International Forecaster Weekly

Pressure Put On Massive Governmental Debts By Fed

Iowa vote tally anticipates occupy protesters, Japan shores up the dollar with Yen, need to know who is segregating client funds, Fed to be a litle more accountable, Trillions and trillions of debt held by governments around the world.

Bob Chapman | January 4, 2012

The Iowa Republican party is moving its caucus night vote counting operation to an undisclosed location because of planned "Occupy Iowa Caucus" protests.

State GOP chair Matt Strawn was critical of the protests and said it's ironic that the Occupy movement is focusing on the Iowa caucuses.

"There's really no more grassroots process in American politics than the Iowa caucuses," Strawn said in an interview. "So it's a little puzzling why they'd choose to disrupt that process."

Strawn said the party is coordinating with local law enforcement to ensure smooth operations next Tuesday at the 1,774 precincts around the state.

"We're taking additional safeguards when it comes to the counting and tabulating and reporting of the caucus night results to make sure they're done in a timely and accurate fashion," he said.

In past years the counting took place at Republican Party headquarters, Strawn said. On Tuesday, it will happen at a secret location that will be known to the campaigns, which will have representatives on hand to view the vote count.

Strawn wasn't specific about caucus night concerns, but a handful of protesters were arrested on Wednesday trying to enter the Des Moines campaign headquarters of Mitt Romney.

Occupy activists from around the country have convened in Iowa to join local activists in an effort to draw attention to economic and political inequities.

Arthur Sanders, professor of politics at Drake University in Des Moines, said they area already succeeding by that measure.

"They see an opportunity to draw attention to what they think is important, which is a very different agenda than the Republican candidates have," he said. "They'll get the attention they want."


Gold Radio Cafe: The Gold and Silver Financial Review With Bob Chapman


Interview 441 – Bob Chapman


Last week the Dow fell 0.6%, S&P 0.6%, the Russell 2000 1.0% and the Nasdaq 100 fell 0.4%. Cyclicals were unchanged, transports fell .07%; consumers fell 0.4%; utilities rose 0.4%; banks fell 1.4%; broker/dealers fell 1.8%; high tech fell 10.7%; semis fell 1.1%; Internets fell 0.8% and biotechs rose 1.5%. Gold bullion fell $43.00; the HUI gold index fell 2.6% and the USDX rose 0.2%.

The 2-year US T-bill fell 4 bps to 0.23%. The 10-year T-note fell 15 bps to 1.88% and the 10-year German bund fell 13 bps 1.82%.

Freddie Mac’s 30-year fixed rate mortgages were up 4 bps to 3.95%. The 15’s were up 3 bps to 3.24%; one-year ARM’s rose 1 bps to 2.78 and the 30-year fixed rate jumbo fell 1 bps to 4.67%.

Fed credit surged $35.4 billion to a record $2.920 trillion. Fed foreign holders of Treasuries and Agency bonds fell $20.3 billion to $3.420 trillion. Custody holdings of foreign central banks rose 2.1% ytd, or by $69.9 billion.

M2 narrow, money supply fell $6.4 billion to $9.666 trillion. That is up 9.6% ytd.

Total money fund assets rose $2.6 billion to $2.695 trillion.

Total commercial paper out fell $27.2 billion to $959 billion.


The drop in foreign holdings would be far more pronounced had Japan not intervened to buy dollars and sell yen during August and October. The proceeds of dollar purchases, seen in the vicinity of $100 billion in October, went mainly into the Treasury market…Late on Friday the New York Fed announced that the central bank plans to purchase approximately $45 billion and sell approximately $44 billion in Treasury securities under Operation Twist over the month of January. 

The City regulator is under growing pressure to launch a review into its handling of MF Global's UK administration amid accusations it neglected clients of the failed broker.

MF Global filed for bankruptcy protection in New York in October after making disastrous bets on the bonds of Europe's most indebted countries.

Despite this, UK clients of the company have complained that hundreds of millions of funds held in segregated customer accounts entirely separate from the broker continue to be held by administrators weeks after its collapse.

The KPMG-led administration is the first under the Financial Services Authority's (FSA) new "Special Administration Regime" (SAR) designed to speed up the return of assets to creditors and improve cross-border co-operation between authorities.

Paul Gleeson, of Arcanum Asset Management, said: "Since the end of October, I have made numerous attempts to talk to someone at the FSA who can explain to me why cash held in segregated accounts cannot be distributed. I have written twice to Hector Sants [FSA chief executive] without reply.

"Those questions have huge implications for the broking industry. How do we know which firm is actually segregating client funds? Hector Sants has got to be accountable. Each inquiry I made to the FSA I was told to contact KPMG."

Last month KPMG said it had located all of MF Global UK's money and had so far collected 82pc of clients' segregated-fund assets. However, clients will not receive their money until later this year.

Since then, James W Giddens, the trustee liquidating MF Global's US business, said he is seeking the return of more than $600m (£383m) from the broker's UK business, sparking fears of a cross–border fight over customer funds.

Mr Giddens said he had identified up to $700m in US customer funds at MF Global UK. That money, he said, was held for clients who traded on foreign exchanges.

A spokesman for the FSA said: "Under the SAR extensive work has been carried out by KPMG and the FSA to ensure the swift return of client money and assets. In what has been an extremely complex process to get to a position whereby KPMG have announced an interim distribution as soon as practicable represents considerable progress."


The Federal Reserve will start updating the public four times a year on how long it plans to keep short-term interest rates at record lows, according to minutes from its December policy meeting.

The change marks a significant shift in the Fed's communication strategy. It could help assure investors, companies and consumers that rates won't rise before a specific time. This might help lower long-term yields further in effect providing a kind of stimulus.

The Fed has previously said that it plans to keep its key short-term rate near zero until at least mid-2013, unless the economy improves.

The Fed has left rates near zero for the past three years.

After its Dec. 13 meeting, the Fed issued a policy statement that portrayed the U.S. economy as improving slightly. But the central bank declined to take any additional steps to boost growth.

The minutes also suggest the Fed could be poised to launch some new step to invigorate the economy. Some members favored bolder action but said they wanted to wait until the more explicit communication policy was in place.

"The potential for increased transparency is a positive," said Michael Murphy, managing partner and CEO of Rosecliff Capital. "It will give the markets more access to the thought process of the FOMC. It could definitely wreak havoc if they are not clear on what they are trying to accomplish."

In January, the Fed will release an interest rate forecast for the fourth quarter of 2012 and for the next few calendar years. It will update that forecast four times a year.

A Margin for Error in Hedge-Fund Filings [This does NOT include mark to fantasy positions.]

For years, finance experts have put together statistical analyses that suggest something fishy is going on with some of the reported returns in a large universe of hedge funds. New analysis conducted by Gjergji Cici of the College of William and Mary, and Alexander Kempf and Alexander Puetz of the University of Cologne adds to the questions.

Their research shows the valuations hedge funds report for their stocks in quarterly filings with the Securities and Exchange Commission are sometimes at odds with actual stock prices. The economists say the results, which they'll present at the American Finance Association's annual meeting in Chicago next week, suggest hedge funds "take advantage of lax regulation by strategically fudging equity position valuations to impress...potential or existing clients."…

More pointedly, they found that fund companies whose holdings exhibited significant price discrepancies were more likely to report smoother monthly returns to hedge fund database providers than other funds were. Moreover, price discrepancies went in the direction of return-smoothing. In good times, valuations were marked below quarter-end closing prices and in bad times they were marked up.

Investors gravitate toward funds whose performance is less volatile, and lower measured volatility also gives funds the green light to use more leverage…

But in the absence of a good explanation, the research raises the more tantalizing question of what similar analysis of harder-to-value holdings like complex bonds or derivatives would throw up.


Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.

Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year


Manufacturing in the U.S. grew in December at the fastest pace in six months, bolstered by gains in production and orders that show the industry remained at the forefront of the expansion entering 2012.

The Institute for Supply Management’s factory index climbed to 53.9 last month from 52.7 in November, the Tempe, Arizona- based group’s data showed today. Fifty is the dividing line between growth and contraction, and economists surveyed by Bloomberg News forecast the gauge would rise to 53.5.


Construction spending increased 1.2 percent to an annual rate of $807.1 billion, the highest level since June 2010, the Commerce Department said on Tuesday.

Spending in October was revised to a 0.2 percent fall, after initially reported as a 0.8 percent rise.

Economists polled by Reuters had expected construction spending to rise 0.5 percent in November.

Overall construction spending was up 0.5 percent compared to November 2010.

Private construction spending rose 1.0 percent, advancing for a fourth straight month. Spending on residential projects increased 2.0 percent, with solid gains in both multifamily and single family homes.


Governments of the world’s leading economies have more than $7,600,000,000,000 of debt maturing this year, with most facing a rise in borrowing costs. Led by Japan’s $3,000,000,000,000 and the U.S.’s $2,800,000,000,000, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7,400,000,000,000 at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by year-end for at least seven of the countries, forecasts show….

Country    2012 Bond, Bill Redemptions ($), Coupon Payments

Japan             3,000 billion                   117 billion

U.S.               2,783 billion                   212 billion

Italy               428 billion                   72 billion

France            367 billion                    54 billion

Germany         285 billion                   45 billion

Canada         221 billion                   14 billion

Brazil             169 billion                   31 billion

U.K.               165 billion                   67 billion

China             121 billion                   41 billion

India              57 billion                     39 billion

Russia            13 billion                     9 billion


Almost $6.3 trillion was erased from global stock markets this year as the Euro zone financial crisis reverberated across the world in the latter half of 2011, calling into question the future of the world’s largest currency bloc. Global stock market capitalization dropped 12.1 percent to $45.7 trillion according to Bloomberg data, while the Euro ended the year as the worst performing major currency after finally starting to succumb to the continent’s financial and economic woes in December.

The Euro had proved resilient for much of the year – burning hedge funds that bet on a steeper decline – but on Friday touched a 10-year low against the Japanese yen, and is near lows against the dollar last touched a year ago.

Lingerie retailer La Senza is to shut down 81 of its stores in another blow to the high street.

The closures, which will result in the loss of hundreds of jobs, comes in the wake of similar announcements by a slew of retail chains in the past week.

And industry analysts are predicting up to 30,000 retail jobs could be wiped out this year as businesses struggle in a 'retail recession'.

La Senza sought administration last week and today its website confirmed that many of its 146 UK stores will be closing down. Among the casualties are branches in Bath, Belfast, Edinburgh, Newcastle and London.

The chain, which employs 2,600 staff, was founded in Canada in 1990 and now operates more than 480 stores in 45 countries.