Sarkozy: Europe’s “Liquidity Run” Has Begun Because There Is An Unsolvable $30 Trillion Problem

No, not that Sarkozy. His half-brother – the one who actually can use a calculator. In an interview on CNBC, the Carlyle group head had the temerity to tell the truth, the whole truth, and use math – that long-forgotten concept which one has to scour various backwater blogs to rediscover – to explain nothing but the truth which is that Europe needs many more trillions than either the EFSF or the ECB can afford to give. Actually, we take that back. The ECB can inject the needed €3-5 trillion, but after that concerns about localized episodes of (hyper)inflation, especially now that Kocherlakota has confirmed that the transmission mechanism between bank reserves and inflation may be broken, will be all too justified. In the meantime, Sarkozy on Europe math fail: “The math i’m working with is very simple. In the US banking sector, we had 3 trillion of wholesale funding that needed to be stabilized, got stabilized by the implementation of TARP which saw the US treasury buy $212 billion worth of preferred in the banking sector to stabilize that $3 trillion, give our banks the time to work through hair problem their problem assets. In Europe, that $3 trillion is $30 trillion. so if you multiply the $212 by 10, you get the $2.12 trillion. In my view, the issues on the European banks are bigger than the issues on the books of the US Banks. So if you want to stabilize that $30 trillion and in my view it’s not that you want to, it’s that you have to, you do not have a choice, you’re going to have to be at least at 2.1 trillion and i suspect it may need to be more.” Q.E.D. – there, the math wasn’t that difficult, was it?

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Gold Falls Most in Seven Weeks as Equities, Commodities Slump on Euro Debt

Gold fell the most in more than seven weeks as commodities and equities slumped after Fitch Rating said U.S. banks face a “serious risk” from Europe’s debt woes. Silver tumbled.

The MSCI World Index of equities dropped for a fourth day, and the Standard & Poor’s GSCI index of 24 raw materials fell the most in eight weeks. Fitch said yesterday that “the broad credit outlook for the U.S. banking industry could worsen,” unless Europe’s woes are resolved soon. Before today, gold rose 25 percent this year on demand for a store of value.
“Apparent liquidation from fear of possible contagion from the European crisis has commodities, including gold, under continued pressure,” Miguel Perez-Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said in telephone interview. “This is a big collapse.”

Gold futures for December delivery fell 2.9 percent to $1,722.60 an ounce at 1:17 p.m. on the Comex in New York. A close at that price would mark the biggest drop for a most- active contract since Sept. 23.

Silver futures for December delivery plunged 7 percent to $31.455 an ounce on the Comex, heading for the biggest drop since Sept. 23.

Gold could retreat to $1,705, Perez-Santalla said, without giving a time frame. Prices touched a record $1,923.70 on Sept. 6.
‘Investors Move Out’

The lingering debt crisis means “investors move out of risky assets,” said Marcus Grubb, the managing director of investment research at the World Gold Council. “They move out of equities, they move into short-dated bonds and into cash, and they even move out of gold because they tend to take profit in it to shore up losses in the rest of their portfolio.”

Grubb spoke today on Bloomberg television’s “Countdown” with Owen Thomas from London.

Average physical-gold purchases in the past two weeks in India, the world’s biggest consumer, have been the lowest since mid-June 2010, UBS AG said in a report.

The dollar gained against a basket of major currencies for the fourth straight day.

“We have seen some selling in the past few sessions because of the dollar’s strength and the debt crisis in Europe,” David Meger, the director of metal trading at Vision Financial Markets in Chicago, said in a telephone interview. “However, it’s a matter of time before the safe-haven story is back.”

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net

← The next financial crisis will be hellish, and it’s on its way

Why European Crisis Fears Slammed U.S. Stocks

The explosive moves in the stock market recently are testing the resolve of investors worldwide, and today there was no relief. The Dow Jones Industrial Average fell 389 points, or 3.2% to 11,781, the Nasdaq fell 3.88% to 2,622, and the S&P 500 fell 3.67% to 1,229.

The market opened lower this morning on concerns out of Italy and whether Prime Minister Silvio Berlusconi would truly resign his post due to his failure to stem the country’s debt crisis. As a response, Italian bond yields soared to crisis levels, rising above 7%. Later in the afternoon new details emerged that European officials are reportedly considering an overhaul of the European Union we’ve come to know. When leaders like German Chancellor Angela Merkel and French President Nicolas Sarkozy express ideas of potentially reorganizing the make-up of the EU, the world must listen closely.

Add it all up, and our market’s response today is quite rational, while the world is rather chaotic. The stock market is just trying to keep up with it. Investors may not like it, but anyone that cares about their financial well-being must pay attention to the situation in Europe.

The butterfly effect of global markets

Whether it’s kids swapping baseball cards or General Motors (GM) buying a million tons of steel, all trading is based on a common set of rules. Right now Europe has no real set of rules. As a result, German multi-nationals can’t do business with other companies because nobody involved knows the rules. With little kids that means a fight and some tears. With GM and Mercedes Benz it means billions and billions of dollars in trades that never happen.

We’re seeing the beginnings of a global economic seizure already. Germany is on the cusp of, if not already in a recession. Italy can’t issue bonds without paying yields normally reserved for third world nations. Just today Italian bond yields hit crisis levels rising above 7%. None of these things can be stopped without someone stepping in and laying out a plan of action for the European Union.

Without a plan, even a flawed plan, Europe will simply close for business on an International basis. If and when that happens, the whole world will freeze right along with it. The deeper we go into this disruption, the lower corporate earnings throughout the world will be. The lower the profits, the fewer the jobs, until no company on earth can predict with any certainty what their business will look like tomorrow.

The threat of such an outcome is very real and extremely scary. Tens of millions of jobs are at stake. The fate of the financial world as we know it hangs in the balance, and traders are going to bed every night wondering if the head of France will still be in power in the morning.

It’s ugly and it’s real. Not all fears are irrational. Sometimes there’s a monster under the bed and a boogeyman in the closet. This is one of those times.

That’s why the market is so volatile and that’s why it matters whether you own stocks or not.

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This Year’s ‘Lehman Moment’ Might Occur Soon

This originally appeared in the Daily Capitalist and was written by DoctoRx who writes our market commentary. He has 30 years of investment experience.

The strangely-named MF Global is now the subject of the lead article of the online NYT, with the title Regulators Investigating MF Global for Missing Money.  Here’s the lede:

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

One of the reasons for the stock market crash after Lehman is discussed in the article.  Innocent hedge fund money (if there is such a thing!) was lost to the rightful owners in the collapse.  If indeed there has been misappropriation of customer funds at MF, how many customers are going to withdraw their funds from other commodities accounts as well as from standard stock/bond brokers, after selling their holdings first?  Especially after the frustrating decade-plus we have experienced in the financial markets, why shouldn’t people just move to direct ownership of Treasurys and into FDIC-insured bank deposits?

The story could hardly be worse.  MF Global was not just any old futures firm.  It was run by a stalwart of the Democratic establishment and the former leader of Goldman Sachs.  If his firm was guilty of what would basically be akin to embezzlement of funds owned by the firms clients, whether or not Mr. Corzine was blameless, how could one trust a securities firm run by someone who had not been a high-ranking government official?

A major “risk-off” move could be in the making.

Remember,  physical gold and silver that you have in your possession has No counter party risk!