Friday, 21 January 2011

Fianna Failed.

Baltic Dry Index. 1393 -18

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

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

J. K. Galbraith

We wind up China week with giant French bank SocGen, best known for losing almost 5 billion Euro in January 2008, when junior trader Jerome Kerviel was left unsupervised with the keys to the trading desk and a uncanny ability to make serial losing bets, has issued a warning on China. But first this, Ireland’s government collapsed yesterday, brought down by its inept handling of Ireland’s banking collapse. Scroll down to Crook’s corner for more on how Ireland’s banking crisis is about to go European.

Soc Gen thinks China’s out of control boom, risks turning to bust in the year ahead, as China will be forced later in the year to seriously address what is becoming runaway inflation. Below, the Telegraph covers SocGen joining a rapidly rising mob of traders willing to bet against China.

If all else fails, immortality can always be assured by spectacular error.

J.K. Galbraith.

SocGen crafts strategy for China hard-landing

Société Générale fears China has lost control over its red-hot economy and risks lurching from boom to bust over the next year, with major ramifications for the rest of the world.

By Ambrose Evans-Pritchard 6:07PM GMT 20 Jan 2011

The French bank has told clients to hedge against the danger of a blow-off spike in Chinese growth over coming months that will push commodity prices much higher, followed by a sudden reversal as China slams on the brakes.

In a report entitled The Dragon which played with fire, the bank's global team said China had carried out its own version of "quantitative easing", cranking up credit by 20 trillion (£1.9 trillion) or 50pc of GDP over the past two years. It has waited too long to drain excess stimulus.

"Policy makers are already behind the curve. According to our Taylor Rule analysis, the tightening needed is about 250 basis points," said the report, by Alain Bokobza, Glenn Maguire and Wei Yao.

The Politiburo may be tempted to put off hard decisions until the leadership transition in 2012 is safe. "The skew of risks is very much for an extended period of overheating, and therefore uncontained inflation," it said.

Under the bank's "risk scenario" - a 30pc probability - inflation will hit 10pc by the summer. "This would cause tremendous pain and fuel widespread social discontent," and risks a "pernicious wage-price spiral".

---- "We think growth could slow to 5pc by early 2012, which would be a drama for China. It would be the first hard-landing since 1994 and would destabilise the global economy. It is not our central scenario, but if it happens: commodities won't like it; Asian equities won't like it; and emerging markets won't like it," said Mr Bokobza, head of global asset allocation.

---- Diana Choyleva from Lombard Street Research said the drop in headline inflation from 5.1pc to 4.6pc in December is meaningless because the regime has resorted to price controls on energy, water, food and other essentials. The regulators pick off those goods rising fastest. The index itself is rejigged, without disclosure.

She said inflation is running at 7.6pc on a six-month annualised basis, and the sheer force of money creation will push it higher. "Until China engineers a more substantial tightening, core inflation is set to accelerate. The longer growth stays above trend, the worse the necessary downswing. China's violent cycle could be highly destabilising for the world."

In yet another sign of our world in transition, Russia’s President Medvedev gets top billing at the World Economic Forum at Davos this year. Not expecting an invite, this year I’ve made other plans for the end of the month. I wonder if old Ebenezer Squid will drop by with his peculiar brand of “God’s work”.

In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.

J. K. Galbraith

Medvedev to open Davos forum of world leaders

By JOHN HEILPRIN - Jan 19, 2011 12:13 PM GMT

GENEVA (AP) — Twitter-happy Russian President Dmitry Medvedev is the headliner of this year's World Economic Forum in Davos later this month — and he plans to use the social media to take some questions over the Internet.

"We have over 1 million users on Twitter," Adrian Monck, the forum's managing director, told a news conference Wednesday. "And President Medvedev is an enthusiastic embracer of Twitter."

Medvedev will be joined at the exclusive annual gathering by other Group of 20 national leaders such as Mexican President Felipe Calderon, British Prime Minister David Cameron, German Chancellor Angela Merkel and French President Nicolas Sarkozy, the forum's founder, Klaus Schwab and other directors announced.

Other G-20 leaders slated to attend are South African President Jacob Zuma, Indonesia President Susilo Bambang Yudhoyono and European Union Council President Herman Van Rompuy.

Forum officials said some of the hot topics of the talks at the Swiss ski resort — expected to be attended by more than 2,500 people this year — include rising food and fuel prices, clean water shortages and how to reduce corruption and improve nations' governance.

Ahead of the talks the forum and McKinsey management consultants released a report that will be talked about: It says another $103 trillion of credit will be needed over the next decade to sustain global economic growth.

The theme for the January 26-30 talks is "Shared Norms for the New Reality." Schwab said a focus of the talks would be how to prevent the global financial crisis from spilling over into other facets of life.

Next, will Australia go for Chile’s reconstruction solution, and bring a special royalty tax? If they do, I suspect we are going to see a whole lot more use of reconstruction taxes.

Economics is extremely useful as a form of employment for economists.

J.K. Galbraith.

Miners may face reconstruction tax after Queensland floods

The disastrous floods in Queensland over the last month have resulted A$2.3bn (£1.4bn) of lost coal sales for the mining industry, according to the Queensland Resources Council.

By Garry White 6:27AM GMT 21 Jan 2011

But the situation may result in an even larger loss for miners when reconstruction starts. The disaster may allow Julia Gillard, Australia’s prime minister, to introduce a new tax on mining profits that companies will find hard to defeat. Ms Gillard may well succeed where Kevin Rudd, the previous incumbent, failed.

At full production, the coal industry is worth $8.5m a day to taxpayers in Queensland through royalties paid to the state government. So, not only have the floods caused so much damage that it will cost a massive amount to repair, it has slashed the state’s ability to pay for the reconstruction.

Obviously, it is too early to say whether a new tax will be introduced, but it would not be an unprecedented move.

Following the catastrophic earthquake in Chile last year, miners agreed to a new royalty scheme in the country that links tax payments to margins to cash in on high copper prices. We could see a similar measure introduced in Australia.


We end for the week with Dubai. After the spectacular financial collapse, the “World” is sinking back into the Persian Gulf. Why am I not surprised? So which slick western firms advised Dubai to embark on such folly?

Vanity of vanities, saith the Preacher, vanity of vanities; all is vanity

What profit hath a man of all his labor which he taketh under the sun?

The World is sinking: Dubai islands 'falling into the sea'

The islands were intended as the ultimate luxury possession, even for Dubai.

By Richard Spencer, Dubai 9:30PM GMT 20 Jan 2011

But the World, the ambitiously-constructed archipelago of islands shaped like the countries of the globe, is sinking back into the sea, according to evidence cited before a property tribunal.

Developed with tailor-made hotel complexes and luxury villas, and sold to millionaires, the islands, off the coast of Dubai, are accessible by yacht or motor boat.

But now the islands' sands are eroding and the navigational channels between them are silting up, the British lawyer for a company bringing a case against the state-run developer, Nakheel, has told judges.

"The islands are gradually falling back into the sea," Richard Wilmot-Smith QC, for Penguin Marine, said. The evidence showed "erosion and deterioration of The World islands", he added.

With all but one of the islands still uninhabited – Greenland – and that one a showpiece owned by the ruler of Dubai, most of the development plans have been brought to a crashing halt by the financial crisis.

---- According to the company, 70 per cent of the World's 300 islands have been sold. Nakheel is also behind Dubai's famous Palm-shaped offshore developments. Villas in the only one near completion, Palm Jumeirah, were given to or bought by footballers including David Beckham and Michael Owen.

Though few celebrity buyers were found for The World, it was rumoured – or joked – that Brad Pitt and Angeline Jolie had considered Ethiopia.

Many investors who did buy the islands proved unwilling or unable to finance further work when Dubai's property prices halved in the space of a year.

Some were hit by troubles elsewhere – the owner of the company which bought Ireland for £24 million, John O'Dolan, committed suicide, while the man who bought Britain for £43 million, Safi Qurashi, is serving seven years in jail in Dubai after being accused of bouncing cheques.


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

Richard M. Ebeling

At the Comex silver depositories Thursday, final figures were: Registered 44.84 Moz, Eligible 59.52 Moz, Total 104.36 Moz.


Crooks and Scoundrels Corner.

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

Today, Euroland’s house of cards loses a prop. Yesterday Ireland’s government imploded and called a general election for March, if they can cling on that long. It’s is a dead certainty that the existing ruling parties will be replaced by the opposition, an opposition that will reopen the EU-IMF rescue package and lift the crushing taxpayer austerity burden and put it back on the failed banks bondholders, where it rightly belongs. Ireland it seems, will soon be going Iceland’s way. As goes Ireland so go the other PIGS, I suspect. Stay long precious metals. Euros anyone?

"Will you walk into my parlor?"
Said the EU spider to an Irish fly;
'Tis the prettiest little parlor
That ever you did spy.
The way into my parlor
Is up a winding stair,
And I have many pretty things
To show when you are there."

With apologies.

Irish leader Brian Cowen calls an election for March 11- SEE POLL

Day of chaos finally ends with definite election date

By DARA KELLY Staff Writer

Read more: Chaos in Irish Parliament as six ministers resign

Irish Prime Minster Brian Cowen has called an Irish election for March 11th.

---- His comments ended a day of mounting chaos in the parliament as it became clear that the Green Party were preventing the Fianna Fail party from replacing the ministers who resigned.

----- Earlier today parliament was suspended after rowdy scenes. Opposition leader, Fine Gael’s Enda Kenny demanded that proceeding be suspended until Cowen could explain what was going on within the Government.

Kenny said “This is the worst government in history…This would not have happened even in the days of great dictators. It is unprecedented, what you have done.”

Friday, January 21, 2011

Party discipline goes out the window in Fianna Fáil's very public implosion

MELTDOWN. FRANTIC scenes in Leinster House yesterday. Stunned, utterly stunned, Fianna Fáil Ministers and backbenchers rushed from the Dáil chamber. They spilled across the landing outside, a noisy and chaotic mass of anger and confusion.

Little huddles formed. Anxious deputies rushed from one group to another, whispering urgently. Fear mixed with fury – you could almost touch it. They surrounded Micheál Martin, the man who moved against Brian Cowen on Sunday. Brian Lenihan joined the ferment. Fevered representations began. In their distraction, the Fianna Fáil parliamentary party couldn’t care less who saw them.

Astonished journalists crowded into the no-man’s land between that landing and the press gallery. They watched the unfolding drama from a few feet away. It was electrifying. Nobody went near the stricken politicians. For this was the moment when the party dropped all pretence of unity and cohesion. Discipline went out the window. Fianna Fáil was disintegrating in front of our eyes. Some deputies appeared on the verge of tears. This was a very public implosion.

John McGuinness, long time critic of the Taoiseach, stood to one side, observing the scene. “I’ve read about those famous pivotal events in Leinster House history, occasions of huge drama that go down in history, and here was another. What was happening was sensational. I just wanted to stand back and observe,” he said.

Minutes earlier, they had listened with mounting despair as their Taoiseach sought to justify his crass attempt at a Cabinet reshuffle. They could not believe what they were hearing.

“We will go to the country with a strong front bench,” he bullishly told the Dáil. The Opposition hooted in derision. His own colleagues, even those who once said they would go to hell and back for their Brian, were a picture of misery.

In the middle of it all, the Taoiseach announced the election date. Almost as an aside.


"'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.

Another weekend, and suddenly we have so many economic global problems we are spoiled for choice. If Ireland does a runner like Iceland, half Europe’s banks will go bust again. Too many influential people are now lining up to short China. Too many American states and cities have slammed into the brick wall at the end of the spending road. Food and fuel inflation has taken off globally, but Europe’s Walter Mittys’ are off promoting higher taxes, draconian austerity deals, and higher fuel costs to save the world from man-made global warming. Few seem concerned that global cooling may actually be our arriving fate. By skill and determination, we have managed to get our world one crop failure away from a global food crisis, yet corn is still being turned into subsidized ethanol in America. The unending wars roll on, dissipating the wealth of nations. Time to enjoy another frosty weekend. 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.

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