Wednesday, 29 September 2010


Baltic Dry Index. 2468 -36 29/9/10
LIR Gold Target by 2019: $3,000.

"Until government administrators can so identify the interests of government with those of the people and refrain from defrauding the masses through the device of currency depreciation for the sake of remaining in office, the wiser ones will prefer to keep as much of their wealth in the most stable and marketable forms possible - forms which only the precious metals provide."

Elgin Groseclose

A fiat currency war has broken out, as more and more countries have joined the UK in manipulating its currency lower. But first this. Right on the heels of reading Goldman’s latest excellent, if gloomy report on the US economy:

Investment Strategy Group

US Economic and Equity Market Outlook

September 2010

I ran into the following equally dismal news portending imminent disaster in the US real economy. Far away from where Wall Street banksters ply their religion, the trucks of America have gone into reverse. Below, the wheels fly off the American Trucking Association’s tonnage index. The numbers might actually still be over optimistic due to the way the index is constructed. So why is the S&P 500 back near 1150 again? If the stock market is a forward looking indicator, right now it’s got its eyes tightly shut and blindfolded. As the month-end and end of quarter approaches, could it be that the professional money managing squids are busy dressing up the pig for their quarterly bonus?

ATA Truck Tonnage Index Plunged 2.7 Percent in August

September 28, 2010 4:00 PM

ARLINGTON, VA — The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 2.7 percent in August, which was the largest month-to-month decrease since March 2009. The latest drop lowered the SA index from 110 (2000=100) in July to 106.9 in August.

The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 113.5 in August, up 3.2 percent from the previous month.

Compared with August 2009, SA tonnage climbed 2.9 percent, which was well below July’s 7.4 percent year-over-year gain. Year-to-date, tonnage is up 6.2 percent compared with the same period in 2009.

ATA Chief Economist Bob Costello said that August’s data highlights that the economy, while still growing, is slowing.

----Note on the impact of trucking company failures on the index: Each month, ATA asks its membership the amount of tonnage each carrier hauled, including all types of freight. The indexes are calculated based on those responses. The sample includes an array of trucking companies, ranging from small fleets to multi-billion dollar carriers. When a company in the sample fails, we include its final month of operation and zero it out for the following month, with the assumption that the remaining carriers pick up that freight. As a result, it is close to a net wash and does not end up in a false increase. Nevertheless, some carriers are picking up freight from failures, and it may have boosted the index. Due to our correction mentioned above, however, it should be limited.

Trucking serves as a barometer of the U.S. economy, representing 68 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods.

Below, another explanation for the S&P 500 at 1150 in the face of an economy heading into a double dip. Thankfully it’s only fiat money, and there’s plenty more where that comes from.

"When paper money systems begin to crack at the seams, the run to gold could be explosive."

Harry Browne

‘Stealth QE’ in fact never ended

-----American QE1 officially ended last March, but between April 1st and 22nd July, the Fed's own stats show that it greased the New York markets by continuing to buy Wall St banking debts - to the tune of $130 billion during that four-month period. Over a year, given lighter trading in some summer months, that would be equivalent to a half-trillion dollar QE exercise. QE1 contained $1 trillion worth of expiration purchases - so in real terms, a secret arrangement has continued QE at a roughly 50% level. The mini bail-outs ended in August - by which time the White House team had already decided on some form of QE2 anyway - details of which The Slog covered yesterday.

What makes the allegations especially damning is that ALL the big Federal Treasury bank payments were made during weeks when loss-making options were due to expire. Thus the major banks had most of their trading mistakes settled....the price for this action being that the monies must go back into stock purchases. This they duly did - creating the rally that never was. Effectively, investors who became bullish during that time have been cheated by the US Government....a scam the taxpayers underwrote without any knowledge of it.

While firms such as Goldman Sachs, Credit Suisse, J P Morgan and BoA were paying their staff vast bonuses, ordinary Americans were struggling to avoid foreclosure - but unwittingly ensuring the payment of those bonuses. The banks simply couldn't lose.

Now, however, Slog sources in the US insist that Ben Bernanke's secret slush-fund operation started up again last week, when some $15-20 billion were again 'given' to the primary banks.

"It's a sweet deal," an informant told us, "in that just like with the banks buying low-cost US securities, everyone wins. The Feds clear all the debts and the Banks keep buying the stocks."

Now back to the currency wars.

"We need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."

Leonard Read

Capital controls eyed as global currency wars escalate

Stimulus leaking out of the West's stagnant economies is flooding into emerging markets, playing havoc with their currencies and economies

By Ambrose Evans-Pritchard Published: 6:00AM BST 29 Sep 2010

Brazil, Mexico, Peru, Colombia, Korea, Taiwan, South Africa, Russia and even Poland are either intervening directly in the exchange markets to prevent their currencies rising too far, or examining what options they have to stem disruptive inflows.

Peter Attard Montalto from Nomura said quantitative easing by the US Federal Reserve and other central banks is incubating serious conflict. "It is forcing money into emerging market bond funds, and to a lesser extent equity funds. There has truly been a wall of money entering many countries," he said.

"I worry that we are on the cusp of a competitive race to the bottom as country after country feels they need to keep up."

Brazil's finance minister Guido Mantega has complained repeatedly over the past month that his country is facing a "currency war" as funds flood the local bond market to take advantage of yields of 11pc, vastly higher than anything on offer in the West.

"We're in the midst of an international currency war. This threatens us because it takes away our competitiveness. Advanced countries are seeking to devalue their currencies," he said, pointing the finger at America, Europe and Japan. He is mulling moves to tax short-term debt investments.

Goldman Sachs said net inflows have been running at annual rate of $520bn (£329bn) in Asia over the last 15 months, and $74bn in Latin America. Intervention to stop it creates all kinds of problems so the next step may be "direct capital controls", the bank warned.

----"Everybody is worried that global growth is fading and they are trying to use exchange rates to protect exports. Brazil has watched as the Asians intervened and feels it can't stand by," said Ian Stannard, a currency expert at BNP Paribas.

Brazil has used taxes to slow the capital inflows but the allure of super-yields and the country's status as a grain, iron ore, and commodity powerhouse have proved irresistible. It is a textbook case of the "resources curse" that can afflict commodity producers.

A $67bn share issue by Petrobras has been a fresh magnet for funds, forcing the central bank to buy an estimated $1bn of foreign bonds each day over the past two weeks. Such action is hard to "sterilise" and can it fuel inflation.

Japan has begun intervening to stop the yen appreciating to heartburn levels for Toyota, Sharp, Sony and other exporters. A strong yen risks tipping the country deeper into deflation.

Switzerland spent 80bn francs in one month to stem capital flight from the euro, only to be defeated by the force of the exchange markets, leaving its central bank nursing huge losses.

Stephen Lewis from Monument Securities said the Fed is playing a risky game toying with more QE. There are already signs of investor flight into commodities. The danger is a repeat of the spike in 2008, which was a contributory cause of the Great Recession.

We end for the day with “better” news. Der Spiegel’s interview with the head of Volkswagen. Like me Mr. Winterkorn thinks hybrid cars will lose out to eventually to the arriving electric car. Tomorrow will not be like today which was like yesterday.

SPIEGEL Interview with VW Chief Martin Winterkorn

'The Next Step Is the Electric Car'


SPIEGEL: Still, many companies are only providing their top managers with company cars with hybrid engines. The Mercedes-Benz S Class and the BMW 7 Series are available with hybrid engines, but the Audi A8 isn't.

Winterkorn: It will become available soon as a hybrid vehicle, as will the new A6. All the excitement over hybrids will settle down once people realize that this is a bridge technology. The next big step is the electric car.

SPIEGEL: The car bodies need to be lighter so that electric vehicles can have a sufficient range. But BMW is also at the forefront when it comes to lightweight construction, an Audi specialty for years. BMW is developing models with carbon fiber bodies that weigh significantly less than Audi's aluminum cars.

Winterkorn: Audi has long been using parts made of carbon fibers, in the A8, for example. Lamborghini makes an entire body out of carbon fibers. We have mastered this technology. So far our competitors have only offered announcements. They still have to prove that they can produce a car for the mass market with a carbon fiber body at a reasonable cost.


No update tomorrow due to travel. On what promises to be the wettest day of the week in an wet week, your hapless writer sets out in search of fame and fortune and a warm bar. More on Friday.

At the Comex silver depositories Tuesday, final figures were: Registered 53.78 Moz, Eligible 56.68 Moz, Total 110.46 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

No crooks or scoundrels today, just virtuous, hard working, modern reunified Germany getting set to pay off its last remaining debt from World War One. Yes that’s WW1 which ended with the armistice of 11/11/1918 and was formally brought to an end with the Treaty of Versailles in 1919. A lesson for all in the financial cost of war.

Though Germany got all the blame for starting WW1, it was actually the Austrians who started it 4 years earlier, when they refused to accept Serbia’s groveling acceptance of all but one of Austria’s demands following the assassination of Archduke Ferdinand and his wife Sophie in Sarajevo on the 28th of June 1914. Serbia was complicit in the murders. But Germany was also all out for war to crush Russia’s ally Serbia. Ironically, Archduke Ferdinand had been an advocate of Austria reaching an accommodation with Serbia, and had argued that any war with Serbia would bring in Russia setting off a generalized European war to the detriment of all. He never lived to see just how right he was.

Wilhelm II declared on July 4 that he was entirely for “settling accounts with the Serbia”. He ordered the German ambassador in Vienna, Count Heinrich von Tschirschky, to stop advising restraint, writing that “Tschirschky will be so good to drop this nonsense. We must finish with the Serbs, quickly. Now or never!”. In response, Tschirschky told the Austro-Hungarian government that same day that “Germany would support the Monarchy through thick and thin, whatever action it decided to take against Serbia. The sooner Austria-Hungary struck, the better”. On July 5, 1914, Count Moltke, the Chief of the German General Staff, wrote that “Austria must beat the Serbs”.

Germany Closes Book on World War I With Final Reparations Payment

By David Crossland 09/28/2010

Germany will make its last reparations payment for World War I on Oct. 3, settling its outstanding debt from the 1919 Versailles Treaty and quietly closing the final chapter of the conflict that shaped the 20th century.

Oct. 3, the 20th anniversary of German unification, will also mark the completion of the final chapter of World War I with the end of reparations payments 92 years after the country's defeat.

The German government will pay the last instalment of interest on foreign bonds it issued in 1924 and 1930 to raise cash to fulfil the enormous reparations demands the victorious Allies made after World War I.

The reparations bankrupted Germany in the 1920s and the fledgling Nazi party seized on the resulting public resentment against the terms of the Versailles Treaty.

The sum was initially set at 269 billion gold marks, around 96,000 tons of gold, before being reduced to 112 billion gold marks by 1929, payable over a period of 59 years.

Germany suspended annual payments in 1931 during the global financial crisis and Adolf Hitler unsurprisingly declined to resume them when he came to power in 1933.

But in 1953, West Germany agreed at an international conference in London to service its international bond obligations from before World War II. In the years that followed it repaid the principal on the bonds, which had been issued to private and institutional investors in countries including the United States.

Under the terms of the London accord, Germany was allowed to wait until it unified before paying some €125 million in outstanding interest that had accrued on its foreign debt in the years 1945 to 1952. After the Berlin Wall fell and West and East Germany united in 1990, the country dutifully paid that interest off in annual instalments, the last of which comes due on Oct. 3.

----- France and Britain needed the reparations to repay their own debts. Both countries had borrowed vast sums from the US during the war. Germany only settled about an eighth of its treaty obligations by the time it suspended payments.,1518,720156,00.html#ref=nlint

As a "Czech countess [she] was treated as a commoner at the Austrian court". Emperor Franz Joseph had only consented to their marriage on the condition that their descendants would never ascend the throne. The 14th anniversary of the morganatic oath fell on 28 June. As historian A. J. P. Taylor observes:

[Sophie] could never share [Franz Ferdinand's] rank ... could never share his splendours, could never even sit by his side on any public occasion. There was one loophole ... his wife could enjoy the recognition of his rank when he was acting in a military capacity. Hence, he decided, in 1914, to inspect the army in Bosnia. There, at its capital Sarajevo, the Archduke and his wife could ride in an open carriage side by side ... Thus, for love, did the Archduke go to his death.

The monthly Coppock Indicators finished August:

DJIA: +243 Down. NASDAQ: +366 Down. SP500: +243 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. August is the third down month in a row and “crash season” approaches.

Tuesday, 28 September 2010

Conditioning the Market.

Baltic Dry Index. 2451 +07
LIR Gold Target by 2019: $3,000.

The whole history of civilization is strewn with creeds and institutions which were invaluable at first, and deadly afterwards.

Walter Bagehot.

Get ready for helicopter drops by the Fed. Stay long precious metals like the other scared central banks. Below, the Fed is using today’s Journal to condition the market for the coming dollar devaluation. No shock and awe, this time round, they say. This QE will be a kinder, gentler, baby steps monetization. Whatever it’s called, it’s an admission of failure by the Fed that the first round of monetization didn’t work. On to round two, and then round three when round two fails ahead, as it will. Over at they have speculated that the Fed will drop another 3 trillion dollars over the next 6 months! I have no basis to pick a number, but in a 14 trillion dollar economy undergoing a credit contraction, that’s the kind of number needed to hold the economy out of a back to back recession.

The trouble with QE to bailout the wreckage of a casino economy the banksters and squids left behind, is that it can never be ended. The moment it ends the false economy buckles, and the next Lehman looms into view. The Fed then panics. How can it then let happen what would have happened before, but only after wasting trillions more? So more new money is created by slight of hand, and given mostly to the gamblers that created the wrecked economy in the first place. Stay long gold and silver, we’ll not last the decade on such policy.

" it might be well if you would ask yourself, are you better off than you were four years ago? Is it easier for you to go and buy things in the stores than it was four years ago? Is there more or less unemployment….”

Ronald Reagan.

SEPTEMBER 28, 2010

Fed Mulls New Bond Approach

Federal Reserve officials are considering new tactics for the purchase of long-term U.S. Treasury securities to bolster a disappointingly slow recovery.

Rather than announce massive bond purchases with a finite end, as they did in 2009 to shock the U.S. financial system back to life, Fed officials are weighing a more open-ended, smaller-scale program that they could adjust as the recovery unfolds.

The Fed hasn't yet committed to stepping up its bond purchases, and members haven't settled on an approach. After its meeting last week, the Fed's policy committee said it was "prepared" to take new steps if needed.

A decision on whether to buy more bonds depends on incoming data about economic growth and inflation; if the economy picks up steam, officials might decide no action is needed.

The Fed's internal debate about a bond-buying strategy is emblematic of the challenging position in which it finds itself. In normal times, it simply raises or lowers short-term interest rates to guide the economy.

But having pushed short-term rates to near zero, it now has to devise new, untested approaches at almost every turn. A misstep could lead to unintended consequences, one factor that makes officials wary and investors jittery about its every move.

In theory, buying long-term bonds pushes other interest rates down because it reduces the supply of debt available to investors, pushing up the price of this debt and the yield down.

------Under the alternative approach gaining favor inside the Fed, it would announce purchases of a much smaller amount for some brief period and leave open the question of whether it would do more, a decision that would turn on how the economy is doing. This would give officials more flexibility in the face of an uncertain recovery.

----A move to resume the purchases would be a big step for the Fed, which just a few months ago was talking about how to reduce its portfolio.

-----Markets anticipate the Fed will pull the trigger, barring some surprise turn in the economy. Economists at Goldman Sachs Group Inc. estimate the Fed will end up purchasing at lest another $1 trillion in securities, and estimate that would push long-term interest rates down by a further 0.25 percentage point.

-----The Goldman economists estimate that an open-ended, small-scale approach would have less impact on bond markets than a large one-time approach, because investors wouldn't be certain about whether such a program would continue.

"The more you commit to large amount of purchases up front, the bigger effect you're going to get," says Jan Hatzius, Goldman's chief economist.

Elsewhere the news was more positive. Eur-Asia is increasingly linking up. Resource rich, population poor Russia, is beginning the much needed integration with the world’s largest single market in resource poor, population rich China. In time, this dynamic, together with the arrival of the start of the renewable energy era, will eventually lift our Squid wrecked economies out of the morass they were left in, but not before we destroy the Great Nixonian Error of fiat currency.

Russia, China fete completion of oil pipeline

Mon Sep 27, 4:56 am ET

BEIJING (AFP) – The leaders of China and Russia celebrated Monday the completion of a cross-border oil pipeline, a symbol of growing ties between the two emerging economic powers, particularly in the energy sector.

Visiting Russian President Dmitry Medvedev and his Chinese host President Hu Jintao attended a launch ceremony for the long-awaited pipeline linking the world's biggest oil producer with the largest energy consumer.

The deal reached last year -- which will see China receive oil for 20 years in exchange for 25 billion dollars in loans -- is a "milestone" for energy cooperation between the two neighbours, Hu said.

The countries are still finalising a deal that could see 70 billion cubic metres of Russian natural gas sent to China each year, and have also announced plans to jointly build a five-billion-dollar oil refinery in northern China.

"Both sides believe that the current strategic partnership between China and Russia stands at a new starting point," Hu said after talks with Medvedev, hailing a "new era" in ties.

"The smooth completion of the pipeline project is a model of the two countries' mutually beneficial win-win cooperation and a milestone for Sino-Russian energy cooperation," state media quoted Hu as saying.

The two leaders signed a series of economic and political agreements, including pacts on cooperation in future gas supplies, energy efficiency, renewable energy, nuclear power and the prevention of illegal fishing.

Medvedev -- who is visiting China for three days -- said the documents would give a "new impetus" to the Sino-Russian relationship.

----Trade between Russia and China totalled 25.5 billion dollars in the first six months of this year, according to official data.

The deal on the oil pipeline -- which runs from eastern Siberia to the northeastern Chinese city of Daqing -- is part of efforts by Moscow to seek new markets for its crude exports, especially in fast-growing Asia.

Beijing is also looking to secure much-needed resources to fuel its booming economy, now the second largest in the world behind the United States.

In China news, the consolidation of the rare earths and metals suppliers is gaining pace. Since China is monopoly supplier to the world of these vital components of modern life, this may or may not be a good thing for the west. It certainly should drive exploration for replacements in the west, but is the capital available to bring on-stream the alternate supply, given prices will always be set by Chinese dictat?

Chinalco plans $1.5 billion investment in rare earths

Sept. 27, 2010, 9:33 p.m. EDT

TOKYO (MarketWatch) — Aluminum Corp. of China said Monday it plans to take on a majority stake in Jiangxi Rare Earth and Rare Metals Tungsten Group for an investment of “not less than” 10 billion yuan ($1.5 billion).

Under the agreement between the two companies, signed Sunday at the Expo Central China 2010, Chinalco will help the Nanchang-based Jiangxi firm, a major producer of tungsten, develop rare-earth resources in the next 3-5 years.

The pact follows an announcement by China earlier this month that the country would encourage mergers and acquisitions in the rare-earth sector to speed up industry consolidation, according to a report from the state-run Xinhua news agency.

Last week, the New York Times reported that China halted shipments of rare-earth minerals to Japan amid a dispute over the detention of the captain of a Chinese fishing trawler, who has since been released.

However, Chinese officials have denied that such an export ban was in place.

Rare earths are used in many products, gadgets and critical cutting-edge technologies, and China has all but cornered the market, accounting more than 90% of global rare-earth production.

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise."

Jerome F. Smith

At the Comex silver depositories Monday, final figures were: Registered 53.78 Moz, Eligible 56.68 Moz, Total 110.46 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Below, the Deputy Governor of the Bank of England has a Charlie Munger moment. After allowing the banksters to trash the economy, the BOE is now busy trashing the currency in a stealth devaluation, in an effort to recreate Camelot. Unfortunately they have now been joined in devaluation by all the rest, negating any advantage. Below, Mr. Bean tells UK savers to “suck it up” and start spending their seed corn for the good of the economy! You couldn’t make up such arrogant nonsense in a film. “Sell off the family silver and buy more useless knick knacks made in China”, seems to be his bizarre message. You have to wonder if the BOE goes out of its way to pick arrogant loonies. Still this is the same BOE that advised “the man who saved the world” to sell off half Britain’s gold reserves at the post 1980 lows. Time to tell Mr. Bean to jack it in and stalk off. Wanted: a commonsense man at the BOE. One who recognizes that saving is good, living with one’s means is right, and that bailing out banksters is heresy.

A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected.

Walter Bagehot. Lombard Street. 1873.

Savers told to stop moaning and start spending

Savers should stop complaining about poor returns and start spending to help the economy, a senior Bank of England official warned today.

By Robert Winnett and Myra Butterworth Published: 10:03PM BST 27 Sep 2010

Older households could afford to suffer because they had benefited from previous property price rises, Charles Bean, the deputy governor, suggested.

They should "not expect" to live off interest, he added, admitting that low returns were part of a strategy.

His remarks are likely to infuriate savers, who are among the biggest victims of the recession. About five million retired people are thought to rely on the interest earned by their nest-eggs. But almost all savings accounts now pay less than inflation.

The typical savings rate has fallen from more than 2.8 per cent before the financial crisis to 0.23 per cent last month.

Mr Bean said he "fully sympathised". But he continued: "Savers shouldn't necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit."

-----Mr Bean said that encouraging Britons to spend was one reason why the Bank had cut interest rates. They have been held at 0.5 per cent for 18 months, hitting rates offered on savings accounts.

The strategy had led to Mervyn King, the governor, receiving many letters of complaint.

But it was designed to return the economy to a reasonable level of activity as quickly as possible, he said. "The faster we can achieve that, the sooner interest rates will get back to more normal levels."

----- The comments angered groups representing the elderly and those putting money aside. The Daily Telegraph has campaigned for protection for savers.

Ros Altmann, director-general of Saga, said: "Savers are being taken advantage of. They did the right thing and have been let down at the other end of the deal.

"I don't think this is what most people would consider fair."

Again, it may be said that we need not be alarmed at the magnitude of our credit system or at its refinement, for that we have learned by experience the way of controlling it, and always manage it with discretion. But we do not always manage it with discretion. There is the astounding instance of Overend, Gurney, and Co. to the contrary. Ten years ago that house stood next to the Bank of England in the City of London; it was better known abroad than any similar firm known, perhaps, better than any purely English firm. The partners had great estates, which had mostly been made in the business. They still derived an immense income from it.

Yet in six years they lost all their own wealth, sold the business to the company, and then lost a large part of the company`s capital. And these losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better. After this example, we must not confide too surely in long-established credit, or in firmly-rooted traditions of business. We must examine the system on which these great masses of money are manipulated, and assure ourselves that it is safe and right.

Walter Bagehot. Lombard Street. 1873.

The monthly Coppock Indicators finished August:

DJIA: +243 Down. NASDAQ: +366 Down. SP500: +243 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. August is the third down month in a row and “crash season” approaches.

Monday, 27 September 2010

Hoarding Gold.

Baltic Dry Index. 2444 -17
LIR Gold Target by 2019: $3,000.

Political power grows out of the barrel of a gun.

Mao Tse Tung.

Gold may be a barbarous relic, but in our fiat currency race to the bottom, the central banksters have now started hoarding their gold. What do they know that we don’t? My guess is that they see what we see, a coming crash in the Euro zone, a coming currency war between America and China, and massive social stress just about everywhere. They also know that despite all the trillions of new money tossed in globally to try to get back to the Greenspan bubble era of conspicuous consumption, the modest rebound has ended and without more Quantitative Easing and fast, our world will double dip back into severe recession. QE once started, is impossible to stop, until it all ends badly in fiat currency revulsion. Below, gold starts to remonetise no matter what dissembling central banksters do to stop it. I doubt that we’ve seen anything yet.

Passivity is fatal to us. Our goal is to make the enemy passive.

Mao Tse Tung.

Central Bank Gold Sales Drop 40% in Accord, WGC Says

Sept. 27 (Bloomberg) -- Central banks and the International Monetary Fund sold about 94.5 metric tons of gold in the year that ended yesterday, the lowest amount under an agreement that began in 1999, according to data from the World Gold Council.

Euro zone banks disposed of 6.2 tons, led by Germany, Greece and Malta, while the International Monetary Fund sold 88.3 tons. The figure for the eurozone banks was 96 percent below last year’s 142 tons. The data run through Sept. 14 and the first year of the third five-year agreement ended yesterday.

Gold is heading for a 10th consecutive annual advance, the longest winning streak since at least 1920, spurring central banks globally to add the metal to reserves. Combined central bank holdings rose in every quarter since the second quarter of last year, data from the council show.

The Central Bank Gold Agreement was announced more than a decade ago because of concern that uncoordinated selling was destabilizing the gold market and driving down prices. Gold fell from a then-record $850 an ounce in 1980 to $253.83 in February 2001. It reached a record $1,300.07 on Sept. 24.

Signatories to the latest accord are limited to combined annual sales of 400 tons, down from 500 tons in the previous agreement. Sales under the previous agreement had dwindled to 157 tons by its final year, ending in 2009. Sales by eurozone banks have declined every year since 2006.

Gold is the final refuge against universal currency debasement

States accounting for two-thirds of the global economy are either holding down their exchange rates by direct intervention or steering currencies lower in an attempt to shift problems on to somebody else, each with their own plausible justification. Nothing like this has been seen since the 1930s.

By Ambrose Evans-Pritchard Published: 6:01PM BST 26 Sep 2010

“We live in an amazing world. Everybody has big budget deficits and big easy money but somehow the world as a whole cannot fully employ itself,” said former Fed chair Paul Volcker in Chris Whalen’s new book Inflated: How Money and Debt Built the American Dream.

“It is a serious question. We are no longer talking about a single country having a big depression but the entire world.”

The US and Britain are debasing coinage to alleviate the pain of debt-busts, and to revive their export industries: China is debasing to off-load its manufacturing overcapacity on to the rest of the world, though it has a trade surplus with the US of $20bn (£12.6bn) a month.

Premier Wen Jiabao confesses that China’s ability to maintain social order depends on a suppressed currency. A 20pc revaluation would be unbearable. “I can’t imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs,” he said.

Plead he might, but tempers in Washington are rising. Congress will vote next week on the Currency Reform for Fair Trade Act, intended to make it much harder for the Commerce Department to avoid imposing “remedial tariffs” on Chinese goods deemed to be receiving “benefit” from an unduly weak currency.

Japan has intervened to stop the strong yen tipping the country into a deflation death spiral, though it too has a trade surplus. There is suspicion in Tokyo that Beijing’s record purchase of Japanese debt in June, July, and August was not entirely friendly, intended to secure yuan-yen advantage and perhaps to damage Japan’s industry at a time of escalating strategic tensions in the Pacific region.

Brazil dived into the markets on Friday to weaken the real. The Swiss have been doing it for months, accumulating reserves equal to 40pc of GDP in a forlorn attempt to stem capital flight from Euroland. Like the Chinese and Japanese, they too are battling to stop the rest of the world taking away their structural surplus.

So we have an early 1930s world where surplus states are hoarding money, instead of recycling it. A solution of sorts in the Great Depression was for each deficit country to devalue, breaking out of the trap (then enforced by the Gold Standard). This turned the deflation tables on the surplus powers – France and the US from 1929-1931 – forcing them to reflate as well (the US in 1933) or collapse (France in 1936). Contrary to myth, beggar-thy-neighbour policy was the global cure.

A variant of this may now occur. If China continues to hold down its currency, the country will import excess US liquidity, overheat, and lose wage competitiveness. This is the default cure if all else fails, and I believe it is well under way.

The latest Fed minutes are remarkable. They add a new doctrine, that a fresh monetary blitz – or QE2 – will be used to stop inflation falling much below 1.5pc. Surely the Fed has not become so reckless that it really aims to use emergency measures to create inflation, rather preventing deflation? This must be a cover-story. Ben Bernanke’s real purpose – as he aired in his November 2002 speech on deflation – is to weaken the dollar.

If so, he has succeeded. The Swiss franc smashed through parity last week as investors digested the message. But the swissie is an over-rated refuge. The franc cannot go much further without destabilizing Switzerland itself.

Gold has no such limits. It hit $1300 an ounce last week, still well shy of the $2,200-2,400 range reached in the late Medieval era of the 14th and 15th Centuries.


While the US Congress gets ready to vote on the Currency Reform for Fair Trade Act, in reality the let’s get even with China Act, China itself has suddenly opted for the role of regional bully and pantomime villain. China’s recent over reaction against Japan , including threatening their access to rare metals, since denied but who really knows, has done more to wake up the world to the dangers of relying on a still communist lead China, than anything since the cultural revolution of 1966. Below, today’s latest installment in China v the World.

Communism is not love. Communism is a hammer which we use to crush the enemy.

Mao Tse-Tung

China’s Charm Blitz in ‘Shambles’ Over Regional Spats

Sept. 27 (Bloomberg) -- China may be undermining its effort to build strong ties with its neighbors and draw them away from the U.S. orbit as it seeks to impose its will in territorial disputes with Japan and Southeast Asian nations.

Relations between Asia’s two biggest economies deteriorated to the lowest point in five years during the 17-day detention of a Chinese fishing boat captain before Japanese authorities last week decided to release him. China opposed U.S.-South Korea military exercises aimed at deterring North Korea, and dismissed regional efforts to mediate maritime territorial claims.

Those positions reflect a more assertive diplomatic role in Asia over the past decade as China developed into Asia’s biggest economy. China set up a regional forum, flooded Malaysia and Thailand with tourists, boosted economic aid to countries including the Philippines and participated in Association of Southeast Asian Nations security dialogues.

“China has tried to establish an image in the region as a nice guy, but all of this could be in a shambles right now,” said Huang Jing, a visiting professor at the National University of Singapore’s Lee Kuan Yew School of Public Policy. “The real issue here is whether Beijing cares.”

China’s stance may benefit U.S.-Japan relations strained by a dispute over relocating American troops.

Japan Demands China Repair Damaged Coast Guard Boats

Sept. 27 (Bloomberg) -- Japan said China should pay for repairs to two Coast Guard vessels damaged in a collision with a fishing boat, rejecting Chinese demands for compensation over an incident that has soured ties and shows no sign of abating.

“We will demand that the ships be returned to their original condition,” Chief Cabinet Secretary Yoshito Sengoku said in Tokyo. “The ball’s in China’s court” to improve relations that have sunk to the lowest in five years, he said.

The diplomatic stand-off reflects competing claims of sovereignty over uninhabited islets in an area of the East China Sea that may contain oil and natural gas. China and Japan have yet to implement an agreement signed in 2008 to jointly develop gas fields near the islands, known as Diaoyu in Chinese and Senkaku in Japanese.

Sengoku reiterated Japan’s rejection of Chinese demands for an apology and reparations for the seizure of the trawler. Japan released the ship’s captain on Sept. 24, triggering criticism it had bowed to Chinese pressure.

“China’s ties with Japan are very important and are part of a strategic relationship that is mutually beneficial,” Sengoku told reporters today. “I believe that China has many things to think about in the wake of the release.”

‘Severely Infringed’

Japan has “severely infringed” on China’s territorial sovereignty and the personal rights of Chinese citizens, Jiang Yu, China’s Foreign Ministry spokeswoman, said in Beijing on Sept. 25, according to the state-run Xinhua news agency. China has the right to seek an apology, she said.

“I have no intention whatsoever of accepting” such a demand, Kyodo News quoted Japanese Prime Minister Naoto Kan as saying yesterday. “The Senkaku islands are Japan’s own territory.”

We end for the day with the WSJ on the continuing fall of the Euro. Sovereign default comes next, but which country will get to figure it out first.

SEPTEMBER 26, 2010

Currency Union Teetering, 'Mr. Euro' Was Forced to Act

LISBON—On May 6, top officials of the European Central Bank were sitting down to dinner with their spouses in the elegant Emperor's Room of the Palacio da Bacalhoa, a 15th-century estate and winery south of the Portuguese capital, when stocks in New York began a terrifying slide.

The bankers' BlackBerrys lit up with frantic notes. The euro was swooning. The Dow Jones Industrial Average had plummeted 1,000 points in the "Flash Crash."

Jean-Claude Trichet, the ECB's president, feared that a fiscal mess in tiny Greece, which had consumed Europe for months, was now touching off another global financial crisis.

It was perhaps the worst of many stomach-churning moments that spring for Mr. Trichet, an urbane 67-year-old Frenchman known as "Mr. Euro" for devoting much of his 40-year career to building the common currency. It now seemed possible the panic could derail his life's work.

This account of how he and other European leaders cobbled an uneasy pact to keep the euro zone from unraveling—a patch-up that continues to show signs of strain—was based on interviews with dozens of officials across the continent.


The atom bomb is a paper tiger which the United States reactionaries use to scare people. It looks terrible, but in fact it isn't.

Mao Tse Tung.

At the Comex silver depositories Friday, final figures were: Registered 53.89 Moz, Eligible 57.56 Moz, Total 111.45 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

More on “God’s work” from Goldman’s top vampire squid in Europe. Lord of the Universe Peter Sutherland descends from Olympus to tell the downwardly mobile Irish serfs, that they’ve got to suck it up some more and cut their wages. Is casino capitalism great for Squids, or what?

"God, no, we don't club baby seals. We club babies."

Goldmanite, quoted in The Times of London. November 8 2009.

Sutherland attacks Irish wages and calls for tougher Budget cuts

Peter Sutherland, former EU commissioner and chairman of Goldman Sachs International, told the Institute of Directors (IOD) in Dublin yesterday that Irish wages are too high.

His speech was ostensibly aimed at countering what he called the "air of fatalism . . . nurtured by negativity" currently taking place in Ireland. But the speech itself made for gloomy listening.

Addressing international perceptions of Ireland, Mr Sutherland highlighted the positive reception abroad to Ireland's budgetary discipline of recent years. But only before calling for cuts in the upcoming Budget to go further. He said policymakers should look to cut beyond the target of €3bn.

"Ireland's principal fiscal problem is its large primary deficit (rather than a large outstanding debt level)."

Tackling the deficit was, therefore, the key to the current crisis. In addition to calling for further cuts in the upcoming budget, he launched an attack on salaries, saying that costs in the Irish economy remained far too high.

"We have really failed to benchmark our costs -- particularly, but by no means exclusively, wages and salaries -- to other European countries."

Mr Sutherland also took the opportunity of the speech, delivered ahead of the IOD's autumn lunch, to challenge calls by the 'Financial Times' to hand Anglo Irish Bank to its creditors.

He said he agreed in principle that bondholders should not be protected, but said the "collateral damage" of such a decision would be very serious.

He said that the maximum saving of €5.1bn did not justify the risk of embarking on a bank resolution process.

In waking a tiger, use a long stick.

Mao Tse-Tung

The monthly Coppock Indicators finished August:

DJIA: +243 Down. NASDAQ: +366 Down. SP500: +243 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. August is the third down month in a row and “crash season” approaches.

Saturday, 25 September 2010

Weekend Update – September 25, 2010

Baltic Dry Index. 2444 -232 on the week
LIR Gold Target by 2019: $3,000.

Banana republic, here we come.

Paul Krugman.

Nobel laureate and leading Keynesianist Paul Krugman has come out strongly against the Republican Party’s policies on the US economy. Since at the present time they are likely to be the big winners in November’s elections, this is important for holders of US dollars outside of the USA. Those inside the USA are trapped in a dollar system, where virtually all their wealth and savings are denominated in and wrapped up in dollars. For most there is no realistic way of meaningfully reducing that exposure. With the home as the main asset, for many there is not sufficient transferable saved wealth to meaningfully reduce dollar risk. Many others simply have too little saved wealth to even start, though purchasing some silver bullion coins to a maximum of about 10% of wealth is an imperfect option for some, or investing some wealth in an overseas precious metals fund is another option, but that carries with it other risks, not least lacking the comfort and security of US investor protection schemes.

From London, neither US party’s economic plans really make sense it seems to me, though for once I have to agree with Mr Krugman, on the likely outcome of the latest Republican attempt at courting the voters. Rather like as in the UK’s May general election where no party told the truth about the economy and what was necessary to reform it, this November’s election is being fought over a pretend US economy that doesn’t exist. 2011 is shaping up to be the year of the great unravelling. Trillion dollar deficits forever, can only come at a price of a dollar turning into a Peso.

“Paper money eventually returns to its intrinsic value -Zero.”


Downhill With the G.O.P.

By PAUL KRUGMAN Published: September 23, 2010

---- For these days one of America’s two great political parties routinely makes equally nonsensical promises. Never mind the war on terror, the party’s main concern seems to be the war on arithmetic. And this party has a better than even chance of retaking at least one house of Congress this November.

Banana republic, here we come.

On Thursday, House Republicans released their “Pledge to America,” supposedly outlining their policy agenda. In essence, what they say is, “Deficits are a terrible thing. Let’s make them much bigger.” The document repeatedly condemns federal debt — 16 times, by my count. But the main substantive policy proposal is to make the Bush tax cuts permanent, which independent estimates say would add about $3.7 trillion to the debt over the next decade — about $700 billion more than the Obama administration’s tax proposals.

True, the document talks about the need to cut spending. But as far as I can see, there’s only one specific cut proposed — canceling the rest of the Troubled Asset Relief Program, which Republicans claim (implausibly) would save $16 billion. That’s less than half of 1 percent of the budget cost of those tax cuts. As for the rest, everything must be cut, in ways not specified — “except for common-sense exceptions for seniors, veterans, and our troops.” In other words, Social Security, Medicare and the defense budget are off-limits.

So what’s left? Howard Gleckman of the nonpartisan Tax Policy Center has done the math. As he points out, the only way to balance the budget by 2020, while simultaneously (a) making the Bush tax cuts permanent and (b) protecting all the programs Republicans say they won’t cut, is to completely abolish the rest of the federal government: “No more national parks, no more Small Business Administration loans, no more export subsidies, no more N.I.H. No more Medicaid (one-third of its budget pays for long-term care for our parents and others with disabilities). No more child health or child nutrition programs. No more highway construction. No more homeland security. Oh, and no more Congress.”

The “pledge,” then, is nonsense. But isn’t that true of all political platforms? The answer is, not to anything like the same extent.

I’ll end this weekend’s update sharing, with permission, an email from a reader in Canada relaying a message from this year’s Autumn equinox holiday in China. My thanks to Ian and John.

- It is now approaching the mid autumn festival in China. People have a couple of weeks off and factories slow right down. - it is traditional to eat moon cake ( typical moon cakes are round pastries, measuring about 2 to 4 inches in diameter and 2 inches thick. A thick filling usually made from lotus seed paste is covered in a 2to3mm crust and contains yolks from salted duck eggs)

- it is customary to present cakes to friends, family and business people. So there is an unbelievable range of high end gift boxes of these cakes

- every time I have been to China at this time I have been given boxes as big as 2 1/2ft x 1 1/2 ft of assorted cakes - they weigh a ton!

- funny thing is - of all the people I have met in China - I only know two that actually like them. They are pretty rank in taste

Here's the thing:

Haagen Daz introduced an ice cream moon cake. They sold 20million during the festival and could not keep up with demand A box set in China now ranges from rmb270 to rmb988 (usd40 to 147)

There’s a market there for our western manufacturers, but who is making products the Chinese to buy for Moon Day? Moon Day Scotch and moon cake, Moon Day biscuits and cake, Moon cheesecake, chocolate cake, you get the idea. China now has a middle class of some 400+ million, that’s over 100 million more than the entire US population. (India’s is approaching 300 million.) Where are our old style entrepreneurs? With business slow in the west and the Chinese lunar New Year in 2011 starting February 3rd bringing in the year of the Rabbit, there’s probably still time for the quick to try to make money.

"Paper money polluted the equity of our laws, turned them into engines of oppression, corrupted the justice of our public administration, destroyed the fortunes of thousands who had confidence in it, enervated the trade, husbandry, and manufactures of our country, and went far to destroy the morality of our people."

Pelatiah Webster. Political Economist.

Have a great weekend everyone.


Friday, 24 September 2010

Japan 1 China 4. China Away Win.

Baltic Dry Index. 2461 -23
LIR Gold Target by 2019: $3,000.

History fails to record a single precedent in which nations subject to moral decay have not passed into political and economic decline. There has been either a spiritual awakening to overcome the moral lapse, or a progressive deterioration leading to ultimate national disaster.

General Douglas MacArthur.

Right after America’s leading agency for calling recessions after they happened, the National Bureau of Economic Research, declared America’s latest unexpected recession was over, one of America’s greatest “great vampire squids” said you’ve got to be joking. Yesterday Warren Buffett declared “We are still in recession”. Below, Reuters covers the great man’s shared pearls of wisdom. Better warm up the helicopters on the roof of the Fed.

I think we have more machinery of government than is necessary, too many parasites living on the labor of the industrious.

Thomas Jefferson.

Warren Buffett: "We're still in a recession"

NEW YORK Thu Sep 23, 2010 10:50am EDT

NEW YORK (Reuters) - Billionaire investor Warren Buffett said the U.S. economy remains in recession, disputing this week's assessment by a leading arbiter of economic activity that the downturn ended more than a year ago.

"We're still in a recession," Buffett told CNBC television in an interview broadcast on Thursday. "We're not gonna be out of it for a while, but we will get out."

On Monday, the National Bureau of Economic Research said the world's largest economy ended an 18-month recession in June 2009, but cautioned that its assessment did not mean normal activity had resumed.

Buffett said he defines a recession differently from the NBER, saying it ends when real per capita gross domestic product returns to its pre-downturn level.

----Buffett, 80, runs Berkshire Hathaway Inc, which has roughly 80 operating businesses. "A great majority" of these businesses are "coming back slowly," he said.

Berkshire's operations cover a broad swath of the economy, including the Burlington Northern Santa Fe railroad, Dairy Queen ice cream, Geico auto insurance, and luxury jewelers such as Borsheim's.

Shipments at Burlington Northern are "61 percent of the way back," Buffett said. "Our carpet business, our brick business, our insulation business, they're not back 61 percent, but they are moving back."

On Tuesday, the U.S. Federal Reserve, which has already driven short-term lending rates to near zero, said it is prepared to provide additional stimulus to support economic expansion and avert possible deflation.

"We've used up a lot of bullets," Buffett said. "And we talk about stimulus. But the truth is, we're running a federal deficit that's 9 percent of GDP. That is stimulative as all get out."

Next, stay long precious metals and be prepared for the clash of titans. Both parties are now locked into positions where there can only be one winner one loser, with the collateral damage to the rest of the world economy. Below the NY Times covers yesterday’s dramatic upping the ante by President Obama v China. At least one unnamed Chinese official seems to be misreading America’s position as entirely posturing for November’s mid-term election, according to the NY Times coverage. With a harder line Congress coming no matter who wins the election in November, it’s complete nonsense to think this issue will go away once the election is over.

With Warning, Obama Presses China on Currency

By DAVID E. SANGER Published: September 23, 2010

UNITED NATIONS — President Obama increased pressure on China to immediately revalue its currency on Thursday, devoting most of a two-hour meeting with China’s prime minister to the issue and sending the message, according to one of his top aides, that if “the Chinese don’t take actions, we have other means of protecting U.S. interests.”

But Prime Minister Wen Jiabao barely budged beyond his familiar talking points about gradual “reform” of China’s currency policy, leaving it unclear whether Mr. Obama’s message would change Beijing’s economic or political calculus.

The unusual focus on this single issue at such a high level was clearly an effort by the White House to make the case that Mr. Obama was putting American jobs and competitiveness at the top of the agenda in a relationship that has endured strains in recent weeks on everything from territorial disputes to sanctions against Iran and North Korea.

Democrats in Congress are threatening to pass legislation before the midterm elections that would slap huge tariffs on Chinese goods to undermine the advantages Beijing has enjoyed from a currency, the renminbi, that experts say is artificially weakened by 20 to 25 percent.

----One Chinese official speculated Thursday that Mr. Obama’s insistence on spending so much time on the issue was motivated by pre-election politics, suggesting that the pressure might abate after early November.

While the United States has been pressing China for years to lift the strict controls on its currency, which keep Chinese exports competitive and more factory workers employed, American voters and lawmakers have only recently seized on exchange rates as a potent political issue. Mr. Obama pressed much harder on Thursday than during a visit to Beijing last year, perhaps because a Chinese commitment several months ago to allow the value of the currency to rise has resulted in a change of less than 2 percent.

The meeting with Mr. Wen came as the United States appeared to lean toward its longtime ally, Japan, in an increasingly heated standoff between China and Japan over who has claim on territory near the South China Sea.

The most likely outcome now is the President Obama is forced to deliver something ahead of November’s election. Superficially he’s the winner, Premier Wen the loser. America wins out over China. China, the rising power is seen to have over reached and been slapped down, by the old fading power. If that in fact happens, my guess is that China will get as focused as Russia did after the US fomented the Ukraine’s Orange revolution on Russia’s backdoor.

Below, Japan manipulates its currency. Yet Washington is Japan’s friend in its spat with China over disputed islands that were supposed to be transferred back in the settlement at the end of WW2. Thanks to the Great Nixonian Error of 1971, Washington is now both against and for currency manipulation, in the ever more dysfunctional regime of the fiat dollar reserve standard. Stay long precious metals for the day this insanity ends.

U.S. dollar gains on talk of yen intervention

TOKYO (MarketWatch) — The U.S. dollar edged higher against most other currencies Friday afternoon in Asia, climbing back above 85 yen after speculation that Japanese authorities might have intervened again in foreign exchange markets.

Japanese Finance Minister Yoshihiko Noda declined comment on whether authorities intervened, according to reports.

“Large-lot selling orders” placed after 1 p.m. in Tokyo weakened the yen, and market players were betting that the Bank of Japan intervened in the currency market at the government’s request, Nikkei reported

But Japan also quietly caved in to China’s demands and is releasing the Chinese captain held for allegedly resisting arrest by Japan’s navy. Below, the NY Times on recent developments. Anyone think China’s arrests were linked? No I didn’t think so either. Still I wouldn’t want to be short precious metals across the weekend.

Gold still represents the ultimate form of payment in the world.

Alan Greenspan.

Japan Said to Free Chinese Captain Amid Tensions

By KEVIN DREW and IAN JOHNSON Published: September 24, 2010

HONG KONG — Prosecutors in Japan are releasing the Chinese captain of a fishing boat that collided with Japanese coast guard ships this month, Japanese news agencies reported on Friday.

However, in a sign that relations between two of the world’s three largest economies remained tense, prosecutors said they have not yet decided whether to file charges against the captain and that the decision would be based on the future progress in ties between Japan and China, the Kyodo news service reported.

It was not immediately clear whether the captain was still in custody, with some reports saying that he had already been freed.

Chinese analysts said the move could help ease tension between the two economic partners. Wang Xiangsui, a foreign policy analyst at the Beijing University of Aeronautics and Astronautics, said China especially objected to Japan using its domestic laws to deal with the captain. This implied that the territories were Japanese and not subject to negotiation.

China Arrests Four Japanese Amid Tensions

By IAN JOHNSON Published: September 23, 2010

BEIJING — In what could be another sign of rising tensions between Japan and China, the authorities here said Thursday that four Japanese had been arrested for videotaping military installations.

The terse report by the official Xinhua news agency said four Japanese citizens were detained at a military base near the city of Shijiazhuang, about 190 miles southwest of Beijing.

“Currently, the case is being investigated,” said a statement issued by authorities and carried on the Web site of China Daily, a government-controlled newspaper. Japan’s Foreign Ministry confirmed that four of its citizens were being held, according to Reuters.

It was unclear whether the arrests were linked to tensions set off this month over a Chinese fishing boat that collided with — the Japanese say rammed — two Japanese naval ships near uninhabited islands known as Senkaku in Japan and Diaoyu in China. The islands, northeast of Taiwan, are controlled by Japan but claimed by China.

This Act (the Federal Reserve Act, Dec. 23rd 1913) establishes the most gigantic trust on earth. When the President (Woodrow Wilson) signs the Bill, the invisible government of the Monetary Power will be legalized

Charles Lindbergh Sr.

At the Comex silver depositories Thursday, final figures were: Registered 53.90 Moz, Eligible 56.94 Moz, Total 110.84 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

No crooks today unless like me you count the whole Bilderberger “United States of Europe” project crooked. Today, Ireland and Club Med move closer to default. Ireland’s economy is contracting again, and Germany’s recovery is suddenly slowing. It’s pretty obvious that Ireland and Club Med need to add restructuring of debt, to their arsenal of austerity tools to overcome the near bankruptcy of their economies. With Ireland heading into recession and deflation, in effect it’s now the ECB guaranteeing the depositors in Ireland’s banks. But will the ECB really back stop the Irish government, and if they do, does that mean they’re now going to guarantee the depositors in all Eurozone banks? With what? It might be time to move deposits out of Ireland’s banks.

Democracy is a form of government that cannot long survive, for as soon as the people learn that they have a voice in the fiscal policies of the government, they will move to vote for themselves all the money in the treasury, and bankrupt the nation.

Karl Marx.

Ireland faces double dip, mulls restructuring of junior bank debt

Irish borrowing costs have surged to a post-EMU record after Ireland's recovery buckled over the summer and Dublin said creditors of Anglo Irish Bank may be asked to "share" losses, a warning to bondholders that the dam may at last be breaking on debt restructuring in the eurozone.

By Ambrose Evans-Pritchard Published: 7:24PM BST 23 Sep 2010

The Irish economy contracted at a 1.2pc rate in the second quarter, making Ireland the first country since the Great Recession to face a double-dip downturn. The setback is blow for hopes that Ireland can slowly grow its way out of debt, and may renew concerns that fiscal austerity without other forms of relief risks tipping the economy into a self-reinforcing spiral.

Ireland has been praised for grasping the nettle early in its debt crisis with public sector wage cuts of 13pc, leading the way for other eurozone debtors in trouble. But the reward for good behaviour has yet to come.

Dr Issing said it would be "suicide" for any country to leave the euro, but it could happen anyway if a state finds itself "in such a disastrous situation that extreme parties get a majority". A recent poll by the German Marshall Fund found that 55pc of EU citizens now think the euro is a "bad thing".

The Irish upset came as the PMI purchasing managers index for eurozone fell sharply in August. Manufacturing orders fell to the lowest in 14 months. The German PMI fell to an eight-month low of 54.8, a sign that Germany's mini-boom is losing steam. "This data has marked slowdown written all over it," said Martin van Vliet from ING.

Spreads on Ireland's 10-year bonds have risen to 405 basis points. Gavan Nolan from Markit said credit default swaps measuring bond risks on Irish banks are nearing the levels of Icelandic banks shortly before they defaulted two years ago, reaching 955 for Anglo Irish (senior debt), 615 for Allied Irish and 530 for Bank of Ireland.

Brian Lenihan, the finance minister, sent shivers through debt markets by refusing to rule out a haircut for holders of Anglo's €2.4bn subordinated debt during a hearing of the Dail's finance committee.

Another weekend, and our weather is now decidedly autumn like here in the rural Thames Valley. We even have the slight chance of frost. Getting Chinese, Japanese, American relations back up to merely frosty, would be a big improvement if achieved this weekend. Nothing good comes from the clash of Titans. Our Nixonian world experiment in fiat currency is drawing to its end. As foreseen by 18th and 19th century economists, nothing good for most comes from a world of bankster currency. Have a great weekend everyone.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

John Maynard Keynes.

The monthly Coppock Indicators finished August:

DJIA: +243 Down. NASDAQ: +366 Down. SP500: +243 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. August is the third down month in a row and “crash season” approaches.

Thursday, 23 September 2010

China Sanctions Japan.

Baltic Dry Index. 2486 -76
LIR Gold Target by 2019: $3,000.

"Let China sleep, for when she wakes, she will shake the world."


China imposed trade sanctions on Japan yesterday and the rest of the world pretended not to notice. This outrageous behaviour, and violation of trade contracts mustn’t be allowed to stand. The rest of the world must stand by Japan and the rule of law, or over the rest of this century, watch each country succumb to China, one by one. Whatever the merits of Japan’s case against the captain of a fishing trawler, Japan follows rule of law and the man will get a fair trail with proper representation, should the case get that far. China’s gross overreaction bodes ill for the future, made worse by the fact that China’s sanctions affect the rare earths needed for our modern world and that China is the sole monopoly supplier of rare earths. Below, the NY Times covers China’s thuggish approach. Some fast leadership is needed from the west.

(Note: Bloomberg has carried a short denial by China, but the NY Times is standing by its story.) The west must develop it's non Chinese sources of REEs.

Amid Tension, China Blocks Crucial Exports to Japan

By KEITH BRADSHER Published: September 22, 2010

HONG KONG — Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has placed a trade embargo on all exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.

Chinese customs officials are halting all shipments to Japan of so-called rare earth elements, industry officials said on Thursday morning.

On Tuesday, Prime Minister Wen Jiabao personally called for Japan’s release of the captain, who was detained after his vessel collided with two Japanese coast guard vessels about 40 minutes apart as he tried to fish in waters controlled by Japan but long claimed by China. Mr. Wen threatened unspecified further actions if Japan did not comply.

A Chinese commerce ministry official declined on Thursday to discuss the country’s trade policy on rare earths, saying only that Mr. Wen’s comments remained the Chinese government’s position.

China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.

Dudley Kingsnorth, the executive director of the Industrial Minerals Company of Australia, a rare earth consulting company, said that several executives in the rare earths industry had already expressed worries to him about the export ban. The executives have been told that the initial ban lasts through the end of the month, and that the Chinese government will reassess then whether to extend the ban if the fishing captain still has not been released, Mr. Kingsnorth said.

“By stopping the shipments, they’re disrupting commercial contracts, which is regrettable and will only emphasize the need for geographic diversity of supply,” he said. He added that in addition to telling companies to halt exports, the Chinese government had also instructed customs officials to stop any exports of rare earth minerals to Japan.

-----Jeff Green, a Washington lobbyist for rare earth processors in the United States, Britain, Canada and Australia, said that China and Japan were the only two sources for the initial, semiprocessed blocks of rare earth magnetic material. If Japan runs out of rare earths from China — and Japanese companies have been stockpiling in the last two years — then the United States will have to buy the semiprocessed blocks directly from China, he said.

“We are going to be 100 percent reliant on the Chinese to make the components for the defense supply chain,” Mr. Green said.

China Takes a Sharper Tone in Dispute With Japan

By IAN JOHNSON Published: September 22, 2010

BEIJING — Chinese Premier Wen Jiabao “strongly urged” Japan to immediately and unconditionally release from custody the captain of a Chinese trawler, threatening further action if Japan refuses.

Mr. Wen’s comments were the first by a senior Chinese official in what is rapidly becoming the most serious territorial dispute China has faced in a decade. The captain and crew were seized earlier this month by Japanese naval vessels, which claimed that the fishing boat rammed them near several uninhabited islands controlled by Japan. The boat and crew were quickly released, but the captain faces charges of obstructing officials from performing their duty and remains in Japanese custody.

China is incensed that Japan would apply its laws to Chinese nationals and argues that the issue is one for diplomacy, not the legal system. Known as Senkaku in Japanese or Diaoyu in Chinese, the islands have been in dispute for decades, but Japan has mostly turned back Chinese vessels that approach too closely.

Mr. Wen made his comments Tuesday night to members of the Chinese-American community in New York, where he is attending a United Nations meeting. The comments were carried Wednesday on the Web site of the Chinese Foreign Ministry.

“This is totally illegal, unreasonable and has already caused much suffering to the family of the captain,” Mr. Wen was quoted as saying. “If Japan clings to its course, China will take further action.”

Mr. Wen’s comments come as China as continued to ratchet up the pressure on Japan. On Tuesday, it announced that Mr. Wen would probably not meet his Japanese counterpart, Naoto Kan, who is also in New York for the United Nations development conference. On Sunday, China suspended many government contacts and other exchanges with Japan.

“Japan holds the key to solving this problem,” the Foreign Ministry spokeswoman, Jiang Yu, said. “The Japanese side should correctly understand the situation and return the captain immediately and unconditionally.”

Some analysts say the issue might blow over next Wednesday when Japan must decide whether to formally charge the captain or release him. If he is charged, the emotional issue could boil over in China, where protests have already taken place and Internet forums are full of anti-Japanese rhetoric.

“Japan will have to release the captain with a warning or something similar,” said a Western diplomat based in Beijing who spoke on condition of anonymity because of the delicacy of the conflict. “It’s hard to imagine them actually charging and trying him.”

Sentiment in Japan, however, has hardened against China in recent years, with some calling for the country to resist a diplomatic solution and enforce its claims by applying Japanese law.

The big story above today dwarfs all the others, as China reveals its true intentions to the rest of the world. Stay long precious metals. China’s actions speak far louder than its words.

We end for today with other news from Japan, with ominous implications for the USA and UK. Japanese property prices fell again for the 19th year in a row. In the US and UK, we are only in our early years of price decline. If we follow anything like the Japanese pattern, we face a decade of increasing distress ahead. Worse, there’s no sign that Japan’s property prices are bottoming.

Average property prices drop again

Kyodo News Wednesday, Sept. 22, 2010

The average residential land price fell 3.4 percent in the year to July 1, marking the 19th straight year of decline, though the drop was less than the 4 percent fall recorded for the previous year, the government said Tuesday.

The average commercial land price meanwhile decreased 4.6 percent, the third consecutive annual drop, compared with the previous year's 5.9 percent fall in the wake of the 2008 global financial crisis.

Of the 21,786 locations used for the annual land price survey this year and last year, 98.5 percent registered decreases, down only 0.3 percentage points from the previous year.

Just 27 locations registered increased land prices, the second lowest — after last year's three — since the government initiated the survey in 1975.

“If you do not change direction, you may end up where you are heading.”

Lao Tzu

At the Comex silver depositories Wednesday, final figures were: Registered 53.69 Moz, Eligible 58.34 Moz, Total 112.03 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Yesterday we covered the growing La Nina in the Pacific and the weather disruption it can generate. Today the growing likelihood that the winter wheat crop planting is going badly in Russia. If so, unless we get bumper wheat crops everywhere else, 2011 is going to be a year of massive food price inflation. Food price inflation, historically has toppled governments and generated revolution. 2011 seems to look more troubled with each passing month.

"At this stage there is no substantial recovery in subsoil moisture levels in Russia,"

Global food risk from China-Russia pincer

World food supplies are caught in a pincer as China becomes a net importer of corn for the first time in modern history and Russia's drought inflicts even more damage than expected, raising the risk of a global grain shock in 2011.

By Ambrose Evans-Pritchard Published: 6:52PM BST 22 Sep 2010

The Moscow bank Uralsib said half of Russia's potato crop has been lost and the country's wheat crisis will drag on for a second year, forcing the Kremlin to draw on world stocks.

Wheat prices have risen 70pc since June to $7.30 a bushel as the worst heatwave for half a century ravages crops across the Black Sea region, an area that supplies a quarter of global wheat exports. This has caused knock-on effects through the whole nexus of grains and other foods.

The UN fears a repeat of the price spike in 2008 that set off global food riots. Wheat prices are still far below the $13 peak they reached then, and the global stocks to use ratio is still "safe" at 22pc. However, the outlook is darkening.

"It is not yet a crisis but things are precarious. If there is another bad year in Russia and Ukraine, this will leave us prone to shocks. All it takes then is one piece of bad news," he said.

Chris Weafer, Uralsib's chief economist, said Russia's wheat harvest will be near 60m tonnes this year, far short of the 75m consumed locally. The country has intervention stocks of 9.5m. "We think Russia faces shortfall of 17m tonnes and will have to import next year," he said.

Moscow has already disrupted grain supplies by imposing an export ban until late 2011, but markets have not discounted the risk of Russia becoming a substantial importer.

Luke Chandler at Rabobank said the drought has gone on long enough to hit winter wheat planting and damage yields for next year's spring wheat. "At this stage there is no substantial recovery in subsoil moisture levels in Russia," he said.

-----Ominously, a corn crunch is also creeping up on the world. Global stocks are at their lowest level for 37 years, at a stock to use ratio of 13pc. "This is getting extremely tight," said Mr Chandler, questioning whether the US should divert 36pc of its corn crop into ethanol for fuel.

Corn prices have jumped 40pc since June, reaching $5 a bushel. This was first blamed on lower US crop yields due to bad weather, but China has since revealed that it imported a record 432,000 tonnes in August.

Sudakshina Unnikrishnan from Barclays Capital said China may soon become a "structural" corn importer. While it imported corn in 1994, that was due to bad harvests. This time the cause is a permanent shift towards meat-based diets. This has led to a steady rise in the use of corn for animal feed. More than 70pc of China's corn is now used in feed. It takes about seven kilos of grain to produce one kilo of beef.

There is a widely-held view that roaring "agflation" and record gold prices signal inflation, evidence that ultra-loose monetary policy in the US and Europe is leaking excess liquidity into the world. Japan is the latest country to boost liquidity, launching "unsterilised" yen sales.

A looming clash with China and possible burst of food inflation too. How unlucky can we get.

"Life is really simple, but we insist on making it complicated."


The monthly Coppock Indicators finished August:

DJIA: +243 Down. NASDAQ: +366 Down. SP500: +243 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. August is the third down month in a row and “crash season” approaches.