Thursday, 10 March 2011

Italy on the Nile.

Baltic Dry Index. 1472 +48

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

"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."

William F. Rickenbacker

Just a brief update today as I try to catch up with a mountain of correspondence. Up first, the EU’s game of musical chairs seems about to end for Portugal. But will Spain be far behind? How about sinking Italy, joined at the hip to Gaddafi’s Libya? Stay long precious metals. As they say in Euroland circles, “this is hell. None of us get out of here alive”. Portugal: 1121-2011. Deutsche west 2011-?

EU paralysis drives fresh bond rout

Political paralysis in Brussels and monetary tightening by the European Central Bank has set off a fresh spasm of the eurozone bond crisis, pushing spreads on Portuguese, Irish and Greek bonds to post-EMU records.

By Ambrose Evans-Pritchard, International Business Editor 8:21PM GMT 09 Mar 2011

Portugal edged closer to the brink yesterday, having to pay almost 6pc to raise two-year debt. The yield on 10-year bonds briefly surged to 7.8pc after the Chinese rating agency Dagong downgraded the country's debt to BBB+.

"These levels of interest rates are not sustainable over time," said Carlos Costa Pina, secretary of the Portuguese Treasury, blaming the latest upset on the lack of a coherent EU debt strategy rather any failing by Portugal to deliver on austerity.

Mr Costa Pina rebuffed calls by leading economists in Portugal for an EU-IMF bail-out rather than drawing out the agony. "It is not justified. Portugal doesn't need external help, it needs urgent measures by the EU to restore market confidence."

David Owen from Jefferies Fixed Income said last week's shock move by the ECB to pre-announce rate rises had tightened credit and effectively doomed the country. "The ECB by its actions has made it inevitable that Portugal will need a bail-out. There are parallels with the actions of the Bundesbank during the ERM crisis in 1992," he said.

Mr Owen said the ECB is playing brinkmanship with EU leaders, pressuring them to come up with a grand solution to the debt crisis at summits this month. It is a dangerous game. "Spain is not yet safe. It has €2.5 trillion of combined household and company debt. That is an awful lot," he said

----- There is no sign yet that Germany, Holland, and Finland will agree to expand the remit of the bail-out fund (EFSF), letting it buy the bonds of debtor states pre-emptively, or lend to these countries so that they can buy back their own debt in a "soft-restructuring".

If anything, the mood is hardening in Germany. The regional Länder have begun to demand a say over any EFSF deal. Hesse's justice minister Jörg-Uwe Hahn said he "categorically rejects" all moves to an EU 'Transferunion', debt pool, or fiscal fusion.


In other news this morning, China has unexpectedly dropped into a trade deficit. Snow and the Chinese New Year are the official explanations. However, averaging January and February’s figures combined still leaves the start of the year in deficit. While two months worth of figures doesn’t make a trend, this is a disturbing development nevertheless. And this is before any global fallout for events in Libya.

March 10, 2011, 12:54 a.m. EST

China unexpectedly swings to February trade deficit

HONG KONG (MarketWatch) — China unexpectedly posted a trade deficit in February, according to official data released Thursday, and economists said this could reduce pressure on the country to allow its currency to appreciate.

The rate of growth for both import and export indicators tapered off considerably from the levels seen in January, distorted by the Chinese New Year holidays during the month.

Monthly exports grew a modest 2.4% from the year-earlier period, while imports grew 19.4%, after soaring 37.7% and 51%, respectively, in January.

The slowdown swung the country’s trade balance to a deficit of $7.3 billion in February, more than offsetting January’s $6.5 billion trade surplus and giving China a net trade deficit in the first two months of the year.

The deficit might have implications for the pace at which China allows the yuan to appreciate against the U.S. dollar, say economists.


In the when it rains it pours department, a senior Chinese economist thinks Beijing needs to be buying more gold. The problem is how to do it without driving up the price of gold past 2,000. My guess is that China is already buying gold behind the scenes. Every time there’s a major price dip, I suspect that they quietly buy and hold London gold.

China adviser says Beijing should buy more gold

By: Reuters 9th March 2011

BEIJING - China should use some of its $2,85-trillion foreign exchange reserves to buy more gold, a government adviser was quoted as saying by local media reports on Wednesday.

Li Yining, a senior economist at Peking University and member of the Chinese People's Political Consultative Committee, an advisory body to the national parliament, said that China should use the precious metal to hedge against risks of foreign currency devaluations.

"China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall," Li was quoted by the official Xinhua news agency as saying.

His view that Beijing should diversify its foreign exchange reserves, the world's largest, into commodities is nothing new. Many other academics have publicly called on Beijing to do so.

But Li's views may carry more weight than most. Many of his former students are now high-ranking officials, including Chinese Vice Premier Li Keqiang, who is seen as Premier Wen Jiabao's likely successor in 2013.

However, Yi Gang, head of the State Administration of Foreign Exchange, which is responsible for managing most of the country's foreign currency holdings, said recently that it was not possible for China to make big purchases in the spot gold market.

"If China gets into these markets and pushes up prices to extremely high levels, the Chinese people will bear the cost at the end of the day as China is often the key buyer in these markets," Yi said.


"We need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."

Leonard Read

At the Comex silver depositories Wednesday, final figures were: Registered 41.28 Moz, Eligible 61.47 Moz, Total 102.75 Moz.


Crooks and Scoundrels Corner.

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

Yesterday it was Hosni Mubarak, today it’s all the placemen he put into position. More French revolution than Bolshevik. Stay long gold and silver. Middle east revolutions are unlikely to lead to GOP style western government, or the return of the Caliphate. More probable, it seems to me, is a fractured corrupt system like Italy’s.

"The leaders of the French Revolution excited the poor against the rich; this made the rich poor, but it never made the poor rich."

Fisher Ames, 1758-1808

MARCH 10, 2011

Egyptians Take On 'Mini-Mubaraks'

CAIRO—Under the tutelage of editor-in-chief Osama Soraya, Egypt's government-run Al Ahram, one of the Arab world's oldest newspapers, became a dependable mouthpiece for President Hosni Mubarak's regime. On Jan. 26, for example, the day after protests erupted that eventually forced Mr. Mubarak from office, the paper's banner headline was about a protest—in Lebanon.

Now, with Mr. Mubarak gone, the newspaper's staff is in open revolt, denouncing Mr. Soraya and demanding investigations into his personal finances. Reporters have tried to block their boss from entering the building. One young reporter slept in Mr. Soraya's office to make sure the editor didn't remove any incriminating documents.

Similar dramas have been playing out all across Egypt in the weeks after Mr. Mubarak's 30-year rule ended. The success of the revolution that toppled the president has spawned many smaller revolutions. Their targets are the "mini-Mubaraks" who populate the top ranks of many Egyptian institutions—people who allegedly got their jobs based on their loyalty to the president.

Many of them now face the kind of reckoning that follows every revolution. Already, three editors of state newspapers have resigned. One stepped down after he was punched by reporters. Another was escorted out of his office building by security guards. The octogenarian head of the press union, hand-picked by the regime, was roughed up by journalists during a staff-wide gathering. At yet another publication, employees told their editor to take a hike but to leave the keys to the company car.

Employees at Egypt's largest state-run bank are on strike, calling for the ouster of their chairman. Members of the leading doctors' union stormed the offices of their government-backed leader last week, chanting "leave, leave." Hundreds of imams protested last week against the top sheikh at Al Azhar University, the largest religious learning center for the world's one billion Sunni Muslims, saying he stood by Mr. Mubarak until the last hours of the regime.

It isn't clear how big an opening the movement against Mr. Mubarak's appointees will provide to the Muslim Brotherhood and other Islamist groups.

The upheaval has even spread to the sports world. Some fans are calling for the resignation of Hassan Shehata, the coach of Egypt's national soccer team, the Pharaohs, who came out in support of Mr. Mubarak during the protests. The director of Cairo's Zamalek SC soccer team, Ibrahim Hassan, also faces calls for his ouster after he took part in a pro-Mubarak demonstration.


"You can get much farther with a kind word and a gun than you can with a kind word alone."

Al Capone

The monthly Coppock Indicators finished February:

DJIA: +156 Down 05. NASDAQ: +217 Down 11. SP500: +157 Down 4.

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