Saturday 19 June 2010

Weekend Update – June 19, 2010

Baltic Dry Index. 2694 -90
LIR Gold Target by 2019: $3,000

Who are these gentlemen?" "Gentlemen?! Cut out the sarcasm!"
Thomas Jackson & Ted Healy (
MYRT AND MARGE, 1933)

Next week brings us lucky lesser mortals, two gatherings of the great and greater world politicians. On the 25th, we get the G-8 meeting to stitch up what they want to get out of the G-20 meetings on the 26th and 27th. Who needs to watch the World Cup when the world’s Lords of the Universe gather to pout, preen, strut, swagger, and parade themselves desperate to outdo each other in presumption and self-importance in a vainglorious effort to be “the world’s man.” You got to ask yourself, would you want to appear in a picture alongside Silvio Berlusconi and Herman van Rompuy?

silvio-berlusconi

Below, taking time off from bashing “British Petroleum” and shaking down BP’s shareholders Chicago style, President Obama lectures the G-20 in the style of the old vibrant America of the 1960s and 70s. Singled out for the Chicago treatment this time round was China again. China replied with an almost immediate impolite Anglo-Saxon appropriate response. It’s not 1960s America anymore. Barak Obama isn’t JFK facing down the Soviet Union and Cuba. Below, President Obama is heard in Beijing for all the wrong reasons, but isn’t heard in Europe at all. America’s banksters nearly collapsed the whole global financial system and may yet succeed in that goal, Europe is in no mood to respect America’s economic leadership again, and anyway they are rapidly going broke trying to prevent the death throes of the Euro. The G-20 will politely talk away and continue doing what each perceives to be in their own best interest. The G-8 will listen to America bicker with China as the lesser G-6 try to keep out of the way. All, if they have any sense might want to start paying some attention to the falling Baltic Dry Index. When all the Quantitative Easing and subsidies ran out, so it seems did the BDI bounce.

"I'm the best musician in the country!" "Yeah, but how are ya in the city?"
Moe and Larry (
DANCING LADY, 1933)

Barack Obama calls for G20-wide capital levels for banks

President Barack Obama has called for stronger, uniform capital and liquidity levels for the world's biggest banks as he warned European leaders not to ease fiscal stimulus measures in such a way that could hurt the global economic recovery.

By James Quinn, US Business Editor Published: 7:51PM BST 18 Jun 2010

Ahead of next weekend's G20 summit in Toronto, the US President wrote to the Group of 20 leaders to set out his key economic and financial aims, not least of which is to "maintain the momentum of financial repair".

Writing as the US Congress continues to put the finishing touches to its own financial regulation reform legislation, President Obama said the Toronto summit must deliver a "common framework" for banking reform.

High on the agenda for this framework is his desire to see "more stringent capital and liquidity requirements" including a mandatory leverage ratio, strong oversight of derivatives markets and greater transparency and disclosure.

He applauded European efforts to lift the veil on bank stress tests, and warned that there remains a need for agreement on how to wind down large global firms.

President Obama also touched heavily on the global economy, not least the need for governments to balance ongoing fiscal stimulus with reducing debt levels, committing to reduce the US deficit to 3pc of gross domestic product by 2015.

He also made tacit reference to the Chinese yuan, saying that free-floating currencies remain "essential" to bolster economic activity. The yuan has been fixed to the dollar since 2008.

The comments rankled the Beijing authorities, with Cui Tiankai, China's vice foreign minister, saying the yuan is "China's currency" and that "this is not an issue the international community should discuss".

A White House spokesman later added: "This is obviously going to be an issue that we'll continue to discuss."

Meanwhile on Capitol Hill, the committee charged with finalising the US's financial reform package continued to hammer out the final details, with a deal nearing on the controversial plan to force banks to spin off derivatives desks.

http://www.telegraph.co.uk/finance/financetopics/g20-summit/7839133/Barack-Obama-calls-for-G20-wide-capital-levels-for-banks.html

In other China news, is China’s bubble starting to pop? Below, the latest news from the resort Island of Hainan. Stay long precious metals. From Asia to Europe and on into America, our house of cards pyramided on fiat money, is shaking. We all have a pretty good idea of what happens next.

"Anything that walks, swims, crawls, or flies with its back to heaven is edible."
Cantonese saying. Source: The Chinese Kitchen by Eileen Yin-Fei Lo

Hainan Property Prices Collapse

Vincent Fernando, CFA | Jun. 17, 2010, 3:45 AM
Capital Vue:

The province recorded a 19.05 percent month-on-month decline in the transaction area of commercial residential properties to 627,700 square meters in March. Average transaction prices were down 12.82 percent month-on-month to 12,280 yuan per square meter.

There was a 9.64 percent month-on-month decline in the transaction area of commercial residential properties in April to 567,200 square meters. Average transaction prices declined 2.84 percent month-on-month to 11,932 yuan per square meter.

Transactions of commercial residential properties in May plummeted 57.95 percent from April to 229,000 square meters. Average transaction prices plunged 29.74 percent month-on-month to 8,483 yuan per square meter.

It looks like regulatory tightening is having an effect here too. Given that Hainan is an island, and a popular tourist destination, one wonders if new government restrictions for second-home buyers will hit this province particularly hard.

http://www.businessinsider.com/hainans-property-market-collapses-2010-6

We end on fiat currency with Europe’s tower of Babel falling apart. When the next Lehman hits, and it will, the pretentious Great Bilderberger project, built on deceit will collapse with it.

"Enjoy yourself. It's later than you think."
Chinese proverb

The euro's inevitable failure will be horrendous for all of us

The single currency is a disaster, but the cost of its life support will devastate Europe's economies, says Charles Moore.

By Charles Moore Published: 7:09PM BST 18 Jun 2010

------It is no accident that the note carries no head. It is because the single European currency came into being without a single European economic government and without political union. It therefore has no ultimate authority. When the euro was launched at the end of the last century, both its friends and its foes predicted that this lack of authority could not last. At some point more power would have to be put behind it, or it would collapse.

We have now got close to that point. Euro notes carry the word "euro" in Roman lettering, of course, but also, in deference to one EU member, print it in Greek characters. It is Greece's sovereign debt crisis which began the current agonies. Will those Greek letters have to come off the notes? The same crisis threatens Portugal and now – much more serious – Spain. If it reaches Italy, the country with the third biggest public debt in the world, the game would appear to be over. The fine old bridge would be blown up.

So far, European leaders have tried to deal with this spreading disaster by ruses. Existing European treaties ban bail-outs of member states. So the "European Stabilisation Mechanism", recently set up precisely to provide these illegal bail-outs, does so under Article 122.2 of the Lisbon Treaty. This article gives emergency assistance to a member state "threatened with severe difficulties caused by natural disasters or exceptional circumstances beyond its control".

Natural disasters! We are experiencing a totally unnatural disaster, one brought about by the artificial structure of the European project. Exceptional circumstances beyond its control! It was this system that every eurozone member state proudly (though usually without asking their electorates) voted for.

The situation is not funny for the people of Greece, Portugal, Spain, and so on, because their governments have run up dreadful public debts while sacrificing their power to devalue to become competitive. They cannot cut their exchange rate, so they must cut wages and jobs. Unemployment in Spain is already 20 per cent – and 40 per cent among young people.

It is not funny for Germany, either. German banks are overcommitted in the southern countries now afflicted. The German people are fed up with paying for the profligacy of their poorer neighbours and furious at the suggestion that the only solution is that they should pay even more.

----- What will actually happen? Among people who follow bond markets and consider financial realities, I find that sentiment has changed. Certainty about the European currency has evaporated. Many think that the £750 billion "shock and awe" fund promised by the EU and the IMF is a bluff. The unthinkable idea that the eurozone might break up is now being thought. And the version of break up gathering ground in people's minds is not that the poor, indebted countries would fall out – they are prostrate and helpless – but that Germany would rise up like Gulliver, snap the insubstantial euro-ropes tied round its body, and walk away. Offering a foretaste, a German stockmarket website called Borsenews has now started pricing shares in Deutschmarks as well as euros.

On the other hand, what makes economic sense also looks politically impossible. Angela Merkel, the German Chancellor, promised to put her foot down and punish the Greeks three months ago, only to give in and launch the rescue a few weeks later, a delay that dramatically increased her country's bill. The German political class has spent 60 years recovering respectability through "Europe". It simply cannot face losing it.

Mrs Merkel is terribly weak, and the other half of the now sputtering Franco-German motor, Nicolas Sarkozy, is terribly erratic

------ But there is no alternative vision in the eurozone. The leaders remain determined to have no Plan B. So what we are about to get is the missing bit of Plan A. They will try to create a sort of European Treasury with centralised economic and fiscal policy – the imposition, in short, of undemocratic European economic government.

----- Again and again in politics, great schemes don't work – Soviet Communism, for example, and now the euro. Rational people tend to conclude that, because a scheme doesn't work, it will quickly stop. Unfortunately, rational people are wrong. Bad political schemes are usually given up only when they have been tested literally to destruction. It would be much better for Europe if the euro had never happened, and I long for it somehow to fade away, but the process of destruction will be horrendous, and it is only just beginning.

http://www.telegraph.co.uk/comment/columnists/charlesmoore/7839188/The-euros-inevitable-failure-will-be-horrendous-for-all-of-us.html

We close with BP news, where the rats are all out trying to jump ship. Below, Anadarko tries to clamber aboard President Obama’s “reckless BP” bandwagon. See you in court is BP’s likely response, that brings cheer to even the stoniest US tort bar heart. BP looks to be Beyond Preserving, it seems to me in pre-Wimbledon London. In fact the whole big oil market sector seems to me to now be hopelessly overvalued.

"If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people ."
Chinese Proverb

Anadarko blasts BP for 'reckless actions'

NEW YORK (CNNMoney.com) -- Anadarko Petroleum, a minority partner in the ruptured well in the Gulf of Mexico, blamed BP for "reckless" behavior, seeking to distance itself from the worst oil spill in US history.

"The mounting evidence clearly demonstrates that this tragedy was preventable and the direct result of BP's reckless decisions and actions," Anadarko chief executive Jim Hackett said in a statement issued late Friday.

Anadarko, which owns 25% of the Macondo well where the Deepwater Horizon rig was drilling, signed a contract saying that it would pay a quarter of the costs associated with the well, unless BP is found guilty of gross negligence.

"BP's behavior and actions likely represent gross negligence or willful misconduct and thus affect the obligations of the parties under the operating agreement," Hackett said.

On April 20, an explosion on the Deepwater Horizon killed 11 workers, and the well is now spewing millions of gallons of oil into the Gulf of Mexico.

As the operator of the well, BP was responsible for all the planning and the day-to-day activities on the Deepwater Horizon, according to Anadarko. As a non-operating investor, Anadarko said it was reliant upon BP to make "appropriate decisions" on the rig.

According to congressional documents and interviews with workers on the rig when it exploded, it appears BP chose faster, cheaper techniques for drilling this well, sometimes against the advice of its sub-contractors.

BP quickly issued a statement Friday saying it strongly disagrees with the allegations, and that Anadarko is refusing to accept responsibility for oil spill removal costs and damages.

"These allegations will neither distract the company's focus on stopping the leak nor alter our commitment to restore the Gulf coast," BP chief executive Tony Hayward said in a statement.

Hayward went on to say that "other parties besides BP" may be responsible for costs related to the oil spill, and that he expects those parties to live up to their obligations.

http://money.cnn.com/2010/06/18/news/companies/BP_Anadarko/index.htm?hpt=T1

More fun and games on Monday, though sadly next week is unlikely to bring any end to the disaster in the Gulf of Mexico.

"Many a heavy sigh I heaved in my despair, Grieving that I was born in such an unlucky time”

Tony Hayward. With apologies to Qu Yuan, ancient Chinese poet

GI.

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