Baltic Dry Index. 4078 -78
LIR Gold Target by 2019: $3,000.
“Could this be the last weekend of the single currency? Quite possibly, yes.”
With yet another botched Israeli over reaction well covered in mainstream media, we will leave it to them to cover the story. But increasing the heat in the pressure cooker of the Middle East is never a good idea, while attacking the merchant marine of NATO member Turkey was clearly dumb. How Israel’s professionalism and judgment seems to have fallen in recent years. From their own film released yesterday, this fatal Rambo gone wrong embarrassment wasn’t up to the standard of the SAS, US Special Forces or the French COS. Now if NATO doesn’t support Turkey, we risk Turkey moving closer to Putin’s Russia especially on oil and Black Sea issues. Whoever authorised this poorly thought out action needs to be pensioned off fast. Given everything else going on in the world, the west doesn’t need half baked Sharpevilles acting as recruiting poster for more Islamic terrorists. Did Israel learn nothing from the scandal of the USS Liberty?
The above quote on the Euro was overly optimistic. Politicians, bureaucrats and banksters can never admit they were wrong, let alone in a timely manner. As self appointed EU Lords of the Universe, unlike King Canute, they still believe that they can order back the sea. The “great error” of the unloved fiat euro will eventually go down to defeat, but not before almost every dodge and subsidized wheeze is employed first, saddling the hapless taxpaying Euro-zone serfs with mountains of unrepayable debt. Not to worry though, Euroland’s brain dead, elitist, gambling banksters look like getting an American style bailout all their own. We open with Rupert Murdoch’s “pay for access” London Times covering a very British economic group off message and stating the obvious, there is simply no way that Greece can repay its debt.
"An ounce of gold is an ounce of gold, whether it consists of guineas, sovereigns or eagles."
Hans F. Sennholz
May 30, 2010
Greece urged to give up euro
THE Greek government has been advised by British economists to leave the euro and default on its €300 billion (£255 billion) debt to save its economy.
The Centre for Economics and Business Research (CEBR), a London-based consultancy, has warned Greek ministers they will be unable to escape their debt trap without devaluing their own currency to boost exports. The only way this can happen is if Greece returns to its own currency.
Greek politicians have played down the prospect of abandoning the euro, which could lead to the break-up of the single currency.
Speaking from Athens yesterday, Doug McWilliams, chief executive of the CEBR, said: “Leaving the euro would mean the new currency will fall by a minimum of 15%. But as the national debt is valued in euros, this would raise the debt from its current level of 120% of GDP to 140% overnight.
So part of the package of leaving the euro must be to convert the debt into the new domestic currency unilaterally.”
Greece’s departure from the euro would prove disastrous for German and French banks, to which it owes billions of euros.
McWilliams called the move “virtually inevitable” and said other members may follow.
“The only question is the timing,” he said. “The other issue is the extent of contagion. Spain would probably be forced to follow suit, and probably Portugal and Italy, though the Italian debt position is less serious.
“Could this be the last weekend of the single currency? Quite possibly, yes.”
http://business.timesonline.co.uk/tol/business/economics/article7140270.ece
In other news, Bloomberg covers the coming double dip. The biggest drop in commodities pricing since the Lehman crash is likely a sign of the world already re-entering recession. If so, a great European debt restructuring lies directly ahead, a restructuring that will surely add to the depth of the arriving double dip recession.
Commodities’ Biggest Drop Since Lehman Bear Signal
By Millie Munshi and Elizabeth Campbell
June 1 (Bloomberg) -- The biggest slump in commodities since Lehman Brothers Holdings Inc. collapsed is undermining Wall Street forecasts for accelerating economic growth and higher prices for everything from copper to crude oil.
The Journal of Commerce commodity index that includes steel, cattle hides, tallow and burlap plunged 57 percent in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.
While the Organization for Economic Cooperation and Development raised its growth forecasts for this year and next on May 26, investors who stocked up on oil and more than doubled copper prices last year are dumping holdings at the fastest pace since February. Freeport-McMoRan Copper & Gold Inc. said in April that copper sales will drop 7.6 percent this year and Chinese inventories may weaken demand later.
“As risk-taking falls, expected growth is reduced,” said Colin P. Fenton, the chief executive officer of Curium Capital Advisors LLC in Boston who was a commodity analyst at Goldman Sachs Group Inc. and at Stanley Druckenmiller’s Duquesne Capital Management LLC hedge fund. “Demand for commodities is going to be softer than it might otherwise have been.”
The Journal of Commerce Industrial Price Commodity Smoothed Price Index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators, said Lakshman Achuthan, the managing director at the New York-based Economic Cycle Research Institute. The gauge dropped to 25.97 on May 28 from 60.56 on April 30.
Economic Indicator
In June 2008, a month after the index reached its peak, the Paris-based OECD said the U.S. would grow at a 1.1 percent rate the following year. Commodities continued to drop, and in October 2008, the index fell at a 56 percent annual rate, which was then the lowest level since 1949.
Almost two months later, the National Bureau of Economic Research, the panel that dates American business cycles, said the U.S. was in a recession. The world’s largest economy shrank 2.4 percent, the worst contraction since 1946.
Now, “the collapse in the commodity index is telling us that the peak in global industrial growth is imminent, it’s here right now,” said Achuthan. “Markets are going to have to deal with the reality of a slowdown.”
Europe’s debt crisis is only starting to weigh on global growth, said Michael Aronstein, a strategist at Oscar Gruss & Son Inc. who predicted the 2008 commodity plunge and is betting against a rally this year.
Sagging Demand
The European Union announced an almost $1 trillion loan package last month to halt a slide in the euro and local bonds that threatened to shatter the currency union. Budget cuts across the region may curb demand for Chinese imports as well as commodities including gasoline, aluminum and steel.
Raw materials may drop another 10 percent because the economy is on the “cusp” of deflation, said Philip Gotthelf, the president of Equidex Brokerage Group Inc. in Closter, New Jersey. That would drive the Reuters/Jefferies CRB Index of 19 commodity futures down 22 percent from a Jan. 6 peak and into what investors consider a bear market. The gauge plunged 8.2 percent in May, the most in 18 months.
Next, that EU-IMF bailout for Greece gets a bucket of cold water from a former Bundesbank chief. Karl Otto Pohl states the obvious. The Euro-zone’s taxpayers were just skinned to pay off the Greek debt holding European banks. Even so, he thinks Greece will still have to restructure its debt at some point ahead. Who am I to disagree. I think restructuring is coming to Portugal, Ireland Italy and Spain too. Sadly I also think it is the eventual fate awaiting the UK and USA too, just don’t tell the Chinese, America’s largest creditor. Stay long gold and silver. Our new decade will be like no other since WW2.
"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."
Henry Hazlitt
Bailout Plan Is All About 'Rescuing Banks and Rich Greeks'
The 750 billion euro package the European Union passed last week to prop up the common currency has been heavily criticized in Germany. Former Bundesbank head Karl Otto Pöhl told SPIEGEL that Greece may ultimately have to opt out, and that the foundation of the euro has been fundamentally weakened.
SPIEGEL: Mr Pöhl, are you still investing in the euro -- or has the European common currency become too unstable of late?
Pöhl: I still have money in euros, but the question is justified. There is still danger that the euro will become a weak currency.
SPIEGEL: The exchange rate with the dollar is still close to $1.25. What's the problem?
Pöhl: The foundation of the euro has fundamentally changed as a result of the decision by euro-zone governments to transform themselves into a transfer union. That is a violation of every rule. In the treaties governing the functioning of the European Union, it explicitly states that no country is liable for the debts of any other. But what we are doing right now, is exactly that. Added to this is the fact that, against all its vows, and against an explicit ban within its own constitution, the European Central Bank (ECB) has become involved in financing states. Obviously, all of that will have an impact.
SPIEGEL: What do you think will happen?
Pöhl: The euro has already sunk in value against a whole list of other currencies. This trend could continue, because what we have basically done is guarantee a long line of weaker currencies that never should have been allowed to become part of the euro.
SPIEGEL: The German government has said that there was no alternative to the rescue package for Greece, nor to that for other debt-laden countries.
Pöhl: I don't believe that. Of course there were alternatives. For instance, never having allowed Greece to become part of the euro zone in the first place.
SPIEGEL: That may be true. But that was a mistake made years ago.
Pöhl: All the same, it was a mistake. That much is completely clear. I would also have expected the (European) Commission and the ECB to intervene far earlier. They must have realized that a small, indeed a tiny, country like Greece, one with no industrial base, would never be in a position to pay back €300 billion worth of debt.
SPIEGEL: According to the rescue plan, it's actually €350 billion ...
Pöhl: ... which that country has even less chance of paying back. Without a "haircut," a partial debt waiver, it cannot and will not ever happen. So why not immediately? That would have been one alternative. The European Union should have declared half a year ago -- or even earlier -- that Greek debt needed restructuring.
SPIEGEL: But according to Chancellor Angela Merkel, that would have led to a domino effect, with repercussions for other European states facing debt crises of their own.
Pöhl: I do not believe that. I think it was about something altogether different.
SPIEGEL: Such as?
Pöhl: It was about protecting German banks, but especially the French banks, from debt write offs. On the day that the rescue package was agreed on, shares of French banks rose by up to 24 percent. Looking at that, you can see what this was really about -- namely, rescuing the banks and the rich Greeks.
SPIEGEL: In the current crisis situation, and with all the turbulence in the markets, has there really been any opportunity to share the costs of the rescue plan with creditors?
Pöhl: I believe so. They could have slashed the debts by one-third. The banks would then have had to write off a third of their securities.
SPIEGEL: There was fear that investors would not have touched Greek government bonds for years, nor would they have touched the bonds of any other southern European countries.
Pöhl: I believe the opposite would have happened. Investors would quickly have seen that Greece could get a handle on its debt problems. And for that reason, trust would quickly have been restored. But that moment has passed. Now we have this mess.
SPIEGEL: How is it possible that the foundation of the euro was abandoned, essentially overnight?
Pöhl: It did indeed happen with the stroke of a pen -- in the German parliament as well. Everyone was busy complaining about speculators and all of a sudden, anything seems possible.
SPIEGEL: You don't believe in the oft-mentioned attacks allegedly perpetrated by currency gamblers, fortune hunters and speculators?
Pöhl: No. A lot of those involved are completely honorable institutes -- such as banks, but also insurance companies and investment- and pension funds -- which are simply taking advantage of the situation. That's totally obvious. That's what the market is there for.
More
http://www.spiegel.de/international/germany/0,1518,695245,00.html
We end for today with Spain the next Greece, as they say in the halls of finance.
Spain is trapped in a 'perverse spiral' as wage cuts deepen the crisis
The Spanish Inquisition used to burn Englishmen in Sevilla's Plaza de San Francisco when they had the chance. There must have been some nostalgia for this practice when the news hit that Fitch Ratings had stripped the country of its AAA status.
By Ambrose Evans-Pritchard Published: 5:34PM BST 30 May 2010
The downgrade could not have come at a more dreadful moment. The EU's €750bn "shield" for eurozone debtors has halted an incipient run on Club Med banks, but it has failed to restore full confidence for the obvious reason that such a guarantee cannot plausibly be extended from Greece to Portugal and then to Spain. The sums are too large, the number of solvent creditors too reduced, the intra-EMU politics too poisonous.
Pierre Lellouche, France's Europe minister, compares the shield to NATO's Article 4, the mutual defence clause that deems an attack on any one state to be an attack on all. Leaving aside the question of whether Nato's Article 4 was ever credible , I doubt it was, this use of NATO language illustrates the confusion in EU circles over the causes of the Club Med bond crisis. This is not a war. It is a beauty contest. Eurozone states must attract capital from pension funds and Asian central banks to finance their deficits or default.
Whether intended or not, Mr Lellouche may have pulled the detonation plug on EMU by boasting that Europe's politicians had created an EU debt union on the sly. "It is expressly forbidden in the treaties. De facto, we have changed the treaty," he told the Financial Times. How will that go down at Germany's constitutional court, already facing a growing in-tray of claims that these bail-outs breach the Maastricht Treaty?
For Spain it has been a horrible week. The central bank seized CajaSur and imposed draconian write-down rules on banks to restore confidence. The Spanish Socialist and Workers Party (PSOE) of Jose Luis Zapatero then rammed a 5pc cut in public wages through the Cortes by a single vote, shattering consensus. The government cannot hope to pass a budget. Its own trade union base is planning a general strike.
The sub-text of Fitch's 32-page report shows Mr Zapatero's self-immolation to be futile in any case. The agency has not downgraded Spain for lack of austerity. Its implicit conclusion is that the policy of 1930s wage cuts - or "internal devaluations" - being imposed on southern Europe's humiliated states as a quid pro quo for the EU shield is itself part of the problem. Ultra-austerity will bleed the economy, shrivel tax revenues and fail to close deficit anyway. "Fitch believes the risk that economic growth will fall short of the government's projections," it said.
El Pais spoke of a "perverse spiral" in its editorial. "The Fitch note drives home the apparently unsolvable contradiction in which the Spanish economy finds itself. To maintain debt solvency Spain must squeeze public spending: yet this policy undermines the chances of recovery which itself causes further loss of confidence."
Spain's unemployment was already 20.5pc even before this latest dose of shock therapy. There are 4.6m people without work. Dole payments alone account for half the budget deficit. By comparison, the Anuario Estadístico shows that Spain's unemployment never rose above 9.5pc during the Great Depression . The economy shrank by 3pc from peak to trough. The Zapatero slump is worse than anything inflicted by Gil Robles during the Bienio Negro.
It is no mystery why Spain is trapped in depression. The country joined the euro without grasping its Faustian implications, as did others. Germany was equally naive in thinking it could have a currency union entirely on its own terms.
EMU caused Spanish interest rates to halve overnight, with dire results as the Bank of Spain's governor confessed in April 2007. "The single monetary policy has meant that excessively loose conditions for our economy have been almost continuous," he said.
Real rates were -2pc as the bubble reached its crescendo. Nearly 800,000 homes were built in 2007, more than in Britain, Germany, and Italy combined. There is now an overhang of 1.6m unsold properties, six times the level per capita in the US. Total public/private debt has reached 270pc of GDP.
"Gold is not less but more rational than paper money. Money holds value so long as it is in limited supply; gold will always be in limited supply, and would require real resources to produce even from the sea; paper and printing ink are not in limited supply. The gold system is much closer to a modern automatic scientific control system than the crude and relatively unstable system of paper."
William Rees-Mogg
At the Comex silver depositories Friday, final figures were: Registered 52.53 Moz, Eligible 66.53 Moz, Total 119.06 Moz.
Day 23 of Hitler’s attack in the west that almost brought down western civilization. Dunkirk evacuation day 6.
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, did BP lie to get its permit to drill in the deepwater of the Gulf of Mexico? Below that, compare and contrast BP with the Great Vampire Squid. Zero Hedge does just that.
BP promised it could stop leak 10 times bigger than Gulf of Mexico spill
BP was given permission to drill in the Gulf of Mexico after submitting documents promising it was equipped to deal with a spill 10 times larger than the current leak
By Rowena Mason Published: 11:02PM BST 31 May 2010
The papers will be a further embarrassment to the oil company, as it currently struggles to contain the spill spewing an estimated 19,000 barrels into the ocean daily.
Meanwhile Eric Holder, the US Attorney General, will visit the site of the spill for the first time on Tuesday. He will meet with federal prosecutors and state attorneys general in a move that will increase speculation that a criminal investigation will be launched. The development could hit BP’s share price.
More than five techniques have now failed to halt the flow, and on Monday BP was preparing to send robots down to cut a pipe near the source of the leak. This will allow a box to be lowered over the well and oil to be pumped to the surface, but officials warned that it could also make the situation worse.
"Clearly we do have an oil-spill response plan in place, it was an integral part of our permitting with the MMS [the regulator] and it was specifically agreed with and approved by the MMS," the company said. "It sets out the actions, considerations, plans and steps that will be used in the case of an oil spill, and it is this plan that has been in action in response."
------ The company will be braced for a further fall in its share price, as it admitted over the weekend that the spill may not be halted until August. Last night, US forecasters predicted that winds could spread the slick from Louisiana across to the Alabama and Mississippi coastlines.
Proof Media in Total Moral Hazard When Forbes Compares BP with Goldman
Submitted by Static Chaos on 05/31/2010 10:16 -0500
When a major mainstream media like Forbes compares BP with Goldman Sachs and recommends investors to buy Goldman stocks, you know the world is in total moral hazard and deserved to be doomed as Marc Faber always said.
Since Forbes is a financial publication, I will refute based on the investment thesis first. Granted both stocks are high risk plays right now, but I'd venture to say compared to Goldman, BP is obviously oversold and a victim of media hype and Whitehouse populist approach.
This conclusion is based on BP dividend yield (currently close to 7%), a strong average annual compound rate of return of 17.9% since 1977 vs. 10.7% from S&P, the growth prospect of crude oil and low forward P/E ratio of 5.64.
----- Throughout its history, Goldman has been shortchanging retail investors by abusing its market position, which by the way, is put in place partly by the taxpayers' money. Sure, there were a few "official investigations" throughout the years, but basically went nowhere most likely due to the Vampire Squid's deep pocket, massive legal team, and far reaching influential tentacles into many related government agencies.
Now, the SEC finally got the ball to bring a civil suit holding Goldman responsible for misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. I will not go into the detail here of how Goldman knowingly contribute to the subprime crisis, which is the closet point of origin of the financial crisis leading to the current "Great Recession" and the 9.5% jobless rate.
This is not to excuse BP for the Gulf oil spill mess. The environmental and economic impact has yet to be fully assessed. But one thing people seem to have chosen to ignore is that BP has paid and will be paying for a long time to come for this mistake ($930 million to date). But where is Goldman on this??
Almost 1,300 vessels are now involved in the response effort. Other oil companies are also helping BP in the Gulf including the world's top supermajor--ExxonMobile--by providing personnel and vessels. The entire oil industry will bear the brunt of the public outrage and is already working together to improve safety and engineering process and procedure to prevent any future similar incidents.
In contrast, posturing aside, Goldman is yet to even formally acknowledge any misdeed. The entire financial industry, instead of looking into self reform, is fighting tooth and nail with Washington on the proposed financial reform. Many are talking about setting up offshore shops to avoid the regulatory "burden".
Meanwhile, the swift regulatory backlash is coming down hard on the oil industry as we speak to "reform" the drilling safety standard, while a meaningful financial reform act is yet to materialize in our life time.
So excuse me for being more than outraged when Forbes dares to compare BP with Goldman, and the biased-agenda-motivated moral hazard the mainstream media have been brain-washing upon the public.
http://www.zerohedge.com/article/proof-media-total-moral-hazard-when-forbes-compares-bp-goldman
"The modern mind dislikes gold because it blurts out unpleasant truths."
Joseph Schumpeter
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.
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 31
Current Stretch:0 days
2010 total: 33 days (22%)
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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