Thursday, 7 April 2011

What Else Could Possibly Go Wrong?

Baltic Dry Index. 1430 -32

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

" A billion here, a billion there, and pretty soon you're talking real money".

Senator Everett Dirksen. Attributed.

This morning there goes the neighbourhood, as three European PIGS are down, and the fourth, Spain decidedly sickly. As with Greece and Ireland, after months in denial, the Portuguese government was forced back into reality and went cap in hand to Berlin for a bailout. Not that a bailout makes any sense for tiny Portugal, any more than it did for Greece and Ireland. Their economy won’t be able to pay off on the new debt any bailout will impose on it. With both Ireland and Greece well on the road to default, politely called a restructuring in the bankster community, after earlier bailouts, Portugal should just skip the EU bailout step and go right to default and restructuring. They might also be wise to drop out of the ludicrous German currency union. Portugal is not Bavaria and never will be.

Below, another PIG trots off to Brussels, make that Berlin.

"$1,000 left to earn interest at 8% annually will grow to $43 quadrillion in 400 years, but the first hundred years are the hardest."

Sidney Homer, Salomon Bros.

APRIL 7, 2011

Portugal Pleads for Rescue

Bailout Request—Europe's Third—Will Test the Euro Zone

LISBON—Running out of money and paralyzed by a political crisis, Portugal said Wednesday it would ask the European Union for a financial bailout—setting up a crucial test of the bloc's emboldened efforts to contain its sovereign-debt crisis.

Portugal is the third nation in the 17-member euro zone to turn to its peers for help, and one that has long been seen as a firewall between small economies whose bailouts are painful but manageable and large economies—like Spain—whose infection would set the crisis on a far darker course.

After days of pressure in financial markets, Prime Minister José Sócrates told Brussels authorities Wednesday that he needed help, and late that evening broke the news to his countrymen in a televised address.

It has appeared inevitable for weeks. Portugal has struggled to raise cash from wary financial markets, and its persistent deficits are draining state coffers.

Politics are at a standstill: Two weeks ago, Mr. Sócrates's government collapsed after parliament rejected his latest bid to rein in Portugal's budget. Mr. Sócrates had adamantly refused to countenance a bailout. Wednesday night, he said he had no choice.

----"There is little to suggest that the Portuguese bailout that has been imminent for some time now will infect Spain," said Sony Kapoor, managing director of Re-Define, a Brussels-based economic think tank. "Spain is by far a stronger and more dynamic economy that despite ongoing problems should be fundamentally sound."

Still, the euro zone is far from calmed. Even if Spanish troubles can be avoided, Europe must contend with three ailing countries together needing hundreds of billions in aid to stay alive, with no immediate prospects of being weaned from the drip. More fundamentally, the economic disparities that led weak nations like Portugal to amass piles of debt owed to foreigners haven't been resolved.

And European banks, many exposed to wobbly sovereigns, still rattle nerves.

In Spain, for instance, central bank officials are leaning on the country's larger institutions to buy up a small, weak savings bank to avoid an embarrassing nationalization. And Ireland's financial regulator said Wednesday his country's deeply troubled banks attracted so little market confidence that they wouldn't be able to borrow on markets for "a couple years' time."


In other fantasy Euroland news, the sky is starting to fall. Stay long precious metals. When currency unions unravel it’s never pretty. Before they finally fail, politicians and banksters take all kinds of mad actions that seriously destroy wealth.

"You are the pits of the world! Vultures! Trash!"

John McEnroe. Wimbledon 1984.

Haircuts could be forced on Irish debt

Top-ranked debt in two of Ireland's largest lenders is at risk of having losses imposed on it, according to the country's banking regulator.
9:51PM BST 06 Apr 2011

Senior bond holders in Anglo Irish Bank and Irish Nationwide Building Society (INBS) could face haircuts in the value of their holdings said Matthew Elderfield, head of financial regulation at the Central Bank of Ireland.

The admission during a speaking engagement in London on Wednesday comes days after Ireland announced the results of stress tests on four other major lenders that will require them to raise a total of €24bn (£21bn) in new capital.

Bond holders in the senior debt of Allied Irish Banks, Bank of Ireland, EBS Building Society and Irish Life & Permanent are not currently expected to take any losses. However, Mr Elderfield has refused to rule out haircuts for investors in the debt of Anglo and INBS.

----Imposing haircuts on senior debt holders could prove controversial with the ECB known to be against any such move, which could lead to losses for several large German and French financial groups, as well as other international banks.

----The legal mechanisms for enforcing haircuts on bond investors without the banks formally defaulting on their debts are unclear.

Many of the contracts governing the debt are written under English law, making the Irish government's insistence on forcing through losses on junior or senior debt holders problematic.

Several bond investors have already engaged lawyers to look at their legal options.

Investors in the debt of Allied, which include many of the world's largest pension funds and insurance companies, have formed a group to look after their interests.

Greece will restructure, some euro officials say

ATHENS, April 6 (Reuters) - Rising doubts about Greece's ability to meet its fiscal targets and return to the markets for funding next year have convinced some senior officials in euro zone governments that a debt restructuring is inevitable.

Public debate on a restructuring has been almost taboo since Athens accepted a 110 billion euro ($157 billion) bailout from the European Union and International Monetary Fund nearly a year ago, and opposition to the idea remains high across the zone.

The Greek government has repeatedly ruled it out and the European Central Bank also opposes it. German Chancellor Angela Merkel has stated in public that private creditors will not be forced to take any losses on euro zone debt before a new bailout mechanism for the bloc is up and running in mid-2013 -- and even then, only debt issued after that date would be affected.

But privately, some senior government officials in the zone are acknowledging for the first time what private economists have been saying for months -- that some form of restructuring may have to happen sooner, probably in 2012.

One of these European officials told Reuters on condition of anonymity that there was no credible alternative to this course of action.

All focus now switches to Spain and Italy. Spain because it’s a basket case lacking a basket. How safe really are the Spanish banks. Would you put more than the guaranteed limit in any Spanish bank? Italy because it sinks or swims with Libya’s Gaddafi, though it has plenty of other problems around as well. German readers must be asking themselves what they did to deserve working and taxing themselves to death, to provide Club Med with their lifestyle. The second World War comes to mind in Club Med. But wait a minute wasn’t Italy also on Hitler’s side? Didn’t Italy bravely attack southeast France when Hitler had taken Paris? Why is Germany being lined up to bailout Berlusconi? Get over it, Berlin should tell Brussels.

Modern Germany of course, isn’t wealthy enough to bailout all the PIIGS, and will go broke itself if it tries. It doesn’t take a genius to see how this currency union ends. Only the timing of the split, and how much European wealth will be dissipated before then, is in doubt. Sensible Germans will be searching out those gold bar dispensing “real cash” machines ASAP.

A permanent Governor of the Bank of England would be one of the greatest men in England. He would be a little `monarch` in the City; he would be far greater than the `Lord Mayor.` He would be the personal embodiment of the Bank of England; he would be constantly clothed with an almost indefinite prestige. Everybody in business would bow down before him and try to stand well with him, for he might in a panic be able to save almost anyone he liked, and to ruin almost anyone he liked. A day might come when his favour might mean prosperity, and his distrust might mean ruin. A position with so much real power and so much apparent dignity would be intensely coveted. Practical men would be apt to say that it was better than the Prime Ministership, for it would last much longer, and would have a greater jurisdiction over that which practical men would most value, over money. At all events, such a Governor, if he understood his business, might make the fortunes of fifty men where the Prime Minister can make that of one. Scarcely anything could be more unpopular in the City than the appointment of a little king to reign over them.

Walter Bagehot. Lombard Street. 1873.

At the Comex silver depositories Wednesday, final figures were: Registered 41.49 Moz, Eligible 63.39 Moz, Total 104.88 Moz.


Crooks and Scoundrels Corner.

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

Once upon a time in a faraway town called Washington, there was a conservative think tank with serious credentials. But that was then and this is now. In today’s Washington, it’s  partisan politics as usual. It’s all about the spoils of the next presidency, and a settling of old scores. Today it’s the Republican scoundrels at the Heritage Foundation and fantasy economics. Never mind the fate of the country, the jobless “recovery” or the fact that the Federal Government is about to start shutting down, it’s the Presidency stupid, it’s all about the Presidency. Sometimes a flaky hereditary monarchy even looks good. Stay long precious metals. What else could possibly go wrong?

"Liberals have practiced tax and tax, spend and spend, elect and elect but conservatives have perfected borrow and borrow, spend and spend, elect and elect."

George Will, conservative columnist.

April 6, 2011, 6:58 p.m. EDT

Heritage Foundation disavows its rosy jobs outlook

Commentary: Oops! Jobless rate won’t fall to 2.8%, think tank says

WASHINGTON (MarketWatch) — Never mind.

Remember that rosy economic scenario that said the U.S. jobless rate would fall to 2.8% if we slashed federal spending by $6.2 trillion? That forecast, released on Tuesday, is now inoperative, because the economists who produced it say it was a mistake.

Their forecast just didn’t add up, according to many pundits and bloggers, including my column on “Rep. Paul Ryan’s magic job creation.”

The Heritage Foundation, which produced the rosy scenario in support of Ryan’s budget-cutting plan, now agrees.

Earlier Wednesday, the conservative think tank’s Center for Data Analysis removed its unemployment-rate forecast from supporting documents on the House Budget Committee website without any notice or explanation. See the edited version here.

At about 5 p.m., William Beach, the economist who runs Heritage’s Center for Data Analysis, posted a corrected forecast on the foundation’s blog. Read the Heritage Foundation blog admitting its mistake on Ryan’s budget.

“We have given additional scrutiny to calculations concerning the unemployment rate under the chairman’s proposed budget plan,” Beach wrote. He gave no other details about how the mistake was made.

Instead of falling to 2.8% in 2021, the jobless rate would fall to 4.3%, Beach said. Instead of falling to 6.4% in 2012, it would drop to 7.8%. That’s quite a difference, a difference of millions of jobs.

The other questionable assumptions in Heritage’s forecast are still there, including the inexplicable prediction that home building would take off like a rocket because of budget cuts, rising some 57% from current levels by the end of 2012.

A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected. If he is lucky enough to begin at a time of expansion in trade, he is nearly sure not to be found out till the time of contraction has arrived, and then very large figures will be required to reckon the evil he has done.

Walter Bagehot. Lombard Street. 1873.

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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