Baltic Dry Index. 1700 -09
LIR Gold Target by 2019: $3,000.
In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.
J. K. Galbraith
Are we on the cusp of a new recession? From London, it has looked for some time that we probably are. Other than resurgent stock markets, where program trading and manipulation are the only games in town, there’s been almost nothing positive to write about for some time. The BDI has fallen 60% since May 26th, never a sign of health in global trade. Now the Fed seems to be acknowledging the same thing. Below, The Telegraph covers the surprisingly downbeat Fed.
You will find that the State is the kind of organization which, though it does big things badly, does small things badly, too.
J. K. Galbraith
Fed's volte face sends the dollar tumbling
Rarely before have a few coded words in the minutes of the US Federal Reserve caused such an upheaval in the global currency system, or such a sudden flight from the dollar.
By Ambrose Evans-Pritchard, International Business Editor
Published: 8:52PM BST 15 Jul 2010
The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years. Far from winding down emergency stimulus, the bank may need a fresh blast of bond purchases or quantitative easing.
Usually the dollar serves as a safe haven whenever the world takes fright, and there was plenty of sobering news from China and other quarters on Thursday. Not this time. The US itself has become the problem.
"The worm is turning," said David Bloom, currency chief at HSBC. "We're in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we're moving into a new phase because we're hearing alarm bells of a US double dip."
Mr Bloom said a deep change is under way in investor psychology as funds and central banks respond to the blizzard of shocking US data and again focus on the fragility of an economy where public debt is surging towards 100pc of GDP, not helped by the malaise enveloping the Obama White House. "The Europeans have aired their dirty debt in public and taken some measures to address it, whilst the US has not," he said.
The Fed minutes warned of "significant downside risks" and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.
"The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016.
"The Fed is throwing in the towel," said Gabriel Stein, of Lombard Street Research. "They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months."
The Fed minutes amount to a policy thunderbolt, evidence of how quickly the recovery has lost steam. Just weeks ago the Fed was mapping out withdrawal of stimulus.
Goldman Sachs said it expects the euro to rise to $1.35 by the end of the year. The yen will appreciate to ¥83, through the pain barrier for most of Japan's big exporters. The new twist is that SAFE, China's $2.4 trillion fund, has begun buying record amounts of Japanese bonds, a shift in reserve allocation away from the dollar.
The signs of a deep and sudden slowdown in the US are becoming ever clearer as the "sugar rush" from the Obama fiscal stimulus wears off and the inventory boost fades. California, Illinois and other states are cutting spending, tightening US fiscal policy by 0.8pc of GDP.
Thursday's plunge in the Philadelphia Fed's July index of new manufacturing orders to –4.3 suggests that the economy may have buckled abruptly, as it did in mid-2008. The Economic Cycle Research Institute's ECRI leading indicator has tumbled, reaching –8.3pc last week. This points to a sharp slowdown or recession within three months.
http://www.telegraph.co.uk/finance/currency/7893238/Feds-volte-face-sends-the-dollar-tumbling.html
With the Fed apparently about to restart quantitative easing, aka monetization, the dollar as a long term store of value is compromised. In fact if a double dip recession does hit in the US, the Fed will go out to try to generate deliberate inflation in the economy to prevent deflation turning the double dip recession into the first US depression since the 1930s. This has forced money managers to start the logical process of trying to protect against dollar value destruction. Below the Houston Chronicle covers one attempt at protecting the long term value of funds. My guess is that this is only the start of a multi year process.
"When paper money systems begin to crack at the seams, the run to gold could be explosive."
Harry Browne
Higher education fund buys gold over economic worries
By R.G. RATCLIFFE and JEANNIE KEVER Copyright 2010 Houston Chronicle July 14, 2010, 9:40PM
AUSTIN — Fearing unstable international financial markets and the possibility of high inflation, Texas' higher education investment managers have bought more than $500 million in gold.
The gold purchases represent only 3 percent of the University of Texas Investment Management Co.'s $22.3 billion in investment funds, but it indicates how deeply the fund managers are concerned about the global financial future.
With the state's endowment funds designed to generate a 5.1 percent distribution each year to the University of Texas and Texas A&M University, it is rare for the investment managers to put large sums of money into a commodity whose value usually only grows through inflation.
"Recently, we've added 3 percent, 3 percent of our portfolio, into gold as a protection against inflation, but even more as a lack of confidence in financial markets due to extraordinary government fiscal and monetary stimulus," UTIMCO CEO Bruce Zimmerman told the University of Texas board of regents Wednesday. "I wish I could tell you the future looked rosy. Unfortunately, that's not our view. At best, we believe the future is uncertain."
Other executives suggested the endowments have begun to recover from the staggering losses of 2008 and 2009.
http://www.chron.com/disp/story.mpl/business/7108909.html
The article didn’t cover the specifics of how UTIMCO made their gold purchase. I can only hope that they arranged to take allocated physical delivery in a secure international vault, at an institution that’s not hopelessly short paper gold. As the fiat currency system unravels in a world of casino capitalism and unrestrained derivatives gambling, I fully expect to see a Comex default of the gold and silver contracts, and to hear of serious problems at some of the precious metals ETFs and their custodians. I have serious doubts that all of the custodian’s metals really exist, or haven’t been pledged to more than one entity.
We end for the day watching weather events in S.E. Asia, where Vietnam’s rice crop is in danger of failing. As the second largest rice exporter in the world, any failure there will have a big impact on rice prices and through them much of Asia’s quality of life for those who haven’t yet made it up to the comfortable middle class. As is now usual in our dumbed down 21st century world, a good article on a seriously disturbing problem gets the full global warming treatment by the “Staff Writers.” Below that, Accuweather covers the latest typhoon heading into already saturated China, that didn’t bring much in the way of relief to Vietnam.
Salty water, parched earth: Vietnam's Mekong paddies dry up
by Staff Writers
Que Dien, Vietnam (AFP) July 14, 2010
The rivers that should nourish his thirsty rice paddies are too salty, and the rains are late this year. Dang Roi does not know if he will be able to salvage anything from this spring's crop.
Vietnam is the world's second-biggest rice exporter and the Mekong Delta, where Roi farms, accounts for more than half of its production.
But Roi's paddy fields in Ben Tre province are burning up during a drought which meteorologists say is the worst in decades.
The dry season should have ended already, but in the yard of Roi's house in Que Dien commune, barrels that collect rainwater for his family's cooking and washing show the desperate situation. They are half-full, or empty.
Experts say Vietnam is one of the countries most threatened by climate change, whose effects are seen in worsening drought, floods, typhoons, exaggerated tides, and rising sea levels.
The country is planning for a one-metre (three feet) rise in sea levels by 2100, which would flood about 31,000 square kilometres (12,400 square miles) of land -- an area about the size of Belgium -- unless systems such as dykes are strengthened, said a UN discussion paper released last year.
It said the threat of floods is greatest in the Mekong Delta, where 17 million people live.
-------Over the past 50 years the sea level has already risen by 20 centimetres (eight inches) along Vietnam's coast, according to the increasingly worried communist government.
While delta farmers cope with drought, they are also challenged by sea water intrusion, which experts also link to climate change.
There is little water in the rivers near Roi's fields "and it's salty so we can't pump it" for irrigation, he says.
Recalling easier times on his 1.2 hectares (three acres), Roi says, "The rice fields weren't dying like this."
The Vietnamese government emphasises the role of climate change in disrupting its agricultural environment, but experts do not rule out an effect from dams upstream in China. That impact could be worsened by the opening of more dams further south in Laos and Cambodia, they say.
"The Chinese dams have made the system fragile, but the impact of the downstream dams will be cumulative," said Marc Goichot, of the WWF.
------China has eight planned or existing dams on the Mekong River, but rejects activists' criticism that the hydropower dams contribute to low water levels downstream.
There are proposals for another twelve dams in the lower Mekong countries.
Vo Tong Xuan, a leading Vietnamese rice expert, said the flow of the Mekong River -- whose long journey ends at the delta -- is "extremely reduced" this year.
He is concerned about the impact of Chinese dams, but also blames Vietnam's increasingly intensive methods of rice growing.
As the delta's population has expanded, farmers have gone from planting one to two and sometimes three rice crops
http://www.seeddaily.com/reports/Salty_water_parched_earth_Vietnams_Mekong_paddies_dry_up_999.html
Conson Aims for South China after Hammering Manila
Jul 15, 2010; 6:45 PM ET
Conson, having dealt Manila a drubbing, will now aim for a late-week landfall in south China.
As of Thursday evening, EDT time, the center of Conson was located over the South China Sea about 200 miles southeast of Hainan Dao, China.
Conson is currently a typhoon with 80 mph winds and stronger gusts. It's possible the storm will strengthen slightly over the next 12 hours.
Conson is predicted to make landfall on Hainan Dao by Friday night, local time. A landfall here would bring flooding rain and damaging winds.
The cyclone had weakened into a tropical storm while moving over southern Luzon, the main island of the Philippines. As of Thursday afternoon, the maximum sustained winds were close to 65 mph with gusts to 80 mph.
---- AccuWeather.com meteorologists say that Conson may contribute, at least indirectly, to further rains and ongoing flooding in the Yangtze River basin of central and eastern China. Here, in the provinces of Anhui, Jiangxi and Hunan, rainfall has already been 100 to more than 300 percent of the normal July amount leading to severe flooding.
The flooded area will continue to have locally excessive rain for at least the next week with rainfall next week potentially getting a boost from dissipating Tropical Storm Conson.
http://www.accuweather.com/blogs/news/story/33963/conson_may_unleash_disastrous.asp
"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."
William F. Rickenbacker
At the Comex silver depositories Thursday, final figures were: Registered 52.47 Moz, Eligible 59.34 Moz, Total 111.81 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
The cost of God’s work, $550 million. Barely the price of a top squids annual bonus. Today, it’s the Great Vampire Squid again, paying a mere $550 million to make America’s out of their league SEC go away. The cost of “God’s work?” A puny 14 days worth of profits, and less that the stock price surged on news of the settlement. It didn’t take Ebenezer Squid long with his Abacus to see that at 550 million it was easily the bargain of the new century. Besides, what’s 550 million when it ends all the paranoia among friends? Maybe now the top squids can stop wearing wires and trying to record each other. Below, the Journal covers the Squids giving back what for them amounts to just another cost of business. One tiny unseemly detail that was buried in the minutiae, the great vampire squid seems to have to help the SEC serve up Frenchman Fabrice Tourre’s head on a plate. One other minor detail, the SEC apparently gives up pursuing Goldman Sachs on “other mortgage related CDOs” according to MarketWatch. Bernie Madoff must be wondering where he went wrong. Below the Journal coverage, did someone at Goldie or the SEC game the settlement’s announcement near the close? The Fed’s NY fix-it desk perhaps? They wouldn’t do that, would they?
"I'm doing God's Work."
Lloyd Blankfein. CEO Goldman Sachs. November 8 2009.
JULY 16, 2010
Goldman Settles Its Battle With SEC
$550 Million Deal Ends Showdown That Shook Street
In one of the largest penalties in Wall Street history, Goldman Sachs Group Inc. agreed to pay $550 million to settle civil charges that it duped clients by selling mortgage securities that were secretly designed by a hedge-fund firm to cash in on the housing market's collapse.
But the agreement with the Securities and Exchange Commission ends a showdown that had deeply shaken America's most powerful financial firm at a cost that outside observers deemed a bargain.
Goldman conceded it made "a mistake" by not disclosing the role of Paulson & Co. to investors for a deal dubbed Abacus 2007-AC1. The firm vowed to toughen oversight of mortgage securities, certain marketing materials and employees who create or pitch such securities.
Criminal prosecutors still are looking into whether Goldman or its employees committed securities fraud in connection with its mortgage trading, according to people familiar with the matter. Goldman hasn't commented on the criminal probe.
Yet Goldman walked away with several victories that raise questions about the strength of the SEC's case. The company wasn't forced to sacrifice any top executives, including Chief Executive Lloyd C. Blankfein, as some executives had feared. The changes it agreed to won't weaken its profits or standing as Wall Street's mightiest firm. The record-setting penalty is equivalent to just 14 days of profits at Goldman in the first quarter.
"That is a steal," said Michael Driscoll, a visiting professor at Adelphi University and a senior managing director at firm Bear Stearns Cos. before that firm collapsed in 2007. Analysts had expected Goldman to pay at least $1 billion as part of the deal.
Goldman shares surged late in the day on expectation of a pact, and continued to rally in after-hours trading. The stock was up $6.16, or 4.4% to $145.22 in New York Stock Exchange trading in regular hours, and then another $7.13, or 4.9%, to $152.35 after hours.
The firm's traders, investment bankers and other employees expressed relief that the three-month legal ordeal, which erased nearly $20 billion of the company's stock-market value, was over. Executives believe the $550 million payment is tiny compared with the business Goldman could have lost if the case dragged on. Goldman brass told managers to make sure the reaction inside the firm was subdued, fearing that cheering or other celebration would further taint the firm's reputation.
The settlement must be approved by U.S. District Judge Barbara S. Jones in New York.
The SEC said the Goldman settlement represents the largest penalty it has ever extracted from a Wall Street firm. In 1988, Drexel Burnham Lambert Inc. agreed to pay $650 million in fines and restitution, but about half the total went to satisfy civil claims of investors and clients defrauded by Drexel.
----The SEC said Goldman agreed to cooperate in the investigation of Fabrice Tourre, the Goldman trader accused by the SEC of being "principally responsible" for piecing together the bonds and touting them to investors.
Mr. Tourre faces a Monday deadline to respond to the allegations by the SEC in its April lawsuit or seek an extension. Mr. Tourre, who still works at Goldman but is on paid leave, plans to file a response Monday and continue trying to clear his name, according to a person familiar with the matter.
----The settlement includes a $535 million civil penalty and the handover of $15 million in profits Goldman made on the Abacus deal. Goldman will pay $250 million to investors in the Abacus deal, including $150 million to IKB Deutsche Industriebank AG, a German bank that invested the same amount in a slice of the mortgage securities. The U.S. government gets the remaining $300 million.
Thursday, July 15, 2010
Is the SEC Going to Investigate Insider Trading on Goldman Settlement News?
Goldman’s stock was trading at $140.15 at 3:26 PM today.
It moved more than 4 points in the next ten minutes.
I got wind that the settlement announcement was set for 4:45 PM at around 4:00 PM. I pinged a journalist at a major financial media outlet to find out whether there had been an announcement to the media earlier. His impression was also that the news had hit the wires at 4:00 PM (thus presumably intended for the close of trading).
So….it’s insider trading only if you are an insider…but who let the cat out of the bag at 3:30 PM, and were they an insider? This sort of thing happens all the time, but it’s particularly brazen when it involves and SEC announcement. But how likely is it that the SEC will turn over this rock to see what crawls out from under it?
“I am not a crook.”
Ebenezer Squid. With apologies to Richard Nixon.
Another weekend and the British Open battles the winds, rain and sun of the links of St Andrews. In the Gulf of Mexico, BP finally seems to be close to a permanent solution to its Macondo blowout. The next 36 hours should tell whether the well’s integrity below the blowout preventer is still sound. More at the weekend and hopefully all good news. Have a great weekend everyone.
"In economics, hope and faith coexist with great scientific pretension."
J. K. Galbraith.
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