Friday, 19 November 2010

Get China.

Baltic Dry Index. 2164 -24
LIR Gold Target by 2019: $30,000. Revised.

Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.

Charles Dickens.

“Let the word go forth from this time and place, to friend and foe alike, get China,” thus spoke the High Priest of Mammon today at the Sixth ECB Central Banking Conference in Frankfurt. To say it was unexpectedly brutally frank is probably the understatement of our new decade. The Chairman of the Fed all but declared China, wanted dead or alive. To say that is an unwise development, is probably the second understatement of the new decade. Seen from Beijing, this has to look like the Fed trying to gang up with the ECB to mount a concert party attack on China’s currency. Their only weapon is the devaluation of their respective currencies, but with the Yuan still pegged to the dollar a race to the bottom just drags the Yuan with them. In effect, Dr Bernanke is codedly issuing a call for the US Congress to impose retaliatory tariffs. While much of the world was watching the ECB and the massed ranks of Brussels bureaucrats save Ireland and the Eurozone banks by tossing the hapless Irish into the sea, Dr. Bernanke’s shock and awe speech this morning will definitely bring the focus back to the America-China, world’s biggest debtor – world’s biggest creditor, currency spat that has now turned ugly. Stay long precious metals. 2011 looks uglier by the day.

MAMMON, n. The god of the world's leading religion. The chief temple is in the holy city of New York.

Ambrose Bierce

Nov. 18, 2010, 9:01 p.m. EST

Bernanke turns up heat on China currency policy

Slow pace of adjustment has thrown off natural rebalancing

WASHINGTON (MarketWatch) — Federal Reserve Chairman Ben Bernanke put aside traditional central bank niceties and launched a direct attack on the slow pace of China’s steps to strengthen its currency.

In a speech prepared for a conference at the European Central Bank on Friday morning, Bernanke said that China’s decision to undervalue the yuan has essentially thrown a monkey wrench into the global economic recovery.

The result could be slow growth ahead “for everyone,” he said.

Over the past year, President Barack Obama and Treasury Secretary Timothy Geithner have tried to use a number of levers to get China to allow its currency to strengthen at a faster clip, but to no avail.

For the most part, Bernanke has kept his distance from these efforts, at least publicly.

His remarks may give the Obama administration added justification to formally label China as a currency manipulator in its next report to Congress on the exchange-rate market. That report is past due and could come at any time, although some analysts say it might not be released until after Chinese President Hu Jintao visits Washington in January.

-----Bernanke’s remarks do not lower the temperature of the debate. Instead, he launched a fierce defense of the Fed’s bond-purchase plan, also known as “quantitative easing II.”

----“On its current economic trajectory, the United States runs the risk of seeing millions of workers unemployed or underemployed for many years,” Bernanke said.

The Fed could not rule out the possibility that unemployment “might rise further in the near term,” he said. This could bring an end to the tepid U.S. recovery, he said.

----Bernanke said the G-20’s effort to restore global growth has waned as tensions have emerged and intensified.

He pointed his finger at China’s slow adjustment of its exchange rate.

-----He bemoaned the fact that the international community had no means to force China to move on its currency.

In contrast to Chinese officials, who have said Fed policy is to blame for excessive asset inflation in the Chinese economy, Bernanke said investors are attracted because they sense that China’s exchange-rate adjustment is incomplete.

At the moment, the global economy is operating on two speeds, Bernanke said. Emerging market economies are growing strongly while advanced Group of Seven countries are only crawling forward.

-----In the short term, Bernanke said, “the countries of the world must recognize their collective responsibility for bringing about the rebalancing required to preserve global economic stability and prosperity.”

Fast-growing countries with surpluses should take action to reduce them, while slow-growth countries with large deficits should take parallel action, he said.

“Unfortunately, so long as exchange-rate adjustment is incomplete and global growth prospects are markedly uneven, the problem of excessively strong capital inflows to emerging markets may persist,” Bernanke said

In other European news, the brave Irish who fought the English for centuries for the right to practice their Catholic religion and to run their own affairs, have now largely given up on any religion and are preparing to surrender to Germany. Occupation by Brussels follows, with a compulsory period of sack cloth and ashes and a diet of bread and water. Not to worry though, Ireland’s government with a majority of two, is busy bizarrely fighting a Custer’s last stand, to keep their corporation tax at 12.5%, by far the lowest in Europe. The non corporate workers of Ireland will just have to work harder for longer, and pay higher taxes as well. At some point ahead, even the doziest Irishman, like the doziest work shy Greek before him, will finally figure out that Ireland like Greece is better off out of the one size fits all, Germanic Eurozone. My guess is that the Euro has only been saved until the next crisis.

Lack of money is the root of all evil.

George Bernard Shaw.

Irish edge closer to agreeing bail-out

The Irish government is expected to agree to an international bail-out within days after ministers finally admitted that the country’s banks may need assistance.

By By Robert Winnett and Bruno Waterfield 10:28PM GMT 18 Nov 2010

The Irish government is expected to agree to an international bail-out within days after ministers finally admitted that the country’s banks may need assistance.

Ireland is expected to be offered a loan worth up to €100billion (£85billion) designed to reassure international investors.

David Cameron indicated yesterday that Britain was prepared to assist, although it was not yet clear whether this would be in the form of a direct loan or as part of a European-wide scheme.

-----Over the past week, the eurozone has been plunged into crisis following growing international concerns over the state of the Irish economy amid widespread problems with its banks.

Irish ministers have previously ruled out the need for international assistance, which led to fears the crisis would spread to countries such as Portugal and Spain.

But Irish government figures admitted they would need assistance yesterday — hours after international finance experts from the EU and International Monetary Fund arrived in Dublin.

When asked about the prospects of a loan, Patrick Honohan, the governor of Ireland’s central bank, said: “It’s not my call. It’s the government at the end. It’s my expectation that that is what is likely to happen.

-----Other European countries are pushing Ireland to raise its corporate tax rates as a condition of the bail-out.

But Brian Cowen, the Irish prime minister, yesterday insisted that Ireland had not surrendered its sovereignty.

European Central Bank tightens screw on Ireland, Portugal and Spain

The European Central Bank (ECB) has issued a clear warning that it will press ahead with plans to raise interest rates and withdraw lending support for banks despite the eurozone debt crisis, even if this risks pushing Ireland, Portugal and Spain into deeper trouble.

By Ambrose Evans-Pritchard 10:08PM GMT 18 Nov 2010

“The central bank must guard against the danger that the necessary measures in a crisis period evolve into a dependency as conditions normalise,” said Jean-Claude Trichet, the ECB’s president.

Luxembourg’s ECB governor, Yves Mersch, echoed the warnings, saying the bank could not continue “cleaning up” in crises. “If rates are low for too long, this leads to a higher risk appetite. We will pay the price if we fail to confront these inevitable dangers,” he said.

More than 98pc of Spanish mortgages are priced off the floating Euribor rate. Any ECB rate rise would be devastating given that there is already a glut of 1.5m homes coming on to the market, according to consultants RR de Acuna.

The ECB warnings came as a troika of officials from the ECB, the Commission, and the International Monetary Fund began a fact-finding mission in Dublin, examining books to determine whether Ireland is strong enough prop up its banking system.

----Dublin insists that there is no threat to Ireland’s 12.5pc corporation tax rate but Mary Lou McDonald from Sinn Féin said the country was essentially under foreign occupation. “Officials from the EU and IMF and any other vultures circling around this country should be told to get lost.”

----Any bail-out depletes the EU’s €440bn (£374bn) rescue fund, reducing the safety buffer for other countries.

Each rescue reduces the number of donor states able to support the EU safety net, and tests political patience in Germany. “There is a danger that once Ireland has been dealt with markets will concentrate even more on countries such as Portugal and Spain,” said Ulrich Leuchtmann of Commerzbank.

Rescue loans for Ireland – as for Greece – add to the debt load without tackling the core problem of solvency. A view is taking hold in the markets that this policy merely delays the inevitable day of EMU debt restructuring.

Make money, money by fair means if you can, if not, but any means money.


At the Comex silver depositories Thursday, final figures were: Registered 49.54 Moz, Eligible 57.75 Moz, Total 107.29 Moz. Physical silver seems to be leaking away.


Crooks and Scoundrels Corner.

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

No crooks today, just the Telegraph on the wisdom of Maggie Thatcher and the unloved, unwise Euro project. The only good thing to come out of 13 years of “New Labour” misrule was Gordon Brown’s blocking Blair’s willingness to sell Britain into the Euro for a larger role for himself in Europe. But Brown knew Blair’s larger role was at the expense of his diminished role as Chancellor, and so he followed the right policy for all the wrong reasons. Thus was Britain spared becoming a half way house between Club Med and the Germanic northern economic area. Below, the Telegraph on the wisdom of Britain’s best Prime Minister of the second half of the 20th century.

If you want to cut your own throat, don’t come to me for a bandage.

Margaret Thatcher.

Margaret Thatcher knew the single currency would devastate Europe

By Peter Oborne Last updated: November 18th, 2010

Next week it will be 20 years since Margaret Thatcher fell. Pressure had been building on a number of fronts, but the issue which finally destroyed her was the yet-to-be-born euro. In the last weekend of October 1990, she travelled to a European summit in Rome, where Jacques Delors’ dream of European Monetary Union was high on the agenda. But while Mrs Thatcher was fighting her lone battle against the prospective single currency abroad, she was being fatally undermined at home. Geoffrey Howe, her bitterest cabinet critic, went on television to tell the interviewer Brian Walden that in principle Britain did not oppose the euro.

In her Commons statement after returning home, she was forced to slap Howe down: “this government believes in the pound sterling.” Howe resigned, and days later delivered the famous speech from the back benches that set in motion a leadership contest.

Today, Margaret Thatcher’s autobiography, first published in 1993, reads like a prophecy. It shows how deeply and with what extraordinary wisdom she had examined Delors’ proposals for the single currency. Her overriding objection was not ill-considered or xenophobic, as subsequent critics have repeatedly claimed.

They were economic. Right back in 1990, Mrs Thatcher foresaw with painful clarity the devastation it was bound to cause. Her autobiography records how she warned John Major, her euro-friendly chancellor of the exchequer, that the single currency could not accommodate both industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would “devastate their inefficient economies”.

It is as if, all those years ago, the British prime minister possessed a crystal ball that enabled her to foresee the catastrophic events of the past year or so in Ireland, Greece and Portugal. Indeed, it is one of the tragedies of European history that the world chose not to believe her. President Mitterrand of France and Chancellor Kohl of Germany dismissed her words of caution. And when Mrs Thatcher was driven from office in 1990, a crucial voice was lost, and a new consensus started to form in Britain in favour of the euro.

This consensus stretched across the entire spectrum of the British establishment. It took in Tony Blair’s New Labour and all of Paddy Ashdown’s Liberal Democrats. The CBI came out for the euro, and so did the trades unions. The Foreign Office was doctrinally pro-single currency. Leading businessmen, such as Peter Sutherland (chairman of BP and Goldman Sachs International) and the fashion-conscious Richard Branson were strongly in favour. The Financial Times, a newspaper whose judgment has been wrong on every great economic issue of the last 40 years, was another supporter.

This consensus was all the more powerful because it contained Conservative grandees. The Britain in Europe campaign, featuring an ambitious young Liberal Democrat called Danny Alexander, now the Chief Secretary to the Treasury, was launched in 1999. Ken Clarke and Michael Heseltine treacherously spoke alongside Tony Blair and Peter Mandelson.

“The price we would pay,” announced Mandelson, “in lost investment and jobs in Britain would be incalculable.” He projected that “outside the euro, there is little we can do to protect industry against destabilising swings in the value of sterling.” Michael Heseltine spoke apocalyptically about the terrifying consequences for British competitiveness outside the euro. Chris Huhne, now a Lib Dem cabinet minister, was scathing about eurosceptics who warned that entry to the euro would cause the Irish economy to overheat – warnings that proved to be all too accurate.

Irishman Niall Fitzgerald, chairman of the industrial giant Unilever, forecast British economic obliteration outside the euro. In a dark irony, it is his native country that now faces obliteration. Those who challenged this consensus were ridiculed. Even William Hague, then leader of the opposition, received this contemptuous treatment. Hague made a series of speeches which, reread today, rival Margaret Thatcher’s in their prescience. He predicted that membership would “lead to huge booms and deep recessions”. Hague chillingly added that “the single currency is irreversible. One could find oneself trapped in the economic equivalent of a burning building with no exits.” He noted that euro membership could lead to a “full-blown banking and financial crisis.”

My policies are based not on some economics theory, but on things I and millions like me were brought up with: an honest day’s work for an honest day’s pay; live within your means; put by a nest egg for a rainy day; pay your bills on time; support the police.

Margaret Thatcher.

Another weekend, and the Christmas shopping season is almost here. Amazingly, every year, an enormous host of nominal Christians go out and swap a large part of their disposable wealth for tat made in the far east. This year Ireland and Greece are excused. With Value Added Tax going up here on January 1, this year us Brits will likely make up for them. Still the Baltic Dry Index has now fallen back to 2188 from May’s 4200, it might be as well to hang on to some cash for 2011. Have a great weekend everyone. Stay alert for an Irish announcement at the weekend. More on the weekend blog.

With St Andrews Day fast approaching, below a vital link for my fellow Scots.

The Whisky Shop (Inverness)

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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