Saturday, 18 December 2010

Weekend Update – December 18 2010

Baltic Dry Index. 1999 -96

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

"'Perhaps it hasn't one,' Alice ventured to remark. "'Tut, tut, child!' said the Duchess. 'Everything's got a moral, if only you can find it.'"

Lewis Carroll. Alice in Wonderland

We open this last weekend before Christmas, with Great Britain turned into a look alike Canada, but without the snowplows. Something that will have to be remedied if this is to become our new way of life for the next 20 years or so, in our new Dalton Minimum in sunspots. Up first, the view this December on America by PIMCO. A well worth reading article, but one that will be ignored until the “next Lehman” wipes out the Fed. Stay long precious metals. With the Squids now taking on the banksters in the war over the euro, it’s only a matter of time until the next Lehman hits.

Investment Outlook William H. Gross| December 2010

· The global economy is suffering from a lack of aggregate demand. With insufficient demand, nations compete furiously for their share of the diminishing growth pie.

· In the U.S. and Euroland, many policies only temporarily bolster consumption while failing to address the fundamental problem of developed economies: Job growth is moving inexorably to developing economies because they are more competitive.

· Unless developed economies learn to compete the old-fashioned way – by making more goods and making them better – the smart money will continue to move offshore to Asia, Brazil and their developing economy counterparts, both in asset and in currency space.

Below, a tale of two Europes. There’s Germany and there’s everyone else. While Europe’s PIIGS collapse the euro, Germany’s exporters are booming. The one size fits all Germanic Euro has never fitted Germany better. Pity about the Irish debt slaves though. My guess is that Ireland’s next government knows exactly what to do once they take power early next year. Since “restructuring” will likely drop the euro further, Germany’s boom looks good for 2011.

Life is divided into the horrible and the miserable.

Woody Allen

EU shocked by Irish debt downgrade

European leaders received a nasty shock as the credit agency Moody's downgraded Ireland's debt, even as the politicians closed a summit intended to prop up confidence in the eurozone.

By Emma Rowley 7:56PM GMT 17 Dec 2010

The dramatic downgrading of Irish debt by five levels sent the cost of the country's borrowing up, as yields - the returns demanded by wary investors - on 10-year government bonds rose more than 24 basis points to pass 8.6pc.

If Ireland cannot stabilise its debt then further revisions may follow, warned Moody's, which has also told Greece and Spain their ratings could fall.

"I don't understand what they do," Nicolas Sarkozy, the French president, said of the agency's latest move. "This decision – I simply call it stunning."

However, the International Monetary Fund (IMF) warned that Ireland is not on track to hit its target of achieving a budget deficit of 3pc of GDP by 2015. The beleaguered nation faces significant risks that could affect its ability to repay the IMF's share of the €85bn (£72bn) international bail-out it received, the fund said.

The European Central Bank (ECB) on Friday said it has arranged to borrow up to £10bn from the Bank of England in a temporary swap to ease liquidity at Irish banks.

----Analysts took the latest move to indicate that Irish banks are short of sterling, as deposits and wholesale funding fall away.

The developments came as European leaders on Friday closed a two-day summit in Brussels, where they agreed to tweak the EU treaty to create a permanent financial safety net to resolve future crises.

Germany insisted that the long-term mechanism, to come into force in 2013, would come with the condition, enshrined in the treaty, that it only be activated "if indispensable to safeguard the stability of the euro as a whole".

DECEMBER 17, 2010, 5:14 A.M. ET

ECB's Weber Rejects Common Bonds

MUNICH, Germany—The joint issuance of bonds by euro-zone member states is no solution for the region's sovereign-debt problems, Deutsche Bundesbank president Axel Weber said Friday.

Mr. Weber, a member of the European Central Bank's governing council, told an audience of bankers that the idea "should be viewed very critically," because the implied joint liability would hollow out individual fiscal responsibility and would hardly strengthen trust in public finances.

He said that a far better way to overcome the current crisis was a thorough consolidation of public finances, combined with more effective rules to enforce budget discipline and a comprehensive mechanism to deal with future crises.

Mr. Weber noted that the implicit obligations on the German state in respect of future pension provision are far larger than the relatively manageable current debt. Whereas Germany's gross outstanding debt this year is around 74% of gross domestic product, the implicit contingent liabilities are close to 270% of GDP. This underlines the need to reduce current budget deficits, he said.

In contrast to an increasingly euroskeptic German press and public, Mr. Weber stressed the advantages that the country has had from the single currency. He said Germany is "one of the countries that has profited most" from the project, and repeated that it is in the country's interest to continue it.

An opinion poll for the magazine Stern earlier this week had shown a majority of Germans in favor of abandoning the euro and reintroducing the deutsche mark.

Mr. Weber was speaking a day after European Union heads of government agreed to set up a permanent mechanism to deal with state debt problems, replacing the European Financial Stabilization Facility, the guarantees for which run out in 2013.

Mr. Weber's comments on the European debt crisis were the main theme of his speech, most of which was devoted to demographic issues. Mr. Weber has frequently used demographics to justify Germany's current account surpluses, arguing that its ageing population has to save. He noted that even German pensioners have a savings rate of 4% to 5%, driven by the fear of health and nursing costs, and by a sense of duty toward their families.

German business sentiment hits record high

Fri Dec 17, 2010 5:34am EST

BERLIN, Dec 17 (Reuters) - German business morale rose to its strongest level since 1991 in December, buoyed by an increasingly strong domestic sector that is helping the economy power ahead of weaker euro zone peers.

 The Munich-based Ifo think tank said on Friday its business climate index, based on a monthly survey of some 7,000 firms, rose to 109.9 from 109.3 in November. The rise was the seventh in a row and surpassed expectations for a fall to 109.1 

 The reading amplified the positive message from other German data released this week, showing Europe's largest economy is leaving behind those weaker members of the euro zone struggling with a debt crisis.

"The German economy is truly in top form," said DekaBank economist Andreas Scheuerle.

 "The manufacturing sector doesn't see the debt crisis as a burden because Ireland and Greece are such small markets for German companies," he added. "At the same time, the depreciation of the euro is giving companies windfall earnings."

 Reflecting the strength of the recovery, German steelmaker ThyssenKrupp (TKAG.DE) said late last month it saw profit rising next year, driven by economic growth in Germany and emerging markets.   Ifo indices on current conditions and expectations both rose. The expectations index hit a record high, suggesting the recovery will power on into the New Year.

  "The German economy is entering the New Year at full throttle," said ING economist Carsten Brzeski.

"The secret of life is honesty and fair dealing. If you can fake that, you've got it made."

Groucho Marx


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