Tuesday, 21 December 2010

A Case to Answer.

Baltic Dry Index. 1955 -44

LIR Gold Target by 2019: $30,000. Revised due to QE.

Today we take the opportunity to wish everyone a most happy, healthy, and wealthy Christmas. The LIR is taking a break until Tuesday the 28th. If enough interesting things happen, I will post occasionally to the website. Despite everything, we made it through 2010. I suspect that 2011 will be more difficult, but hope to be proved wrong. Merry Christmas everyone, especially to those forced to spend it in a Siberian Europe far from the best laid plans.

The Phantom slowly, gravely, silently approached. When it came, Bernoccio bent down upon his knee; for in the very air through which this Spirit moved it seemed to scatter gloom and mystery.

It was shrouded in a deep black garment, which concealed its head, its face, its form, and left nothing of it visible save one outstretched hand. But for this it would have been difficult to detach its figure from the night, and separate it from the darkness by which it was surrounded.

He felt that it was tall and stately when it came beside him, and that its mysterious presence filled him with a solemn dread. He knew no more, for the Spirit neither spoke nor moved.

``I am in the presence of the Ghost of Christmas Yet To Come?'' said Bernoccio.

The Spirit answered not, but pointed onward with its hand.

``You are about to show me shadows of the things that have not happened, but will happen in the time before us,'' Bernoccio pursued. ``Is that so, Spirit?''

The upper portion of the garment was contracted for an instant in its folds, as if the Spirit had inclined its head. That was the only answer he received.

With apologies to Charles Dickens.

Up first, The World’s biggest bond fund calls the ECB’s bluff on Ireland, Greece and Portugal. Trapped in the Euro, they think, all three can never get back to economic growth and will eventually have to default. It’s either never ending transfer payments from Germany or the EMU becoming a full fiscal union. No German in his right mind would join in a fiscal union with a Club Med that includes Italy. No other sensible European would either. Below, The Telegraph takes up the story.

Pimco says 'untenable' policies will lead to eurozone break-up

Pimco, the world's largest bond fund, has called on Greece, Ireland and Portugal to step outside the eurozone temporarily and restructure their debts unless the currency bloc agrees to a radical change of course.

By Ambrose Evans-Pritchard 7:00PM GMT 20 Dec 2010

Andrew Bosomworth, head of Pimco's portfolio management in Europe, said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro.

"Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments," he told German newspaper Die Welt.

He said these countries could rejoin EMU "after an appropriate debt restructuring", adding that devaluation would let them export their way back to health.

Mr Bosomworth said EU leaders were too quick to congratulate themselves on saving the euro last week with a deal for a permanent bail-out fund from 2013.

"The euro crisis is not over by a long shot. Market tensions will continue into 2011. The mechanism comes far too late," he said.

The bond fund argues that the EU strategy of forcing heavily indebted countries to undergo draconian fiscal austerity without offsetting stimulus is unworkable.

The austerity policies are stifling the growth needed to stabilise debt levels.

"Can countries inside a fixed exchange-rate system like the euro grow and tighten budget policy at the same time? I don't think so. It didn't work in Argentina," Mr Bosomworth said.

Pimco also gave warning that the bond vigilantes have lost faith in the policy and are trying to liquidate their holdings of peripheral EMU faster than the European Central Bank (ECB) can buy the debt, causing a relentless rise in yields, and a vicious circle.

Despite this, the ECB said on Monday that it had cut purchases of government debt last week, settling €603m (£509m), down from €2.68bn a week earlier. The withering comments from the world's top investor in EMU sovereign debt is a blow for Portugal and Spain. Both nations are hoping bond spreads will start to narrow before they face a funding crunch in the first quarter of next year.

Jacques Cailloux, chief Europe economist at RBS, agreed that last week's European summit had failed to grasp the nettle.

"None of the policy responses put in place in Europe since the start of the crisis provides a credible backstop to prevent further contagion," Mr Cailloux said.

More

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8215358/Pimco-says-untenable-policies-will-lead-to-eurozone-break-up.html

But will the Chinese cavalry ride in to rescue Europe’s Club Med “Custers”?

Dec. 21, 2010, 12:03 a.m. EST

China official says will help EU with debt: report

SYDNEY (MarketWatch) -- Chinese Vice Premier Wang Qishan said Tuesday that China is prepared to help European Union countries with sovereign debt issues, Chinese state media Xinhua reported. Speaking at the High-Level Economic and Trade Dialogue meeting, Wang said that China supports the actions already taken by the European Union and the International Monetary Fund, according to the report.

http://www.marketwatch.com/story/china-official-says-will-help-eu-with-debt-report-2010-12-21

Next, China and the ECB may soon be the only buyers of Club Med and Ireland’s debt. Stay long precious metals.

This sucker’s going down.

President George W. Bush.

Moody's may cut Portugal rating by a notch or two

Dec. 21, 2010, 3:21 a.m. EST

LONDON (MarketWatch) -- Moody's Investors Service on Tuesday placed Portugal's A1 long-term and Prime-1 short-term government bond ratings on review for possible downgrade. The main triggers for the review include uncertainties about Portugal's longer-term economic vitality, and concerns about the nation's ability to access the capital markets at a sustainable price. Also, Moody's is worried about the possible impact on the government's debt metrics of further support for the banking sector, which may be needed for the banks to regain access to the private capital markets. Moody's said the rating could be lowered by a notch or two. "In Moody's opinion, Portugal's solvency is not in question," said Anthony Thomas, Moody's Vice President and lead analyst for Portugal, "but the likely deterioration in debt affordability over the medium term and ongoing concerns about the economy's ability to withstand fiscal consolidation and private sector deleveraging mean its outlook may no longer be consistent with an A1 rating."

http://www.marketwatch.com/story/moodys-may-cut-portugal-rating-by-a-notch-or-two-2010-12-21-321140

Moody’s lowers ratings on five Irish banks

December 20, 2010

Moody’s Investors Service has today downgraded the ratings on five Irish banks – Allied Irish Banks, Bank of Ireland, EBS Building Society, Irish Life and Permanent and Irish Nationwide Building Society.

The downgrade came after Moody’s last week slashed Ireland’s credit rating by five notches to Baa1, from Aa2 – citing ongoing uncertainties over the country’s public finances.

Commenting on today’s downgrade, Moody’s said: “Over the foreseeable future, Irish banks are likely to continue to face very difficult conditions in the wholesale markets and will therefore continue to rely on central bank funding.”

The moves come just weeks after Ireland was forced to accept an €85 billion bailout loan from the European Union and the International Monetary Fund.

http://www.financemarkets.co.uk/2010/12/20/moodys-lowers-ratings-on-five-irish-banks/

In weather news, more of the same in Europe, with fresh snow falling as I look out my window at southeast England turned into Canada. Far across the Atlantic in sunny California, it’s not quite as sunny anymore either.

Heavy Snows Delay U.K., European Travel by Air, Train

Dec. 21 (Bloomberg) -- Air-travel disruptions rippled across Europe for another day as Gatwick airport reopened after suspending outbound flights because of heavy snow.

Gatwick, which serves London, reopened as planned at 6 a.m. with 600 flights scheduled for the day, according to the hub’s website. Paris’s Roissy-Charles de Gaulle and Orly airports were set to begin the day with at least 28 canceled flights before 7 a.m., data tracker FlightStats.com said.

Snow slowed train services and airlines for a fourth day as travelers tried to get home for the Christmas and New Year holidays. The two Paris airports stayed open late yesterday to clear a backlog of flights delayed by the snow, and operating hours were extended for four days at London’s Heathrow airport.

---- Airlines and rail operators urged travelers to stay home if possible, and U.S. carriers waived fees as more snow was forecast for England, France and Germany. Hundreds of flights were canceled or delayed yesterday from London, Paris, Frankfurt and Geneva.

Dublin’s airport restarted flights at 11:30 p.m. after suspending services earlier last night while crews cleared the runway of snow and ice, according to a website statement.

---- Eurostar Group Ltd., which links London to Paris and Brussels by train, asked passengers not already at stations not to come and urged all clients to cancel non-essential travel. The service isn’t accepting new bookings through Dec. 24, a spokesman said.

Most other trains throughout France were slower than normal, though 90 percent were arriving less than 1 hour late, according to train operator SNCF.

---- Deutsche Lufthansa AG said it expects the number of flights within Germany and Europe to gradually increase and return to normal by tomorrow as the weather is set to improve, according to Frankfurt-based spokeswoman Bettina Rittberger.

---- Qantas canceled flights from London and turned back other flights headed to the U.K., affecting 3,000 passengers, Simon Rushton, a spokesman for the Sydney-based carrier, said yesterday.

Deutsche Bahn AG spokeswoman Kathrin Fellenberg said the winter weather continued to disrupt Germany’s national railroad network, causing numerous train delays and cancelations.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=arodQ16pJVM8&pos=8

California Mountains Face Crushing Snowfall

By Katie Storbeck, Meteorologist Dec 19, 2010; 11:16 AM ET

A stormy weather pattern has settled in over the West, and California will endure the harshest conditions well into this week. While rain drenches much of the state, heavy snow will continue to pile up in the mountains.

Snowfall totals in parts of the Sierra Nevada reached 2-5 feet at many locations through Sunday afternoon.

Another 1 to 3 feet of snow can be expected in these areas through Monday night.

This means that storm totals will reach as much as 6 to 8 feet of snow, with locally higher amounts in some of the peaks above 6,000 feet.

---Travel will become impossible in these areas. Officials may be forced to close the mountain passes, including I-80's Donner Pass as the snow continues to pile up.

On top of the heavy snowfall, gusty winds will lead to blowing and drifting snow. The wind-whipped snow could create white-out conditions for a time.

Wintry weather can be expected in the Cascades and northern Rockies today as well.

While accumulations will not be quite as hefty, as much as a foot of snow will blanket the higher mountains of Wyoming, Utah and Colorado through tonight. Travel could become slippery and slower along portions of Interstates 84, 80, 70 and 15 as a result.

http://www.accuweather.com/blogs/news/story/43221/california-mountains-face-crus.asp

The first fall of snow is not only an event, it is a magical event.  You go to bed in one kind of a world and wake up in another quite different, and if this is not enchantment then where is it to be found? 

J.B. Priestley

At the Comex silver depositories Monday, final figures were: Registered 46.37 Moz, Eligible 58.49 Moz, Total 104.86 Moz.

+++++

Crooks and Scoundrels Corner.

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

Today, scandal on both sides of the Atlantic.

DECEMBER 20, 2010

Auditors Face Fraud Charge

New York Set to Allege Ernst & Young Stood By as Lehman Cooked Its Books

New York prosecutors are poised to file civil fraud charges against Ernst & Young for its alleged role in the collapse of Lehman Brothers, saying the Big Four accounting firm stood by while the investment bank misled investors about its financial health, people familiar with the matter said.

State Attorney General Andrew Cuomo is close to filing the case, which would mark the first time a major accounting firm was targeted for its role in the financial crisis. The suit stems from transactions Lehman allegedly carried out to make its risk appear lower than it actually was.

Lehman Brothers was long one of Ernst & Young's biggest clients, and the accounting firm earned approximately $100 million in fees for its auditing work from 2001 through 2008, say people familiar with the matter.

The suit, led by Mr. Cuomo, New York's governor-elect, could come as early as this week. It is part of a broader investigation into whether some banks misled investors by removing debt from their balance sheets before they reported their financial results to mask their true levels of risk-taking, a person familiar with the case said. The state may seek to impose fines and other penalties.

Mr. Cuomo's office has sought documents and information from several firms, including Bank of America Corp., which earlier this year disclosed six transactions that were wrongly classified. Jerry Dubrowski, a Bank of America spokesman, said the bank's practice is to cooperate with any inquiry from regulators.

It is possible that Ernst & Young will try to settle before any suit is filed. The firm declined to comment. A spokesman for the Lehman Brothers estate also declined to comment.

The transactions in question, known as "window dressing," involve repurchase agreements, or repos, a form of short-term borrowing that allows banks to take bigger trading risks. Some banks have systematically lowered their repo debt at the ends of fiscal quarters, making it appear they were less risk-burdened than they actually were most of the time.

Lehman Brothers dubbed transactions of this type "Repo 105." The maneuver came to light in March, when the bankruptcy examiner investigating the firm's collapse more than two years ago found that it moved some $50 billion in assets off its balance sheet. Lehman labeled those transactions as securities sales instead of loans, which led investors to believe the firm was financially healthier than it really was.

More.

http://online.wsj.com/article/SB10001424052748704138604576029991727769366.html?mod=djemalertNEWS

'Cases to answer' over Anglo

Monday, December 20, 2010, 15:00

The former chairman of Anglo Irish Bank Se├ín FitzPatrick and its former chief executive David Drumm have “prima facie” cases to answer in relation to their roles in certain controversial dealings at the bank, according to reports prepared by a special investigator.

The reports by the former Comptroller and Auditor General, John Purcell, were submitted to the Complaints Committee of the Chartered Accountants Regulatory Board on December 14th, and have now been forwarded to the board’s Disciplinary Committee.
Mr Purcell found that Anglo’s former finance director Willie McAteer and the former finance director at Irish Life and Permanent Peter Fitzpatrick also had prima facie cases to answer. The four men are chartered accountants.

Public hearings by a three-person Disciplinary Tribunal to be established by the committee are expected to be held around March or April of next year. Maximum sanctions of fines up to €30,000 and expulsion are available to the tribunal.
In relation to Mr FitzPatrick the special investigator said that in his opinion there were cases to answer in relation to his role in the temporary transfer of his loans from Anglo so that they did not appear in the bank’s financial statements; his role in relation to transactions with Irish Life at certain dates in 2008; and his role in relation to a loan to Mr McAteer in 2008.

The special investigator decided he had no case to answer in relation to the provision of loans to 10 customers who bought shares in the bank.
In relation to Mr Drumm, Mr Purcell made findings to do with: the transfer of Mr FitzPatrick’s loans and their non-appearance in the Anglo books; the transactions with Irish Life; his role in the amendment of the terms of loans to ten bank customers who bought shares in the bank; and his role in relation to loans to four key management personnel and in 2008 to Mr McAteer.
The special investigator decided Mr Drumm had no case to answer in relation to the provision of loans to the 10 customers who bought shares in the bank.
In relation to Mr McAteer, Mr Purcell made findings in relation to: the transfer of Mr FitzPatrick’s loans and their non-appearance on the bank’s books; the transactions with Irish Life in 2008; and his role “in relation to the appropriate disclosure of a loan” made by Anglo to him in September 2008.
Mr Purcell decided Mr McAteer had no case to answer in relation to the loans to the ten customers and the loan made to him in September 2008.
In relation to Peter Fitzpatrick, the special investigator decided there was a case to answer in relation to the Irish Life transactions with Anglo at key reporting dates in 2008.

http://www.irishtimes.com/newspaper/breaking/2010/1220/breaking31.html

"God bless us every one!" said Graeme,  the last of all.

With apologies to Charles Dickens.

The monthly Coppock Indicators finished November:

DJIA: +178 Down. NASDAQ: +247 Down. SP500: +167 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. November is the sixth down month in a row.

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