Monday, 1 November 2010

A Key Week.

Baltic Dry Index. 2678 -29
LIR Gold Target by 2019: $3,000.

"There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

Ludwig von Mises

Tomorrow Americans go to vote for a new House of Representatives and third of the Senate. By all media reports, something of a new American revolution is expected as America swings to the right. The following day, the Fed ends its two day deliberations and is widely expected to announce the amount of a new round of quantitative easing. The market is expecting at least some form of cumulative one trillion. Anything much less is likely to trigger disappointment and a sell off. Anything much more is likely to set off a dollar slide, and another commodities surge, as money seeks protection in tangible assets. While we wait for the drama to play out, we open with the WSJ on an inconvenient truth for the UK coalition. Last week’s “Lisbon” agreement at the EU summit leaves the UK in need of a promised voter approval referendum. But UK voters are highly unlikely to vote yes to higher taxes to bail out Europe’s lying, cheating, tax shy, PIIGS. So will a weak Prime Minister renege on his major EU policy in less than a year? The odds are that he will and that in effect the minority partner in the coalition has now become the driver of Her Majesty’s very wobbly “G”. Stay long precious metals. My guess is that if the referendum pledge gets dumped, the coalition’s days will be numbered, and the UK’s grand experiment will collapse across the winter. If that happens, at this point it’s impossible to gage how the voters will respond to a new election early next spring.

NOVEMBER 1, 2010

Giving Up Sovereignty Is a High Price to Save a Currency U.K. Never Adopted

A far away country … [with] people of whom we know nothing." So said Neville Chamberlain of Czechoslovakia in 1938. If David Cameron and his Tory colleagues were not so familiar with Corfu, they might say the same of Greece. They would be as wrong about the consequences for Britain as was Chamberlain. Recall: Mr. Cameron negotiated peace in his time with the anti-EU faction of his party by promising to call a referendum before allowing any additional transfers of sovereignty from Westminster to Brussels. The Prime Minister quite reasonably assumed that the Lisbon Treaty would not be revised during the life of this Parliament.

Along came the Greek debt crisis and German Chancellor Angela Merkel. The tawdry tale of Greek profligacy needs no repeating. Nor does the decision of its euroland colleagues to bail it out, with Germany bearing the major share of the financial burden. Germans worked hard to become competitive in world markets, and have been rewarded with an unemployment rate three percentage points below the EU average of 10%. No surprise that German voters resent seeing the fruits of their labors eaten by retirement-loving, work-shy Greeks who partied while they sweated and saved.

Everything is in place for a bit of artful recasting of the prime minister's referendum pledge. Austerity does not seem to be reducing Greece's deficit at the pace promised when its government pried bailout money from the IMF and Brussels. Tax revenues are falling short of expectations, either because the crackdown on evasion is falling short of its goals, or because the International Monetary Fund's warning that austerity will stifle growth and tax receipts is proving prescient.

So, more bailouts will be required. More important, the euroland authorities have decided that some form of permanent system of discouraging deficits in excess of 3% of GDP, and debt in excess of 60% of GDP, must be put in place. While the national finance ministers were meeting in Luxembourg to come up with a plan, the German chancellor and the French president decided to show who really runs the euro zone. Ignoring EU president Herman Van Rompuy, smaller nations and the eurocracy, the Franco-German alliance announced that it will seek to have the Lisbon Treaty amended to incorporate a provision setting up a permanent bailout fund, and to strip nations that breach EU fiscal rules of their voting rights in the EU. Late Saturday, EU leaders capitulated, and signed on to the plan to amend the Lisbon Treaty.

Note that this plan covers all EU members, not only those countries that replaced their own currencies with the euro. If subjecting Britain to fines if the eurocracy doesn't approve of its fiscal policy, and being able to call on British cash for bailouts isn't a further transfer of sovereignty from Britain to Brussels, it is difficult to tell what is. Lib Dem europhiliacs will be delighted, true blue Tory euroskeptics will be outraged, and Mr. Cameron will struggle to find reasons to avoid the threat posed to his coalition were he to go ahead with the promised referendum.

There is every indication that he will find language the satisfies him that his referendum pledge is "inoperative," as Richard Nixon once said about his promises. The prime minister has already tolerated a transfer of regulatory power over City affairs to three new European regulators who at best will only meddle in Britain's financial sector, and at worst will overrule home-grown regulators. He has also not done anything effective to prevent the eurocracy from imposing new costs on British industry—extended maternity benefits being a case in point.

Mr. Cameron's position on the new EU budget provides a further unnerving clue to the future. On the campaign trail he promised to fight tooth and nail to scupper any increase in the EU budget. The original proposal of a 6% increase was estimated to cost British taxpayers close to £1 billion. Mr. Cameron rode to the rescue, and claims credit for having the increase cut approximately in half. Never mind his no-increase pledge: To the delight of Mrs. Merkel and his new European friends, the prime minister has agreed to burden British taxpayers with approximately £500 million of new costs, a small price to pay for the approbation of Chancellor Merkel & Co.

Now, the Lisbon Treaty is to be amended so that the failure of Greece, Portugal and Ireland to get their deficits under control will require Britain to contribute to future bailouts to save the euro, which Britain wisely refused to adopt.

Elsewhere in Europe, more austerity was the order of the day. Below, Hungary implements a Latin American style move on the nations pensions. To keep the flawed and dying fiat currency system running, ever more voodoo economics must be adopted. If voodoo really worked would Haiti be in the shape that it’s in?

OCTOBER 30, 2010, 7:30 A.M. ET

Hungary Unveils Budget

BUDAPEST—The Hungarian government has prepared the 2011 budget bill based on a budget deficit target of 2.94% of gross domestic product, meeting European Union budget-deficit requirements for the first time, Economy Minister Gyorgy Matolcsy said Saturday.

After the 2009 budget, which brought the loss of Hungary's financial sovereignty because of the International Monetary Fund loan, and the 2010 budget, which was full of "the fiscal skeletons in the cupboard" of the old government, "the 2011 budget is the budget of our return to our feet," Mr. Matolcsy said at a press conference.

The 2011 budget was built on a projected GDP growth of 3%, an annual average inflation forecast of 3.5% and a primary surplus target of 0.8%-0.9% of GDP, or 384 billion forints ($1.97 billion), Mr. Matolcsy said. The primary balance is the country's budget balance excluding interest payment obligations. Hungary's primary balance will rise next year from this year's goal of 0.3% of GDP.

Hungary targets to shrink its budget deficit from this year's 3.9%-of-GDP target to 2.94% of GDP in 2011 under E.U. accounting norms. The 2011 budget shortfall is targeted at 2.8% of GDP under cash flow-based accounting, Mr. Matolcsy added.

The government forecasts that 90% of the three million members of the 19 mandatory private pension funds will opt to return to the pay-as-you-go state pension scheme by the end of next year, Mr. Matolcsy said.

"It will be up to the private pension funds whether they want to operate with the fewer number of members, they could even merge, that will be up to them," Mr. Matolcsy said.

The government projects that of the 2.7 trillion-forint private pension fund members have saved, 2 trillion forints will be transferred back to the state coffers by those who to return to the state scheme by the end of 2011.

The government plans to use most of that sum to improve the country's public debt status in 2012-14, Mr. Matolcsy said.

The deficit of the state pension system will total 900 billion forints, and the shortfall of the health budget will be 725 billion forints next year, Mr. Matolcsy said.

The government plans to plug the pension system's 2011 deficit from two sources. One is withholding mandatory private pension fund payments, which are channeled through the budget, and which will total 360 billion forints. The remainder 540 billion forints will be financed from the savings brought back to the state system by those who return to the state pension scheme, Mr. Matolcsy said.

The government expects that the number of public-sector employees will fall by between 25,000 to 30,000 next year, versus their current number of 690,000.

We end for today with the Journal living in economic cuckoo land. There’s a “stealth stimulus” benefit to the US economy from mortgage defaulters living rent and mortgage free for months, they claim. Clearly believers in this piece of voodoo economics, know the logical conclusion to draw. Give everyone a mortgage holiday for a year, and watch the US economy boom. While we are at it, give everyone a tax holiday too. As the US mortgage scandal deepens by the week, the nuts are coming out of the woodwork and beginning to influence mainstream media. Stay long precious metals. We are deep into the death of the fiat currencies.

NOVEMBER 1, 2010

The Stealth Stimulus of Defaulters Living for Free

The mortgage-foreclosure mess could prove expensive for banks and investors. But in some states, it will also prolong an unintended economic stimulus: free housing for millions of defaulters.

Across the U.S., banks are running into problems foreclosing on homes because of flaws in their paperwork. Their main transgression involves the use of so-called robo-signers, bank employees who signed foreclosure affidavits without properly checking the required loan documentation. Major loan servicers—including Bank of America Corp., J.P. Morgan Chase & Co. and Ally Financial Inc.'s GMAC Mortgage—have at least temporarily stopped some foreclosure sales as state attorneys general probe their practices and loan servicers check to make sure their papers are in order.

The problems will be expensive for banks, and for investors in mortgage bonds, in terms of added processing costs and lost interest income. But for the millions of U.S. homeowners who have stopped making mortgage payments or who are already in the foreclosure process, the upshot is that they'll get to stay in their homes a bit longer. Given that they're not paying rent, that time has value.

Defaulters living in their homes are getting a subsidy worth about $2.6 billion a month, according to a Wall Street Journal analysis based on mortgage data from LPS Applied Analytics and rent data from the Commerce Department. That's 0.25% of U.S. personal income, roughly equivalent to the benefit top earners receive from Bush-era tax breaks.

The longer defaulters stay in their homes, the longer the stimulus lasts. The average borrower whose home is in the foreclosure process hasn't made a payment in nearly 16 months, according to LPS.

"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper."

Hans F. Sennholz

At the Comex silver depositories Friday, final figures were: Registered 51.93 Moz, Eligible 58.86 Moz, Total 110.79 Moz.


Crooks and Scoundrels Corner.

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

Below, more on America’s banana republic courts. Should the UK really have a one sided extradition treaty with banana republic’s? Should US banks really have UK banking licenses? Would you buy a used car from any of these people?

But how is this legal plunder to be identified?  Quite simply.  See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong.  See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. 

Frederic Bastiat. The Law.

Debt Collectors Face a Hazard: Writer’s Cramp

By DAVID SEGAL Published: October 31, 2010

When Michael Gazzarato took a job that required him to sign hundreds of affidavits in a single day, he had one demand for his employer: a much better pen.

They tried to get me to do it with a Bic, and I wasn’t going — I wasn’t having it,” he said. “It was bad when I had to use the plastic Papermate-type pen. It was a nightmare.”

The complaint could have come from any of the autograph marathoners in the recent mortgage foreclosure mess. But Mr. Gazzarato was speaking at a deposition in a 2007 lawsuit against Asset Acceptance, a company that buys consumer debts and then tries to collect.

His job was to sign affidavits, swearing that he had personally reviewed and verified the records of debtors — a time-consuming task when done correctly.

Sound familiar?

Banks have been under siege in recent weeks for widespread corner-cutting in the rush to process delinquent mortgages. The accusations have stirred outrage and set off investigations by attorneys general across the country, prompting several leading banks to temporarily cease foreclosures.

But lawyers who defend consumers in debt-collection cases say the banks did not invent the headless, assembly-line approach to financial paperwork. Debt buyers, they say, have been doing it for years.

“The difference is that in the case of debt buyers, the abuses are much worse,” says Richard Rubin, a consumer lawyer in Santa Fe, N.M.

“At least when it comes to mortgages, the banks have the right address, everyone agrees about the interest rate. But with debt buyers, the debt has been passed through so many hands, often over so many years, that a lot of time, these companies are pursuing the wrong person, or the charges have no lawful basis.”

The debt in these cases — typically from credit cards, auto loans, utility bills and so on — is sold by finance companies and banks in a vast secondary market, bundled in huge portfolios, for pennies on the dollar. Debt buyers often hire collectors to commence a campaign of insistent letters and regular phone calls. Or, in a tactic that is becoming increasingly popular, they sue.

Nobody knows how many debt-collection affidavits are filed each year, but a report by the nonprofit Legal Aid Society found that in New York City alone more than 450,000 were filed by debt buyers, from January 2006 to July 2008, yielding more than $1.1 billion in judgments and settlements.

Problems with this torrent of litigation are legion, according to the Federal Trade Commission, led by Jon Leibowitz. The agency issued a report on the subject, “Repairing a Broken System,” in July. In some instances, banks are selling account information that is riddled with errors.

More often, essential background information simply is not acquired by debt buyers, in large part because that data adds to the price of each account. But court rules state that anyone submitting an affidavit to a court against a debtor must have proof of that claim — proper documentation of a debt’s origins, history and amount.

Without that information it is hard to imagine how any company could meet the legal standard of due diligence, particularly while churning out thousands and thousands of affidavits a week.

Analysts say that affidavit-signers at debt-buying companies appear to have little choice but to take at face value the few facts typically provided to them — often little more than basic account information on a computer screen.

That was made vividly clear during the deposition last year of Jay Mills, an employee of a subsidiary of SquareTwo Financial (then known as Collect America), a debt-buying company in Denver.

“So,” asked Dale Irwin, the plaintiff’s lawyer, using shorthand for Collect America, “if you see on the screen that the moon is made of green cheese, you trust that CACH has investigated that and has determined that in fact, the moon is made of green cheese?”

“Yes,” Mr. Mills replied.

------Lawyers for consumers, on the other hand, contend that few debtors ever learn about the legal action until it is too late, often because the process server charged with alerting them never actually delivered a notification. In those instances when a consumer hires a lawyer, the consumer often prevails.

“I’ve lost four and I’ve taken about 5,000 cases,” said Jerry Jarzombek, a consumer lawyer in Fort Worth. “If the case goes to trial, I say to the judge, ‘Your honor, imagine if someone came in here to give eyewitness testimony in a traffic accident case and they didn’t actually see the crash. They just read about it somewhere. Well, this is the same thing.’ The debt buyers don’t know anything about the debt. They just read about it.”

"The history of paper money is an account of abuse, mismanagement, and financial disaster."

Richard M. Ebeling

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. September is the fourth down month in a row.

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