Wednesday, 24 November 2010

Turkeys and Geese.

Baltic Dry Index. 2199 +20
LIR Gold Target by 2019: $30,000. Revised.

"Spain is a bit too big to be bailed out," said Antonia Garcia Pascual, of Barclays Capital. "The size of rescue required would use up all the funds available and then you have Italy with contagion as well."

Euroland 2010. Ireland is in chaos, the government there in danger of failing to pass its austerity budget needed to get access to the EU, UK and IMF’s bailout cash. Depositors are fleeing Irish banks, well aware that Ireland’s promises to protect all deposits 100% is fiction. Portugal, the next Ireland has gone on a general strike. Spain looms behind Portugal, Italy looms behind Spain. In Berlin, paymaster to the whole sorry Euroland project, there is righteous indignation at the idea of bailing out the Irish when the Irish won’t raise corporation tax from just half the level of Germany’s. If the Irish won’t take steps to help themselves, why should German taxpayers bother bailing out Ireland. And thus did the wheels fly off the Bilderberger United States of Europe project. As of this morning the Euro is hurtling towards a brick wall and disintegration. “Don’t worry, be happy,” says the EU’s unelectable joke of a second Presidency. “Portugal does not need any help.” This is all getting too funny for words.

What was supposed to be a US policy of devaluing the dollar, has been turned by spectacular European incompetence into the impending crash of the Euro. Stay long gold and silver. Club Med has gone broke and the Germans aren’t willing or able to rescue them. The striking people of Portugal and the government of Ireland don’t even seem willing to rescue themselves. Suddenly everyone is looking to stiff the European bank bondholders. The Squids have turned on the banksters.

"Portugal does not need any help – it is in a very different situation to Ireland,"

Herman Van Rompuy.

Euro crisis worsens after bond investor says cash will be taken out of Ireland

• Ireland's banks described as 'bleeding deposits'
• Euro falls as fears over Portugal increase

Tuesday 23 November 2010 21.23 GMT

The world's biggest bond investor tonight inflamed the growing crisis engulfing the eurozone by virtually inviting depositors to take their money out of Ireland's stricken banks.

In a day of turbulence in the currency markets when the euro plunged more than two cents against the dollar and share prices fell heavily in Europe and North America, expectations mounted that Portugal would quickly follow Ireland in calling in the International Monetary Fund and the European Union.

Tensions between North and South Korea further strained nerves in already febrile markets, while Germany admitted that the future of the euro was at stake through the Irish bailout.

Mohamed El-Erian, chief investment officer of the powerful bond manager Pimco, added to the anxiety by describing Ireland's banks as "bleeding deposits". He said: "What you advise your sister in Ireland now is that you'd say take your money out of an Irish bank and put it in another bank headquartered elsewhere. That's what happened in Argentina and in emerging economies. People worry about their savings."

-----El-Erian, who was interviewed by the Bloomberg news agency, said the Irish government needed to conclude those negotiations to restore confidence in the banking system.

"It will seriously undermine the prosperity of this country for a generation. The first thing they must do is execute on what they announced this weekend, which is a big external aid package and steps by the Irish government," said El-Erian.

His remarks were made amid signs that the authorities had failed to use Ireland as a fire-break for the crisis which now risks enveloping Portugal and even Spain. The cost of borrowing for both countries rose yesterday. Spain did not manage to raise as much money as it had hoped in its regular bond auction and was forced to pay more to raise the funds.

Swaps Soar on ‘Sacrosanct’ Senior Europe Debt: Credit Markets

Nov. 24 (Bloomberg) -- The cost of protecting against defaults on senior notes of European banks is soaring on speculation bondholders will be forced to take losses as governments try to share the burden of taxpayer-funded bailouts.

The Markit iTraxx Financial Index of credit-default swaps on senior debt increased 12 basis points, or 0.12 percentage point, to 152.9 basis points, the most since May. Contracts on Portugal’s Banco Espirito Santo SA are at a record, and Spain’s Banco Santander SA are at the highest level in five months.

Europe’s debt crisis has spread to Ireland from Greece, and bond investors bet that Portugal and Spain may be next in line for a bailout from the European Union and International Monetary Fund. EU officials estimate that a rescue package for Ireland may total about 85 billion euros ($114 billion), according to two officials familiar with the situation who spoke on condition of anonymity because the talks were private.

“Senior bondholders will most likely find themselves as potential burden-sharers, which is in stark contrast with the rules of engagement of the market,” said Roberto Henriques, a fixed-income analyst at JPMorgan Chase & Co. in London. “Even at the worst point of the current crisis, it was generally a given that senior debt was sacrosanct.”

Wednesday, November 24, 2010

Dramatic fall in value of Irish bank stocks

A DRAMATIC fall in the value of Irish bank stocks led a global sell-off in equities yesterday, as markets failed to be convinced that Ireland’s EU-IMF plan will solve the euro zone’s financial woes.

The value of the euro and peripheral euro zone government bonds also fell sharply as fears about the health of the euro zone mounted.

Bank of Ireland tumbled by 23 per cent, closing at 30 cent, as investors rushed to sell their holdings of the bank’s shares.

AIB shed 19 per cent to finish at €0.33, while Irish Life Permanent shed 10 per cent to €0.75.

The sell-off was due to fears that Irish banks would be nationalised or, at the very least, shareholder value would be severely diluted in the event that the Government increases its stake in the State’s main lenders, a move that is widely expected.

The banks’ bonds were also hit, with the value of AIB and Bank of Ireland’s subordinated debt falling.

According to one Dublin trader, the major concern driving the downward movement was the status of deposits in the institutions.

The uncertainty was not helped by a comment from a senior executive at Pacific Investment Management, Mohamed A. El-Erian, who said Ireland risked a “major bank run” unless European officials act quickly to calm the financial turmoil in the country.

Minister for Finance Brian Lenihan said yesterday that deposits in Irish banks were “safe”, and that the European Central Bank “continued to meet” the funding needs of the State’s banks.

Banking stocks in other peripheral euro zone nations also suffered.

Spain’s Santander bank declined 4.6 per cent, while Portugal’s Banco Espirito Santo lost 3.4 per cent.

Overall, European markets fell to a six-week low.

Spain and Portugal under fire as bond spreads hit record

Borrowing costs for Portugal and Spain have surged to danger levels on fears that Europe's leaders are losing political control of the Irish crisis and have yet to agree on a coherent plan to tackle the eurozone's deeper debt woes.

By Ambrose Evans-Pritchard 9:58PM GMT 23 Nov 2010

Yields on 10-year Portuguese bonds jumped to 6.9pc, replicating the pattern seen in Greece and Ireland just before they capitulated and turned to the EU and the International Monetary Fund.

Spreads on 10-year Spanish bonds rose to a post-EMU record of 233 basis points over Bunds, pushing the yield to 4.87pc. Spain's central bank governor, Miguel Angel Fenrandez Ordonez, said the contagion had spread rapidly to the eurozone periphery and "made itself felt" in the Spanish debt markets. He called on Madrid to accelerate fiscal reforms to persuade the markets the country really means to put its house in order.

"Spain is a bit too big to be bailed out," said Antonia Garcia Pascual, of Barclays Capital. "The size of rescue required would use up all the funds available and then you have Italy with contagion as well."

Saxo Bank said the EU's €440bn (£370bn) bail-out fund would lose its AAA credit rating if Spain needed serious help. Germany and France would have to put up fresh money, creating a political storm.

German Chancellor Angela Merkel admitted on Tuesday that the eurozone was "facing an exceptionally serious situation". She brushed aside criticism that German insistence on bondholder "haircuts" from 2013 was fuelling the crisis. "I will not let up on this because the primacy of politics over markets must be enforced," she said.

Dutch finance minister Jan Kees de Jager sent a further chill through markets, saying "holders of subordinated bonds in Irish banks will have to bleed" under the Irish rescue. The comment touched a neuralgic nerve, heightening fears that investors may be treated harshly under the bail-out terms for any other country needing a rescue.


The World From Berlin 11/23/2010

'Germany Must Make Clear That its Capacity to Fund Bailouts is Limited'

Ireland, which has applied for aid from the EU and IMF, is under mounting pressure from politicians in Germany and elsewhere in Europe to increase its corporate tax rate. Irish corporate tax is less than half that levied by other EU nations. German editorialists are divided on the issue of bailing out Dublin.

Following Ireland's request for billions in aid from the European Union rescue fund, calls for the stricken EU member state to raise its corporate tax rate are increasing in Germany. In continental Europe, many countries have long been miffed by Ireland's 12.5 percent corporate tax rate, which is less than half that levied by many other EU countries, including Germany. They argue that it leads to an exodus of jobs to Ireland and represents unfair competition. In an interview with Germany's tabloid daily Bild published on Tuesday, however, Irish Finance Minister Brian Lenihan rejected those demands.

----In Brussels, officials assume that, in addition to making painful cuts in its budget, Ireland will also be unable to avoid raising taxes. "It is probable that Ireland will not continue to be a low-tax country," a spokesman for EU Economics Commissioner Olli Rehn said.

Given that Germany will have to provide a considerable part of Ireland's credit guarantees, criticism amongst politicians in the country over the Irish taxation system is growing. "It cannot be that the companies and residents in Ireland pay lower taxes than companies and residents in the countries that are providing the aid," Hartmut Möllring, the finance minister for the state of Lower Saxony, a member of Chancellor Angela Merkel's conservative Christian Democratic Union party, told the Braunschwieger Zeitung newspaper. "Irish taxes must at least be average or a little bit above."

The finance policy spokesman in the German parliament for the Green Party, Gerhard Schick, also took aim at Dublin. Ireland, he told the Ruhr Nachrichten newspaper, had massively grown its financial sector through "unfair tax competition and lax financial market regulations."

Ireland needs to "improve its banking supervision and increase its revenues," said Carsten Schneieder, a budget spokesman for the center-left Social Democrats in the German parliament.

The irony here is that retaining all sovereignty on the issue of determining its corporate tax rate was a concession the EU, including the leaders of its member states, made to Dublin in exchange for support for the Lisbon Treaty after a first referendum on the EU reforms was rejected by Irish voters in 2008.


As America heads off to celebrate Thanksgiving with turkey tomorrow, Euroland’s goose is just about cooked. Does the Euro die at the weekend?

"Anybody has the right to evade taxes if he can get away with it. No citizen has a moral obligation to assist in maintaining the government."

J.P. Morgan the Greek.

At the Comex silver depositories Tuesday, final figures were: Registered 48.56 Moz, Eligible 58.32 Moz, Total 106.88 Moz. Silver is once again leaking out of inventory.


Crooks and Scoundrels Corner.

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

Today, Zero Hedge and Peak Oil. It’s already here says the IEA in their latest World Energy Outlook. With rose tinted glasses, the IEA magically adjusts future production with a set of dubious and unlikely assumptions. This report alone makes the case for a crash program of building renewable energy. Stay long precious metals as well. Financialised assets and fiat currencies will not fare well in an age of energy scarcity.

If facts do not conform to theory, they must be disposed of."

N.R.F. Maier. Maier's Law.

Guest Post: It's Official: The Economy Is Set To Starve

11/23/2010 20:25 -0500

Once a year, the International Energy Agency (IEA) releases its World Energy Outlook (WEO), and it's our tradition here at to review it.  A lot of articles have already been written on the WEO 2010 report, and I don't wish to tread an already well-worn path, but the subject is just too important to leave relegate to a single week of attention.

-----My only comment here is that these fields cannot overcome the expected rate of loss in the dark blue band below them.  All of the conventional oil that we know about is now past peak.  In order to keep conventional oil flat, we have to move up to the third band (light blue), which goes by the spine tingling name "fields yet to be found" - which will apparently be delivering a very hefty 22 mbd by 2035.  In other words, the IEA is projecting that in 25 years, more oil will be flowing from "fields yet to be found" than from all the fields ever found and put into production by the year 2010.   

Colin Campbell, one of the earliest analysts of peak oil who has decades of oil field experience, is on record as saying that the "fields yet to be developed" category, originally introduced to the world as unidentified Unconventional in 1998, is a "coded message for shortage" and was, off the record, confirmed as such by the IEA. That coded message is getting easier and clearer to receive by the day. 

But back to the main story line.  Even if the final assessment of future oil production isn't notched down even one more tick, we have all the information we need to spot an enormous problem in the global story of growth.  Assuming that we stick with the 99 mbd by 2035 estimate going forward, this represents a growth rate in oil of only around one-half of one percent (0.5%) per year between now and then.

This means that over the next 25 years, the global economy will have to make do with less than half the rate of growth in oil that it enjoyed over the prior 25 years.  How will the economy grow with less oil available?  What will happen to the valuations of financial assets that explicitly assume that prior rates of growth stretch endlessly into the future?

To cut to the chase, the admission by the IEA that we will not be achieving past levels of energy growth should be the most gigantic red flag in history, at least to those who might care that their money or other paper-based forms of wealth be worth something in the future.  What if that future growth does not emerge?  What happens when the collateral for a loan goes sour?  The IEA report indicates an enormous set of risks for an over-leveraged world reliant on constant growth.


"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

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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