Daily Digest

Daily Digest 2/20 - Budget War Rages On, Union Protests in Wisconsin, Silver Bankers Sitting On Big Derivatives Losses

Sunday, February 20, 2011, 10:48 AM
  • U.S. Shutdown Looms As Budget War Rages
  • For Wisconsin Governor, Battle Was Long Coming
  • Pump It Up
  • Silver Bankers May Be Sitting on Big Derivatives Losses and the Fed May Be Funding Them
  • Silver Explodes/Middle East Problems Continue
  • Mauldin: A Random Walk Around The Frontlines
  • Iran Gas Pipeline To Pakistan On Hold
  • Robert Newman's History Of Oil

Our 'What Should I Do?' guide has steps to cook, see & stay warm in times of power outage


U.S. Shutdown Looms As Budget War Rages (pinecarr)

It now appears there will be a potentially damaging stand-off between President Barack Obama and Republican leaders with a possible shut-down of the federal government if agreement cannot be reached in the next fortnight. "The continuing resolution as passed by the House would undermine and damage our capacity to create jobs and expand the economy," Mr Geithner said at the G20 summit in Paris yesterday.

For Wisconsin Governor, Battle Was Long Coming (jdargis)

Mr. Walker’s supporters cheer the governor for what they see as delivering on the campaign pledge of frugality that got him elected in November and forced a surprising makeover, at all levels of government in the state, from Democrats to Republicans.

“This doesn’t faze me one bit,” Mr. Walker said Friday as thousands of protesters from around the country marched and screamed and filled every unguarded cranny of the Capitol, just as they had all week.

Pump It Up (woodman)

The politicians prefer their actions be bathed in shades of grey. The corporate payoffs, backroom deals, union arm twisting and selling of votes to the highest bidder are how business is done in Washington DC. They believe that if there is enough static noise being generated by the mainstream media, then the American public will be distracted and not notice they have destroyed the country.

Silver Bankers May Be Sitting on Big Derivatives Losses and the Fed May Be Funding Them (pinecarr)

If this is legitimate hedging for producers then all well and good, but then there is no justification for secrecy. If these are trading positions held by the bank, or by the bank as agent for speculators, then there may be a greater reason for secrecy, but the magnitude of the shorts is far out of bounds in size. Ten years of production is not a short position, but the entire market and then some.

Silver Explodes/Middle East Problems Continue (pinecarr)

The huge rise in silver price has caught the silver bankers totally offside on the silver banking. The BIS data released in November (www.goldexsextant.com) shows that the G 10 bankers have collectively sold forwards and swaps to the tune of 4 billion oz and short naked calls for another 3 billion oz. The total, 7 billion oz represents 10 years of production. If you just do the forwards, then it is 7 years of annual silver production.

Mauldin: A Random Walk Around The Frontlines (JRB)

We as a nation need to understand that the problems we face are not ones that can be dealt with by business as usual. Keynesian stimulus is precisely the wrong medicine. The problem is one of too much debt. We were promised by Bernanke in 2002 that if the Fed moved out the yield curve, long rates would come down. The opposite has happened. Since the beginning of QE2 mortgage rates have risen by 1%. The yield on the ten-year bond is up over 1% since the announcement of QE2."


Iran gas pipeline to Pakistan on hold (pinecarr)

The reasons given for the unexpected decision were financial, but the lack of security in Balochistan must also have played a role. It is theoretically not out of the question that gas from Iran might go through Balochistan northward following the just-mentioned route. (See Xinjiang: China's energy gateway, Asia Times Online, July 10, 2009.) However, the region is passing through yet another heightened period of social unrest and vocal if not sometimes armed dissatisfaction with the central authorities. Probably it was also feared impossible to guarantee the physical safety of Chinese workers.

Robert Newman's History Of Oil (NZSailor)

As shown on Ch4 and repeated several times on More4, available at IndyBay on the web and many other places, now on google video (not great video quality) Robert's stand-up act examines the history of the last 100 years or so but putting oil center-stage. Brilliant!

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."


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US shutdown looms as budget war rages

The rhetoric in the comments section is very telling.....people are now looking for someone to blame.  How long before the scenes in Wisconsin are repeated are repeated across the US

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Robert Newman's History Of Oil

Thanks for the link. Well worth the 50 minutes. Like the medieval court jesters we find the truth in our comedians. 

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This looks really bad IMHO!

This looks really bad IMHO! http://www.msnbc.msn.com/id/41689225/ns/world_news-mideastn_africa/?gt1=43001

TRIPOLI — After anti-government unrest spread to the Libyan capital and protesters seized military bases and weapons Sunday, Moammar Gadhafi's son went on state television to proclaim that his father remained in charge with the army's backing and would "fight until the last man, the last woman, the last bullet."

Seif al-Islam Gadhafi, in the regime's first comments on the six days of demonstrations, warned the protesters that they risked igniting a civil war in which Libya's oil wealth "will be burned."

The speech followed a fierce crackdown by security forces who fired on thousands of demonstrators and funeral marchers in the eastern city of Benghazi in a bloody cycle of violence that killed 60 people on Sunday alone, according to a doctor in one city hospital. Since the six days of unrest began, more than 200 people have been killed, according to medical officials, human rights groups and exiled dissidents.


Lybia's response has been the harshest of any Arab country that has been wracked by the protests that toppled long-serving leaders in neighboring Tunisia and Egypt. But Gadhafi's son said his father would prevail.



With the recent turmoil across North Africa and the Gulf, investors are now becoming increasingly concerned that the ‘political contagion,’ as the wave of upheaval has come to be known, may flow over into Saudi Arabia as well.

 The worry is that the protests in various parts of the Arab World will embolden Saudi youths, or the minority Shiites in the east, to revolt in a similar fashion.

 The country supplies about 12% of global oil production and sits on at least a fifth of the world’s oil reserves.

By being on the eastern border of the Kingdom, Bahrain is near key parts of the country’s crude reserves. Although doubtful that Saudi Arabia would be drawn into the contagion, “the fear factor could potentially force oil prices higher and leave the equity markets lower”, Gary Dugan, CIO at Emirates NBD, told CNBC.

Using information from the Energy Information Administration (EIA) for 2009: If you take of Saudi Arabia, and add to that other major oil exporters in the region that have seen turmoil in recent days, such as OPEC members Libya and Algeria, you’re looking at roughly 16% of total oil production that could be at risk. Pricing the risk premium in the current environment will prove to be a daunting guessing game for traders.


Yousef Gamal El-Din

Yousef Gamal El-Din
CNBC Anchor


Saudi Arabia faces a problem that was a major driver of protests in Tunisia and Egypt to begin with: Youth unemployment. Data by the Central Department of Statistics & Information (CDSI) estimates that 39% of Saudis between the age of 20 and 24 were unemployed in 2009 – up from 28.5% in 2000. But in its most recent report, Saudi Banque Fransi adds that the Kingdom has an “enormous stash of oil wealth it can draw on to finance schemes to sooth popular frustrations without exerting too much strain on its budget”. Saudi Arabia held an estimated $440 billion in net foreign assets in 2010.

Amid the ongoing geopolitical instability, Dugan points out that he has seen “international investors largely retreat from the MENA markets with only hedge funds opportunistically buying local bonds at low price levels.” Emerging market equity funds had net outflows of $5.45 billion last week, according to EPFR.

Indeed, the political future of Saudi Arabia is far from certain. King Abdullah is 87 years old and has spent a lot of time abroad recently for treatment. The crown prince is an octogenarian as well, while the plan for succession is unclear. Angus Blair, head of research at Beltone Financial, told CNBC that “Saudi Arabia will not be excluded from the profound changes sweeping through the Arab world”. He also expects to see reforms through the Shura Council, which is “likely to be awarded more powers as part of a long term program of increased devolution of power”.

Track World Markets Here

The cost of insuring exposure to Saudi Arabia risk for a five-year period rose 15 bps to 140 bps on Friday, according to Markit.

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My Feeling Is That This Week's Gonna Be an Eventful One

I hope everybody's got their helmet on and the airbags activated.  Gonna be a bumpy week, methinks...

Viva -- Sager

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fun and games
SagerXX wrote:

I hope everybody's got their helmet on and the airbags activated.  Gonna be a bumpy week, methinks...

I'm having the same feeling.  Things are getting interesting.

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I am having the same

I am having the same feeling.  Comex - Silver, Middle East,  China - closely watching the next 2 weeks here.  This feels different than just a month ago. 

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Gold at 7-Week Peak on

Gold at 7-Week Peak on Mideast Unrest, Silver 31-Year High  http://www.cnbc.com/id/41696775

 Gold rose to a seven-week high on Monday as spreading unrest in the Middle East underscored its appeal as a safe-haven asset, while silver and palladium prices hit historic highs on expectations for growing industrial demand.

Tetra Images | Getty Images

Gold added to a weekly gain of nearly 3 percent last week and was poised for further upside on fresh news from North Africa and the Middle East, where revolutions which deposed the presidents of Tunisia and Egypt have inspired protests across the region, threatening the grip of long-entrenched autocratic leaders.

Spot gold

[XAU=X  Unavailable      ()]

inched up 0.5 percent to $1,396.10 per ounce, its highest since Jan. 4, and compared with $1,388.58 an ounce late in New York on Friday.

Bullion has risen for five straight sessions, its longest winning streak since September. U.S. markets are closed on Monday for a holiday.

U.S. gold futures for April delivery

[GCJ1  1395.80    7.20  (+0.52%)]

also climbed 0.6 percent to $1,396.60 per ounce, compared to Friday's settlement at $1,388.60.

"With the unrest in the Middle East and North Africa, dealers couldn't leave for a long weekend with short positions, and this reflects investor sentiment for flight to safety," said Yuichi Ikemizu, Tokyo branch manager for Standard Bank, adding that gold prices were likely to keep inching higher.

Spot gold may rise to its Jan. 3 high of $1,423.57 per ounce as it has ignored bearish signals and continued to shoot up, says Wang Tao, a Reuters market analyst for commodities and energy technicals.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust

[GLD  135.41    0.37  (+0.27%)]

, said holdings fell to 1,223.098 metric tones by Feb. 20, its lowest in nine months, from 1,224.008 metric tones on Feb. 15.

Traders said there was slightly higher demand for gold bars in the Middle East, mainly due to the unrest.

Expectations for growing industrial demand on an improving world economy and a rally in the overall precious market also helped hoist silver to its highest level since 1980, surpassing the previous 31-year high marked on Friday.

But Ikemizu said there were signs that silver may peak out.

A deepening backwardation — which means futures are cheaper than spot prices — reflects tightness in the market. The gold/silver ratio — the number of ounces of silver needed to buy an ounce of gold — fell to its lowest in 13 years at under 43 on Friday as silver prices outperformed, which means silver has become more expensive relative to gold.

"The silver market may be close to seeing a squeeze," Ikemizu said.

Spot silver

[XAG=  32.99    0.53  (+1.63%)]

rose to a high of $33.08 an ounce, its highest since 1980.

Holdings in the world's largest silver-backed exchange-traded fund, iShares Silver Trust

[SLV  31.7875    0.7575  (+2.44%)]

, rose to 10,519.05 metric tones by Feb. 18 from 10,438.56 metric tones on Feb. 17.

Platinum gained 0.7 percent to $1,846 an ounce while palladium hit a 10-year high of $855.50 in early trade.

Traders said platinum and palladium may see further gains on a solid demand outlook and supply concerns.

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Dozens of people were

Dozens of people were reported killed in Libya overnight as anti-government protests reached the capital for the first time and several cities in the east appeared to be in the hands of the opposition.

Supporters of Libyan leader Moamer Kadha
Mahmud Turkia / AFP/Getty Images
Libya's unrest spread to the capital Tripoli on Sunday after scores of protesters were killed in the second city Benghazi.

One of Muammar Gaddafi's sons said the veteran leader would fight the popular revolt that has shaken his 40-year rule until "the last man standing." Anti-government protesters rallied in Tripoli's streets, tribal leaders spoke out against Gaddafi, and army units defected to the opposition in a revolt that has cost the lives of more than 200 people.

Protesters said they had taken control of Benghazi in and one other city.

Output at one of the country's oil fields was reported to have been stopped by a workers' strike and some European oil companies withdrew expatriate workers and suspended operations.

Most of the country's oil fields are in the east, south of Benghazi, the cradle of the current unrest.

Anti-government protests have also broken out in the central town of Ras Lanuf, the site of an oil refinery and petrochemical complex, Libya's Quryna newspaper reported on its Internet site on Monday.

The town is in Sirte, Gaddafi's home region.

A coalition of Libyan Muslim leaders told all Muslims it was their duty to rebel against the Libyan leadership because of their "bloody crimes against humanity." With autocratic governments already toppled by popular uprisings in Tunisia and Egypt, there was a sense that Gaddafi's iron grip was being severely tested.

In signs of disagreement inside Libya's ruling elite, the justice minister resigned in protest at the "excessive use of violence" against protesters.

Libya's ambassador to India told the BBC he was resigning in protest at the violent crackdown.

European nations watched developments in Libya with a growing sense of alarm after the government in Tripoli said it would suspend cooperation on stemming the flow of illegal immigrants across the Mediterranean.

British Prime Minister David Cameron, on a visit to the region, said events in Libya were appalling and unacceptable.

Al Jazeera television quoted medical sources as saying 61 people had been killed in the latest protests in Tripoli.

It said security forces were looting banks and other government institutions in Tripoli, and protesters had broken into several police stations and wrecked them.

A Reuters reporter in Tripoli said residents were stocking up on essential goods, apparently in anticipation of new clashes after nightfall.

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