Baltic Dry Index. 2995 +07
LIR Gold Target by 2019: $3,000.
It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense... They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.
Adam Smith. The Wealth of Nations.
We open the week with the banking Gospel according to Basel. The Basel boys latest capital rules for the world’s insolvent banks. Between 2015 and 2018, all major banks are supposed to hold 4.5% of tier 1 capital up from a ludicrous 2% now, (often ignored by one subterfuge or another,) plus have another buffer of 2.5% that they can play fast and loose with, but only at the expense of restrictions on paying dividends. I would expect the media spin miesters to run with the line that this is great news, and an excellent reason to buy stocks. The HFT goons will be likely trying to pick each other’s pocket again, now that the public increasingly shun owning stocks since HFT programs routinely front run their orders. Below the Telegraph on the results of the gnomes and squids meeting in Basel.
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.
Adam Smith. The father of Economics.
Banks told to double their cash reserves
Basel III regulators reveal measures designed to prevent banks running out of liquidity.
By Rowena Mason and James Hall Published: 8:44PM BST 12 Sep 2010
Financial regulators have reached a deal to force global banks to double the spare cash they hold in the biggest shake-up since the economic crisis nearly brought down the system.
Mervyn King, Governor the Bank of England, is one of 27 “heads of supervision” who yesterday helped agree on a deal in Basel, Switzerland.
Details of the Basel III regulations were unveiled last night in a move designed to prevent banks from running out of liquidity as they did in the autumn of 2008. The new rules, to be phased in between 2015 and 2018, demand that banks hold 4.5pc of common equity and retained earnings. The current minimum for core Tier 1 capital is 2pc.
They also insist on a “buffer” of 2.5pc to be built up in good times, taking the total capital required to 7pc. Banks can dip into the buffer in times of hardship, but if so, they must restrict dividend payments.
Jean-Claude Trichet, President of the European Central Bank and chair of the committee, called the agreement “a fundamental strengthening of global capital standards”.
The new requirements may prompt a new wave of rights issues in Europe, kicked off by Deutsche Bank’s record €10bn (£8.2bn) issue announced yesterday. Deutsche Bank’s giant cash call is partly to fund a greater move into retail banking through buying a bigger stake in Postbank, but it is also aimed at shoring up its balance sheet.
----- European banks in Germany, Spain, Portugal, Greece and France are likely to be the worst hit by the rules, because they are generally the least well capitalised.
The European Banking Federation has written to Mr Trichet warning that tight rules may have a disastrous effect on inter-bank and customer lending.
However, British banks are expected to remain relatively unscathed. The UK regulator has insisted that banks save high levels of capital after the 2008 crash, with Lloyds already boasting a 9pc capital ratio and Barclays 13pc.
I suspect that the new rules will do little to prevent the “next Lehman”. First they are not coming in until 2015, assuming that date isn’t rolled back. Second, the banks are still marking holdings to the fantasy model, rather than taking write-downs to reflect the new reality. Third the US economy, is still on government life support of 1.5 trillion a year, while Europe’s Club Med are on ECB life support, with neither group able to contemplate taking the sick economies of life support, probably ever. The banksters being banksters, I was going to say human but we know that’s not true, know well that the game is coming to an inglorious end. The squids will continue the sophisticated looting of the banks via bonuses, till the day that the next Lehman arrives and fiat currency as we knew it ceases.
We end for this Monday with ominous news from China. As official inflation reaches a worrying 3.5% and accelerating, is China’s bubble at its peak? Below, the New York Times on recent developments. Accelerating inflation in a nation of 1.3 billion is a recipe for social disorder. Below that, the NY Time’s Paul Krugman brings up the undervalued yuan issue again. With a US election looming and rising inflation in China, China can check protectionism in America and lower domestic inflation by letting the value of the yuan rise. But will they? Whoever wins in November, the incoming Congress is likely to be far more protectionist of America’s interests. Will China use internal inflation as cover for a rise in the yuan?
Inflation in China Is Rising at a Fast Pace
By KEITH BRADSHER Published: September 11, 2010
HONG KONG — For K. K. Lam, a 37-year-old accountant in Guangzhou, inflation means higher prices for pork and for vegetables like bok choy.
For Allen Dong, the sales manager for a home appliance manufacturer 700 miles to the northeast in Ningbo, inflation means trying to persuade retailers to pay more for dehumidifiers so his company can cover rising costs for wages and raw materials.
From street markets to corporate offices, consumers and executives alike in China are trying to cope with rising prices. The National Bureau of Statistics announced on Saturday that consumer prices in China were 3.5 percent higher compared with a year earlier, the largest increase in nearly two years.
To make matters worse, inflation over the short term also seems to be accelerating. A seasonally adjusted comparison of August prices to July prices showed that inflation was running at an annualized pace closer to 4.8 percent.
Prices are rising in China for reasons that many Americans or Europeans might envy. The economy is growing, stores are full and banks are lending lots of money, according to other statistics released by the government on Saturday. Compared with August of last year, industrial production rose 13.9 percent last month, retail sales increased 18.4 percent, bank lending climbed 18.6 percent and fixed-asset investment surged 24 percent.
All four categories rose slightly more than economists had expected, in the latest sign of the Chinese economy’s strength even as recoveries seem to be flagging elsewhere.
Separate data released on Friday by the General Administration of Customs showed that Chinese demand for imports also remained surprisingly strong. The trade surplus narrowed to $20 billion last month, and would have been nearly in balance without China’s $18 billion surplus with the United States.
But so much cash in the Chinese economy chasing a limited volume of goods is pushing up prices. Inflation is starting to become troublesome, especially for young people entering the work force and retirees on fixed incomes.
Young people with vocational school degrees typically earn $200 to $300 a month in factories near the coast these days, and somewhat less in the Chinese interior. Rising prices have prompted many to ask for bigger paychecks, and blue-collar incomes have increased faster than inflation.
But salaries for recent college graduates, at $300 to $500 a month in coastal areas, have actually declined in the last few years, even before adjusting for inflation. A rapid expansion of universities over the last decade has resulted in more young men and women with undergraduate degrees than companies are ready to hire, except at lower pay.
http://www.nytimes.com/2010/09/12/business/global/12yuan.html?_r=1&partner=rss&emc=rss
China, Japan, America
By PAUL KRUGMAN Published: September 12, 2010
Last week Japan’s minister of finance declared that he and his colleagues wanted a discussion with China about the latter’s purchases of Japanese bonds, to “examine its intention” — diplomat-speak for “Stop it right now.” The news made me want to bang my head against the wall in frustration.
You see, senior American policy figures have repeatedly balked at doing anything about Chinese currency manipulation, at least in part out of fear that the Chinese would stop buying our bonds. Yet in the current environment, Chinese purchases of our bonds don’t help us — they hurt us. The Japanese understand that. Why don’t we?
Some background: If discussion of Chinese currency policy seems confusing, it’s only because many people don’t want to face up to the stark, simple reality — namely, that China is deliberately keeping its currency artificially weak.
The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different.
And in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs. Again, anyone who asserts otherwise is claiming that China is somehow exempt from the economic logic that has always applied to everyone else.
So what should we be doing? U.S. officials have tried to reason with their Chinese counterparts, arguing that a stronger currency would be in China’s own interest. They’re right about that: an undervalued currency promotes inflation, erodes the real wages of Chinese workers and squanders Chinese resources. But while currency manipulation is bad for China as a whole, it’s good for politically influential Chinese companies — many of them state-owned. And so the currency manipulation goes on.
Time and again, U.S. officials have announced progress on the currency issue; each time, it turns out that they’ve been had. Back in June, Timothy Geithner, the Treasury secretary, praised China’s announcement that it would move to a more flexible exchange rate. Since then, the renminbi has risen a grand total of 1, that’s right, 1 percent against the dollar — with much of the rise taking place in just the past few days, ahead of planned Congressional hearings on the currency issue. And since the dollar has fallen against other major currencies, China’s artificial cost advantage has actually increased.
Clearly, nothing will happen until or unless the United States shows that it’s willing to do what it normally does when another country subsidizes its exports: impose a temporary tariff that offsets the subsidy. So why has such action never been on the table?
One answer, as I’ve already suggested, is fear of what would happen if the Chinese stopped buying American bonds. But this fear is completely misplaced: in a world awash with excess savings, we don’t need China’s money — especially because the Federal Reserve could and should buy up any bonds the Chinese sell.
It’s true that the dollar would fall if China decided to dump some American holdings. But this would actually help the U.S. economy, making our exports more competitive. Ask the Japanese, who want China to stop buying their bonds because those purchases are driving up the yen.
http://www.nytimes.com/2010/09/13/opinion/13krugman.html
By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?
Adam Smith. The Wealth of Nations.
At the Comex silver depositories Friday, final figures were: Registered 53.97 Moz, Eligible 56.45 Moz, Total 110.52 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today, the bent, seriously bent and totally doubled over Bilderberger United States of Europe project. The Road to Serfdom, by Manuel Barroso.
"The most puzzling development in politics during the last decade is the apparent determination of Western European leaders to re-create the Soviet Union in Western Europe."
Mikhail Gorbachev
Brussels has broken our power to rule
The EU has become a lumbering, unaccountable mess, says Christopher Booker.
Published: 7:00PM BST 11 Sep 2010
The latest findings of Eurobarometer, the EU’s own polling organisation, show that less than half its citizens now believe it is a “good thing”. In many countries, its popularity is at record lows, and only 19 per cent see the EU as “democratic” (in Britain, Finland and Latvia this is as low as 10 per cent).
What makes this particularly ironic is that in 2001 the EU’s leaders issued their Laeken Declaration, admitting that the EU faced a crisis through its “democratic deficit”. Their remedy was the process designed to give Europe a “constitution”. After eight years of negotiation, obfuscation, lies and referendum-reverses, they got the constitution they wanted (although they had to disguise it as the Lisbon Treaty). The upshot of this tortuous attempt to “bring Europe closer to its
---- Meanwhile, armed with its new powers, the inflated engine of our EU government rolls on, more power-crazed than ever. It is spending £800 million on setting up its new worldwide diplomatic service, with 100 of its officials earning more than our own shrunken and virtually irrelevant Foreign Secretary William Hague. Also now on the table are the EU’s options for imposing its own taxes, the front-runner being a tax on financial transactions to which Britain, as a world financial centre, would contribute 70 per cent, more than 300 billion euros a year. Britain and the City will also be hit hardest by the EU’s seizure of control over the regulation of financial services.
----- But no current issue better illustrates the bizarre nature of the system to which we have surrendered the power to run our country than the chaos inflicted on our hospitals by the enforced application of the EU’s working time directive. Led by John Black, head of the Royal College of Surgeons, medical professionals protest that this is threatening many patients’ lives.
Even the European Commission freely admits, in a recent “communication” to the European Parliament and sundry others, that its rules are, in practice, highly “unsatisfactory” and in need of urgent reform. But it adds that attempts to amend the directives have been going on since 2004 and that any chance of getting the reforms needed will involve so many consultations and negotiations that little is likely to happen for years.
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.
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