Baltic Dry Index. 2468 +31
LIR Gold Target by 2019: $3,000.
"To combat depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection- a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end."
Friedrich Hayek, 1933
We open the week with Asia slowing, and a clash looming between the world’s number one and the world’s number two economies. A clash between the world’s leading debtor and its leading creditor. Nothing good lies this way, but neither Beijing nor Washington seem willing to cut the other some slack. In fact all year long Washington has seemed determined to provoke a clash, something Beijing has been trying desperately to avoid, now Washington may have found the smoking gun it needs to go further, ahead of the vital US mid-term elections in November that the governing party seems likely to lose. Unfortunately, China may have also just found its issue, to stop being Asia’s Mr. Nice to the new world’s Mr. Nasty. Stay long precious metals, nothing good lies this way, just a global depression if not something worse. Up first, developments in China and the falling Yuan. Import tariffs look a temptation to attractive to pass up.
The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process.
Friedrich Hayek, 1933
US and China to clash over Yuan fall
China is on a collision course with Washington after steering its currency sharply lower to protect its export industries, despite a near record trade surplus of $29bn (£19bn) in July.
By Ambrose Evans-Pritchard Published: 10:35PM BST 15 Aug 2010
The Yuan dropped at the fastest pace in almost two years last week and is now 1.8pc lower against a basket of currencies than in June, when Beijing announced the end to its fixed peg against the dollar.
Western economists had seen Yuan liberalisation as a sign that China is abandoning its mercantilist policy in a step-by-step move towards a floating currency, which was expected to rise. They misjudged China's motives badly.
Beijing still controls the Yuan, so last week's drop reflects a policy decision. It is certain to infuriate hawks in Congress, who have called a hearing on China's currency in mid-September.
Sander Levin, chair of the House Ways and Means Committee, said the US may have to consider retaliatory sanctions. "We must ensure that the international trading system ensures fair rules of competition. There is no real question that China's deliberately undervalued exchange rate is unfair, contributes to global trade imbalances, and costs the US jobs," he said.
Many on Capitol Hill suspect that China fiddled trade data with a "one-off" deficit in March when the Obama administration was preparing its verdict on whether Beijing is a currency manipulator.
The fact that China is willing to defy the wrath of Congress may indicate the degree of concern in Beijing over the sudden slowdown in the Chinese economy as credit curbs bring the property boom to a shuddering halt. Industrial output has slowed abruptly.
Jim O'Neill, chief global economist at Goldman Sachs, said China's exchange policy was becoming a concern. He described its as "most odd" for Beijing to weaken the Yuan at a time when US data has been weak and China's trade surplus has reached the highest in 18 months.
-----Tension between the US and China is escalating on several fronts. China has restricted exports of rare earth minerals by more than 70pc in the second half of this year, cutting off the world supply. China produces 97pc of these minerals, used in a wide range of high-tech industries, from hybrid engines to computers, mobile phones, radar, navigation and precision-guided weapons.
http://www.telegraph.co.uk/finance/currency/7947089/US-and-China-to-clash-over-yuan-fall.html
Next, China responds to a major US provocation. Polite version: it’s 2010 not 1945, 1975, 2005. China’s likely response? My guess is hitting Uncle Sam in the economy and moving with Russia to accelerate moving the world off the dollar. I’m putting Washington on suicide watch.
China PLA warns U.S. over fresh military drill in region China PLA warns U.S. over fresh military drill in region
BEIJING (Reuters) – China's People Liberation Army demanded a tough response to U.S. plans to send an aircraft carrier to naval exercises near its coast, saying that "respect" was at stake.
A commentary in the Liberation Army Daily on Thursday laid bare rancor over Washington's naval exercises with ally South Korea, and over its criticism of Chinese territorial claims to swathes of the South China Sea, where Taiwan and several Southeast Asian states also have claims.
"A country needs respect, and a military also needs respect. 'If someone doesn't hurt me, I won't hurt him; but if someone hurts me, I must hurt him," wrote Major General Luo Yuan in the paper.
"For the Chinese people and the Chinese military, those are by no means idle words."
The angry commentary in the PLA's top mouthpiece, carefully vetted by censors, also underscored Chinese military pressures weighing on Beijing as it crafts policy.
The U.S. and South Korea last month held a joint naval drill in the Sea of Japan off the Korean peninsula, which brought condemnation from China, which answered with its own heavily publicized military exercises.
A Pentagon spokesman, Geoff Morrell, last week said a U.S. aircraft carrier, the nuclear-powered George Washington, which joined in the earlier exercise, would participate in a follow-up drill in the Yellow Sea, between the Korean peninsula and China.
The July drill was also initially scheduled to take place in the Yellow Sea -- closer to China's shore -- but was moved to other side of the Korean peninsula after objections from Beijing.
Morrell did not give a date for the next joint naval exercises, according a transcript on the Pentagon website. (http://www.defense.gov)
The PLA Daily commentary indicated that friction over any fresh U.S. military activities in seas near China would continue to dog relations between the two big economic powers.
-----The United States is "pushing its security boundary to the doorstep of others -- the Yellow Sea, South China Sea and so on," wrote Luo. "In their eyes, the security of other states and peoples is secondary, even meaningless."
Chinese newspapers have carried several harsh commentaries since maritime tensions flared between Beijing and Washington, rekindling friction that unsettled ties earlier this year.
But Luo's strong words in the Chinese military's top newspaper suggest the PLA sees its prestige at stake and wants some response from Beijing.
----Luo is among a group of PLA officers who use blogs and newspapers as platforms to voice tough views on foreign policy issues. In February, he wrote that China could retaliate against U.S. arms sales to Taiwan by dumping its holdings of U.S. treasury bonds.
http://news.yahoo.com/s/nm/20100812/pl_nm/us_china_usa
Below, US based Bloomberg covers China’s doves in the coming clash over the Yellow Sea. My take from far away holiday affected London, Beijing cannot ignore an a provocation in the Yellow Sea between China and the Korea’s, the way it can a provocation in the Sea of Japan or the far away South China Sea. I think Bloomberg is clutching at straws.
China Not Threatened by U.S. Carrier Exercises, Scholar Says
Aug. 16 (Bloomberg) -- China should not feel threatened by planned exercises later this year in the Yellow Sea involving a U.S. aircraft carrier, a scholar at China’s National Defense University said.
The U.S. regularly sent aircraft carriers through the straits separating mainland China from Taiwan in the past “but didn’t dare to do anything against China,” Qiu Hao wrote in an editorial in today’s Global Times newspaper. The future of ties between China and the U.S. “offers more opportunities for cooperation than conflicts,” Qiu said.
“China is quite capable of standing up to all comers and doesn’t need to jump at every possible threat,” Qiu wrote.
Qiu’s position stands in contrast to some members of China’s military, who have argued in recent weeks that the planned U.S. exercises in the sea, which lies between China and the Korean peninsula, are an affront to Chinese sovereignty.
Rear Admiral Yang Yi, the former director of the Institute for Strategic Studies at National Defense University in Beijing, wrote in an Aug. 13 editorial that the U.S. will “pay a costly price” for its “muddled decision” to send a carrier to the Yellow Sea.
http://noir.bloomberg.com/apps/news?pid=20601089&sid=a3cXz3ujAo2M
Elsewhere in Asia, Japan’s rising Yen is sinking the economy. There’s nothing we can do about the Yen, says Japan’s “Mr. Yen”.
Japan Economy Is Overtaken by China as Growth Weakens
Aug. 16 (Bloomberg) -- Japan’s economy grew at less than a fifth of the pace economists estimated last quarter, pushing it into third place behind the U.S. and China and adding to evidence the global recovery is faltering.
Gross domestic product rose an annualized 0.4 percent in the three months ended June 30, the Cabinet Office said today in Tokyo. The median estimate of 19 economists surveyed by Bloomberg News was for growth of 2.3 percent. The data reinforce International Monetary Fund predictions that China will be the No. 2 economy by the end of 2010.
Today’s milestone reflects Japan’s two decades of economic stagnation during which the government racked up the world’s biggest public debt, the Nikkei 225 Stock Average lost three quarters of its value and the population began to shrink. China’s ascent caps off moves begun by Deng Xiaoping more than 30 years ago to transform the country from an agrarian state into the world’s fastest-growing major economy.
-----Japan’s recovery from its worst postwar recession has been hamstrung by the yen’s climb to a 15-year high against the dollar, threatening profits at exporters including Honda Motor Co. and Sony Corp. The economic slowdown may put pressure on the Bank of Japan to expand monetary stimulus as the nation’s record debt constrains the government’s ability to do so.
Export growth slowed and consumer spending stalled last quarter, today’s figures showed. The expansion was weaker than all economists estimated, with their predictions ranging from 0.6 percent to 3.4 percent. Growth slowed from 4.4 percent in the first quarter.
http://noir.bloomberg.com/apps/news?pid=20601087&sid=ajEOHBr3ZnD8&pos=1
‘Mr. Yen’ Says Japan Can’t Stem Currency’s Rise as U.S. Falters
Aug. 16 (Bloomberg) -- Japan’s yen, the best performer among major currencies this year with a 7.9 percent gain against the dollar, may surge further as concern grows that U.S. efforts to boost economic growth may fail.
“What we are seeing is not appreciation of the yen but weakness of the dollar, reflecting concerns that the U.S. economy may falter,” Eisuke Sakakibara, formerly Japan’s top currency official, said yesterday on the Fuji television network. “There is a chance the yen will reach an all-time high and stay at that level for the time being.”
The Japanese government has yet to formulate strategy for stemming a yen surge that threatens the earnings of exporters including Toyota Motor Corp., Honda Motor Co. and Canon Inc. A report today probably will show the nation’s economy grew at the slowest pace in three quarters in the period ended June 30, economists surveyed by Bloomberg News forecast.
The yen reached 84.73 to the dollar on Aug. 11, a high since July 1995. Sakakibara -- known as “Mr. Yen” for his efforts to influence exchange rates through verbal and actual currency market intervention while at the Ministry of Finance in 1997-1999 -- said the currency may match its April 1995 peak of 79.75.
“Japanese companies will feel the pinch of a stronger yen and a weakness in share prices around the end of this year,” Sakakibara said.
---- Sakakibara spoke after Finance Minister Yoshihiko Noda last week refrained from outlining steps to slow the yen’s rise and the Bank of Japan maintained its policy guidance.
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aDHoiIqyn7TY&pos=2
We close today with two speed Europe. While Germany’s exports boom, helped by the depreciating Euro, the PIIGS and Hungary seem destined for restructuring, aka technical default.
“In a sign of what vulnerable countries such as Spain and Portugal can expect as their deficit-cutting measures kick in, Greece contracted nearly 6%, at an annualized rate, in the second quarter, according to calculations based on figures released by Greece's statistics agency.”
WSJ. August 13, 2010.
Hungary’s Recovery Halts as Austerity Stifles Demand
Aug. 13 (Bloomberg) -- Hungary’s economic recovery from its worst recession since 1991 halted in the second quarter as rising exports failed to compensate for austerity measures stifling domestic demand.
Gross domestic product was unchanged from the previous quarter after a revised 0.6 percent growth in the first quarter, according to today’s preliminary estimate by the Budapest-based statistics office. Annual growth accelerated to 1 percent from 0.1 percent in January-March. The median estimate of six economists in a Bloomberg survey was for 0.9 percent annual growth.
The first European Union member to get an International Monetary Fund bailout in 2008, Hungary cut spending to meet the terms of its loan, exacerbating the worst recession since 1991. Prime Minister Viktor Orban, elected on a pro-growth platform in April, is resisting pressure from the creditors to reduce the budget deficit to less than 3 percent of GDP next year.
“The GDP data will be used by Orban as an excuse to play on the weakness of the economy” and argue against the need to cut the budget deficit, London-based Capital Economics Ltd. analyst David Oxley said in a phone interview. “Ultimately though it’s probably unjustified because Hungary’s Achilles heel isn’t the budget deficit but its high debt level.”
----- In the second quarter, Hungary’s rising exports failed to lift the economy in the second quarter as domestic demand continued to falter after five years of austerity.
Agricultural production and the construction industry are set to drop by “double-digits” in the second quarter on an annual basis, statistician Peter Szabo told reporters in Budapest. Exports continued to be the engine of the economy as demand picked up, while the retail industry “also doesn’t show signs of improvement,” he said.
http://noir.bloomberg.com/apps/news?pid=20601095&sid=aDdfG2_xvnMY
AUGUST 12, 2010, 11:44 A.M. ET
Greek Recession Deepens
ATHENS—The Greek economy contracted sharply in the second quarter as government austerity measures bit deeper into incomes, according to government data released Thursday.
The national statics service Ellsta said Thursday that second-quarter gross domestic product fell 1.5% on a quarterly basis, weaker than forecasts of a 1% drop and the 0.8% fall in the first quarter.
Jobs data for May, meanwhile, revealed persistently high unemployment, which ticked higher to 12% from 11.9% in April.
"The measures imposed by the International Monetary Fund and the European Union were expected to impact the economy substantially, so the figures are not a shock even if slightly worse than expected," said Diego Iscaro, senior international economist at IHS Global Insight.
In May, Greece agreed to tough, three-year austerity and deficit-slashing programs along with politically difficult structural reforms in exchange for a €110 billion ($141.71 billion) bailout from the IMF and EU.
Economic activity in Greece has been slowing since the beginning of 2008. For 2009 as a whole, the Greek economy shrank 2%, worse than the government's forecast of a 1.5% contraction. However, the austerity and cutback policies have aggravated the recession and on an annual basis, GDP fell 3.5% in the second quarter after a 2.3% decline in the first, according to a flash estimate by the Ellstat.
Recent indirect tax increase and cuts to public-sector wages and pensions, as well as a sharp reduction in public consumption are acting as a drag on growth prospects. Persistently high inflation is further eroding consumers spending appetite and power.
----For 2010 as a whole, the government is forecasting a GDP decline of 4%, while the EU estimates a 3% drop.
"The full impact of the measures will be felt in the third quarter on a quarter-on-quarter basis, so we expect a full year GDP contraction of 3.6% to 3.8% for the year," said Nick Magginas, senior economist at National Bank of Greece.
The contraction is expected to fuel a jump in unemployment especially after the summer months when the tourist season ends.
"A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him. It is necessarily part of the business of a banker to maintain appearances, and to confess a conventional respectability, which is more than human. Life-long practices of this kind make them the most romantic and the least realistic of men."
John Maynard Keynes. "The Consequences to the Banks of the Collapse in Money Values", 1931
At the Comex silver depositories Friday, final figures were: Registered 51.06 Moz, Eligible 59.51 Moz, Total 110.56 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Back to the great vampire squids again today, they just can’t stop themselves from doing God’s work on earth. Strangely that includes turning the Sisters of Charity of Jesus and Mary into the Poor Clare’s. God’s work is a banksters mystery wrapped up in an enigma. Below, some squid’s fight tooth and nail over a sum Ebenezer Squid would be embarrassed to hand out as squid’s bonus in New York. Happily for Ebenezer, these squids ply their trade in the vampire squid’s second division.
"I don't know what to do!" cried Morgan Squid, laughing and crying in the same breath; and making a perfect Laocoon of himself with his stockings. "I am as light as a feather, I am as happy as an angel, I am as merry as a schoolboy. I am as giddy as a drunken man. A merry Christmas to every squid! A happy New Year to the bankster world!
With apologies to Ebenezer Scrooge and Charles Dickens.
Nuns accuse banks in $5m lawsuit
Germany's Deutsche Bank and US investment bank Morgan Stanley are facing a $5m lawsuit led by a group of Irish nuns.
By Harry Wilson, Financial Services Correspondent Published: 8:56PM BST 11 Aug 2010
No banker is likely to risk describing what they do as "God's work", but they might hope at least not to get on the wrong side of His earthly followers.
Unlucky then for Germany's Deutsche Bank and US investment bank Morgan Stanley, who are facing a $5m (£3.2m) lawsuit led by a group of Irish nuns.
The Sisters of Charity of Jesus and Mary, the Holy Faith Sisters and the Irish Veterinary Benevolent Fund are among a group of 88 Irish individuals suing the two banks.
The nuns allege Morgan Stanley profited at their expense by failing to redeem an investment linked to the debt of German financial group Dresdner Bank and in so doing cost them millions of pounds.
In 2005 the nuns and other Irish investors bought euro-denominated notes worth €5.88m (£4.8m) linked to Dresdner Bank bonds, but accuse Morgan Stanley of failing to deliver on a contractual pledge to redeem the debt after the German bank's credit rating was cut below an agreed point.
Instead, Morgan Stanley is alleged to have postponed redeeming the notes until the value of Dresdner Bank debt had recovered to a level whereby the US bank would incur no losses, but which the nuns say ended up costing them $4.7m, as well as $718,734.80 in lost interest payments.
Morgan Stanley is alleged to have made an estimated $11.2m gain by delaying the redemption of the notes.
A spokesman for Morgan Stanley declined to comment and said the bank had yet to be served with legal papers by the claimants. Deutsche Bank, which acted as custodian for the notes, didn not comment.
Irish stockbrokers, Bloxham, which sold the notes to the nuns and other investors has not been named as a defendant in the case.
The nuns and other claimants, say that they bought the Hybrid Structured Euro constant maturity swap notes soley on the basis of a term sheet prepared by Morgan Stanley and distributed by Bloxham.
Dresdner Bank debt declined in value as the company was hit by the financial crisis in 2008, which led to it merging with German rival Commerzbank.
A separate lawsuit filed by other investors in the Dresdner notes names Bloxham alongside Morgan Stanley as a defendant.
In February Bloxham joined Morgan Stanley in a lawsuit brought by the Solicitors Mutual Defence Fund relating to an investment in the notes, which named several partners at the stockbroker as defendants in the case.
Bloxham was not available to comment.
Regulation of derivatives transactions that are privately negotiated by professionals is unnecessary."
Alan Greenspan, July 30, 1998.
The monthly Coppock Indicators finished July:
DJIA: +264 Down. NASDAQ: +427 Down. SP500: +275 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. July seems to have confirmed June’s reversal and end of the bull market.
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