Good Day,

Mounting concerns that the EU 'assistance' package for Greece is crumbling fast depressed the euro-gold-oil trio early this morning. Concurrently, the US dollar drew new strength from the situation and was able to vault back to above the 80.00 level on the trade-weighted index. Suggestions (mainly of German origin) are now being floated that Greece should knock on the IMF's door for help. Just how the IMF might help Athens out of the credit swamp remains unclear at the moment. However the time is approaching when someone, somewhere, has to pull a trigger and offer a concrete, workable plan.

Such reflections of the deep split between Greece (in need) and Germany (reluctant to give) and the sizeable distance from any imminent solution to the problem made for a near-total dissipation of the optimism being shown just last week about the state of the crisis. Recall Mr. Prodi's assurances that the Greek crisis was fully over, in his opinion. Well, we are left with that opinion but facts that are starkly the opposite of it. The euro thus lost some 0.6% and fell against all but two of its 16 rivals this morning.

Gold, which has been fairly closely shadowing the common currency, also ran into a bit of difficulty ahead of the NY market's opening, as the impasse surrounding Greece roiled markets in the early hours on Thursday. Albeit the overnight trading range was rather narrow ($1118-$1128) the metal appears to have lost at least part of the traction it gained following the gift of continuing freebie dollars aimed at the carry trade, courtesy of the US Fed the other day.

Spot bullion dealings in New York opened with mixed showings this morning. While gold was ahead by $1.20 per ounce and was quoted at $1126.30 on the bid side, silver was down a couple of cents at $17.49 per ounce. Resistance in gold remains overhead at the $1145 area but the metal has thus far had some trouble clearing the $1130.00 mark. ETF holdings remained flat at 1115.5 tonnes for a fifth session.

Meanwhile, last year's uptake of some 425 tonnes of yellow metal by certain central banks represents the largest such amount that the official sector has added to its collective basements since 1964. Such a shopping spree is not likely to recur in 2010 however, as New York's CPM Group envisions only between 190 and 220 tonnes of bullion being added to institutional reserves in the next twelve months or so. This, of course, does not take into account possible one-off sales by cash-strapped PIIGS (or others).

As we have oft-repeated here, some will buy, some will sell. It is part of on-going (and internal policy-driven) reserve management. The good news is that heavy (5,950 tonne) dis-hoarding such as seen in the previous nine years, may have run its course. Central banks that wanted to lighten up on their gold stash have largely done so already. This may not necessarily imply that equally heavy re-hoarding is about to occur, however.

London-based RBS analyst Nick Moore opines that near-record gold prices may keep official sector buyers at bay. In his words, central banks might feel somewhat embarrassed to be buying gold at records. When you have an asset trading at an all0toime high, the temptation is not to purchase more.

Platinum and palladium both fell; the former losing $6 at $1623.00 and the latter showing a $7 decline at $470.00 the ounce. Rhodium remained at $2380.00 per troy ounce, after having fallen $10 on Wednesday. These indications were all unfolding against a marginally less buoyant US dollar (at 79.99 on the index and at the 1.367 mark vis-à-vis the euro) and a still-falling oil price at $82.21 per barrel.

This morning's US economic statistics indicated that first-time jobless claims fell by 5,000 positions in the week that ended Friday. The seasonally-adjusted figure now stands at 457,000 but last week's drop marks the third consecutive week of such declines. The data gave US stock futures as well as the US dollar a bit of a morning lift equivalent to a nice, single-shot of economic espresso.

The economic aforementioned caffeine is not however quite as robust as some would prefer it to be; it turns out that although US leading economic indicators marked their eleventh straight gain in February (with a rise of 0.1%), their arrows continue to point at a sluggish-at-best recovery. Consumers appear to be less inclined to consume, thus making for tenuous conditions on the job growth front. Consumer prices appeared to be about as flat in February as were consumers' wallets; core CPI rose 0.1% -if one wishes to call that a 'rise.'
Finally this morning, a Business Week piece that all but applies sutures to the gaping wound that the Greek credit crisis has engendered over in Europe. The speculation, by PIMCo.'s (the world's largest bond fund) co-chief investment officer Mohamed El-Erian goes something like this:

The IMF will come in, but it's going to be a bumpy road, said El-Erian, co-chief investment officer at Pacific Investment Management Co., in an interview on Bloomberg Radio. There is no immediate solution. Don't underestimate the game of chicken between Greece, the EU and the IMF.

The nagging question around here remains: where will the IMF get the dough with which to plaster the cracked Greek amphora? Your guess is as good as ours. It has come to the source of last resort. The IMF was the brainchild of Messrs. Keynes and White with the objective that a stable world monetary order is the sine qua non requirement for global prosperity (and peace, we might add).

A brief quote from the IMF's mandate should clarify where this Greek thing may be heading...:
to promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems; [and] ... (v.) to give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

Maladjustments and collaboration as well as general resources - beautiful euphemism, one and all. The IMF is presently unable to meet the needs of several emerging markets in Asia, Africa, and South America, let alone those of the G-8. It has had trouble meeting its own balanced balance sheet. Witness the need to let go of 403 tonnes of its gold to plug its budgetary shortfall.

In order to get a loan from the IMF in the first place, a country has to stick to what is called Structural Adjustment Programs (another pretty euphemism for getting thy act together). Now, Greece has been maligned all sorts of ways and we will not go into details on which allegations ring true or not. However, what Athens faces-should it seek an IMF helping hand- is a long string of painful to-do's including:

Limits on money growth, reformation of its tax code, the removal of tariffs and/or quotas, cutting the government's size, shrinking the public sector, and reforming public administration. Among other measures that were last practiced by one Mr. Draco, in...ancient Greece, of all places.

Long story, short: you already know how the austerity measures demanded by the EU previously have gone over in Greece. Not very well at all. And now, we have the best/final solution at hand? Wonder what it will bring....

And so the world turns...on these last few days of winter...
Jon Nadler