Baltic Dry Index. 3115 -173
LIR Gold Target by 2019: $3,000.
`Sentence first--verdict afterwards.'
BP in Wonderland, with apologies to Lewis Carroll.
We open today with good news from China, at least that’s the way is spun on the newswires. Digging a little deeper, the news is less knee jerk good. China’s still largely command economy is under pressure from the authorities in the runaway real estate sector. Meanwhile, Europe’s falling euro and growing austerity bandwagon seems to be slowing China’s exports, plus lately the Baltic Dry Index seems to have reversed. Just possibly China’s great commodity restocking boom has come to its end.
China Leading Indicator Rises the Most in 14 Months
June 15 (Bloomberg) -- A leading indicator for China jumped by the most in 14 months, adding to signs that the world’s third-biggest economy is maintaining momentum as Europe’s debt crisis threatens to undermine the global recovery.
The measure gained 1.7 percent to 147.1 in April, compared with a revised 1.2 percent increase in March, The Conference Board said on its website today.
“China is performing among the best of any economy around the world,” Bill Adams, resident economist for the New York- based research organization, said in Beijing today.
The nation’s expansion could be capped by weakness in exports in coming months and a government crackdown to cool property prices, which rose at a near-record pace in May. The banking regulator warned today of growing risks of non- performing loans, especially in real estate, after unprecedented credit growth under the nation’s stimulus program.
Events in Europe are underscoring China’s importance as a driver of world growth. Moody’s Investors Service cut Greece’s debt rating to junk yesterday.
----- The increase in the indicator was the biggest since February 2009, Adams said in an e-mail today. At the same time, he highlighted a weakening in export orders over most of the past six months and a decline in consumer expectations in April, factors that may help to cool growth.
New construction work, the key factor pushing up the indicator in April, may not continue to grow so quickly, and, excluding real estate, “there is no strong basis for assuming accelerating growth” in China, he said.
Officials may introduce a trial real-estate tax after already tightening sales rules for developers, raising some down payment requirements and restricting loans for multiple-home buyers, according to state media.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ad4n45dz_b4k&pos=6
Staying with Asia, Japan is making yet another attempt to turn back deflation again. As with all before, this effort seems half hearted and unlikely to make much difference.
BOJ to Offer 3 Trillion Yen to Spur Corporate Loans
June 15 (Bloomberg) -- The Bank of Japan will offer as much as 3 trillion yen ($33 billion) in loans to companies for as long as four years in an effort to strengthen the economic recovery.
The loans will be channeled through banks, and the central bank will accept requests from lenders through March 2012, it said in a statement released today in Tokyo. Credit will be extended at the benchmark interest rate, which the board today unanimously voted to keep unchanged at 0.1 percent.
The plan is too small to lower borrowing costs and is unlikely to spur the economy or satisfy politicians, said economist Hirokata Kusaba. The program is the same size as last month’s auction of two-month government bills, and less than the capital raising mounted by Japan’s top three banks in the past 18 months.
“The new program is unlikely to make any contribution to growth in Japan,” said Kusaba, a senior economist at Mizuho Research Institute Ltd. in Tokyo. “The new administration won’t relent from pressure on the central bank to do more as it strives to restore the soundness of public finances without jeopardizing growth.”
----- “The most critical challenge the Japanese economy is currently facing is to raise the potential economic growth rate and productivity,” the bank said. Today’s measure “aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations of economic growth.”
-----Governor Masaaki Shirakawa instructed his staff to work on the credit plan in April, after previous efforts failed to stem the deflation that has discouraged spending and squeezed profits.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFwtjE6RDe1E&pos=1
In European news, surprise support from France for a split in the unloved, failing euro. AXA’s head of global fixed income, says the whole rose tinted, starry eyed euro “noble experiment” is now on the brink of failure. But will it fail before the end of the World Cup, ruining many Europeans holidays? Stay long precious metals. A failed Euro will likely bring crashing down the Fed’s gold and silver shorts. Time to get long a few puts on JP Morgan, HSBC and Ebenezer Squid’s Goldman Sachs.
As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise."
Jerome F. Smith
AXA fears 'fatal flaw' will destroy eurozone
Analysts at the French financial group AXA see a serious likelihood that the eurozone will break in half or disintegrate, dismissing Europe's €750bn (£623bn) rescue package for Club Med debtors as a stop-gap measure that misdiagnoses the problem.
By Ambrose Evans-Pritchard Published: 10:24PM BST 14 June 2010
"The markets are very nervous because they can see that there is a fatal flaw in the system and no clear way out," said Theodora Zemek, head of global fixed income at AXA Investment Managers.
"We are in a very major crisis that has even broader implications than the credit crisis two years ago. The politicians have not yet twigged to this."
Ms Zemek said the rescue had bought a "maximum" of 18 months respite before deeper structural damage hits home, with a "probable" default by Greece setting off a chain reaction across Southern Europe. "It would be the end of the euro as we know it. The long-term implications are at best a split in the eurozone, at worst the destruction of the euro. It is not going to end happily however you slice it," she said.
The warning came as Spain's authorities were forced to shoot down German media reports that Madrid was preparing to tap the rescue facility after ructions in the inter-bank market.
Carlos Ocampa, Spain's treasury secretary, said smaller Spanish banks are struggling to roll over debts but denied that the country is seeking outside help. "The rumour is false," he said.
Spanish banks increased reliance on funds from the European Central Bank to a record €86bn in May.
---- Greece's woes increased further as Moody's downgraded Greek debt to junk status, saying the "macroeconomic and implementation risks associated with the programme are substantial". The move is largely symbolic at this point since the European Central Bank has suspended its rating requirements for use of Greek debt as collateral for loans.
Greece is almost entirely shut out of the capital markets. Private investors are believed to have offloaded €25bn of Greek debt on to the ECB as it steps in to shore up the market, shifting the credit risk on to tax payers.
Axa said there was "no chance" that the EU's €750bn "shock and awe" shield will succeed since it treats Club Med's debt trap as a short-term liquidity crisis.
----- The strategy assumes that voters in Greece and other Club Med democracies will endure years of pain for the sake of foreign creditors. "It's a pipedream," said Ms Zemek.
Contagion from a Greek default would be harder to control than fallout from the Lehman collapse. "This has huge implications for banks. These bonds didn't just disappear; they went somewhere, allegedly into French money markets and insurance companies, or on to French balance sheets," she said.
The Bank for International Settlements said French and German lenders have $958bn (£650bn) in exposure to Greece, Ireland, Portugal and Spain, mostly in mortgage and company debt rather than sovereign debt.
Axa said the America's currency union is successful because Washington has over-riding legal powers over the 50 states. "It is a precondition for the system to work but it doesn't exist in Europe and the bond markets are starting to figure this out. We are looking at a noble experiment on the brink of failure," said Ms Zemek.
After focusing for the last couple of weeks on the sick continent of Europe putting itself on a 1930s style austerity program, this morning we end with America, where the NY Times reports on America inadvertently doing the same although for entirely avoidable reasons. Below the Times covers the long term unemployed increasingly finding their unemployment benefits expiring while in Washington the bent politicians wrangle over a tax break for hedge fund managers. Only in America as they say. While some portion of unemployment benefits undoubtedly go to benefits cheats, the vast majority of claimants are genuine cases, who as long term unemployed, have likely already run down much of their savings. Worse for the US economy, most unemployment benefits are spent in the economy as they are received. Very few can save from their benefit allocation. By the end of June 1.25 million people will have run out of weekly spending power in the US economy, with the number increasing each week by about another 300,000. An instant total austerity program that will show up in the US economy at the lower levels of the retail economy virtually immediately. While the giant US economy can easily ride out the missing spending, my guess is that it will ripple through the economy in many unexpected ways. Below, the NY Times covers the unexpected 100% austerity program.
"Gold bears the confidence of the world's millions, who value it far above the promises of politicians, far above the unbacked paper issued by governments as money substitutes. It has been that way through all recorded history. There is no reason to believe it will lose the confidence of people in the future."
Oakley R. Bramble
The Unemployed Held Hostage
Published: June 14, 2010
Since June 1, when federal unemployment benefits began to expire, an estimated 325,000 jobless workers have been cut off. That number will swell to 1.25 million by the end of the month unless Congress extends the benefits. The Senate, so far, has failed to act.
Some senators, including Democrats, have balked at an unrelated provision that would begin to close a tax loophole enjoyed by some of the richest Americans. You heard right. Desperately needed unemployment benefits have been held hostage to a tax break for the rich, and the Senate’s Democratic leadership has had to delay and finagle to get its own caucus in line.
State-provided unemployment benefits generally last for 26 weeks, and the federal government picks up the tab after that, provided Congress approves the extensions. There is no disagreement over the need: 46 percent of the nation’s 15 million jobless workers have been unemployed for more than six months — a higher level than at any time since the government began keeping track in 1948.
There is not even any genuine debate about how to pay for extended benefits. An extension through November would cost about $40 billion. But unemployment benefits are correctly considered emergency spending — they are a vital safety net, and the money is crucial to supporting consumer demand in a weak economy — and exempt from pay-as-you-go budget rules.
-------Democratic lawmakers in the House and Senate started out with the sound idea to close an egregious tax loophole that allows wealthy fund managers at private equity firms and other investment partnerships to pay a top tax rate of just 15 percent on much of their earnings — versus a top rate of 35 percent for all other higher-income Americans.
Closing the loophole would raise an estimated $25 billion over 10 years. Many private equity mavens, venture capitalists and other partnerships have lobbied to keep as much of the loophole as they can. Most Republicans and some Democratic senators — including John Kerry of Massachusetts, Mark Warner of Virginia and Maria Cantwell of Washington — are doing their bidding.
In its version of the bill, the House closed part of the loophole: fund managers would retain the special low rate on 25 percent of their privileged earnings. The loophole measure was watered down even more in the Senate. And investment partnerships are still lobbying.
Senators aren’t likely to vote on the bill until the end of this week. Then it would need to be reconciled with the House-passed version. In the meantime, hundreds of thousands more jobless Americans will lose benefits.
The Senate bill is also urgently needed because it includes a provision to provide $24 billion in emergency fiscal aid to states, which is vital to preventing further mass layoffs and damaging budget cuts on the state and local levels.
http://www.nytimes.com/2010/06/15/opinion/15tue1.html?hp
"The history of paper money is an account of abuse, mismanagement, and financial disaster."
Richard M. Ebeling
At the Comex silver depositories Monday, final figures were: Registered 52.46 Moz, Eligible 65.69 Moz, Total 118.15 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today, BP again, where to this disinterested observer in far away London, it looks more and more like a company being railroaded into an untimely bankruptcy. The shareholder’s board, seems incapable or unwilling to stand up for their legitimate interests. BP’s board needs to insist on rule of law, proper accounting for damages, a proper finding of liability in legitimate courts of law, legitimate financial contributions from all that concert parties in this disaster, and that includes denying compensation claims for the wages of those oil workers laid off by President Obama’s panicked 6 month ban on deep water drilling. Those costs were clearly foreseeable when he made his decision and he should have addressed them at the time. BP’s board is now in effect fighting for every exploration and production firm in North America. At least they would be if they had the backbone to actually stand up and fight for their shareholders legal rights. President Obama has America headed towards Mussolini’s state corporatism.
On Thursday, BP’s PR challenged CEO faces the inquisition in public hearings in Washington. He needs to say enough! Wild allegations of wrongdoing do not a legal case for compensation make. There’s more than enough blame to go, around once a proper determination of who did what, and what went wrong, and what the legal standard was. That requires a reasoned scientific investigation to establish the facts, and then a trial to establish appropriate levels of compensation.
`Give your evidence,' said the King; `and don't be nervous, or I'll have you executed on the spot.'
Alice in Wonderland.
Efforts to Repel Gulf Oil Spill Are Described as Chaotic
By CAMPBELL ROBERTSON Published: June 14, 2010
------From the beginning, the effort has been bedeviled by a lack of preparation, organization, urgency and clear lines of authority among federal, state and local officials, as well as BP. As a result, officials and experts say, the damage to the coastline and wildlife has been worse than it might have been if the response had been faster and orchestrated more effectively.
“The present system is not working,” Senator Bill Nelson of Florida said Thursday at a hearing in Washington devoted to assessing the spill and the response. Oil had just entered Florida waters, Senator Nelson said, adding that no one was notified at either the state or local level, a failure of communication that echoed Mr. Bonano’s story and countless others along the Gulf Coast.
------Still, said Ms. Pearson, the consultant, states have limited tools to deal with offshore drilling in federal waters, as was the case with the Deepwater Horizon.
And by the time oil arrives at a coastline, she said, “you’ve lost the response.”
Many experts also said that no plan could really fight this leak perfectly, and that the problem was more with the regulations that allowed it to happen in the first place.
“I don’t think there’s a person in the spill world who would have thought that whole thing would be contained and recovered,” said Elise DeCola, a response consultant based in Massachusetts. “Whether or not you decide to drill is a policy decision, a calculated risk. Everyone at the end of the day understands that risk. It’s kind of damage control from the start.”
There were at least five plans governing the response to this spill, including national and regional plans drawn up by the Coast Guard and federal and state authorities, as well as lengthy plans prepared by BP. Each one either failed to consider a continuing blowout or drastically underplayed the effects of one.
“I will tell you that nobody in their plan foresaw this incident,” said Capt. Roger Laferriere of the Coast Guard, who is directing cleanup efforts in Houma, La. “Nobody.”
The contingency plan for southeast Louisiana, which was drawn up by a committee led by the Coast Guard and a state representative, specifically mentions the possibility of a blowout and includes a worst case of a million-barrel spill, which is significantly short of even conservative estimates of the current spill.
But like other federal plans, it does not anticipate the possibility that the leak could continue for weeks. It concludes, for example, that such a spill would require the use of 38,400 gallons of dispersant, or roughly 3 percent of what has been applied in the last two months.
The BP plans do consider an uncontrolled blowout, one that releases 240,000 barrels a day into the gulf for at least 100 days — far worse than the current spill.
In the event of such an enormous spill, according to these plans, “no significant adverse impacts are expected” to beaches, wetlands or coast-dwelling birds.
Toby Odone, a BP spokesman, said in an e-mail message that the company’s oil spill response plan was “fully approved” by the Minerals Management Service.
http://www.nytimes.com/2010/06/15/science/earth/15cleanup.html?pagewanted=2&hp
Gulf oil spill: BP faces $34bn in fines as Senate smashes estimates
Deepwater Horizon disaster costs for clean up and damages had been previously estimated at closer to $5bn
Monday 14 June 2010 21.29 BST
BP is facing a bill of up to $34bn from the Gulf of Mexico disaster after US senators demanded the oil company deposited $20bn into a ring-fenced account to meet escalating compensation costs.
The sum dwarfs many analysts' previous estimates, shared by BP, that put the cost of the clean-up effort and payment of damages to affected communities, such as fishermen, closer to a total of $5bn.
Shares in BP nose-dived by more than 9% today as investors took fright at the demand by the 54 Democratic senators, who represent a majority in the US upper house. The company is now worth almost half what it was before the accident of just under two months ago.
BP already faces up to $14bn in civil penalties, payable under US environmental law, assuming the leak is plugged in August. These punitive damages are directly linked to the size of the spill – already estimated at being up to eight times worse than the Exxon Valdez disaster in 1989 – with BP liable for up to $4,300 for each barrel-worth spilt.
Senate leaders insisted the $20bn ring-fenced account should be exclusively for "payment of economic damages and clean-up costs" and should not be seen as a cap on BP's other legal liabilities. With punitive damages pending too, the theoretical total of $34bn is equivalent to more than half the corporation tax paid by all British companies last year.
------Executives were also alarmed by the White House's insistence last week that BP must pay the wages of rig workers laid off by other firms because of the six-month moratorium on deepwater drilling in the gulf. If pursued, the company fears it would be exposed to potentially limitless claims from anyone affected by the disaster, which would eventually bankrupt the company. The company hopes that President Obama's statement, following the meeting with BP, will draw back from the demand.
http://www.guardian.co.uk/environment/2010/jun/14/gulf-oil-spill-34bn-fines
June 15, 2010, 12:02 a.m. EDT
Libya wary over BP's Mediterranean drilling
DUBAI (Zawya Dow Jones) -- Libya wants assurances from BP PLC (BP.LN) after its handling of the Gulf of Mexico oil spill but will allow it to start deep-water drilling in the Mediterranean, the country's top oil official said Monday.
"At this point we're not suspending anything and we're going to drill pretty soon and some of the work will be in deep water," Shokri Ghanem, the head of Libya's National Oil Co., or NOC, told Zawya Dow Jones in a phone interview. "But they are taking precautions and what happened in the Gulf of Mexico will be a learning process."
BP and its Libyan partner, the Libya Investment Corp., or LIC, in May 2007 signed an exploration and production deal with NOC worth at least $900 million for the onshore Ghadames and offshore Sirt areas.
-------The agreement in Libya involves the exploration of around 54,000 square kilometers--the equivalent to more than 10 of BP's operated deep-water blocks in Angola.
------- Deep-water drilling is coming under greater scrutiny worldwide in light of BP's Gulf of Mexico oil spill, with several countries taking a closer look at environmental regulations. However, analysts say Libya and other members of the Organization of Petroleum Exporting Countries, or OPEC, won't let the catastrophe affect their own oil field development plans.
http://www.marketwatch.com/story/libya-wary-over-bps-mediterranean-drilling-2010-06-15
Exxon Distances Itself From BP’s ‘Dramatic Departure’ in Gulf
June 15 (Bloomberg) -- Federal investigators must determine if BP Plc took risks “beyond industry norms” with the Gulf of Mexico well that exploded and caused the worst U.S. oil spill, Exxon Mobil Corp. Chief Executive Officer Rex Tillerson said.
The April 20 disaster that killed 11 workers and sank Transocean Ltd.’s Deepwater Horizon drilling rig “represents a dramatic departure” from the track record of deep-water oil explorers, Tillerson said in remarks prepared for a House Energy and Commerce Committee panel hearing today.
Something went wrong at the BP project about 5,000 feet (1,524 meters) below the sea surface that hasn’t happened at the 14,000 other deep-water wells drilled without incident worldwide, Tillerson said. The catastrophe has damaged livelihoods and coastal environments and will cause loss of public trust in the oil industry, he said.
“We need to know if the levels of risk taken went beyond industry norms,” said Tillerson, who oversees a company that pumps more oil than every member of OPEC except Saudi Arabia, Iran and Iraq.
Exxon, based in Irving, Texas, has drilled 262 deep-water wells in the past decade, 35 of which were in the Gulf of Mexico, he said. Proper well design, workforce training, redundant safety systems and regular maintenance help mitigate the risks involved in drilling miles below sea level, Tillerson said in the remarks.
----- Hayward is scheduled to testify before U.S. lawmakers on June 17. David Nicholas, a BP spokesman, said in an e-mail it would be inappropriate to comment ahead of Hayward’s testimony.
----- John Watson, chief executive officer at Chevron Corp., and ConocoPhillips CEO James Mulva are scheduled to testify at today’s hearing in Washington. Lamar McKay and Marvin Odum, the presidents of the U.S. units of BP and Royal Dutch Shell Plc, respectively, have also accepted invitations.
http://www.bloomberg.com/apps/news?pid=20601103&sid=arKsRY2SVda8
The monthly Coppock Indicators finished May:
DJIA: +276 UP. NASDAQ: +499 UP. SP500: +304 UP. The great Bull market goes on with the all three continuing higher in positive numbers, but is now under serious pressure.
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