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Can the Fed Control Core Inflation?
Gold Commitments of Traders for April 11-17
Silver Commitments of Traders for April 11-17
Demonetization of Silver
Central Banks Rig Gold Market for Orderly Rise
Morgan: “Myths in Silver”
The Gold Megathrust
First Deflation then Inflation, Phase One and Two
The paradox of choice
French elections tomorrow/Spanish and Italian 10 yr yields again rise/gold and silver hold
Jim Rickards: Central Banks Rig Gold Market to Ensure Orderly Rise
Three Stories from the Tehran Times
Frank Holmes: Investor Alert - Weighing the Evidence of Oil and Gold Stocks
Harvey Organ: Metals Dangerously Suppressed
Crash On Fed Tightening And Euro Salvation Looks Premature
Silver and Gold Guarantee Freedom
Silver Seen Over $40/oz in 2012 – Store of Value Remains Undervalued
Arensberg Video - Bargain Hunter’s Paradise – For Junior Exploration Companies
The Other Side Of The Gold And Silver Coin
Top Undervalued High Conviction Outperforming Picks From Eaton Vance's $47 Billion Q1 Filng
By the Numbers for the Week Ending April 20
FOMC Fed Meeting: More QE?
Gold and Silver Disaggregated COT Report (DCOT) for April 20
Buying gold at discount
Today’s Winners And Losers
The European Debt Crisis Never Went Away
Friday ETF Roundup: UNG Bounces Back, VXX Tumbles
A Look At Hedging 4 Stocks That Made New 52-Week Highs Friday
It's 'Jobsmageddon' For The Fools
Many Signs Point to Gold’s Higher Prices

Posted: 21 Apr 2012 05:38 AM PDT

By Steven Hansen:

The Federal Reserve (FOMC) meets next week to review the economy and argue monetary policy. For those who see economic policy as black or white, I have a bridge to sell you.

Low interest rates are economically stimulative - or at least should be. Yet many years into the Fed's ZIRP (Zero Interest Rate Policy) the economy is still struggling to gain traction -and the Fed's stated policy is these rates will remain low until late 2014. Can you imagine the economy of the '70s if ZIRP would have been applied then? ZIRP works well with a certain set of dynamics, but with an existing heavy debt load in both the private and public sectors, the stimulative effects have proven to be weak.

Reading between the lines - the Fed is not seeing economic traction anytime soon. Consider that USA monetary policy is based on gold standard conventions which becomes

Complete Story »

Gold Commitments of Traders for April 11-17

Posted: 21 Apr 2012 05:30 AM PDT

Commercials sold 2,373 longs and picked up 2,669 shorts to end the week with 58.66% of all open interest and now stand as a group at 17,609,100 ounces net short, according to data from the US Commodity Futures Trading Commission.

Silver Commitments of Traders for April 11-17

Posted: 21 Apr 2012 05:30 AM PDT

Commercials added 2,372 longs and 2,484 shorts to end the week with 47.57% of all open interest 132,485,000 ounces net short, a small increase of 555,000 ounces, according to the US Commodity Futures Trading Commission.

Demonetization of Silver

Posted: 21 Apr 2012 03:50 AM PDT

from silvervigilante.com:

History is just that: HIS-STORY. It is a play conjured by entrenched interests who have time and history on their side. The macro-events of daily life are not the effect of democratic processes or chance, but, instead, the execution of all things by powers-that-be, with 24 hour think-tanks and the bloodline of civilization, rule of money, to their advantage.

The 1873 Coinage Act listed all the coins to be minted under the legislation. It omitted the silver dollar, and because there was much demand for silver beyond monetary, as well as its strength through tradition, not much was changed – at first.

The act was sprung from London. As silver was demonetized in France, England and Holland in 1872, capital—approximately $500,000—was raised so that Ernest Seyd could head to United States, as an agent of foreign bond holders, finance capitalists and elitists centered on the Rothschild Empire, to achieve the same: the demonetization of silver. This was stated in the Congressional Globe of April 9, 1872, page 2304:

Ernest Seyd of London, a distinguished writer and bullionist, who is now here, has given great attention to the subject of mint and coinage. After having examined the first draft of this bill (for the demonetization of silver) he made various sensible suggestions, which the committee adopted and embodied in the bill.

Injury inflicted upon the people of the United States as silver was demonetized was critical. What ensued in the form of The Panic of 1873 represented one of the most disastrous episodes in U.S history. The years of 1873 until silver remonetization in 1878 brought bankruptcies and financial disaster to millions. The economic distress, as concluded by prominent statesmen of the time, and many analysts since, was caused by "the shrinkage in the volume of money."

Keep on reading @ silvervigilante.com

Central Banks Rig Gold Market for Orderly Rise

Posted: 21 Apr 2012 03:43 AM PDT

from caseyresearch.com:

old traded within a five dollar price band through most of the Friday trading day on Planet Earth…exceeding it only briefly between 8:10 a.m. at 9:40 a.m. Eastern time. Those two times represented the high and low price ticks of the day…such as they were.

I was particularly impressed by the fact that 'free-market forces' were able to thread the needle by closing gold on Friday in the 60 cent price gap between the Wednesday close and the Thursday close. I hope there was a prize for doing that.

Gold closed on Friday at $1,642.40 spot…down twenty cents from Thursday. Net volume, at 77,000 contracts, was the lightest since I can't remember when.
Silver's price action was rather similar to gold's, but the price was more 'volatile'…with the high and low price ticks come at approximately the same times as gold. The silver price actually broke through the $32 price mark on its high tick [$32.01 spot] for the second day in a row but, as you can tell, it wasn't allowed to close anywhere near that price.

Silver closed at $31.70 spot…down a dime from Thursday. Net volume was a shockingly light 19,000 contracts.

Keep on reading @ caseyresearch.com

Morgan: “Myths in Silver”

Posted: 21 Apr 2012 03:38 AM PDT

David Morgan "Myths in Silver" Interview California Resource Investment Conference 2012
from silverguru:

~TVR

The Gold Megathrust

Posted: 21 Apr 2012 03:25 AM PDT

from news.goldseek.com:

"One historic experience is that human nature never changes…" (Ferdinand Lips in "Gold Wars – The Batlle against Sound Money as seen from a Swiss Perspective", page 251; Fame 2002)

Since mid-2010, the gold price consolidates sideways predominately within the boundaries of the blue-green triangle. In January 2012, the resistive blue triangle leg was broken successfully at approx. $1,700 giving the starting signal for the so-called "breakout" reaching nearly $1,800 a few weeks later. Thereafter, a so-called "classical pullback" occurred – typically bringing the price to the apex of the triangle, whereafter the final movement of a triangular price formation begins: the so-called "thrust" – either a strong and longer-termed up- or downward-trend. A few days ago, a correction to the 260-day EMA at $1,620 occurred – as it was breached shortly, it must be taken into (risk-) account that another pullback may occur (currently at $1,623.90). A sell-signal à la thrust to the downside is not generated until falling below the price level of the triangle apex at approx. $1,625 and reinforced when breaching the (extension of the) blue triangle leg currently at approx. $1,590. As the price rose above the level of the apex recently, a strong buy-signal à la thrust to the upside is active. Principally, the goal of a thrust (to the upside) is to transform the resistive high of the breakout ($1,793) and the triangle ($1,923) into new support – in order for a new and longer-termed upward-trend to begin thereafter.

Keep on reading @ news.goldseek.com

First Deflation then Inflation, Phase One and Two

Posted: 21 Apr 2012 03:24 AM PDT

from 24hgold.com:

eople wonder why gold is not already say $5000 (it certainly could be) right now, given the fact that the US Fed alone and the US treasury have either given directly or bought (or guaranteed) up to $20 trillion USD worth of world bad debt/bonds/CDS/derivatives, you name it. That money went to US and European and other world banks and financial institutions into a literal rat's nest of opaque levered multilayered contracts and leverage…

Jumping ahead
It would seem that the gold price should simply reflect all that money that was thrown out there, no? Answer at this stage? No.

Ok if all that incredible amount of money (and we are only talking the Fed at the moment, not the Chinese, the Japanese, nor the ECB all with say at least another close to ten $trillion USD worth, meaning in their own currency but we just use the USD to compare the amount here) they all threw into the flames….
Flames is a good analogy. What happened is this…They are attempting to keep alive a world awash in debt and all that money is merely being used to cover huge losses at financial institutions…which are basically like zombie banks now…and all the while the public funds are being depleted at a rapid rate.

Keep on reading @ 24hgold.com

The paradox of choice

Posted: 21 Apr 2012 03:13 AM PDT

from goldmoney.com:

Here is a puzzle for Keynesian and other neo-classical economists.

When a consumer buys something, he must choose; and if he increases his purchase of one product, he must reduce his purchases of other products by the same amount. In other words he cannot buy both. This must be true for whole communities as well. How then can you have economic growth?

It is of course impossible without monetary inflation. This is because any statistical average, in this context GDP, can only grow if people are not forced to choose between alternatives, a condition that can only occur if they are given extra money. Not even a draw-down on savings to spend on consumption creates extra spending, because it is merely reallocates spending on capital goods to consumption goods. This simple point has been ignored by all neo-classical economists. The result is that in their pursuit of so-called economic growth, they have committed themselves to monetary inflation. Their concept of growth is to make that extra money available to consumers, so that they are not limited to what they earn and forced to choose. It has also become the basis for economic modelling, which takes known demand for products and services and from it extrapolates growth for an average of all of them.

The means by which GDP is adjusted for inflation is inadequate, because if it was adequate, this law of choice proves that real GDP statistic remain the same. Reported real growth in GDP is therefore no more than a statistical gap. Anyway, it is irrelevant: not only is it impossible to have wholly accurate statistics, but it is also impossible to predict the future consumer preferences that should be the basis of economic forecasting.

Keep on reading @ goldmoney.com

French elections tomorrow/Spanish and Italian 10 yr yields again rise/gold and silver hold

Posted: 21 Apr 2012 12:49 AM PDT

Jim Rickards: Central Banks Rig Gold Market to Ensure Orderly Rise

Posted: 20 Apr 2012 11:51 PM PDT

Author:

Ed Steer

Yesterday in Gold and Silver

Ed_GSD

April 21, 2012 1:51pm GMT

Gold traded within a five dollar price band through most of the Friday trading day on Planet Earth...exceeding it only briefly between 8:10 a.m. at 9:40 a.m. Eastern time. Those two times represented the high and low price ticks of the day...such as they were.

Gold closed on Friday at $1,642.40 spot...down twenty cents from Thursday. Net volume, at 77,000 contracts, was the lightest since I can't remember when.

Silver's price action was rather similar to gold's, but the price was more 'volatile'...with the high and low price ticks come at approximately the same times as gold. The silver price actually broke through the $32 price mark on its high tick [$32.01 spot] for the second day in a row but, as you can tell, it wasn't allowed to close anywhere near that price.

Silver closed at $31.70 spot...down a dime from Thursday. Net volume was a shockingly light 19,000 contracts.

The dollar index hung in around the 79.60 mark until about 10:00 a.m. Hong Kong time on their Friday morning...and then rolled over. Most of the decline was in by 10:30 a.m. Eastern time in New York...and the index basically traded sideways from there. The dollar index closed down about 34 basis points at 79.14.

Four out of the five days this week, gold stocks opened in positive territory...and then quickly got sold off into negative territory regardless of the price action in gold that followed...with stock prices continuing to erode all day along. The Friday trading action was exactly that as well. The HUI closed on its low of the day, down 0.97%. In my twelve years of watching this market, I've never seen anything like this. It's unnatural.

Virtually all of the silver stocks finished down on the day as well...including all the stock represented in Nick Laird's Silver Sentiment Index. It closed down 0.17%...the same amount it closed up on Thursday.

(Click on image to enlarge)

The CME's Daily Delivery Report was a yawner, as only 11 gold contracts were posted for delivery on Tuesday.

There were no reported changes in GLD yesterday, but over at the SLV ETF an authorized participant withdrew 1,262,086 troy ounces of silver.

For the third day in a row there was no sales report from the U.S. Mint.

The Comex-approved depositories reported receiving 732,023 troy ounces of silver on Thursday...and shipped only 4,966 ounces out the door. Since Wednesday, JPMorgan's precious metals warehouse has added another million ounce of silver to their stash, which now sits at 14.0 million ounces. The link to that action is here.

The Commitment of Traders Report that came out yesterday [for positions held a the close of Comex trading on Tuesday] was basically a non-event. There was virtually no change in the Commercial net short position in silver...less than a hundred contracts but, as Ted Butler pointed out to me, the total open interest blew out by almost 7,000 contracts, so a lot of spread trades were put on during the reporting week.

In gold, the Commercial traders increased their net short position by a hair over 5,000 contracts, or 500,000 ounces. Nothing to see here, folks.

As expected, The Central Bank of the Russian Federation updated their website with the March numbers...and they showed that they had purchased 500,000 ounces of gold to add to the 28.3 million ounces they already held. I must admit that after seeing nothing added in January...and 100,000 ounces sold in February...I was relieved to see this number. I thank Nick Laird for his wonderful chart below.

(Click on image to enlarge)

Here's a chart that Washington state reader S.A. sent our way yesterday. It's entitled "Total Credit Market Debt Owed"...and needs no further embellishment from me.

(Click on image to enlarge)

Here's an interesting story that appeared in an Australian newspaper just the other day. It includes a photo of the Perth Mint's 10 kilogram "Year of the Dragon" gold and silver 'coins'. I thank Australian reader Brad Ellett for sending it to me...and Australian reader Wesley Legrand for putting it in a format that I could use in this column. You'll certainly need the 'click to enlarge' feature for this one.

(Click on image to enlarge)

I have the usual number of stories for a Saturday, including a bunch that I've been saving all week for today's column. I hope you have the time to run through them all over the weekend.

As Ted Butler has pointed out countless times, it's what JPMorgan et al do on the next rally that will determine how it unfolds.

Gold: Precious in All But Recent Perception. CFTC Commissioner Bart Chilton Talks About Silver on BNN. John Hathaway: Fed to Print More Money and Gold to Hit New Highs.

Critical Reads

Rising Fears That Recovery May Once More Be Faltering

Ed_GSD

April 21, 2012 1:51pm GMT

Some of the same spoilers that interrupted the recovery in 2010 and 2011 have emerged again, raising fears that the winter's economic strength might dissipate in the spring.

In recent weeks, European bond yields have started climbing. In the United States and elsewhere, high oil prices have sapped spending power. American employers remain skittish about hiring new workers, and new claims for unemployment insurance have risen. And stocks have declined.

There is a "light recovery blowing in a spring wind" with "dark clouds on the horizon," Christine Lagarde, managing director of the International Monetary Fund, said Thursday, at the start of meetings here that will focus on Europe's troubles and global growth. Ms. Lagarde implored world leaders not to become complacent.

This story was posted over at The New York Times website on Thursday...and I thank reader Phil Barlett for sending it. The link is here.

IMF to Secure $430 Billion in Crisis Funds

Ed_GSD

April 21, 2012 1:51pm GMT

Leading world economies on Friday pledged $430 billion in new funding for the International Monetary Fund, more than doubling its lending power in a bid to protect the global economy from the euro-zone debt crisis.

The promised funds from the Group of 20 advanced and emerging economies aim to ensure the IMF can respond decisively should the debt problems that have engulfed three euro zone countries spread and threaten a fragile global recovery.

"This is extremely important, necessary, an expression of collective resolve," IMF Managing Director Christine Lagarde said. "Given the increase that has just taken place, we are north of a trillion dollars actually. So I was a bit mesmerized by the amount."

This Reuters story was posted on the cnbc.com website shortly after midnight last night...and I thank West Virginia reader Elliot Simon for digging it up on our behalf. The link is here.

Chris Whalen: The Fallacy of "Too Big To Fail"–Why the Big Banks Will Eventually Break Up

Ed_GSD

April 21, 2012 1:51pm GMT

In a riveting interview on the banking industry, Christopher Whalen of Tangent Capital Partners in New York joins Jim on Financial Sense Newshour to discuss the fallacy of "too big to fail," conflicts of interest in the derivatives markets, problems with the 2005 bankruptcy laws, and why politicians let MF Global investors get taken.

The audio interview runs for 24:22...and there's also a transcript if you wish to read it, instead of listen. It was posted on the financialsense.com website yesterday...and I thank reader Dennis Meredith for sending it my way. The link is here.

An Eye on France, Italy and the Speculators: Doug Noland

Ed_GSD

April 21, 2012 1:51pm GMT

I wanted to dive a little deeper into John Taylor's March 29, 2012, Wall Street Journal op-ed, "The Dangers of an Interventionist Fed - A century of experience shows that rules lead to prosperity and discretion leads to trouble." The monetary policy "rules vs. discretion" debate is near and dear to my analytical heart, and I again tip my hat to Dr. Taylor for adeptly raising this critical issue. For this Bulletin I'll shift the focus somewhat.

From John Taylor's article: "The Fed's discretion is now virtually unlimited. To pay for mortgages and other large-scale securities purchases, all it has to do is credit banks with electronic deposits—called reserve balances or bank money. The result is the explosion of bank money… Before the 2008 panic, reserve balances were about $10 billion. By the end of 2011 they were about $1,600 billion. If the Fed had stopped with the emergency responses of the 2008 panic, instead of embarking on QE1 and QE2, reserve balances would now be normal. This large expansion of bank money creates risks. If it is not undone, then the bank money will eventually pour out into the economy, causing inflation. If it is undone too quickly, banks may find it hard to adjust and pull back on loans. The very existence of quantitative easing as a policy tool creates unpredictability, as traders speculate whether and when the Fed will intervene again. That the Fed can, if it chooses, intervene without limit in any credit market—not only mortgage-backed securities but also securities backed by automobile loans or student loans—creates more uncertainty and raises questions about why an independent agency of government should have such power."

I've been a huge fan of Doug's ever since I discovered his writings over at David Tice's prudentbear.com website over ten years ago. It's always a must read for me every Friday evening...and this one is worth your while if you have the time. I thank reader U.D. for sending it our way...and the link is here.

David Galland: Après Moi, le Deluge

Ed_GSD

April 21, 2012 1:51pm GMT

This was the title to yesterday's edition of Casey's Daily Dispatch. I consider David to be one of the top writers on the Internet...and he's certainly at the top of his game in this, his weekly column. It's an absolute must read from beginning to end...and the video in the "Friday Funnies" is a must watch as well.

If you're not already a subscriber, you can rectify that [for FREE] when you bring up his commentary on your screen. The link is here.

Spanish PM: 'We have no money for health or education'

Ed_GSD

April 21, 2012 1:51pm GMT

Spain has approved €10 billion of spending cuts and higher fees for education and health in a bid to show investors it is getting its deficit under control.

Speaking on the eve of the cabinet decision on Friday (20 April), centre-right Prime Minister Mariano Rajoy said he does not have enough money.

"It's necessary, imperative because at this moment there is no money to pay for public services ... There's no money because we have spent so much over the last few years. So we have to do this so that in the future we can get out of this situation," he told national media.

This story was posted over at the euobserver.com website back on April 12th...and I thank Roy Stephens for his first offering of the day. The link is here.

Franco-German Schengen Proposal: A Vote of No Confidence in Europe

Ed_GSD

April 21, 2012 1:51pm GMT

Germany and France's joint proposal to allow Schengen-zone countries to temporarily reintroduce border controls as a means of last resort might sound harmless. But doing so would damage one of the strongest symbols of European unity and perhaps even contribute to the EU's demise.

Germany and France are serious this time. During next week's meeting of European Union interior ministers, the two countries plan to start a discussion about reintroducing national border controls within the Schengen zone. According to the German daily Süddeutsche Zeitung, German Interior Minister Hans-Peter Friedrich and his French counterpart, Claude Guéant, have formulated a letter to their colleagues in which they call for governments to once again be allowed to control their borders as "an ultima ratio" -- that is, measure of last resort -- "and for a limited period of time." They reportedly go on to recommend 30-days for the period.

The proposal is far from harmless and would throw Europe back decades. Since 1995, the citizens of Schengen-zone countries have gotten used to freely traveling within Continental Europe. Next to the euro common currency, free movement is probably the strongest symbol of European unity. Indeed, for many people, it's what makes this abstract idea tangible in the first place.

This story was posted on the German website spiegel.de yesterday...and is Roy's second offering of the day. The link is here.

Scottish independence: Who'll pay the price?

Ed_GSD

April 21, 2012 1:51pm GMT

Scottish nationalists are calling for a boycott of The Economist.

Words such as "contemptible", "sneering" and "offensive" are being used to describe the front page of its latest edition, which shows a map of Scotland renamed "Skintland".

According to the magazine, the nation consists of places such as "Glasgone", "Edinborrow" and the "Highinterestlands".

It is followed by a leading article, concluding that Scottish independence from the UK would come at a high price and could leave Scotland as "one of Europe's vulnerable, marginal economies".

Unsurprisingly, Scotland's first minister Alex Salmond blew his top. The Scottish National Party leader said the front cover displays a sort of "Bullingdon Club humour" of "sneering condescensions".

This very interesting story was posted over at the aljazeera.com website on Tuesday...and I've been saving it for today's column. I thank reader Andrew Holland for digging it up on our behalf...and the link is here.

Three Stories from the Tehran Times

Ed_GSD

April 21, 2012 1:51pm GMT

The first is headlined "Japan to insure Iran oil shipments to counter EU sanctions". The second is entitled "High oil prices shield Iran from sanctions"...and lastly is this very interesting article headlined "156,000 gold coins delivered to customers". If the Persian/English translation is to be believed, it sounds like customers will be offered paper of one form or another, instead of the physical metal itself.

I thank reader 'David in California' for the fi

Three Stories from the Tehran Times

Posted: 20 Apr 2012 11:51 PM PDT

Three Stories from the Tehran Times

Frank Holmes: Investor Alert - Weighing the Evidence of Oil and Gold Stocks

Posted: 20 Apr 2012 11:51 PM PDT

Frank Holmes: Investor Alert - Weighing the Evidence of Oil and Gold Stocks

West Texas Intermediate (WTI) crude oil has seen a tremendous rise over the past three years. In April 2009, the price of oil was $46; today, it's $104. The SIG Oil Exploration & Productions Index closely followed the rise of Texas tea from April 2009 until August 2011. That's when the disparity between oil and oil stocks began to gradually increase.

As we mentioned last week, gold equities continue to lag the price of gold, with the trend accelerating recently. Below, you can see that for most of the last three years, gold stocks have outperformed gold. Recently, though, bullion has surpassed gold stocks while gold companies have significantly declined.

Harvey Organ: Metals Dangerously Suppressed

Posted: 20 Apr 2012 10:18 PM PDT

Harvey Organ has been analyzing the bullion markets closely for decades. The quality and accuracy of his work is respected enough to earn him an invitation to testify before the CFTC on position limits for precious metals back in 2010. And he minces no words: gold and silver prices are suppressed. With extreme prejudice. In this detailed interview, Harvey explains to Chris the mechanics how of he sees this manipulation occurring, why he predicts this fraudulent pricing scheme will collapse soon, and why it's critical to be holding physical (vs paper) bullion when it does.

from chrismartensondotcom:

~TVR

Crash On Fed Tightening And Euro Salvation Looks Premature

Posted: 20 Apr 2012 09:25 PM PDT

"Until the rising reserve powers of Asia, Russia and the Gulf regain trust in the shattered credibility of the world's two great fiat currencies – if they ever do – gold is unlikely to crash far or, remain in the doldrums for long. 'Peak gold' cements the price floor in any case." –Ambrose Evans-Pritchard The Telegraph

"It has been an unsettling experience for latecomers who joined the gold rush near all-time highs of $1,923 an ounce last September. The slide has become deeply threatening since the US Federal Reserve took quantitative easing (QE3) off the table six weeks ago – or appeared to do so – and signalled the start of a new tightening cycle. Spot gold ended the pre-Easter week at $1,636."

"The game has changed," says Dennis Gartman, apostle of the long rally who now scornfully tells gold bugs that he is just a "mercenary", not a member of their cult. "They genuflect in gold's direction; we merely acknowledge that it exists as a trading vehicle and nothing more. There are times to be bullish, and times to be bearish … to every season, as Ecclesiastes tells us."

"Gold has risen sevenfold from its nadir below $260 in 2001, that Indian summer of American hegemony, when the 10-year US Treasury bond was the ultimate "risk-free" asset, and Gordon Brown ordered the Bank of England to auction half its metal." Ed: Browns ill-timed sale to satisfy central bankers wasted $5 Billion plus.

"The stock markets of Europe, America, and Japan churned sideways over the same decade, and that precisely is the clinching argument against gold for contrarian traders. You avoid yesterday's stars like the plague.

"Gold is far too popular," said James Paulsen from Wells Capital. It has reached a half-century high against a basket of indicators: equities, treasuries, homes, and workers' pay."

"Each interim low in price has been lower, and chartists tell us that gold's 100-day moving average has fallen through its 200-day average for the first time since March, 2009. It is a variant of the 'death's cross'. Ugly indeed, though Ashraf Laidi from City Index said the more powerful monthly trend-line remains unbroken."

"Whether or not the global economy has really put the nightmare or, 2008-2009 behind it and embarked on a durable cycle of growth is of course the elemental question. The answer depends on what you think caused the crisis in the first place. If you think, as I do, that the root cause was the deformed structure of globalization over the last twenty years – a $10 trillion reserve accumulation by China and the emerging powers, with an investment bubble in manufacturing to flood saturated markets in the West, disguised for a while by debt bubbles in the Anglo-sphere and Club Med – then little has changed."

"In some respects it is now worse. China's personal consumption has fallen to 37% of GDP from 48% a decade ago. The mercantilist powers (chiefly China and Germany) are still holding on to their trade surpluses through rigged currencies, the dirty dollar-peg and the dirty D-mark peg (Euro), exerting a contractionary bias on output in the deficit states – though China at least recognizes that this must change."

"There is still too much world supply, and too little demand, the curse of the inter-War years. That at least is the Weltanschauung of the pessimists. If correct, we face a globalized "Lost Decade", a string of false dawns as each recovery runs into the headwinds of scarce demand, and debt leveraging grinds on."

"There are two implications to this: central banks will have to keep printing money for a long time, and the Asian surplus powers – as well as Russia and the Gulf states – will have to find somewhere to park their growing foreign reserves."

"These countries don't want other peoples' paper promises any longer," said Peter Hambro, chair of the Anglo-Russian miner Petrovalovsk. 'There is no sign yet that we are returning to a well-balanced and normal financial system. The ECB is accepting bus tickets as collateral and the only way out of this debt and banking crisis will be inflation in the end."

"Russia is raising the gold share of its reserves to 10%, buying the dips with panache. China is coy, but WikiLeaks cables reveal that Beijing is eyeing "large gold reserves" to back the internationalization of the renminbi."

"China's declared gold reserves of 1,054 tons are tiny, though it may be accumulating on the sly. Sascha Opel from Orsus Consult expects Beijing to boost its holdings by "several thousand tons" over the next five years to match the US stash of 8,000 and the Euro zone's 11,000."

"We do not know whether China's central bank or, wealth funds suffered a 75p%haircut on Greek bonds – as Norway's petroleum fund did – but they are undoubtedly nursing large paper losses in other Club Med bonds, and the precedent for EMU sovereign default is now established. The Euro zone has become a danger zone. Rules are not upheld. Some bondholders are spared, while others are not."

"Last week's jump in Spanish bond yields to 5.61% – from 4.9% a month ago – should puncture the illusions of those such as France's Nicolas Sarkozy who think the EMU crisis has been solved. The stock line in Berlin, Brussels, and Paris is that premier Mariano Rajoy has needlessly stirred up trouble by refusing to abide by Spain's original fiscal targets, but the contraction of the Spanish economy had made the targets meaningless. To adhere to such demands would have been criminal."

"As it is, Madrid is embarking on a further fiscal squeeze of 2.5% of GDP this year, in the midst of deep recession, with unemployment already at 23.6% and rising fast, and without offsetting monetary and exchange rate stimulus."

"Yes, markets are punishing Spain, not Europe's politicians, but that is because bond vigilantes know that the European Central Bank will be very slow to rescue an EMU "rebel" with fresh bond purchases. Agile funds do not want to be left holding Spanish debt while the country is hung out to teach it a lesson."

"In the meantime, the real M1 deposits have contracted at a -10.9% annual rate over the last six months in the peripheral bloc of Italy, Spain, Portugal, Greece, Ireland, a leading indicator of trouble later this year. "The rate of contraction has accelerated, not slowed," said Simon Ward from Henderson Global Investors."

"As for the US, its economy in uncomfortably close to stall speed, and real M1 money has levelled out over the last four months. The underlying pace may not be much more than 1.5%. The US Economic Cycle Research Institute (ECRI) is sticking to its recession call, describing the warning signals as "pronounced, persistent, and pervasive."

"We will see what happens as markets prepare for the "massive fiscal cliff" at the end of the year – as Ben Bernanke called it – when stimulus wears off and a tax rises kick in automatically, and as the delayed effect of Brent crude at $125 feeds through." Ed: Ben is conditioning markets to blame others when the crash arrives.

"Fed hawks are making much noise, as they did in the Spring of 2008, but Goldman Sachs says they will be forced into QE3 whatever they now hope, probably in June. Hence its call that gold will rally to fresh highs of $1,940 over the next year. Interest rates are falling in real terms as inflation creeps up, and that may be the biggest single driver of gold prices. "Even without QE3, the Fed is still ultra-accommodative and they are about to reverse this," said James Steel, HSBC's gold guru."

"Mr. Steel said the "marginal cost" for mining gold is around $1,450. That is when miners leave low-grade ore in the ground and weaker producers shut down. It creates a natural floor of sorts. Besides, 'peak gold' is a more immediate reality than 'peak oil', he said. There has been no equivalent to the shale revolution seen in oil and gas. World output has been stuck for a decade at around 2700 tons a year despite a fourfold increase in investment. There are no great finds, no Wittwatersrand this time."

"There will come a day then the bullion super-cycle finally sputters out. My guess is that it will come once Europe's monetary system has returned to a viable footing – either by real fiscal union, or by break-up – and once China's RMB becomes fully convertible and takes it place as the third pillar of the world's currency system. We are not there yet." Editor; 6-12 more years to go in this mess. -Ambrose Evans-Pritchard The Telegraph

This posting includes an audio/video/photo media file: Download Now

Silver and Gold Guarantee Freedom

Posted: 20 Apr 2012 09:00 PM PDT

Silver Seen Over $40/oz in 2012 – Store of Value Remains Undervalued

Posted: 20 Apr 2012 05:06 PM PDT

gold.ie

Arensberg Video - Bargain Hunter’s Paradise – For Junior Exploration Companies

Posted: 20 Apr 2012 04:33 PM PDT

HOUSTON -- Judging by the plethora of articles and comments out this week from the giants of the resource industry; people like Eric Sprott, James Turk, Frank Holmes, Don Coxe and John Hathaway to mention but a few of many more, there is spontaneous unanimity among the industry elders that gold stocks have been sold off to an extreme low level relative to the underlying metal. We agree. Our own contribution to that idea (in chart form) is just below this post, tagged onto the disaggregated COT report recap at this link.

The general consensus of the gold market masters is that the major mining share indexes are now more attractive relative to gold than they were during the depths of the 2008 panic and probably ever. (Our chart of the XAU in gold terms linked above pretty much confirms the "ever" part of that sentence.)

But it's not just the Big Miners that have been so mistreated by the markets. As much as they have been pummeled, the smaller, less liquid and more speculative junior miners and explorers make the Big Miners look like they are doing great. That is; "The Little Guys," as we call them, have been massacred in a 14-month period of successive waves of negative liquidity. (Money flow away from the sector like a falling tide, lowering all boats.) The entire sub-sector is in the midst of the capital exodus bleed-out. The flow of wealth out of the space has reached the point of near-absurdity in a $1,600 gold/$31 silver environment.

Below is a brief video hosted by our own Tracy Weslosky on the subject of what we see as a rare opportunity developing today in the junior mining space – so much so that we have even sold a small portion of our own physical gold in order to be in position to take advantage of issues we track that get irrationally driven down to preposterously low levels. We Vultures do so secure in the knowledge and belief that no matter how distressingly wicked liquidity vacuums can get, they are always a temporary event, soon followed by the opposite condition of positive liquidity (more buyers than sellers, like a rising tide lifting all boats). At least that has always been the case and we see no reason to think or expect otherwise today.

Continued, with video on the next page…

Vulture Paradise

The selling orgy for small resource companies has fed upon itself in cascade fashion, taking no prisoners and serving up what we view as a delicious "Vulture-Style Bargain Banquet." (Not for everyone, not for the risk averse among us and certainly not for the fearful.)

The video below is for those who can actually "walk the walk" of a Vulture Speculator (not very many can). It is for those who get energized and excited by baby-out-with-the-bathwater, low-volume, high-percentage plunges in a sure-enough full-blown buyer's strike (overwhelmingly more sellers than buyers at any price) -- like right now for many of the promising junior exploration companies. It is for those who enjoy buying the fear, panic and disgust of others and can handle extreme volatility afterward -- long enough for the liquidity tide to return, however long it takes. In short (no pun), it is for fully fledged and aspiring Vulture Speculators.

The YouTube introduction for the video reads:

"April 20 2012 -- Tracy Weslosky, CEO of Pro-Edge Consultants Inc. (www.pro-edge.com) interviews Gene Arensberg, Editor and Publisher of the GotGoldReport (www.GotGoldReport.com) about the current "bear trap" market. Gene explains that a bear trap market occurs when "the chart pattern is breaking down and then there's this big reversal and it starts rising instead." When asked about the junior resource sector and whether this is a good time to buy stock, Gene says, "This is a bargain hunter's paradise right now, especially for the small, less liquid, speculative junior miners." Since about February 2011 these sectors have experienced steady negative liquidity, with all sellers and no buyers and when this happens the stock prices go to "ridiculous cheap" levels. Gene explains why Timberline Resources Corporation (TSXV: TBR) is a ridiculous cheap stock and explains his criteria for identifying his stock picks. Under these market conditions Gene tells us he is selling his gold to acquire stocks at bargain prices. He concludes with his outlook on the gold and silver markets. To gain access to Gene's investment charts and analytical notes subscribe to Got Gold Report."

Disclosure: Timberline Resources is a Vulture Bargain Candidate of Interest and members of the GGR team are actively accumulating TLR and hold speculative long positions in the company.

The Other Side Of The Gold And Silver Coin

Posted: 20 Apr 2012 01:36 PM PDT

from zerohedge.com:

We have long-discussed the currency debasement, fiat-fiasco thesis for owning hard assets and only last night noted the discussion between Biderman and Sprott on the practicalities of this plan. What we found interesting was this week we have seen a number of quite bearish articles on the precious metals – most notably Bloomberg's chart-of-the-day has had two notes citing inventory build for Silver's imminent demise and lagging futures open interest as a sign of investor's losing conviction in gold. Given that we are fair-and-balanced we thought it worth sharing these technical insights and perhaps reflecting on what Eric Sprott noted (and Dylan Grice has previously highlighted) as the only thing that could break his 'hard asset' thesis – that the political and banker elite "come to their financial senses".

Keep on reading @ zerohedge.com

Top Undervalued High Conviction Outperforming Picks From Eaton Vance's $47 Billion Q1 Filng

Posted: 20 Apr 2012 01:30 PM PDT

By Ganaxi Small Cap Movers:

Boston-based Eaton Vance Corp. (EV) offers mutual funds, tax-managed funds, closed-end funds, variable trust funds, managed accounts and wealth management services for individual and institutional investors as well as high net-worth and family office investors. Founded in 1924 as Eaton & Howard, prior to its 1979 merger with Vance, Sanders & Company, it is one of oldest investment management firms in the U.S. Eaton Vance Management has over $47.2 billion in 13-F assets per its latest Q1 filing with the SEC on Wednesday.

The assets are well-diversified into over 1,300 positions, with over 90% deployed in large-caps, and most of the remaining 10% in mid-cap equities. With such a well-diversified portfolio, it is understandable that it holds a position in most large-cap U.S. traded equities; hence, looking at just its holdings, or even its largest dollar moves would not be that useful. We focused instead on its high conviction bets,

Complete Story »

By the Numbers for the Week Ending April 20

Posted: 20 Apr 2012 01:11 PM PDT

This week's closing table.

If the image is too small click on it for a larger version.

That is all for now, but there is more to come.

FOMC Fed Meeting: More QE?

Posted: 20 Apr 2012 11:30 AM PDT

These days, it's not so much as what the Federal Reserve does, or what it says, that impacts market behavior—it's largely what people, especially large and institutional investors, think it's going to do. (See the WealthCycles.com article Fed to Utilize Power of Words for more on this. Right now, big investors are betting big on the Fed's undertaking a third round of quantitative easing, or QE3, as reported by Financial Times earlier this week. So does that mean this is what the FT wants its readers to believe?

From the WealthCycles.com article, Round 2 of Quantitative Easing:

Description:

Gold Prices and Stock Prices go where now? -Waiting on the Fed

Gold and Silver Disaggregated COT Report (DCOT) for April 20

Posted: 20 Apr 2012 11:26 AM PDT

HOUSTON -- This week's Commodity Futures Trading Commission (CFTC) disaggregated commitments of traders (DCOT) report was released at 15:30 ET Friday. Our recap of the changes in weekly positioning by the disaggregated trader classes, as compiled by the CFTC, is just below. Following that is a chart which suggests that it might be time to sell some gold - to buy gold stocks!

In the DCOT table below a net short position shows as a negative figure in red. A net long position shows in black. In the Change column, a negative number indicates either an increase to an existing net short position or a reduction of a net long position. A black figure in the Change column indicates an increase to an existing long position or a reduction of an existing net short position. The way to think of it is that black figures in the Change column are traders getting "longer" and red figures are traders getting less long or shorter. All of the trader's positions are calculated net of spreading contracts as of the Tuesday disaggregated COT report.

(DCOT Table for Friday, April 20, 2012, for data as of the close on Tuesday, April 17. Source CFTC for COT data, Cash Market for gold and silver.)

Continued…

Vultures, (Got Gold Report Subscribers) please note that updates to our linked technical charts, including our comments about the COT reports and the week's technical changes, should be completed by the usual time on Sunday evening (around 18:00 ET).

As a reminder, the linked charts for gold, silver, mining shares indexes and important ratios are located in the subscriber pages. In addition Vultures have access anytime to all 30-something Vulture Bargain (VB) and Vulture Bargain Candidates of Interest (VBCI) tracking charts – the small resource-related companies that we attempt to game here at Got Gold Report. Continue to look for new commentary directly in the charts often.

Below is a chart from an upcoming report to subscribers as kind of a sneak peak.

Buying gold at discount

Posted: 20 Apr 2012 11:14 AM PDT

Buying gold at discount

by WILL BANCROFT in GOLD BULLION, ORIGINAL COMMENTARY

China has been trying to diversify her foreign exchange reserves for some time. We are all familiar with the figures released by the likes of the World Gold Council about Chinese gold investment demand, as well as statistics showing official gold imports through Hong Kong into the Chinese mainland. Chinese reserves contain only 2% gold, compared to nearly 10% for India and Russia, and figures in the 70th percentile for developed nations such as the USA and Germany.

China is getting out of paper and into gold as fast as she can, because she simply doesn't have enough of old yella'. Any effort to internationalise the RMB will not work until it is a trusted enough currency. One of the key ways to achieve trust is larger gold reserves.

It is not just the PBOC that is on the gold rush, since opening up the domestic gold market individuals are also allowed to invest in gold. The Chinese still have a limited range of savings and investment options open to them (one of the reasons why so much money flowed into their property bubble), and gold continues to shine when other investment options (especially the Chinese stock market) are being questioned.

Gold above ground

However the physical gold market is not a deep and liquid market like the US treasury market. Therefore China is not able to rebalance her portfolio out of sovereign debt quickly without causing thegold price to 'gap up' whilst sending ripples through the gold market.

The Chinese authorities have even urged caution about taking up the IMF's remaining gold. In early 2010 a senior official from the China Gold Association was quoted by Reuters: "It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility."

China knows that she must tread carefully in the physical gold market, for fear of her bidding power sending the price upwards before she has been able to accumulate enough gold in the PBOC's coffers. China does not want to be chasing the gold price.

For this reason she is very happy to watch current weakness whilst apparently keeping bids in the market at the $1,500, $1,550, and $1,600 level.

Nonetheless China is accumulating physical gold, often via her Sovereign Wealth Funds, and other proxies, so that her bids are not open for all to see. Large above ground inventories of physical bullion are difficult to find outside of central bank vaults (even when they do keep it inside their own borders), or even at a smaller scale the ETFs, and COMEX inventories.

Gold in the ground

Where can China turn to firstly get her hands on more gold, but secondly without sending the gold price soaring?

The answer is increasingly being found in gold mining.

By buying gold mines, and thus accumulating the produced gold before it hits the international market, China is able to purchase gold below the spot gold price. China is just taking on the mining risk to do so.

Average extraction costs to mine gold have been rising, but not as fast as the gold price, making owning gold miners an increasingly efficient way to stock up your central bank's vaults. If Chinese controlled gold mines were producing at an average cost of $657 in 2011 alone her gold accumulated via this strategy for that year was sourced at a discount of $915/ounce, or 58%.

China is accumulating gold at a discount through her gold mines.

China herself is the world's largest producer of gold, but none leaves the country. Chinese gold mining might be on a huge scale, but it cannot provide sufficient bullion for domestic demand. "The shortage in supply has been deepening very fast; from 48 tonnes in 2007 to 400 tonnes in 2011," said Song Xin, chief executive of China Gold International, the listing unit of China National Gold, one of the country's biggest gold producers.

Foreign conquest for gold

If China intends to acquire more gold via this mining strategy she is thus forced to reach beyond her borders and buy foreign gold mines.

Dr. Alex Cowie, writing for Money Morning Australia, sees Chinese purchases of foreign gold mines as a trend that is here to stay, and likely to grow. Whilst another recent article, in the Australian, finds that Chinese acquisitions of gold miners are just the tip of this iceberg. Dr Cowie also believes this is a good thing for gold investors, citing the long life of these mines as likely to mean that China is taking a long term view when it comes to gold. The Chinese are renowned for being long term thinkers, and there is no reason why her gold strategy should not be long term too.

A mini-chronology of recent Chinese pursuits of foreign miners goes some way to substantiating this trend:

August 2011: Hong Kong based parent of Stone Resources Australia engages in a struggle with Focus Minerals for control of Crescent Gold, an Australian gold miner.
November 2011: Baiyin Nonferrous Group moves to complete takeover of South African miner, Gold One International.
December 2011: China Gold International Resources Corporation buys a gold mine in Central Asia, and is reported to be looking at Canada and Mongolia for its next target.
December 2011: Shanghai based investors acquire a majority interest in Zara Mining, an Eritrean gold project.
December 2011: Chinese interests take control of A1 Minerals, now renamed Stone Resources Australia.
April 2012: Zijin Mining Group bid for Australian gold miner, Norton Goldfields.
April 2012: Sovereign Gold partners with Jiangsu Geology & Engineering who will pay $4m for 30% of two gold tenements in Australia.

Beyond the above, Yunnan Tin also owns 12.3% of YTC Resources, which is developing the Hera goldmine in Australia. Australia is in the geo-political spotlight and a favoured option for China, but with US marines now stationed in Darwin in the Northern Terrorities this geo-political struggle will be fascinating to behold.

Gold investors should watch China's continuing reach for foreign gold mining assets with great interest. If her currency and gold plans are really long term, this trend would appear one only set to strengthen. Whilst China is still buying such mines, her presence in the gold market should continue to stay strong. The fact is that to effectively rebalance her reserves China needs to buy thousands of tonnes of gold. Given a small physical gold market that will have to be carefully navigated, and that not much more than 4,000 tonnes of gold are mined each year, a limited quantity of quality global mining assets will likely have to be pursued by Beijing.

China's currency predicament may be even more acute than those of Brazil, India and Russia, but it will be fascinating to see if these other BRIC nations join China's pursuit of global gold mining assets.

Want to diversify your own portfolio like China? Buy gold bullion in minutes…

Today’s Winners And Losers

Posted: 20 Apr 2012 11:08 AM PDT

GDX declined by -1.05% while GDXJ declined by -0.27% and SIL declined by -0.57%

Here are today's best performing Silver and Gold:

The European Debt Crisis Never Went Away

Posted: 20 Apr 2012 10:05 AM PDT

The half-life of solutions to Europe's debt problem is getting ever shorter.

Recent hopes have relied on the ostensible success of the European Central Bank's ("ECB") LTRO - Long Term Refinancing Operation, more appropriately termed the Lourdes Treatment and Resuscitation Option. In December 2011 and February 2012, the ECB offered unlimited financing to European banks at 1% for 3 years replacing a previous 13-month program. Banks drew over euro 1 trillion under the facility - euro 489 billion in the first round and euro 529.5 billion in the second. Participation amongst European banks was widespread, especially in the second round where around 800 banks used the facility.

The funds borrowed were used to purchase government bonds, retire or repay existing (more expensive) borrowings and surplus funds were redeposited with the ECB. The first entailed banks borrowing at 1% purchasing higher yielding sovereign debt, such as Spanish and Italian bonds that paid 5-6%. This allowed banks to earn profits from an officially sanctioned carry trade - known as the "Sarko trade", after the French President.

The LTRO provided finance for both beleaguered sovereigns and banks, which need to raise around Euro 1.9 trillion in 2012. It helped reduce interest rates for countries like Spain and Italy. It also helped banks covertly build-up capital, via the profits earned through the spread between the cost of ECB borrowings and the return available on sovereign bonds.

The LTRO was very clever, effectively monetising debt (printing money) without breaching European Treaties or the ECB's charter.

The sheer weight of money - at one €500 note per second it would take 63 and a half years to count €1 trillion- proved successful. Financial market sentiment was overwhelmingly positive, feeding a large rally in global stock markets and other risky assets.

However, as subsequent events exposed, there were always reasons to be cautious.

The LTRO facility is for 3 years. It assumes that the conditions will normalise within that period. It is not clear what happens if that is not the case.

Economist Walter Bagehot advised that in a crisis central banks should lend freely but at a penalty rate and secured by good collateral. The ECB does not appear to have quite understood Bagehot's commandment. The rate is below market rates, amounting to a subsidy to banks. The ECB and Euro-Zone central banks have loosened standards, agreeing to lend against all matter of collateral. In effect, the ECB is now functioning as a financial institution, assuming significant credit and interest rate risks on its loans.

If the European Financial Stability Fund ("EFSF") was a Collateralised Debt Obligation, the ECB increasingly resembles a highly leveraged bank. The ECB balance sheet is now around euro 3 trillion, an increase of about 30 percent since Mario Draghi took office in November 2012. It is supported by its own capital (scheduled to increase to euro 10 billion) and the capital of Euro-Zone central banks (Euro 80 billion). This equates to a leverage of around 38 times.

Critically, the LTRO cannot address fundamental issues.

It does not reduce the level of debt in problem countries, merely finances them in the short-run. Europe is relying on its austerity program to reduce debt. As Greece demonstrated and Ireland, Portugal, Spain and Italy are demonstrating, massive fiscal tightening when combined with private sector reduction in debt merely puts the economy into recession. It results in an increase not decrease in public debt.

Ultimately, it may be necessary to go Greek. Debt restructuring may be needed to achieve the required reduction in the public borrowings for many countries. Interestingly, financial markets price the risk of a Spanish debt restructuring at around 30-35%.

The LTRO does not improve the cost or availability of funding for the relevant countries.

Government bond purchases financed by the LTRO artificially decreased the interest rates for countries, such as Spain and Italy. Unless additional rounds of LTRO are offered, interest rates are likely to return to market levels.

The real increase in liquidity available to support sovereign borrowings was lower than euro 1 trillion, with perhaps only one third directed to this purpose. Banks used the bulk of funds to repay their own borrowings. As debt becomes due for repayment through the year, banks may need to sell sovereign bonds purchased with the funds drawn under the LTRO. Unless market conditions normalise and banks regain access to normal funding quickly, this will place increasing pressure on sovereign funding and its cost.

With European countries facing heavy refinancing programs in 2012 and beyond, the ability to raise funds at reasonable rates remains important. Existing bailout programs assume countries like Portugal and Ireland will be able to resume financing in money markets normally from 2013.

Events complicate the ongoing commercial financing of European banks and sovereigns. The need for collateral to support ECB funding makes other investors de facto subordinated lenders reducing their willingness to lend or increasing the cost. In the Greek restructuring, European Central Banks and official institutions were exempted by retrospective legislation from loss while other investors suffered 75% writedowns. This has reduced investor willingness to finance countries considered troubled.

European banks already have large exposures to sovereign debt, which has increased since the start of the LTRO. Spanish banks are thought to have purchased around euro 90 billion, a jump of around 26% to euro 220 billion. Italian banks are thought to have purchased euro 50 billion, a jump of 31% to euro 270 billion.

Similar rise in government bond holding have occurred in Portugal and Ireland. As interest rates on these bonds have increased, buyers now have large unrealised mark-to-market losses on these holdings.

As with the sovereigns, the LTRO does not solve the longer term problems of the solvency or funding of the banks, which now remain heavily dependent on the largesse of the central banks. It is government sponsored Ponzi scheme where weak banks are supporting weak sovereigns who in turn are standing behind the banks - a process which can be described as two drowning people clinging to each other for mutual support.

The LTRO has not materially increased the supply of credit to individual and businesses. The money is being used by banks to finance themselves as they reduce borrowings by selling off assets to reduce dependence on volatile funding markets. The LTRO does little to promote desperately needed economic growth in the Euro-Zone.

The initial euphoria faded as a number of concerns re-emerged, manifesting themselves in the form of increasing rates on Spanish and Italian debt which now hover around the key level of 6.00% per annum.

Increasingly poor economic growth figures from Europe pointed to a lack of growth and progress on debt reduction.

Attempts to reduce Spain's deficit has proved problematic. Both Spain and Italy have deferred balancing their budget in the face of a deteriorating economic outlook. It is unclear which markets fear most -Spain and Italy not achieving its targets through savage spending cuts resulting in higher debt or achieving its target putting their economies into an even deeper recession and increasing debt.

The difficulties faced by Spanish Prime Minister Mariano Rajoy and Italian Prime Minister Mario Monti implementing labour reforms have highlighted the resistance to structural change. Increasing protests in many countries point to the political difficulty in implementing the agreed austerity measures.

The problems of the banking system have resurfaced. Spanish banks bad and doubtful debts have increased, as the Iberian property bubble deflates.

Increased reliance by Spanish and Italian banks on financing from central banks has heightened concern. Spanish bank borrowings from the ECB increased to over euro 300 billion in March from euro 170 billion in February. Lending to Spanish banks now accounts for nearly 30% of total ECB lending. Italian banks have also been heavy borrowers, a reminder of the linkage between banks and their sovereigns.

Reluctance to increase the inadequate European firewall sufficiently to deal with potential problems means policy options are limited. At around euro 500 billion in available funds, the bailout fund is short of the euro 1 trillion sought by the International Monetary Fund and G-20 or euro 2-3 trillion thought necessary by financial markets. German leaders have repeated their unwillingness to increase the fund to the necessary size, arguing, probably correctly, that no firewall will be adequate.

Poorly judged and ill-timed comments by ECB President Draghi about the absence of need for further LTRO funding and planning for an exit drew attention to the fragility of the position and ongoing risks. The comments were driven by Bundesbank unease at the ECB's policy. The market reaction forced Mario Draghi to retract comments about an early exit from emergency funding. As rates continued to rise, Benoit Coeure, the French ECB board member, promoted a new round of direct purchases of Spanish bonds to reduce yields.

The failure of the LTRO to decisively solve European problems is unsurprising. Confidential analyses prepared by European Union officials and distributed to ministers meeting at the Copenhagen meeting in March 2012 concluded that the €1 trillion in loans was a "reprieve", rather than a solution.

Rather than take the time afforded to move on other fronts, European leaders reverted to type. Spanish Finance Minister Luis de Guindos opined that: "We are convinced that Spain will no longer be a problem, especially for the Spanish, but also for the European Union". It was eerily reminiscent of his predecessor Elena Salgado who almost exactly one year earlier on 11 April 2011 said: "I do not see any risk of contagion. We are totally out of this". The optimism was echoed by French President Nicolas Sarkozy who was confident that the Euro-Zone had "turned the page". Italian Prime Minster Mario Monti stated that the "financial aspect" of the crisis had ended.

The European debt crisis is not over. Fundamental problems - debt levels, trade imbalances, problems of the banking sectors, required structural reforms, employment and economic growth - remain.

Beyond the German favoured remedy of asphyxiating austerity to either cure or kill the patient, Europe is rapidly running out of ideas and time to deal with the issues. As the real economy stalls and debt problems continue, the most likely policy actions may come from the ECB - an interest rate cut to near zero and further liquidity support, perhaps even full-scale quantitative easing. Bailout funds may be channelled to recapitalise Spanish banks, as means of helping Spain without resort to a full-blown bailout package. It is doubtful whether any of these steps will prove decisive.

European politicians and citizens want a quick return to a period Spaniards now refer to as "cuando pens&cute;bamos que éramos ricos", which translated into "when we thought we were rich". Official policies and action are focused on deferring rather than dealing with the problem. Unfortunately, that means the inevitability of meeting the same problem somewhere down the road.

John Maynard Keynes observed in The Economic Consequences of the Peace that each action designed to bring closure to one crisis sows the seeds of greater economic, political and social problems. Europe is living the truth of that statement one day at a time.

Regards,

Satyajit Das
for The Daily Reckoning Australia

Satyajit Das is author of Extreme Money: The Masters of the Universe and the Cult of Risk. He will be at the Sydney Writers Festival presenting on End of Ponzi Prosperity (Friday 18 May 2012) and in conversation with Phillip Adams on The End of Trust (Saturday 19 May 2012)

From the Archives...

What the News on Bond Yields Say About the "Resolved" Eurozone Crisis
2012-04-13 - Eric Fry

The Art of Selling Stocks
2012-04-12 - Chris Mayer

Misguided Faith in an Economic Recovery
2012-04-11 - Joel Bowman

Beware the Big Government Debt Switcheroo
2012-04-10 - Dan Denning

The Discount Rate: Borrowers, Lenders and Bonds
2012-04-09 - Nick Hubble