Wednesday, 10 November 2010

G-20 Minus 1.

Baltic Dry Index. 2476 -15
LIR Gold Target by 2019: $30,000. Revised.

"You have to choose between trusting to the natural stability of gold and the natural stability and intelligence of the members of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."

George Bernard Shaw

Tomorrow the leaders of the G-20 assemble in Seoul for what promises to be the most bad tempered leaders meeting of our new century. China is angry with America and Japan. America is angry with China and Germany. Germany is angry with America and the EU’s Club Med. France is angry with America and Germany. Brazil, India and South Africa are angry with America. Japan is angry with China. The cause of all the discord, last week America junked any pretense of its infamous “strong dollar” policy, and declared its intention of trashing its currency in the currency wars. With China’s Yuan still pegged to the dollar, effectively the number one economy and the number two national economy are both intending to devalue against all the rest. With a commodity boom underway, as the world tries desperately to swap dollars for tangible assets including gold and silver, commodity price inflation is already starting to affect western consumers. The next two days of meetings are probably the last chance the G-20 has of mitigating what is shaping up to be a terrible 2011. At this point in time, that seems highly unlikely. I note with some concern that the Baltic Dry Index has fallen back from 4200 at the end of May and is now struggling to hold 2500. The BDI is signaling a difficult start to the year ahead, even making allowances for a slowdown in China for the Chinese new year. Below, the news as we await tomorrow’s G-20 opening day.

"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."

Henry Hazlitt

China’s Trade Surplus Surges; Reserve Ratio Climbs

Nov. 10 (Bloomberg) -- China posted a larger-than-forecast $27.1 billion October trade surplus, a day before Group of 20 leaders including Presidents Barack Obama and Hu Jintao meet in Seoul to tackle global imbalances in spending and capital flows.

Exports gained 22.9 percent from a year earlier and imports rose 25.3 percent, the customs bureau said. With the surplus pumping cash into the fastest-growing major economy, the central bank ordered some lenders to set aside more money as reserves in an effort to rein in liquidity. A person with direct knowledge of the situation confirmed the move.

China’s trade surplus and curbs on the yuan fuel tension with the U.S. and complicate the nation’s monetary policy as inflation accelerates and officials seek to limit the risk of asset bubbles. Obama said yesterday in Jakarta that G-20 leaders will “extensively” discuss trade gaps and currency restrictions hindering global growth.

“The rebalancing of China’s economy has an awfully long way to go -- in fact it’s hardly even got started,” said Mark Williams, an economist at Capital Economics Ltd. in London, who worked at the U.K. Treasury as an adviser on China from 2005 to 2007. “In normal circumstances, the world might be willing to wait, but not when the likes of the U.S. are struggling with very high unemployment,” he said ahead of today’s release.

A Distorted Global Economy

US to Bully Germany on Trade Surplus at the G-20


The US thinks it knows who is to blame for its struggling economy: Germany and other countries with a trade surplus. Washington wants to see new rules that would punish such imbalances, but Germany says it shouldn't be blamed for having more competitive companies than the US.

----Berlin's political community is not distressed without reason. When the financial crisis erupted three years ago, the international community initially managed to prevent an imminent global economic crash by taking joint action to rescue banks and stimulate the economy. These measures were particularly beneficial for the German economy, which will experience the strongest growth this year since 1991.

Dramatic Distortions

But new, dramatic distortions are now looming in the post-crisis global economy. The current global economic order threatens to fall into disarray in several different areas:

§ In the wake of the economic and financial crisis, many countries have begun to seal off their markets against foreign products in order to protect domestic producers.

§ Two of the world's largest economic powers, China and the United States, seem to be initiating a race to devalue their respective currencies.

§ Key emerging economies, most notably Brazil and Indonesia, are imposing restrictions on the movement of capital, which could disrupt the global money cycle.

§ In desperation over the grim economic situation, the administration of US President Barack Obama is embarking on a diplomatic offensive intended to pillory countries with chronic trade surpluses. This puts China, Japan and Germany in the line of fire.

Each individual development is cause for concern on its own. But together, they constitute a serious threat to the world economy. The German business model, which builds on the success of the country's export economy, is particularly at risk

-----Much is at stake for Germany, which is currently experiencing an unexpected employment and growth spurt, due in large part to the substantial competitiveness of its companies in global markets. The German economy is expected to grow by about 3.5 percent this year, perhaps even more.

This success has sparked resentment, particularly among countries that are having a hard time pulling themselves out of the crisis, most of all the United States. The government in Washington sees the success of others as the source of its own troubles. Treasury Secretary Timothy Geithner has long complained that China's and Germany's trade surpluses indicate that these countries haven't developed enough domestic demand to help weaker countries.

A few months ago, French Finance Minister Christine Lagarde used similar arguments to target Germany. Two weeks ago, Geithner followed up on his complaints with action when he proposed a mechanism that would require countries with trade surpluses to modify their fiscal and economic policies in ways that would stimulate domestic demand. This would enable these countries to import more, said Geithner. In other words, countries with a trade surplus should voluntarily give up their competitive advantages for the benefit of the United States.


Leading Chinese credit rating agency downgrades USA government bonds

Last updated: November 9th, 2010

One of China’s leading credit rating agencies has downgraded United States of America government debt in response to what it sees as deliberate devaluation of the dollar by quantitative easing and other means.

If China, now the second biggest economy in the world, stops buying US government bonds this could have a very negative effect on the global recovery. The Dagong Global Credit Rating Company analysis is highly critical of American attempts to borrow their way out of debt. It criticises competitive currency devaluation and predicts a “long-term recession”.

Dagong Global Credit says: “In order to rescue the national crisis, the US government resorted to the extreme economic policy of depreciating the U.S. dollar at all costs and this fully exposes the deep-rooted problem in the development and the management model of national economy.

“It would be difficult for the U.S. to find the correct path to revive the US economy should the US government fail to understand the source of the credit crunch and the development law of a modern credit economy, and stick to the mindset of traditional economic management model, which indicates that the US economic and social development will enter a long-term recession phase.”

The analysis concludes:  “The potential overall crisis in the  world resulting from the US dollar depreciation will increase the uncertainty of the U.S.  economic recovery. Under the circumstances that none of the economic factors  influencing the U.S. economy has turned better explicitly it is possible that the US will continue to expand the use of its loose monetary policy, damaging the interests the creditors.

“Therefore, given the current situation, the United States may face much unpredictable risks in solvency in the coming one to two years. Accordingly, Dagong assigns negative outlook on both local and foreign currency sovereign credit ratings of the United States.”

The bombshell follows fears about the outlook for bondholders expressed closer to home by fund managers, including the American giant Merrill Lynch. Max King, global investment strategist at Investec Asset Management, who passed the Chinese note to me said: “Dagong is well respected as an independent credit rating agency which takes a more conservative view than better-known American credit rating agencies.

In other Asian news, GE is betting heavily on China. Go east, young man, go east. The great Chinese infrastructure upgrade looks good to GE for another couple of decades at least.

General Electric Plans to Invest $2 Billion in China

Bloomberg News, On Tuesday November 9, 2010, 12:54 am EST

General Electric Co. plans to invest more than $2 billion in China in technology and financial service ventures and research, adding 1,000 jobs in a country Chief Executive Officer Jeffrey Immelt is targeting for growth.

GE intends to invest more than $1.5 billion in joint ventures with Chinese state-owned companies in “key high- technology sectors,” it said in a statement today. The Fairfield, Connecticut-based company will spend $500 million on product development and customer innovation centers through 2012, where the jobs will be added.

Immelt yesterday appointed Vice Chairman John Rice to accelerate a push to bolster exports and expand partnerships in countries building infrastructure to support economic growth, such as China and India. GE expects to have $20 billion in discretionary cash by year-end partly for investment to boost sales, which missed analyst estimates in the third quarter.

“China and India will lead future growth in energy demand,” Zhang Shun, a Beijing-based analyst with Ping An Securities Co., said by phone today. “They will need more roads, more power plants and more railways to meet the needs of their soaring economies, generating opportunities for equipment manufacturers and technology providers like GE.”

----Research Centers

The company will establish six new innovation centers and named Chengdu, Shenyang and Xi’an as potential candidate locations. GE’s statement didn’t provide details of the financial and technology ventures it’s planning.

“The growth in the next decade or decades that’s going to take place will be quite robust in places like China and India,” Immelt said today in Beijing.

GE also announced four joint ventures in energy and transport. It will start a venture with Wuhan NARI Co., owned by China’s State Grid, to build electric transmission monitoring and diagnostic equipment.

The company will make a joint acquisition with Shanghai Electric Power Co., also owned by State Grid, for a controlling stake in power-distribution parts maker Shanghai Tianling Switchgear Co.

In rail, GE plans an agreement with Chengdu Locomotive & Rolling Stock Works, a company owned by China South Locomotive and Rolling Stock Corp., to form a 50-50 venture.

The company is planning to start a 50-50 joint venture with the Beijing National Railway Research & Design Institute of Signal & Communication to supply signaling systems.

----China may spend about 5 trillion yuan ($750 billion) in the next decade developing cleaner sources of energy, the government said in July. GE is investing $10 billion during the next five years in so-called clean-energy products and services.

GE in 2003 opened a research center in Shanghai, the third of what is now four globally. Immelt has pledged to increase research and development in part to tap markets like China, and use their engineering expertise.;_ylt=AhWn6IDXF9tA6B7f_N35LoG7YWsA;_ylu=X3oDMTE1NzExMXR0BHBvcwM5BHNlYwN0b3BTdG9yaWVzBHNsawNnZW5lcmFsZWxlY3Q-?x=0&sec=topStories&pos=6&asset=&ccode=

We close for today with yet more bad news for the incoming generation of new commercial aircraft. Last week it was a brand new Qantas A-380 airbus shredding a Rolls Royce engine shortly after takeoff, cause still unknown, though thankfully there were no injuries. Yesterday it was Boeing’s much delayed 787 Dreamliner cooking the electrics at the rear of the plane. Again thankfully there were no injuries. Below, the Journal covers yesterday’s drama. In both incidents it’s a tribute to the safety of modern planes that either event didn’t result in a crash. Still the travelling public will need reassurance that both planes are fit for purpose and safe to fly. Both events could easily have ended in tragedy.

NOVEMBER 9, 2010, 10:43 P.M. ET

Boeing 787 Makes Emergency Landing

A Boeing Co. 787 Dreamliner on Tuesday made an emergency landing in Laredo, Texas, after the crew reported smoke in the cabin during a test flight, according to the company and the Federal Aviation Administration.

The second plane of Boeing's six-member test fleet was on a planned flight and routine approach to the Texas border city when a fire broke out in the rear of the cabin at about 2:50 p.m. local time.

The crew of between 30 and 40 Boeing flight-test employees on the plane used the jet's emergency slides to evacuate, officials said. Emergency crews on the ground responded and extinguished the remainder of flames inside the aircraft, and no injuries were reported.

A spokeswoman for Chicago-based Boeing said the company is "continuing to gather data at this point" regarding the incident. An FAA spokesman in Texas said the agency will also be looking at the incident.

According to a person familiar with the matter, as the jet was approaching Laredo at an altitude of 1,000 feet, the Dreamliner's crew reported a fire, possibly in the plane's rear electronics bay.

Subsequently, the 787's emergency auxiliary-power unit, known as a ram air turbine, deployed as a result of at least a partial power failure.

Some of the plane's automated systems, including the auto-throttle and cockpit flight displays and electronics-assisted flight controls, were affected, this person said.

The pilots also canceled their instrument flight plan and proceeded to land under visual flight rules, possibly because some of the flight instruments were knocked out.

A Boeing spokeswoman declined immediate comment regarding those issues. Boeing customers have ordered about 850 Dreamliners, a plane that is critical to the company's future.

"Gold is not less but more rational than paper money. Money holds value so long as it is in limited supply; gold will always be in limited supply, and would require real resources to produce even from the sea; paper and printing ink are not in limited supply.

William Rees-Mogg

At the Comex silver depositories Tuesday, final figures were: Registered 50.66 Moz, Eligible 57.40 Moz, Total 108.06 Moz.


Crooks and Scoundrels Corner.

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

Fraudclosuregate again, with troubled bank, Bank of America now trying to play fast and loose in Texas. The next Lehman, I think, is about to find out the hard way that Texan Judge’s aren’t quite a dumb as BOA took them for. Unfortunately, all those sliced and diced “triple-A” RMBS packages look worse than before. Who pays out when the mortgage servicer takes the money then closes up shop?

Mortgage slicing and dicing leaves trail of trouble

By LOREN STEFFY Copyright 2010 Houston Chronicle Nov. 6, 2010, 12:48AM

-----Last week, I wrote about how the Perezes had refinanced their home last year, and a month after they paid off the original note, Bank of America began sending notices saying the loan was in default. Then the bank threatened foreclosure.

As my column went to press, BofA agreed to halt the foreclosure proceedings, and at a hearing Monday the bank agreed to stop all collection efforts until the case goes to trial in June. The Perezes' attorney is seeking to halt all BofA foreclosures in the state.

I've since heard from other attorneys who had clients in a similar situation, and I found other cases that bear a striking similarity to the Perez case. All appear to involve a shoddy practice known as "net funding."

The couple's original loan was serviced by Taylor, Bean & Whitaker of Ocala, Fla., once one of the nation's largest mortgage lenders. As of August 2009, TBW serviced more than a half-million loans with an unpaid balance of more than $80 billion, most insured by the Federal Housing Administration. Many of those were bought by government-sponsored agencies such as Ginnie Mae and Freddie Mac.

"It's a mess entirely resulting of the way these guys sliced and diced notes," the Perezes' Houston attorney, Barry Brown, said.

The Perezes made the final payment on the original loan to TBW in early August 2009. That's where net funding comes in. According to bankruptcy court documents, TBW didn't pay off the original loans immediately.

It waited until the refinanced note was funded, then settled both at once. The tactic required less funding, and in most cases borrowers weren't aware of it .

The Perezes refinanced with another lender, but TBW apparently still didn't complete its internal paperwork. A few days after the closing, on Aug. 5, 2009, TBW ceased most of its operations. The FHA suspended its status as an approved mortgage lender, citing possible fraud. The agency brought in BofA to take over the loans TBW had serviced.

A BofA spokeswoman has declined to comment on the Perez case other than to confirm that the bank has halted foreclosure proceedings against the couple.

TBW later filed for bankruptcy, and in June, federal authorities arrested its former chairman, Lee Farkas, on charges he participated in a $1.9 billion scheme to defraud investors and the government's Troubled Asset Relief Program. Farkas has denied wrongdoing.

BofA aware of problem

TBW's bankruptcy court records show hundreds of borrowers may be in situations similar to the Perezes, and that everyone involved in the case, including BofA, was well aware of the problem as early as February.

What's more, about a month after the refinancing, BofA became the servicer of the Perezes' new loan. So the bank was handling the refinanced loan that had paid off the old loan it was still trying to collect.

"Start buying gold now, regardless of the price. By acting now, you will not have to react when it's too late. Too late will be when the majority of the public finally figures out what is happening to paper money and frantically tries to get aboard. Remember, if you're one of the ones holding paper in the end, you will have given away your products and services for nothing."

Robert Ringer

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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