Wealth.net

31
Jan
Check To Obama: Lloyd To Get $100 Million Bonus

Now that’s some serious pocket change you can believe in. If correct, Blankfein’s 2009 bonus will be over 30% greater than his $68 million take home in 2007, the previous all time record year for Wall Street. Check to you, Mr. President: surely this will merit some more populist rhetoric and even more decisive complete lack of action on your behalf. From the Times of London:

Goldman Sachs, the world’s richest investment bank, could be about
to pay its chief executive a bumper bonus of up to $100 million in
defiance of moves by President Obama to take action against such
payouts.

Bankers in Davos for the World Economic Forum (WEF) told The Times
yesterday they understood that Lloyd Blankfein and other top Goldman
bankers outside Britain were set to receive some of the bank’s
biggest-ever payouts. “This is Lloyd thumbing his nose at Obama,” said
a banker at one of Goldman’s rivals.

Goldman Sachs is becoming the focus of an increasingly acrimonious
political and financial showdown over the payment of multimillion-pound
bonuses.Last week the US President described bonuses paid out by some
banks as “the height of irresponsibility” and “shameful”.

“The American people understand that we have a big hole to dig
ourselves out of, but they do not like the idea that people are digging
a bigger hole, even as they are being asked to fill it up,” he said
last week.

If indeed the bonus number is correct, this is a slap not only in the face of the president, of Volcker, not to mention the other clowns in the economic advisory circle, but all of America’s taxpayers.

A bumper payout for Mr Blankfein would come after discussions by
Goldman’s rivals in Europe to limit executive pay in order to appease
politicians and the public failed last week. Joseph Ackermann, the
chairman of Deutsche Bank, floated the idea of a remuneration cap at a
private meeting of top bankers in Davos on Thursday, but failed to gain
sufficient support. Last night it appeared that Deutsche had abandoned
the plan and decided to pay some of its own top executives bonuses of
millions of pounds.

The possibility of a bonus cap was discussed at a recent meeting
between Alistair Darling, the Chancellor, and top executives from
Morgan Stanley, JPMorgan, Standard Chartered, Citigroup and Barclays
Capital. A banking source said it quickly became apparent at that
meeting that a bank-led pay cap would be unenforceable because rival
bankers would not stick to any agreement. “These guys have been rivals
for years and they just don’t trust each other to do it,” said one
source who was at the meeting.

In other news, the Cessnas are fueled and ready, the beach houses in non-extradition French Polynesia islands are stocked with Red Bull (for those Goldman HFT traders who just… can’t…quit), and the people are about to almost bring the picks and shovels to Wall Street. Almost. But not quite. After all, that 301(k) is up by a whopping 20% last year: surely the good times will roll for ever.

by Tyler Durden via zero hedge
http://www.zerohedge.com/article/check-obama-lloyd-get-100-million-bonus

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The last thing that the fixed income market needs now, with ever greater uncertainty out of European bond land, is weakness where it hurts the most: the US balance sheet. Yet last Thursday’s H.4.1 report indicated something which could be more troubling than even Greece’s credit crisis morphing into a liquidity one, namely, that foreign central banks’ UST holdings at the Fed declined for the first time in over two years.

What could be precipitating this? Quite a few factors have emerged recently:

1) A seemingly endless supply of Treasuries (especially the 2,5, and 7
Y) for which the indirect take down continues to be over 50%. This alone is
confusing in light of the custody decline.

2) Concerns over developed country sovereign risk: last week S&P downgraded it Japan outlook and issued a scathing report on UK sovereign and financial risk.

3) Kansas Fed’s Hoenig dissent on tightening monetary policy. This is the proverbial first shot across the Fed’s bow. Hoenig’s “believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.”

4) Economic conditions have taken a decidedly bearish tone. JPM’s EASI index of economic surprises (lower means greater amount of negative surprises) just took a dramatic turn lower.

5) Flattening and outright inversion in a variety of financial corp spreads in the 5s10s bracket.

6) AAA CMBS spreads widened by 30 bps. If sovereign risk is in question, why should insolvent REITs be any better?

Regardless of which specific set of news may have precipitated the January Treasury effect, this is truly a scary observation, which however does not jive with the indirect take down continuing to be as strong as ever: if indeed the custody data is correct, then all the indirect bid data has to be taken with not just a dash of salt, but as Rosenberg says, an entire salt shaker.

by Tyler Durden via zero hedge
http://www.zerohedge.com/article/foreign-central-bank-treasury-holdings-fed-decline-january-first-time-years

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With the euro having dropped substantially from a high of around $1.51 to less than $1.40 in the span of a few short months, it has sent gold buyers looking for cover, mostly as a function of the linear (and at times sigmoidal) inverse correlation between gold prices and the DXY which throughout 2009 has held surprisingly strong. Yet will a dollar scramble prove that the recent flight to gold has been premature? BofA believes that while the near-term implications for gold are as of yet undecided, relying on both € (bearish) and risk (bullish) signals, the long-term drivers for gold should be price supportive, especially for EUR-based investors. Proper positioning can be adopted using OTM gold calls, which are not only no longer as rich as they were a mere month ago, but would benefit substantially should Greece indeed follow through with an actual default and result in a flaring of all risk indicators, further precipitating a flight to euro alternatives, among which the dollar, and gold, are dominant.

Bank of America suggests:

In the case of an actual default, even an orderly one, increased systemic risk is likely to support gold prices as investors look for a safe haven. The more disorderly the default turns out to be, the more upside we see on gold. However, if Greece just muddled through the crisis or ends up being bailed out, gold may not fare that well. If the Greek problem does not spread to other countries in the Euro area, gold prices are likely to suffer due to a weaker EUR against the USD.

[T]he long-term consequences of Greece’s debt crisis for gold prices are clearly constructive, in our view. Emerging Market central banks are ever more aware that gold is one of the few viable alternatives to the USD. A deterioration of Greece’s creditworthiness, even if bad for the EUR, should support gold prices in the long run, in our view.

The main question, as discussed previously, is how will EM central banks decide to allocate their trade surplus FX reserves. Contrary to some gold-bearish perceptions, it is very likely that an increasingly deteriorating Greek situation, will force EM CBs not only to unwind € holdings and use the resulting capital to purchase dollars, but to augment their gold reserves as well. Thus the price determining factor will be decided in the marginal scramble for dollars versus gold.

Emerging market central banks (EM CB) are ever more aware that gold is really one of the few viable alternatives to the USD. Top holders of currency reserves like China, Russia or India will likely need to increase their exposure to gold over the coming months and years as the value of fiat currency reserve holdings like the USD or the EUR comes into question. The obvious problem with diversification is that there is simply not enough gold to go around. So a deterioration of Greece’s creditworthiness, even if negative for the EUR, should be supportive of gold prices in the long run, in our view.

And with gold prices still, presumably, reflective of a dollar-destruction rampage courtesy of the Federal Reserve, what would be the proper way to express a cheap bullish bias toward a spike in gold prices should a risk-flaring episode come back once again? BofA suggests that clients look to gold OTM calls, which are no longer a ripoff compared to ATM calls. In fact the call skew in gold, which still bullish, is half as expensive as it was on November 20, 2009. Yet investors most likely to benefit from such appreciation would likely not be USD-based speculators but those found in a EUR regime.

In our view, gold OTM calls look appealing for investors willing to play a potential Greek default through the gold market. Volatility levels have been declining and 3M ATM implied vols are now trading at levels last seen in late 2007. While the gold options market continues to price in appreciation, together with the CNY and the JPY, the call skews in gold have become less pronounced. That is, OTM calls are no longer as rich as they used to be when compared to ATM calls. In the event of a default, gold prices and volatility are likely to spike. If Greece’s problems are contained and the EUR (and gold prices) suffers, investors are protected on the downside. USD-based investors may find gold to be an ineffective hedge in this event. However, EUR-based investors could, in our view, hedge by buying gold calls in EUR, as the price of gold in EUR terms should remain well supported.

The biggest concern for outright gold longs will be whether the transfer in mentality from one of continuous dollar debasement in which the demand would come from traditional USD-based investors seeking to hedge and capture stock gains by allocating increasing capital to gold, to a perspective of gold as an increasing investment allocation for central banks, who seek to abandon the euro as a capital flow and pursue less risky exposure. Should this increased central bank demand be coupled with lack of incremental selling by those who already are in possession of Gold spot and future positions, and the probability for increasing gains in the fiat-alternative seem to accelerate. Lastly, for some additional insight into the crystallizing plight of the German government vis-a-vis Greece, as well as the increasingly torn fabric of the European Monetary Union, we strongly recommend the latest piece by Evans-Pritchard, “Should Germany bail out Club Med or leave the Euro altogether?”

by Tyler Durden via zero hedge
http://www.zerohedge.com/article/implications-gold-aftermath-greek-crisis

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When the euro emerged as a consolidated currency over a decade ago, hopes were high that its advent would present a challenge to the USD as the default world reserve currency. Times were different (and much simpler, with shadow banking complexity a tiny fraction of the current $1 quadrillion+ behemoth) and as BofA says, “perception that the euro is well placed to rival the USD as a reserve currency has underpinned the increased euro allocation to a level much greater than the sum of the roles played by its constituent parts. This has been justified on the grounds that the unified European financial markets would offer similar breadth, depth and liquidity to those of the US.” Alas one concept largely ignored was that unlike the US, where there has been one consolidated bond market reflecting the underlying marginal credit and liquidity risks behind the US currency, in Europe “there remain 16 separate government securities markets with very different levels of credit risk and liquidity.” The ongoing Greek crisis has only reminded pundits of this phenomenon all too well.

What were the primary reasons for the euro’s steady climb over the past decade? The key factor has likely been emerging markets central banks’ desire to diversify their FX holdings away from dollars and into euros. As can be seen on the chart below, EUR reserves have grown from 20% of total in 1999 to 30% by 2009.

Another euro-benefiting trend has been the the flow diversification, once again as a result of EM Central Banks, which “sell down a portion of USD-denominated inflows in order to keep the currency composition of portfolios stable.” This forms a feedback loop whereby increasing perception of euro strength led to further accumulation of euros, and constant euro-favorable rebalancing of portfolios.

As pointed out above, Central Banks are now very likely to reevaluate their €-centric FX flows, in light of the just uncovered fissures in the eurozone. As BofA 1 suggests: “the euro’s weight in global FX reserves may now begin to slip back on a trend basis, with the JPY, gold, CAD and even the USD benefiting.”

Ironically, in order for Europe to regain its prior lustre and for the Euro to come out a winner of sorts from the Greek debacle, would be to follow the Fed’s approach to the 2008 financial collapse in the US. Which would mean a rapid and convincing bail-out of the country (contrary to what EU bureaucrats have been posturing, at least so far) instead of a slow, disorderly “muddle through” or, worst of all, an actual default, whether orderly or disorderly.

In quantifying the implications for the Euro as a function of the four different possible outcomes for Greece (for more information on the Greek bail-out flow chart, see our thoughts from yesterday), BofA provides the following useful matrix: unfortunately for the Federal Reserve, just one of the outcomes is €-friendly.

1) Muddling through

If Greece adjusts gradually, concerns about its fiscal situation would likely linger as a euro negative over the near-term – contributing to the weakness already built into our $1.28 year-end forecast – but an escalation that drives EUR-USD rapidly into materially undervalued territory would be avoided. Fair value estimates from G10 FX Strategy and the PARS group cluster in the $1.25 to $1.30 area.

2) Last minute bail-out

A failure of the Greek government to avert further fiscal deterioration that brings the country to the brink of default would likely see the euro under increasing pressure as speculation over an eventual break-up mounts. The euro is likely to stage a relief rally once an EU bail-out is agreed. Meaningful steps toward a full fiscal union would be euro positive.

3) Orderly default

Default by Greece on its debt – even if Greece remained within the Eurozone – would likely play as a material euro negative, in our view. In this scenario the investment universe for EM central bank FX reserve managers would narrow very sharply to the government bonds of those nations viewed as irrevocably part of a core DEM zone. The portfolio allocation to EUR would therefore fall sharply.

4) Disorderly default

The FX implications of a disorderly default scenario are similar to that of orderly default except that pressure on EUR-USD would likely be exacerbated by very material safe haven demand for the USD. Global financial markets are likely to react in a highly negative fashion to a disorderly default.

One has to keep in mind that the endogenous issues now plaguing the Greek economy find parallels in all of the PIIGS. In essence, what this means is that the eurozone is starved for a devaluation of the euro, and will do anything it can to achieve it, even, as we have claimed previously, throwing Greece to the wolves. The irony is that by inducing a rush out of euro-denominated FX reserves, the ECB would be doing the only thing in its power to facilitate the growing external imbalance problem now plaguing virtually the entire periphery of the eurozone. As BofA notes:

Beyond the immediate fiscal problem, the potentially more intractable issue is that, since 1999, Portugal, Ireland, Greece and Spain have all experienced a 25% increases in unit labor costs relative to Germany. This has led to the build up of sizeable external imbalances (Chart 17). Ordinarily currency depreciation would kick in help to boost exports relative to consumption and also ease the adjustment via revaluation effects on the national balance sheet. This cannot happen under EMU. Consequently Portugal, Ireland, Greece and Spain are consigned to a period of disinflation relative to the Germanic core of the Eurozone. The market is forcing this adjustment through by inflating funding costs in the periphery relative to the core (Chart 18). The political will to bear this adjustment likely will be tested should unemployment continue to rise. The alternatives are EMU exit or very large fiscal transfers from the core to periphery. Unless and until the situation is resolved we believe the euro’s viability as a reserve currency will continue to be questioned.

Whether all the highlighted factors will finally put an end to the dollar-funded carry trade is unknown, although as more and more traders realize that the USD has an ever-increasing likelihood of becoming the “flight to safety” currency once again, we would not be surprised to see the majority of unbooked carry trade losses be realized (January was a nightmare month for carry traders as we previously pointed out), spurring a major move in the USD-higher, and further punishing the Euro (and the Fed’s debt-inflation strategy). From a geopolitical perspective, the only question is whether this is indeed a transition from the old (dollar weakness) regime to the new (euro weakness), and if so, whether this has occured with the tacit approval of Ben Bernanke. If the answer is no, then the kicking and screaming rush to the currency bottom, as the Fed takes the game to an all new level, will make any UFC championship final seem tame by comparison.

1. “FX Strategy, Greece issue to weigh on EUR-USD, 1/29/2009, Fixed Income Strategy”

by Tyler Durden via zero hedge
http://www.zerohedge.com/article/will-eus-greek-indecisiveness-spell-end-euro-resurgence-and-start-usd-flight-safety

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31
Jan
SIGTARP Releases Quarterly Report To Congress

Some preliminary highlights from the report.

Update on TCW the whole Jeff Gundlach fiasco:

On December 4, 2009, The TCW Group, Inc. (“TCW”) dismissed Jeffrey Gundlach, a “key man” under TCW’s contract with Treasury, who served as TCW’s chief investment officer and the lead portfolio manager of its PPIF. At that time, consistentwith the terms of the Limited Partnership Agreement, Treasury froze TCW’s PPIF and halted all fund transactions.225 On January 4, 2010, TCW withdrew as a manager in PPIP. According to Treasury and TCW, TCW liquidated the approximately $500 million in securities held by its PPIF at a profit and paid back the loan from Treasury with interest. Treasury entered into a winding-up and liquidation agreement with TCW governing the liquidation and distribution of the fund. Treasury will allow TCW’s private investors to re-allocate their funds to a different PPIF of their choice. In this case, Treasury will still provide matching debt and equity investments.

During the formation of PPIP, SIGTARP recommended that Treasury adoptstrict “key man” provisions in its fund manager agreements, which were subsequently included in Treasury’s agreements. The agreements provide that the PPIF obtain the services of the personnel who were promised during the application process. As a result of these important “key man” provisions, Treasury had the option of terminating TCW’s involvement in PPIP because key personnel were no longer running the PPIF.

It appears even the SIGTARP wonders who is in charge:

In sum, Treasury did not conduct direct oversight of AIG’s executive compensation prior to March 19, 2009, but chose instead essentially to defer to FRBNY. This, coupled with Treasury’s subsequent limited communications with FRBNY with respect to that issue, meant that Treasury invested tens of billions of taxpayer dollars in AIG, designed AIG’s contractual executive compensation restrictions, and helped manage the Government’s majority stake in AIG for several months, all without having any detailed information about the scope of AIG’s very substantial, and very controversial, executive compensation obligations. Treasury’s failure to discover the scope and scale of AIG’s executive compensation obligations, in particular at AIGFP, potentially resulted in a missed opportunity to avoid the explosively controversial events surrounding the AIGFP retention payments and the considerable public and Congressional concern that followed. Although SIGTARP saw no indication that Secretary of the Treasury Timothy Geithner (the “Treasury Secretary” or “Secretary Geithner”) had personal knowledge of the AIGFP bonuses until shortly before they were paid, this too suggests a failure of communication. In light of the political sensitivities associated with the bailout of AIG, in his role both as then-President of FRBNY and subsequently as Treasury Secretary, it was necessary that Secretary Geithner be informed by his staff, in a timely manner, ofsuch sensitive and significant information so that he could have sufficient time to explore possible solutions.

On the magical inability to extract concessions out of Goldman, but doing phenomenally well when faced with GM bondholders:

Similarly, the refusal of FRBNY and the Federal Reserve to use their considerable leverage as the primary regulators for several of the counterparties, including the emphasis that their participation in the negotiations was purely “voluntary,” made the possibility of obtaining concessions from those counterparties extremely remote. While there can be no doubt that a regulator’s inherent leverage over a regulated entity must be used appropriately, and could in certain circumstances be abused, in other instances in this financial crisis regulators (including the Federal Reserve) have used overtly coercive language to convince financial institutions to take or forgo certain actions. As SIGTARP reported in its audit of the initial Capital Purchase Program (“CPP”) investments, for example, Treasury and the Federal Reserve were fully prepared to use their leverage as regulators to compel the nine largest financial institutions (including some of AIG’s counterparties) to accept $125 billion of TARP funding and to pressure Bank of America Corporation (“Bank of America”) to conclude its merger with Merrill Lynch & Co., Inc. (“Merrill Lynch”). Similarly, it has been widely reported that the Government, while arguably acting on behalf of General Motors Corporation (“GM”) and Chrysler Holding LLC (“Chrysler”), took an active role in negotiating substantial concessions from the creditors of those companies.

In concordance with data previously prepared by Zero Hedge, SIGTARP is continuing an investigation into whether GM and Chrysler dealerships were closed based on political considerations.

Automobile Dealership Closures: This audit, undertaken at the requests of Senator Jay Rockefeller and Representative David Obey, examines the process used by GM and Chrysler to identify the more than 2,000 automobile dealerships that have or will be terminated in connection with the recent GM and Chrysler bankruptcies. The objectives of the audit are to determine whether GM and Chrysler developed and followed a fair, consistent, and reasonable documented approach; to understand the role of Government in these decisions; and to review to what extent the terminations will lead to cost savings orother benefits to GM and Chrysler.

And some of the just announced investigations:

Selection of Asset Managers for the Legacy Securities Program: This audit will examine the process Treasury followed to select fund managers to raise private capital for joint investment programs with Treasury through the Public-Private Investment Program (“PPIP”). This audit will examine the criteria used by Treasury to select Public-Private Investment Fund (“PPIF”) managers and minority partners, and the extent to which Treasury consistently applied established criteria when selecting fund managers and small, veteran- , minority- , and women-owned businesses…Term Asset-Backed Securities Loan Facility (“TALF”) Collateral Monitors’ Valuation: This audit will examine the Federal Reserve’s valuation determinations used to issue loans under TALF. This audit will assess how the Federal Reserve made valuation determinations, including the role of the collateral monitor, when making decisions regarding the eligibility of the collateral and theappropriateness of the requested loan amounts.

The BofA investigation continues:

SIGTARP continues to play a significant role in the investigations by the Office of the New York Attorney General, the U.S. Attorney’s Offices for the Southern District of New York and Western District of North Carolina, the Securities and Exchange Commission (“SEC”), and the FBI into the circumstances of Bank of America’s merger with Merrill Lynch and its receipt of additional TARP funds under the Targeted Investment Program.

The housing mortgage market is now completely controlled by the Federal Reserve:

The Federal Government is stepping in as the private sector has shed more than $1.5 trillion of mortgage assets in the past two years. Figure 3.2 illustrates this active downsizing by the private sector and the reduction in its exposure as well as some of the accompanying decrease in values due to foreclosures. In short, between net mortgage lending and existing mortgage management, the Federal Government now completely dominates the housing mortgage market, with the taxpayer shouldering the risk that had once been borne by the private sector.

The most comprehensive chart highlighting why the Fed is the new New Century:

The collapse of the GSEs:

A summary of all the artifical home price increase programs set up by the government:

59 Qualified Financial Institutions have missed one or more dividend payments on the TARP’s CPP program.

HAMP trial programs started since program inception: 902,620; number permanent mortgage mods completed: 66,465.

A summary of all the PPIP managers:

AllianceBernstein L.P. is a publicly traded investment management firm that offers research and diversified investment services to institutional clients, individuals and private clients in major markets around the world. It has $496 billion in assets under management and employs more than 500 investment professionals in more than 20 countries.
Angelo, Gordon & Co. is a privately held registered investment advisor focused on alternative investing. The firm was founded in 1988 and currently manages, with its affiliates, approximately $21 billion in assets. Angelo, Gordon & Co. is partnering with GE Capital Real Estate for the purposes of PPIP asset management.
BlackRock Inc. is a publicly traded asset management firm and provides global investment management, risk management, and advisory services to institutional, intermediary, and individual investors around the world. The firm has $3.2 trillion in assets under management and employs more than 8,500 professionals in 24 countries.
Invesco Ltd. is a publicly traded global investment management company. The firm provides investment solutions for retail, institutional, and high net worth clients around the world. With $417 billion in assets under management, Invesco Ltd. employs approximately 4,900 individuals in 20 countries; the company is listed on the New York Stock Exchange under the symbol IVZ.
Marathon Asset Management LP is a private alternative investment and asset management company. Marathon’s core businesses include hedge funds, structured finance, emerging markets, and real estate. Founded in 1998, the firm has more than $11 billion in assets under management and 140 professionalsworldwide with headquarters in New York City and investment offices in London and Singapore.
Oaktree Capital Management L.P. is an investment management firm specializing in less efficient markets and alternative investments. Founded in 1995, Oaktree Capital Management has $67.4 billion in assets under management. The firm is headquartered in Los Angeles and has more than 500 employees in 10 countries.
RLJ Western Asset Management LP is a newly created, minority-owned entity that is 49% owned by Western Asset Management, the fixed-income affiliate of Legg Mason, Inc. and 51% owned by The RLJ Companies, the portfolio holding company owned by Robert L. Johnson. Western Asset Management is a global investment firm, and The RLJ Companies include private equity real estate funds, a private equity mid-sized buyout fund, and a bank, Urban Trust Bank.
TCW Group Inc. is a private asset management firm, headquartered in Los Angeles, offering individual and institutional investors a range of U.S. equity and U.S. fixed income alternatives, as well as international investment strategies. As of September 30, 2009, TCW had approximately $108 billion in assets under management. TCW’s management has an average of 23 years of industry experience and the firm’s portfolio managers have approximately 11 years of tenure with TCW. On January 4, 2010, TCW withdrew as a manager in PPIP. Treasury has entered into a winding-up and liquidation agreement with TCW.
Wellington Management Company LLP is a private partnership investment advisory firm headquartered in Boston. Wellington Management has more than $506 billion in assets under management and serves as an investment advisor to more than 1,600 institutions located in more than 40 countries.

Full report:

by Tyler Durden via zero hedge
http://www.zerohedge.com/article/sigtarp-releases-quarterly-report-congress

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31
Jan
A Greek [Default/Bailout]: Flowcharting The Dominoes

It appears that in the 11th hour, Europe is still unable to decide just what the proper approach to rescuing Greece is. The Sunday Times has just released information that a plan to be published by Brussels on Tuesday, titled “Urgent measures to be taken by May 15, 2010″ will demand dramatic Greek austerity measures, such as cutting “average nominal wages, including in
central government, local governments, state agencies and other public
institutions” and proposes new luxury goods and self-employed taxes. Yet the kicker is that “Richer eurozone countries such as Germany and France would be expected to bail
out Greece in the worst-case scenario, to prevent a disastrous crash in the
value of the single currency” - not very surprisingly, this is precisely the Plan B that Almunia yesterday swore up and down that the EU was not, repeat not, considering. Moral Hazard has indeed gone global. Yet even with this bureaucratic memorandum on the table, it seems certain that the EU will not actually act before Greek deterioration escalates out of control. Here are the near term catalysts that will likely make the cost of inactivity very high. Think full Dick Fuld stature when screaming upright.

But before presenting a timeline of near-term events, here is a simplified flow-chart of how bond, and CDS, investors should handicap Greece’s near-term future, courtesy of Barclays.

As the chart highlights, the critical junction occurs once the market digests the forthcoming fiscal adjustment: should the market deem that insufficient, the immediate options are two: an EU bailout and an IMF bailout. We remind readers that the IMF has already pointed out that it would be willing to provide critical assistance to the Mediterranean country. In either case, Barclays expects that the “bailout” manifest itself via a bridge financing which would “buy time for another round of fiscal adjustment attempts.” Logically, if the bridge ends up going nowhere, then the country will have to evaluate how to deal with a potential default scenario.

Of course, this flow chart will not occur in limbo and will be determined by a variety of internal and external stimuli. BarCap presents the following critical catalysts in the near-term future which will likely push either the EU or the IMF’s hand sooner rather than later.

10 February: National strike. The strike’s intensity and politicians’ reactions may provide a first impression about the government’s ability to implement fiscal reforms.
16 February: EU Council officially reacts to Greece’s 2010 budget (after hearing assessments by EU Commission as well as ECB).
March: Greek Parliament to vote on Tax law and details of spending cuts.
April-June: EU assessment on Greece’s budget implementation and decision whether stricter recommendations (not yet “sanctions”) are taken under the “Excessive Deficit Procedure” (EDP). EU will undertake assessments on the implementation of fiscal measures very 3-6 months. In parallel, the Greek Treasury faces the first large redemptions of the year in April and May and is likely to issue in advance of these dates.
January 2011: ECB is expected to return to regular collateral procedure. This implies that Greece would need an A- rating from at least one of the agencies. Currently Moody’s has Greece still two notches above the critical threshold, but under negative outlook.

Further to point 4, much has been made recently over Greece’s €8 billion bond issuance. Yet in the near-term the country faces substantial bond maturities, which will have to be tackled ahead of their April and May refi dates. The chart below presents the key GGB maturities through the end of 2011.

If bond (and CDS) investors realize they have the potential to force issuance at even wider spreads than the recently auctioned €8Bn, look for upcoming GGB spreads to be materially wider than anything consider reasonable for a eurozone member.

As has been pointed out repeatedly in the past, Greece is the 13th largest GDP in Europe, implying even a default would likely not have dramatic consequences over the greater European economy.

The greatest procedural stumbling block is that the country has a euro-based currency, implying monetary policy in Greece can not be detached from what Brussels thinks is the proper approach for other European countries. This is precisely the reason why rumors of the drachma’s reappearance have become so loud recently.

Yet while a Greek default in isolation would not be devastating, the proverbial snowball effect may lead to a much more dramatic climax. Where Europe is weakest is among some of the key Greek banking and trade partners, namely Bulgaria, Serbia, Macedonia. Furthermore, fiscal concerns will also implicate more “developed” countries such as Hungary and the Baltic states. Combine the two avenues, and you get a fully-blown continental crisis, which could reach to the very top in the GDP pyramid - Germany.

On the topic of banking and trade implications, here is BarCap’s take:

Greece’s economy, which thus far has only been relatively mildly affected by the global recession, is likely to deteriorate in 2010 and beyond. However, given the relatively small size of Greece’s economy, the impact from the demand contraction should be limited for the region. As an export destination, Greece is only important to its smaller Balkan neighbours: In Albania, Bulgaria, Macedonia and Serbia, exports to Greece each have a share of 8-12% of total exports.

More importantly are the financial links via Greek banks’ expansion into Emerging Europe. While these links are widespread, they have systemic importance only in a handful of countries (Bulgaria, Macedonia, Albania, Romania and Serbia). In absolute terms, the operations are also large in Turkey, but the market share there is more limited.

Greek banks have been among the more aggressive Western European banks when penetrating EM Europe’s markets. Their loan-to-deposits ratios tend to be high making them reliant on external credit either from the market or from their parent bank in Athens. As a consequence they also have been among the banks most aggressively trying to collect deposits in these markets in 2008/09. While Greek banks may be pressured into reducing their rollovers to their affiliates, the generally good profitability of their operations in EM Europe makes it unlikely that they would choose to exit these markets altogether. The risk of a more abrupt disruption of credit rollover to foreign affiliates could rise, however, if and when Greek banks would face the serious threat to no longer be able to use their Greek government paper as collateral with the ECB and/or are themselves being systematically downgraded by rating agencies.

The conclusion is that of all countries, Bulgaria is by far the most exposed to a collapse in the Greek banking system and trade deterioration, with Serbia, Romania and Turkey following.

And while Almunia will likely have no problem in throwing Bulgaria and other poorer countries to the wolves, what is certainly keeping him up at night, aside from acid reflux as a result of just too many Davos functions, is the implication for other comparable fiscal debacles. This is where the rest of the PIIGS come into play.

Beyond the direct links via trade, banks and the potential effect on euro adoption, Greece’s case serves as a general reminder of fiscal issues and government debt sustainability. Hence, investors are likely - and to some extend already have - to single out countries with similar profiles (eg, Hungary). That said fiscal deficits in EM Europe are generally lower than those in the euro area periphery (Greece, Ireland, Portugal, Spain). This is also true for government debt levels, with the exception of Hungary, where debt is higher than in Spain, Portugal and Ireland, but still significantly lower than in Italy and Greece (and is at about the euro area average) (Figure 6).

Hungary started its fiscal adjustment after 2006, when its twin deficit (including a fiscal deficit close to 10% of GDP) created a mini-crisis. However, its revenue and expenditure shares of the economy remain high, not only compared to EM Europe and Greece, but even the euro area average. The starting levels of expenditure and revenue shares can play an important part in the adjustment process. International experience suggests that successful fiscal adjustment strategies in the face of solvency issues or other crisis situations have been expenditure based, reflecting the difficulty of raising revenues in an environment where economic activity declines sharply. Adjustments based on increasing revenue ratios can also be durable, when the initial revenue-to-GDP ratio is particularly low.1 Greece’s revenue share in GDP is indeed below the euro are average, but is higher than that in EM Europe (again, with the exception of Hungary).

Notably, in this context, EM Europe where IMF programmes are in place (eg, Hungary, Latvia and Romania), the fiscal adjustment programmes are expenditure-focused. In contrast, Greece’s adjustment programme foresees two-thirds of the adjustment coming from revenue increases. The hopes to tax Greece large grey economy may disappoint, however. Suddenly collecting revenue from a part of the economy that thus far was not burdened with taxes (and doing so in a recession) will not be easy. Moreover, large grey economies are not a Greece-specific phenomenon; EM Europe has them as well.

The contagion threat from a “fiscal fear” standpoint is thus most acute at the more advanced recent EU inductees: Hungary, Latvia, Lithuania and Poland.

It is unfortunate that so far the EU has bet the house on a slowly-developing situation, in which cash and CDS traders exhibit a world of patience. Which they won’t: as the last two weeks have shown, when Greek CDS exploded by over 100 bps, the EU’s ability to control the situation is quickly evaporating. Furthermore, should CDS sellers commence to cover their long exposure in greater numbers, thereby minimizing further losses, the spreads for the abovementioned “contagion” countries have a likelihood of surging substantially more than to date. This will be magnified if existing GGB holders, who have so far withheld a desire to bail on their positions en masse, finally capitulate, as the yield impact will be much larger in the materially greater (in notional terms) cash market. The bottom line - the EU will soon have to move away from empty rhetoric to decisive action; should it wait any longer, the market, just like in the Lehman bankruptcy, may very well take any optionality away from the Brussels bureaucrats, and result in a fragmented, bankrupt, sick and contagious EU hinterland, whose disease will slowly but surely make its way to the heart of Europe. (Alternatively, CDS on Bulgaria, Hungary and the Baltics may still be relatively cheap, although Germany’s may be by far the cheapest).

by Tyler Durden via zero hedge
http://www.zerohedge.com/article/greek-defaultbailout-flowcharting-dominoes

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A Swap Spread Puzzle And Some Thoughts On This Time Being Different, By JM

Attachment	Size
A Swap Spread Puzzle.pdf	310.46 KB

by Tyler Durden via zero hedge
http://www.zerohedge.com/article/guest-post-swap-spread-puzzle-and-some-thoughts-time-being-different

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30
Jan
Whole Loan And CMBX January Remittance Update

Following on yesterday’s RealPoint January update on CMBX delinquencies, here is Lehman’s most recent report on January whole loan and CMBX remittances. While CMBX 3 seems to have stopped the bleeding at least temporarily, the other vintages are happy to step in its place. Deterioration is also accelerating in non-CMBS whole loans.

CMBX.1 Update

The overall non-performing rate of CMBX.1 increased by 49bp, to 6.90%, slightly slower than the trailing 3-month average pace of 61bp. Of note:

GCCFC 05-GG5: The $74.5mn Benaroya – Met Park West loan (1.78%, SS-Cur) backed by an office property in Seattle, Washington, was transferred to special servicer because the borrower may not be able to refinance the loan on the maturity date in November 2010. The most recent DSCR was reported in September 2009 and came in at 1.4x; a likely scenario is an extension of 24 months leading to a 20% loss.

CMBX.2 Update

An increase of 49bp in the non-performing rate of CMBX.2 brings the number to 6.82%. The pace is in line with the trailing 3-month average of 46bp. All significant loans that went delinquent were previously transferred to the respective special servicer and highlighted in prior months’ remittance reports.

CMBX.3 Update

The worst-performing series last month saw an “improvement” of 15bp in the nonperforming rate to 6.65%. However, three large loans for a total of $555mn were brought current either through modification or by some other means. If we exclude these loans, the non-performing rate worsened by 37bp, to 7.17%. Of note are the following loans that were
newly delinquent or transferred to special servicer:

GCCFC 07-GG9: A full-service 390-room hotel located in Bethesda, Maryland, is the collateral for the $140.0mn Hyatt Regency - Bethesda loan (2.14% of deal, SS-Cur), which was transferred to special servicer. According to servicer comments, the property is experiencing cash flow problems and is in danger of imminent default. The loan is likely to be extended to maturity with a loss of 30% if defaulted. DSCR had been above 1.0x all through 2008 and 2009 with quarterly reported (except 1Q08) financials.

BSCMS 06-PW14: The $65.0mn Philips at Sunrise Shopping Center loan (2.69% of deal, FCL) entered foreclosure after nine months of SS-Cur status (first mentioned in the April 2009 report). The loan is backed by a retail mall in Massapequa, New York, and has exposure to both Linen N’ Things (10.2%) and Circuit City (10.9%). Both spaces had been re-leased to Michaels and Best Buy. The loan was embroiled in a lawsuit in which the borrower, Mass One LLC, alleged that the loan originator, the trust, and its servicers, among other things, had obtained an inflated valuation of the property resulting in the borrower’s entering a loan that cannot be serviced by the property. As the payments had not been remitted since November 2009, counsel was instructed to file for foreclosure. The expected loss given default remained unchanged at 50%.

BACM 07-1: The $220.0mn Solana loan (7.11% of deal, SS-Cur) became current this month. According to the servicer’s report, a modification agreement is ready and should be signed this month. We expect more details of the modification in next month’s remittance report. This is the A1-note of the debt stack. The $140mn A2-note is securitized in JPMCC 07-LDPX.

CD 07-CD4: The $261.6mn Citadel Mall & Northwest Arkansas Mall loan (3.98% ofdeal, SS-Cur) became current this month even though, according to the servicer’s comment, the special servicer is moving forward with appointment of a receiver and foreclosure, as the borrower refused to contribute any cash for workout. The loan, backed by two retail properties in Colorado and Arkansas, was first transferred to special servicer two months ago.

COMM 06-C8: The mystery continued with the $73.6mn Morgan Resort Portfolio loan(2.00% of deal, SS-Cur), backed by a portfolio of manufactured housing across various states, which became current this month as well. No new servicer’s comments were reported except for the December 2009 comment that the loan was facing imminent default due to cash flow problems. The loan is sponsored by Robert Morgan and Robert Moser.

CMBX.4 Update

CMBX.4’s non-performing rate rose 49bp, to 6.99%. Of note:

COMM 07-C9/CD 07-CD5: A 890-unit multifamily property located in Silver Spring, Maryland, is the collateral for the $215mn Georgian Tower debt stack, of which the $67.0 A-note (2.33% of deal, SS-Cur) and the $58.0 A2-note (2.79% of deal, SS-Cur) are securitized in COMM 07-C9 and CD 07-CD5, respectively. The DSCR for the loan had been below 1.0x since origination in August 2007. Based on the latest cash flow, we expect a loss of 25% after a 24-month extension.

CSMC 07-C3: The $51mn 520 Broadway loan (1.91% of deal, 30 days) turned 30 days delinquent this month. The pro forma loan is backed by a 112k sf office property in Santa Monica, California, that was barely covering its debt service with the most recent DSCR, reported in September 2009, at 1.02x. According to REIS, the effective rent for the property had dropped from $51psf at loan origination to $42psf as at 3Q09. A loss of 40% is expected given default.

JPMCC 07-LD11/BACM 07-3: The $147.1mn ChampionGate Hotel loan, backed by a full-service hotel in ChampionGate, Florida, is securitized via two A-notes – $98.1 A1-note in JPMCC07-LD11 (1.82% of deal, 30 days) and $49.0mn A2-note in BACM 07-3 (1.40% of deal, 30 days). According to the servicer, the borrower had been shorting the payment due to a dispute regarding the funding of the FF&E reserve since August. DSCR at September 2009 was 0.78x. A loss of 65% is expected given default.

LBCMT 07-C3: The $164.5mn Bethany Phoenix Portfolio I loan (5.09% of deal, SS-Cur) was brought current by the servicer through sweep of the reserve funds and is in the process of being foreclosed. The loan was first transferred to the special servicer a year ago after the master servicer became aware of mechanics liens recorded against six of the seven properties that formed the collateral pool for this loan. Note that this loan hasan additional $71.8mn mezzanine loan, for a total debt stack of $236.3mn.

CMBX.5 Update

The non-performing rate of CMBX.5 rose 83bp, to 7.81%, making it the worst performing series this motnh. Noteworthy loans include:

CSMC 07-C5: The $63.7mn Fairfield Inn by Marriott Hotel Portfolio loan (2.35% of deal, SS-Cur), backed by nine limited-service hotels, was transferred to special servicer this month. Borrower indicated that they will no longer be able to fund the shortfall, as eight of the nine properties are underperforming. The combined DSCR as of October 2009 was 0.88x. The loan is expected to default in the near term, with an expected loss of 60%.

CSMC 08-C1: The 1100 Executive Tower loan has a total debt stack of $106.8mn, of which the $89.5mn A-note is securitized in this deal (10.17% of deal, SS-Cur). The loan is backed by a 372k sf office building in Orange, California, and is plagued by departure of tenants and the general downturn in southern California. The property lost a number of tenants since October 2009, either through early termination of leases or not renewing once leases expired. DSCR as at September 2009 was 0.80x. According to PPR, the asking rent in the area, as of 3Q09, averaged $24psf and is expected tocontinue to drop through 4Q12, and office using vacancy is at 21% and forecast to peak in 3Q10. The loan, however, has a total reserve of $5.9mn, which will coverapproximately 14 months of debt service. Given default, a loss of 60% is expected.

LBUBS 07-C7: Backed by four multifamily apartments in Tennessee, the $116.8mn Nashville Multifamily Portfolio (3.69% of deal, SS-Cur) was transferred to special servicer due to imminent default. According to servicer, the borrower had submitted amodification request that is currently under review and is paying only the necessary operating expenses to keep the properties operational. In addition to the securitized Anote, there is also a $32.1mn mezzanine note in the debt stack. The debt service had not been covered since loan origination, with the most recent DSCR as of June 2009 at
0.94x. According to the borrower, it is about $6.5mn in arrears on the mezzanine loan. A default is expected in the near term, with a loss of 50% given default.

MSC 07-HQ13: According to the servicer’s comment, a modification to the cash management agreement for the $114.5mn The Pier at Caesars loan ($80.5mn A-note securitized in and making up 7.81% of this deal, $34.0mn B-note) had been approved in November 2009, which prioritizes operating expenses above payment of debt service in order to protect the property, resulting in monetary default. The property is owned by retail REIT Taubman Centers and is currently in foreclosure. Our loss estimates remained unchanged at 55%.

In the whole loan sector there were some notable deteriorations as well:

A number of large loans went delinquent or were transferred to special servicing-current status. Of note:

CGCMT 05-C3: The $105.3mn Carolina Place loan (8.26% of deal, SS-Cur), backed by a regional retail property in Pineville, North Carolina, matured this month and was transferred to the special servicer as the borrower indicated that it was unable to refinance or pay off the loan. The borrower affiliate is GGP/Homart II LLC and is not one of the SPEs that were placed into bankruptcy protection. The loan is the A-piece of a $119mn debt stack that includes a $15.8mn B-note. Financials last reported in September 2009 came in at 1.81x for DSCR, and the property is 100% occupied. An extension is expected for 24 months with minimum loss, consisting of workout fees, to the trust.

GECMC 05-C3: The $67.6mn One Main Place (3.28% of deal, SS-Cur) is the A-note of a total debt stack totaling $71.6mn, secured by an office building in Dallas, Texas. The loan was transferred to the special servicer this month. As per documentation at origination, Ernst & Young occupied 10.2% of the net rentable space, with its lease expiring in October 2009. It is unclear if the lease was renewed, although this location is no longer listed on Ernst & Young’s website. The property suffered from a drop in occupancy, as September 2009 reported occupancy was 72%, compared with 81% as
of June 2009. A loss of 40% is expected given default.

JPMCC 05-LDP1: Backed by a 294-unit multifamily property in Manhattan, New York, the $80.5mn 777 Sixth Avenue loan (3.42% of deal, SS-Cur) was transferred to special servicer this month. The IO loan matured this month, and the transfer was triggered by the borrower’s request for an extension of the loan. Financials reported had been strong; DSCR was consistently above 2.0x. We believe an extension of 12-24 months is likely, with a 1.5% loss to the trust taking into account fees associated with the workout.

LBUBS 05-C2: The borrower of the $100.0mn Park 80 West (5.85% of deal, SS-Cur) is requesting a restructuring of loan terms after a large tenant, Ajilon Job Search service, (occupying 5.5% of the space) and several smaller tenants vacated the 490k sf office building in Saddle Brook, New Jersey. According to the remittance report, there are tenants
interested in the vacated space, but they are unwilling to commit to a long-term lease and high rents. Our current expectation is a loss of 30% after a 36 month extension. However,there is a possibility of a loan modification depending on the borrower’s proposal. A loss to the trust is still expected in this scenario.

WBCMT 06-C28: Besides the $190mn A-note securitized in this deal (5.36%, SS-Cur), the debt stack for Montclair Plaza loan also include a $75.0mn B-Note. The collateral is a retail property located in San Bernardino County, CA, and the sponsor is GGP. This is not one of the SPEs included in GGP’s bankruptcy filing. The mall lost two of its top three tenants,
Circuit City and Linens ‘N Things, through bankruptcy and subsequent liquidation. Financials for the loan had been steady, with DSCR consistently above 1.40x (with the exception of September 2007 at 1.28x). Based on that, the expected loss is 20% given default.

GMACC 04-C3: The $53.9mn Sawyer Portfolio loan (5.36% of deal, 30 day) backed by six multifamily properties in Maryland is in maturity default. The loan matured in December 2009 and, according to the borrower, it had not been able to sell the properties or refinance the loan for the past two years. DSCR, reported every quarter, had consistently
been above 1.20x since underwritten in 4Q04. An extension of 36 months is expected, with a 1.5% loss to the trust taking into account related work-out fees.

GSMS 07-GG10: A portfolio of six extended-stay hotels, across different hotel submarkets, secured the $52.3mn GP2 loan (0.69% of deal, 30 days), which turned 30-days delinquent this month. According to the borrower, it had been struggling with cash flow for six months; only two of the properties achieved DSCR above break-even as at September 2009, with the weighted average DSCR coming in at 0.62x. A loss of 60% is expected given default. The average debt/key is $71k/key

MSC 05-IQ9: The $65.5mn 400 Madison Avenue loan (4.66% of deal, 30 days) is maturing in February 2010. The loan is backed by a 185k sf office property in Manhattan, New York. DSCRs reported have been above 1.50x since underwritten, and an extension of 12 months is expected without a loss.

WBCMT 07-C30: The $53.2mn Wildcat Self Storage Pool loan (0.67% of deal, 30 days), backed by a portfolio of nine self-storage properties in Ohio and New Jersey, went 30-days delinquent again. The loan was first delinquent in August 2009 and was subsequently placed on servicer’s watchlist (and in a grace period) for the next four months. According to the servicer’s comments, borrowers had been unresponsive since August. Given default, the loan is expected to take a 45% loss.

CSMC 07-C2: As mentioned in last month’s report , the delinquency of the $63.2mn Three Westlake Park loan (1.93% of deal, Current) could be a payment delay. The loan is brought current this month.

Lastly, as was pointed out yesterday in the RealPoint analysis, Lehman also notes the spike in the loss severity as liquidating loan balances accelerate and are very likely to surpass the previous 2005 peak of $3 billion. Unlike RealPoint, Lehman is already seeing loss severity in the 60%+ area.

by Tyler Durden via zero hedge
http://www.zerohedge.com/article/whole-loan-and-cmbx-january-remittance-update

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A brief look at the contentious gold/central bank history as it is about to rhyme all over again:

The Federal Reserve System was created in 1913 on a promise of stabilizing the banking system. What followed instead was an unprecedented growth in fractional reserve banking, as well as the money supply, which helped fuel the roaring 20’s. The aggressive money printing created inflated values in bonds and stocks, which peaked in 1929. When the market began its precipitous slide, and the public began to realize that stock and bond values were artificially high, the populace began to convert its cash holdings into gold. The government lacked the ability to satisfy that demand and was thus forced to renege on the currency’s founding promise of gold convertibility. It’s important to point out that without this original promise of convertibility for citizens, the currency may never have been adopted.

In 1933, The Gold Reserve Act was passed by Congress and formalized into law the breaking of the gold standard. This law provided for a controlled-currency issue through the Federal Reserve System which was non-redeemable in gold. Although the link to anything tangible had been broken, the citizens had little choice but to continue using these non-redeemable dollars as a medium of exchange. The currency had already been broadly accepted, proven convenient and a perception of safety had already become entrenched.

After forty years of continued dollar printing, in August, 1971, President Nixon effectively declared the US dollar to be a completely “fiat” currency by refusing to allow foreign governments to convert their US dollar holdings into gold. The right of conversion which had been granted under the post World War II, Bretton Woods agreement could not be honoured because of decades of money supply expansion. The original ‘promise’, which had vaulted US dollar to its status as a global reserve currency and a stable store of value, was now completely broken.

These historical events resulted in a world in which all currencies are fiat; they are not backed by gold or any other tangible asset. The supply is infinite. In fact, the production of today’s newly created paper money in relation to historical commodity-based money is akin to counterfeiting. A US dollar printed today has no ties to anything tangible and as a result carries only four cents of the equivalent purchasing power of a gold-backed dollar of 1913. It is ironic that in a poor choice of wording on Wikipedia, the definition of counterfeiting states that “it is usually pursued aggressively by all governments.” It is only because the evolution of money has occurred slowly over generations that the obvious flaw with fiat currency is not widely understood.

Why Gold, as a consequence of 90 years of paper debasement, will be the next big thing.

We are gold investors because we have made a specific and calculated bet against paper money. Simply put, we are betting against paper money as a store of value. We believe its supply will continue to increase. We do not believe that the world’s major governments have any stake left in protecting it. Government debt loads have grown so massive that printing them away has become obligatory - there is no longer any other feasible option left. In our view, the savers of the world should already be outraged by the dilution they have been forced to suffer at the hands of the Central Banks. Are we to infer that the limited reaction of savers to the combination of zero interest rates and debasement of currency is a result of “learned helplessness”?

In our opinion, the lack of overt inflation to date due to the “successful” implementation of globalization, aka exporting inflation to China and anyone else who needs to purchase US securities, is the sole reason why there has not been an explosion in fiat-denominated prices to date. Yet as Zero Hedge has been pointing out for several months, the global trade picture is now dramatically changed, and China will need to look inward rather than outward. This means, that sooner or later exporting inflation as a fiat policy will fail. When pundits finally comprehend this and start blaring about it every day on CNBC, that is when the rush to gold (plated) safety will finally become acute.

And since in a fiat-debased world, everyone wonders where gold will hit (which in principle is the wrong question, as monetary representation of value will very likely cease should Central Banks finally lose control over the infinite dilution mechanism), here is what Sprott believes:

We also wanted to prepare our readers and clients for the next leg of the gold bull market as it will prove to be extremely volatile. Gold bull markets are unique in that buying becomes driven by both fear and greed. Gold is quickly moving into the hands of those who are unwilling to gamble on fiat currencies or bonds as a store a value. The new owners of gold are unconcerned with its lack of yield but instead are focused on its historic ability to preserve wealth and its unquestionable value. Given the difficulty we have valuing paper money, it becomes extremely difficult to come up with a reasoned price target for gold. Today’s gold market is significantly different from the gold market of the 1970s for two reasons: 1) Central Banks are more likely to be buyers of gold today and 2) They clearly have little ability to dramatically raise interest rates with the massive increases in government issued debt. Thus, it is easy to envision a similar twenty-five fold increase in the gold price that was seen between 1970 and 1980, which would result in a gold price today above $6,000 per ounce. We expect the often quoted “1980 inflation adjusted high” of approximately $2,200 to be achieved in short order. These targets may well prove to be irrelevant, however, as the quality of our lives will be more greatly impacted by the continued evolution of our money and how the general public chooses to value it, or not.

Read the full note here.

And when you are done, here is another just released note from Sprott’s John Embry, in which he expects gold to go up by 30% in the near-term.

by Tyler Durden via zero hedge
http://www.zerohedge.com/article/eric-sprott-why-central-banks-are-setting-stage-next-big-move-gold

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30
Jan
Complete January Bond Performance Heatmap

January is over, and while the stock market closed at its YTD lows, some corporate bond segments are still on fire. Below we present a complete heatmap for January bond price performance by subsector. Each issue is presented on a size relative basis, with the grayed text giving detailed information about any one specific issue, including corporate ticker, one month change, ISIN, Name, Rating, Outstanding, and last price (compared to Dec 31, 2009, red is lower, blue is higher).

Consolidated