Monday, 25 October 2010

$4 Trillion in QE2?

Baltic Dry Index. 2727 +07
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

More on the Fed’s 4 trillion dollar problem later, first this from Germany’s man at the G-20. “Get lost, you’re a nobody”, was the US Treasury Secretary’s reply. Below, Bloomberg on wrong way Geithner. Just wait until the Fed unleashes 4 trillion in brand new funny money created right out of thin air. Stay long precious metals. I sense a commodities boom and food inflation coming on.

Germany Says Fed Is Headed ‘Wrong Way’ With Monetary Easing

Oct. 24 (Bloomberg) -- The Federal Reserve’s push toward easier monetary policy is the “wrong way” to stimulate growth and may amount to a manipulation of the dollar, German Economy Minister Rainer Bruederle said.

Fed Chairman Ben S. Bernanke yesterday gave Group of 20 finance ministers and central bankers meeting in Gyeongju, South Korea an overview of the U.S. central bank’s efforts to jumpstart the world’s largest economy. His strategy, which investors expect will soon include greater asset purchases, drew criticism at the talks, said Bruederle.

“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle told reporters yesterday, saying that emerging-market officials were among the critics. Bruederle, a member of the Free Democratic Party, the junior partner in Chancellor Angela Merkel’s government, stepped in for hospitalized Finance Minister Wolfgang Schaeuble at the meeting.

The debate over the Fed’s strategy comes as the G-20’s advanced nations sought to alleviate concerns over big swings in capital flows to emerging markets by promising to be “vigilant against excess volatility” in exchange rates. The U.S. central bank completed purchases of about $1.7 trillion of debt in March to support the recovery. The policy-setting Federal Open Market Committee next meets Nov. 2-3.

Bill Gross, Pacific Investment Management Co.’s co-founder and manager of the world’s biggest mutual fund, said Oct. 8 on Bloomberg TV the central bank may buy about $100 billion in government debt a month, or $1.2 trillion over the next year.

‘Indirect Manipulation’

“Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate,” Bruederle said. The minister has taken a pro-market stance in his first year in office, criticizing state intervention in cases such as providing aid for General Motors Co.’s German Opel unit.

U.S. Treasury Secretary Timothy F. Geithner dismissed prospects of mounting criticism of the Fed’s approach in his press conference after the G-20 meeting yesterday. When asked whether he expected Germany’s criticisms to gain steam, he replied: “I do not.”

Below, Goldman’s chief economist Jan Hatzius takes time out from doing “God’s work”, to point out to the Fed an inconvenient truth. According to the voodoo economics, as practiced by the Fed, the Fed now needs to embark on 4 trillion dollars of quantitative easing to achieve its announced goal. I wonder what the Germans will make of that. Note, once we exhaust the trillions we set out into the world of the quadrillions. 4 trillion dollars is about 6.66 percent of global GDP. I wonder of God is trying to send us a message!

"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."

William F. Rickenbacker

Goldman: The Fed Needs To Print $4 Trillion In New Money

With just over a week left to the QE2 announcement, discussion over the amount, implications and effectiveness of QE2 are almost as prevalent (and moot) as those over the imminent collapse of the MBS system. Although whereas the latter is exclusively the provenance of legal interpretation of various contractual terms, and as such most who opine either way will soon be proven wrong to quite wrong, as in America contracts no longer are enforced (did nobody learn anything from the GM/Chrysler fiasco for pete's sake), when it comes to printing money the ultimate outcome will certainly have an impact. And the more the printing, the better. One of the amusing debates on the topic has been how much debt will the Fed print. Those who continue to refuse to acknowledge that the economy is in a near-comatose state, of course, hold on to the hope that the amount will be negligible: something like $500 billion (there was a time when half a trillion was a lot of money). A month ago we stated that the full amount will be much larger, and that the Fed will be a marginal buyer of up to $3 trillion.

Turns out, even we were optimistic. A brand new analysis by Jan Hatzius, which performs a top down look at how much monetary stimulus is needed to fill the estimated 300 bps hole between the -7% Taylor Implied Funds Rate (of which, Hatzius believes, various other Federal interventions have already filled roughly 400 bps of differential) and the existing 0.2% FF rate. Using some back of the envelope math, the Goldman strategist concludes that every $1 trillion in new LSAP (large scale asset purchases) is the equivalent of a 75 bps rate cut (much less than comparable estimates by Dudley, 100-150bps, and Rudebusch, 130bps). In other words: the Fed will need to print $4 trillion in new money to close the Taylor gap. And here we were thinking the economy is in shambles. Incidentally, $4 trillion in crisp new dollar bills (stored in bank excess reserve vaults) will create just a tad of buying interest in commodities such as gold and oil...

Here is the math. More.

In other news, 1.9 billion people were more interested in another Asian meeting than that of the useless G-20. Below, Xinhua covers the 7th China-ASEAN conference, the first of the new CAFTA era. Right now CAFTA accounts for about 10% of global GDP. By 2020 that’s very likely to be closer to 20%, although China will still be by far the largest part of CAFTA.

Seventh China-ASEAN Expo closes in south China, boosting FTA operations

NANNING, Oct. 24 (Xinhua) -- The 7th China-ASEAN (Association of Southeast Asian Nations) Expo has helped forge closer ties between China and ASEAN nations and promote the operation of China-ASEAN free trade area (CAFTA), an official with the organizing committee said here Sunday.

The six-day event, which closed here Sunday in Nanning, capital of south China's Guangxi Zhuang Autonomous Region, had been "productive" and "fruitful", said Chen Wu, Vice Co-chair and Secretary General of the China-ASEAN Expo Organizing Committee, and also Guangxi's Vice Governor.

"The Expo has reinforced the China-ASEAN strategic partnership, strengthened regional economic cooperation and facilitated the operation of the CAFTA," said Chen at the closing ceremony of the Expo.

This year's Expo is the first one since the establishment of the much-anticipated CAFTA, which was formally launched on Jan.1, 2010.

With a population of 1.9 billion people and a combined gross domestic product (GDP) of 6 trillion U.S. dollars, CAFTA ranks as the world's third largest trade zone following the North American FTA and the European FTA.

As of 4 p.m. Sunday, trade deals signed at this year's expo were worth 1.71 billion U.S. dollars, up 3.5 percent from last year's event, while a total of 135 cross-border economic cooperation projects had been signed with investment up 3 percent from the 6th Expo to 6.69 billion U.S. dollars, he said.

---- ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam with a total area of 4.5 million square kilometers.

With the Bernanke Fed about to put the dollar on a suicide path, Russia and China are making plans for what comes after. The Fed’s Kamikaze plan is expected to be announced right after next week’s US elections.

"We are in a world of irredeemable paper money - a state of affairs unprecedented in history."

John Exter

Russian Central Bank supports ruble-yuan direct currency exchange

MOSCOW, Oct. 22 (Xinhua) -- Russian Central Bank is willing to cooperate with China to push forward the realization of direct currency exchange between ruble and Chinese yuan, Victor Melnikov, deputy head of the central bank, told Chinese ambassador Li Hui on Friday.

During the talks between Li and Melnikov, where they exchanged views on current world economic situation and Sino-Russian financial cooperation, the bank director said Russian Central Bank would like to continue active dialogues with Chinese side so as to deepen financial coordination and mutual investment.

He especially mentioned the issue of ruble-yuan direct exchange, noting that the move, once realized, would bear both economic and strategic significance for the two countries.

The Chinese ambassador said the Chinese and Russian leaders have achieved consensus on further promoting bilateral pragmatic coordination in financial sphere during Russian President Dmitry Medvedev's recent visit to China.

"All of the government's monetary, economic and political power, as well as its extensive propaganda machinery, will be enlisted in a constant battle to drive down the price of gold - but in the absence of any fundamental change in the nation's monetary, fiscal, and economic direction, simply regard any major retreat in the price of gold as an unexpected buying opportunity."

Irwin A. Schiff

At the Comex silver depositories Friday, final figures were: Registered 52.12 Moz, Eligible 59.86 Moz, Total 111.98 Moz.


Crooks and Scoundrels Corner.

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

Today, it’s those tax and work shy Greeks again, this time planning to drop producing energy from inefficient, pollution heavy lignite, and replace it with renewable energy from solar and wind. Has anyone got 2 billion euros to lend?

"Increasingly, the wealth of the modern world has come to be represented by financial assets rather than real assets, and this to me is a very unhealthy situation, because financial assets are inherently unstable. Financial assets (currencies, bonds, mortgages, stocks, bank credit, etc.) can be quickly and violently reduced in value, or destroyed completely by either inflation or deflation."

Donald J. Hoppe

PPC plans renewables renaissance, giant solar park

ATHENS Fri Oct 22, 2010 12:04pm EDT

ATHENS (Reuters) - Greek utility PPC plans a sevenfold increase in its clean energy production over the next five years and is thinking of building one of the world's largest solar parks, the head of its renewables unit said on Friday.

Cash-strapped Greece uses state-controlled PPC as a spearhead to meet its ambitious climate change target of green energy accounting for 40 percent of total electricity production by 2020, up from 4 percent currently.

PPC Renewables plans to invest about 2 billion euros ($2.78 billion) to increase its capacity from about 160 megawatts at the end of this year to 1,200 megawatts in 2015, Chief Executive Officer Ioannis Tsipouridis said in an interview.

Back in 1982, PPC built Europe's first wind farm on the gale-swept Aegean island of Kythnos. But it has lost its early lead and the company now has just 8 percent of Greece's renewable energy production.

"We are waking up now," said Tsipouridis. "At the end of the 1980s we were Europe's fourth-largest renewable energy producer, but then a big slump followed," he added.

Failure to boost renewables would cost PPC 1.3 billion euros in extra carbon costs a year after 2013, when the free allocation of carbon emission rights ends. PPC Renewables plans to run 713 MW of wind farms and 245 MW of solar parks by 2015, according to company plans.

The company is seeking partners to help fund more than 600 MW of these projects, including a large 200 MW solar park in northwest Greece.

"It's a plan under discussion, we have to find a strategic partner, mainly for financing," Tsipouridis said.

Last month, PPC Renewables signed a framework agreement with French group EDF Energies Nouvelles. Joint projects will be considered on a case-by-case basis, Tsipouridis said.

"EDF has a total 2,000 MW of mature potential projects in Greece and it wants to do all of them in cooperation with us," he said. "It remains to be seen how many of them will be implemented."

Renewables could help save jobs in the country's lignite heartland of northwest and southern Greece, where polluting lignite-fired units will go offline in the next 10 years.

PPC, the EU's second-biggest producer of lignite, plans to decommission up to 20 of its total 24 thermal plants by 2020. The company is the main jobs provider in Western Macedonia, where unemployment is among the highest in the country.

"We want to produce clean energy, create jobs and make use of the land we already own in these areas," Tsipouridis said.

Red tape and addiction to cheap, polluting coal has turned Greece into a renewables laggard, even though it is one of the sunniest and most windy countries in Europe.

One way or another, tomorrow will not be like today which was like yesterday.

The monthly Coppock Indicators finished September:

DJIA: +227 Down. NASDAQ: +321 Down. SP500: +221 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. September is the fourth down month in a row.

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