Baltic Dry Index. 1940 -78
LIR Gold Target by 2019: $3,000.
There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.
J. K. Galbraith
We open today with a tale of two cities. The economic view of Europe from the American influenced, Washington based IMF, and the German influenced, Frankfurt based European Central Bank. The IMF think the ECB is behind the curve when it comes to preventing a European slide into a double dip recession, although all for now are careful to downplay the prospects of any double dip recession, there’s an important election in America this November and no one in the IMF wants to stick their head up over the parapet just to get it shot off. Unsurprisingly, the ECB in Frankfurt doesn’t see it that way. With Germany booming, they posit, what could possibly go wrong in Euroland? The European lead IMF in Washington, has simply gone native, swallowing the Team Obama Keynesian line. Below, The Telegraph on the IMF ever so politely stomping on the ECB’s French-German toes. More Q.E. you idiots and fast. Below that, the ECB’s Trichet, used yesterday’s post ECB meeting press conference, to open Goldilocks season in sweltering Frankfurt. Get off our grass, try peddling your advice in the District of Columbia. Ominously, the Baltic Dry Index continues to imply a big global trade slowdown is arriving.
IMF tells Europe to inject more stimulus
The International Monetary Fund has called on the European Central Bank to prepare fresh emergency action to stabilise debt markets, throwing its weight behind calls for renewed monetary stimulus to offset budget cuts.
By Ambrose Evans-Pritchard, International Business Editor
Published: 9:12PM BST 08 Jul 2010
"Markets are not yet convinced of the central bank's commitment to scaling up purchases if necessary to prevent a further deterioration in market functioning," said the IMF's Global Financial Stability Report.
The IMF called on Europe's authorities to make their €500bn (£420bn) rescue fund is "fully operational" and to explain how they intend to shore up banks that fail stress tests. "Test results will need to be complemented by a plan that specifies how capital-deficient institutions would be handled. Bank reporting and disclosure standards, in general, need to be improved," it said.
Credit Suisse said Deutsche Postbank, Italy's Monte Dei Paschi, Greece's Piraeus, ATE, and Helenic Postbank, as well as a clutch of Spanish cajas and German Landesbanken, are likely to fail a rigorous test and will need fresh capital.
The Swiss bank said the real value of the probe is to test whether authorities themselves are ready to rescue any bank in trouble. The backstop funds include Germany's SoFFin with €50bn left, the FROB fund in Spain which has nearly exhausted its €12bn pre-funding, Italy's "Tremonti" fund with €8bn left, as well as the EU's huge Stability Facility "in extremis".
While the IMF stopped short of calling for the ECB to launch full quantitative easing (QE), it is clearly worried that the bank's passive policies have allowed credit to wilt and led to fresh strains in interbank lending markets and sovereign debt. "Downside risks to the recovery have risen sharply. Bank funding pressures may accelerate the ongoing deleveraging process. It is too early to tell if actual bank lending growth will worsen in the euro area, after recently stabilising at barely positive year-on-year rates," it said
The ECB has so far purchased €59bn of Greek, Portuguese, Spanish, and Irish bonds, but has sought to drain any stimulus through "sterilisation" operations.
Jean-Claude Trichet, the ECB's president said yesterday that the need for fresh purchases was "progressively diminishing" but pledged that the bank would continue to provide lenders with unlimited liquidity for the time being.
With German industry was booming, he said there is no risk of double-dip recession. "I see perhaps a tendency from the outside to be excessively pessimistic. The numbers we have are not confirming this pessimism," he said.
http://www.telegraph.co.uk/finance/economics/7880333/IMF-tells-Europe-to-inject-more-stimulus.html
Trichet Says Europe Is Stronger Than Investors Think
July 8 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said Europe’s economy is stronger than some investors think and signaled the bank doesn’t intend to do more to fight the sovereign debt crisis for now.
“There is a tendency from the outside to be excessively pessimistic” about Europe, Trichet said at a press conference in Frankfurt after the ECB left its benchmark rate at a record low of 1 percent.
----- “Trichet wanted to spread confidence and show that the financial and banking sectors aren’t doing too badly,” said Carsten Brzeski, an economist at ING Group in Brussels. “He’s talking down the potential for a double-dip recession in the euro area. I agree. We will see a slowdown, but no double dip.”
----- It would be a “mistake” to interpret interbank borrowing costs as a monetary-policy signal, Trichet said, adding the ECB’s key refinancing rate remains “appropriate.” At the same time, rising rates are “the consequence of the decision of the banks” to borrow less from the ECB, he said.
Trichet “conveyed an impression that the ECB was happy not to be dictating short rates at present,” said David Page, an economist at Investec Securities in London. “This apparent abdication of responsibility for short rates could lead to an effective premature tightening of monetary policy. One could realistically expect further liquidity withdrawals to raise overnight rates towards the 1 percent refi rate over the coming quarters.”
----- The economy of the 16 nations sharing the euro expanded 0.2 percent in the first three months of the year and Trichet, citing “very good” recent data, said second-quarter growth “is likely to be much better.”
Trichet’s optimism about the economy contrasts with the view of the IMF, which yesterday cut its forecast for euro- region growth next year to 1.3 percent from 1.5 percent. The economy will expand 1 percent this year, it said.
http://noir.bloomberg.com/apps/news?pid=20601100&sid=axRRN9Qsw7eU
Below what probably got the ECB’s Trichet so cocky.
German Exports Rebounded in May as Global Recovery Gained Pace
July 8 (Bloomberg) -- Exports from Germany, Europe’s largest economy, jumped more than twice as much as economists forecast in May as the global recovery gathered pace.
Sales abroad, adjusted for working days and seasonal changes, rose 9.2 percent from April, when they fell 6.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast an increase of 4 percent, the median of 10 estimates in a Bloomberg News survey shows. Imports surged 14.8 percent.
“German exports will rise strongly this year and remain the driver of growth next year as well as demand from emerging economies, especially in Asia, compensates for lower demand in the euro area,” said Joerg Lueschow, an economist at WestLB AG in Dusseldorf. “Later in the year, we will also see positive impulses from a weaker euro.”
Concern about spiraling deficits in euro-region countries has pushed the single currency down 12 percent against the dollar this year, making German-manufactured products more competitive outside the region. The Bundesbank on June 11 raised its German growth forecasts to 1.9 percent for 2010 and 1.4 percent for 2011, citing global demand as the “main driving force” of the recovery.
From a year earlier, German exports rose 28.8 percent in June. Exports to countries outside the European Union surged 39.5 percent, while sales to countries in the region increased 22.8 percent.
http://noir.bloomberg.com/apps/news?pid=20601100&sid=agSZuUXZv8dg
JULY 9, 2010
Greece Approves Austerity Plan Amid Outcry
ATHENS—Greek lawmakers approved sweeping changes to the pension system and labor laws Thursday as the government tries to cut its massive debt.
The vote in Parliament was held during a peaceful 24-hour general strike called by unions in protest.
Among other things, the new legislation will raise the retirement age to 65 for most workers, cut pension benefits, relax rules on hiring and firing employees and lower basic salaries.
The bill had been amended more than 50 times after objections from within and outside the government. The Athens Bar Association has argued that it is unconstitutional and promised to mount legal challenges.
The vote was 157-134 in favor, with three abstaining and six legislators absent. The PASOK socialist government's 157 legislators all voted for the controversial bill despite earlier fears that some would break party ranks.
The main opposition center-right New Democracy party, while voting against the bill in principle Wednesday, did support two articles within the bill to show they were "not against any and all reform proposals."
----- The government had promised the IMF and the EU that it would take tough measures in exchange for being able to establish and draw down from the €110 billion ($138.6 billion) bailout package to rescue the debt-laden Mediterranean state from bankruptcy.
Parliament was able to hold the vote on Thursday because its employees agreed to provide a skeleton staff despite the nationwide strike.
Thursday's general strike was the sixth of the year, and disrupted public services, affected many private businesses and held up air and sea transport. Nevertheless, there seems to be increasing protest fatigue since only 15,000 to 20,000 marched in the main streets of Athens, compared with 50,000 in May.
----- For many protesters, the demonstration was also symbolic. Despite widespread unhappiness over pension reform, recent polls show that many Greeks accept the need for broad overhauls.
"The turnout is fairly low," said George Divanis, a 30-year-old computer programmer taking part in the march. "No one really expects any of these measures to be overturned, so this is really just a symbolic protest."
Across the moat back in London, in the trying to stay out of sight, apprehensive BOE, they are just watching to see what happens next in the UK’s new austerity regime. Will the communist lead unions try to bring down the new centrist-left coalition government? With the World Cup populist diversion ending on Sunday, and the British Grand Prix over the same day, only the summer holiday season is left to divert UK voters from realizing that they were seriously mislead during the last general election. The BOE dreads swapping UK public apathy for UK rising activism. The BOE fears a return to 1970s dysfunctional Britain. So do I. Yet another reason to stay long precious metals. Thanks to the inept Brown policy of selling off half the UK’s gold reserves at the post 1980s lows, the BOE has virtually only QE and devaluation left in its arsenal.
Below, the good news for the worrying BOE. Their worry is, with EU austerity rolling out everywhere, and the effects of the 5+ trillion global stimulus spending largely past, this is about as good as it gets and that, strikes and social unrest or not, it’s all downhill from here.
U.K. Second-Quarter Growth Pace More Than Doubles, Niesr Says
July 9 (Bloomberg) -- The U.K.’s pace of economic growth more than doubled in the second quarter, the National Institute of Economic and Social Research said.
Gross domestic product rose 0.7 percent in the three months through June, compared with a 0.3 percent gain in the first quarter, the London-based institute said in an e-mailed statement yesterday. Niesr’s clients include the Bank of England and the U.K. Treasury.
The bank’s Monetary Policy Committee yesterday kept its 200-billion pound ($303 billion) bond-stimulus plan in place and left its main interest rate at a record low to aid the economic recovery. Martin Weale, who managed Niesr and oversaw its economic forecasting and analysis since 1995, will join the MPC next month.
“Further acceleration in GDP growth would start to reverse the rise in unemployment seen over the recession,” the institute said in the statement. “Unfortunately, the U.K. economy does face headwinds. Fiscal consolidation both in the U.K. and the euro area will restrict growth in the short term and there is clearly a risk that this rate of growth will not be maintained through the rest of this year.”
Data from the Office for National Statistics showed economic growth in the first quarter slowed from a 0.4 percent pace in the previous three months. Niesr’s GDP forecasts have margins of error of between 1 and 2 percentage points when compared with the equivalent first estimate produced by the ONS for a calendar quarter, the institute said.
Industrial Production
Niesr’s growth estimate comes two weeks before the statistics office will release its own preliminary estimate for second-quarter economic growth, on July 23.
“If we saw that rate continue, that would be pretty solid growth,” Jonathan Loynes, chief European economist at Capital Economics Ltd. in London, said in a telephone interview. “But there are good reasons to think that the second quarter, however strong it will be, will turn out to have been the peak.”
http://noir.bloomberg.com/apps/news?pid=20601102&sid=a2cTP8bEnOoc
We end for the day week awaiting the latest trade figures from China. Imports have probably dropped widening the trade surplus, think the leading China watchers. Dismal scientists, through and through, most expect that to set off US protectionist calls again.
Yuan Pressure May Mount With Widening Trade Surplus
July 9 (Bloomberg) -- China’s June export and import data may signal a return to sustained surpluses that could fuel overseas pressure for a faster pace of yuan gains.
The trade gap almost doubled to $15.6 billion last month from a year earlier, as cooling domestic investment capped imports, according to the median estimate of 24 economists in a Bloomberg News survey. That would be the third surplus after a deficit in March. The data is due tomorrow.
China’s trading partners are monitoring the pace of yuan appreciation after the government scrapped a peg to the dollar and allowed a 0.7 percent gain in the past three weeks. Policy makers in the world’s biggest exporting nation may be reluctant to move too quickly as Europe’s sovereign-debt crisis threatens external demand just as the domestic economy is slowing.
“The deceleration of imports may outpace that of exports in coming months, leaving sizable trade surpluses,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co. “Faster yuan appreciation would multiply the negative impact on exporters who are already facing weaker overseas demand and rising labor costs.”
Any slide in European demand has yet to hit Chinese exports, which may have climbed 38 percent from a year earlier, compared with 48.5 percent in May, the survey indicated. The estimated $132 billion value of sales would be close to May’s level and also the record set in the third quarter of 2008 before the financial crisis deepened.
-----China’s estimated trade surplus would be the second highest this year, after May’s $19.5 billion. JPMorgan Chase & Co sees surpluses of between $10 billion and $15 billion in coming months, and possibly larger amounts by year end.
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aegWFMAX1Z2A&pos=3
U.S. Says China Should Let ‘Undervalued’ Yuan Rise as Promised
July 9 (Bloomberg) -- The U.S. pledged to monitor China’s “undervalued” yuan in the next three months for signs that Asia’s fastest-growing market is living up to its commitments to help rebalance the global economy.
China took a “significant step” last month when it ended its peg to the dollar and allowed markets to drive the currency higher, the Treasury Department said yesterday. The report, initially due April 15, concluded that no major U.S. trading partner manipulated its currency and said it’s not yet clear whether China’s policy shift will correct the yuan’s undervaluation. The Treasury promised another review in October.
“What matters is how far and how fast the renminbi appreciates,” Treasury Secretary Timothy F. Geithner said, using another name for China’s currency. “We will closely and regularly monitor the appreciation of the renminbi and will continue to work towards expanded U.S. export opportunities in China that support employment in the United States, in close consultation with Congress.”
The report reflected Geithner’s effort to avoid a confrontation with China over currency issues. The Treasury chief has repeated that it will be “China’s choice” when to let the yuan rise, deflecting pressure from lawmakers including Senator Charles Schumer who call for more appreciation and threaten to legislate trade sanctions.
----- U.S. lawmakers weren’t convinced that Geithner made the right call. Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said he planned to hold a hearing on the report, and Schumer said the Treasury missed its opportunity to hold China accountable.
“This report is as disappointing as it is unsurprising,” said Schumer, a New York Democrat. “It’s clear it will take an act of Congress to do the obvious and call China out for its currency manipulation.”
Other lawmakers reiterated calls for the Obama administration to bring the currency issue to the World Trade Organization. House Ways and Means Committee Chairman Sander Levin and Senator Charles Grassley, the Senate Finance Committee’s top Republican, both called for the U.S. to file a trade complaint.
http://noir.bloomberg.com/apps/news?pid=20601103&sid=ayHOsSIx9ijs
An autumn of trouble lies ahead, it seems, driven by the politics of the US mid term elections.
"Indeed the temporary breaks in the market which preceded the crash were a serious trial for those who had declined fantasy. Early in 1928, in June, in December, and in February and March of 1929 it seemed that the end had come. On various of these occasions the [New York] Times happily reported the return to reality. And then the market took flight again. Only a durable sense of doom could survive such discouragement. The time was coming when the optimists would reap a rich harvest of discredit. But is has long since been forgotten that for many months those who resisted reassurance were similarly, if less permanently discredited.”
J.K. Galbraith. The Great Crash: 1929.
At the Comex silver depositories Thursday, final figures were: Registered 53.00 Moz, Eligible 61.50 Moz, Total 114.50 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
No crooks or great vampire squids today, just a worrying look at this summer’s northern hemisphere heat wave’s growing impact on global grain production. From the UK to China, much of the great Eur-Asian land mass has been experiencing everything from record heat waves, too much rain in some areas and too little rain in other areas. Unsurprisingly, this has made end users very nervous and has been moving grain prices relentlessly higher. With the long solar minimum of sunspots still suggesting an arriving period of global cooling, is an onset of early Eur-Asian winter the next shoe to fall? Nothing is quite so alarming a continent sized threats to the food supply.
Wheat Declines, Trimming Biggest Weekly Gain Since November
July 9 (Bloomberg) -- Wheat declined, trimming the biggest weekly advance in eight months, as some traders cashed in gains after a 20 percent jump in prices in the past six sessions.
September-delivery wheat lost as much as 1.1 percent to $5.4275 a bushel on the Chicago Board of Trade. The contract is set for an 8 percent gain this week, the biggest since the week ended Nov. 13. The U.S. Department of Agriculture will today announce its latest estimates on global supply of wheat, corn and soybeans.
----- Still, the market may resume its rally, as dry weather continues to threaten crops in some of the world’s biggest exporters, he said.
“Very dry” weather conditions are expected in the Black Soils region of Russia to western Kazakh, putting late winter and spring grains under “significant stress,” Telvent DTN Inc. said in a forecast yesterday. Fairly hot weather was expected to develop through southwest and central France, it said.
France’s soft-wheat production will miss a government forecast after hot and dry weather hurt the crop, Michel Portier, head of farm adviser Agritel said July 7. The government forecast July 6 that the nation’s soft-wheat harvest, the largest in the European Union, will be 35.3 million tons this year, down from 36.2 million tons a year ago.
Crop Decline
Russia’s wheat crop will be 3.5 percent lower than previously forecast at 55 million metric tons because of heat and drought, the Institute for Agricultural Market Studies, or IKAR said July 7.
Ukraine’s grain harvest will probably be between 42 million and 43 million tons, Nikolay Vernitsky, an analyst at Kiev-based consultancy ProAgro said yesterday. That’s smaller than the June government forecast of between 45 million and 45.5 million tons.
The nation’s wheat crop will total 20 million tons, and barley will be 11.5 million tons this year, according to Vernitsky.
The grain harvest in Kazakhstan, Central Asia’s biggest wheat exporter, may fall to between 14.5 million and 15.5 million tons from last year’s record, state-owned Kazinform cited Deputy Agriculture Minister Arman Yevniyev as saying yesterday.
http://noir.bloomberg.com/apps/news?pid=20601095&sid=a0WPK8ufk8Og
China Corn Crops in Inner Mongolia, Jilin Affected by Drought
July 9 (Bloomberg) -- Corn crops in China’s Inner Mongolia and Jilin province have been affected by drought, the National Grain & Oil Trade Center said today on its website. Over 70 percent of Inner Mongolia is experiencing drought and authorities there are preparing to seed clouds to enduce rainfall, it said.
The statement did not detail the extent to which the corn crops have been affected.
http://noir.bloomberg.com/apps/news?pid=20601012&sid=aZ54vfvdbnmg
Another weekend, and much of the country is experiencing its driest year since 1929. Thankfully here in still wealthy Great Britain, any food impact will be marginal and minimal, still it ought to be raising red flags among those whose job it is to think about the future use of food resources. With the global population headed towards 7 billion, there’s very little room for error, if changing weather patterns really do begin to affect global food production year by year. For now we still have the safety valve of dropping ethanol production from foodstuffs, mostly corn (maize.) More on sunspots and global cooling on the weekend blog. The World Cup final and the British Grand Prix, how lucky can a couch potato get. Have a great weekend everyone.
"The tragic lesson of guilty men walking free in this country has not been lost on the criminal community."
Richard M. Nixon. 37th President of the United States of America.
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. Given the weakening BDI, and the ECRI leading indicators signaling recession ahead, it is probably safer to assume that the great stock market bounce has ended and that we are entering a new bear market, or alternately, resuming the old one after a bear market rally.
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