Monday, 31 January 2011

Egypt & The Next Lehman.

Baltic Dry Index. 1137 -49

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

How long can the Egyptian economy survive chaos? This is becoming a more important question than how long Mubarak can cling on to power with the backing of the military. Reports are now circulating of the breakdown of the country’s distribution system. From petrol to bread to milk, shortages have developed. The bottom third of the country are largely unable to work and mostly live week to week. The government produces the subsidized bread most of the poor rely on. But according to reports bread is no longer being produced and petrol stations are no longer getting deliveries. Almost as bad, tourists are leaving Egypt with few if any, arriving outside of Sharm el Sheikh. The Nile tourist industry will quickly collapse if tourism doesn’t quickly resume. While Mubarak clings on to power that isn’t likely to happen, we are about to witness a historic week. Stay long precious metals. The Middle East will be lucky if this change ends with Egypt.

Leading article: The future of the Middle East is being decided in Cairo

Monday, 31 January 2011

Malign confusion reigned in the Egyptian capital last night as power ebbed from the regime of Hosni Mubarak to the streets but could find nowhere of legitimacy or permanency to settle.

The personnel changes announced by a desperate President on Saturday – the head of intelligence to become Vice-President and the former head of the Air Force to become Prime Minister – paved the way, along with the existing state of emergency, for the imposition of martial law. Mr Mubarak's televised meeting yesterday with the generals sent the same message. If the army and the President were united, however, they were united in impotence.

With the people in control of Cairo's Tahrir Square, some suburbs and parts of other cities reportedly under vigilante rule, and supplies of basic food and fuel threatening to run short, the stand-off of the past week had to be coming, in some way, to a head. Low-flying military aircraft, clearly calculated to intimidate, suggested that the relative bonhomie between military and civilians might be coming to an end. New columns of tanks said the same. But any aggressive use of force threatened to complicate the most obviously benign resolution. Egypt, and the region as a whole, were precariously poised last night between a tentatively positive denouement and chaos.

----At best, Mr Mubarak's designation of a Vice-President and his public show of solidarity with the military were designed not to preserve his 30-year rule, but to ensure an orderly transition – or a transition as orderly as it can be at this late stage. If the President cedes power and the military can retain popular trust, there is the outline of at least a temporary solution. An interim administration with the prominent involvement of the armed forces would be hard for Egypt's Western allies to stomach, but – with a short, fixed term, a promise of rapid reforms and an early date for free elections – it could be the least bad of many scenarios. Mr ElBaradei's imprimatur, or direct involvement, could make the difference.

The immediate test for any interim regime would be whether it could win the confidence of the protesters thronging the streets and those people sheltering in their homes too frightened to go out. For Egypt's friends in the world, the test would be whether they would be able to hold any new regime to its undertakings.

----The alternatives are dire. If Mr Mubarak's moves in recent days are designed not to ease a transition, but to reinforce his hold on power, it is hard to see how popular anger can be held back. A military crackdown would then be one possibility; widespread disorder – and a conflagration that could set the whole region on fire – another. There was still time, last night, for anarchy to be averted. But it was time that was rapidly running out.

Egypt and Tunisia usher in the new era of global food revolutions

Political risk has returned with a vengeance. The first food revolutions of our Malthusian era have exposed the weak grip of authoritarian regimes in poor countries that import grain, whether in North Africa today or parts of Asia tomorrow.

By Ambrose Evans-Pritchard 7:30PM GMT 30 Jan 2011

If you insist on joining the emerging market party at this stage of the agflation blow-off, avoid countries with an accelerating gap between rich and poor. Cairo’s EGX stock index has dropped 20pc in nine trading sessions.

Events have moved briskly since a Tunisian fruit vendor with a handcart set fire to himself six weeks ago, and in doing so lit the fuse that has detonated Egypt and threatens to topple the political order of the Maghreb, Yemen, and beyond.

As we sit glued to Al-Jazeera watching authority crumble in the cultural and political capital of the Arab world, exhilaration can turn quickly to foreboding.

This is nothing like the fall of the Berlin Wall. The triumph of secular democracy was hardly in doubt in central Europe. Whatever the mix of aspirations of those on the streets of Cairo, such uprisings are easy prey for tight-knit organizations – known in the revolutionary lexicon as Leninist vanguard parties.

In Egypt this means the Muslim Brotherhood, whether or not Nobel laureate Mohammed El Baradei ever served as figleaf. The Brotherhood is of course a different kettle of fish from Iran’s Ayatollahs; and Turkey shows that an ‘Islamic leaning’ government can be part of the liberal world – though Turkish premier Recep Tayyip Erdogan once let slip that democracy was a tram “you ride until you arrive at your destination, then you step off."

-----The surge in global food prices since the summer – since Ben Bernanke signalled a fresh dollar blitz, as it happens – is not the underlying cause of Arab revolt, any more than bad harvests in 1788 were the cause of the French Revolution.

Yet they are the trigger, and have set off a vicious circle. Vulnerable governments are scrambling to lock up world supplies of grain while they can. Algeria bought 800,000 tonnes of wheat last week, and Indonesia has ordered 800,000 tonnes of rice, both greatly exceeding their normal pace of purchases. Saudi Arabia, Libya, and Bangladesh, are trying to secure extra grain supplies.


Egypt Spurs Jump in Developing Money-Market Rates

By Michael Patterson and Ron Harui - Jan 31, 2011 7:50 AM GMT

Money-market rates in developing nations are increasing at the fastest pace since 2008 as central banks from China to Brazil lift borrowing costs and banks hoard cash on concern unrest in Egypt will destabilize the Middle East.

The yield on JPMorgan Chase & Co.’s ELMI+ Index of short- term debt in emerging markets rose to 2.5 percent on Jan. 28, from a record-low 1.74 percent on Dec. 31. Overseas borrowing costs also jumped, sending the extra yield on developing-nation dollar bonds over U.S. Treasuries to a two-month high of 2.77 percentage points today, according to JPMorgan’s EMBI+ Index.

Inflation is accelerating in seven of the 10 biggest developing nations after surging prices for food, cotton and oil pushed the S&P GSCI Index of commodities toward the highest level since September 2008. Oil rose 4.3 percent in New York on Jan. 28 and today hit a one-week high of $90.87 a barrel as Egyptian protesters clashed with police, calling for an end to President Hosni Mubarak’s 30-year rule. Middle East shares recouped some of their losses from yesterday, when Abu Dhabi’s index dropped the most in a year.

“The geopolitics is clearly a warning to investors,” said David Cohen, the head of Asian forecasting at Action Economics in Singapore. “Oil prices have spiked higher. That would be one more source of upward pressure on interest rates.”

The last time short-term borrowing costs in developing nations rose this fast was the second half of 2008, when the global financial crisis and record commodity prices pushed the world economy into a recession. The yield on JPMorgan’s ELMI+ Index jumped as high as 21 percent in October 2008, prompting central banks around the world to slash benchmark borrowing costs.

Egypt's Banks Risk Deposit Run as Week of Violence Hits Economy

By Zainab Fattah and Tamara Walid - Jan 30, 2011 10:00 PM GMT

Egypt’s banks may risk a surge in customer withdrawals when they open for business, placing them among companies worst hit by the nationwide uprising against President Hosni Mubarak.

“A run on the banks would be the biggest concern, which is possible in the current situation,” Robert McKinnon, chief investment officer at ASAS Capital in Dubai, said in a telephone interview. Authorities are likely to keep the financial system closed to avert the risk, he said.

Egypt’s banks and markets stayed shut yesterday after six days of clashes in the most populous Arab country that left as many as 150 people dead. Tanks are guarding banks and government buildings in Cairo that are vulnerable to looting, state television said. The EGX 30 stock index had a two-day drop of 16 percent through Jan. 27, with Commercial International Bank Egypt SAE, which accounts for more than one-fifth of the benchmark, falling 12 percent. Markets throughout the Middle East declined yesterday on concern the unrest may spread.

-----Central Bank Governor Farouk El-Okdah said in a telephone interview Jan. 29 that his bank has $36 billion in reserves, enough to accommodate investors should they wish to withdraw funds. His deputy, Hisham Ramez, said interbank lending “will function properly” when banks are reopened. He said the security situation will determine when that is possible.

Time for most to await developments from the safety of gold and cash. The hedge fund gamblers will find it impossible to wait, I suspect. Events like Egypt can all to easily bring on the next Lehman.

At the Comex silver depositories Friday, final figures were: Registered 43.49 Moz, Eligible 61.19 Moz, Total 104.68 Moz.


Crooks and Scoundrels Corner.

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

Today China. What were they thinking? How could they expect not to get found out, turning China into an Asian laughing stock.

China red-faced after footage of new fighter 'was from Top Gun'

Perhaps it was "a need, a need for speed", as Maverick and Goose once put it, but China's military have been embarrassed by accusations that instead of filming genuine footage of their latest fighter plane, they used a scene from the film Top Gun.
By Andy Bloxham 7:34PM GMT 30 Jan 2011

The footage showcasing the J-10 fighter, which showed an air-to-air missile destroying another jet, was aired last week during the main evening broadcast of the state-sponsored channel China Central Television.

Bloggers on internet message boards quickly picked up the similarities and the footage was removed from the CCTV website but not before the clip had been copied.

The Wall Street Journal then published a video which compared the two film sequences, with uncanny similarities.

The explosion is so similar that the fireball appears to form the same shapes and near-identical chunks of debris spray from the detonation and travel across the screen in what looks like the same way.

No one from the state broadcaster has admitted to the fraud but, if true, such a famous film would seem a poor choice from which to cull such material.

Top Gun was released in 1986 and was a hit, making a global star of Tom Cruise as the cocky pilot with the nickname Maverick and a co-pilot known as Goose.

It won an Oscar and was nominated for three more and took around £223m at the box office.

However, the success of the film did not - apparently - make the promoters of the People's Liberation Army Air Force pause to think before the footage was shown on January 23.

If the footage is a genuine fake, it would not be the first time that subterfuge has been used by China to try to improve its image.

Some of the more spectacular footage of the Beijing Olympic Games' opening ceremony, featuring fireworks creating "footsteps" across the city, were later shown to have been created digitally, and the young singer who starred in it "live" was actually miming to another girl's voice.

The monthly Coppock Indicators finished December:

DJIA: +171 Down 7. NASDAQ: +238 Down 9. SP500: +165 Down 2.

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. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

Saturday, 29 January 2011

Weekend Update January 29, 2011

Volatility and Conflict.

Baltic Dry Index. 1137 -233

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

The big story this weekend is Egypt. Will Mubarak cling on to power or will Egypt’s military tell him it’s time to move on? At this point either option looks bad for the west. A unstable wounded regime clinging to power and facing an election ahead that looks certain to be rigged, is a regime unlikely to last very long and an open invitation for another Nasser style 1952 military takeover. But if Mubarak goes, what then? There doesn’t really seem to be a natural successor. If Mubarak is toppled which Arab leader is next?

Below, a scattering of this morning’s coverage starting with the WSJ and ending with an unlikely headline from Al Jazeera.

JANUARY 29, 2011, 6:46 A.M. ET

Cairo Streets Calmer After Mass Protests

CAIRO—Residents of Egypt's capital awoke to a tense calm on the city's main square on Saturday morning, the day after President Hosni Mubarak called the military into downtown Cairo to quell a violent popular uprising.

Mr. Mubarak, whose unpopular 30-year rule has been the focus of nearly a week of demonstrations, told Egyptians in a televised speech last night that he would reshuffle his cabinet on Saturday.

That promise appeared to do little to satisfy demonstrators, many of whom hoped to see President Mubarak go the way of Tunisia's former autocrat Zine al-Abidine Ben Ali, who left his country two weeks ago following a month of street-level protests.


Egypt protests: America's secret backing for rebel leaders behind uprising

The American government secretly backed leading figures behind the Egyptian uprising who have been planning “regime change” for the past three years, The Daily Telegraph has learned.

By Tim Ross, Matthew Moore and Steven Swinford 9:23PM GMT 28 Jan 2011

The American Embassy in Cairo helped a young dissident attend a US-sponsored summit for activists in New York, while working to keep his identity secret from Egyptian state police.

On his return to Cairo in December 2008, the activist told US diplomats that an alliance of opposition groups had drawn up a plan to overthrow President Hosni Mubarak and install a democratic government in 2011.

The secret document in full

He has already been arrested by Egyptian security in connection with the demonstrations and his identity is being protected by The Daily Telegraph


Robert Fisk: A people defies its dictator, and a nation's future is in the balance

A brutal regime is fighting, bloodily, for its life. Robert Fisk reports from the streets of Cairo

Saturday, 29 January 2011

It might be the end. It is certainly the beginning of the end. Across Egypt, tens of thousands of Arabs braved tear gas, water cannons, stun grenades and live fire yesterday to demand the removal of Hosni Mubarak after more than 30 years of dictatorship.

And as Cairo lay drenched under clouds of tear gas from thousands of canisters fired into dense crowds by riot police, it looked as if his rule was nearing its finish. None of us on the streets of Cairo yesterday even knew where Mubarak – who would later appear on television to dismiss his cabinet – was. And I didn't find anyone who cared.

They were brave, largely peaceful, these tens of thousands, but the shocking behaviour of Mubarak's plainclothes battagi – the word does literally mean "thugs" in Arabic – who beat, bashed and assaulted demonstrators while the cops watched and did nothing, was a disgrace. These men, many of them ex-policemen who are drug addicts, were last night the front line of the Egyptian state. The true representatives of Hosni Mubarak as uniformed cops showered gas on to the crowds.


Without Egypt, Israel will be left with no friends in Mideast

Without Egypt's Mubarak and with relations with Turkey in shambles, Israel will be forced to court new potential allies

By Aluf Benn

The fading power of Egyptian President Hosni Mubarak's government leaves Israel in a state of strategic distress. Without Mubarak, Israel is left with almost no friends in the Middle East; last year, Israel saw its alliance with Turkey collapse.

From now on, it will be hard for Israel to trust an Egyptian government torn apart by internal strife. Israel's increasing isolation in the region, coupled with a weakening United States, will force the government to court new potential allies.


Mubarak’s planning exile to Tel Aviv


29/01/2011 10:50:00 AM GMT

According to sources in the Egyptian Embassy in Tel Aviv, Israel is making preparations to welcome Hosni Mubarak into exile after Saudi Arabia rejected overtures.

For now, we can only await developments. Stay long precious metals. Developments in Egypt trump Davos, and rising signs of unrest in Europe. Austerity plus food and fuel inflation is a tinder box in many nations across the planet.

This weekend marks the start of the Chinese New Year celebrations for many, with the actual start on Feb 3. Welcome to the year of the Rabbit, which I am informed is the animal of volatility and conflict. Bah humbug.


Friday, 28 January 2011

A Wedge of Black Swans Arrive.

Baltic Dry Index. 1186 -48

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

Once again, recall the story of banks hiding explosive risks in their portfolios. It is not a good idea to trust corporations with matters such as rare events because the performance of these executives is not observable on a short-term basis, and they will game the system by showing good performance so they can get their yearly bonus. The Achilles’ heel of capitalism is that if you make corporations compete, it is sometimes the one that is most exposed to the negative Black Swan that will appear to be the most fit for survival.

Nassim Taleb. The Black Swan.

One after another they fly in and land. Suddenly we are inundated with black swans. In economics, black swans are not birds we like to see. Stay long precious metals. One black swan is bad enough, God has sent us a great wedge of them. Yesterday the Baltic Dry Index which is a sipping index of bulk goods like iron ore, coal and grains, broke below 1200. In our global economy it has been on a wild ride reflecting the ups and downs of recent years. From a high of 11,793 on May 20, 2008, it collapsed to 663 on December 5, 2008 as world trade locked up after the banksters and Wall Street vampire squids nearly crashed the global economy. From that low point it managed to rise again to 4,600 as central bank global stimulation became the order of the day, lead by China. Now it has plunged back to barely double 2008’s low. Part of the reason is new ships that were ordered during the boom coming on-stream. Part is the disruption to the coal trade in particular by the flooding in Australia. Part is the recent bankruptcy of the shipping company Korea Line. But a part is also a sudden slowdown in world trade. Inventory rebuilding has probably reached its end. A large part of the recent “green shoots” “recovery” is ending. This black swan is troublesome. Not to worry it will rebound once Australia’s coal mines start exporting again, won’t it? Yes, but that will be little comfort if inventory restocking has already reached its peak.

Below, some of the other black swans that just flew in. Greenspan – Bernanke’s ficticious bankster economy built on fraud, is about to get tested again.

"It is inherently extraordinarily difficult to know whether an asset's price is in line with its fundamental value. It's not obvious to me in any case that there's any large misalignments currently in the U.S. financial system."

Dr. Bernanke. November 16, 2009

Japan Credit Rating Cut by S&P on Absence of Strategy to Curb Debt Levels

By Toru Fujioka and Aki Ito - Jan 27, 2011 2:05 PM GMT

Japan’s credit rating was cut for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.

The world’s most indebted nation is now ranked at AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said in a statement. The outlook for the rating is stable, S&P said.

The yen and bond futures fell on concern the downgrade will push up the cost of borrowing for Japan, where public debt is about twice the size of gross domestic product. Vice Finance Minister Fumihiko Igarashi this week said the government must fix its finances to avoid a debt crisis that could trigger a “global depression.”


Moody's Says Time Running Out for U.S. as S&P Cuts Japan

By Christine Richard - Jan 28, 2011 4:07 AM GMT

Moody’s Investors Service said it may need to place a “negative” outlook on the Aaa rating of U.S. debt sooner than anticipated as the country’s budget deficit widens.

The extension of tax cuts enacted under President George W. Bush, the chance that Congress won’t reduce spending and the outcome of the November elections have increased Moody’s uncertainty over the willingness and ability of the U.S. to reduce its debt, the credit-ratings company said yesterday.

“Although no rating action is contemplated at this time, the time frame for possible future actions appears to be shortening, and the probability of assigning a negative outlook in the coming two years is rising,” wrote Steven Hess, a senior credit officer in New York and the author of the report. The rating remains “stable,” according to the report.

Oil Heads for Biggest Weekly Drop Since August on Slowing Demand

By Ben Sharples and Ann Koh - Jan 28, 2011 5:32 AM GMT

Oil headed for its biggest weekly decline in New York since August amid speculation that prices are too high and may derail the economic recovery in the U.S., the biggest crude-consuming nation.

Futures fell for a second day on signs that the Organization of Petroleum Exporting Countries is starting to increase output to cap prices. Brent crude rose, extending its record premium to New York oil. U.S. jobless claims increased more than forecast, Labor Department data showed yesterday. Crude supplies climbed four times more than analysts estimated last week as fuel demand dropped.

“Crude should be down near $80 a barrel given that world out there is awash with oil,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “Given that we don’t see anything adverse happening out there in the world that would see the need for a build in premium, then I can suggest it’ll remain pretty soft.”

Crude for March delivery lost as much as 53 cents, or 0.6 percent, to $85.11 a barrel, in electronic trading on the New York Mercantile Exchange, and was $85.55 at 1:27 p.m. Singapore time. Prices are down 6.4 percent this year.

Futures are 4 percent lower for the week, the biggest drop since the week ended Aug. 13.

-----Brent’s premium over Nymex-traded West Texas Intermediate widened to a record $12.42 a barrel from $8.49 a week earlier. Investors are buying Brent contracts as a buildup of supplies at Cushing, Oklahoma, the delivery point for New York-traded West Texas Intermediate oil, skews the U.S. grade’s reliability as an indicator of demand.

There are indications that some members of OPEC are raising output unilaterally, analysts at JPMorgan Chase & Co., led by New York-based Lawrence Eagles, said in a monthly report dated yesterday.

“We take that as a strong indication that the producer group does not want oil prices to rise too high, too quickly,” JPMorgan’s analysts said. “OPEC continues to supply the marginal barrel and therefore sets the price for crude oil.”


We end for the week watching Egypt, possibly the worst black swan of all. Is Egypt about to fall next week? What will it mean for the west if Egypt does switch from dictatorship to democracy? Will the west get another Iran or another Tunisia? How do you occupy and pacify a city the size of Cairo? The west’s domination game from Morocco to Pakistan is in danger of imploding. Unemployment, food price inflation and modern technology, have stirred up the masses to demand change. As the Shah of Iran found out back in 1979, having ridden the tiger for the west for the last 30 years, getting off without getting eaten, is no easy thing to do.

Robert Fisk: Egypt's day of reckoning

Mubarak regime may not survive new protests as flames of anger spread through Middle East

Friday, 28 January 2011

A day of prayer or a day of rage? All Egypt was waiting for the Muslim Sabbath today – not to mention Egypt's fearful allies – as the country's ageing President clings to power after nights of violence that have shaken America's faith in the stability of the Mubarak regime.

Five men have so far been killed and almost 1,000 others have been imprisoned, police have beaten women and for the first time an office of the ruling National Democratic Party was set on fire. Rumours are as dangerous as tear gas here. A Cairo daily has been claiming that one of President Hosni Mubarak's top advisers has fled to London with 97 suitcases of cash, but other reports speak of an enraged President shouting at senior police officers for not dealing more harshly with demonstrators.

Mohamed ElBaradei, the opposition leader and Nobel prize-winning former UN official, flew back to Egypt last night but no one believes – except perhaps the Americans – that he can become a focus for the protest movements that have sprung up across the country.

Already there have been signs that those tired of Mubarak's corrupt and undemocratic rule have been trying to persuade the ill-paid policemen patrolling Cairo to join them. "Brothers! Brothers! How much do they pay you?" one of the crowds began shouting at the cops in Cairo. But no one is negotiating – there is nothing to negotiate except the departure of Mubarak, and the Egyptian government says and does nothing, which is pretty much what it has been doing for the past three decades.

People talk of revolution but there is no one to replace Mubarak's men – he never appointed a vice-president – and one Egyptian journalist yesterday told me he had even found some friends who feel sorry for the isolated, lonely President. Mubarak is 82 and even hinted he would stand for president again – to the outrage of millions of Egyptians.

The barren, horrible truth, however, is that save for its brutal police force and its ominously docile army – which, by the way, does not look favourably upon Mubarak's son Gamal – the government is powerless. This is revolution by Twitter and revolution by Facebook, and technology long ago took away the dismal rules of censorship.

Mubarak's men seem to have lost all sense of initiative.


"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."

Murray N. Rothbard

At the Comex silver depositories Thursday, final figures were: Registered 44.24 Moz, Eligible 60.60 Moz, Total 104.84 Moz.


Crooks and Scoundrels Corner.

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

Today the totally doubled over. Would you buy a used car from this man?

"I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system."

Dr. Bernanke. February 29th, 2008

Only one US bank was safe from collapse during financial crisis, says Fed's Ben Bernanke

Only one of America's major financial institutions was not at risk of collapse during the financial crisis that swept Wall Street in 2008, according to previously private remarks the chairman of the Federal Reserve made to a panel investigating the crisis.

By Richard Blackden 10:12PM GMT 27 Jan 2011

The Financial Crisis Inquiry Commission released comments Ben Bernanke made in a private interview alongside its final report on Thursday.

"If you look at the firms that came under pressure in that period... only one... was not at serious risk of failure," Mr Bernanke told the commission. "Even Goldman Sachs, we thought there was a real chance that they would go under." The material disclosed by the commission did not identity which institution the Fed chairman believed could have withstood the turmoil.

The commission was established by Congress in May 2009 to provide an authoritative explanation of what caused the country's worst financial crisis since the Great Depression. However, the commission has been marred by political infighting among its members, and only the six Democratic members endorsed the final report.

The report concluded that the crisis was avoidable and laid much of the blame at the feet of regulators, including the Federal Reserve.

"We do not accept the view that regulators lacked the power to protect the financial system," the report argues. "They had ample power in many arenas and they chose not to use it."

Alan Greenspan, Mr Benanke's predecessor, came in for particular criticism for championing less regulation. "The government permitted financial firms to pick their preferred regulators in what became a race to be the weakest supervisor," the report said.

Meanwhile, Moody’s said its timeframe for possibly placing a negative outlook on the Aaa rating of US Treasury bonds is shortening as the country’s deficit widens

"Thank God For Bank Bailouts"

Proper Charlie Munger.

Another Friday and from a western point of view, another bleak weekend. The middle eastern pressure cooker looks set to blow up at any moment, toppling the west’s placemen with no alternatives to hand. From Japan, to America, to Europe, our insolvent banks seem to be headed towards a repeat of 2008. In America, out of control deficits and an out of control QE program, seem likely to crash the fiat dollar reserve currency system as we know it. There is nothing on the horizon to replace it. Food and fuel inflation is loose in the global economy, and we are one crop failure away from price famine joining the twin horsemen of social destruction. We seem to have arrived at one of history’s pivotal decades. It is 410 AD, the Roman Legions and civilization have left. The Roman fleet no longer patrols the North Sea and the Channel. Angles, Saxons and Jutes are pouring in to replace them. Horsa and Hengist are about to appear. Have a great weekend everyone.

The monthly Coppock Indicators finished December:

DJIA: +171 Down 7. NASDAQ: +238 Down 9. SP500: +165 Down 2.

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. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

Thursday, 27 January 2011

A Day To Remember.

Baltic Dry Index. 1234 -58

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

Sixty to seventy years ago Europe was convulsed with war. In the midst of all the horrors of war, the Nazis added the deliberate extermination of Europe’s Jews and some other groups. By the time the WW2 ended, some 6 million Jews had been murdered, along with another 5 million others, mostly Romany, communists, Polish intellectuals and religious, and homosexuals and the mentally ill. Today, the world remembers them all, and vows never again. But in our new world of state torture, death by remote drone, and suicide bombings, “never again” has never been under more threat. Up first, Google teams with the Yad Vashem museum to make the Jewish archive of the murders more accessible and make it easier for families to locate each other. Sadly there is no such archive for the others. Today we try to do our bit for never again.

Holocaust Memorial Day: Google launches Holocaust archive to help keep memories of tragedy alive

Google has partnered with Israel’s Yad Vashem museum, to help digitise the largest collection of Holocaust photos and documents in the world, to mark International Holocaust Remembrance Day.

By Emma Barnett, Digital Media Editor 6:30AM GMT 27 Jan 2011

The search giant is working with the Jerusalem-based archive to properly index and store in Google’s cloud 130,000 photographs, some of which are currently available on Yad Vashem’s website, but until now have been difficult to locate and discover online.

Google is also applying the same indexing and optical character recognition (OCR) technology to lots of documents, ranging from visas to survivor testimonials, in order to help people locate more easily online.

The project, which is not a financial agreement, was announced yesterday, on the eve of Holocaust Remembrance Day, which is a global day of remembrance for the six million Jewish Holocaust victims.

-----The Israel-based museum, which was founded in the 1950s, is prioritising the digitisation of its archive, in order to help continue educate the global community about one of the worst atrocities in modern times as well make it easier for families to locate their lost history and possibly discover long-lost relatives through common history.


In business news, the US budget deficit goes from bad to worse. Seen from outside, it’s almost like watching a slow motion national suicide. Without a major change of direction ahead, trillion dollar deficits lead to the collapse of the US currency, and with it the collapse of the global fiat currency system in place since President Nixon’s great blunder on August 15, 1971. Below, the latest developments in our world of unstable fiats.

America is a land of taxation that was founded to avoid taxation.

Dr. Laurence J. Peter

Budget Deficit Will Grow to $1.5 Trillion, CBO Says

By Brian Faler - Jan 26, 2011 11:13 PM GMT

The U.S. budget deficit will widen this year to $1.5 trillion, the Congressional Budget Office said in a report likely to further fuel the debate in Washington over how to put the government’s books in order.

The projected shortfall, up from last year’s $1.3 trillion, is set to increase, in part, because of the $858 billion tax-cut measure passed last month by Congress, the nonpartisan agency said.

The CBO said the Social Security program will run deficits beginning this year, five years sooner than expected, and the highway trust fund that finances road construction projects will become insolvent sometime next year.

The economy will grow this year by 3 percent, the agency said, while the unemployment rate will fall to 9.2 percent from the current 9.4 percent. The jobless rate will remain above 8 percent through the 2012 presidential election, according to the semi-annual report.

“The United States faces daunting economic and budgetary challenges,” the report said. “The sharply lower revenues and elevated spending deriving from the financial turmoil and severe drop in economic activity -- combined with the costs of various policies implemented in response to those conditions and an imbalance between revenues and spending that predated the recession -- have caused budget deficits to surge.”

Exchange Rates and Reserve Currencies

China Plans Path to Economic Hegemony

By Wieland Wagner 01/26/2011

China would like to make the yuan one of the world's anchor currencies, forcing other countries to maintain reserves of Chinese money and providing significant advantages for Beijing. Yet the country cannot continue to keep the value of its currency artificially low if it hopes to become the world's dominant economic power.

----In written interviews with the Wall Street Journal and the Washington Post, the Chinese leader said that the world's monetary system, with the US dollar as its reserve currency, was a "product of the past."

China's long-term goal is to become a country with an anchor currency. If that happens, other countries will have to maintain reserves of the yuan instead of the current reserve currencies, the dollar and the euro. China could then use its own currency to conduct transactions, gaining more favorable terms as a result, in its global shopping spree, such as in the commodities markets.

Secret Lectures on Reserve Currencies

Years ago, Hu and the Politburo attended secret lectures in which Chinese professors explained the history of the rise and fall of major powers. During these sessions, the Chinese leaders realized that no modern country has ever become a superpower without a reserve currency.

The United States superseded the British Empire after World War II, when the dollar replaced the British pound as the dominant currency in the global financial system. This explains why Beijing has pursued the internationalization of the yuan since the outbreak of the global financial crisis, which the Chinese believe has irrevocably harmed their American rival.

China has a lot on its plate. Today the renminbi -- the official name in China for the "people's money," which is adorned with a portrait of Mao -- cannot even be freely exchanged into another currency. To keep the prices of its exports artificially low, the country also essentially links the exchange rate of its currency to the dollar. Until now, Beijing has used a complicated system of foreign currency controls to effectively shield the renminbi from global capital flows.

In order to have a reserve currency, China would have to give up all of this. It would have to gradually appreciate its currency, perhaps even allowing it to float freely, so that the exchange rate could be based on the real value of the currency and the strength of China's economy. This would make the country's exports substantially more expensive and would drastically curb growth.

Nevertheless, hardly a week goes by in which China does not launch new pilot projects to "internationalize" the yuan in the long term.


JANUARY 27, 2011, 1:50 A.M. ET

Euro, Pound Face Growing Inflation Threat

Investors have fretted of late about inflation problems in emerging nations, but they have given central bankers in Britain and the euro zone a free pass. But due to Europe's growing inflationary pressures and concerns that policy makers could be behind the curve, some analysts fear the U.K. pound and possibly even the euro could soon get punished.

Two forces have revived what some foreign-exchange market experts consider a long-standing prejudice against the abilities of developing-world central bankers relative to their colleagues in the developed world. A jump in food, oil and material prices across the globe, especially in India and Indonesia, has investors worried that runaway inflation will erode the value of some emerging-market currencies.

Such concerns are strengthening currencies in Europe, where investors are overlooking the threat of "stagflation," a debilitating combination of weak economic growth and high inflation that crippled the U.S. and U.K. in the 1970s.

Instead of punishing Europe for unexpected inflation, investors are giving central bankers there the benefit of the doubt and expecting them to raise interest rates to cool off price pressures they consider much less severe than in developing countries. Higher interest rates boost the returns these investors get on bond investments.

The double-standard is the latest chapter in a 15-year-old story in the currency markets, where investors assume inflation won't pose a problem in places like Britain and Germany but could spin out of control in developing economies with a checkered history of dealing with price pressures. The danger is that investors are giving too much credit to European economies that remain fragile after the global financial crisis.


We end with flood hit Australia. The government there is planning a one off levy on incomes to help pay for the flooding disaster, but it’s not certain that they can get it voted through.

The only difference between a taxman and a taxidermist is that the taxidermist leaves the skin.

Mark Twain

Gillard Plans Levy, Says Australian Floods to Cost $5.58 Billion

By Gemma Daley - Jan 27, 2011 3:16 AM GMT

Australian Prime Minister Julia Gillard said the nation’s worst flooding will cost an estimated A$5.6 billion ($5.58 billion) and her government plans a one-off levy to help pay for reconstruction.

Gillard said the tax will raise about A$1.8 billion. A levy of 0.5 percent will be applied on income between A$50,001 and A$100,000 and a 1 percent rate applied on taxable income above A$100,000, Gillard said in speech notes e-mailed to Bloomberg.

-----Almost two months of torrential rains in the northeastern state of Queensland have killed as many as 32 people, affected about 30,000 properties, shut coal mines, cut rail lines and damaged crops. Economists estimate it may cost A$20 billion in repairs and rebuilding after the flooding that has also hit Victoria and New South Wales states.

Gillard said the government will save A$2.8 billion by cutting climate control measures and limiting rent assistance and A$1 billion through delaying infrastructure projects. It will speed up processing for skilled labor migrants to help with the rebuilding, she said.

Surplus Forecast

The government in November forecast an A$3.1 billion surplus in the year ending June 30, 2013. Treasurer Wayne Swan will make a speech in Brisbane tomorrow about the broader revenue impact of the disaster.

“The levy has just wiped out the government’s 2010 and 2011 tax cuts,” said Helen Kevans, senior economist at JPMorgan Chase & Co in Sydney. “This will slow consumer spending while people are facing rising living costs, so there will be a bigger impact on the economy than the government has factored in.”

Any flood levy will require new laws in Parliament where Gillard’s minority Labor government needs support from four non- party lawmakers. The Liberal-National opposition coalition will oppose the move.

There is no such thing as a good tax.

Winston Churchill

At the Comex silver depositories Wednesday, final figures were: Registered 44.24 Moz, Eligible 60.60 Moz, Total 104.84 Moz.


Crooks and Scoundrels Corner.

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

Today a couple of Davos rogues warn of a UK double dip. The man who broke the Bank of England and John Major’s incompetent 1990s government, suggests that H. M.’s weak coalition G. ought to ease up a little on the austerity. Who am I to disagree, since the whole idea is purely political to get the pain over long before the next election is due.

When there is an income tax, the just man will pay more and the unjust less on the same amount of income.


Davos WEF 2011: George Soros says UK risks slipping back into recession

George Osborne’s austerity Budget will push the UK back into recession unless the Government eases up on spending cuts, billionaire investor George Soros has warned.

By Philip Aldrick, Economics Editor in Davos 4:13PM GMT 26 Jan 2011

The hedge fund manager, most famous in the UK for “breaking the Bank of England” by betting against the then-Tory government remaining in Europe’s Exchange Rate Mechanism in 1992, said Britain’s austerity measures risked killing off economic growth.

“I don’t think they can be implemented without pushing the economy into a recession,” he said at the World Economic Forum in Davos. “My expectation is that it will prove to be unsustainable.”

Mr Soros’s warning comes just one day after shock data from the Office for National Statistics showed the economy contracted by 0.5pc in the final three months of last year, raising fears of a double dip recession.

Concerns about UK growth were also voiced by Nouriel Roubini, professor of economics at New York University also know as Dr Doom. In an earlier session, he said: “Tail risks of outright double dip and outright deflation are lower than last year even if the data in the UK and peripheral eurozone economies seem to suggest that there are risks.”

Mr Soros’s comments are the first really serious challenge George Osborne has had to his economic policy. The International Monetary Fund and credit ratings agencies have thrown their weight behind the austerity budget as the UK attempts to grapple with its vast public debts.

However, there have been rising concerns that the Government does not have a growth strategy. The delayed White Paper on growth, which was due last year, has fuelled those fears.


It would be a hard government that should tax its people one-tenth part of their income.

Benjamin Franklin

The monthly Coppock Indicators finished December:

DJIA: +171 Down 7. NASDAQ: +238 Down 9. SP500: +165 Down 2.

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. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

Wednesday, 26 January 2011

Fed Day.

Baltic Dry Index. 1292 -53

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

"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

Later today, the wisdom of Bernoccio’s gang at the Fed. Will they dare raise interest rates in the face of rising inflation? No way. According to them there’s no inflation in the USA. Will they abandon QE2 in the face of a recovering US economy? No way. They know that most of the recovery statistics are being rigged by the NY Fed. We open today with the understatement of the post war era. The Fed’s serial bubble, fraud based “financial crisis” was entirely avoidable according to the inquiry set up to investigate it. What part of banksterism and massive derivatives gambling couldn’t they see in advance?

Financial Crisis Was Avoidable, Inquiry Finds

By SEWELL CHAN Published: January 25, 2011

WASHINGTON — The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a federal inquiry.

The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.

“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions, which were read by The New York Times. “If we accept this notion, it will happen again.”

While the panel, the Financial Crisis Inquiry Commission, accuses several financial institutions of greed, ineptitude or both, some of its gravest conclusions concern government failings, with embarrassing implications for both parties. But the panel was itself divided along partisan lines, which could blunt the impact of its findings.

Many of the conclusions have been widely described, but the synthesis of interviews, documents and testimony, along with its government imprimatur, give the report — to be released on Thursday as a 576-page book — a conclusive sweep and authority.


Staying with the Fed, the Fed is forced to deny that there’s any inflation in the system, because it’s run out of tools to fight it. Below Seeking Alpha covers the Fed’s dilemma. Stay long gold and silver. The whole article is a must read article.

The Fed Won't Be Able to Combat Inflation by Raising Fed Funds Rate

January 23, 2011

There are any number of ways to say it, but it all comes down to the same thing. The Federal Reserve has reached the rock and a hard place position when it comes to the Federal Reserve Rate.

----Chairman Bernanke has said that the Fed will raise rates to trim any inflation that exceeds their target rate of 2%. According to the Federal Government, inflation has not been a factor, just look at the rise in COLA for the senior citizens on Social Security.

My contention is that the Federal Reserve will not be able to deal with inflation through raising the Federal Funds rate. As it sits now, the 0.25 rate can only be lowered to 0.1 or taken to zero. Moving it in the other direction would increase the already substantial weight of interest on the national economy.

President Obama’s Budget anticipated a revenue stream of 2.5 trillion dollars in 2011. Anticipated to 14.8 trillion and at 3%, would cost the US 444 billion dollars in interest, a 31 billion increase. 444 billion dollars is 17.8% of the anticipated revenue stream, just to service the interest costs on the debt.

----According to the Government, there is no inflation, or very mild inflation, because the Government is calculating the inflation rate to minimize what every shopper who goes to the store to buy their own groceries already knows. Inflation is running over 4% (according to John Williams over at which if the Federal Reserve was to raise the rate to combat this (by about 2%); the effect on the budget would be staggering. A 5% effective rate on the debt would cost the US 740 billion dollars or 29.6% of anticipated revenues. At that point, 30 cents of every dollar taken in by the Government would be devoured by the interest on the national debt.


Next, more bad news for the Fed and the bankrupt US banking system. US home prices are still falling no matter what desperate measures the Fed makes to stabilize it. Right now the whole market is propped up by the GSEs, who in turn sell on their paper to the Fed. It doesn’t take genius to see where this leads. The next crisis destroys the whole rotten corrupt system. Stay long physical precious metals. We are headed to eventual revulsion of fiat currency.

Price Drop Points to Likely Double Dip in Housing Market

Published: Tuesday, 25 Jan 2011 | 10:55 AM ET

U.S. single-family home prices fell for a fifth straight month in November and could plumb new lows soon, a closely watched survey showed on Tuesday.

The Standard & Poor's/Case-Shiller composite index of 20 metropolitan areas declined 0.5 percent in November from October on a seasonally adjusted basis, though it was not as sharp as the 0.8 percent fall expected by economists.

Prices have fallen 1.6 percent in the past year, sharper than the 1.4 percent predicted by economists polled by Reuters.

"Everything in this report is unfortunately still sagging and still pointing downward," David Blitzer, S&P 500 Index Committee chairman, said in a CNBC interview just after the report was released. "The recent news across the board on housing except for existing home sales has been very, very disappointing. We still seem to be at best scraping along the bottom."

Sixteen of the 20 cities showed annual price declines in November, while 19 of 20 cities showed monthly price drops.


We end for the day with poor, hapless Great Britain. According to the Bank of England’s King, Britain’s serfs must “pay the inevitable price” for the failure of the corrupt bankster system. With Britain’s GDP going in reverse again, blamed on the bad winter weather in December, Britain’s serfs, of which sadly I am one, are facing the worst decline in living standards since the 1920s. Since no party ran on truth in the last election, none has a mandate to collapse further UK living standards. Once the better weather arrives for strikes, a period of social discontent seems likely, further weakening the Pound, which in turn will add to UK inflation and drop living standards. Oh what a tangled web we weave….

"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."

F.A. von Hayek

Bank of England chief Mervyn King: standard of living to plunge at fastest rate since 1920s

Households face the most dramatic squeeze in living standards since the 1920s, the Governor of the Bank of England warned, as he reacted to the shock disclosure that the economy was shrinking again
By Robert Winnett, Deputy Political Editor 9:41PM GMT 25 Jan 2011

Families will see their disposable income eaten up as they “pay the inevitable price” for the financial crisis, Mervyn King warned.

With wages failing to keep pace with rising inflation, workers’ take- home pay will end the year worth the same as in 2005 — the most prolonged fall in living standards for more than 80 years, he claimed.

Mr King issued the warning in a speech in Newcastle upon Tyne after official figures showed that gross domestic product fell by 0.5 per cent during the final three months last year. The Government blamed the unexpected reduction — the first since the third quarter of 2009 — on the freezing weather that paralysed much of the country last month.

But there were fears that the country was poised to slip back into recession, defined as two successive quarters of negative growth. Economists said the situation was “an absolute disaster”.


"The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians."

Henry Hazlitt

At the Comex silver depositories Tuesday, final figures were: Registered 44.44 Moz, Eligible 60.67 Moz, Total 105.11 Moz.


Crooks and Scoundrels Corner.

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

Today, more on the rip-off Wall Street of the 90s and 00s. What wasn’t nailed down was fair game for the bankster’s avarice. When a Wall Street bankster calls, hang up. Still no banksters have gone to jail, in the nation that almost crashed the entire global financial system. Is anyone looking in today’s Babylon.

"FINANCE, n. The art or science of managing revenues and resources for the best advantage of the manager.”

Ambrose Bierce.

E-mails Suggest Bear Stearns Cheated Clients Out of Billions

Jan 25 2011, 1:01 AM ET

Lawsuit alleges the bank took extreme measures to defraud investors, and now JPMorgan may be on the hook

Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit's supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a "sack of shit."

News of internal whistleblowers coming forward from Bear's mortgage servicing division, EMC, was first reported by The Atlantic in May of last year. Ex-EMC analysts admitted they were sometimes told to falsify loan-level performance data provided to the ratings agencies who blessed Bear's billion-dollar deals. But according to depositions and documents in the Ambac lawsuit, Bear's misdeeds went even deeper. They say senior traders under Tom Marano, who was a Senior Managing Director and Global Head of Mortgages for Bear and is now CEO of Ally's mortgage operations, were pocketing cash that should have gone to securities holders after Bear had already sold them bonds and moved the loans off its books.

Mike Nierenberg, who ran the adjustable-rate mortgage trading desk at Bear and is now the head of mortgages and securitization for Bank of America, was a key player ensuring the defaulting loans Bear was buying would move off their books right after they bought them, with little concern for the firm's due diligence standards. He was joined in this scheme by Jeff Verschleiser, his peer and Senior Managing Director on the mortgage and asset-backed securities trading desk and head of whole loan trading. He is now an executive in Goldman Sachs' mortgage division.

According to the lawsuit, the Bear traders would sell toxic mortgage securities to investors and then sell back the bad loans with early payment defaults to the banks that originated them at a discount. The traders would pocket the refund, and would not pass it on to the mortgage trust, which was where it should have gone to be distributed to the investors who owned the bonds. The Marano-led traders also cut the time allowed for early payment defaults, without telling the bond investors. That way, Bear could quickly securitize defective loans, without leaving enough time for investors to do their own due diligence after the bonds were sold and put-back any bad loans to Bear.


"Gold bears the confidence of the world's millions, who value it far above the promises of politicians, far above the unbacked paper issued by governments as money substitutes. It has been that way through all recorded history. There is no reason to believe it will lose the confidence of people in the future."

Oakley R. Bramble

The monthly Coppock Indicators finished December:

DJIA: +171 Down 7. NASDAQ: +238 Down 9. SP500: +165 Down 2.

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. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

Tuesday, 25 January 2011

Danger Signals.

Baltic Dry Index. 1345 -25

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

"The most puzzling development in politics during the last decade is the apparent determination of Western European leaders to re-create the Soviet Union in Western Europe."

Mikhail Gorbachev

Today is a triple witching day, and we are spoiled for choice. Later today, the unelected, unaccountable, grey men of the crony bankster Fed, gather in coven to start their two day séance on the fate of the US economy, and dollar. This evening, a wobbly President Obama addresses the US nation with his take on the health of the USA. A nation seen from the outside, as all but at war with itself and split between the super rich, great vampire squids, and bailed out banksters, and a declining middle class and growing under class. A nation still trapped in two unending, unendable, wealth draining wars. On a happier note, thousands of Scottish Burns Societies worldwide, are preparing to pipe in the haggis and settle down to eat the inedible, recite the unpronounceable Old Scots verses, washed down with multiple glasses of malt whisky. We suggest that the grey men of the Fed join their nearest Burns Society and give up on trying to rig the US and world economy. If the Fed it hasn’t got it right in 98 years of trying, it’s unlikely to work in the next two days.

We open today with something of real concern. We are one crop failure away from famine in much of the world. Droughts in China and Argentina, and too much rain in Australia and elsewhere, plus the USA still converting corn into ethanol, have the world on a knife edge until this year’s northern hemisphere grain harvest come in. Below, the BBC covers the drought in China. A vast global food price inflation lies ahead through at least the middle of the year.

Crop warning over China drought

24 January 2011 Last updated at 11:56

A prolonged dry spell in parts of northern, central and eastern China is threatening both crops and water supplies, Chinese state media says.

Shandong province is experiencing its driest weather for 60 years.

Half the wheat-growing land there is affected, while almost a quarter of a million people face drinking water shortages, the China Daily said.

Beijing has also been experiencing its longest dry spell for more than 30 years, another state daily said.

The Chinese capital has had no significant rainfall for three months, the Beijing Times reported.

Analysts say this drought is likely to put further pressure on food prices, which have been rising sharply for months.

'Big losses'

Earlier this month, the authorities pledged $15bn (£9.4bn; 98.6bn yuan) in support to help farmers cope with the effect of the drought.

Guo Tiancai, a wheat expert at the agriculture ministry, said that although measures to date were providing adequate irrigation for the winter wheat crop, further drought would be damaging.

"As the temperature warms up in spring and wheat grows faster, any measures which are not in place during the period could cause big losses to the final yield... immeasurable losses," he wrote in a notice on the ministry's website.

In Shandong, many areas had seen no rain for four months, the provincial water bureau said. Fire trucks were being used to deliver water to 240,000 people and 107,000 livestock.

The northern provinces of Shanxi and Hebei have also experienced lower than average rainfall, while the central province of Henan is facing drought.

Visiting Henan at the weekend, Premier Wen Jiabao called for more investment in technologies aimed at reducing the impact of drought, China Daily said.

Forecasters say the dry weather could continue well into the spring.

Stay long precious metals. Nothing creates global instability as much as famine. The world has never experienced a global famine, but thanks to our 21st century integrated economy, that is a distinct possibility this year and next, if the northern hemisphere grain crop is much less than average. The idea of a possible famine is not even on the agenda at the World Economic Forum about to meet in Davos. Not on the agendas of the world’s central banks. While no one can predict how the weather will affect the northern hemisphere crops, and thankfully they are produced across a vast geographical area, anything less than an average harvest will result in price inflation shutting out the bottom third of humanity from adequate access to staple foods.

Staying with China for now, China is planning to create the world’s largest city. My instinct tells me that mega cities are unlikely to be a good idea. While there will obviously be many gains from the economies of scale, at some point mega urbanization will generate many unintended consequences.

China to create largest mega city in the world with 42 million people

China is planning to create the world's biggest mega city by merging nine cities to create a metropolis twice the size of Wales with a population of 42 million.

By Malcolm Moore in Shanghai and Peter Foster in Beijing 12:21PM GMT 24 Jan 2011

City planners in south China have laid out an ambitious plan to merge together the nine cities that lie around the Pearl River Delta.

The "Turn The Pearl River Delta Into One" scheme will create a 16,000 sq mile urban area that is 26 times larger geographically than Greater London, or twice the size of Wales.

The new mega-city will cover a large part of China's manufacturing heartland, stretching from Guangzhou to Shenzhen and including Foshan, Dongguan, Zhongshan, Zhuhai, Jiangmen, Huizhou and Zhaoqing. Together, they account for nearly a tenth of the Chinese economy.

Over the next six years, around 150 major infrastructure projects will mesh the transport, energy, water and telecommunications networks of the nine cities together, at a cost of some 2 trillion yuan (£190 billion). An express rail line will also connect the hub with nearby Hong Kong.

"The idea is that when the cities are integrated, the residents can travel around freely and use the health care and other facilities in the different areas," said Ma Xiangming, the chief planner at the

Guangdong Rural and Urban Planning Institute and a senior consultant on the project.

---- "It will help spread industry and jobs more evenly across the region and public services will also be distributed more fairly," he added.

Mr Ma said that residents would be able to use universal rail cards and buy annual tickets to allow them to commute around the mega-city.

Twenty-nine rail lines, totalling 3,100 miles, will be added, cutting rail journeys around the urban area to a maximum of one hour between different city centres. According to planners, phone bills could also fall by 85 per cent and hospitals and schools will be improved.


Next, the dismal scientists at the IMF peer into their cloudy crystal ball. All will be well, they think. We shall see. They never saw the recession coming. They never saw all Wall Street’s “triple-A” fraud. They never saw AIG’s CDS follies. They never saw the Fed’s US real bubble and bust. But then they never saw a Russian default nor the Asian crisis either, and made both worse by the policies they imposed. With a track record like that, little wonder that more and more hedge funds have started betting against China.

Jan. 25, 2011, 3:00 a.m. EST

U.S. to grow 3% while China, India surge: IMF

WASHINGTON (MarketWatch) — The two-speed economic recovery will continue this year as the United States grows at a 3% clip, while emerging economies like China and India continue to surge, the International Monetary Fund said Tuesday in its latest forecast.

The IMF’s world economic outlook calls for global growth of 4.25% this year, up a quarter-point from the group’s October estimate, which the IMF mostly credited to a tax deal reached by President Barack Obama and congressional Republicans, as well as stimulus measures in Japan.

The U.S. forecast of 3% growth this year is up 0.7% from the IMF’s previous estimate, but the estimate of 2.7% growth in 2012 is 0.3% lower.

The IMF’s view is more conservative than other projections. The Federal Reserve, for instance, sees the U.S. economy growing in a range of 3% to 3.6% this year, accelerating to 3.6% to 4.5% in 2012.


While we wait for the outcome of the Fed’s deliberations, and wait for the President’s speech, Bloomberg covers the boom time in Davos. For banksters in Davos austerity’s over. Conspicuous consumption is back.

Banks are an almost irresistible attraction for that element of our society which seeks unearned money.

J. Edgar Hoover

Wall Street Partying in Davos as Bank CEOs Overcome `Angst' After Crisis

By Christine Harper - Jan 24, 2011 11:00 PM GMT

As Wall Street chief executive officers flock to the World Economic Forum, they’ll be breathing a sigh of relief along with the Swiss mountain air: There are no panels on compensation or redesigning financial regulation.

After spending much of last year’s meeting defending the industry and debating proposed rules, bankers plan to focus on wooing clients and winning business, according to executives at three Wall Street companies, who spoke anonymously because they weren’t authorized to comment publicly.

The bankers will be coming to Davos, Switzerland, with a renewed sense of confidence. JPMorgan Chase & Co.’s profits last year were the highest in the bank’s history, and Citigroup Inc. returned money to the U.S. Treasury and reported its first full- year profit since 2007. Governments have so far opted against breaking up or levying extra taxes on banks deemed too big to fail, and the Basel Committee on Banking Supervision, which sets global financial-regulatory guidelines, isn’t requiring lenders to meet new capital standards until 2015.

“It will feel less acute,” said Anne M. Finucane, Bank of America Corp.’s chief strategy and marketing officer, who attended with CEO Brian T. Moynihan for the first time last year and is returning this week. “The level of angst should have dissipated some given that there is movement in the economy.”

Goldman, Morgan Stanley

Two years ago, after the 2008 financial crisis, the CEOs of Bank of America, Citigroup and Morgan Stanley stayed away from the annual forum. This year the only major Wall Street banks that aren’t sending CEOs are Goldman Sachs Group Inc. and Morgan Stanley, instead represented by President Gary D. Cohn, 50, and Chairman John J. Mack, 66, respectively.

That means banks will be spending on parties. JPMorgan upgraded its cocktail reception to the Kirchner Museum from last year’s event at the Tonic Piano Bar at Hotel Europe Davos. Bank of America’s Moynihan and the firm’s other top executives will meet clients for drinks on Jan. 27 at the Steigenberger Grandhotel Belvedere -- the same night Morgan Stanley’s Mack is hosting a private dinner at restaurant Gasthaus in den Islen. Standard Chartered Plc and Deutsche Bank AG are both hosting events at the Belvedere the following night.


“A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."

John Maynard Keynes 1931

At the Comex silver depositories Monday, final figures were: Registered 44.44 Moz, Eligible 60.67 Moz, Total 105.11 Moz.

Crooks and Scoundrels Corner.

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

Well we might as well stick with China, and Macau is now very much part of China. Below, Bloomberg on the end of an era. A fool and his money are soon parted, it’s said, and nothing parts people from their money like casinos. Casinos stand second only to governments in parting fools from their money. Just as the hapless Irish and Greeks.

Stanley Ho Accuses Family Members of Seizing Stake in Macau Gaming Empire

By William Mellor and Debra Mao - Jan 25, 2011 6:34 AM GMT

Macau billionaire Stanley Ho accused family members of seizing his stake in Asia’s biggest casino empire, plunging ownership of the gambling business he built over five decades into dispute.

Ho, 89, may take action to keep control of Sociedade de Turismo e Diversoes de Macau, said his lawyer Gordon Oldham, the senior partner of Oldham, Li & Nie. The transfer of most of Ho’s casino holdings went against his wishes to divide his assets equally among his family, Oldham said.

“What really upsets him is that he’s not even dead yet, but in the twilight of his life his second and third families appear to be squabbling and pinching it for themselves,” Oldham said by phone today. “There’s no doubt that he has all his faculties.”

Brunswick Group, the public-relations company representing some of the family members, said today that Ho provided written authorization of the transfer of a 31.7 percent stake in STDM. The billionaire, who built his gambling empire after fleeing to Macau from Hong Kong ahead of the Japanese army in World War II, had started shifting assets after being released from a seven- month hospital stay last year.

‘Slight Concern’

SJM Holdings Ltd., the publicly traded arm of Asia’s biggest casino operator, halted its shares in Hong Kong trading today pending the release of a “price-sensitive statement.” SJM, which has the biggest gambling share in the former Portuguese colony, dropped the most in a month in Hong Kong trading yesterday on concern the ownership transfer may affect decision making.

SJM, operator of 20 casinos in the city whose gambling revenue is more than double that of all of Nevada's, said yesterday that Ho agreed to transfer his stake in parent STDM to two companies owned by family members.

“There’s a slight concern over the legal action,” Andrew Sullivan, director of institutional sales at OSK Securities Hong Kong Ltd., said by phone today. “There will be that split between family members. Yet whatever the outcome of the re- distribution, I very much doubt you’ll see the company severely damaged. Day-to-day running of the company will continue.”

The stake in STDM represented about 80 percent of the value of Ho’s assets, said Oldham. Ho may take legal action if the dispute isn’t settled within 48 hours, Oldham said.


"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

John Maynard Keynes

The monthly Coppock Indicators finished December:

DJIA: +171 Down 7. NASDAQ: +238 Down 9. SP500: +165 Down 2.

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. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

Monday, 24 January 2011

Super Rich, Super Cycle - Davos.

Baltic Dry Index. 1370 -23

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

“If you misprice risk, don't come looking to us for liquidity assistance. The longer this goes on and the more risky positions are built up over time, the more luck you need.”

Axel Weber. Davos 2007.

You’ve never had it so good, is the word to the serfs from the Lords of the Universe assembling in Davos this week. The long term growth cycle has never looked better, according to the great and greater and greatest. In fact, things look so good, all the way out to 2030, no one need ever work again. Sit back and let stocks, bonds and bankster bonuses take the strain. What could possibly go wrong? Below, Bloomberg covers the view from toney Davos. Pass round the Rolexes and another glass of Pol Roger PDQ. “God’s work” is about to deliver for all.

"Why a four-year-old child could understand this report. Run out and find me a four-year-old child. I can't make head nor tail out of it."

Groucho Marx.

Super-Cycle Leaves No Economy Behind Before Davos Summit

By Simon Kennedy - Jan 23, 2011 11:01 PM GMT

For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity prices higher.

The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the World Economic Forum in Davos, Switzerland. Evidence of a broadening global recovery will enable U.S. Treasury Secretary Timothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting.

With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.

Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and London’s Standard Chartered Bank are among the financial companies sending executives to the meeting. Their economists predict a growth spurt in coming decades led by emerging nations that will be strong enough to boost developed countries.

Global gross domestic product will swell to $143 trillion by 2030, allowing for inflation and market-exchange rates, from $62 trillion in 2010, with China and other emerging markets accounting for about two thirds of the rise, estimates Gerard Lyons, chief economist and group head of global research in London for Standard Chartered, which generates most of its earnings from Asia.


I’d like to be a believer in the Gospel of Davos, and if you’re a too big to fail bankster, gambling on “heads I win, tails you lose” guarantees written on the taxpayers, it probably seems that way, but down in the trenches with the rest of the Euro-serfs, things look far from rosy and universal victory. Down here in the trenches the picture looks more like Custer’s last stand. Unless ECB, BOE, and Federal Reserve QE reinforcements arrive soon, the non bankster part of the global economy is more likely to relapse. We are still heading towards Ireland’s manifest destiny.

“I think we agree, the past is over.”

President George W. Bush.

But supposing, the Davos Gospel is right. Supposing the great super cycle is rescued by the great global quantitative easing, what then? With all countries firing on all cylinders, and suddenly expanding again, awash with mountains of new cash and new credit, and facing limited access to foodstuffs and fuel, a great monstrous inflation lies directly ahead. Stay long precious metals. While I think stagflation is more likely our fate, with a very real chance that the Chinese bubble bursts later this year, a scramble to swap dodgy fiat currency for tangible assets of enduring value, is also a real possibility later this year.

Below, Irish politicians race to sell out Ireland for banksters across Europe in an effort to prop up the Euro. Jonathan Swift must be spinning in his grave.

"War is Peace" "Freedom is Slavery" "Ignorance is Strength."

George Orwell. 1984.

Ireland Races to Pass Budget as Coalition Collapses

By Finbarr Flynn - Jan 24, 2011 7:57 AM GMT

Irish political leaders said they’ll press to pass a budget before elections as the collapse of Prime Minister Brian Cowen’s coalition threw the government into disarray.

Finance Minister Brian Lenihan will meet at 4 p.m. today with lawmakers from the Green Party, which withdrew from the coalition yesterday, and opposition parties in Dublin to discuss a timetable for passing the Finance Bill. The plan would enact 6 billion euros ($8.2 billion) of tax increases and spending cuts.

Passing the budget is a condition of Ireland’s 85 billion- euro aid package from the International Monetary Fund and the European Union. The Greens said yesterday an election may take place late next month. Cowen said the finance bill has to pass before national elections are held as scheduled on March 11.

“It looks like the finance bill will pass,” said Kevin Rafter, a professor at Dublin City University who has published books about Irish politics, including a history of Fine Gael, the biggest opposition party. “All the parties want it off the table before the election.”

----“More uncertainty is about to enter the stage with negative consequences for European sovereign debt and the euro,” Mark Grant, managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said yesterday. “If the finance bill does not pass or is postponed until after the elections, then there will be a significant amount of stress placed upon both sovereign and bank debt in Europe.”

Next, the latest news out of coalition Britain. There’s little sign of the Gospel of Davos outside of banksters bonuses.

Double-dip talk returns as UK economic growth slows

The number of British companies in financial distress has risen for the first time since the beginning of 2009, in a statistic that will drive fears that Britain could be entering a double-dip recession

By James Hurley 6:00AM GMT 24 Jan 2011

Almost 148,000 companies are in difficulties before the the full impact of spending cuts and tax rises has even been felt, according to a report from Begbies Traynor, the insolvency specialist.

Begbies, which monitors the warning signs of company distress, found the first year-on-year increase in companies experiencing 'significant' or 'critical' financial problems since the beginning of 2009.

The report comes ahead of official data out tomorrow which is expected to confirm that the UK's gross domestic product (GDP) grew by as little as 0.2pc in the final three months of last year, down from 0.7pc and 1.1pc in the previous quarters. The release of the data will mark the first anniversary of Britain being officially diagnosed as out of recession.

The 147,836 firms that experienced significant or critical financial problems in the last three months of 2010 represent a 4pc increase on the same period in 2009 – and a 20pc increase on the third quarter of last year.

We close for the day with the picture from Australia. The great rebuilding is about to get underway. Will an exodus of Irish and British unemployed construction workers now also get underway?

Brisbane Roads Circling Globe Twice Needed in Flood Disaster

By Gemma Daley and Lisa Pham - Jan 24, 2011 6:43 AM GMT

To build an average house, you need 6,200 bricks, 2,950 roof tiles, 785 floor tiles and 15 cans of paint -- multiply that 28,000 times and you get a picture of the task to rebuild Brisbane after Australia’s worst flood.

It gets worse: the state of Queensland will need to rebuild 90,000 kilometers (56,000 miles) of roads, enough to circle the globe twice, thousands of kilometers of rail line, almost 100 schools, an unknown number of bridges, several regional airports, power lines, sewers and water treatment -- the list goes on.

Australian companies, including its largest building- materials seller Boral Ltd., the No. 1 furniture and electrical retailer Harvey Norman Holdings Ltd., paint maker DuluxGroup Ltd. and plumbing supplier Reece Australia Ltd., will benefit from the reconstruction estimated to cost A$20 billion ($20 billion). The floods are the most expensive natural disaster in the nation’s history and have claimed at least 20 lives.

“The state’s a disaster zone,” said Greg Hoffman, general manager at the Queensland Local Government Association, which estimates up to 90,000 kilometers of road and “tens of thousands of drains” will need to be replaced or repaired across Queensland. “Roads have been torn away, airport terminals have been uprooted and you can’t believe your eyes when you see the wasteland left behind,” he said in a telephone interview.

Reinforcements Needed

The average cost of building a new home is A$300,000, meaning the bill to replace housing alone in Brisbane, Australia’s third-largest city with a population of 2 million, may be A$8 billion, Australia & New Zealand Banking Group Ltd. says. ANZ based its forecast on the state Premier Anna Bligh’s Jan. 16 comment that 28,000 dwellings need rebuilding. Bligh says 2.1 million people have been affected by Queensland’s flood.


A permanent Governor of the Bank of England would be one of the greatest men in England. He would be a little `monarch` in the City; he would be far greater than the `Lord Mayor.` He would be the personal embodiment of the Bank of England; he would be constantly clothed with an almost indefinite prestige. Everybody in business would bow down before him and try to stand well with him, for he might in a panic be able to save almost anyone he liked, and to ruin almost anyone he liked. A day might come when his favour might mean prosperity, and his distrust might mean ruin. A position with so much real power and so much apparent dignity would be intensely coveted.

Walter Bagehot. Lombard Street. 1873.

At the Comex silver depositories Friday, final figures were: Registered 44.44 Moz, Eligible 59.71 Moz, Total 104.15 Moz.


Crooks and Scoundrels Corner.

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

Today, US taxpayers get hit twice. You really couldn’t make this sort of injustice up. Below that, is rising China the Germany of 1900? Despite the inappropriate headline, the whole article is well worth the read.

"It's strange that men should take up crime when there are so many legal ways to be dishonest. “

Al Capone

Mortgage Giants Leave Legal Bills to the Taxpayers

By GRETCHEN MORGENSON Published: January 24, 2011

Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.

The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating.

Documents reviewed by The New York Times indicate that taxpayers have paid $24.2 million to law firms defending three of Fannie’s former top executives: Franklin D. Raines, its former chief executive; Timothy Howard, its former chief financial officer; and Leanne Spencer, the former controller.

----- Since Fannie Mae and Freddie Mac were taken over by the government in September 2008, their losses stemming from bad loans have mounted, totaling about $150 billion in a recent reckoning. Because the financial regulatory overhaul passed last summer did not address how to resolve Fannie and Freddie, Congress is expected to take up that complex matter this year.

In the coming weeks, the Treasury Department is expected to publish a report outlining the administration’s recommendations regarding the future of the companies.

Well before the credit crisis compelled the government to rescue Fannie and Freddie, accounting irregularities had engulfed both companies. Shareholders of Fannie and Freddie sued to recover stock losses incurred after the improprieties came to light.


Appeasement is the proper policy towards Confucian China

We all learned at school how the status quo powers mismanaged the spectacular rise of Germany before World War I, a strategic revolution so like the rise of China today.

By Ambrose Evans-Pritchard, International Business Editor 6:07PM GMT 23 Jan 2011

-----Is China now where Germany was in 1900? Possibly. There are certainly hints of menace from some quarters in Beijing. Defence minister Liang Guanglie said over New Year that China’s armed forces are “pushing forward preparations for military conflict in every strategic direction”.

Professor Huang Jing from Singapore’s Lee Kwan Yew School and a former adviser to China’s Army, said Beijing is losing its grip on the colonels.

“The young officers are taking control of strategy and it is like young officers in Japan in the 1930s. This is very dangerous. They are on a collision course with a US-dominated system,” he said.

Yet nothing is foreordained. Which is why it was so unsettling to learn that most of the leadership of the US Congress declined to attend the state banquet at the White House for Chinese President Hu Jintao, including the Speaker of House.

Senate Majority Leader Harry Reid called Mr Hu a “dictator”. Is this a remotely apposite term for a self-effacing man of Confucian leanings, whose father was a victim of the Cultural Revolution, who fights a daily struggle against his own hotheads at home, and who will hand over power in an orderly transition next year?

Or for premier Wen Jiabao, who visited students in the Tiananmen Square protests of 1989, narrowly surviving the “insubordination purge” that followed? These leaders may be wrong in their assessment of how much democracy China can handle without flying out of control, but despots they are not.


It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way

A Tale of Two Cities. Charles Dickens.

The monthly Coppock Indicators finished December:

DJIA: +171 Down 7. NASDAQ: +238 Down 9. SP500: +165 Down 2.

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. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.