Baltic Dry Index. 1720 +20
LIR Gold Target by 2019: $3,000.
Chaos. Noun. a state of utter confusion or disorder; a total lack of organization or order.
This morning in central Europe the news doesn’t get any worse. Over the weekend the EU and the IMF both withdrew from their deal to bailout Hungary. From this morning onwards, Hungary has lost the EU and IMF standby funds that reassured global investors and Hungary must attempt to raise future new financing without a safety net. Below the Telegraph covers the stunning news that has big implications for all of Club Med. If the EU and IMF had wanted to raise big doubts over their ability and willingness to rescue Club Med, botching the Hungary deal was probably the right way to go about it. At a stroke, the government of Hungary, the bunglers of Brussels and the outfit that made the Asian crisis of the late 90s many times worse, have just undone all of Chancellor Merkel’s efforts in China that appeared to have thrown the floundering Euro a lifeline. Stay long precious metals. Hungary is on the end of a European daisy chain that runs through all of Club Med, central Europe and the Baltics. While today is likely to be skittish to bad, the next several weeks are likely to be worse, as the implications of removing Club Med’s safety net sink in. In effect, most of Club Med are better off out of the Euro than in it.
"The gold standard makes the money's purchasing power independent of the changing, ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence."
Ludwig von Mises
Markets braced for turmoil after IMF and EU withdraw £17bn Hungary financing deal
European equity and credit markets are braced for a volatile day of trading after the International Monetary Fund (IMF) and the European Union dramatically withdrew a €20bn (£17bn) financing deal for Hungary over the weekend.
By James Hall Published: 11:30PM BST 18 Jul 2010
The move, which was described by economists as “very rare”, means that Hungary will not have access to standby funds that were secured as part of a 2008 loan deal. The credit line was suspended on Saturday after the European Commission voiced concerns over the newly-elected Hungarian government’s budget plans.
The stark move by the IMF and EU will reignite fears in global stock and money markets about the state of Europe’s sovereign debt. It could also derail the fragile confidence that has been returning to markets after moves to resolve the economic crisis in Eastern Europe.
Hungary’s woes come amid fears of a broader bear market developing as investors adjust to signs of a global slowdown led by the US and China. The weekend’s events will only add to market jitters.
Economists have argued that the return of confidence to Europe is partly based on the assumption that the IMF and the EU will automatically step in as sugar daddies to save failing economies. The suspension of the review of Hungary’s credit line at the weekend will send out an international warning and shows such views to be naïve, observers said last night.
Peter Attard Montalto, economist at Nomura Securities, described the IMF and EU’s action as “a very rare event”.
“Countries usually go out of their way to satisfy these missions,” he said.
Hungary has Europe’s highest public debt at 80pc of GDP.
Viktor Orban, Hungary’s prime minister who was elected in the spring, last month unveiled a significant austerity package.
However, the European Commission deemed this to be “largely of a temporary nature” and said that the measures “fall someone short” of what is required.
-----Attard Montalto, of Nomura, said: “The IMF and EU, given their usually very diplomatic language, have given some very strong statements of disapproval. The post mission statement talks about the fact that clarity isn’t available on policy, the need to respect central bank independence – when have we ever heard that before about a country? – and unsustainable and damaging policies that the new government is putting in place.
“Equally the EU has also said some of the new laws enacted are illegal in the EU.”
Below, Chancellor Merkel’s Chinese triumph undone after a day by events on the Danube.
JULY 17, 2010
Wen Pledges to Back Euro, Signs Deals With Germany
BEIJING—Europe remains a key market for China's foreign-reserve investments, Chinese Premier Wen Jiabao said after meeting German Chancellor Angela Merkel, adding that China will keep its macroeconomic policies stable in the second half.
Mr. Wen's comments, carried by the state-run Xinhua news agency, echo other recent statements by China's government reaffirming the euro's importance. The remarks come amid concern that Europe's debt troubles could lead China to scale back investment of its foreign-exchange reserves—the biggest in the world, at nearly $2.5 trillion—in euro-denominated assets. In May, the State Administration of Foreign Exchange, which manages China's reserves, issued a similar statement.
Mr. Wen's remarks come a day after China said its economic growth slowed in the second quarter compared with the first. Some economists have expressed concern the country's growth could slow further due to reduced demand caused by the euro-zone debt crisis.
Mr. Wen also said China will maintain the "continuity and stability" of its macroeconomic policies in the second half of this year and that the slowdown in the second quarter was due to "active regulation and control" by the government.
Earlier Friday, Mr. Wen and Ms. Merkel met in Beijing to oversee the signing of 10 agreements covering environmental issues and industry cooperation, including a $3.5 billion agreement on the research and development of steam and gas turbines between Siemens AG and Shanghai Electric Group Co., Xinhua reported.
China and Germany also signed a €124 million ($160 million) pact to encourage emissions reductions and energy saving by businesses, Xinhua said.
Germany's Daimler AG signed a deal with China's Beiqi Foton Motor Co. to establish a 50-50 truck joint venture, according to a statement by Daimler. It said the joint venture had been approved by the Chinese government.
-----Speaking at a joint news briefing with Ms. Merkel on Friday, Mr. Wen reiterated China's hopes for Europe's economic recovery.
"As a responsible long-term investor, we stick to the principle of a diversified portfolio" for the investment of foreign-exchange reserves, Mr. Wen said, adding China hopes to see Europe's recovery "at an early date."
"Major efforts will be made to handle the relationship between maintaining steady and fast growth, restructuring the economy and managing well inflation expectations," Mr. Wen said.
We end on Europe this morning with the ECB zagging to the US Fed’s zig. Below The Telegraph worries that all Euro roads lead to Berlin, and that Berlin will likely lead a German block Euro exit at some point. After the weekend developments, that exit looks a lot closer this morning than last week’s sometime in the next 5 years.
Stress-testing Europe's banks won't stave off a deflationary vortex
Euroland's authorities are inflicting a triple shock of fiscal, monetary, and currency tightening on a broken economy. They are doing so in a region where industrial output is still 14pc below its peak, where growth barely scraped above zero over the winter "recovery", and where youth unemployment is at 40pc in Spain, 35pc in Slovakia, 29pc in Italy, and 26pc in Ireland.
By Ambrose Evans-Pritchard Published: 9:58PM BST 18 Jul 2010
They seem unaware that China is slowing and the US is tipping into a second leg of the Long Slump. Last week's collapse in America's ECRI leading indicator to -9.8 marks the end of the V-shaped rebound. If this means what it normally means - recession within three months - Europe must take immediate action to prevent being drawn into a deflationary vortex. Spiralling public debt precludes further Keynesian spending, so this must come from central bank stimulus. Tight fiscal policy offset by ultra-loose money is the only option for Europe, the US, and Japan.
No student of Milton Friedman is surprised by the US relapse. The Fed has allowed M3 money to contract at a 10pc pace for much of this year - the Great Depression rate. The economy has hit the wall with the usual lag. Textbook stuff. Never ignore the quantity theory of money
-----So what is the European Central Bank doing to prevent southern Europe asphyxiating from debt-deflation, and knowing that M3 contracted in February (-0.3pc), March (-0.1pc), April (-0.2pc) and May (-0.2pc)? It is tightening, as it did in mid-2008 when the eurozone was already tanking.
Far from taking steps to offset Club Med austerity, it is winding down its €60bn (£50bn) purchase of government bonds - "sterilized" in any case to prevent net stimulus. It is draining liquidity fast. The ECB's loans to credit institutions fell from €870bn to €635bn in the two weeks to July 9.
-----All now hangs on the credibility of the EU's €440bn rescue fund or Stability Facility (EFSF), itself subject to challenges in Germany's constitutional court. Will the EU stress test the "non-negligible" risk that the court will block it? No.
The EFSF is a bluff that Italy could provide its rescue share for Portugal, Spain, and Ireland, on top of Greece, in the context of a serious crisis without suffering its own debt run. Is this credible? Should any rating agency give this body a AAA grade given that 10 of the 16 states are rated lower, and knowing that Germany has refused to allow pre-funding so that it cannot raise money until matters are already out of hand?
Besides, euroland solidarity goes only so far. Slovakia's new government has agreed to the EFSF but withdrawn from the Greek bail-out, refusing to uphold of the pledge of the last lot. The loss of money does not matter. The politics do matter. We see again that the eurozone is a network of democracies, each subject to its own political rhythm.
Any country may change its mind and walk away, at any time. Especially Germany.
Below, a must read article for all. Stay long precious metals.
Sunday, July 18, 2010
Part 5A. What Happens If Things Go Really Badly? $15 Trillion of Sovereign Debt in Default
http://www.calculatedriskblog.com/2010/07/part-5a-what-happens-if-things-go.html
We end with all that funny money, and talk of more by the tanker load from a desperate Fed trying to head off a double dip recession from becoming America’s first economic depression since the 1930s, pushing commodity traders to chase tangible assets of very real future value. All the more so since all the Greenspan bubbles diverted investment away from things like Cocoa plantations, farms, food production for food rather than energy plays etc, and into Wall Street frauds and degenerate derivatives gambling. Why bash out metal products or scratch around in the dirt for a pittance, when in the banksters’ casino capitalist game, a king’s ransom was there for the taking daily. Besides, metal bashers and farmers don’t get bailed out.
British financier Anthony Ward behind £658m cocoa trade
A British financier is behind a £658 million cocoa trade which single-handedly moved the global cocoa market.
By Laura Roberts Published: 1:55PM BST 18 Jul 2010
Anthony Ward, 50, bought 241,000 tons of cocoa beans and now owns enough to manufacture 5.3 billion quarter-pound chocolate bars.
Mr Ward, who is worth around £36 million, holds so much of the market he could force manufacturers to raise the price of Britain's favourite chocolate bars.
The transaction, the largest single cocoa trade in 14 years, was carried out last Friday by Armajaro Holdings, a hedge fund co-founded by Mr Ward.
The businessman began his career as a motorcycle dispatch rider before becoming a commodities trader specialising in cocoa and coffee.
The former Chairman of the European Cocoa Association has amassed up to 15 per cent of the word's cocoa stocks in the last ten years.
Cocoa prices rose by 0.7 per cent as a result of the trade to £2,732 per metric tonne – the highest price for cocoa in Europe since 1977. It follows a series of weak harvests in Ghana and the Ivory Coast, the main areas where the crop is grown.
In 2002 Mr Ward made £40 million in two months after making a similar deal. He bought 204,000 tones of cocoa when West Africa was experiencing poor harvests and political instability in the equatorial area.
He then watched the price of cocoa increase from £1,400 a ton to £1,600 a ton.
Cocoa prices have more than doubled since 2007, following increased demand particularly from China and India, forcing chocolate makers to raise prices and in some cases to change recipes to use less cocoa.
Mr Ward was not available for comment.
"...there seems to be a correlation between the intensity of the official attacks on gold and the severity of monetary crises."
Hans F. Sennholz
At the Comex silver depositories Friday, final figures were: Registered 52.45 Moz, Eligible 58.44 Moz, Total 110.89 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
It’s the great vampire squid again, they just can’t help themselves. They never saw a fast buck they didn’t like. On Friday we covered the Goldie gang getting a walk from the SEC’s fraud charges by paying a bung of $550 million merely out of the goodness of their collective hearts, they did not admit liability after all. Below, charity begins and ends at home. At Goldie, collect 500,000 just for passing go. Still across the crooked street at JP Morgan’s merry men, the merriment has gone out of the business in London. Unaccustomed as they are to paying taxes, they are not “little people” after all, to use Leona Helmsley’s appropriate epithet, the Dimon gang are about to decamp to Shanghai. Getting into Shanghai may be easy, I suspect, getting out again is quite a different matter in a city that isn’t run by the Marques of Queensbury rules.
Three great forces rule the world: stupidity, fear and greed.
Albert Einstein
Goldman Sachs sets aside $9bn for pay as revenues drop
By Louise Armitstead and Harry Wilson Published: 10:11PM BST 17 Jul 2010
Goldman Sachs is set to pay as much as 45pc of its 2010 revenues to its staff in a move that is likely to reignite political anger with the investment bank just days after it settled a high-profile fraud case with American regulators.
Analysts expect Goldman to say that its closely-watched compensation ratio, which indicates the intended level of staff pay as a proportion of its revenues, is between 40pc and 45pc when it announces its second quarter results this week.
Goldman's results will also show for the first time a $600m (£392m) hit for the UK's bonus tax.
The bank is estimated to have set aside just over $9bn in pay for its staff in the first half of 2010, working out at an average payout of $235,429 for each of its 38,500 employees for the last six months of work. Goldman bankers are on track to be paid nearly $500,000 each at full year, with senior bankers being paid far more.
Goldman will argue that weaker trading conditions will result in lower total pay packages, despite the higher compensation ratio. The bank will be keen to avoid further political scrutiny following its record fine of $550m to America's Securities and Exchange Commission for making a mistake in marketing one of its investment products to clients.
Over the past year, Goldman reduced its compensation ratio to 36pc of revenues in the face of a storm of protest that was sparked by the bank's results exactly a year ago. In its second quarter results last year, Goldman allocated $6.65bn for staff compensation on profits of just $3.4bn.
-----Goldman's bonus tax payment will take the total windfall for the Treasury from America's biggest banks to around £1.6bn. On Friday, Bank of America and Citigroup disclosed that they had paid out £567m and £263m respectively to cover the cost of the bonus tax. On Thursday, JP Morgan said in its second quarter results statement that it had paid £328m to the bonus tax. In total, the one-off tax is expected to raise £2.5bn.
The 50pc bonus tax was levied on all bonuses of more than £25,000 and was greeted with anger from the banking industry when it was announced last year.
Goldman to pay Tourre's legal fees after its own $550m fine
By Mark Leftly Sunday, 18 July 2010
Goldman Sachs will pay the remaining legal costs of Fabrice Tourre, the trader at the centre of the Securities and Exchange Commission's (SEC) $1bn (£650m) fraud investigation, despite settling its own role out-of-court.
The Wall Street bank paid a record $550m fine to the SEC on Thursday following charges that the bank and its employee, Mr Tourre, misled investors.
Mr Tourre was the brain behind Abacus 2007-AC1, a package of sub-prime mortgages in which institutions like Royal Bank of Scotland (RBS) made substantial losses, and the SEC is pursuing its case against him.
Goldman did not admit liability, but did agree to tighten controls. It is alleged that Mr Tourre failed to inform investors that Paulson & Co was involved in setting up Abacus, important because the hedge fund would only make money if the scheme performed poorly. Although Mr Tourre is on indefinite leave and has been embarrassed by a series of leaked emails in which he calls himself "fabulous Fab", the bank has stood by the trader.
JP Morgan UK future at risk
Bank now sees expansion in Asia not London, as Canary Wharf development is deemed at 'serious risk'.
By Harry Wilson and Graham Ruddick Published: 10:13PM BST 17 Jul 2010
JP Morgan has raised serious concerns about its commitment to its new £1.5bn European headquarters at Canary Wharf because of anger within the bank at the lack of support for the financial sector in the UK.
Jamie Dimon, chief executive of the American bank, is understood to have doubts about investing so heavily in London when there is uncertainty about future costs that could be imposed on banks. Some sources said the bank was "on the verge" of quitting the development.
Any move by JP Morgan to scrap the twin skyscraper project in the Docklands would be a major blow for the UK and George Osborne's claims that Britain is "open for business".
High-level talks are understood to have taken place between JP Morgan, officials from the Mayor of London's office and Canary Wharf Group (CWG) over the future of the headquarters, although no decision has been reached.
Boris Johnson, the London Mayor, has met representatives of JP Morgan and has been told of their concerns about the future of London as a financial centre.
The bank has made it clear that it now sees expansion being in Asia rather than in London.
It has also been made clear to Mr Johnson that as the decision on building a new headquarters in Canary Wharf is one "for the next 20 years" it is now at serious risk, said one person with knowledge of the discussions.. "They are finding that decision very difficult in the present climate because of concerns about what is ahead."
JP Morgan has listed a number of factors in their decision to review building a new headquarters in London. The atmosphere of "banker bashing" from politicians that is still apparent even after the election, new plans for an "activity tax" on banking operations in the UK, the new levy on balance sheets, the ending of tax relief on pensions for higher rate earners and the 50pc higher rate income tax have all been raised.
Mr Dimon is understood to have warned Alistair Darling, the previous chancellor, in a phone call last year that the bank could scrap the plans for its headquarters. His mood does not appear to have been improved by a change in government, and last Thursday JP Morgan revealed it had paid £328m to the Treasury for the one-off UK bonus tax.
Earth provides enough to satisfy every man's need, but not every man's greed.
Mahatma Gandhi
The monthly Coppock Indicators finished June:
DJIA: +269 Down. NASDAQ: +460 Down. SP500: +290 Down.
The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators.
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