Thursday 18 November 2010

Euro Saved! Ireland Saved!

Baltic Dry Index. 2188 -31
LIR Gold Target by 2019: $30,000. Revised.

"A disordered currency is one of the greatest political evils."

Daniel Webster, 1782-1852

We open with tiny Ireland calling in the resurrection men. The Euro’s saved! Saved! God bless the ECB and St Trichet of the filthy lucre. The land of St Patrick, formerly known to be snake free, today is officially opening its doors to snakes. Below, the very latest news from the exciting Eurozone game of Whack-a-Mole. Just as one deadbeat Eurozone nation gets whacked down, another pops it head up in another rat hole. As Ireland gets whacked today in the cause of preserving the Germanic Euro, tax and work shy Greece sticks its head up again in a sunnier rat hole of misery. Anyone seen Portugal, Spain or Italy recently?

"I wasn't worth two cents two years ago, and now I owe $2 million dollars."

Mark Twain.

Ireland opens door to IMF mission

A squad of inspectors from the EU and the International Monetary Fund will arrive in Dublin on Thursday to go through the books of the Irish banking system and prepare the way for a likely rescue of at least €80bn (£68bn).

By Ambrose Evans-Pritchard, International Business Editor 8:17PM GMT 17 Nov 2010

Olli Rehn, Europe's economics commissioner, said Ireland is not strong enough to back-stop a banking system that has been shut out of capital markets and suffered a haemorrhage of bank deposits. "The Irish banking sector has to be made viable and sustainable," he said.

Chancellor George Osborne said the UK stands ready to play its full part in any rescue. "Ireland is our closest neighbour and it's in Britain's national interest that the Irish economy is successful and we have a stable banking system," he said in Brussels.

Brian Cowen, the Irish premier, tried to put the best face on the humiliation, insisting that the Irish state is fully-funded until June and does not need a bail-out. "What we're involved in here is working with colleagues in respect of currency problems and euro issue problems that are affecting Ireland," he said.

Enda Kenny, Fine Gael opposition leader, ridiculed the claim, accusing him of raising the "white flag" and subjecting the country to the "dictates" of foreign masters.

Officials from the European Central Bank, the Commission, and the IMF will take part in the "Troika" mission, which Dublin called a "consultation". French finance minister Christine Lagarde said a package may be agreed within days.

Dublin hopes to dress up any bail-out as aid for banks rather than the state, but the distinction became meaningless when Ireland guaranteed its banks in September 2008.

"The two are inextricably merged: it's an omelette that is impossible to unscramble," said Professor Brian Lucey from Trinity College Dublin. He estimates the total cost of rescuing Anglo Irish and absorbing toxic debt through the 'bad bank' NAMA at €85bn.

Analysts say the state may have to inject up to €15bn into Bank of Ireland and Allied Irish (AIB) after the pair lost almost €20bn of deposits in the early autumn. Central bank governor Patrick Honohan gave a hint of ECB intentions by saying lenders should be "over-capitalised". The ECB wants to extricate itself from the role of propping up the Irish banking system - and therefore the state - with loans equal to 80pc of Irish GDP.

Any bail-out will be on softer terms than the "Memorandum" imposed on Greece. The country has already slashed spending and cut public wages by 13pc. Brussels is clearly pushing Ireland into a rescue before it needs one in order to stem contagion to Portugal and Spain, so Dublin can hope to extract guarantees on Irish sovereignty and its 12.5pc corporation tax rate, which that has been crucial in luring Google, Microsoft, Pfizer, and others to Ireland.

Yields on Irish 10-year bonds dipped slightly to 8.1pc but remain at crippling levels.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8141556/Ireland-opens-door-to-IMF-mission.html

Greek Deficit Target May Put Bailout Terms at Risk: Euro Credit

Nov. 18 (Bloomberg) -- Greece may raise its deficit forecast today when the government outlines plans for the 2011 budget amid doubts the nation will meet the terms of the 110 billion-euro ($149 billion) bailout that saved it from default.

Greek bonds fell the past two days after Austrian Finance Minister Josef Proell threatened to withhold his country’s share of the European Union loans because Greece wasn’t achieving its fiscal goals. The yield on the two-year bond jumped 70 basis points to 11.96 percent after Proell’s remarks to yield more than the country’s 10-year bond.

Prime Minister George Papandreou’s efforts to reduce the shortfall were hampered as revenue growth slowed and the EU revised down prospects for the economy and increased its estimate for the country’s debt. As a result, Greece is unlikely to meet the government’s month-old forecast of reducing the budget gap to 7 percent of gross domestic product from 9.4 percent this year.

“The main worry in the market is, if you look at what’s going on, they told us they fixed things back in May,” Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York said yesterday. “Now it’s November and the Greeks are 13 days away from a scheduled payment and they’re not qualifying for the money and suddenly it’s not fixed anymore.”

Record Deficit

Based on the EU’s estimate of Greece’s 2009 GDP and the economic contractions projected in the bailout, the deficit may be as much as 7.7 percent of GDP next year. Still, that’s half the last year’s revised shortfall of 15.4 percent, largest in the euro’s history and close to the 7.8 percent pledged in the May bailout.

“New Greek deficit and debt estimates make the fiscal journey harder,” David Mackie, chief European economist at JPMorgan Chase & Co. in London, wrote in a note to investors on Nov. 15, the day the revisions were made. “To the extent that many market participants and commentators have already concluded that Greece will not be able to achieve debt sustainability without a debt restructuring, today’s data will reinforce those perceptions.”

http://noir.bloomberg.com/apps/news?pid=20601087&sid=a3oF0nMptGLk&pos=4

While all eyes are focused on Europe’s great game of vexing the penitents, at the other end of Eur-Asia is the great Chinese bubble finally about to pop? Both the economy and inflation are galloping away at about 10%. Double digit inflation is a known cause of social discontent. “Let them eat cake”, doesn’t work any better in the worker’s paradise than it did old Louie’s France.

"I never think of the future. It comes soon enough."

Albert Einstein

The Fed is there to serve the US, not China

Last updated: November 17th, 2010

As ye sow, thus shall ye reap. The mercantalism of Chinese economic policy in pegging the yuan to the dollar is rebounding, as eventually it was bound to, in now quite serious levels of Chinese inflation. Overnight, Wen Jiaboa, the Chinese premier, hinted at price controls and further rises in interest rates to stem the tide.

Yet he’s really only got himself to blame for what’s going on. The downside of pegging the yuan to the dollar is that China has to accept the influence of ultra-loose US monetary policy, which is plainly wholly inappropriate for an economy racing away at 10 per cent per annum growth rates.

It’s no wonder the Chinese have been the biggest complainants about the Fed’s latest bout of quantitative easing. It’s the very last thing that China needs right now. Yet there is a very simple solution to China’s troubles. All they have to do is disengage from the dollar and let the yuan appreciate. But they won’t, because they worry that this will destroy the competitiveness of their export industries, and with it, millions of jobs.

The Chinese have accused US policymakers of playing currency wars in ordering more QE. This is rubbish. There are plenty of reasons for thinking more asset purchases the wrong policy for the US to be pursuing. Personally, I largely agree with the open letter by Republican leaning economists to Ben Bernanke, the Fed chairman, concerning the risks of currency debasement and inflation. The Fed should not be trying to fine tune employment rates; in doing so the Fed is pursuing some very high risk strategies. The famous dual mandate looks ever less appropriate.

But all this has nothing to do with China. The Fed’s policies, inappropriate though they may be, are about trying to stimulate US domestic demand. The Fed is there to set monetary policy for the US, not for China. The Chinese can either lump it or leave it.

http://blogs.telegraph.co.uk/finance/jeremywarner/100008695/the-fed-is-there-to-serve-the-us-not-china/

We end for the day with oft forgotten India, where the banksters moved in on the poor’s microcredit market. Now a 4 billion dollar loan sharking market is in a state of near collapse. Could a mere 4 billion really shock India and through India jolt the world? It seems highly unlikely to me.

India Microcredit Faces Collapse From Defaults

By LYDIA POLGREEN and VIKAS BAJAJ Published: November 17, 2010

MADOOR, India — India’s rapidly growing private microcredit industry faces imminent collapse as almost all borrowers in one of India’s largest states have stopped repaying their loans, egged on by politicians who accuse the industry of earning outsize profits on the backs of the poor.

The crisis has been building for weeks, but has now reached a critical stage. Indian banks, which put up about 80 percent of the money that the companies lent to poor consumers, are increasingly worried that after surviving the global financial crisis mostly unscathed, they could now face serious losses. Indian banks have about $4 billion tied up in the industry, banking officials say.

“We are extremely worried about our exposure to the microfinance sector,” said Sunand K. Mitra, a senior executive at Axis Bank, speaking Tuesday on a panel at the India Economic Summit.

The region’s crisis is likely to reverberate around the globe. Initially the work of nonprofit groups, the tiny loans to the poor known as microcredit once seemed a promising path out of poverty for millions. In recent years, foundations, venture capitalists and the World Bank have used India as a petri dish for similar for-profit “social enterprises” that seek to make money while filling a social need. Like-minded industries have sprung up in Africa, Latin America and other parts of Asia.

But microfinance in pursuit of profits has led some microcredit companies around the world to extend loans to poor villagers at exorbitant interest rates and without enough regard for their ability to repay. Some companies have more than doubled their revenues annually.

Now some Indian officials fear that microfinance could become India’s version of the United States’ subprime mortgage debacle, in which the seemingly noble idea of extending home ownership to low-income households threatened to collapse the global banking system because of a reckless, grow-at-any-cost strategy.

Responding to public anger over abuses in the microcredit industry — and growing reports of suicides among people unable to pay mounting debts — legislators in the state of Andhra Pradesh last month passed a stringent new law restricting how the companies can lend and collect money.

Even as the new legislation was being passed, local leaders urged people to renege on their loans, and repayments on nearly $2 billion in loans in the state have virtually ceased. Lenders say that less than 10 percent of borrowers have made payments in the past couple of weeks.

If the trend continues, the industry faces collapse in a state where more than a third of its borrowers live. Lenders are also having trouble making new loans in other states, because banks have slowed lending to them as fears about defaults have grown.

More.

http://www.nytimes.com/2010/11/18/world/asia/18micro.html?_r=1&hp

“It’s a good idea to save your money. One day it might be worth something again.”

Mad Magazine.

At the Comex silver depositories Wednesday, final figures were: Registered 49.97 Moz, Eligible 57.73 Moz, Total 107.70 Moz.

+++++

Crooks and Scoundrels Corner.

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

Today, Bank of America again. Not content with merely hiring robo signers and falsifying documents and affidavits in the US courts as it forecloses on thousands and thousands of US securitized mortgages, BOA has now been found guilty of a blatant breach of US bankruptcy law in the Lehman fiasco. More and more, BOA is starting to look like the next Lehman. Too big to fail, will BOA get knocked down to JP Morgan for a dollar?

"What do I care about the law ? Hain't I got the power.

Cornelius Vanderbilt, 1794-1877.

Bank of America's Lehman asset grab 'brazen'

Bank of America's seizure of $500m (£314m) from Lehman Brothers during the depths of the financial crisis has been condemned as 'brazen' by a US judge, who ordered the money be returned.

By Richard Blackden 6:15PM GMT 17 Nov 2010

The bank seized the cash from Lehman in November 2008, just weeks after the former Wall Street giant had filed the biggest bankruptcy in US corporate history. Lehman, a customer of Bank of America, had been forced to post the cash in August as collateral amid escalating fears for the lender's survival.

"The actions taken were surprising and, quite frankly, disappointing for a leading financial institution that should care a great deal about its reputation," Judge James Peck of the US Bankruptcy Court wrote in a 46-page opinion released on Wednesday. Bank of America's decision to take back the funds was in violation of US bankruptcy law, which prevents creditors seizing any assets.

The ruling is a significant victory for Lehman as it tries to recoup some of the billions of dollars it owes creditors following its bankruptcy filing on September 15, 2008. The bank is pursuing JPMorgan Chase for more than $8bn and has taken legal action to recover what it alleges was an unfair $11bn windfall that Barclays secured when it purchased Lehman's US business.

---- Judge Peck ordered Bank of America, which at one point considered buying Lehman, to return the $500m plus any interest that was required. His judgement added that "it is difficult to understand how Bank of America could have thought that taking the money was the right thing to do without first seeking permission from the court."

http://www.telegraph.co.uk/finance/financetopics/lehman-brothers/8141187/Bank-of-Americas-Lehman-asset-grab-brazen.html

Why did I take up stealing? To live better, to own things I couldn't afford, to acquire this good taste that you now enjoy and which I should be very reluctant to give up.

Cary Grant. To Catch A Thief.

The monthly Coppock Indicators finished October:

DJIA: +204 Down. NASDAQ: +289 Down. SP500: +196 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. October is the fifth down month in a row.

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