GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES

* Miscellaneous Update Briefs
* Shock Waves Hit European Fringe
* Greece Shows Defiance on Debt Battle
* Japan Pressured by Massive Debt Load
* USDollar Counter-Trend Rally
* Stress & Birth of a Major Currency
* The Chinese Gold Price Discount



HAT TRICK LETTER
Issue #69
Jim Willie CB, 
“the Golden Jackass”
20 December 2009

"The Ponzi scheme that is our fiat currency system is about to go the way of what was for a time the symbol of American superiority, General Motors... As I claimed in 2005 that GM would go bankrupt, I will now guarantee that the US government is soon to follow... We will default. We will restructure. It will be at this point our arrogance will end." -- Greg Simmons and Brett Buchanan of Scope Labs

MISCELLANEOUS UPDATE BRIEFS

◄$$$ FLASH!!! A POWERFUL RUN ON THE GOLD BULLION BANKS HAS BEGUN. THE PATHOGENESIS IN GOLD EXCHANGES AND PRICES PROCEEDS. DEMANDS ARE MADE FOR CLOSE-OUT OF ALLOCATED ACCOUNTS, ACCOMPANIED BY FULL PAPERWORK. LOOK FOR A WORSE DIVERGENCE BETWEEN THE PAPER GOLD FRAUDULENT PRICE AND THE PHYSICAL GOLD HIGHER PRICE. $$$

Huge demands for physical gold are coming from entities holding allocated gold accounts, where deposits are held at gold bullion banks. The depositor entities are showing up unannounced, with full paperwork, demanding gold to be handed over. The paperwork in hand consists of lists, bars, dates, serial numbers, weights, and smelter hallmark brands. This is a full blown run on the bullion banks. It is unclear whether they only doubt their gold remains in possession, or if fake gold is held. This has gone beyond a verification process. Depositors are being shown the stacks of shiny pretty gold bars, and urged not to take possession, told their gold is safe. But the entities are not convinced their particular own gold bars are among the vaulted holdings, suspicious that their gold has been leased and sold, replaced by paper certificates. They might harbor concerns over fake gold like tungsten bars. Big clearing houses are also owed large amounts of gold bullion, and the bullion banks do not have it, according to anecdotal reports. Court challenges are likely soon to surface. End of year squaring of a high volume of gold contracts are at risk of not being completed. Great stress has entered the system.

At the same time, the delivery process has been corrupted. Big cash bribes are being offered in bids to settle in cash without metal delivery in futures contracts, confirmed in various journals. Call it technical default. In fact, the cash bribes are patterned in a reduction over consecutive days. This gives the impression of the extraordinary period being only a brief segment of time, inducing parties into taking the offer before made lower still. This is a full blown run on the bullion banks. We are fast entering the FRAMEWORK of manifested active divergence between paper gold and physical gold. One can detect a pathogenesis wherein paper gold will diverge even more from physical gold in price until paper stops posting any price at all. My source confirmed that the price divergence is an end game symptom before the paper game is declared over. Before too many more weeks or months no prices might be listed on the gold exchanges. Soon we might hear of an important default, from a party using courts and legal staffs. My source had clients who demanded and received their gold from London using courts and lawyers, all their gold. My expectation is eventually the physical gold price will be some average of five known private large volume traders from diverse corners of the globe, in an unusual attempt to post any price at all. This is a run on the gold banks. Do not be disheartened by the falling paper gold price. My strategy is to purchase as much gold & silver at the paper discount price until there is no more. Then the paper price discovery is history!

◄ See the Hat Trick Letter Special Report entitled "Blueprint to Sovereign Debt Crisis" for December. The climax event in my opinion is the USDollar breakdown crisis, then a USTreasury Default. Such default has been my constant forecast for 15 months. My forecast is for a grand sequence of debt downgrades and sovereign debt defaults, the next more rapid than the last, as banking systems topple. The process has seen the first two elements take place. The US financial system broke down from insolvency in autumn months of 2008, and Dubai broke down in late November 2009. The Dubai events mark a resumption in the credit crisis. In progress is the breakdown in its early stages to important European fringe nations that succumb to the reality of their own banking system failures, property price cave-ins, and unworkable debt burdens. They have entered debt death spirals. The momentum is growing. The psychology has changed. Impaired debt will no longer be tolerated. Smaller nations will fall first. Investment Watch has listed nine stages for the explosive setting of hyper-inflation. We are currently at a point that next should see bond busts from sovereign debt and soaring monetary inflation from staggering monetization. Next is uncontrollable monetary inflation, stress from bond monetization and federal deficits, then the breakdown of currency integrity. The downgrades to government debt for Greece, Spain, and Portugal given last week by ratings agencies signal upcoming debt related earthquakes that will tear apart the European Union. The next big event will be the shared usage of the Euro currency. The Parliamentary movement for the Europe Union will be dead on arrival. Govt debt in both Spain and Greece will soon default, with Greece first. The momentum of their defaults will kill the European Monetary Union, and then the EU itself. The climax event in my opinion is the USDollar breakdown crisis, then a USTreasury Default. Debt ratings agencies are caught between competent downgrade of debt versus starting an avalanche of defaults. Some claim Europe moves toward its own AIG debacle, but without a potential to slide it under a US$-type Printing Press rug.

◄$$$ FOOD PRICES COULD TRIGGER CIVIL DISORDER. FALLING PRODUCTION PRE-SAGES HIGHER PRICES. POLITICAL LEADERS MUST BEWARE, SINCE THE NATIVES MIGHT GROW VERY RESTLESS. MOST PAST REVOLUTIONS CENTERED UPON INJUSTICE BUT ALSO WITH FOOD PROBLEMS. $$$

The credit crisis has a potential major victim in falling food production. Energy costs are on the rise, especially natural gas. Hence fertilizer costs and livestock management costs are rising too. The supply chain has interruptions from shortages of credit. Furthermore, farmers reluctant to feed and care for livestock are resorting more to slaughter, reducing future supply. Analysts forecast rising prices in a broad sense. "Agricultural commodities will be a great investment in the next three to five years," said Oliver Kratz from Global Thematic Strategy Investments at Deutsche Bank. In a research report from December, Barclays Capital warned "Inventories are extremely low in a number of grains markets. The prospect of a further bout of food price inflation in 2010 cannot be ruled out, since many of the factors that contributed to higher prices in 2007 and 2008 are still a feature." Josette Sheeran is executive director of the UN World Food Program. She said, "Volatility in price and supply are with us for the predictable future. Risk is the new normal when it comes to food." Expanding populations and rising incomes have lifted food consumption in China and India, in both volume and type. China is contending with a milk contamination by melamine, a chemical used in making plastics. Droughts in India and Argentina and typhoons in the Philippines have reduced production. Jeffrey Saut from Raymond James in Florida concluded with a stern warning. He said, "The politicians had best be able to at least feed their populations or they are going to have uprisings. One of the first things, other than clean water and a toilet, that people want when their per capita income rises is food." Recall that the French Revolution, and most revolutions across the span of history, initiate over food shortages and rising prices of food. See the Bloomberg article (CLICK HERE) for details on rice, dry milk, sugar, palm oil, pork, chicken, all under stress with reduced supply, while wheat is apparently plentiful.

◄$$$ IRAN GAINS BY $5 BILLION IN NON-US$ OIL SALES OVER TIME. JUST LIKE IRAQ, ITS OIL INCOME BENEFITS FROM BEING OUT SIDE THE US$ SPHERE. $$$ Iran has gained $5 billion on an official shift from the USDollar on its crude oil sales. Since late 2007, the Islamic Republic of Iran has received 85% of its oil income in currencies other than the USDollar. The English language PressTV reported that Iran began preparing for alternatives in the Euro and other currencies in 2005. Furthermore, Tehran expresses determination to find a substitute for the dethroned US$ in the remaining 15% of its oil income. See the Emirates Business article (CLICK HERE).

◄$$$ EXXON MOBIL TO ACQUIRE XTO ENERGY FOR $30 BILLION, WITH NOTHING ADDED TO PRODUCTION CAPACITY, JUST A SHIFT IN PAPERWORK ON OWNERS. NO NEW SUPPLY SHOULD BE EXPECTED, JUST CONSOLIDATION OF OWNERSHIP. THE RISK IS FOR REDUCED SUPPLY ACTUALLY, SINCE DEFECTIONS ARE LIKELY FROM VETERAN XTO ENGINEERS. MERGER APPROVAL IS EXPECTED TO BE EASY, AS ALL MEMORY OF 'TOO BIG TO FAIL' IS QUICKLY FORGOTTEN, AND BESIDES, PREVIOUS CONCERN WAS OVER FINANCIAL FIRMS. $$$

The energy oligopoly got worse! The giant energy firm Exxon Mobil plans to buy XTO Energy for about $41 billion in stock, which includes $10 billion in assumed debt. XTO Energy is the largest natural gas producer in the US, whose special technology will be used in smaller gas projects worldwide. The move thrusts the US energy giant to the forefront of the North American natural gas industry, as a likely obstacle to work around. Exxon has been holding back oil exploration for years. In 2005 and 2006, it paid out more in stock buybacks than exploration budgets. Exxon could become the top US natural gas producer, if it can convince XTO expertise to remain with the new merged firm. Indeed, Exxon will acquire huge acreage for potential development, with numerous shale gas projects like North Texas Barnett Shale. The consolidation resumes. Fadel Gheit is an analyst at Oppenheimer. He said, "There will be more of these deals, and it will make the industry more resilient to volatility in natural gas prices. [The XTO purchase] is a bid on natural gas prices. No matter what we say, in the end it is a bid on natural gas prices." The comment on resilience is a stretch in conclusion, and hardly a big benefit, as he ignores the actual risk to production, which has faltered for Exxon under its colossus of mismanagement. Few if any analysts EVER believe consolidation is bad for any industry, since bigger firms pay bigger fees.

XTO chairman Bob Simpson clearly seeks retirement. His 6.8 million XTO shares would be worth around $336 million if the deal takes place. With a rising natural gas price, now around $5.50 per MBTU, his exit strategy is available. Natgas prices have more than doubled from a low of $2.50 earlier in 2009. The acquisition testifies to Exxon's failure in the North Texas region. XTO and others made billions off the Barnett Shale. Two years ago, Exxon set up a joint venture with producer Harding to drill in the Barnett Shale region. The companies dithered on land leases, and eventually Exxon sold its Barnett Shale holdings after never producing a puff of gas. Exxon also looks for economies of scale, never usually bothering with smaller successful unsteady ventures. It prefers larger clumsy topheavy projects that flounder from lack of investment and exploration. The challenge will be to keep XTO intact, and to exploit its engineering expertise beyond the current XTO property portfolio. "I hope people can see what we are doing here is beyond the resource base of XTO alone. It is really about creating additional value in applying their expertise," Exxon CEO Tillerson stated. He fingered the key risk issue. If XTO employees leave after the takeover, Exxon would lose the expertise it needs to develop the unconventional resources it has been collecting. "The human capital is every bit as important to them as the resources," said Frost Bank analyst Ted Harper. See the Dallas News article (CLICK HERE).

One more big merger of miniscule meaning. The financial markets were abuzz over the deal. It shifts ownership, involves great movement of papers in contracts, and earns brokers hefty fees. The energy industry will probably not be well served. Exxon production is on the decline generally. Its commitment to stock buybacks and executive bonuses over exploration and research is well established. Watch next year the XTO subsidiary produce less natgas. The trend toward bigger corporations is an oligopoly disease in the USEconomy, never to be cured. The entire 'Too Big To Fail' concept is argued in financial sector, but overlooked in energy where innovation is squelched. In my view, market reaction was quite pathetic and ignorant. Will the US press tell the story of how many veteran engineers leave XTO in the next few months? Those who depart will likely seek other dynamic smaller firms.

◄$$$ BALTIC DRY INDEX INDICATES PROBLEMS PERSIST. HOWEVER, THE PROBLEMS ARE MORE STRUCTURAL WITHOUT REMEDY YET. THE EXTENT OF DAMAGE TO THE SUPPLY CHAIN IS UNKNOWN. $$$

Shipping prices do not tell the entire story on the industry. They seem to track the crude oil price as its highest correlated factor. Michael Drayton is a former chairman of the Baltic Exchange, now an independent shipping consultant. He said, "There is trouble building up behind the dam, and the dam is going to be breached. The market is blocking the natural flow to where it should be." Banks are in disarray on their vessel loans. Ship contracts will altered when resolution of bad loans occurs. Worse, a transition from US$ to Swiss Franc has been underway for several months in shipping contracts, not a smooth transition. A personal contact with experience on global commerce said, "This problem is more severe than most people think, experts included. It is basically a breakdown of the supply chain logistics on an unknown scale." See the Bloomberg article (CLICK HERE).

2009Iss12_BalticDry

◄$$$ LIGHT SHINES ON POSSIBLE MONEY LAUNDERING BY VATICAN BANK. AS MAJOR GOLD BULLION HOLDERS, THE VATICAN PLAYS WITHIN THE TIGHTLY KNIT GROUP OF GLOBAL CENTRAL BANKERS. THE GROUP'S ACTIVITIES ARE ON THE FRINGE OF LEGALITY. $$$

The Vatican Bank is under investigation for possible involvement in a money laundering scheme, according to the weekly investigative magazine Panorama. The reporters cite alleged usage of accounts at one of Italy's largest banks. Officials from the Bank of Italy's Financial Intelligence Unit (UIF) have identified transactions worth up to ¬180 million (=US$266 million) that purportedly violated Anti-Money-Laundering regulations in accounts held at a UniCredit branch in Via della Conciliazione, which is located next to St Peter Basilica. Prosecutors investigating the bank are reported to be working with a special unit of the Guardia di Finanza, the Italian tax police. Initial focus has been on possible breaches of financial regulations and disclosure obligations at the branch. The next phase for the investigation could be an examination of accounts held at other Italian banks. Investigators are examining every transaction in accounts held by the Vatican Bank branch from 2006 to 2008. In that period, it said that more than ¬180 million in cheques and transfers flowed through the accounts.

The Vatican Bank has walked through legal raindrops in the past. In 1982, an investigation centered on the collapse of Banco Ambrosiano, in which the Vatican Bank was the major shareholder. Ambrosiano collapsed with the Vatican in part responsible for $1.3 billion in bad debts. The Vatican Bank, also known as the Institute for Religious Works, must brace for a blow for its newly appointed directors. It is under siege. In September, its president Angelo Caloia resigned after 20 years, as its board of five superintendents was swept out of office. Investigators are next to interview senior officials from UniCredit. A major obstacle could be a maneuver by Vatican lawyers, who are considering whether to argue that the bank is outside Italian legal jurisdiction. The Vatican legally is a sovereign nation. See the Financial Times article (CLICK HERE).

Bear in mind that last spring, bearer bonds worth $138 billion were found by Japanese nationals attempting to cross the Italian-Swiss border. My sources told of how the bonds had an origin from the Vatican in a complex payment transaction in numerous directions. Since that time, an independent separate source informs that such cross-border payments with Vatican bearer bonds is a routine regular event that continues to this day. He said the Vatican is converting some of its monumental hoard of gold into European farmland. He also cited numerous examples of where the Vatican exchanges gold bullion loans in return for favors by cental banks and security agencies, possibly for first opportunities to purchase farmland. Stories mentioned would curl your ears on certain ceremonial activity by its Jesuit hierarchy, which are best not to mention. Think the Dark Side.

◄$$$ DUBAI IS VULNERABLE TO LEGIONNAIRE DISEASE FROM LACK OF MAINTENANCE OF INCOMPLETE BUILDING STRUCTURES. SUCH DISEASE IS A THREAT TO VERY HOT AND VERY HUMID LOCATIONS. LACK OF MAINTENANCE FOR CERTAIN DUBAI PROJECTS RENDERS IT AT HIGH RISK. $$$

Legionnaire's disease is a virtual certainty to the hotels and commercial buildings in Dubai.  After the property market suffered ruin, operators often cut back on proper maintenance in partially completed projects. Very hot and very humid climates like Miami and Dubai are particularly prone to such disease. See the Miami Herald article (CLICK HERE). The threat of the disease has precedent in Dubai. In February 2009, the deaths of three people were investigated with symptoms related to Legionnaire disease, officially known as the legionella bacterium. It is a form of pneumonia that often spreads through plumbing and air conditioning systems. A British cricket sports commentator was one victim. But officials cleared the Westin Dubai Mina Seyahi Beach Resort & Marina of any infestation. Not a surprise, since tourism is important enough to doctor findings. See the GMA News article (CLICK HERE).

◄$$$ COPENHAGEN SHUTS DOWN CRITICAL PRESS ELEMENTS. A FRAUDULENT MOVEMENT NEVER HALTS EASILY, AS DISSENT IS SQUASHED. THE GLOBAL ENERGY INITIATIVE MIGHT BE DERAILED IN COPENHAGEN. $$$ With the wretched publicity given the Green Movement on the internet, the press is being handled carefully. In a sense, the cat is out of the bag. The fringe of the free press is being shut up, as the main press networks are fully coopted. United Nations police have physically removed news reporters who ask too many probing questions. See the Midas Oracle article (CLICK HERE). This movement is a litmus test for global monolith power formation.

SHOCK WAVES HIT EUROPEAN FRINGE

◄$$$ SOVEREIGN DEBT HAS OFFICIALLY BEEN TARGETED. NOTHING IS SACRED EXCEPT USGOVT AND UKGOVT DEBT. SPANISH DEBT WAS DOWNGRADED TO NEGATIVE WATCH BY STANDARD & POORS AFTER A JANUARY DOWNGRADE. THE RATINGS AGENCY JUST WARNED GREECE AND PORTUGAL, WHO WILL SURELY BE DOWNGRADED VERY SOON. A BREAK IN EUROBOND UNITY COMES. $$$

Standard & Poors downgraded its outlook on Spanish debt securities to negative from stable, citing an expected longer and deeper downturn. They said the situation in Spain appears to be worse than they thought in January when their long-term debt lost the AAA rating. The threat is a downgrade from non-investment grade to lower grade. Spain is struggling with the worst downturn in decades, burdened by a collapse of the construction industry and housing implosion. The country has the highest rate of unemployment in developed Europe, greater than many emerging European countries. S&P cited high private sector indebtedness and an inflexible labor market. Their housing market is stuck in heavy mud, with huge inventory but little price decline to clear the supply, as socialism remains rooted. My expectation is that Spain will not exit the at all, until after a sovereign debt default.

Standard & Poors gave a branch of encouragement, stating that Spain's strong financial position before the bust affords some time for the government to forge a political agreement that supports a credible fiscal consolidation. The S&P official statement read, "The change in the outlook stems from our expectation of significantly lower GDP growth and persistently high fiscal deficits relative to peers over the medium term, in the absence of more aggressive fiscal consolidation efforts and a stronger policy focus on enhancing medium-term growth prospects. These factors, in turn, suggest to us that deflationary pressures could be more persistent in Spain than in most other EuroZone sovereigns, which we expect would further slow the pace of fiscal consolidation in the medium term. If the government announces concrete fiscal measures that we believe could credibly achieve annual primary surpluses of 2% or higher by the end of the forecast period in 2012, downward pressure on the ratings may abate."

European nations are under great collective pressure, in particular the PIGS nations. Standard & Poors placed Greece on negative credit watch and cut Portugal's sovereign credit rating outlook to negative. Fitch also downgraded Greek debt to BBB+ with a negative outlook. The cost of Credit Default Swap contracts that insure Spanish Govt debt against default widened by 8 basis points to 97 basis points, according to data from Markit. That means it would cost $97k to insure $10 million of Spanish debt securities. Other European CDSwap contract insurance is much more costly, indicative of much greater perceived risk. The CDSwaps for Irish Govt debt widened 13 basis points to 170 basis points and Greek insurance increased 23 basis points to 235, according to Markit. What is lacking is credible exit strategies from dire situations after reckless expansionary policies. Also, Moodys Investors Service threatened to lower its rating on debt issuers closed aligned to the United Arab Emirates Govt, continuing the drama on Dubai World debt woes.

Debt downgrades have direct consequences on bond yields and therefore the borrowing costs, the debt service. Pierre-Olivier Beffy is chief economist at Exane BNP Paribas. He expects further string of downgrades for sovereign debts. He said, "Portugal, Spain, Ireland, and Greece are clearly concerned by such an action. This can put a slightly downward pressure on the Euro, but this does not involve a systemic risk for the EuroZone area or for bond yields in major areas. Actual events raise the question of a downgrade for big countries like the US or the UK. However, in view of the analysis and the methodology of rating agencies, this is very unlikely to happen over the next two years. If developed economies experience a very low growth combined with a 200 basis point increase in bond yields, that could force rating agencies to issue alerts about sovereign risk in major countries (probably the US and the UK first). However, this is quite pessimistic assumptions and this is not our economic scenario." See the Market Watch article (CLICK HERE). The test of sacred USGovt and UKGovt debt comes sooner than people realize.

◄$$$ THE AFTERSHOCKS TO GREECE AND SPAIN WILL DIRECT DAMAGE TO THE BALTICS AND EASTERN EUROPE. THEY ARE ALL MUCH WEAKER THAN GREECE OR SPAIN, OR PORTUGAL, OR ITALY. THE PROCESS WILL SEEK A CLIMAX, FOUND EASILY, ALL IN TIME. $$$

Once the cracks in Europe are broken wide open, the minor European nations will fall quickly and easily, without actual extended debate or question of wisdom. The Baltic States are fragile and sinking in debt. They will no longer be carried. But the bigger and more visible tragedies will be seen in Eastern Europe, whose populations are not small. A curious malformation was constructed in recent years. The Eastern European nations attempted a reconstruction, with new industrial development. However, they went too far on the residential mortgage side, emulating Europe, England, and the United States. In doing so, they mixed in a deadly potion on the mortgage finance formula. The nations of Hungary, Poland, and Czech Republic used cheap Swiss funds in the mortgage funding, and will probably all default on sovereign debt. Foreign entities own too much of it. The base Swiss interest rate of 1.5% pumped money into Eastern European homes. Their local currencies each fell around 40% to 60%, making for a total disaster for Swiss bankers. Translated mortgage losses are in the 70% to 80% range. In fact Swiss bankers are struggling to achieve their equilibrium after deep damage in three aspects: toxic US bonds, devastating Eastern European mortgages, and threats to private bank accounts. The aftershock bangs to the Baltic States and Eastern Europe will set up a powerful additional event that will be seen as a climax.

It will be a miracle if at least one major European nation did not suffer the shameful spotlight of a sovereign default. Think down the road. By this time, Spain and Greece will have been wrecked, along with Portugal, possibly Italy also, and maybe even Ireland. The prime victims to close the process of sovereign debt default will include France and the United Kingdom. They will not be considered sacred for long. Considered untouchable, these nations will succumb to the wretched financial foundations that befall them.

France unfortunately has too many similarities to Spain, which debtors cannot overlook any longer. Their property bubbles along the southern coast will suffer further declines, bringing ruin to more financial firms. This is a Mediterranean phenomenon much like Florida. The United Kingdom unfortunately has too many similarities to the United States, which debtors cannot overlook. The UK cannot print money like the Americans to buy more time, or draw upon clandestine sources of funds. The USDollar Swap Facility will soon run dry. The UK will suffer blow after blow, from Dubai debt loss to Greek debt loss, to other EU member nation debt loss. The UK will run out of road and time. With the French and British defaults, the game goes ballistic and enters the TWILIGHT ZONE, as central banks will be questioned for their viable function. The European Union will likely fracture before the defaults for France or Great Britain.

◄$$$ FISCAL PRESSURES BUILD IN BRITAIN, AS INSOLVENCY WORKS TOWARD A DEBT DEFAULT INEXORABLY. THE UKGOVT DEFICIT IS FAST REACHING THIRD WORLD MARKINGS, WORSE AMONG ALL G-20 NATIONS. $$$

The UKGovt is doing its dead level best to spread the misery evenly, but also to pressure the weakest link. Unemployment has not risen quite as much as previous recession peaks, due to an estimated 1.7 million workers accepting pay cuts or reduced hours in lieu of outright job loss. The result has been seen in UKGovt income tax receipts, fallen noticeably. Currently 2.5 million people are jobless, equal to 7.8% of the workforce, a level expected to increase next year. The UKGovt faces the biggest deficit in peacetime history, and ministers are soon to confirm they must borrow nearly £180 billion this year. Between April and October, the amount of income the Treasury received from taxes fell by 16%, amounting to over £17 billion, versus the same period in 2008. See the UK Telegraph article (CLICK HERE).

The weakest link is the banking sector, in fast retreat. The UKGovt has imposed a punitive banker bonus tax of 50% as a statement. The tax levy applies to all bonuses over £25,000 (=US$40,700) in an effort intended to encourage banks to act more like banks. The outcome is highly likely to disappoint. The UKGovt proposal to levy a tax on banker bonuses may raise less than half of the forecast £550 million (=US$900 million), due to postponed bonuses. The bonus tax could be extended beyond April if the UKGovt finds evidence of avoidance schemes. Chancellor of the Exchequer Alistair reported the current deficit would rise to £178 billion, up £3 billion from the previous forecast. The amount equals 12.6% of Gross Domestic Product, the highest among the Group of 20 nations. He shared a forecast of British GDP to contract by 4.75% in 2009, worse than the 3.5% drop projected in his spring budget. See the Market Watch article (CLICK HERE). Conditions are being created for sovereign default, as the national catastrophe grows worse. The peculiar banker tax proposal in Britain is also being considered by France, also led by the braindead.

GREECE SHOWS DEFIANCE ON DEBT BATTLE

◄$$$ GREEK DEFIANCE HAS ARRIVED FROM DEBT SCRUTINY. GREECE IS BACKED INTO A CORNER, WITH WAGE REDUCTIONS AND SPENDING CUTS SOON TO KICK IN AFTER A PAIR OF SOVEREIGN DEBT DOWNGRADES. THE OTHER OPTION IS TO EXIT THE COMMUNITY OF NATIONS SHARING THE EURO CURRENCY. THAT WOULD ENABLE DEBT WRITEDOWN AND CURRENCY DEVALUATION FOR RENEWED COMPETITIVENESS. GREECE IS THE NATION LIKELY TO FRACTURE THE EUROPEAN UNION. OTHER NATIONS FOLLOW. $$$

A revolt has begun in Europe over debt, on the distressed fringe, in the wake of the Dubai earthquake. Defaults lie at the end of all pathways, a certainty in my v iew. Greece has become the first country on the distressed fringes of Europe's monetary union to buckle, but also to defy the brass bankers in Brussels. London bankers again are heavily exposed, just like with the impaired Dubai debt. The defiance centers on a proposal from the European Union brass to dismantle the Greek Economy with its new strictures. They resemble the IMF typical failed reforms. Some call it 'Dark Age leech cure' dependent upon big wage reductions and deep federal spending cutbacks. Greek Premier George Papandreou has made assurances at at the EU summit that Greece would honor its ¬298bn (=US$435 billion) debt. To press reporters, he spoke differently saying "Salaried workers will not pay for this situation. We will not proceed with wage freezes or cuts. We did not come to power to tear down the social state."

Greece is urged by EU central bankers in Brussels and their economic counselors to adopt an IMF-type austerity package, but without the devaluation so central to IMF plans. Since Greece shares usage of the Euro currency, no devaluation is possible. However, a debt default would force a split from the European Monetary Union and require a new currency for the nation. The austerity prescription is a disaster in the making, self-defeating, typical of Western bankers when dealing with nations outside the fold. Greek public debt is already 113% of its GDP. If Greece imposes the harsh pay cuts, the depression would deepen and tax revenues would collapse further. Analysts believe Greece is past the tipping point of a vicious debt spiral. In theory, Greece could restore its former drachma currency, devalue it, pass legislation to switch internal Euro debt into drachmas, thus restructuring foreign contracts. This is the omnibus escape option that would allow Greece to break out of its powerful debt spiral and EU debt prison. Bondholders would take enormous losses. Royal Bank of Scotland said the UK and Ireland have most exposure to Greek debt, with 23% of the now toxic paper. The French hold 11% and Italians 6%.

A strange dynamic is at work. Many believe Athens holds a sword over Brussels. This is a battle with two losers in my view. A departure by Greece from the Euro corral (the European Monetary Union) would break wide open the entire European financial foundation and cause instant havoc. This is precisely what my forecast is, but not right away. Eventually the need for currency devaluation will be acute not only to write down debt but also to reduce prices across the entire national system in question. Greece will need to lower its prices of goods & services to parties outside Greece, even within the European Union. With a fractured foundation, the rest of the Southern European nations will break, realizing the full advantage of currency devaluation. Spain, Portugal, and Italy (Ireland too) would immediately follow suit with Greece and adopt their former currencies. The restructure process is where the breakdown to the EMU will come. The deep flaw in the Euro currency creation is its shared nature, since nations cannot alter the currency in order to adjust debt balances or to adjust economic prices. Europe has nowhere the homogeneity and migration ease as the United States without cultural obstacles.

On the other hand, Greece needs EU political and military protection, and NATO needs a solid Greece. Regardless, for practical reasons Premier Papandreou cannot comply with the the EU deflation strictures that resemble failed policies written in IMF death sentences. The game will probably float without resolution for some time. The Euro Central Bank and its small legion of bankers are soon to set out in purchase of a raft of impaired Greek bonds in the open market at inflated prices. Later comes the debt collapse and outsized bond losses. The EU member nations will probably coordinate Greek bond purchases also. Nothing will be accomplished, only dragging out difficult decisions, suckering bond investors into deep upcoming losses. The central bank bond investments of imminently defaulting bonds will form the dynamic within dominoes to topple other nations. Without permanent subsidies, Greece will break from the European Union. They serve as the trigger nation, since Spain, Portugal, and Italy (Ireland too) will follow directly next in copycat fashion. Their stories are nearly identical, except for location. The key is hardly ever mentioned. GERMANY IS SICK & TIRED & TOTALLY FED UP WITH SOUTHERN WELFARE, CUTTING INTO ITS SAVINGS AND STANDARD OF LIVING. The EU experiment has cost Germany $400 to $500 billion since its incepcion, and they are prepared for radical surgery to remove the Southern European fat. The tragic truth debated little in Europe is how the EMU and its Euro currency vehicle are inherently dysfunctional for everybody involved, and each nation has distinct differences that rip it apart. See the UK Telegraph article (CLICK HERE).

◄$$$ THE EUROPEAN COMMISSION APPEARS HALF-HEARTED ABOUT AID TO GREECE. IF RESCUE AID AND DEBT RELIEF COME, EXPECT THE CONDITIONS TO BE REJECTED BY GREECE. SOVEREIGN DEBT DEFAULTS IN EUROPE ARE ALMOST ASSURED. FOREIGN CAPITAL FLIGHT WILL ACCELERATE THE DEFAULT PROCESS. NATIONALISM WILL SPUR REJECTION AND RIOTING. $$$

A barroom row has come in the debate over Greece and treatment by the Euro Central Bank in Brussels. The Core European bankers are suspected to wish a cutoff of the Southern nations, the sentiment led by Germany in a rift kept hidden. The Club Med imprudent debt management and property bubbles are the thread common with Dubai. Some believe Greek Finance Minister Papaconstantinou has the European Commission over a barrel and does not realize it. The European Commission does not wish to permit a Greek debt default to trigger another meltdown like Lehman Brothers with all the nasty fallout on European soil. The key question is whether entire nations are too big to fail. Clearly Iceland was not, and in the past Argentina was not. This is Europe though, and the future of the Euro lies in the balance. The reality is that Fitch Ratings cut Greek Govt debt rating from A- to to BBB+ and thus increased the cost to roll over its debt in the future. Hence, the ECB will likely refuse to accept Greek Govt bonds as collateral. The Dubai default has sparked fears of a potential sovereign default within the EU.

The European Commission (EC) might be sending intentional mixed signals, maybe as a political trial balloon, maybe due to unwillingness to declare a lack of desire to aid Greece or other Southern European nations. The priorities of the EUnion must be weighed against the priorities of the individual nation, something sorely lacking. Greece might be better off not standing on the Euro currency platform. The comments from officials seem wishy washy weak. Joaquin Almunia is the EC official for economic and monetary affairs. He said the EC "stands ready to assist the Greek government in setting out the comprehensive consolidation and reform program, in the framework of the treaty provisions for Euro-area member states." But no details. Loans? Grants in aid? Debt forgiveness? Trade deals with price cuts? Rebuilt industries? Counsel? Former German Finance Minister Peer Steinbrueck said last February that Euro members would 'in reality' rescue states in difficulty. Doubtful! How about in the Twilight Zone today? Has reality changed? Two weeks ago Euro Central Bank President Jean-Claude Trichet said "We all know the figures, and we all know the very important, courageous decisions that have to be taken to put the situation back on track." What decisions are certain here? Trichet means putting things on track to preserve the Union, where he has an important job to preserve. A string of debt failures would dissolve the bankers and remove them from their marble strewn offices in Brussels.

The so-called global recovery rooted in the last year is in danger. The cheap USDollar has fueled a tepid rebound in stocks, commodities, and housing in many nations. Sovereign debt default or major restructure are the choices. The factor few consider is the popular pressure behind the current Greek Govt, from the people. Premier Papandreou and Finance Minister Papaconstantinou formed a new government elected with promises of more active spending programs and higher wages. Athens was the site of riots last spring and summer over far less than the threat of EU dismissal or massive economic stepdowns. A double standard seems obvious. The United States and United Kingdom continue their monetary largesse, generously bringing aid to the banks, and in doing so, pile on gigantic tranches of added debt. The Southern European nations observe the double standard of the AngloSphere. My forecast is for riots to break out if austerity measures are adopted anywhere in Europe, with the clear exclusion of Ireland. The Emerald Isle has already adopted austerity measures of deep pay cuts, shell shocked by their own condition. Growing debate is certain to reach a crescendo. Ireland will be closely watched. Many wonder how much member nation pain and sacrifice will be ordered to preserve the myth of a unified Europe. To remain in the EU fold will require a full crippling. Little overall benefit will be perceived from cuts in public services, reduced government spending, sale of state properties, reduce health & education budgets, and thousands of state workers sent packing. The EU deficit hawks increasingly resemble the mindless IMF architects of reform, the financial assassins. The horrendous reputation and track record of past IMF 'solutions' will hasten refusal of similar EU reform proposals.

Willem Buiter is a former Bank of England official. His preface seemed based in fantasy, the rest based in reality. Buiter said, "Greece can expect a bail out from the ECB but only at a price. They will probably go to the IMF, have a credible standby program. Then aid from Brussels and bilateral aid from selected sovereign governments in Europe and the US will be available. We could see the first all EU-15 sovereign default since Germany had it in 1948. The massive build-up of sovereign debt as a result of the financial crisis and especially as a result of the severe contraction that followed the crisis, makes it all but inevitable that the final chapter of the crisis and its aftermath will involve sovereign default, perhaps dressed up as sovereign debt restructuring or even debt deferral." He claims current sovereign debt burdens are at levels only seen during wars, or in their resolution. See the Zero Hedge article (CLICK HERE). The word is spreading of inevitable national defaults.

◄$$$ THE GREEK DEBT IS MOUNTAINOUS. THE DEBT DOWNGRADES COME FROM AGENCIES EXPRESSING NO CONFIDENCE IN REMEDY. A DOWNWARD SPIRAL IS IN PROGRESS, INCLUDING THE FINANCIAL MARKETS, AS CAPITAL FLIGHT HAS BEGUN IN EARNEST. $$$

Look for foreign flight of capital that accelerates the default process. Recent Greek Govt decisions spill over in defiance, which almost always results in financial implosion joined by capital flight. Investor dislike uncertainty, but they abhor violence. Their government announced a 90% tax on banker bonuses, a start of the self-destruction. The risk premium on 10-year Greek Govt bonds over benchmark German Bunds hit its highest level since April after a second credit rating downgrade in a week, the latest by Standard & Poors. Greece is the most debt-ridden nation in Europe. The Greek stock and bond markets took major selloff blows last week, as capital has begun to flee. Bank stocks have fallen by 17.8% in the last month, down another 1.42% on the day of the S&P downgrade. The Athens stock index is down 1.2% on the day.

Standard & Poors cut the Greek credit rating by one notch to BBB+ from A- last Wednesday, adding to the insult from Fitch. S&P said deficit cutting measures announced by Premier Papandreou were unlikely to achieve a sustainable reduction in the overall debt situation. S&P also downgraded the credit ratings of several Greek banks, who hold much counter-party exposure. The ratings agencies both cite as one reason for the downgrades expected political resistance to the plans to slash the annual deficit from an expected 12.7% of Gross Domestic Product this year down to the EU limit of 3% by 2013. Such targets are steeped in fantasy. The total Greek debt mountain is soon to hit 135% of GDP in 2011 unless the course changes. The nation of 10 million must brace for extreme crisis, worse than fellow EuroZone cripples like Spain, Portugal, Italy, and Ireland. The EU member nations are not subject to the same tough rules, pure hypocrisy, or maybe just not yet. The S&P formal statement said, "We believe that the government's efforts to reform the public finances face domestic obstacles that would likely require sustained efforts over a number of years to overcome. The challenges Greece faces in terms of fiscal adjustment and structural competitiveness issues increase the likelihood of a protracted hard landing for the national economy." Moodys remains, sure to follow suit in the coming weeks. The cost to insure Greek sovereign debt with Credit Default Swaps for five years jumped on Thursday to 271 basis points per year from 236 basis points the day before, according to Markit.

The Papandreou goal of federal deficits below 3% of GDP by 2013 and reduction in debt in 2012 are entirely based in fantasy, while response is laced in defiance. Plans to privatize companies not essential to the state might be window dressing atop deep federal spending cuts relucantly made. The headline news reports strikes and marches on Parliament, a cloud cast on the entire nation. Asset sales are bandaids, nothing more, that fail to address federal deficits. Privatization revenues from sales would reach about ¬2.5 billion (=US$3.6 billion) next year. They are considering the sale of  banks and utilities. The risk of foreign carpet baggers exists. The state has stakes in about 20 companies including lenders ATEbank, Post Savings Bank, gambling firm OPAP, and telecomm group OTE. The entire plan will not buy much time. Greece will face the ongoing threat of default without respite, as creditors have a new mindset, altered significantly by Dubai.

Greek Finance Minister Papaconstantinou is disappointed and angry by the latest debt downgrade. He said, "We will continue to work to gain the trust of Greek citizens, our European partners and markets, doing what is needed to reduce the deficit and the public debt." He stressed later in Frankfurt at other emergency meetings that Greece would seek no bailout from the Intl Monetary Fund. He cited some structural issues such as the overhaul of the tax system and the new budget as areas they would seek IMF counsel. Flimsy plans intend to narrow the deficit by raising taxes, fighting corruption, capturing tax evasion, cutting back on bureaucracy, and reducing social security spending. That all sounds like US politicians running for office with strongly urged gun control. See the Money News article (CLICK HERE).

◄$$$ EXPECT NATIONALISM TO RISE. NOT FASCISM BUT TRIBAL NATIONAL SENTIMENT AND PRIDE SOON WILL COME FORTH. THE MANIFESTATION OF ANGER WILL BE DIRECTED AT BANKERS, AND OCCUR AS RIOTS. THREE FORCES WILL WORK IN UNISON IN THE WAKE OF DEBT DOWNGRADES. THEY ARE HARSH GOVERNMENT ACTIONS, CAPITAL FLIGHT BY FOREIGNERS, AND FINANCIAL MARKET WRECKAGE IN GREECE. RIOTS ARE THE ICING ON THE WITCH'S MIX OF A CAKE. $$$

My view is more similar to Buiter than different. Look for offers of EU aid but with IMF-like stupidity attached to ensure deep poverty and to preserve a union not worth preserving. Look for nationalism to rise. Look for riots, starting in Athens. Actually, riots are to resume there. In fact, demonstrations have begun that will surely continue and likely go out of control. The most militant Greek trade union predicted and realized a record turn-out for a protest in central Athens against the new Socialist government's economic austerity package. The base discontent comes from unemployment, which rose to 9.3% in 3Q2009 from 8.9% in the previous quarter. The union is led by communists, rough & tumble guys who accept no nonsense, and always arouse the crowds with calls to walk off their jobs. "This is just the beginning of our campaign to protect workers rights. There will be many more actions," says Dimos Koumbouris from PAME. The union claims to represent about 25% of Greek private sector workers. Journalists joined students and doctors in the strike that included 2500 protestors, leaving the country without television and radio news for 24 hours, but the disruption was minimal. Slogans read "George, remember who your allies are!" and banners read "The debts and deficits are yours, the rich should pay for the crisis." Look for violence to escalate. See the Financial Time article (CLICK HERE).

◄$$$ THE SPANISH ECONOMY IS IN TOTAL SHAMBLES. IT IS MORE DRIVEN BY CONSUMPTION THAN THE USECONOMY. SPANISH UNEMPLOYMENT HIT 19%, AS THEIR ECONOMY CONTINUES TO CONTRACT, WITHOUT DENIAL. IN NO WAY CAN RECOVERY BE COUNTED ON TO AVERT A SOVEREIGN DEBT DEFAULT. THE HOUSING FOUNDATION TO THE ECONOMY HAS BROUGHT RUIN TO THE NATIONAL FINANCES, WITHOUT REMEDY. $$$

The American devotion to consumption is 70% of its economy, but in Spain the proportion is 77%, even higher! Across the EuroZone one finds a 51% tilt. Even Germany has a 55% tilt. Research at Deloitte & Touche indicate Spanish holiday spending will drop 9.1% this season, worse than the 6.3% decline forecast for the prosperous Western Europe. The household debt burden in Spain is among the highest in the region. The current jobless rate in Spain is 19%, but it is expected to breach 20% very soon. The economy is in clear recession. Remedy is obstructed by a mountain of unsold properties, whose prices remain high and whose sales activity are at a standstill. The housing inventory is not clearing, nor is bank owned property being resolved in any way. Spanish consumer prices fell from March to October, the first decline for 50 years. The jobless in Spain are running out of insurance benefits. Fewer than half of the 3.8 million unemployed are still receiving their jobless pay based upon contributions. They last a maximum of two years, according to Labor Ministry data. Another 1.2 million receive smaller subsidies, such as a ¬420 per month benefit introduced in August. Unemployment among people younger than 25 years of is more than 40%, but they account for 10% of the labor force.

The nation is debt dependent, now dealing with any structural cutbacks in credit. Mortgages, consumer credit, and other loans account for 77% of Spanish GDP, compared with 51% in the EuroZone and 55% in Germany, according to European Central Bank data. See the Bloomberg article (CLICK HERE). A grand restructure is essential but nowhere coming. Default lies at the end of the road without action taken. Nothing among this data indicates a bulwark to avert a sovereign debt default, once creditor demands are made, once debt is devalued significantly, once financial firms fail, once capital flight occurs. The main force at work soon for averting a Spanish default will be its proximity to Central Europe, its supply routes for food products, and cultural ties.

JAPAN PRESSURED BY MASSIVE DEBT LOAD

◄$$$ JAPANESE CENTRAL BANKS MIGHT RAISE CASH BY SELLING USTREASURY BONDS. WITH THE TRADE SURPLUS VANISHED, THE JAPANESE GOVT IS UNDER STRAIN TO MINIMIZE THE DEFICIT, SOMETHING THEY ARE VERY UNACCUSTOMED TO DOING. THE PERVERSITY OF A RISING YEN CURRENCY HINDERS THEIR EXPORT TRADE, MAKING WORSE THE DEFICIT. $$$

For decades, the Japanese Govt was the biggest overseas investor in USTreasury Bonds. Now it is China. Japan is struggling with a new reality of a vanished trade surplus and growing deficits. Speculation is ripe that the Japanese Govt plans to sell $100 billion of USTreasury debt securities to pay for domestic spending and offset the rising federal deficit. In the last year, the Asian duo has been significant in USTBond support, Japan with holdings having risen by $125.5 billion, and China by $71.5 billion. They help finance the USGovt debt, and reduce dangerous reliance upon monetization (Printing Pre$$). Japan will inform the US about the possible $100 billion sale, according to a Market News Intl report that cited rumors from unnamed sources. Chief Cabinet Secretary Hirofumi Hirano said "There is absolutely no such proposal right now. That kind of talk often surfaces at this season." See the Bloomberg article (CLICK HERE).

Amazingly, the speckled Karl Denninger once again commits a gaffe. He took the story and went in the wrong direction analytically with it. In his article entitled "Here It Comes... (Sovereign Treasury Sales)" on the backwater 321GOLD website (CLICK HERE), he claimed the Japanese sale would lift the USDollar. Wow! He wrote, "Selling Treasuries would have this effect since it would strengthen the dollar, and in a fiat monetary system all values are relative. Here is the problem: The first seller wins in these circumstances, since price is essentially coupon times duration." He has it backwards. Their sale of USTreasurys would drive down the USDollar and lift the Japanese Yen currency. Only later, when the USTreasury yields offered to investors is much higher would the effect be positive for the US currency. He is correct that the initial sellers of USTBonds will win out, being the first to exit the door, one sure to become crowded. In fact, the sale of USTreasurys by Japan would give extra jet power to the Yen Carry Trade reversal (its unwind). It would push down the US$, lift the Japanese Yen, and help in a powerful way toward reversal of a carry trade based upon 0% virtually free yen loans. The Japanese are fighting a deficit problem. Soon their short-term Jap Govt Bond yield will be rising noticeably away from 0%. USTreasury Bond isolation is coming, as the USGovt will be the only buyer in town. Maybe they are isolated to a great degree already. In Jim Sinclair's Commentary, he stated "The Japanese rumor takes a Bloomberg stage. I would say that is smoke so there may be fire." He believes the rumor, not one to take head fakes.

◄$$$ MOODYS GAVE WARNING ON JAPANESE GOVT DEBT. THEY URGE DEBT REDUCTION. JAPAN STANDS AS THE MOST SENIOR NATION TO BE CONFRONTED BY THE DEBT RATING AGENCIES. $$$

Clearly, it is hands off and sacred debt cows when it comes to the United States and United Kingdom. Moodys took aim at Japan, declaring that Japan needs a clear debt reduction goal in order to preserve and support its bond rating. It needs a well articulated goal. Japan holds the world's largest government debt, in percentage terms to its economy, except maybe for Saudi Arabia. Moodys senior VP Thomas Byrne said, "Deficit reduction and a debt target would help support a rating. Things we are most concerned about are the lack of well-articulated long-term fiscal consolidation and a debt reduction plan." Mild disarray followed the conflicting statements made between Prime Minister Hatoyama and his finance minister over the proposed debt level for next year. Hatoyama favors going beyond the ¥44 trillion bond cap to support economic growth, while Finance Minister Fujii said the ceiling must be held. See the Bloomberg article (CLICK HERE).

Japan has an upside down structure in a certain sense. An economic recession would invite a magnificent migration of funds from the stock market and the bond market. Funds would depart stocks due to falling export trade, ruinous profitability, and the fall of wealth. Funds would depart the bond market due to lost power in maintaining a 20-year old bubble, as monetary deflation would take root. Savings support their bond market. A recession reduces savings. The Japanese Yen could soar, further wrecking export trade, and worsening the economic recession. A nasty vicious cycle would ensue. Fully 95% of the Japanese Govt debt is owed to its own citizenry. Japan would logically opt for more monetary inflation, pressure to suppress the Yen currency, and avoid any reform.

◄$$$ JAPANESE GROWTH STRUGGLES. WITHOUT VIGOROUS RECOVERY, JAPAN WILL ENJOY LITTLE BENEFIT FOR VERY COSTLY STIMULUS. THE RESULT WILL BE TO INCREASE THE JAPANESE GOVT DEBT. CAPITAL EXPENDITURES ARE IN DECLINE, WHICH INDICATES A CLEAR ECONOMIC PULLBACK DIRECTLY AHEAD. $$$

The Japanese economy expanded in the three months through September much less than initially estimated, as diverse companies slashed spending. Their Gross Domestic Product rose at an annual 1.3% pace, far slower than the 4.8% cited in preliminary figures last month. Concern centers on the sustainability of a recovery that is under threat from falling prices and a rising Yen currency. Business investment drove the Japanese Economy down, as capital spending declined by 2.8% in the three months through September from the previous three months. Exporting firms are pulling back also, in direct response to a stronger Yen currency. The important takeaway here is that reduced capital investment is a highly reliable indicator of more economic slowdown directly ahead. Bigger federal deficits will tend to translate into higher bond yields and an even stronger Yen currency. Newly inaugurated Prime Minister Yukio Hatoyama presented his initial $81 billion stimulus package two weeks ago, designed to provide vigor to the recovery. The reaction is perceived profound weakness. The stimulus is likely to have a minimal effect, a costly infusion of funds with scattered and small benefits. Call it low bang for the buck! Most politicians and analysts will praise the initiative for preventing heavy damage. See the Bloomberg article (CLICK HERE).

The machinery industry is of premier importance in Japan. Orders for Japanese machinery fell in October, a reflection of low corporate confidence to spend on plant & equipment. Orders declined 4.5% from September to October, after a 10.5% rise in the previous month. Companies are in reactive mode, or better yet survival mode. They are cutting costs to reduce losses. Over one third of the national factory capacity sits idle, an unprecedented situation. The Goldman Sachs chief Japanese economist said, "We do not expect a full scale capex recovery anytime soon, given uncertainties surrounding the corporate earnings picture. Exports will remain the key economic driver in 2010-2011 amid continued weakness in domestic demand." More deficits are certain, if corporate behavior is any indication, and it is. See the Bloomberg article (CLICK HERE).

◄$$$ TOYOTA CITES THE THREAT FROM THE RISING YEN CURRENCY. THE JAPANESE ECONOMY IS EXPORT DRIVEN. NO FACTOR IS MORE IMPORTANT THAN THE YEN IN THE EXPORT TRADE. TH E BANK OF JAPAN HAS AN OBJECTIVE TO BRING DOWN THE YEN CURRENCY. THE NATION CANNOT AFFORD A STRENGTHENING YEN. $$$

The #1 global carmaker is Toyota. They serve as an excellent example of an important exporter. Its executives fear the Yen strength, not details like car recall costs. Profitability on a broad basis depends upon the Yen currency across the Japanese industries. Executive VP Yukitoshi Funo acknowledged the cost was considerable for replacing gas pedals on about four million vehicles under recall, the largest ever in the US market. But Funo shrugged that off, noting that the expense was dwarfed by other costs such as incentives and advertising. Even more so, Funo mentioned a deep concern for the recent surge in the Yen, which is the most important factor for remaining in the black (profitable). The move toward 90 from below 85 in the US$ exchange rate was welcome news to Japanese corporate executives. Funo admitted that the nation faced tough times when the US$ was trading at about 90 Yen, but things were far worse at near 85 Yen. A strong yen erodes overseas income for Japanese exporters. Here is the statistic. For every one Yen the US$ falls, Toyota loses ¥30 billion (=US$340 million) in annual operating profit, according to Funo. The 5 Yen rise means $1.7 billion in added profit from the last couple weeks. Toyota is expecting a ¥200 billion (=US$2.27 billion) loss for the fiscal year through March 2010, its second straight negative year. The high Yen is a big factor. Funo vowed to continue Toyota's initiatives in China to do more charity and other contributions toward Chinese society. They hope to win acceptance in China like they did in the United States, a a process that has taken 50 years. See the Yahoo Finance article (CLICK HERE).

Japan is in big trouble with the rising Yen currency. Their entire economy (financial & industrial) depends upon a low valued Yen currency, as strange and perverse as that sounds. Their JapGovtBond bubble cannot afford a rising Yen, since falling bonds would be devastating for savings accumulated. Exporters require a weak Yen for strong product demand overseas. The reversal of the Yen Carry Trade is having a devastating effect on their industry. As the YCT winds down, and the Dollar Carry Trade revs up, in a direct handoff. It works to push the Yen up farther, while the USDollar goes down farther. The Bank of Japan must halt the rising Yen, and lessen the Yen Carry Trade end effects. The reversal of a carry trade that stretched for 20 years is causing some destruction. The basic BOJ question is: WHAT CAN WE DO TO UNDERMINE OUR CURRENCY AND SOON?? The Bank of Japan announced on December 1st an unscheduled extraordinary policy meeting to "discuss monetary control matters based on recent economic and financial developments." The principal concern of BOJ Governor Shirakawa is reportedly the continuing rise in the Japanese Yen. Their currency fell immediately following the news, in anticipation that they will support the USDollar with both hands. The direction has turned toward a weaker Yen, but it is likely very temporary. The Yen has been suppressed for years, and the mechanisms are being dismantled by free markets. See the Market Watch article (CLICK HERE).


2009Iss12_Yen

The objective of the Bank of Japan would be to push the Yen below the trendline shown, but strong support exists there. The moving averages are rising, difficult to reverse. The slower Japanese Economy will perversely work to lift the Yen currency. The Yen Carry Trade will continue to unwind. The 20-year trend cannot be stopped any more than a gigantic moving ship hitting a pier. The Yen will continue to rise, and cause more havoc. The BOJ can purchase USTreasurys, but they cannot drop their official rate to negative levels.

USDOLLAR COUNTER-TREND RALLY

◄$$$ THE USDOLLAR HAS BEEN A PRIME UNDESERVED BENEFICIARY OF THE DUBAI DEBT WOES AND THE EXPECTED EUROPEAN BANK LOSSES. THE OVERSOLD US$ DX INDEX ENJOYED A SHARP BRISK LIFT FROM SHORT COVERING. THE FUNDAMENTALS DO NOT JUSTIFY THE LIFT. THE USDOLLAR REMAINS WEAK AND VULNERABLE TO CONTINUED DECLINE. $$$

The events of the last month have shown that severe losses by London and European banks, from Dubai debt default, brought about an indirect lift in the USDollar. It occurred from a selloff of the British Pound and Euro currency, whose banks are lined up for new profound losses. They will have even more losses from Greek and other EU member nation debt. The Powerz portrayed the Dubai events as causing a flight to security in the USDollar. NO WAY!! To begin with, the long-term USTreasury Bond yield is rising, a contradiction of flight to safety. The Powerz lost heavily in gold options expiration just before the Dubai default story hit. The Powerz were not going to lose heavily again in US$ DX options expiration right afterwards. They pulled off a USDollar rally, even if from a half fraudulent basis. The concept of retreating to a currency, the US$, with trillion$ federal deficits, an insolvent banking system, and an economy struggling under the weight of 25% homeowners insolvent on their home loans, IS TOTALLY LUDICROUS. Soon the counter concept of retreating from a currency into Gold will be better understood.

The next significant sovereign debt related events will probably bring about a decline in the Euro currency from imminent and actual default in at least two European Union member nation government debt securities. The Euro should decline from such severe events, amidst uncertainty, at least initially. The effect will be indirectly positive to the USDollar, but again hardly a flight to safety, more like a flight out of the Euro and into anything with a shred of stability. We are moving toward a new arena of Competing Currency War. Nations are not targeting each other's currency in order to protect export trade. They are suffering shameful shock wave episodes and structural realignment. It will become like a scramble to find a lifeboat, any lifeboat that is not sinking, even if the USDollar that is increasingly viewed as a derelict vessel.

2009Iss12_USD

The US$ DX index has risen above its downtrend line. The objective by the USDept Treasury was clearly to halt the early stages of the Dollar Carry Trade. Usage of free 0% money to fund asset investments is a dangerous prospect for any currency, especially the global reserve currency. The DX index faces considerable resistance and might be out of steam at this point, or nearly so. The symmetric recovery has reached the 78 level, where the easy reversal has been completed. Note the similar decline in the first week of September, with a big down move symmetric to the big up move. Resistance at 78 is joined by the 50-week moving average as overhead resistance. The counter-trend rally in the USDollar has no justification from inherent strength of anything US related, not the economy, not the federal deficits, not a housing recovery, not the labor market. Now that the US$ DX has enjoyed a lift, a newfound scrutiny will come to examine the US condition. Besides, much of the easy gains have been realized, and rather quickly also. Speed of lift breeds instability. Notice the parallel upper rail to the trendlines extended from the March high, which might contain perceived resistance.

◄$$$ USFED KEEPS 0% AND SIGNALS SPECULATION TO CONTINUE. THE CHRONIC 0% RATE CONDITION BY THE UNITED STATES ASSURES A RESUMED DOLLAR CARRY TRADE. IT WILL CONTINUE TO MAINTAIN A STRONG US$ DOWNTREND. THE WORLD REQUIRES AN OCCASIONAL US$ DX INDEX RALLY SO AS TO SIDESTEP THE CEMETERY. THE USGOVT DEFICITS ARE THE BALL & CHAIN ATTACHED TO THE BELEAGUERED BUCK. $$$

If the short-term interest rates for the United States were ready for a series of staged increases, to remove the shameful 0% rate, the USTreasury Bills would confirm it. If USEconomic recovery were real, if credit market stresses were in the process of being relieved, if business demand for credit were working toward normal, then the 3-month and 6-month and 12-month USTreasury Bill yields would be rising simultaneously. They are not. So no return to normalcy is imminent or signaled. Notice the 3-month USTBill yield. It cannot even rise past the 0.07% level, let alone to the 0.18% plateau seen for the entire spring and summer months. This is no return to normalcy. The conclusion is that the USFed will keep the official interest rate absurdly low for many more months. The USFed will therefore fuel a resumption to the Dollar Carry Trade, by offering free 0% money on a continual basis. The USDollar cannot rebound further under such conditions. The USFed almost never departs from the short-term USTreasury Bill market.

2009Iss12_USTrez3mo

As expected by the entire intelligent universe, the USFed kept its overnight target at 0-0.25% and pledged to keep rates low for an extended period in its words, again. Their statement contained some rubbish about expressed growing optimism for the USEconomy. They cited an abatement in the labor market deterioration and hope of improvement in the housing market. Neither has remotely occurred. More important than such nonsense, they underscored confidence in credit markets by standing by USFed plans to end most of its emergency lending facilities on February 1st. Removal of the only true source of liquidity will be a dangerous proposition, but they must fake it and give it a trial. See the Reuters article (CLICK HERE).

◄$$$ SHADOW GOVT STATISTICS FORECASTS A HYPER-INFLATIONARY DEPRESSION. THE UNITED STATES IS INDEED COURTING DISASTER AS IT REACTS TO GROSS INSOLVENCY. THE RISKS HAVE REACHED CRITICAL MASS. A TYPICAL BY-PRODUCT OF EXCESSIVE MONETIZATION OF DEBT IS HYPER-INFLATION, ALL IN THE PROCESS OVER TIME. $$$

John Williams is editor of the popular counter government data manipulation journal called Shadow Govt Statistics. He has thrown down the gauntlet to Deflationists, whom the Jackass has consistently referred to as Knuckleheads. In an extensive report, Williams concludes that the probability of a hyper-inflationary episode in America over the next year has reached critical levels. The debate between Deflationists and Iinflationists has been going on for a couple years, one the Jackass has joined. The events on the last several months, wherein the Bernanke USFed has blown up their balance sheet by 200%, taken on toxic bonds on a rampant scale, and maintained a 0% rate for as long as the eye can see, point to a rising dangerous risk of hyper-inflation emerging in a powerful scenario. The direct legacy of the Greenspan's multi-decade period of cheap and boundless credit has pushed the US into the most likely follow-up act to the Weimar Republic in a sequel of rabid price inflation. This time is different, to be sure. The whole world is part of the travesty this time, as financial markets and economies the world over lie downstream to the gigantic dam of liquidity soon set to be released. They talk of soaking up the liquidity. Instead, the insolvent USFed, 45% of whose assets are in impaired and probably worthless USAgency Mortgage Bonds, will probably try to flood the market with them, after diligent efforts to puff up the value from near nothing. The US is not Zimbabwe as Williams compares, but the destructive process is much worse for capital destruction. See the Zero Hedge article (CLICK HERE).

Case in point is China, the primary creditor and the most important marginal USTreasury Bond purchaser. Beijing leaders have ordered a halt of USTBond purchases. Major entities are selling huge amounts of USAgency Bonds. Since March, China had built their mortgage bond portfolio from $300 billion to $700 billion. They have been reducing it since the USFed has been monetizing them in purchases. The Chinese Govt has been selling mortgage backed securities almost as fast as PIMCO. However, they have halted the purchase of USTreasurys. Since May 2009, Chinese USTBond holdings have been flat at $790 billion. China has been on a campaign for a full year to reduce the maturity of the USTreasury holdings. That gives them an exit with less risk from basic maturity of the debt security, without the bond principal risk felt with a rising yield. They still carry the US$ risk. China has followed the pattern of High Frequency Traders choosing to hold what can be liquidated quickly. The world has run out of USDollars with which to purchase the heap on USTreasurys on the production intended for sale. The world has more importantly run out of patience with the USTreasury and what it stands for.

Puru Saxena in his article entitled "Debt Bomb" (CLICK HERE) makes the argument for very high price inflation soon to hit the US streets. He offers two unsavory alternatives, a global economic depression or an economy struggling with very high price inflation. The US$ money supply has more than doubled to reach almost $2 trillion in two years time. When money velocity picks up speed, as he argues, the price inflation beast will be unleashed.

◄$$$ CHINA HAS STOPPED SHORT-TERM USTREASURY BOND SUPPORT, SETTING THE USGOVT UP FOR ACUTE RISK IN DEBT FUNDING. THE RESPONSE WILL BE MUCH GREATER DEPENDENCE UPON THE PRINTING PRESS, MONETIZATION, WEIMAR STYLE. $$$

The deputy governor of the Peoples Bank of China had some stern words. Zhu Min from the PBOC said, "The United States cannot force foreign governments to increase their holdings of Treasuries. Double the holdings? It is definitely impossible. The US current account deficit is falling as resident savings increase. So its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world. The world does not have so much money to buy more US Treasuries. [It is] getting harder for governments to buy United States Treasuries because the US's shrinking Current Account gap is reducing the supply of dollars overseas." This is a double whammy. Foreigners have less US$ funds to buy when USTreasury supply is exploding. The outlet is USFed monetization to purchase the supply with Printing Press funds, hardly worthy of being called money. Zhu was as plain as possible, that the USGovt should no longer rely on China for funding its bottomless deficits. Zero Hedge concludes that if such is the case, "things are about to get much worse as the Fed has no choice but to turn the monetization machine on turbo." See the Zero Hedge article (CLICK HERE).

2009Iss12_ChinaUSBonds

See how China has sharply reduced their short-term USTBill support (US S/T in brown), which fell off a cliff since summer 2009, and now is next to zero. Shown are 12-month sums, so USTBills have been nil for a year!! Their long-term USTreasury purchases remain steady (in light blue). The US recession does not produce enough trade deficits for foreign sources to recycle, perversely. The October trade gap was ONLY $32.94 billion, grossly inadequate to purchase USTreasurys at the endless magnificent auctions. The United States is the financial envy of the world? NOT!! Think Third World!

◄$$$ THE MAIN EVENT IS USTREASURY DEFAULT, THE CULMINATION OF THE CREDIT MARKET SHOCK WAVES, THE CLIMAX OF THE GLOBAL CREDIT CRISIS. A RUN ON THE USDOLLAR IS A CERTAIN FUTURE EVENT, AS ALL MAJOR CURRENCIES ARE TO BE SHOWN DISRESPECT. IT IS INESCAPABLE, GIVEN THE CONTINUED USGOVT DEFICITS, THE DECLINE IN REVENUES, THE ADDED PROGRAM COSTS, AND THE DANGEROUS DEPENDENCE UPON DEBT MONETIZATION. $$$

A transition has begun in the last few months. The most important factor for gold has become, and will continue to be the falling value of the major currencies, all the major currencies, not only the USDollar. One must give an exception the Japanese Yen in such an argument, since its 0% interest rate has rendered the Bank of Japan a neutered central bank. It has been a US lackey for a great many years. Watch the BOJ now, as it actually defends against profound damage from a rising Yen currency in the unprecedented process of an unwind to the grandest carry trade ever connected to financial engineering machinery. In fact, a handoff from the Yen Carry Trade to the Dollar Carry Trade is exactly what the USFed and USDept Treasury wish to interrupt. Never in history has a carry trade been installed to drain the vitality of the global reserve currency, to force and retain a near 0% interest rate, and to enable a continued falling value in the underlying currency the US$. Events of the last two weeks, with a falsified but embraced November Jobs Report, combined with European bank distress, combined to lift the USDollar. The next round of Dollar Carry Trade is soon to begin. The oversold condition in the US$ has been removed.

The climax of the string of global sovereign defaults will be the government debt default for the USGovt, realized in the USTreasurys. The Dubai, Greek, and Spanish sovereign debt tremors will work toward the climax with the USTreasury Default. Events in the last year support the forecast. Federal deficits rose dangerously, over a trillion$ annually. Federal revenues fell dangerously. The Greenspan-Guidotti criterion for debt default has long ago been triggered, even assuming the USGovt owns any gold. It does not. The criterion fixates on short-term debt to finance. The short-term USGovt debt finance requirements are over $2 trillion, closer to $3.5 trillion if immediate debt finance is counted, like in the next 12 months. The Stimulus Bill was a travesty, more wasted funds and opportunities. The TARP Fund was an $800 billion slush fund, clouded still in secrecy. The foreign wars are a sacred big cost sink, with more deficits associated. The competent economists like former USFed Chairman Volcker warn that structural reform is non-existent in the USEconomy and financial sector. Volcker further warns that derivatives have done great harm, and contain no value, only a shift of financial rents. The Global Paradigm Shift is in full force since the spring months, led by the twin concepts of diversification out of US$-based reserves, and of the movement to establish an IMF basket currency as an alternative for international commerce and transaction settlement. The IMF basket concept has been forgotten conveniently. The end of the US$ for crude oil sales has been written on ignored billboards. The end to the US$ credit card with unlimited balance is soon to end. As the USTreasury Default becomes a broad global perception, the USDollar will face a powerful selloff. That will be a run on the US$, the basis of a global monetary crisis.

The masses will not recognize the USTreasury default, most likely to come as a forced debt writedown with deep creditor losses. We are in historically unprecedented times. Look for a new USDollar to be used inside the United States fence posts, since the USGovt does not control contracts written and in effect globally. The devaluation of the US$ will come full circle, and lead to an implosion internally. The accelerated US$ decline will come after Central Europe deals with its bankrupt brethren nations and creates a cleaner crisper viable Core Euro currency. Prepare for an inflationary depression within the United States. It is already well along with momentum building. The monetary inflation will soon delivery a handoff to price inflation. Supply chains are damaged, reducing output. Plentiful reams of new so-called money will chase limited supplies to drive up price. The only item in huge supply is American labor. That addresses the recession side, which some define as in depression now. What does 20% unemployment mean? Usually a depression, but not in Orwellian times like these.

STRESS & BIRTH OF A MAJOR CURRENCY

◄$$$ THE PRESSURE TO SPLIT THE EURO CURRENCY WILL NEXT GROW NATURALLY FROM A EUROBOND SPLIT THAT WIDENS COMPARATIVE YIELD SPREADS, UNTIL A CLIMAX BREAKING POINT. BOND YIELDS DIFFER MARKEDLY FOR THE LESSER NATIONS VERSUS THE GERMAN BUND. THE STRESS IS BEING NOTICED VERSUS ALL THE BRITTLE CRUMBLING PIGS NATIONS, SURE TO REACH A CLIMAX. $$$

The European downgrades are certain to force mounting pressures on the Euro currency. Each EU nation has EuroBonds, marked by national distinctions. They have traded for over a year at different prices, notably at lesser values compared to the German EuroBond. In fact, the German Bundesbank for some time has refused to exchange its bonds for Spanish and other national bonds. The pressure to split the Euro currency will come from widening bond yield spreads versus the German Bund. The result eventually will be a Latin Euro currency that suffers a severe devaluation and a Nordic Core Euro that gradually find a much higher valuation as refuge. In act but not deed, the Deutsche Mark will return. Germany will invite some other nations tag along, to use it. Refer to Austria, Liechtenstein, the Benelux nations, and maybe Finland. They will have one trait in common, all boast export trade surpluses. It will become the healthiest, soundest, and most respected currency on the globe.

The widening of spreads between government debt (EuroBonds) sold by Germany and other troubled nations could extend throughout Europe as investor concerns grow acute concerning the Greek fiscal position, according to Citigroup research. Bond spreads between German securities and those issued by Spain, Italy, and Ireland are expected to continue to widen, in direct response to the gap between German and Greek 10-year note yields. The bond market is NOT distinguishing between Greek and other Southern Europe debt. The 'line in the sand' has been drawn at 3.00% from 2.66% currently. The Citigroup note said, "Directionally it looks like some of the other spreads are going to get dragged up as a consequence. Ireland and Greece are the two more in the forefront, Spain and Italy are a little bit behind that." See the Bloomberg article (CLICK HERE).

◄$$$ TURMOIL IN EUROPE IS PULLING DOWN THE EURO CURRENCY. WHEN THE GERMANS CUT OFF THE SOUTHERN DECAYING MATTER, THE CORE EURO WILL EMERGE AS A USDOLLAR ALTERNATIVE WITH GUSTO. THE MAIN QUESTION IS WHETHER THE BIRTH OF A CORE EURO IS DONE BEFORE OR AFTER THE LATIN NATION DEBT DEFAULTS. $$$

When the European Monetary Union fractures, the new central core of the Euro currency will be revealed. When that historic event occurs, essentially the revival of the Deutsche Mark, the USDollar will resume its decline in a powerful manner. The EMU breakdown is a process already begun, without proper publicity, centered on continued Euro currency usage. The final EMU breakdown is a decision squarely on the German table, made before or after the sovereign defaults from a string of weaker nations. The big issue is how valuation the Germans wish for the Euro currency (pre-breakup) to lose. The stress behind the birth process extends from deliberations on debt reduction, spending reforms, wage issues, export potential, and violence in distressed member nations. Whichever nations break from the EMU first, and embrace an old former currency, will benefit from big advantages in currency devaluation, but will endure other hardships like higher interest rates and unemployment. The partnership between Germany and Russia remains a hidden important element in the Core Euro launch. Energy and commodity contracts must be forged between the two key nations. Germany controls this process. All appeals for debt negotiations go through the Bundesbank. No decision is made at the Euro Central Bank without German approval. What remains unclear is whether the FOREX currency market will anticipate the carving off of Greece, Spain, Portugal, Italy, and Ireland. Those nations must go it alone with a return to their old currencies. If widely anticipated, the Euro currency will not decline much, factored in. Besides, the USDollar will continue to look miserable, broken, bloated, ruined, discarded, and lacking vigor.

◄$$$ THE RETURN OF THE DEUTSCHE MARK WILL COME IN THE FORM OF A CORE EURO. IT WILL BRING STABILITY TO THE ENTIRE EUROPEAN REGION IN THE FIRST FEW MONTHS. LATER, ITS POWERFUL RISE WILL BRING GREAT CHALLENGE TO GERMAN EXPORTERS. THE NATION WILL BE A VICTIM OF ITS OWN SUCCESS. $$$

The re-emergence of the Deutsche Mark is assured, except it will be called a variant of the Euro. The codenames to date are the Core Euro or the Nordic Euro. It will become the official currency of Germany and certain stronger Central Europe nations. They will each be blessed with trade surpluses and no great debt challenges. If France manages to be included in the Core, it will be a miracle and pure gift. The Germans will need squires to carry their bags, an expedient perhaps. France has been given so many promises, and France possesses so many nuclear weapons, that it will in all likelihood be kept in the same group as Germany. Stability will come after the launch to the continent racked by numerous sovereign downgrades and actual debt defaults. The initial months will bring a sense of calm, of decisions made prudently. Later, the effects from the currency on trade export will leave France reeling but Germany struggling. France must then deal with internal strife in resentment for the decision not to revert to the Franc currency, with rising nationalism. Germany will use the challenge of its own successful economy to usher in a handful of gold-backed new currencies, serving as advisor to the Persian Gulf and to Russia. The interim solution that would settle the Euro currency from its anti-US$ rise could turn out to be the IMF basket currency concept.

THE CHINESE GOLD PRICE DISCOUNT

◄$$$ H.S.B.C. EXITED THE GOLD VAULT BUSINESS. MAJOR DELIVERY PROBLEMS ARE HIGHLY SUSPECTED. FURTHERMORE, H.S.B.C. PROBABLY IS MAKING READY SPACE FOR CHINESE GOLD BULLION PURCHASES. $$$

Given that more money is earned from investor accounts than from large commercials in the same amount of vault space, a story lies behind the story. For HSBC to exit the gold vaulting business, they must have their reasons. Jim Sinclair concludes that a problem in the gold market itself stirs below sight. The community has little or no idea. It has been reported that HSBC storage internationally has been backing out of the gold business for awhile. Sinclair said, "I smell delivery problems not just from HSBC, but maybe widespread. I wonder if there might be a problem with authenticity. I wonder if exchanges have ever questioned the authenticity of their warehouse stock. We live in a soulless, depraved world. Every possible scam has taken place. Depending on whether the subject is gold or silver, reports indicate scammers are mixing a different ratio of lead/tungsten to match the density of gold or silver and putting it in the inside of the hollowed-out bar. The only way to detect it is by drilling or by gamma ray scanning. We know coins have been adulterated for years. That is why we do not buy other than from well established coin dealers." See the JSMineset account (CLICK HERE). My sources surmise, without evidence or clear proof, that HSBC might be making ready major bank vault space to hold Chinese deliveries from the metals exchanges. It makes sense, since Chinese billionaires are making huge demands for delivery already in London, with much success in large hauls.

◄$$$ CHINA PLAYED US-UK, OPENED THE DOOR FOR A GOLD PRICE CORRECTION, AND ACCEPTED THE DISCOUNT. THEY PERMITTED AN OFFICIAL TO ADD CREDENCE TO GOLD BEING IN A BUBBLE IN A PUBLIC STATEMENT. NOW TWO WEEKS LATER, THEY COME OUT TO SAY THE USDOLLAR BOUNCE IS OVERDONE. CHINA PLAYED THE US-UK LIKE A FIDDLE. $$$

The Chinese in my opinion opened the door for US-UK to knock down gold two weeks ago. A Chinese official offered his accommodative viewpoint that gold might be in a bubble above the $1200 price per ounce. Combined with the Dubai debt woes, factors aligned to permit a serious pullback in the gold price due to a Euro currency selloff. The Chinese plan is to acquire vast amounts of gold. My personal guess is China can buy just as much gold in the $1120-1150 range as it would have in the $1220-1250 range. Novice sellers have brought forth their gold. It was a clever Chinese plan to cooperate with American propaganda. The crafty Beijing folks also made a follow-up comment about possibly not buying as much gold as people anticipated. The end result was a gold discount offered to China, as they welcomed private non-govt gold held by Americans and Europeans into their vaults. When they exhaust supply at a price range, the Chinese will move up the price range. They must have thought a correction would easily come, and thereby provide them more gold at lower prices. They are in control, after all. Now the Chinese have come forth to declare the USDollar bounce has gone too far, implying it is not worth the current exchange rate. See the Bloomberg article (CLICK HERE) and try not to laugh too hard. In Beijing they are laughing.

Jim Sinclair put it well. He said, "The Chinese talk their position. Two weeks ago gold was a bubble according to Chinese comment. Now as it gets within range of their purchase price, the dollar rally is bullshxx. So stinking is the dollar rally that China will have to curtail their purchases of Treasury instruments. I have to agree with the second which is the dollar rally is bullshxx and argue vehemently against the first. Bubbles are not advertised as bubbles because if they are, they are not bubbles. Watch the Chinese take the rest of the IMF gold if they do not get frontrun again." Essentially the Chinese let the Anglos walk around a little in the courtyard, before returning to the golden corner where they are imprisoned. They are grateful for the cheaper price. It is doubtful that supply is indeed ample. Kind of like squeezing a towel dry with an extra effort.

A quick comment on gold being a bubble. The concept is preposterous, totally absurd, and totally opposite to the reality of bubbles. Gold is typically the beneficiary of massive liquidity gas released from broken asset bubbles, as funds seek a secure refuge. In the last few years, gold has benefited from released liquidity gas from the housing bubble and mortgage finance bubble. In the next few years, gold will be the beneficiary from released liquidity gas from the USTreasury Bond bubble. All in time, like when the inevitable default becomes apparent. The entire argument of gold being in a bubble is a massive distraction from attention drawn to the USTreasury bubble in full force right here, right now.

◄$$$ THE GOLD PRICE MIGHT HAVE FOUND STABILITY FINALLY, SILVER TOO. THE USDOLLAR RALLY HAS RESEMBLED AN IRRATIONAL PIG PILE AFTER EMBRACING A PHONY NOVEMBER JOBS REPORT. HOWEVER, THE EURO HAS PROBLEMS AND MUST CARVE OFF SPOILED SOUTHERN FLANKS. $$$ The 'Doji Star' is a stable pattern of ended selloff for gold.

2009Iss12_Gold

2009Iss12_Silver

During the monetary earthquake with European government defaults, the gold price will rise powerfully in Euro terms. Europe and London will take center stage, as the US loses the rest of its leadership, prestige, and respect. It will be regarded increasingly as a fraud matrix. During the destabilization of European credit markets, gold in Euro terms will continue to rise. This is where the safe haven in gold begins, supplanting the USDollar role. After the introduction of the new Core Euro currency, the gold price in Core Euro terms will stabilize. On a broader, more global basis, gold will be seen and used as the safe haven for true security. A flight out of paper fiat currency is the key, and flight into Gold is the major mega-trend that has begun to occur and will continue to occur. Those naysayers might want to examine the gold accumulation by the major savers of the world, who happen to be the major creditors to the USGovt and thereby the major supporters to the USDollar, namely China and Arabs. The Chinese plan to increase their gold holdings six-fold in the next several years. Central banks in aggregate have turned to accumulation in the last several months. The Arabs have never stopped preferring precious metal to debt securities scribbled upon paper.

◄$$$ COMEX RAISED GOLD MARGIN REQUIREMENTS ON DECEMBER 15TH, FROM $4500 ($4002) TO $5403 PER CONTRACT. AFTER A $100 PRICE CORRECTION, THE SIGNAL IS MORE CHRONIC COMMERCIAL BANK DISTRESS AND DIFFICULTY TO DELIVER GOLD. THE BUBBLE ARGUMENT IS LAUGHABLE, UNLESS THE USTREASURY DEBT IS THE OBJECT IN VIEW. EXPECT LITTLE LIKELY IMPACT FROM THE MARGIN HIKE. $$$

The COMEX has acted to increase gold margin requirements, but one must take a big view. The margin was the same at a $900 gold price. New levels are $5403 initial per contract versus  $4500 previously, but $4002 for maintenance. The bump is a 20% increase, to be sure, just like from $900 gold to $1100. The move was ordered by the corrupt cartel only after a $100 price correction, a sign of reactive desperation, not pro-action. The sharks are in the water. Increasing the margin and maintenance requirements on foreign buyers who want physical delivery will have little or no impact. They are lined up around the block demanding delivery, armed by contracts and lawyers. The raised gold margin requirement is a non-event. The JPMorgan decision sent up a flare to announce their short positions were in serious trouble, even after the price pullback. Jesse said, "The bullion banks (the bears) are edgy because the buying has been particularly robust in the physical metal at this price level, especially the further one gets from New York. Open interest in the futures has been remarkably resilient, showing very little long liquidation. A failure of the commercials is never a pretty sight. Let's see if the Wall Street Banks can hold their ground and keep shorting into the demand from overseas." See the Cafe Americain article (CLICK HERE). The Chinese appreciate any margin capability, a layaway plan, since they are often lined up to take delivery.

◄$$$ USTREASURY YIELD CURVE CONTINUES TO STEEPEN, AFTER THE LATEST SLEW OF BOND AUCTIONS. THE STEEP CURVE SIGNALS INFLATION OF ALL TYPES, BOTH MONETARY AND PRICE. THIS RELIABLE INDICATOR COMPARES LONG-TERM VIEWS AGAINST SHORT-TERM COST OF BORROWING. $$$

Long-term rates are rising gradually despite a non-existent USEconomic recovery. Heavy supply of USGovt debt securities attracts bidders only with higher yields, which in turn signal higher general price structures from higher monetary supply. On December 10th the USTreasurys declined, with the yield gap between 2-year Notes and 30-year Bonds reaching 374 basis points, the widest since at least 1980. The backdrop was poor demand for the $74 billion in notes and bonds auctioned in the week. Larry Milstein is a fixed-income broker and dealer for institutional investors RWPressprich. He said, "We had sloppy 10-year and 30-year auctions at time when there are less people in the market. The short end is locked in by the Fed and the long end is starting to see pressure from supply." The USTBond flood continues, as the USGovt sold $13 billion in long bonds and $21 billion in shorter maturities late last week. See the Bloomberg article (CLICK HERE). The yield spread is in a clear uptrend, a very reliable indicator of imminent price inflation that has stood the test of time. Laurence Meyer, the fixture in the banker elite circles, actually said there is no connection between USGovt deficits, USTBond issuance, and inflation. He is a bonafide idiot. Why do people listen to these guys? They are inflation apologists and high priests.

2009Iss12_USTrez10v2

◄$$$ SPROTT LAUNCHES A COMPETITOR TO STREET TRACKS G.L.D. FUND. SPROTT'S REPUTATION IS IMPECCABLE, WITHOUT CHALLENGE. THE PROCESS TO UNDERMINE FRAUDULENT EXCHANGE TRADED FUNDS MANAGED BY WALL STREET IS GATHERING SPEED. $$$

The highly reputable Sprott Asset Mgmt plans to launch a significant ETFund for gold ownership. The main added feature is easy access to the physical gold on a monthly basis, stored at the Canadian Mint. Team Sprott intends to enter the gold fund pool by filing a preliminary prospectus in the United States and Canada. The Sprott offering is unique in the industry, with both disclosure and access. They aim to launch a $575 million gold bullion fund that will store physical gold and offer investors easy exposure to the metal. This could easily serve as a competitor to the SPDR Gold Trust (GLD) that is currently a popular way for investors to gain what they ERRONEOUSLY believe is precious metal exposure. They actually feed the Wall Street syndicate, enable the Gold Cartel to abuse their gold via leasing, and actually suppress the gold price. JPMorgan is a sub-custodian, enough said! The Sprott ETFund is a natural next step. Their portfolio effectively complements the fund, loaded with the best metals and mining stocks. Upon approval, it will be traded on the New York Stock Exchange under the ticker 'PHYS' and on theToronto Stock Exchange under the ticker 'PHY' in tandem. The initial public offering price is to be set at $10 per unit. Sprott's physical gold trust is expected to hold 97% of assets in physical gold bullion in London Good Delivery bar form and will not invest in certificates or other instruments. The goal of the fund is purely for physical gold, perhaps to bust the London gold cartel?

◄$$$ TOP TIER ECONOMIST ROSENBERG EXPECTS GOLD TO REACH $2600 PER OZ. HIS MAIN JUSTIFICATION IS CHINESE GOVT DEMAND. HE DOES NOT MENTION THE $38 BILLION ANNUAL PRIVATE PURCHASE BY CHINESE CITIZENS, SURELY A POWERFUL ADDITION. $$$

David Rosenberg, the former Merrill Lynch expert economist, forecasts the gold price to reach $2600, due mainly to the Chinese Govt purchases. He wrote, "If China were to lift their gold reserves to 5000 tonnes, which is equivalent to about two years of global production, that shift in demand would boost the gold price by $800/oz to around $2000 ($1978) based on our models. If China moves towards 10,000 tonnes, well, that would end up taking the gold price to $2623/ounce. Make no mistake, we are gold bulls. Central banks have deep pockets and production of gold is stagnant so the demand supply backdrop for bullion is bullish. At the same time, we have to pay respect for market positioning over the near-term. The market for precious metals is overextended right now after the parabolic move of the past two months."

Rosenberg cited the net speculative long position has grown to a record 273,552 contracts on the COMEX. Open Interest is also at a record level of 693,661 gold futures contracts. He regarded the gold trade as vulnerable two weeks ago, and correctly so. He called it a crowded trade. Each gold futures contract controls 100 ounces. Be sure to note that Rosenberg's analysis reflects only demand at the Peoples Bank of China. The Chinese retail consumers are also actively encouraged to buy gold and silver, to form a powerful augmented demand in support of the national strategy. Cited in a recent Hat Trick Letter was the colossal demand of between $35 and $40 billion per year by its citizens in various forms of gold, such as gold bars. See the Business Insider article (CLICK HERE)

◄$$$ PREMIUMS ARE REPORTEDLY OFFERED TO DEFER GOLD DELIVERY IN LONDON. CONFIRMATION OF MY SOURCED INFORMATION FROM OCTOBER HAS COME. THE BONUS VIG WAS 25%, EXACTLY AS CITED BY MY RELIABLE SOURCE. $$$

Rick Ackerman passes along word in a recent article about a friend who goes by the name of Andy, a London gold trader. The man claims to have been offered a premium of 125% not to take delivery of September gold contracts because of very tight LBMA supply of the actual metal. The trader meant a premium of 25%, and payment to settle at 125%. This confirms other reports of the desperate internal practice, including those from my sources. Also encouraging is the trader's reference to the concentrated short position in the metals managed by JPMorganChase on behalf of the US Federal Reserve designed to support the USDollar. The buzz on the gold price suppression scheme really is circulating more widely, despite the near blackout in the mainstream financial news media. Ackerman's friend Andy said, "We were offered 125% premium not to take delivery of our September contracts because unallocated LBMA gold runs on a fractional reserve basis and they simply did not have the metal to deliver. We are now demanding delivery of December early and are hearing the same song." See the Ackerman account on the Gold Seek article (CLICK HERE).

An additional confirmation comes in COMEX exchange for physical. This is the new standard during physical gold depletion. The report comes from John Cheney of Service Analytics. He makes no blanket statement that physical gold can be obtained from some delivery. The concept of 'Cash Settled' is not uniquely new, which he admits to have done in the past. Rather, after numerous conversations with other traders and funds, a new trend can be spotted. The COMEX, according to prevailing word, pressures paper settlement in the form of money or Exchange Traded Fund shares very aggressively, describing it as the much easier alternative. Delivery of physical gold from the COMEX is no longer a straightforward process as in the past, hardly a smooth process to begin with. In fact, it is difficult, as persistency and patience are required during typical long waiting periods. Cheney urges an independent audit of the COMEX inventory, so as to provide a fresh list of bar numbers. He calls its inventory listing a mess, as bad or worse as the recent scandal in Canada and the missing bullion.

The accounting has actually taken on a new ledger item to identify the tally for non-standard delivery. Rules for COMEX futures contract deliveries have clearly changed. They call it EFP, exchange for physical, in the official rules. The rules were amended to allow for delivery of Street Tracks GLD shares from the popular (but radically fraudulent) in lieu of bullion. Consider the COMEX preliminary volume and Open Interest report from a recent date. In the attachment cited with futures contracts listed under the EFP category, a new suspicious category appears that would have caused riots years ago, but not now. They call it 'Delivery Cash Settled' equal to 2866 December gold contracts. The number 2866 was exactly the number of delivery notices issued on FND (not delivered) as reported in the Nov 27th volume and Open Interest report. With sneid but justified tone, Cheney wrote, "Conclusion: guess you can no longer get bullion via using COMEX contracts. This apparently is the next step in the evolution of gold trading." See the Cafe Americain article (CLICK HERE). This is gold default by any other name. In fact, the Dubai default effect will weaken the London banks even more. They will be less able to defend their vacant gold fortress.

◄$$$ ADAM HAMILTON MUST BE CALLED OUT FOR HIS ARROGANT CRITICISM OF OPPONENTS TO THE STREET TRACKS G.L.D. EXCHANGE TRADED FUND. HIS CRITICISM IS PITIFULLY SHALLOW, ARROGANTLY DISMISSIVE, AND NOT WORTHY OF ANY RESPECT WHATSOEVER. IS HE AN PAID INSIDER?? $$$

Respected gold analysts like Adam Hamilton dismiss all stories of settlement in cash with bonus vig (bribe) as well as other reports of fraud like tungsten laced gold bars. After a while, given the growing preponderance of anecdotal evidence, one must wonder why his repeated denial. Is Hamilton paid per denial? My conclusion is analysts like him wish to avoid backlash from the establishment, or accusations of conspiracy nuts, or are quietly paid for maintaining their positive opinions obediently. My gut says all motives are at work. The following quote reeks of arrogance and ignorance, a truly deadly combination that serves nobody except to stroke his own ego. My belief is that Hamilton does not have any valid sources in the physical markets he writes about, in effect an armchair analyst divorced from the reality of the marketplace. He wrote the following disturbing denial, very thin, very baseless, which in my view qualifies him as a stooge or a paid shill. His work on the other hand is of the highest level of analysis. His editorial opinions are replete with arrogant rubbish. So anecdotal evidence from valid sources is meaningless? So diversion of physical demand to vault stores without independent audit has integrity? So all observers lack the ability to detect fraud? So all tracking of fraud is based upon paranoia? So theories of fraud cannot be proven? So all rumors come from thin air? ADAM HAMILTON, IN THE SPDR GOLD TRUST YOU ARE A GRAND FOOL, BUT YOU ARE ALWAYS A FINE ANALYST!!!

"GLD's amazing success speaks for itself, this flagship ETF certainly does not need anyone to defend it. Still, the rampant GLD conspiracy theories are misleading and confusing new gold investors and speculators. Some mainstream investors hear these conspiracy theories and, lacking the background to evaluate them rationally, assume they are true. This slows the migration of stock market capital into physical gold via the conduit of GLD and dampens this gold bull's progress for all gold investors.

Conspiracy Theorist Modus Operandi. Since there are always people who simply love trafficking in paranoia, conspiracy theories have always existed and will always exist. Whenever any institution gets large enough to single-handedly affect a given market, conspiracy theorists rush in to spin fanciful tales about it. Though true in all markets, conspiracy theorists have always had a special affinity for gold.

By their very nature, most conspiracy theories cannot be proven or disproven. They are all born in rumor. Conspiracy theorists create rumors out of thin air, bouncing them around in their own private circles where the theories are shaped and embellished. While most theories wither on the vine, some gain enough momentum to break out of these circles and achieve wider exposure. These rumors come to be treated as fact, held on to by their adherents with zeal comparable to that of the devout for their religion."

See the rubbish commentary by Adam Hamilton in the article entitled "GLD Conspiracy Theories" (CLICK HERE). He does a grand disservice to legitimate gold investors with such nonsensical shallow argumentation from an arrogant pulpit. He might become the most embarrassed of all Exchange Traded Fund apologists at a later date if and when GLD suffers exposure from lack of physical gold (from excessive London contract delivery) and abuse of its GLD shares (to satisfy gold futures contract short positions). He might not be capable of observing any Wall Street fraud, one must surmise. My forecast is for GLD to trade eventually at 30% discount to the gold spot price once its lack of matched gold bullion is exposed for investor accounts, and later to trade at a 60% discount to the spot gold price once the lawsuits begin like a parade at a popular funeral.

◄$$$ CANADIAN MINT STORY SMELLS OF COVERUP. PROBABLY TUNGSTEN GOLD WAS FOUND AND LATER REPLACED WITH ACTUAL GOLD. THE OFFICIAL STORY IS LAUGHABLE AND NOT REMOTELY CREDIBLE. $$$

The Royal Canadian Mounted Police now call it an accounting error, not a heist. They white washed the story on disappearance of 17,500 gold ounces. That is the equivalent of 41 bars worth $15 million. The Mounties made their thin conclusion concerning the Crown refiner, whose website boasts of the most advanced technology in their methods. Their offered explanation is more trivial and flimsy, but still bewildering. They attribute the missing gold to accounting errors and processing losses, which was all recovered, present and accounted for. The gold disappeared on the financial ledgers, the chemical baths, even drips from a cauldron. Next come the accounting and technical reports by the third party group, perhaps a final coverup. The Canadian Mint must carefully account for gold content, which enters in less pure and varied form and exits in pure coinage. Such is a tough challenge. The chlorination process used at the Ottawa plant is understood to be outdated, resulting in steady minor leakage of the precious metal. See the Globe & Mail article (CLICK HERE). This story will not go away. The conclusion above is laughable, but very consistent with discovering a batch of tungsten gold, later replaced after massive pressure from the guilty party in delivery. In fact, the amount might be exactly one cauldron full of ingots, unfortunately loaded with tungsten cheese that did not melt at the lower gold critical temperature.

◄$$$ THE H.U.I. HANGS ON. THE PRECIOUS METALS MINING STOCK INDEX HAS BEEN DEVOTEDLY TRACKING THE 20-WEEK MOVING AVERAGE FOR THE ENTIRE 2009 YEAR. $$$ The much awaited breakout above the March 2008 high at 520 will come eventually, but not in the latest surge. The 20-week moving average bears watching, to see if it turns down after losing its upward trajectory. Minor line support is evident at 425 and then 400. The HUI clearly is seeking support. The wild card is any Chinese buyers shopping for gold producers, to stick it in the eye of the evil gold cartel, a branch of the financial crime syndicate.

2009Iss12_HUI

Thanks to the following for charts StockCharts,  Financial Times,  Wall Street Journal,  Northern Trust,  Business Week,  CIBC Bank,  Merrill Lynch,  Shadow Govt Statistics.