Baltic Dry Index. 3844 +41
LIR Gold Target by 2019: $3,000.
We are, as I have said, one equation short.
John Maynard Keynes.
Up first this morning, the early word on the US – China Strategic and Economic Dialogue talks. Ever so politely the US asks China to keep buying US bonds and to revalue the yuan against the dollar. Right now, pegged to the dollar, it is only inadvertently revaluing against the dodgy Euro and the competitively devaluing UK Pound. Rather less politely, China says that they will revalue the yuan when they feel like it, and that they will switch to pegging the yuan to a basket of currencies at some point ahead. That point is likely to be sooner rather than later if the dodgy euro keeps on disintegrating. The EU is now China’s largest export market and the falling Euro has now squeezed China’s profit margins to the point of non existence. Tying the Yuan to the falling Euro, makes a whole lot of sense, but only if the Euro is going to stay around. Last week we learned that President Sarky threatened to pull France out of the Euro if Germany’s Chancellor Merkel didn’t reverse her position on bailing out Greece, she did, and that Germany is now advocating a mechanism for tossing out the failing states in the EMU that won’t shape up. Floating in the background, the threat of Germany using its EMU exit clause and setting up a new D-Mark block, converting the Euro overnight into a worthless Club Med lira-like currency. China will wait to see what happens in the continuing EMU crisis.
Below, Bloomberg covers the world’s largest debtor visiting its largest creditor.
If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.
John Maynard Keynes.
Hu Says China Will Move Gradually on Yuan Policy
May 24 (Bloomberg) -- President Hu Jintao said that China will move gradually and independently in making changes to the nation’s exchange-rate mechanism as talks with the U.S. opened in Beijing today.
China will continue to “steadily advance” reform “under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making.
U.S. Treasury Secretary Timothy F. Geithner said today that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model. So far, China has resisted calls from trading partners to let the yuan strengthen after maintaining a peg of about 6.83 to the U.S. dollar for 22 months as a crisis policy.
Hu is “sending a signal” that China is working on the currency issue even if the nation isn’t yet ready to announce a policy shift, Frank Lavin, a former U.S. undersecretary of commerce, said on Bloomberg Television in Hong Kong today. “They are trying to say we know this is high on your agenda.”
---- Zhang Xiaoqiang, vice chairman of China’s National Development and Reform Commission, said the currency’s exchange rate wasn’t mentioned in talks this morning between officials including central bank governors Zhou Xiaochuan and Ben S. Bernanke. China hasn’t changed its yuan policy, Zhang added at a press briefing.
Both nations’ representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn’t solid and Europe’s sovereign-debt crisis has added to uncertainties, Zhang said.
----- “Both the U.S. and China agree on something: that is that China will switch from a peg to the dollar to a peg to a basket” of currencies, Lu Ting, Hong Kong-based economist with Bank of America-Merrill Lynch, said on Bloomberg Television. “The timing of the initial move and whether or not there will be a one-off revaluation, those will be the questions.”
As the two-day Strategic and Economic Dialogue began, Geithner said that the U.S. and China shared the goals of a more balanced world economy and stronger economic ties.
Chinese Vice Premier Wang Qishan said that the European crisis had “impacted market confidence.”
“It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYa6CCwhHkpg&pos=3
Next, more on last week’s Euroland crisis. Below the Telegraph covers the failure at the ECB and its irrelevance so far in the continuing crisis. Unfortunately the article proposes the same tired old Keynesian solution that got us into the crisis in the first place. The answer, it seems, is to get Germany to act like spendthrift Greece! Why getting the doctors to drink like the drunks they’re treating is still proposed as a solution to our problems, isn’t a mystery, it’s a reflection that mainstream economists are still in denial that the problem stems from the great Nixonian error of forcing the world on to a fiat currency reserve standard, dependent on the honesty of Wall Street and US politicians. Time to double up gold and silver holdings.
When the ECB should be about leadership, all Europe has is chaos
Many in the markets now fear a full-scale financial meltdown, amounting to a second Lehmans crisis. Last week's weakness in world equity markets was not so surprising.
By Roger Bootle Published: 5:40PM BST 23 May 2010
-----The horrors that beset the banks in the financial meltdown have not so much been dealt with as transferred from the private to the public sector. All along, the danger was that if a recovery in private sector spending did not cause public deficits to fall back sharply, then a crisis of confidence would cause a spike in bond yields. Alternatively, sharp and early fiscal tightening would send the economy back into recession. The present crisis is based on both of these threats.
-----What really spooked the markets last week was the evidence that eurozone unity is cracking. First came the story that at the summit to put together the "shock and awe" rescue package, President Sarkozy had banged the table and threatened to pull France out of the euro. Germany's Chancellor Merkel, having been forced to go further than she wanted to, later claimed that the very existence of the euro was at stake, and if the euro failed then Europe would fail.
This is the context in which the German announcement of measures to ban so-called "naked short-selling" rattled the markets. It wasn't so much the direct effect of such measures but the shock of seeing Germany going it alone and the premonition that this could be the way of the future.
There is a worrying parallel here with the 1930s. It is widely believed that the Great Depression was worsened, if not caused, by mistakes made by the US Federal Reserve. It is noteworthy that at the time the Fed was extremely young and inexperienced. It had only been established in 1913.
No prizes for guessing which modern central bank falls into that category. In fact, the weak link now is not so much the European Central Bank as such, but rather the whole European economic and political system. This is a time when what is required is strong economic structures, powerful institutions and a clear political will. It is no accident that the half-baked scheme called EMU, without a common fiscal policy or common political institutions and certainly without strong popular support across Europe, came into being at a time of comparative stability well before the financial collapse.
-----If there is to be economic recovery then there will have to be increased spending. If there is to be increased spending without increased borrowing then those entities that are sitting on piles of cash must spend it.
Below, more from the NY Times and the Wall Street Journal. This Euro crisis is going to simmer all summer and explode again in the autumn I think. Unhappily, Germany’s “Iron Chancellor” has turned into plastic.
How Will Greece Get Off the Dole?
By TYLER COWEN Published: May 21, 2010
GREECE is a relatively wealthy country, or so the numbers seem to show. Per-capita income is more than $30,000 — about three-quarters of the level of Germany.
What the income figures fail to capture is the relative weakness of Greece’s economic institutions. They are not remotely comparable to those of Germany and some of the other better-governed European Union nations, which is why the current crisis will prove so difficult to solve.
The European Union and the International Monetary Fund have arranged an enormous bailout package. But it’s not just a question of supplying funds to get Greece through a short-term debt crisis, or of cutting the Greek government budget, but of whether the country will see much future economic growth.
Consider the World Bank’s Doing Business index, which ranks countries according to the quality of their regulatory environment for commerce. The index places Greece at No. 109, just behind Egypt, Ethiopia and Lebanon. For the category of “high-income countries,” the Greek ranking is next to last, ahead of only Equatorial Guinea, which has oil wealth.
Greece has a malfunctioning fiscal system in which the shadow economy is estimated to be roughly 20 to 30 percent of the reported economy and tax evasion may run at $30 billion a year. Simply collecting taxes that are legally due would help bring Greece’s books into balance, yet even this simple remedy does not appear imminent.
-----Over all, the greater expense of Greek goods and services, which are paid for in euros, lowers the country’s international competitiveness. Ideally, they should be priced in a weaker currency, which would be appropriate for a poorer country.
Over time this problem will worsen if productivity in Germany and France grows at consistently higher rates and the value of the euro puts Greek exports increasingly out of sync with market realities. One painful way out of this dilemma would be for Greece to engineer a continuing deflation of wages and prices, but Greek voters have already taken to the streets to pressure their government to preserve salaries and benefits, and planned deflation is difficult to sustain in any case.
----At this stage, it’s a moot point whether Greece is a poor country masquerading as a wealthy country or vice versa. The announced bailout requires that an ailing Greek economy borrow and repay even greater sums of money. If the old illusion was that Greece was a wealthy country, the new illusion is that Greece will, in short order, become wealthy enough to pay back ever-growing sums of debt.
Since the Greek economy accounts for only about 2 percent of the euro zone gross domestic product, in theory it could be made a permanent recipient of largess. Yet that’s hardly an appealing solution, both because Portugal, Spain and others might want the same deal and because Europe doesn’t have much social solidarity across national boundaries.
----GREECE is not the only country that suddenly feels poorer. Britain faces budget deficits at about 12 percent of G.D.P., and Italy has a debt-to-G.D.P. ratio of 110 percent. In the United States, the housing and job markets are recovering only in fits and starts and we face significant future Medicare liabilities. This is the era of the rude economic awakening, and Greece is simply an extreme manifestation. The new European bailout plan is a denial of this truth rather than recognition of the new reality that a lot of countries, most of all Greece, aren’t as rich as we used to think.
http://www.nytimes.com/2010/05/23/business/global/23view.html?ref=business
MAY 24, 2010
Merkel Faces Loss of Political Clout
German Backlash Puts Pressure on Chancellor to Resist Efforts for Greater Euro-Zone Integration Amid Debt Crisis
BERLIN—German Chancellor Angela Merkel faces a growing popular backlash over her handling of the European debt crisis that could undercut efforts to forge closer integration of the euro zone.
Recent poll data suggest that a majority of Germans have lost confidence in Ms. Merkel's leadership ability while support for her center-right coalition has reached a low point.
More than 60% of Germans believe Ms. Merkel has shown poor leadership during Europe's debt crisis and that she no longer has full control of her government, according to a poll by research institute Emnid and German television news channel N-24 that was published late last week.
The latest poll data follow a stinging election defeat for Ms. Merkel's coalition this month that cost it control of Germany's upper house of parliament and the power to push through legislation on its own.
Taken together, the developments indicate Ms. Merkel lacks the political capital she would need to push through overhauls of the euro zone that could cost Germany some sovereignty over its budget and economic policies, analysts say.
A consensus has been building among economists and European Union officials that euro-zone members need to closely coordinate fiscal policies to prevent future crises like the one that has pushed Greece to the brink of default.
Many economists believe such cooperation would be necessary to alleviate the chronic imbalances that currently exist between Germany and much of the rest of the euro zone.
Yet Germany, the political and economic linchpin of the 16-nation currency bloc, has resisted proposals for deeper integration that would force countries to coordinate economic and tax policies. That position is in keeping with Germany's traditional stance on closer integration within the euro zone. But some political observers say that Ms. Merkel, a pragmatist with a record of bucking party ideology, might support deeper reforms to keep the euro zone intact if she could.
We end for today with what’s shaping up to be make or break week for BP. BP said Friday, that they hope to have the oil leak stopped this week. I can only hope that they succeed. I sense that the long suffering, outraged US public have just about lost faith in BP. The suspicion is that all along BP has been hiding the full scale of the Deepwater Horizon oil spill, and that all along it’s known that the only way of stopping it is via one of the two relief wells being drilled and hopefully ready by late July. If BP again fails the public’s expectations this week and the spill continues or even gets worse, public pressure will be unstoppable to remove BP from coordinating the response. Once BP loses control of the disaster, BP will no longer be in control of the costs. BP’s profits will be going to people other than the owners for years to come.
MAY 23, 2010, 1:42 A.M. ET
BP Chief Warns New Effort to Cap Leak Isn't Guaranteed
LONDON—BP PLC's chief executive told staff he was frustrated by the company's failure to stop an oil leak in the U.S. Gulf of Mexico and warned an attempt to do so starting next week could fail.
In an email to staff late Friday, Tony Hayward said, "Like all of you, and the outside world, I have shared a huge sense of frustration that we have not yet been able to stop the leak" that started a month ago when a rig leased by BP exploded and sank in the Gulf of Mexico.
Mr. Hayward said that an effort by BP to cap the well using heavy drilling fluids, a process known as "top kill" that's due to be implemented early next week, "would be another first for this technology at these water depths and so, we cannot take its success for granted."
BP said it would be at least Tuesday before engineers could start attempting the top kill, Associated Press reported.
Should the effort misfire, scientists told AP, it could lead to new problems. Ed Overton, a Louisiana State University professor of environmental studies, said the crippled piece of equipment called a blowout preventer could spring a new leak that could spew untold gallons of oil if there's a weak spot that is vulnerable to pressure from the heavy mud.
-----The U.K.-based oil giant has been using long tubes to siphon oil from the damaged well and transfer it to a vessel on the ocean's surface. BP was collecting about 2,200 barrels a day from the well, a company spokesman said Saturday. The rate was in line with the amount that BP said was being collected the previous day.
On Thursday, BP had said that it was collecting 5,000 barrels a day, which until then had been the official estimate of the rate of oil flowing from the well a mile below the water's surface. BP was forced to acknowledge that officials didn't have a clear sense of how much oil was leaking.
In recent days, just as heavy oil started to make landfall on the Louisiana shore, BP and government agencies have come under intense pressure to provide a clear sense of how large the leak is. Lawmakers have posted on the Internet BP's videos of the leak—shot by the robots—showing a dark cloud of oil continuing to billow toward the surface.
BP, the U.S. Coast Guard, the National Oceanic and Atmospheric Administration, the Minerals Management Service, the Department of Energy and the U.S. Geological Survey have formed a task force to provide a new estimate of the oil flow from the well. The work of the task force is expected to be completed this weekend.
Louisiana demands federal action on dredge plan
By the CNN Wire Staff May 24, 2010 -- Updated 0358 GMT (1158 HKT)
Venice, Louisiana (CNN) -- Frustrated Louisiana officials Sunday demanded the federal government approve their plans to dredge up walls of sand to protect delicate inland estuaries from the Gulf of Mexico oil spill.
"Either the Coast Guard has to side with its American citizens and protect its communities, or it has to side with a major world corporation named BP and betray American citizens in that process," St. Bernard Parish President Craig Taffaro told reporters.
With oil sloshing ashore along the state's barrier islands and seeping into marshes around the mouth of the Mississippi River, state and parish leaders want to use dredges to close channels between the Gulf and the coastal estuaries.
They said those plans have been held up by the Army Corps of Engineers and the agencies in charge of the spill response, including the Coast Guard and BP, the company responsible for the spill.
Coast Guard Rear Adm. Mary Landry, the federal on-scene coordinator for the response effort, told reporters the barrier island project was still under review. Environmental and wildlife officials "are weighing in on the impact to endangered and threatened species and other impacts this large-scale project could have," she said.
http://edition.cnn.com/2010/US/05/23/oil.spill.louisiana.officials/index.html?hpt=T2
The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.
John Maynard Keynes. 1935.
At the Comex silver depositories Friday, final figures were: Registered 53.22 Moz, Eligible 63.36 Moz, Total 116.58 Moz.
Day 15 of Hitler’s attack in the west that almost brought down western civilization. We continue our daily update on the “Dunkirk” page.
Dunkirk & the Battle of France – Day by day 70 years on.
http://londonirvinereport.blogspot.com/p/dunkirk-battle-of-france.html
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Crooks & Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today, more follow up on Mossad’s embarrassing “Pink Panther” operation in Dubai. The whole point of a secret service is that its activities are supposed to stay secret. Success is known only to a handful of the need to know senior echelon. In our dumbed down 21st century world, this operation is widely watched on YouTube, and was a direct affront to the whole idea of international cooperation among western intelligence agencies. Below, Australia confirms what all intelligence agencies have known for months.
Dreyfus: The beggar was the lookout man for the gang.
Clouseau: That is impossible. How can a blind man be a lookout?
Dreyfus: [Insinuating Clouseau] How can an idiot be a police officer?
Clouseau: Well, all he has to do is enlist...
Dreyfus: Shut up!
Sydney: Israel faked Australia passports in Hamas op
By the CNN Wire Staff May 24, 2010 -- Updated 0529 GMT (1329 HKT)
Melbourne, Australia (CNN) -- Australia on Monday called for the expulsion of an Israeli diplomat over fake passports used in the assassination of a Hamas operative in the United Arab Emirates.
An investigation had confirmed that Israeli agents were behind the forgery of Australian passports used in the January 20 killing of Mahmoud al-Mabhouh, a founding member of Hamas' military wing, Foreign Minister Stephen Smith said.
The four Australians whose passports were used were victims of passport fraud and had nothing to do with the killing, he said.
Smith did not elaborate whom Australia wanted expelled from the Israeli diplomatic mission in Canberra but said diplomat has to leave within the week.
He briefed parliament on the results of the investigation Monday morning and said the forgeries were so sophisticated, only a state intelligence service could have carried them out.
"These investigations and advice have left the government in no doubt that Israel was responsible for the abuse and counterfeiting of these passports," he said.
Smith said the decision to call for the expulsion was made after consultation with the British, American and United Arab Emirates foreign ministries. The forgeries, he said, "are not the actions of a friend."
"Australia's relationship with Israel has always been founded on a basis of mutual respect and trust. But Israel's actions in this regard have undermined that respect and trust," Smith said, addressing lawmakers. "Mr. Speaker, the government takes this step much more in sorrow than in anger or retaliation. It is a decision taken in our national security interests.
---- A total of 28 suspects have been identified by Dubai police. The suspects are believed to have acquired faulty passports to arrive in Dubai for the killing and then fled to other far-flung locations, police said.
The 26 named suspects do not include two Palestinians previously arrested in Jordan and returned to the United Arab Emirates.
The suspects used British, Irish, French, Australian and German passports.
In February, the European Union condemned the use of false EU passports in connection with al-Mabhouh's slaying.
Police in Dubai said toxicology results show al-Mabhouh was injected with succinylcholine, a drug used to relax muscles during surgery or as an anesthetic, before he was suffocated.
http://edition.cnn.com/2010/WORLD/asiapcf/05/23/australia.israel/index.html?hpt=P1
The monthly Coppock Indicators finished April:
DJIA: +245 UP. NASDAQ: +448 UP. SP500: +276 UP. The great Bull market goes on with the all three continuing higher in positive numbers. But how much Bull is enough?
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Help the LIR fight Banksterism, the EU, and for sound money.
If you can, help the LIR stay around and make a difference. Please make a donation at the PayPal link on the website or better still become a sponsor for what looks like an exciting 2010. Capitalism not banksterism. Many thanks to all who have helped.
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Sunspots – A 22 year colder world? (From 2004?)
Spotless Days May 21
Current Stretch:0 days
2010 total: 33 days (24%)
2009 total: 260 days (71%)
Since 2004: 802 days
Typical Solar Min: 485 days
The long minimum seems to have ended, or has it?
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