Baltic Dry Index. 3020 -95
LIR Gold Target by 2019: $3,000.
"We hang the petty thieves and appoint the great ones to public office."
Aesop
This morning we seem to have a parallel Europe in our universe. I read that yesterday’s late Wall Street stock market rally was in part a response to an improvement in the slow motion train wreck taking place in Europe. Not as far as I can see in the bureaucratic crooked Europe that lies across the English moat. As Europe readies itself for yet another EU leaders summit junket in Brussels, the fantasy capital of Ruritania, everything I see about Europe suggests the crisis isn’t lessening but growing. Below, Chancellor Merkel’s government is in deep political trouble in Germany and now has strained relations with Sarkozy’s erratic France.
"Too bad ninety percent of the politicians give the other ten percent a bad reputation."
Henry Kissinger.
Is Merkel's Government About to Crumble?
By SPIEGEL Staff 06/15/2010
German Chancellor Angela Merkel's government is in turmoil. As the infighting has grown louder, calls for new elections have increased. Some within her own coalition have even openly considered defection -- and they will have their chance later this month.
-----Normally, of course, a presidential shuffle in Germany, while accompanied by the requisite pomp and circumstance, is hardly of political note. This time, though, it is different. The president's leave-taking could pave the way for a premature farewell of much greater moment: Merkel's own.
"The phrase 'new elections' is in the head and the heart of all those who value political responsibility," Renate Künast, floor leader of the opposition Green Party, told the Süddeutsche Zeitung this weekend. Speaking to the tabloid Bild, her counterpart from the Social Democrats, Frank-Walter Steinmeier, said: "(Merkel's) government has failed. Should they accept that, then new elections would be the best path to take."
Merkel's Waterloo
Their comments come at a time when many in Germany are befuddled by the apparent inability of Merkel's coalition, which pairs her conservatives with the pro-business Free Democratic Party (FDP), to govern. And the frustration isn't just limited to the opposition. Conflict after conflict has marked the eight months since the chancellor began her second term in office (see box at left). And with party and coalition discipline crumbling, an otherwise routine vote on June 30 to replace Köhler threatens to become Merkel's Waterloo.
------Later this month, it is precisely people like Rülke who Merkel has to fear most. Germany's largely ceremonial position of president is filled by vote of the Federal Assembly, a body made up of federal lawmakers and regional delegates. Merkel's coalition holds a majority, but it is slim. Just two dozen renegades among the 1,244-member assembly could spell doom for her handpicked candidate, the palatable, but otherwise unremarkable, Christian Wulff, current governor of the state of Lower Saxony.
Should that happen, Merkel's position will become tenuous indeed. And revolt is in the air.
More.
http://www.spiegel.de/international/germany/0,1518,700788,00.html#ref=nlint
Merkel, Sarkozy Paper Over Differences Before EU Summit
06/15/2010
It was said that Chancellor Angela Merkel and French President Nicolas Sarkozy were hopelessly at odds. In Berlin on Monday the two insisted they had resolved key differences on how to tackle the euro crisis, and had forged a common front ahead of this week's EU summit.
German Chancellor Angela Merkel and French President Nicolas Sarkozy papered over their differences at a meeting in Berlin on Monday with a vague call for an "economic government" to improve coordination of economic and fiscal polices in the European Union.
Their meeting ahead of an EU summit in Brussels on Thursday was aimed at ironing out disagreements on how to tackle the debt crisis, but the two leaders failed to allay concern that they remain divided on key points, and that the Franco-German alliance, a key force in forging European unity for decades, isn't working properly.
Merkel appears to have successfully resisted Sarkozy's demand for the 16 countries belonging to the European common currency union to set up a common economic government with its own secretariat. She also seems to have got her way with her insistence that countries breaking EU rules on fiscal discipline should have their voting rights suspended.
------Sarkozy said: "We must proceed pragmatically. We each took a step in the other's direction." The two also agreed to push for an international tax on cross-border financial transactions, a measure that Merkel only tepidly supported until recently.
The meeting was originally due to have taken place on the previous Monday, June 7, but had been postponed for "scheduling reasons," fuelling speculation of a widening rift between the governments of the two largest economies in the EU.
They were under pressure to mend their differences ahead of the June 17 EU summit where leaders will attempt to convince skeptical financial markets that they can overcome the debt crisis by improving policy coordination and reinforcing budget discipline.
"More than ever, Germany and France are determined to talk with one voice, to adopt common policies, to give Europe the means to meet its legitimate ambitions," Sarkozy said.
The reserved Merkel and the energetic Sarkozy are like chalk and cheese and their relationship has never been easy. Their smiles seemed more forced than ever on Monday.
http://www.spiegel.de/international/europe/0,1518,700737,00.html#ref=nlint
Adding to Germany’s troubles, their banks are about to get called out by Spain. Tired of hearing that Spanish banks are the bad banksters of Europe, Spain is now calling for the publication of the EU bank stress tests, knowing full well that it’s Germany’s banksters that will come out worst. Needless to say, Germany will move heaven and earth to prevent that from happening, setting off capital flight in German banks. But you have to ask yourself, especially if you’re a non German bank, would you lend money to a German bank, that may need a state bailout ahead, but may not get it if Germany follows its own advice to Club Med?
Spain plays high-stakes poker game with Germany as borrowing costs surge
Spain has upped the ante in a high-stakes poker game with Germany, pushing for the release of EU stress test results for major banks in a move that risks precipitiating a dramatic escalation of Europe's financial crisis
By Ambrose Evans-Pritchard Published: 9:36PM BST 15 Jun 2010
"We're not afraid of transparency," said the Spanish Banking Association (AEB), saying the full truth would put an end to rumours battering Spain's instutitions. El Pais reported that the government backs the initiative, putting it on a collision course with Germany which insists on secrecy.
Josef Ackermann, head of Deutsche Bank, warned last week that it would be "very dangerous" to publish the results of each bank, fearing that it would trigger flight from weak lenders and set off a chain reaction.
The Spanish authorities have little to lose by publishing the data given the near paralysis in the country's debt markets. Funding is frozen for much of the private sector.
Spain was pummeled yet again on Tuesday as credit default swaps (CDS) measuring bond risk on Spanish debt jumped to 245 basis points, approaching an all-time high.
Default insurance for Greece rocketed after Moody's downgraded it to junk on Monday, forcing bond indexes to sell up to €20bn of Greek debt. Ireland and Portugal also jumped sharply, with mounting credit stress in Belgium following the electoral triumph of Flemish separatists.
An auction of Spanish debt yesterday underlined how fast the situation is deteriorating. Yields on one-year debt reached 2.45pc compared to 0.9pc as recently as April, suggesting that the markets do not view the EU's €750bn rescue shield as credible.
Francisco Gonzalez, chairman of BBVA, stunned investors earlier this week by admitting that "the majority of the Spanish companies and financial groups are shut out of the international capital markets".
He said the country's external debt had reached €1.5 trillion or 147pc of GDP, much of it on short-term maturities. "This debt has become our most overwhelming problem, since €600bn falls due this year," he said.
Analysts say the call for release of the stress test results is a veiled attack on Germany, retaliation for German media reports – fed by sources in Berlin – claiming that Spain is about to tap the EU's bail-out fund.
Spain's two heavyweights, Santander and BBVA, are well capitalised, though there are concerns that Spain's accounting rules mask the full horror of bad debts in the property sector. The problem lies with savings banks or cajas that are not part of the EU test. These are being kept afloat by the European Central Bank, with loans equal to 20pc of their balance sheets.
By contrast, some German banks may look very ugly. An internal memo last year by the regulator BaFin feared that write-offs might reach €800bn. German banks have accumulated a double set of loses from both US subprime and the Club Med debt crisis. They have the lowest risk-adjusted capital ratios in the world after Japan and have not exploited the global rally to rebuild their base.
Meanwhile, “the next Greece” has rising troubles of its own. Spain’s minority socialist government has fallen out of love with its union supporters. Tax the rich not us, say the unions, and don’t even think of cutting our pensions or benefits.
"The leaders of the French Revolution excited the poor against the rich; this made the rich poor, but it never made the poor rich."
Fisher Ames. 1758-1808.
JUNE 16, 2010
Spanish Unions Call General Strike
MADRID—Spain's largest two unions on Tuesday agreed to call a general strike for Sept. 29 against government budget cuts and plans to overhaul labor laws.
"After seeing the shape and scope of the reform, we believe it won't generate confidence and will be useless to solve labor market problems," said Candido Mendez, head of the Union General de Trabajadores, at a meeting with journalists.
The strike called by UGT and Comisiones Obreras is a key test of the resolve of Prime Minister Jose Luis Rodriguez Zapatero—who until recently had a cozy relationship with the country's powerful unions—to push through unpopular measures demanded by the European Union to shore up the country's ailing finances and economy.
The government is set to approve Wednesday a decree aiming to encourage hiring by reducing the cost of dismissal and streamlining the collective wage bargaining process, among other measures.
The EU and the International Monetary Fund say Spanish labor laws need a radical overhaul to reduce a historically high unemployment rate. These institutions last month agreed to a mammoth financial backstop designed in part to allay investor concerns over Spanish and Portuguese sovereign debt as the Greek-centered financial crisis began to spread to other fiscally frail countries. In return, they asked Spain and Portugal for strict budget cuts and economic reforms.
Next, more on the continuing BP drama where the market seems to be giving up on BP’s long term survival. While we wait for tomorrow’s Bear Pit entertainment in Washington DC, where BP’s CEO is widely expected to put in yet another gaff ridden dismal performance, possibly his last as CEO of deeply troubled BP, back in the GOM the spill enters its 59th day, with the spill now running at the rate of an Exxon Valdez oils spill every 4 days.
BP Swaps Rise to Record at 35% Odds of Default: Credit Markets
June 16 (Bloomberg) -- Credit investors are pricing in an almost 35 percent chance BP Plc will default within five years as it tangles with the Obama administration over cleanup costs and claims for the biggest oil spill in U.S. history.
The rising risk implied by credit-default swaps is up from 7 percent a month ago, according to the International Swaps and Derivatives Association’s standard model. BP swaps climbed 68 basis points yesterday to a record close of 506 basis points, CMA DataVision prices show. Investors are demanding 800 basis points more in yield to own BP debt due next year rather than Treasuries.
Pressure is building on BP with Chairman Carl-Henric Svanberg called to a meeting at the White House today to discuss setting up an escrow account to pay residents for damages from the accident. BP, which had $27.7 billion in cash flow from operations in 2009, was cut six levels to BBB from AA by Fitch Ratings because of mounting costs from the well that’s spewed crude into the Gulf of Mexico for eight weeks.
“There’s still so much uncertainty as to what ultimately the liability is and what the government is going to do,” said Jason Chen, a partner and head of research at hedge fund Sancus Capital Management in New York, founded in August by former JPMorgan Chase & Co. traders.
http://www.bloomberg.com/apps/news?pid=20601087&sid=arh44k8nUURc&pos=4
Estimates of Oil Flow Jump Higher
By JUSTIN GILLIS Published: June 15, 2010
A government panel on Tuesday released yet another estimate of the amount of oil flowing from BP’s damaged well, declaring that as much as 60,000 barrels a day could be spewing into the Gulf of Mexico.
That is roughly 2.5 million gallons of oil a day, and it means an amount equal to the Exxon Valdez spill could be gushing from the well about every four days.
The flow was already categorized as the largest offshore oil spill in the nation’s history, but the new figures sharply increase previous estimates. Scientists on Tuesday estimated that the flow rate ranged from 35,000 to 60,000 barrels a day — up from the rate they issued only last week, of 25,000 to 30,000 barrels a day. It continues a pattern in which every new estimate of the flow rate has been dramatically higher than the one before.
With BP capturing roughly 15,000 barrels a day, the new estimate suggests that as much as 45,000 barrels a day is escaping into the gulf.
The new estimate is far above the figure of 5,000 barrels a day that the government and BP clung to for weeks after the spill started, following the April 20 explosion of the Deepwater Horizon oil rig. That estimate was made by the National Oceanic and Atmospheric Administration using methods not recommended for large oil spills, and it came under attack from professors and advocacy groups who said the spill had to be larger. Time has proven those critics right.
http://www.nytimes.com/2010/06/16/us/16spill.html?hp
We end for today with China. China’s housing market isn’y overheating, thinks Morgan Stanley’s highly respected Chairman of MS Asia, Stephen Roach. Below, Bloomberg covers yesterday’s development. On this one I have to disagree. If China’s own economic bureaucrats think that the market has overheated and are reigning it back, my guess is that in their command economy, events probably went well beyond “overheating” before they plucked up courage enough to ask for permission to reign it back in.
China’s Housing Market Isn’t Overheating, Roach Says: Tom Keene
June 15 (Bloomberg) -- The property boom in China isn’t a bubble because it’s supported by “solid” demand for residential housing, according to Stephen Roach, chairman of Morgan Stanley Asia Ltd.
While portions of the real-estate market such as high-end apartments are overheating, demand for residential homes will remain robust as rural Chinese migrate to bigger cities, Roach said in a radio interview from Hong Kong with Tom Keene on Bloomberg Surveillance.
“This is just a sliver of the property boom,” Roach said, citing that each year since 2000, between 15 and 20 million people migrate to Beijing, Shanghai, and second- and third-tier cities in mainland China. That’s two and a half New York Cities created annually, he said. “This underpins a huge demand for residential property. This property has not overheated and the demand for this property is very, very solid.”
The nation’s property prices rose 12.4 percent in May from a year earlier, the second-fastest pace on record. China’s banking regulator said today it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.
China’s lawmakers have raised down payment requirements and mortgage rates and restricted loans for multiple-home buyers as they seek to dampen record property price gains. The government’s “decisive” actions in April are working to cool the sections of the housing market that were overheating, according to Roach.
“By all accounts, it looks like the measures are working for now,” he said.
----- “It’s just bad economics to pretend we can fix the lives of middle class American workers by getting the Chinese to revalue its currency vis-a-vis the dollar -- it’s a horrible misconception,” Roach said. “If we don’t boost our national savings rate, with trillion dollar deficits as far as the eye can see, the Chinese piece of our multilateral trade deficit just goes somewhere else. It goes to a higher-cost producer and that taxes the American people.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=av4pOFd4COh0&pos=3
On an unrelated, but probably connected to China matter, the Baltic Dry Index has now fallen to 3020 from 4200 in just 3 weeks. If it is China related, and I think it is, China’s command economy increasingly has world markets turning on and turning off according to political decisions made in Beijing and Shanghai. Stay long precious metals. Our increasingly dysfunctional world of fiat currency is now seriously unstable and, in my opinion, heading for an ending that ends in a giant hyper-inflation. Eric Sprott, Chief Investment Strategist at Sprott Asset Management Toronto, has just issued his latest update, a pdf called “Reasons to own Gold.” Email me if you would like a copy. I can’t disagree with anything in his update.
"The tragic lesson of guilty men walking free in this country has not been lost on the criminal community."
Richard M. Nixon. 37th United States President.
At the Comex silver depositories Tuesday, final figures were: Registered 52.47 Moz, Eligible 66.29 Moz, Total 118.76 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Yesterday, Switzerland’s US law abiding challenged bank UBS, moved a step closer to ratting out its US clients to America’s tax storm troopers, the IRS. You got to feel a little sorry for the US patsy clients of Swizz UBS. First they get solicited to break US law for gain, by UBS, who promise them that they will never get found out by US taxmen. Then UBS criminals help the hapless US tax cheats break American law. Now to save their own skin, and keep their legitimate US business, and to prevent an unequal trade war between Switzerland and the USA, UBS and Switzerland have done a deal to serve the tax cheats up on a platter to the IRS. While a tax cheat, is a tax cheat, is a tax cheat, I have to wonder how many would have cheated if some criminal Swiss bankster hadn’t enticed them into crossing into criminality. But there again, I have to wonder why any of the criminal banksters, who nearly brought down the whole global financial system are still deemed fit to hold banking licences at all.
"Anybody has the right to evade taxes if he can get away with it. No citizen has a moral obligation to assist in maintaining the government."
J.P. Morgan.
Switzerland edges closer to handing thousands of private bank details to US
Switzerland has moved a step closer to formalising a treaty with the US that will see the nation break with its historic banking secrecy laws by handing over the details of thousands of alleged tax avoiders.
By Philip Aldrick Published: 11:00PM BST 15 Jun 2010
The lower house of parliament yesterday voted in favour of the US deal at the second attempt after a similar, earlier decision by the upper house. Previously, the lower house had rejected the deal, which would see UBS hand US authorities the details of 4,450 clients in return for it gaining immunity from potentially crippling prosecution.
Despite the progress, the treaty will go back for a third and final vote on Friday because the two houses are still not in agreement on whether to put the deal to a public referendum.
The upper house has voted against a referendum but the lower house decided to call one. Unless both chambers agree, the deal will not go through.
A vote in favour is critical to the bank because failure to approve the treaty would put UBS's valuable US business at risk. The US government only agreed last year to drop tax evasion charges against the bank, Switzerland's largest, in return for the information. UBS has already been severely weakened by the financial crisis, losing billions from its fund management arm after errors in the investment bank forced the state to step in to bail it out.
The deal with the US was controversial in Switzerland, which is famous for its tradition of banking secrecy. Cross-border tax-sharing agreements are changing the status of tax havens but the UBS deal is the single largest voluntary disclosure of potential tax evaders to date.
"It is always the best policy to speak the truth, unless of course, you are an exceptionally good liar."
Jerome K. Jerome. 19th century English novelist.
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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Sunspots – A 22 year colder world? (From 2004?)
Spotless Days June 15
Current Stretch:1 days
2010 total: 34 days (20%)
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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