awakening from a coma; the long-forgotten sound of drills and hammers can be heard on Athens construction sites again while customers queue calmly at banks to deposit cash rather than to withdraw it in panic.Nevertheless, the government’s declaration that an economic recovery is underway seems premature, with the hard numbers signalling stagnation rather than the robust growth needed to meet ambitious debt targets and reduce towering unemployment.“True, the phones have started ringing again but nobody is placing orders yet,” said furniture maker Nikos Papadopoulos.







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Nikkei Up 5%: The Eurocrisis is Over!

You have got to hand it to them, haven’t you? Past masters these politicians at bull. Call it what you will: baloney, rubbish, pulling the wool over our eyes, lying through their teeth and still smiling. Can we believe it? Do they actually think we’re that naïve? Come on guys, we weren’t born yesterday.

Just a few hours after French President François Hollande stated on a state visit to Japan that the Euro crisis was over, the Nikkei rallied 5% today!

But, I think that Monsieur Hollande’s speech will have to go down in history as the scam of the 21st century. Okay, so we need to be upbeat about the economic recovery. So, we need to sell ourselves. We need to tell everyone just how great we all really are. They might just believe us if we say it loud enough. The US has been doing it for years now, and people are still believing them, aren’t they? Well, almost! Mr Hollande is like the guy that sold London Bridge in 1968 to a guy from Arizona for a £1.63 million because of some smooth-talk. He actually thought it was Tower Bridge. Imagine his surprise when he opened the box to find it was a shoddy, recent, dull looking bridge that was pretty worthless. Imagine the surprise of the rest of the world Mr. Hollande when they open the box and find that there is nothing inside that you have been talking about for the past few days.

I always learnt that if you have to shout it from the rooftops, you can’t be what it is that you are yelling at people. I can hear you Mr. Hollande! The Eurozone crisis is well and truly over. Except, the figures are telling me otherwise. Or is he just trying to get his name into the papers?

Whatever happened, thank you Mr. Hollande, the Japanese have gobbled it up faster than they can say Sushi. That’s a 5% rise in the Nikkei, the biggest daily increase in two years! The Yen also dropped to ¥98.3 against the US dollar, from ¥97.5. That means a weakened yen and fuel for a rise in exports from Japan. Technology firms such as Sharp Corp increased by +15.21%. Fuji Heavy Ind. Increased +12.91% and Tokuyama rose by 12.68%, for example.

Mr. Hollande believes that the Eurozone will come out all of this stronger and better. Strength in the face of adversity, united we stand! Sounds like Mr. Hollande has just found the new slogan for the EU27. We never believed the first one Mr. Hollande (“United in Diversity”), so there’s no point changing it. Europe has never been so divided!

Has Mr. Hollande been looking at the figures? New figures on debt-to-income ratios in the Eurozone show that Ireland, Greece and Portugal all have levels of 300% in terms of indebtedness. Ireland has a debt of €192bn, which is 340% of government income. Greece is at 350%. The UK has a debt-income ratio of 212%.

Still, that looks pretty damn good when you look at the debt-income ratio of the USA, which is 560%. Hey, he was right after all, we’re doing fine!

Originally posted Nikkei is Up! Eurocrisis is Over!

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European Bonds Plunge Most In 3 Months, Stocks Slump

Portugal suffered the most - with its bond spreads now a huge 45bps wider on the week. It seems between the ever-increasing vol in Japan, a rapidly fading JPY carry funding mechanism, and lack of fresh meat from Draghi, Italian and Spanish bonds and stocks are losing their 'greater fool' bid. Sovereigns are seeing their worst day since February; stocks among their worst days since Feb - with several Spanish and Italian banks halted limit-down (as ECB's QE-like collateralization was not eased); and EUR is strengthening against the USD as risk-flows are repatriated. Italian and Spanish stocks are now at 6 week lows, and Spanish, Italian, and Portuguese credit spreads at six-week highs. European financial and corporate credit are now wider (worse) on the year and equities are catching down. And the ultimate 'greater fool' momentum trade - GGBs - is fading - now down 9.5% in the last week...



Bonds and Stocks were ugly...

Credit leading the way...


as Credit is red YTD and stocks close...


Charts: Bloomberg

The Most Over/Under-Valued Housing Markets In The World

House prices - with respect to both levels and changes - differ widely across OECD countries. As a simple measure of relative rich or cheapness, the OECD calculates if the price-to-rent ratio (a measure of the profitability of owning a house) and the price-to-income ratio (a measure of affordability) are above their long-term averages, house prices are said to be overvalued, and vice-versa. There are clearly some nations that are extremely over-valued and others that are cheap but as SocGen's Albert Edwards notes, it is the UK that stands out as authorities have gone out of their way to prop up house prices - still extremely over-valued (20-30%) - despite being at the epicenter of the global credit bust. Summing up the central bankers anthem, Edwards exclaims: "what makes me genuinely really angry is that burdening our children with more debt to buy ridiculously expensive houses is seen as a solution to the problem of excessively expensive housing."


Using these indicators, OECD countries can be roughly placed into five categories:

Where houses appear broadly correctly valued. This category includes the Unites States, where prices have started rising again after a substantial correction; Italy, where prices are falling rapidly; Austria, where prices are rising; and Iceland, Korea and Luxembourg where prices are roughly flat.


Where houses appear undervalued and prices are still falling. This category includes European countries hit hard by the crisis – Greece, Ireland, Portugal, Slovenia, Slovakia and the Czech Republic – but also Japan.


Where houses appear undervalued but prices are rising. This category includes only Germany and Switzerland, two European countries where strong growth in household disposable income and favourable financing conditions have boosted prices (despite macro-prudential measures in Switzerland).


Where houses appear overvalued but prices are falling. This category is the largest as it includes many European countries where the post-crisis housing market correction is still ongoing, most notably Spain, but also the United Kingdom, Belgium, Denmark, Finland, the Netherlands and one non-European country, Australia. While price corrections in these countries are necessary, they are also concerning as they weaken households’ financial health and potentially fragilize banking sectors.


Where houses appear overvalued but prices are still rising. This is the case in Canada, Norway, New Zealand and, to a lesser extent, Sweden. Economies in this category are most vulnerable to the risk of a price correction – especially if borrowing costs were to rise or income growth were to slow.


Edwards explains reality:

Why are houses too expensive in the UK?


Too much debt. So what is George Osborne's solution for first time buyers unable to afford housing? Why, arrange for a government guaranteed scheme to burden our young people with even more debt!


Why don't we call this policy by the name it really is, namely the indentured servitude of our young people.

Lobbying And GMO Giant Monsanto Buckles In Europe

Wolf Richter

The “March Against Monsanto” in 52 countries, an unapproved strain of its genetically modified wheat growing profusely in Oregon, cancelled wheat export orders.... A rough week for Monsanto.

But now it threw in the towel in Europe – where its genetically modified seeds have faced stiff resistance at every twist and turn. Even its deep corporate pockets and mastery of lobbying have failed: “It’s counterproductive to fight against windmills,” its spokesman told the Tageszeitung.

The propitious week started last Saturday with the “March Against Monsanto,” when people in over 400 cities in 52 countries protested against the company, its influence over governments, and its GMO seeds. Much of it was focused on the mundane issue of labeling. Protesters wanted GMO ingredients in food to show up on the label, just like fat or protein. A simple solution to the controversy: let consumers decide.

But a red line for the industry. It’s worried that consumers will read the label – and choose an alternative. So Monsanto continued to assure us through its minions that labeling would be too costly, that it would kill the cupcake shop down the street, that we don’t need to know anyway because GMO foods are safe for human consumption, etc. etc.

These assurances bring up echoes from the past. Monsanto’s previous flagship products included the once harmless DDT, now banned worldwide; a family of industrial chemicals called PCBs that are now considered highly toxic; Agent Orange, the defoliant liberally used during the Vietnam War and promoted as harmless to people, with grave results for the Vietnamese and US soldiers who came in contact with it. And there was saccharine, the sweetener that ended up being a carcinogen. More recently, Monsanto reinvented itself and decided to save mankind not with a DDT successor, but with genetically modified seeds, whether people wanted them or not.

The hubbub of the “March Against Monsanto” had barely died down when the USDA confirmed that genetically modified wheat was mysteriously growing on a farm in Oregon. Something that we’d been assured could never happen. Numerous impenetrable precautions would prevent that. Monsanto had developed that strain years ago, but field trials ended in 2004, and the thing had never been approved for sale or consumption. The reaction was immediate.

Japan would “refrain from buying western white and feed wheat effective today,” a Japanese farm ministry official announced on Thursday, adding that the ministry is pressing the USDA for details of its investigation. US wheat imports would be on hold until at least a test kit is available to identify GMO wheat, he said. South Korea, which bought about half of its wheat imports from the US last year, announced that it would suspend imports of US wheat. The EU’s consumer protection office announced that any shipments that tested positive for GMO could not be sold in the EU. Other countries were making similar announcements. And everyone is badgering Washington for more information.

GMO contaminations have occurred before, most notoriously in 2006, when much of the US long-grain rice crop had been contaminated by an experimental strain of genetically modified rice concocted by Bayer CropScience. Japan and Europe banned imports of American rice, which caused its price to collapse in the US. The company settled with rice farmers in 2011 for $750 million. But rice export is small business in the US, compared to wheat. And this time, it’s Monsanto that is on the hot seat.

And now Monsanto threw in the towel in Europe where its efforts to bamboozle people into loving its seeds have had mixed results. “We won’t lobby any longer for cultivation in Europe,” Brandon Mitchener, Monsanto’s public affairs lead for Europe, told the Tageszeitung. They had no plans to apply for the approval of new genetically modified crops “at this time,” he said, and the company would also forgo new field trials with GMO seeds.

Monsanto’s largest European competitors – Bayer CropScience, BASF, and Syngenta – had already pulled out of the GMO crop business in Germany and many other Member States. “We understand that this doesn’t have wide acceptance right now,” chimed in Ursula Lüttmer-Ouazane, Monsanto’s spokeswoman in Germany.

Mitchener blamed it on the lack of interest from farmers. They have their reasons: in Germany, the cultivation of genetically modified crops is banned; and GMO foods, broadly rejected by consumers, are practically unsalable. Agriculture Minister Ilse Aigner, who’d thrown her weight around in 2009 to stop the cultivation of MON810 corn in Germany, explained it this way: “For agriculture in Europe, the promises of salvation made by the gene-technology industry have so far not been fulfilled.”

Monsanto’s surrender was only partial, however. In Spain, Portugal, and Romania, where laws and consumers were less squeamish about GMO crops, Monsanto would continue to hawk is MON810, Mitchener said. Nor was Monsanto finished lobbying in the EU: it would still try to get the EU to allow the import of GMO animal feed. But in terms of cultivation in Europe, Monsanto would focus on conventional seeds for corn, canola, and veggies.

Triumphs against multinational lobbying giants are rare. So, even mini triumphs count. And Monsanto’s admission that it would quit trying to force GMO crops down people’s throats in Europe, limited as this admission may be, is now celebrated as one of them.

Meanwhile, hunger is spreading from its strongholds in the global south to depression-hit Southern Europe. In Greece, reports are growing of children having to scrounge for food from classmates, while in Spain city dwellers have become inured to the spectacle of people rummaging in trash cans for a bite to eat. But there’s a reason. Read.... Starving the World for Power and Profit: The Global Agribusiness Model.

Traders Taunted By „20 Out Of 20“ Turbo Tuesday (With POMO)

First, the important news: in a few hours the Fed will inject between $1.25-$1.75 billion into the stock market. More importantly, it is a Tuesday, which means that in order to not disturb a very technical pattern that will have held for 20 out of 20 Tuesdays in a row, the Dow Jones will close higher. Judging by the futures, this has been telegraphed far and wide: it is a Ben Bernanke risk-managed market, and everyone is a momentum monkey in it.

In less relevant news, the underlying catalyst for the overnight rip higher in risk was the surge in the USDJPY, which left the gate at precisely Japan open time, and after languishing at the round number 101 support for several days, did not look back facilitated by what rumors said was a direct BOJ intervention via a Price Keeping Operation in which banks bought ETFs directly. This was catalyzed by the usual barrage of BOJ and FinMin individuals engaging in post-crash damage control and chattering from the usual script, this time adding the following pearl:


... And the MOF's pronouncement that Japan would sell 5 and 10 year bonds direct to individuals each month.

In other words, the 2% inflation is coming so buy stocks and hedge by... buying bonds and duration risk. And fear not, because while the stock market should rise on expectations of inflation, please don't sell your JGBs, which just happen to be nearly four time more in notional than stocks, because the central bank promises it will keep yields low. Just look in the US. Oh, but ignore that the USD is the world's reserve currency (for now), and that US Paper is what is considered High Quality Collateral for a severely collateral deficient shadow banking system, while JGBs are merely ticking timebombs on Japanese bank balance sheets.

Those sick of Japan will have a tough time this week, as there is much more on deck from the island country: it will remain in the spotlight with Kuroda speaking tomorrow at a BoJ Conference in Tokyo, on the same day that the BoJ has scheduled a meeting with JGB-market participants to discuss the recent rise in bond yields. According to a BoJ official, the central bank will be using this meeting to help it decide its schedule for JGB purchases starting from June. This Friday’s Japanese data releases including household spending, employment, inflation and industrial production will be important in order to justify the mood that the economy is improving when in reality it is merely leading to soaring import prices and broader deflation.

All that said, it is truly spectacular to follow the Japanese script, which is obviously dictated by the Fed, to see what the Fed thinks is a successful strategy and has been accomplished over four+ years, and what it is trying to get Japan to complete in a few months.

As Weidmann said, "good luck with the experiment" indeed. And certainly ignore the statement overnight from Lewis Sanders, who resigned as chief executive officer of Alliance-Bernstein Holding LP in 2008, who was speaking in Sydney at conference. and who simply said that QE in Japan will fail.

Overnight, macro news was largely missing, but when it comes to "news", fundamental developments are the most meaningless of all, and either way, are always positive. The Taiwanese government unveiled a number of measures to boost domestic demand, among which a rerun of that spectacular US failure, "cash for clunkers." However, this move had been well signaled and priced in, and the TAIEX was largely flat following the announcement.

Here is what little news was bulletin worthy, via Bloomberg:

  • Treasuries fell before supply and as stock markets in Asia and Europe gained for first time in five days; USD strengthened vs JPY; Treasury sells $35b in 2Y notes today, WI yield 0.255%.
  • Abe adviser Koichi Hamada says BoJ can add to already unprecedented stimulus if necessary to drive an economic revival
  • BoJ policy board member Miyao said central bank has taken all the necessary easing steps for now; better economic outlook may drive up yields
  • Auction of 1.2t JPY 20Y JGBs saw weakest demand in 9 mos., with bid-to-cover of 2.54 vs 3.68 at previous sale; high yield 1.6940%
  • Chinese Premier Li said China is targeting 7% growth this decade, faces huge challenges
  • Employment at the U.K.’s four biggest banks set to fall to 9-yr low by end-year as banks eliminate about 189,000 jobs amid a dearth of revenue
  • ECB’s Noyer said no major central bank has tried negative rates; such rates have had varying results in smaller countries
  • Europe finds itself in a similar position to Japan as the     continent faces a “lost decade,” said Pacific Investment Management Co., which manages the world’s biggest fixed-income fund
  • China is studying the possibility of investing a portion of its $3.4t FX reserves in U.S. real estate, said two people with direct knowledge of the situation
  • Sovereign yields mixed, core yields higher, 10Y JGBs at 0.896%, +7.6bps, peripheral European yields lower. Asian, European stocks higher; U.S. stock index futures higher. WTI crude, metals higher; gold lower

To summarize, it's a central bank world indeed with central banks in the Central European Union having cut interest rates to record lows in recent months and a further adjustment is possible. Central banks in Hungary (MNB) and Poland (NBP) may still cut key interest rates. MNB may today cut by 25bp to 4.50% while next week NBP may cut its key rate by 25bp to 2.75%. The Czech central bank's key interest rate is close to zero, so its next policy tool could be FX intervention.

And since nothing but asset bubbles remains, the FT reminds readers that the proportion of “covenant-lite” loans has soared to more than 50% of all leveraged loan issuance so far this year, twice the level seen during the last boom in 2007. So far this year, $129bn of leveraged loans have been sold with covenant-lite features, up from $22bn in the same period last year, and $96bn for the whole of 2007 according to S&P Capital IQ data. On a related note, Bloomberg reported that an ever increasing number of companies are tapping the loan market to pay dividends.

And just to make sure that the market closes well green today, the only actual "data" will be yet another reading of consumer "confidence" this time from the Conference Board. Expect this to surge on news that it is Tuesday and stocks have nowhere to go but up, which in turn will send stocks, where else but, up.

Some additional color on today's macro catalysts out of SocGen:

Activity should pick up today as the UK and US markets open again following the holiday, but a decent bounce back in the Nikkei despite volatile JGBs is giving European markets the thumbs up for a positive risk on start. The move in US rates commands close attention after 10y swaps returned over 2.20% for the first time since April last year. A break of 2.25% would clear the path for a return to 2.42% and inevitably this level will have bears talking of 2.50%. All the more reason to concentrate on US consumer confidence today (SG forecast 74.0 vs consensus 71.0) and upcoming UST supply.

Indeed, US conditions will be more of a deciding factor today and in the coming two weeks as markets remain nervous on the timing of a change in Fed policy. Managing expectations about the pace of QE is a topic that the WSJ's Hilsenrath comments on this morning and is something that could cause volatility in rates to command a premium in the foreseeable future. US long-term interest rates are currently driving the USD complex including EUR/USD but the correlation across fixed income assets has also consequences for EUR rates. Notwithstanding the clouded macro outlook in the eurozone, 10y swaps are backing up and now approach the key 1.71%-1.75% area. Thus, we will be watching the 10Y UST yield today with short positions set to be squeezed by strong confidence data. A move through 2.06-2.09% area would see buyers of USD dips return and could see a test of the post-Bernanke/FOMC minutes high for the dollar index (84.498).

In the UK, gilts also have been driven by US bond markets recently. More of the same is expected this week as no major indicators are scheduled to be announced. MPC's Haldane and Tucker are scheduled to speak today. As for GBP/USD, it has been on the defensive for four weeks in succession, the longest stretch since February. For the time being, sterling is likely to struggle vs its main counterparts as the market awaits the arrival of the new BoE governor Carney at the beginning of July.

DB's Jim Reid completes the overnight recap:

Ahead of us this week in Europe, the European Commission announces economic policy recommendations for EU members on Wednesday. Recent reports suggest that the Commission may shift its emphasis from one of fiscal consolidation to structural reforms. The Commission has indicated that it may give France and Spain two extra years to bring their budget deficits below the EU ceiling of 3% of GDP, while other countries such as Italy and Portugal are reportedly expected to get additional time to meet deficit targets (Reuters). In terms of the week’s dataflow, credit and money aggregates for the Euroarea is scheduled for Wednesday, followed on Thursday by the European Commission’s economic sentiment survey. Inflation and unemployment data for the Euroarea are due on Friday.

After a slow start to the week, the data flow picks up in the US on Thursday when the latest Q1 GDP revisions and jobless claims are due. The week’s data calendar will conclude with Friday’s Chicago PMI, PCE inflation, consumer income and spending data.

Turning to markets, one of the key themes overnight has been USD strength which has seen the dollar index up 0.2%. Dollar strength is also evident in the major crosses including AUDUSD (-0.1%), USDJPY (+0.9%) and EURUSD (--0.1%). Elsewhere the weaker yen is helping the Nikkei (+1.1%) reverse some of Monday’s losses when it finished down 3.2%. The recent Nikkei weakness prompted Japan’s economy minister Amari to reassure the market today that stocks are in an “adjustment phase after recent sharp gains”. In the JGB market, 10yr yields are up another 5bp in Asian trading (0.88% as we type) after a lacklustre 20yr JGB auction. The move comes after weekend comments from Kuroda who warned of the risks from a rise in bond yields if not accompanied by
an improvement in the underlying economy.

Outside of Japan, Asian equities are trading mostly higher helped by the positive lead-in from the Stoxx600 which closed near the day’s highs of +0.33% yesterday. Gains on Asian bourses are being led by the Hang Seng (+0.1%), KOSPI (+0.4%) and ASX200 (+0.4%). Asian credit markets are unchanged to slightly tighter overnight, in line with the performance of Asian equities.

Turning to the day ahead, the main data releases are the Conference Board’s consumer confidence numbers in US and the latest activity readings from the
Dallas and Richmond Fed.

Just Say Non To The New „Sick Man Of Europe“ – Support For EU Plunges In France And Most European Countries

In some surprising news, and quite contrary to what its record low bond yields would indicate (for a key reason for said artificial demand for French, see The Greater Fool) today the Pew Research center released results from a poll of 7646 EU citizens in March 2013, showing that the new sick man of Europe is Europe itself, or rather the great unification project itself: the European Union.

The sick man label – attributed originally to Russian Czar Nicholas I in his description of the Ottoman Empire in the mid-19th century – has more recently been applied at different times over the past decade and a half to Germany, Italy, Portugal, Greece and France. But this fascination with the crisis country of the moment has masked a broader phenomenon: the erosion of Europeans’ faith in the animating principles that have driven so much of what they have accomplished internally.


The European Union is the new sick man of Europe. The effort over the past half century to create a more united Europe is now the principal casualty of the euro crisis. The European project now stands in disrepute across much of Europe.

The bolded sections also confirm why the European oligarchic bureaucracy is increasingly authoritarian, and desperate to usurp all democratic principles and popular power, well aware that if left to the "demos", Europe - which is what the common person increasingly blames their economic troubles on - would not last one more day.

Perhaps most surprisingly, nowhere is this more evident than in France itself - the country where the idea of a European Union germinated in the first place - and where the decline in support for the EU has been the greatest in the past year, with just 22% responding affirmatively to the question whether 'economic integration strengthened the economy', down from 36% a year ago, and the biggest drop of all surveyed EU member states.

It only goes downhill from there for France.

No European country is becoming more dispirited and disillusioned faster than France. In just the past year, the public mood has soured dramatically across the board. The French are negative about the economy, with 91% saying it is doing badly, up 10 percentage points since 2012. They are negative about their leadership: 67% think President Francois Hollande is doing a lousy job handling the challenges posed by the economic crisis, a criticism of the president that is 24 points worse than that of his predecessor, Nicolas Sarkozy. The French are also beginning to doubt their commitment to the European project, with 77% believing European economic integration has made things worse for France, an increase of 14 points since last year. And 58% now have a bad impression of the European Union as an institution, up 18 points from 2012.

So much for the European "core" - while Germany is doing better, or at least not as bad, French public mood is now on par with the PIIGS:

Even more dramatically, French attitudes have sharply diverged from German public opinion on a range of issues since the beginning of the euro crisis. Differences in opinion across the Rhine have long existed. But the French public mood is now looking less like that in Germany and more like that in the southern peripheral nations of Spain, Italy and Greece.


Positive assessment of the economy in France have fallen by more than half since before the crisis and is now comparable to that in the south. The French share similar worries about inflation and unemployment with the Spanish, the Italians and the Greeks at levels of concern not held by the Germans. Only the Greeks and Italians have less belief in the benefits of economic union than do the French. The French now have less faith in the European Union as an institution than do the Italians or the Spanish. And the French, like their southern European compatriots, have lost confidence in their elected leader.

In France it is so bad, that it's "optimism" (of 14%) is higher only than that of Greece, where youth unemployment just crossed above 60%:

European publics are generally only slightly more upbeat about their nation’s economic prospects over the next 12 months than they are about the current state of their economy. Just 11% of the French and 14% of the Greeks expect the economic situation in their country to improve. Optimism about the future of the economy is largely unchanged compared with sentiment held last year, although it has declined 11 points in France and 10 points in Britain.


A majority of the Greeks (64%) and the French (61%) and a plurality of the Italians (48%) and Spanish (47%) actually expect things to get worse. About half of Poles (51%), Germans (49%) and Czechs (47%) and four-in-ten British (40%) see economic conditions remaining the same over the next year. But in the Czech Republic and Britain, no change means continued economic stagnation. The Czech economy contracted by -1.3% in 2012 and Britain’s grew by an anemic 0.3%.


Since like everything else, the European experiment is also a zero sum game, Germany's gain is everyone else's loss:

Given the overall level of dissatisfaction across Europe, there is little difference in attitudes among demographic groups on their country’s direction, with some exceptions. Young German adults, those aged 18 to 29, and Germans with a college degree are more likely to be satisfied than people 50 years of age and older or the less educated. The same holds true for young people and the better educated in France, the Czech Republic and Britain.


The debilitating effect on the public psyche of the prolonged euro crisis is evident in the erosion of satisfaction in some but not all countries. Since 2007, before the euro crisis began, national contentment is down 46 percentage points in Spain, 13 points in Italy and 7 points in the Czech Republic. But in Germany (+24 points) and Poland (+7), people are feeling better about the state of their nation.



Only in Germany, where the economy grew a modest 0.7% in 2012, yet faster than the overall European Union average of -0.3%, does most (75%) of the population think the economy is doing well. This represents a significant improvement over sentiment in 2009, when only 28% saw economic conditions in a good light, despite the fact that the German economy was growing at 3.3% at the time.

Whereas Merkel still has the adoration of the Germans, every other European leader is equally loathed anywhere one goes in Europe:

Europeans are losing faith in the capacity of their own national leaders to cope with the economy’s woes. In most countries surveyed, fewer people today than a year ago think their national executive is doing a good job dealing with the euro crisis. This includes just 25% of the public in Italy, where the sitting Prime Minister Mario Monti was voted out while this survey was being conducted. Even the Germans, who overwhelmingly back their Chancellor Angela Merkel, are slightly more judgmental of her handling of Europe’s economic challenges than they were last year. And Merkel faces the voters in an election in September 2013.


Nevertheless, Merkel remains the most popular leader in Europe, by a wide margin. She enjoys majority approval for her handling of the European economic crisis in five of the eight nations surveyed. But in Greece (88%) and Spain (57%), majorities now say she has done a bad job, as do half (50%) of those surveyed in Italy.

But while loathing of the present is a given (and can be easily understood when one looks at such trivial indicators as the unemployment rate of most non-core countries), it is the gloom about the future that is the novel development:

Most Europeans are almost as gloomy about the future. Just 11% of the French, 14% of the Greeks and Poles, and 15% of the Czechs think that their national economic situation will improve over the next 12 months.


A median of 78% in the eight countries surveyed say a lack of jobs is a very big problem in their country. And a median of 71% cite the public debt. Except in Germany, overwhelming majorities in many countries say unemployment, the public debt, rising prices and the gap between the rich and the poor are very important problems. Unemployment is the number one worry in seven of the eight countries. Inequality is the principle concern in Germany.



Apprehension about economic mobility and inequality is also widespread. Across the eight nations polled, a median of 66%, including 90% of the French, think children today will be worse off financially than their parents when they grow up. A median of 77% believe that the economic system generally favors the wealthy. This includes 95% of the Greeks, 89% of the Spanish and 86% of the Italians. A median of 60% think the gap between the rich and the poor is a very big problem; that sentiment is felt by 84% of the Greeks and 75% of both the Italians and the Spanish. And a median of 85% say such inequality has increased in the past five years, a concern particularly prevalent among the Spanish (90%).



Absolute economic deprivation has long been less of an issue in Europe than in some other countries, thanks to the relatively robust European social safety net. But in the wake of economic hard times, deprivation in France is on the rise, where roughly one-in-five say they could not afford food, health care or clothing at some point in the past year.

One can just imagine what happens when first Europeans (and the Americans) realize that the "robust social safety net" is the biggest Ponzi scheme of all.

What is most paradoxical, is that despite their largely unconditional and widespread revulsion of their economic reality, virtually no Europeans can grasp that the root of all their problems is the joint currency, which means the only way to solve imbalances is through internal devaluation (read collapsing wages and soaring unemployment). So engrained is the mythology of the Euro, that support for the EUR is nearly strong as it has always been, with the ratio of those supporting the common currency surpassing the skeptics by a ratio anywhere between 2 and 3 to 1. Still, the country which has expressed the biggest eagerness to return to its own currency is France. Perhaps there is some hope after all.

Despite rising disillusionment with the European project, the euro, the common currency for 17 of the 27 European Union members, remains in public favor. More than six-in-ten people want to keep the euro as their currency in Greece (69%), Spain (67%), Germany (66%), Italy (64%) and France (63%). And support for the euro has actually increased in Italy and Spain since last year.

As expected, when it comes to determining government priorities, the bulk of the nations put unemployment far at the top, followed by levels of public debt (and with the BOJ and Fed assisting with the endless carry bid, what is there to worry about?), the gap between the rich and poo, and finally inflation (again, courtesy of the central planners controlling the long end of the bond curve and being buyers of first, last and only indirect resort of inflationary indicators like 30 Year paper).

The euro crisis has created a laundry list of economic concerns, but Europeans generally agree on which challenge they want their government to tackle first: jobs, jobs, jobs. In seven of eight nations, publics prefer that their governments act first on unemployment. About two-thirds of the Spanish (72%), the Italians (64%) and the Czechs (64%) say the most important issue to address is the lack of employment opportunities. Roughly half of the Greeks (52%) and the French (51%) and nearly half of the British (46%) agree.


Public debt intensely concerns more than half the population in seven of the eight countries surveyed. But those same people do not see it as a governmental priority. About one-in-five in Britain (22%), Germany (21%) and France (20%) wants their government to first cut the debt. Only 9% of Italians say debt reduction should be the priority, despite the fact that Italy’s debt is 127% of GDP.


Despite the public’s profound concern about inequality, in most countries it is a lesser priority for governmental action. Only in Germany does a plurality (42%) believe that the gap between the rich and the poor is the economic problem the government should address first.


For all the angst in financial circles about the possibility of asset bubbles and inflation as the result of loose monetary policy, European publics place a low priority on governmental initiatives to curb inflation. A median of only 9% think rising prices is the first issue their governments should address.


And then, on to the very sensitive topic of austerity. Here is how the cards lie:

In the past year, an ever more visible and vocal public policy debate has emerged in Europe over the right course of action to pull the European Union out of its double-dip recession. Fiscal conservatives advocate even greater efforts to rein in spending to reduce government indebtedness. Others argue that budgetary rectitude will have to wait, that more spending is needed now to jump-start economies stuck in neutral.


While policy makers and pundits debate, European publics have already made up their minds. When faced with the stark choice of reducing government debt or pump priming, most Europeans clearly prefer belt-tightening as the means of climbing out of their economic hole.


People’s intense worry about jobs and their strong desire to see government take action to increase employment does not translate into support for more government spending to stimulate the economy. A median of just 29% across Europe want to see increased public outlays as a means of solving their country’s economic problems. Only in Greece (56%) does a majority advocate more spending. In France, which in 2012 elected a socialist government, just 18% back a Keynesian solution to their woes.


About half or more of the population in six of the eight European countries surveyed says that the best way to solve their economic problems is for government to cut public spending to reduce the public debt.


Cutting government debt has particularly strong backing in France (81%), followed by Germany (67%) and Spain (67%), despite the fact that these three countries have had significantly different experiences with belt tightening. The French and Germans have yet to experience major austerity. In 2012, government expenditures still grew by 1.4% in France and Germany, compared with a decline of 3.7% in Spain.


Notably, it is older people, those age 50 and above, who prefer action on the debt in France. But it is younger people, those aged 18 to 29, in Poland and the Czech Republic who are deficit hawks. And it is people without a college education in Britain, France, Germany and Spain who are more concerned about public debt than their better educated peers.


There is much, much more in the full Pew study, but we will leave it off with what has always been the weakest link of Europe, and why a true union, fiscal, debt or monetary, can never be achieved: too much internal disharmony, prejudice, and legacy conflicts, manifested best of all, and always, via the internal European stereotypes between the different sovereigns:

The prominent role Germans have played in Europe’s response to the euro crisis has evoked decidedly mixed emotions from their fellow Europeans. In every country except Greece, people consider Germans the most trustworthy. At the same time, in six of the eight nations surveyed, people see the Germans as the least compassionate. And in five of the eight, they are considered the most arrogant. In the wake of the strict austerity measures imposed in Greece, Greek enmity toward the Germans knows little bound. Greeks consider the Germans to be the least trustworthy, the most arrogant and the least compassionate. But the Greeks themselves do not fare that well. They are considered the least trustworthy by the French, the Germans and the Czechs.


Good luck with ever turning this sinking ship around.

Is A Fed ‚Taper‘ Positive For Treasuries?

Submitted by Mark J. Grant, author of Out of the Box,

There is no plan, no scheme that the Fed can concoct for exiting their support for the U.S. economy that will not negatively affect both the bond and equity markets and have a positive effect on the Dollar. The markets have relied upon the manna from Heaven to rise and virtually nothing else. The American economy cannot justify either the absolute levels of yield or the compression that has taken place or the lofty levels of our stock markets. All of this has had a single driver which is the Fed.
There does come a point in time, however, when a 4 trillion dollar balance sheet and the flip side of the coin, the decline in the wealth of the investor, the consumer, starts to impact the market as paltry returns eventually lead to declines in capital for goods and services. The Fed has spent four years providing gifts for those that borrow and for the banks while penalizing those who save and invest. What one group gained the other lost.
Now the Fed faces the dilemma of its own making; how to gradually exit their current strategy without setting the financial markets on their rear ends. This is a situation that I have contemplated for some time and I have been asked about it by some of the most senior people in our industry. So this morning I will share with you and the Fed some of my thoughts.
First would be to exit your support of the various agencies first. They are now doing fine. Profits will be down but not out and a gradual withdrawal is called for as an initial step in the process. The definition of “gradual” will be the key but I think this is the logical first step.
For the Treasury markets a different plan can be utilized in the first instance. Use the same amount of money that you are using now but buy the bonds directly from the Treasury and not in the open markets. This will have the effect of lowering the borrowing amounts for America, having smaller auctions, and so the demand will not need to be so sizeable to sustain them. Then as the Dollar strengthens and as both European and Asian investors move out of their troubled economies and into Treasuries for safety there will be increased demand from overseas.
Yields will probably still rise and the compression in fixed income will reverse but not as dramatically as feared by some. A tremendous amount of corporate and mortgage financing has taken place during the last four years so that the amount of new issuance will also decline which will also help in this process. It can also be announced that some portion of the Fed’s balance sheet will be allowed to just run off which will also decrease the pressures on the markets. The Fed bombed its way into the markets but the way out must be slow and carefully considered.
The Fed should also concentrate on its primary objective which is the financial well being of America. Another area where the Fed should cut back on in the first instance is supplying capital to the European banks. The ECB and the EU will have to pick up the slack and stand on their own feet without so much dependence on the Fed. In my opinion the Fed has been overly generous to foreign institutions and this should stop. The ECB needs to learn to take care of its own mess and not rely upon the Fed to help them.
The Fed’s tapering off of their European support will also be a positive for Treasuries and American credits as spreads will begin to widen between the two groups. America will be seen, once again, as the safer haven causing some European money to flow into the American markets. External demand will have been increased by employing this part of my strategy.
“Tapering off over time” should be the mantra. Baby steps should be the pace. The continuing strife in Europe will also help the United States as investors are forced to deal with more problems in Cyprus, Greece, Portugal, Spain, Italy and Slovenia. The difficulties in Europe will be positives for America as a result of relative safety and value.
This is the course I would set and honest words backed up by policies that match those words will go a long way to preventing serious market erosion. The beginning will not be easy but the path can be contained if it is maneuvered properly. Market corrections will take place but giant upheavals can be avoided by a studious and honest approach. The Fed can also learn a lesson from Mr. Draghi and make forceful pronouncements that “it will do whatever is necessary” to maintain orderly conditions and then demonstrate this tactic if needed.

German Finance Minister Who Launched Euro, Calls For Euro’s Breakup

Back in December we pointed out the patently obvious: in the absence of an external rebalancing mechanism, i.e., a free-floating currency, the only option for the bulk of the periphery to regain competitiveness was through ongoing wage collapse and persistent localized depression. Five months later, just as predicted, Europe is in a worse shape than ever before, not only in those non-core countries where wage deflation is accelerating, but the weakness has fully spilled over to the core. Of course, none of this is rocket science, and has been quite obvious to anyone who thought for more than 15 seconds about the "future" of the Eurozone. What is surprising, however, is that with every passing day even the most staunchest supporters of the euro, in this case Oskar Lafontaine, German finance minister in 1998-1999, under whose supervision the euro was launched, are becoming the most vocal Euro-skeptics an unsound, political (capital) currency can no longer buy. Here is the Telegraph's Ambrose Evans-Prithard dissecting the conversion of the latest europhile turned euroskeptic.

From The Telegraph

Oskar Lafontaine, the German finance minister who launched the euro, has called for a break-up of the single currency to let southern Europe recover, warning that the current course is "leading to disaster". 


"The economic situation is worsening from month to month, and unemployment has reached a level that puts democratic structures ever more in doubt," he said.


"The Germans have not yet realised that southern Europe, including France, will be forced by their current misery to fight back against German hegemony sooner or later," he said, blaming much of the crisis on Germany's wage squeeze to gain export share.


Mr Lafontaine said on the parliamentary website of Germany's Left Party that Chancellor Angela Merkel will "awake from her self-righteous slumber" once the countries in trouble unite to force a change in crisis policy at Germany's expense.


His prediction appeared confirmed as French finance minister Pierre Moscovici yesterday proclaimed the end of austerity and a triumph of French policy, risking further damage to the tattered relations between Paris and Berlin.


"Austerity is finished. This is a decisive turn in the history of the EU project since the euro," he told French TV. "We're seeing the end of austerity dogma. It's a victory of the French point of view."


Mr Moscovici's comments follow a deal with Brussels to give France and Spain two extra years to meet a deficit target of 3pc of GDP. The triumphalist tone may enrage hard-liners in Berlin and confirm fears that concessions will lead to a slippery slope towards fiscal chaos.German Vice-Chancellor Philipp Rösler lashed out at the European Commission over the weekend, calling it "irresponsible" for undermining the belt-tightening agenda.

Naturally, one wonders just how much of an ethical right to being disgruntled Germany has when the man who was more personally responsible for ushering in the Euro than anyone, Lafontaine's boss, Helmut Kohl recently admitted in an interview that he acted like a dictator to bring in the euro.  "I knew that I could never win a referendum in Germany," he said. "We would have lost a referendum on the introduction of the euro. That's quite clear. I would have lost and by seven to three."

The interview was conducted by Jens Peter Paul, a German journalist in 2002, the year when the Deutsche Mark was replaced by euro notes and coins, but has only been published now.


In it, Mr Kohl describes adopting the euro as an emblem of the European project, which he said had prevented war on the continent. Born in 1930, Mr Kohl's politics were shaped by his country's history in the 1930s and 1940s; his final years in power were focused on promoting European unity.


In the interview, he said: "If a Chancellor is trying to push something through, he must be a man of power. And if he's smart, he knows when the time is ripe. In one case – the euro – I was like a dictator ... The euro is a synonym for Europe. Europe, for the first time, has no more war."

So, in reality, it is neither Germany, nor France, nor Spain, nor Greece, but the Germans, the French, the Spanish and the Greeks , whose majority voice has been usurped by Europe's conversion to a dictatorial regime, and who have been the most disdavantaged by said usurpation of democracy all in the name of a technocratic, banker ideal, i.e., the EUR, which serves merely to promote the interests of the few, the uber-wealthy, and leave a trail of 60% youth unemployment everywhere in its place, now that the illusion is over and the great unwind toward reality has begun.

That said, expect Lafontaine's words to be soundly ignored, until such time as avoiding reality and kicking the can is no longer an option. Then again, that is a problem also for the US and its preoccupation with the pyramid scheme known as the stock market and the entitlement system. We expect the grand reset to impact everything at the same time. Until then, it is best to stick one's head in the sand of course.

Add here is the full statement by Lafontaine.

Chancellor Angela Merkel's European policy is increasingly under pressure. Not only Euro-pean Commission President Manuel Barroso, but also Enrico Letta, recently mandated by Italian President Giorgio Napolitano to form the new governnnent, have criticized her austerity policies, which have been dominant in Europe and are leading to disaster. Europe's leaders have long been at a loss. The economic situation is worsening from month to month, and unemployment has reached a level which is increasingly undermining democratic structures.

The Germans have not yet realized that the southern Europeans, including France, will in view of the current economic misery be forced to fight back against German hegemony sooner or later. In particular, German wage dumping, which has been an infringement on the treaties from the outset of the currency union, is putting them under pressure. Merkel will wake up from her self-righteous slumber when the countries which are suffering from Ger- man wage dumping get together to force a policy switch against the crisis at the cost of Ger- man exports.

A common currency could have been sustainable if the participants had agreed on coordinated productivity-oriented wage policy. During the nineties, since I considered such a co-ordination of wages to be possible, I agreed to the establishment of the Euro. But the institutions established for that coordination, particularly the Macro-Economic Dialogue, have been circumvented by the governments. Hopes that the establishment of the euro would force rational economic behaviour on all sides, were in vain. Today, the system is out of joint.

As Hans-Werner Sinn recently wrote in the Handelsblatt, countries like Greece, Portugal or Spain would have to become 20 to 30 per cent cheaper than the EU average, in order to achieve a roughly balanced level of competitiveness, and Germany would have to become 20 per cent more expensive.

However, recent years have shown that such a policy has no chance of being implemented. A real appreciation through rising wages, which would be necessary in the case of Germany, is not possible with the German corporate associations and the neo-liberal block of parties, consisting of the CDU/CSU, the SPD, the FDP, and the Greens, which obey to them. A real depreciation through shrinking wages, which will make income losses of 20 to 30 per cent necessary in southern Europe — even in France — will lead to disaster, as we can already see in Spain, Greece and Portugal.

If real appreciations and depreciations are not possible in this way, it will be necessary to abandon the common currency and return to a system which allows for appreciations and depreciations, as was the case with the forerunner of the common currency, the European Monetary System (EMS). Basically, the point is to make possible once again controlled depreciations and appreciations through an exchange-rate regime run by the LU. For that pur¬pose, strict capital controls would be the inevitable first step, in order to regulate capital flows. After all, Europe has already taken this first step in Cyprus.
During a transition period, it will be necessary to provide aid to those countries which are certain to depreciate their currencies, in order to prop them up — including aid through intervention by the ECB, to prevent a collapse. A pre-condition for the functioning of a European monetary system would be a reform of the financial sector and its strict regulation, along the lines of the public savings banks. The casino has to be closed down.

The transition to a system allowing for controlled appreciations and depreciations should be gradual. A start could have been made in Greece and Cyprus. The experience with the European currency snake and the EMS should be considered.

India’s Response To The Gold Sell Off: A Massive Buying Frenzy

Panic, depression, rage, suicidal ideations: watching the US mainstream media, one would think that these are the prevailing sentiments among those who unlike the prevailing "developed world" speculative class, are invested most heavily in physical old - Indians, who collectively comprise the largest end-demand consumer segment for gold products. One would be very wrong.

Because while apparently it is incomprehensible to the "sophisticated" financial crowd in the US that someone may have conviction in their beliefs, and not just lunge from extreme to another, merely riding momentum and technicals like so many "professional" investors, Indians are doing precisely what a buyer should do when the price of the desired product plunges: doubling down, literally.

Bloomberg reports of the immediate aftermath to the past few days' gold plunge: "Gold buyers in India, the world’s biggest consumer, are flocking to stores to buy jewelry and coins, betting a selloff that plunged bullion to a two-year low may be overdone." Wait, so instead of jumping out off high buildings, Indians are being cool, calm and collected and... buying more? Unpossible. Do they not get CNBC in Mumbai? Apparently not: "My daughter is just six months old, but I think it is never too early to buy gold,” said Sharmila Shirodkar, a 28- year-old housewife, while displaying a new pair of earrings she bought from a store in Mumbai’s Zaveri Bazaar. “I had been asking my husband every day if prices will go down more. I couldn’t wait anymore.”

Indeed - the buying frenzy in India has been unleashed:

While the drop in gold prompted investors worldwide to pare holdings in exchange-traded products, surging physical demand in India may help stem the 17 percent slide in prices this year. The plunge after rallying for 12 straight years may make bullion more affordable to Indians, according to Mehul Choksi, chief executive officer of Gitanjali Gems Ltd. (GITG), the nation’s biggest retailer of jewelry and diamonds by sales.


This is a perfect time to buy as prices will only go up from here,” said Vishal Mehta, a 33-year-old garment dealer, while ordering coins from Choksi V. Naginchand & Co. in Zaveri Bazaar. “I usually buy one gold coin a month, but this time I am buying two.”

Hence the true value of the word "double down". Here is another word US "investors" can learn from the Indians - value.

“It has been very hectic in the last two days,” said Deepak Tulsiani, owner of Dwarkadas Chandumal Jewellers in Mumbai as he surveyed his 11 employees, who were busy with customers. “There has been a rush to buy gold because now people are getting jewelry 15 percent cheaper than before. It’s value for their money.”


Zaveri Bazaar, the largest bullion market in the country, buzzed with customers, who were browsing through collections of bangles, bracelets, necklaces and rings displayed in trays ahead of the wedding and festival seasons. Most buyers were women in groups of two or more, accompanied by a male who paid the bills.


Whatever be the price, Indians buy gold because it is an age-old tradition,” C.P. Krishnan, a director at Geojit Comtrade Ltd., said by phone from Kochi. “It has become an unavoidable expense during weddings and festivals. With the sudden crash in prices a lot of buying is happening across India as people are thinking of it as a golden opportunity.”

Yes: tradition! That's what the Chairman said too. And the chairman is never wrong. Even when he is selling the synthetic paper representation of that tradition and in the process allowing all those who trade on "value" and not "moment" to average down in terms of infinitely dilutible fiat paper.

Back to India:

“Some customers are still scared to buy now as they feel the price will go down more,” Chetan Ranka, owner of Choksi V. Naginchand, said after answering a call from a prospective customer on one of the four phones at his desk. “I have received more than 250 calls on Monday inquiring about the prices. Normally I get maybe 50 calls a day.”

The lower gold drops, the more people will buy.

“I had been keeping a tab on gold prices daily by reading the newspapers,” Sakshi Jain, a 39-year-old housewife, said as she held an intricately designed necklace against her neck in front of a mirror in Zaveri Bazaar. “I had some wedding purchases to make and as soon as prices dropped I came to buy.”

And the rub: once the correction is over, and prices resume their inexorable rising, the double down will become a buying frenzy, as everyone will realize one simple thing. Just because the BLS says inflation is has not arrived, it merely means the central banks, who are laboring under some $40-50 trillion in excess debt, will have no choice but to also double down. And one of these days not even the BLS' best efforts at fudging reality will fail.

Incidentally, they are already are. As the MIT's Billion Prices Project shows, there is just a slight disconnect between reality and what is being spoonfed.

Finally, for some actual numbers, we go to Bank of America which has calculated that the disconnect between the paper selloff and physical buying spree can only last so long before gold shoots right back up to $2000 as the surge in buying overwhelms the paper selling.

With prices now below $1,500/oz, we expect a pick-up in jewellery demand in the medium term and see considerable pain for miners should prices dip below $1,200/oz. As such, we believe the downside to gold prices may be limited to an additional $150/oz. In fact, we estimate that jewellery demand may become so pronounced by 2016 that prices could trade above $1,500/oz even if investors remain net sellers. Looking at sensitivities from a different angle, investors would need to buy merely 600t of gold to sustain prices at $2,000/oz by 2016, compared to non-commercial purchases of 1,798t in 2012.

And some more thoughts from BofA:

Cyprus’ announcement to sell nearly 14t of gold reserves was a key trigger behind the recent collapse in gold prices, as it raised concerns that other peripheral nations may follow suit. Given our estimate that every $45/oz represents a net sale of 100t, the move over the last two days would suggest net sales of 480t, or about 20% of yearly mine supply. In short, the market seems to have discounted the combined future gold sales of Portugal and Greece. As we believe additional gold selling in the European periphery is highly unlikely, we find it hard to fully justify the sell-off.

So please go ahead and sell. All we can say is, well, thanks.

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