Monday, 18 April 2011

Currency Anarchy.

Baltic Dry Index. 1296 -15

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

As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise."

Jerome F. Smith

Get ready for a period of currency anarchy. Greeks have about had their fill of German imposed austerity. Default now looks to be imminent. Yesterday the Finns appear to have voted for no more bailouts. The two bailout sceptic parties between them appear to have 38% of the seats. The two pro bailout parties about 35% of the seats. A rag bag of others are all over the place, but getting Finnish support for yet more Club Med bailouts looks like it will only come with very austere terms. German voters will likely be impressed. Portugal might as well go straight of the default option now, ahead of Greece. Whoever goes first will get the best terms. What was the new Irish government thinking when the caved in to Europe at the recent EU summit. Below, the state of Europe this morning, and don’t think about mentioning Spain or Gaddafi’s Italy.

"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

APRIL 18, 2011

Finnish Vote Set to Affect Bailouts

HELSINKI—A euroskeptic party was in the thick of a tight four-way race after voting concluded in Finland's national election Sunday, raising the chance that it could enter government and disrupt the euro zone's program of bailouts for the bloc's deeply indebted countries.

According to exit polls Sunday evening, the nationalist True Finns party, led by Timo Soini, was in third place with 18.7% of the vote. The conservative party of current Finance Minister Jyrki Katainen was in the lead, with 20.2%, according to public broadcaster YLE.

Mr. Soini and his party, which had a tiny share in the last elections, have unabashedly opposed the EU's bailouts. Finland committed loans as part of aid to Greece last year, and it has guaranteed borrowing by the EU's current rescue fund, which is being used to help Ireland and will be called upon for the imminent bailout of Portugal.

That has angered many in Finland, one of the euro zone's most fiscally sound nations, and the tight election campaign has led Finnish leaders to take a hard line on bailouts—delaying, for instance, a plan to expand the size of the existing rescue fund.

How much of an effect the True Finns will have isn't yet clear—and likely won't be evident until the final results are tallied and negotiations to form a coalition government begin. At the very least, a strong showing raises the probability that the True Finns would be a part of a coalition.

A new Finnish government opposing further bailouts could in theory prevent the bailout fund from granting new rescue loans, because they have to be agreed on unanimously by all members of the common currency.


Anarchy erupts in Greece as austerity bites

As Thessalonika riots, a town near Athens spins out of control with angry residents setting up massive roadblocks and hurling Molotov cocktails

By Elena Becatoros in Keratea, Greece Sunday, 17 April 2011

As explosions boom, the town's loudspeakers blare: "Attention! Attention! We are under attack!" Air-raid sirens wail through the streets, mingling with the frantic clanging of church bells. Clouds of tear gas waft between houses as helmeted riot police move in to push back the rebels. This isn't a war zone, but a small town just outside Athens. And while its fight is about a rubbish dump, it captures Greece's angry mood over its devastated economy.

As unemployment rises and austerity bites ever harder, tempers seem to fray faster in Greece, with citizens of all stripes thumbing their noses at authority. Some refuse to pay increased highway tolls and public transport tickets. There has been a rise in politicians being heckled and even assaulted. Yesterday, in Thessalonika, scores of activists were arrested after violent clashes with police.

----Over the past four months, locals have developed increasingly inventive roadblocks to stop contractors from getting to the site. They have parked trucks across the street and built piles of rubble and dirt. Apparently in it for the long haul, they have erected a wooden hut by the side of the road to serve as protest headquarters, complete with campaign posters, news clippings and children's drawings of the riots. Their latest move was a nocturnal expedition to dig a shoulder-deep trench across both lanes of the road. That was one step too far for the authorities, who, on Thursday, sent in workers – protected by police – to repair the damage.

Within hours, the confrontation degenerated. Masked youths hurled firebombs and rocks at riot police, who responded with rubber batons and repeated volleys of tear gas. A police helicopter circled overhead. "The town is out of control. Business activity has stopped," said Yannis Adamis, a resident and mechanical engineer. "The stores are closed. The sirens are blaring, the [church] bells are ringing, people are on the streets. This cannot continue."

In nearby streets, gaggles of teenage girls, cut lemons held to their noses to ward off tear gas, mingled with young men in balaclavas, stocking up on rocks to throw at police. An elderly man wielding a shepherd's staff stormed past. "We've learned at the age of 60 about Molotov cocktails," he thundered through his gas mask – an accessory sported by young and old alike.

Britain 'will not join eurozone bail-out fund'

Britain will not be part of any future eurozone bail-out fund, officials from the UK have told their European counterparts in the face of pressure to back a new safety net for troubled countries from 2013.

By Philip Aldrick In Washington 10:00PM BST 16 Apr 2011

The UK is expected to be on the hook for about €4.5bn (£3.9bn) of the €75bn-€80bn rescue package for Portugal, largely through its 13.6pc share of the European Financial Stability Mechanism (EFSM), which the Labour government signed in its last act of office.

However, after the Portuguese and Irish bail-outs, the €60bn EFSM facility will be virtually used up. A larger scheme backed only by the eurozone nations expires in 2013, as does the EFSM.

Brussels has been pressing the UK to be part of the replacement, the European Stability Mechanism (ESM), on the grounds that it is a member of the European Union.

France and Germany are particularly keen for the UK to sign up because, as the largest member states, they will bear the lion’s share of the burden.

-----George Osborne, the Chancellor, has already stressed that Britain is not in the business of bailing out eurozone nations, but must honour its existing agreements. He decided to back Ireland with a £3.25bn bilateral loan because of the struggling country’s strategic importance to the UK.

Ireland may need take more drastic action to fix its fiscal problems, which may take longer than initially thought, according to IMF European director Antonio Borges.


In other news the G-20s finance ministers met in Washington and nobody noticed. Power is rapidly shifting from west to east. But for now the global system is still stuck on the great Nixonian error of a fiat dollar reserve standard, and the BRICs are getting ever more antsy at the unintended consequences it’s now generating. With no will in Washington to act responsibly, the whole house of card looks set to fall this decade.

"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

The BRIC countries’ Hainan summit could make the G20 redundant

The West’s political and financial elite is still a very long way from grasping the extent to which the global centre of economic gravity is now shifting – and the implications in terms of relative and absolute living standards.

Liam Halligan 9:43PM BST 16 Apr 2011

On Friday, at its latest summit in Washington, the G20 group of nations issued a communiqué. I don’t know why anyone bothered. The document was meaningless.

The G20’s membership in theory includes the biggest Western economies, plus the most commercially important emerging markets. At the 2009 Pittsburgh summit, this grouping dubbed itself “the world’s premier forum for international economic co-operation”.

----The global economy hasn’t yet fully emerged from the “sub-prime” fiasco. The Doha trade talks are disgracefully stalled. Western banks remain riddled with massive liabilities that haven’t been “fessed up” – an inconvenient truth that could yet cause another “Lehman moment” on skittish global equity markets. Several of the world’s “advanced economies” are anyway in intensive care, their sovereign debt markets propped up only by “printed money”.

Faced with such vast challenges, and the dangers they pose for the future prosperity and security of the human race, the G20 came up with no specifics.

The G20 is clearly failing as an effective decision-making body. Its member states disagree entirely about the reasons behind recent global financial instability, so have no shared analysis of what to do. The big emerging markets, in particular, are furious that the US seeks to wield the dollar’s reserve currency status as a “weapon”, using so-called “quantitative easing” to export inflation and debase the value of America’s debts to the rest of the world. The “emerging giants” also complain that, while broader than the G7, the G20 is still run by Western powers essentially to promote their own interests.

No surprise, then, that the fast-growing economies of the non-Western world are establishing rival summits.

This latest G20 gabfest was overshadowed by a simultaneous gathering on the Chinese island of Hainan, attended by the leaders of Brazil, Russia, India and China – the so-called BRIC group. China is the world’s second biggest economy. India,

Russia and Brazil are all well inside the top 10. By 2016, the International Monetary Fund predicts the GDP of these four will total $21,000bn (£12,860bn), out-stripping the US. Already, on a currency-adjusted basis, the BRICs are bigger than the US and UK combined.

----The truth is, though, that the West’s political and financial elite is still a very long way from grasping the extent to which the global centre of economic gravity is now shifting – and the implications in terms of relative and absolute living standards.

The BRICs account for 45pc of the world’s population and around three-quarters of total currency reserves. They have few serious fiscal issues and all are net external creditors. The emerging markets in general, says the IMF, will grow by an annual average of 6.5pc over the next four years, while the big Western economies will expand by only 2pc. The BRICs, and their smaller cousins, are now the driving force of the global economy.


At the Comex silver depositories Friday, final figures were: Registered 41.03 Moz, Eligible 61.62 Moz, Total 102.65 Moz.


Crooks and Scoundrels Corner.

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

No crooks today, just scoundrels issuing statistics. China’s latest trade statistics imply China’s economy is fast losing momentum. But are China’s statistics any more reliable than Uncle Sam’s? The continuing erosion in the Baltic Dry Index, suggest that global trade is also slowing. If so, our global stock markets may bring forward “crash season” from autumn to summer.

APRIL 16, 2011

China Partly Lifts Veil on GDP Data

BEIJING—China's publication of a new kind of economic data brings it closer in line with the way other major economies report growth, but also exposes continuing problems with the quality of its statistics, analysts said.

The headline figure when China reported its economic data for the first quarter of this year on Friday was the 9.7% growth rate in gross domestic product. That figure, as with all of China's quarterly GDP numbers in the past, compared output in the report period with output in the same three months of last year.

But the National Bureau of Statistics on Friday also published, for the first time, data on how economic output compared with the previous quarter. This quarter-on-quarter number, which is adjusted to account for seasonal differences and multiplied according to a compound growth formula to give an "annualized" rate, is how the U.S. and most other major economies report their quarterly GDP data. By this measure, the statistics bureau said, GDP in the first quarter grew 2.1%, or 8.7% on an annualized basis according to Wall Street Journal calculations—significantly slower than the year-on-year figure—suggesting the current momentum of the world's second-largest economy is markedly slower than the year-on-year figure indicates.

Big economies use adjusted quarter-on-quarter data because they provide a more real-time picture of the current trajectory of growth. A statement on the bureau's website April 8 said: "Year-on-year data does not provide up-to-date information on changes in the economy.…The development of quarter-on-quarter indicators will make up for that shortcoming and provide better information to policy makers and analysts."


Last week Goldman suggested exiting temporarily the commodity boom. Specifically, exiting copper, crude oil, cotton, platinum and soybeans. Other than grains I don’t disagree. We appear to be headed into a very difficult period ahead. But I would also add exiting stocks. Using quantitative easing, the FED has been deliberately targeting stocks. But QE is supposed to be ending no later than June. It’s better to be out early rather than late. To me it’s a case of stay long precious metals against the coming storms. But I don’t disagree with Goldman’s suggestion of lightening up. Much of Europe’s dearth of rains suggests to me staying long in grains, but hedging with purchased out of the money puts. A furious summer seems directly ahead.

"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 March:

DJIA: +160 UP 06. NASDAQ: +216 Down 01. SP500: +163 UP 6.

The Dow and SP 500 have reversed albeit by tiny margins, while the NASDAQ barely moved down. The Fed’s rigging of the indicators seems to have worked. Note: like all indicators, they were devised for normal markets not markets where the central bank is flooding the economy with new cash. In current conditions where risk is suspended by too big to fail, I doubt any indicators are showing more that where the Fed’s new cash is flowing in our world of casino capitalism.

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