Monday, 14 March 2011

Japan.

Baltic Dry Index. 1562 +24

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

The big story today is the continuing tragedy in Japan. How damaged will the Japanese economy emerge, once a better picture of the damage emerges. At tis point in time it’s not yet possible to say. We do know that Japan faces an electricity deficit due to the closure of several nuclear plants, although some of this can be offset by rationing and greater conservation among the general public. Many major manufacturing firms have temporarily shut down. For how long is as yet unknown. How many people died and how many will need months of assistance still isn’t clear this morning. In sum, it’s still too early to try to make informed investment decisions in the aftermath of Japan’s tragedy. In addition, the situation at three nuclear power plants is of growing concern. Globally, this is likely a setback for the nuclear industry that it will be hard to recover from. In Europe and North America, I suspect that this will kill off any possibility of building new nukes. The uranium renaissance may be the first international casualty. Coal and natural gas the likely replacement.

With the subject well covered in the mainstream media, there’s no reason to cover it again in the LIR. We again offer our condolences and prayers to the families of those directly affected. May God assist those who are part of the rescue effort. Below, the early market view in London this morning, plus latest nuclear developments in Japan.

London markets poised for sell-off after earthquake in Japan

Markets are braced for a sell-off on Monday in the wake of the human and economic devastation wreaked by Japan's worst ever earthquake.

By Ben Harrington 7:00AM GMT 14 Mar 2011

Insurers are likely to come under renewed pressure as estimates of the scale of potential claims against them more than tripled over the weekend to $30bn-$50bn (£19bn-£30bn) as the scale of the crisis unfolded. Analysts said as much as £30bn could be wiped off share prices in London as the stock market slumps 2pc.

The benchmark Nikkei 225 stock average dived 633.94 points, or 6.19pc, to close at 9,620.49 — its lowest level in four months. Worries about the economic impact of Friday's disaster, including massive power shortages that could disrupt factories, triggered a broad sell-off that hit all sectors. The broader Topix index was down 7.9pc.

Other Asian stocks markets lost ground. Hong Kong's Hang Seng Index lost 0.4pc to 23,167.99 while South Korea's Kospi was up 0.5pc to 1,965.90. Shares in Taiwan, Singapore, Australia, New Zealand and the Philippines were lower. Benchmarks in Indonesia and Thailand rose. Mainland China's Shanghai Composite Index was down 0.3pc at 2,924.14.

A ban on naked short-selling is being enacted in Japan to stabilise stocks and prevent speculators profiting from the tragedy.

In an effort to shore up markets and banks, the Bank of Japan injected a record 15 trillion yen (£115bn) into money markets to try to defend the already fragile economy. The central bank also funnelled 55bn yen of liquidity to stricken lenders in the northern provinces where nervous depositors were making withdrawals.

More.

http://www.telegraph.co.uk/finance/markets/8379573/London-markets-poised-for-sell-off-after-earthquake-in-Japan.html

Explosion at Japanese nuclear plant

Second reactor building at Fukushima explodes and another reactor loses its cooling function, prompting fears of a third blast.

There were renewed fears of a nuclear accident in Japan on Monday morning following an explosion at a second reactor at the Fukushima Daiichi atomic power plant.

The No 3 reactor building at the plant exploded, destroying the walls and sending a plume of white smoke into the air.

But officials said the reactor remained intact, adding that there was a low possibility that the blast had released radioactive material.

Hours after the explosion, the government confirmed that Fukushima Daiichi plant's No 2 reactor had suffered a loss of its cooling function. Officials said that water levels at the reactor were dropping, but added that efforts were under way to prevent what would be the plant's third explosion since Saturday.

----The blast came two days after a similar explosion at the No 1 reactor, which occurred after hydrogen ignited when it mixed with oxygen.

Officials had said that coolant levels were lower than usual in the reactor and pressure was higher than normal at the time of the explosion.

"Judging by what we know now, the incident today [Monday] was similar to the one that occurred on Saturday and there is no sign of a radiation," the government's top spokesman, Yukio Edano said.

Edano said that sea water was still being pumped into both reactors to cool them down. The Daiichi plant and neighbouring Fukushima Daini plant have suffered multiple failures of cooling systems since Friday.

One nuclear expert said the unprecedented use of sea water to cool reactors was a sign of how urgent the situation had become. "Injection of sea water into a core is an extreme measure," said Mark Hibbs of the Carnegie Endowment for International Peace. "This is not according to the book."

http://www.guardian.co.uk/world/2011/mar/14/japan-nuclear-explosion-second-reactor-fukushima

In under reported news due to Japan, the EU summit resulted in a rout of the EUs PIIGS. "Deutschland, Deutschland ├╝ber alles" apparently. The death of the Euro as we know it, in my opinion. Club Med’s population plus Irelands, aren’t about to commit economic suicide just to placate German politicians beholden to German banksters. A summer clash of wills is now likely. Stay long precious metals. There are no good outcome to this fight.

Total German triumph as EU minnows subjugated

The Iron Chancellor of Germany could not have been clearer. “Whoever wants credit must fulfill our conditions”.

By Ambrose Evans-Pritchard, International Business Editor 8:00PM GMT 13 Mar 2011

These conditions are capitulation by three vulnerable states on core policies, and partial loss of sovereignty for the rest of the eurozone.

For Greece, the terms are a fire-sale of €50bn (£43.2bn) of national assets within four years, a tenfold increase from the original €5bn that premier George Papandreou thought he signed up to a year ago.

When the IMF first mooted this sum last month he told the inspectors not to "meddle in the internal matters of the country.“

State holdings in Hellenic Post, Hellenic Railways, Athens Public Gas, the Pireaus port authority, Athens airport, Thessaloniki water, and ATEbank, to name a few, will not fetch more €15bn. What next?

In return, Chancellor Angela Merkel has agreed to cut the penal interest rate on the EU share of Greece’s €110bn loan package by 100 basis points (still penal), and stretch the maturity to 7.5 years.

This does not restore solvency. Greece’s debt spiral is too far advanced. The debt load will approach 150pc of GDP this year, and debt service costs are 14.4pc of tax revenue.

Meanwhile, austerity is biting harder. The jobless number jumped almost a full point to 14.8pc in January. Youth unemployment hit 39pc.

For Portugal, the condition is more hairshirt retrenchment, a fiscal squeeze of 5.3pc in one year. Pensions, welfare, and health will be cut, following wage cuts already under way. "A descent into Hell," said the Bloco de Ezquerda.

Almost 300,000 youth took to the streets of Lisbon and Oporto on Saturday in a day of wrath by the "Desperate Generation", openly invoking the events of Egypt’s Tahrir Square.

A wing from the ruling Socialist Party said it would not vote for a "disastrous policy". They said the cabinet did not even know about the cuts imposed by Brussels before Wednesday night.

Fiscal tightening of this magnitude in a country with public-private debt of 330pc of GDP, an over-valued currency, and reliance on fickle foreign financing, is not a happy prospect.

"This is likely to have meaningful implications for the stability of the domestic banking system,” said Giada Giani from Citigroup. Yields on Portugal’s 5-year bonds hit a record 8pc on the news of cuts. The bond markets view further belt-tightening as self-defeating.

More

http://www.telegraph.co.uk/finance/economics/8379163/Total-German-triumph-as-EU-minnows-subjugated.html

We await today’s nuclear developments. By the end of the day, it should be apparent just what kind of nuclear disaster lies ahead or the world.

At the Comex silver depositories Friday, final figures were: Registered 41.20 Moz, Eligible 61.15 Moz, Total 102.36 Moz.

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Crooks and Scoundrels Corner.

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

No crooks today, just Forbes Magazine on a return to a modern gold standard. With our central banksters failing daily and the world well on its way to the next Lehman, finally some serious debate on the future of money is entering mainstream media. Money is too important to be left only to banksters, vapire squids and corrupt politicians.

21st-Century Capitalism

A Currency Board Linked To Gold

Nathan Lewis, 03.10.11, 06:00 PM EST

First understand what it means, then decide if it's the correct way to manage the dollar.

I like to refer to a gold standard as a "currency board linked to gold." This accomplishes quite a few things. It helps people throw out their old misconceptions and look at things from a new perspective. It describes, in five words, how a gold standard actually operates. It also serves as a sort of litmus test.

The fact of the matter is, all gold standard systems that have not used bullion coins exclusively--in other words, most gold standard systems of the last 300 years--have operated in a way that resembles a modern currency board. Of course it was not exactly the same, but it was functionally similar. A new Toyota Camry isn't the same as a Ford Model T--there is not one element that is exactly the same--and yet, they operate on identical principles.

A currency board links a paper currency to another paper currency, through an automatic adjustment mechanism. There is no "discretionary monetary policy," a committee of supposed wise men to make weighty decisions. The currency board's target is currency value. It is not the "money supply" or CPI or interest rates or some such thing. In other words, the currency board causes a currency to have a stable exchange rate with another currency.

The currency board's target can be another currency, but it can also be a currency basket. Singapore uses a currency-basket targeting system. Some people today think that the IMF's "Special Drawing Rights," another currency basket, should be adopted as a currency target.

In the same fashion, a currency board could target gold. The currency would have a stable exchange rate with gold, by way of an automatic adjustment mechanism. This is of course a gold standard. The meaning of "gold standard" is that gold is used as the "standard," or, in other words, as the target of a currency board-like mechanism. Maybe we should call it a "gold target system."

More.

http://www.forbes.com/2011/03/09/gold-standard-dollar-opinions-nathan-lewis.html

The monthly Coppock Indicators finished February:

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

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