Thursday, 13 January 2011

Inflation Hits.

Baltic Dry Index. 1453 -27

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

What is obvious is that the European Central Bank, the only EU institution standing between the euro and ruin, can't forever hold the creaking currency bloc together on its own.

WSJ. 13 January 2011.

Portugal got its money yesterday, selling 1.25 billion euro, and at a slightly better rate than was feared, but even at 6.716% Portugal is heading to default. A country expanding at 1%, won’t be able to cover 6.716% for long. But there no agreement on the EU fix. Like Ireland before it, Portugal says it doesn’t need an Irish style bailout. Like Ireland before it, it’s believed to be secretly negotiating exactly that. Unlike Ireland which should have just let the failed banks’ bondholders take the hit rather than the taxpayers, and left the currency union. Portugal doesn’t have that option being intricately tied into Spain’s economy. And so the Euro zone stumbles on to today’s monthly ECB meeting. Nothing fixed, and the cost of eventual default rising.

"In the long run, the gold price has to go up in relation to paper money. There is no other way.

Nicholas L. Deak

France and Germany veto increase in EU rescue fund

Germany and France have rejected calls by Brussels for a rapid increase in the size and powers of the EU's rescue machinery, once again exposing serious differences at the heart of monetary union.

By Ambrose Evans-Pritchard, International Business Editor 8:00PM GMT 12 Jan 2011

Jose Barroso, head of the European Commission, called on EU leaders to boost the firepower of the EU's €440bn (£366bn) bail-out fund and beef up its role, allowing it to intervene with pre-emptive bond purchases to help states under threat.

"It is important for the markets to know that Eurozone leaders are committed to do whatever is necessary," he said, hoping for action as soon as early February.

He also proposed a "new phase of European integration" with far-reaching oversight of the budgets, pensions, labour markets, and trade flows of EU states to prevent a recurrence of the imbalances that led to the EMU debt crisis.

Mr Barroso said the fund boost was a "precautionary" move, not directed at any one country. The gambit is risky since it may be taken by investors as a sign that Brussels fears imminent contagion to Spain, deemed too big for the current fund.

The response in Paris and Berlin was chilly. "We think the fund is big enough," said Francois Baroin, France's budget minister. German Chancellor Angela Merkel said the bail-out mechanism was "nowhere near exhaustion", adding curtly that she did not wish to debate the matter "any further".

---- Mrs Merkel is wary of attempts by Brussels to bounce her country into an EU debt union, or 'Transferunion' as it is described luridly by Germany's press. Such moves may breach the German constitution.

The dispute overshadowed a well-covered auction of €1.25bn of Portuguese debt, including 10-year bonds at 6.72pc, back below the 7pc danger line. The sale set off a surge in bank stocks in Lisbon, and was greeted with relief across the EMU perihpery. Spain's Ibex index jumped 5.3pc.

"The auction was a success from all angles," said Portugal's premier, Jose Socrates. "We do not need help: we can solve our own problems."

Gaven Nolan from Markit said purchases of Portuguese debt by the European Central Bank over the last two days had created good mood music but he doubted whether the bond sale would quell talk of a bailout.

But the real story of 2011 is the arrival of food and energy inflation. Ignore the central banksters who say that ex food and energy, there’s no sign of inflation outside of China and South Korea. Food and fuel are what most people notice most. Food inflation in particular, is what gets politicians hanging from lampposts. Stay long gold and silver. Even as the contrived jobless recovery staggers on, food and fuel inflation look here to stay.

Brent Crude oil hits two-year high of $98

Oil hit a two-year high of more than $98 per barrel in London on Wednesday, as appetite for risk returned to the market.

By Rowena Mason 7:34PM GMT 12 Jan 2011

Prices have been rising partially due to a leak in Alaska’s main pipeline, which carries a sixth of America’s oil. Around 95pc of production from the region’s North Slopes has stopped and the pipeline operator only re-started it on Wednesday at a lower than normal flow rate.

“There are quite a few good reasons that could explain and verify the current high oil prices,” says Myrto Sokou, analyst at Sucden Financial. “The recent shut in the key Trans Alaska pipeline, forecasts about heavy winter conditions in the US North East, as well as strong equity markets, could provide further support to crude oil prices. It might be fairly soon that we can see the oil prices back to the $100 level.”

However, experts added on Wednesday that the outages and cold US weather did not entirely explain the recent spike, especially given the $6 difference in European and US benchmark oil prices.

This has come about because the price of London oil, called Brent Crude, is rising faster than the price of US crude oil, known as West Texas Intermediate (WTI).

Brent is seen as a better marker of international demand than WTI, which is a landlocked crude stored far away from the coast mainly reflecting US demand.

Global appetite for oil is growing. The US Department of Energy raised its forecast to 88.02m barrels of oil consumption per a day from 87.78m estimated last month.

World moves closer to food price shock

By Gregory Meyer in New York and Javier Blas and Jack Farchy in London

Published: January 12 2011 20:26

Corn Surges to 30-Month High After USDA Cuts Supply Estimates; Soy Gains

By Luzi Ann Javier - Jan 13, 2011 5:37 AM GMT

Corn surged to an almost 30-month high and soybeans advanced after the U.S. government cut forecasts for domestic inventories, tightening global food supplies after adverse weather slashed harvests. Wheat rose.

Corn for March delivery advanced as much as 1.7 percent to $6.42 a bushel, the highest price on the Chicago Board of Trade since July 2008. The contract extended yesterday’s 4 percent jump and traded at $6.38 by 1:06 p.m. Singapore time.

The U.S. Department of Agriculture lowered its estimate on the U.S. corn harvest last year, widening the global production deficit by 14 percent to 20.1 million metric tons, from 17.2 million tons in December. Stockpiles before this year’s harvest from the U.S., the world’s largest grower and exporter, will fall to 745 million bushels (18.9 million tons), the smallest since 1996, the USDA said.

U.S. stockpiles will be “extraordinarily tight,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, said in a report e-mailed today. “Those tight stocks prompted record U.S. corn prices a few seasons ago.”

Corn futures surged to a record $7.9925 a bushel in July 2008 as global supplies of the grain and other cereals including rice and wheat tightened. Concerns of food shortages sparked protests from Haiti to Egypt.

The Standard & Poor’s GSCI Agriculture Index, which tracks eight futures, has surged 70 percent since the end of June as drought in Russia and excessive rains in Canada and Pakistan, curbed harvests.

Meanwhile drought hits Argentina food production

By Archie Bland Thursday, 13 January 2011

As Queensland buckles under heavy rains brought by La Niña, on the other side of the world, in Argentina, the weather pattern is causing the opposite problem.

The country has been dealt a heavy blow by droughts that have had a big impact on crop yields and the wider economy.

Yesterday, soybean group Acsoja estimated that production would fall by 13 per cent as a result of the water shortages. The drop comes after a record high last year, when rainfall was above average.

The impact on corn has been similarly dramatic, with persistently low rainfall in Argentina's most verdant areas depleting soil water reserves and killing crops.

---- The resultant problems in Argentina are not expected to let up immediately, with the warm weather likely to continue until next week.

Because the country is a key global provider of soybeans, that is likely to have a serious impact on the world market. La Niña is one significant reason for recent food inflation that has brought prices close to the record levels of three years ago. But the impact will be felt most profoundly at home. Soybeans are the largest cash crop in Argentina, bringing in about $7bn in export taxes each year. And worst-hit of all will be the farmers.

"Some farmers haven't had enough rain to put in their second soybean crops and are seeing very poor development of their corn crops," Martin Lorenzo, a farmer in northern Buenos Aires province, told the Wall Street Journal. According to Mr Lorenzo, some farmers have given up on the crop to let cattle graze in the fields.

"The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."

Hans F. Sennholz

At the Comex silver depositories Wednesday, final figures were: Registered 44.88 Moz, Eligible 59.24 Moz, Total 104.13 Moz.


Crooks and Scoundrels Corner.

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

Here we go again, Forbes is reporting that US bank balance sheets may be over stated by up to a trillion dollars or more. You have to ask yourself, would you lend money to a US bank? The next Lehman gets closer by the day. Little wonder Wall Street is busy paying itself astronomical bonuses. Getting out while the getting’s good. Below that, “the British Madoff”, though that’s an insult to the great fraudster.

"The London Banker Henry Fauntleroy forged to keep his bank solvent. He was executed for it in 1824."

Charles P. Kindleberger. Manias, Panics and Crashes.

US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages

Jan. 12 2011 - 8:36 am

The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.

They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.

All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks.

This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.

Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.

The potential writeoffs could be even larger should home prices continue to weaken, placing more homes in the nomnperforming category on bank balance sheets.

'British Madoff' took £14m from his investors – and lost the lot

By Cahal Milmo, Chief Reporter Thursday, 13 January 2011

To his clients, Terry Freeman had all the trappings of a multi-millionaire City trader with a reputation for risk-free currency investments. Along with holiday homes in Cyprus and France, his wealth had bought him a top-of-the-range Land Rover, an executive box at Tottenham Hotspur and a £120,000 ring for his third wife.

The true source of the 62-year-old's profligate lifestyle was revealed in a south London court room yesterday when Freeman pleaded guilty to running a "Ponzi" scheme which defrauded about £14m from some 350 victims who were taken in by the bankrupt businessman's plush City offices and promises of unbeatable returns on their money.

Victims, who ranged from a roofing company owner who invested his £600,000 life savings to footballers and the ex-wife of golfer Colin Montgomerie, were shown paperwork from Freeman's company, GFX Capital, which showed their investments doubling or tripling in value – when in reality he was frittering away millions of pounds on botched trades and the toys of a tycoon.

The single biggest losers from Freeman's fraud were a couple who handed over £1.4m, including their family home. Investment updates suggested that their capital had risen in value to about £2.7m, but by the time the authorities caught up with the conman they had just £15,000 left in their account.

The extent of the deceit of the financier – dubbed the "British Madoff" after the American fraudster Bernie Madoff, who stole $18bn from clients – was only revealed in 2008 when Freeman gambled on a bailout for the US investment bank Lehman Brothers and bought large numbers of dollars.

When the bank collapsed, the dollar plummeted and GFX Capital, which operated from offices in Broadgate costing £14,000 a month in rent, was no longer able to conceal its empty coffers.


"We hang the petty thieves and appoint the great ones to public office."


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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