Tuesday 31 May 2011

Sell In May…

Baltic Dry Index. 1474 +07

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

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

J. K. Galbraith

It is the last day of May, the last day to implement the old stock market adage, “sell in May, go away, don’t return until after Labor Day”, (in the USA,) “after St Leger Day”, (in the UK, after the famous horse race that takes place in early September at Doncaster race course.) Today is the last opportunity to cash out stocks to the New York Fed’s intervention desk.

The big European news yesterday was yet another U-turn by Berlin. If Mrs. Thatcher was a lady not for turning, Frau Merkel is her exact opposite. She now U-turns so often, it’s getting impossible to know which way she’s facing on so many important issues. Berlin is now in danger of being ignored in the power halls of the EU. If the lady’s for turning at ease, will go the logic, we can ignore her views and turn her later at will. Yesterday’s U-turn was on the issue of yet another German bailout of those lovable tax and work shy Greeks. In another recent U-turn, Germany’s current policy is to close down all German nuclear power plants by 2022. Or make that 2023, some of them might be eligible for a one year extension. Only a few weeks ago, Berlin’s preferred policy was to see most of them getting an extended life out to 2035. I suspect that another Greek bailout will be one bailout too many for Germany’s long suffering, hard working, taxpayers. Poor Germany’s voters have in reality nowhere to turn, the main opposition socialist party is more pro bailout even so than Merkel. A distressing opportunity is opening up for the far right. Stay long precious metals. Nothing good ever comes from dithering in a crisis.

“It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale."

J. K. Galbraith. The Great Crash: The Euro, with apologies to 1929.

MAY 31, 2011

Berlin Considers a Shift on Greek Debt

Dropping Push for Early Rescheduling of Bonds Could Permit New Aid Loans

BERLIN—Germany is considering dropping its push for an early rescheduling of Greek bonds in order to facilitate a new package of aid loans for Greece, according to people familiar with the matter.

Berlin's concession that it must lend Greece more money, even without burden-sharing by bondholders in the short term, would help Europe overcome its impasse over Greece's funding needs before the indebted country runs out of cash in mid-July.

But some officials in Berlin hope that a short-term fix can be found that would allow a full deal including a bond rescheduling later this year.

----Officials from the ECB, the IMF and the European Commission are currently in Athens to find a way to generate additional cash—including for the Greek government to generate more money on its own. The so-called "troika" are expected to issue their conclusions by early next week, officials said.

Greece's government Monday stepped up preparations for billions of euros of new spending cuts, tax rises and privatizations that it plans to unveil in the next few days even as widespread public opposition to the measures continued to mount on the streets of Athens.

A decision on how the money is to be found is needed by late June. But that this would require Germany, the IMF or the ECB to back down. The new aid package, which officials from European finance ministries are due to discuss on Wednesday in Vienna, is likely to include new loans for Greece in return for greater Greek efforts to cut spending, improve tax collection and sell state assets under international supervision.

But officials from Germany, the Netherlands and Finland say it will be extremely difficult to win their parliaments' approval for additional Greek aid without some form of burden-sharing by Greece's private bondholders. The ECB has warned loudly that a debt restructuring, however mild, could cause a meltdown in Greece's banking system and financial panic around Europe's indebted periphery.

German officials have lost hope recently in the possibility of reaching an early agreement to extend the maturity of Greek bonds, Germany's preferred way of involving private investors. German Finance Minister Wolfgang Schäuble has said that a debt rescheduling can't be pushed through against the will of the ECB.



They can try to ‘delay and pray’ but the euro is running out of time

As a doomsayer from the start, who has written several times on the subject, I have recently been reluctant to burden my readers with more jeremiads about the euro.

Roger Bootle 29 May 2011

But fasten your seatbelts. Here I go again. My excuse is that this crisis keeps surprising the unwary. There is so much to say that I will have to have several bites.

Before we can find solutions, which I will discuss at a later date, first the causes. Why is the euro in crisis? Because it was fundamentally flawed at its inception. Only good luck, strong economic growth and enlightened economic management could keep it together. In fact, the eurozone has had to suffer the opposite of all three.

Giving up sovereign currencies is a serious challenge. Exchange rates act as a safety valve. When you remove them, the pressure either has to be reduced or it will find some other way out. In a fixed exchange rate system, such as the ERM, currency speculation could and did break the system. Advocates of the euro project drew comfort from the fact that, by contrast, a full monetary union is immune from such attacks.

It was recognised that economic and financial pressure might still find an outlet as countries which diverged from the core had to face higher bond yields. But this would be a good thing. The prospect of it should serve to restrain them. It wasn’t imagined, though, that strain in the bond markets could threaten the stability of the euro itself.

Four things went wrong. The first two were private sector failures. First, far from reacting to their newly shackled state, Spain and Ireland went on a private sector spending spree. (Meanwhile, in Greece the government led the bonanza.) Second, in all these cases, the bond markets were hopeless at foreseeing possible difficulties and imposed bond yields only marginally higher than on Germany. Accordingly, they provided no restraint at all.



While everyone’s attention is focused on the EU PIIGS and their looming sovereign debt default, Europe’s retail sales seem to be signaling worse might be underway. Under the weight of multiple austerity measures, Europe may be about to lurch into a new recession. Stay long gold and silver. On a fiat monetary system already operating on zero interest rate policies, all that’s left is a great monetization.

European Retail Sales Contract to 7-Month Low, Markit Says

By Patrick Henry - May 30, 2011

European retail sales contracted in May to the lowest level since October 2010, driven by a “sharp drop” in Italy, Markit Economics said.

A gauge of euro-area retail sales fell to 48.8 from 52.2 in April, London-based Markit Economics said today in a statement. The index is based on a survey of more than 1,000 executives and a reading above 50 indicates month-on-month expansion.

Italian retail sales declined at the fastest pace in 11 months in May, while monthly increases in Germany and France, the euro area’s largest economies, were the weakest in seven and three months, respectively, Markit said.

Data for the first two months of the second quarter “suggest a steep slowdown in growth of consumer spending in the single-currency area,” Trevor Balchin, a senior Markit economist, said in today’s report. “As a result of elevated cost pressures and falling sales, retailers’ gross margins deteriorated to the greatest extent for a year,”


Below, a new warning from someone who ought to know of what he speaks. A new financial crisis lies ahead because no one has fixed anything in the broken system.

Mobius Says Fresh Financial Crisis Around Corner Amid Volatile Derivatives

By Kana Nishizawa - May 30, 2011 12:10 PM GMT+0100

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in writedowns and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008. The MSCI AC World Index of developed and emerging market stocks tumbled 46 percent between Lehman’s downfall and the market bottom on March 9, 2009.

----The largest U.S. banks have grown larger since the financial crisis, and the number of “too-big-to-fail” banks will increase by 40 percent over the next 15 years, according to data compiled by Bloomberg.

Separately, higher capital requirements and greater supervision should be imposed on institutions deemed “too important to fail” to reduce the chances of large-scale failures, staff at the International Monetary Fund warned in a report on May 27.

“Are the banks bigger than they were before? They’re bigger,” Mobius said. “Too big to fail.”



We end for today with yet another growing stock scandal on the NYSE. This one holds the promise of much more yet to come. Sell in May, never looked better. More on “God’s work” on Wall Street.

The Audacity of Chinese Frauds

By FLOYD NORRIS Published: May 26, 2011

To pull off a fraud that humiliates the cream of the global financial elite, you need to have some friends. And where better to have them than at the local bank?

The fraud at Longtop Financial Technologies, a Chinese financial software company, was exposed this week in an amazing letter from its auditors, Deloitte Touche Tohmatsu. It appears to be a tale of corrupt bankers and their threats to auditors who had learned of the lies.

Deloitte, which had given clean audit opinions to Longtop for six consecutive years, apparently was well on its way to providing a seventh, for the fiscal year that ended March 31. But for some reason — Deloitte did not say why —the auditor went back to Longtop’s banks last week to again seek confirmation of cash balances.

It appears Deloitte sought confirmations from bank headquarters, rather than the local branches that had previously verified that Longtop’s cash really was on deposit. And that set off panic at the software firm.

“Within hours” of beginning the new round of confirmations on May 17, the confirmation process was stopped, Deloitte stated in its letter of resignation, the result of “intervention by the company’s officials including the chief operating officer, the confirmation process was stopped.”

The company told banks that Deloitte was not really the auditor. It seized documents, Deloitte wrote, and made “threats to stop our staff leaving the company premises unless they allowed the company to retain our audit files.”

Despite the company’s efforts, Deloitte learned Longtop did not have the cash it claimed and that there were “significant bank borrowings” not reflected in the company’s books.

A few days later, Deloitte said, Longtop’s chairman, Jia Xiao Gong, told a Deloitte partner that there was “fake cash recorded on the books” because there had been “fake revenue in the past.”

The stock has not traded since that confrontation. The final trade on the New York Stock Exchange was for $18.93, a price that valued the company at $1.1 billion. At its peak in November, it had a market capitalization of $2.4 billion.

It now seems likely that the stock is worthless. It is a real company, but its revenue and profits probably were a small fraction of the amounts reported. The existence of the “significant” debt means that whatever assets are left are likely to be owned by the banks, not the investors.

Deloitte may have decided to check the numbers again because it knew a growing group of bears on the stock had been challenging the Longtop story as too good to be true, questioning both its financial statements and the claims it made for its software. A month earlier, Deloitte resigned as the auditor of another Chinese company, China MediaExpress, in part because of questions about bank confirmations.

It is never good for an auditor to have certified a fraud, but Deloitte seems to have acted properly. It got bank confirmations, and it got them directly from the banks rather than relying on the company to provide them, as PricewaterhouseCoopers had done when it failed to notice a huge fraud at Satyam, an Indian technology company.

But the confirmations were lies.

“This means the Chinese banks were in on the fraud, at least at branch level,” says John Hempton, the chief investment officer of Bronte Capital, an Australian hedge fund. He was one of the bears who questioned Longtop’s claims and now stands to profit from the stock’s collapse.

“This is no longer a story about Longtop, and it is not a story about Deloitte,” he added. “Given the centrality of Chinese banks to the global economy, it’s a story much bigger than Deloitte or Longtop.”

The Securities and Exchange Commission has started an investigation, and no doubt more details will emerge, including the names of the banks involved. Just what, if anything, Chinese officials choose to do could provide an indication about whether defrauding foreign investors is deemed to be a serious crime in China.

Fraud in Chinese stocks is not new. But it had seemed that the worst problems were in small companies without Wall Street pedigrees. Many of the fraudulent companies went public in the United States by the reverse-merger shell route, a course long favored by shady stock promoters. That route allowed companies to start trading without going through a formal underwriting process or having its prospectus reviewed by the S.E.C. And many used tiny audit firms based in the United States that seemingly did little if any work.



Why did I take up stealing? To live better, to own things I couldn't afford, to acquire this good taste that you now enjoy and which I should be very reluctant to give up.

Cary Grant. To Catch A Thief.

At the Comex silver depositories Friday, final figures were: Registered 31.10 Moz, Eligible 70.32 Moz, Total 101.42 Moz.


Crooks and Scoundrels Corner.

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

Next, more on “God’s work” at Goldie. Being a Goldmanite requires real sacrifices and a high degree of skill. It’s not easy to get a 98% track record. Even a stopped clock is right twice a day. It’s tough work, but someone’s got to do it. Without Goldie, where would Greece be today? Libya? Not to worry, no Goldmanites were inconvenienced, let alone suffered financial hurt in the making of this WSJ epic.

"God, no, we don't club baby seals. We club babies."

Goldmanite, quoted in The Times of London. November 8 2009.

MAY 31, 2011

Libya's Goldman Dalliance Ends in Losses, Acrimony

In early 2008, Libya's sovereign-wealth fund controlled by Col. Moammar Gadhafi gave $1.3 billion to Goldman Sachs Group to sink into a currency bet and other complicated trades. The investments lost 98% of their value, internal Goldman documents show.

What happened next may be one of the most peculiar footnotes to the global financial crisis. In an effort to make up for the losses, Goldman offered Libya the chance to become one of its biggest shareholders, according to documents and people familiar with the matter.

Negotiations between Goldman and the Libyan Investment Authority stretched on for months during the summer of 2009. Eventually, the talks fell apart, and nothing more was done about the lost money.

An examination of the strange episode casts light on a period of several years when Goldman and other Western banks scrambled to do business with the oil-rich nation, now an international pariah because of its attacks on civilians during its current conflict. This account of Goldman's dealings with Libya is based on interviews with close to a dozen people who were involved in the matter, and on Libyan Investment Authority and Goldman documents.

Libya was furious at Goldman over the nearly total loss of the $1.3 billion it invested in nine equity trades and one currency transaction, people involved in the matter say. A confrontation in Tripoli between a top fund executive and two Goldman officials left the bankers so rattled that they made a panicked phone call to their bosses, these people say. Goldman arranged for a security guard to protect them before they left Libya the next day, they say.

Discussions inside Goldman about how to salvage the fractured relationship included Lloyd C. Blankfein, the company's chairman and chief executive, David A. Viniar, its finance chief, and Michael Sherwood, Goldman's top executive in Europe, according to documents reviewed by The Wall Street Journal and people involved in the negotiations. All three executives declined to comment.

Goldman offered the fund an opportunity to invest $3.7 billion in the securities firm. Between May and July of 2009, Goldman executives made three proposals that would have given Libya preferred shares or unsecured debt in Goldman, according to documents prepared by Goldman for the fund. Each proposal promised a stream of payments that would eventually offset the losses.

At the time, U.S. banks were under pressure from the U.S. government about their capital levels, among other things. In September 2008, Warren Buffett's Berkshire Hathaway Inc. had made a deal to invest $5 billion in Goldman, giving Berkshire a stream of cash and potential ownership of roughly 10% of Goldman. By May 2009, the Federal Reserve had told Goldman it had passed its "stress test," meaning that the firm wouldn't be required to raise additional capital. Goldman repaid Berkshire this April.

Longtop did not go public through a reverse merger. Its initial public offering, in 2007, was underwritten by Goldman Sachs and Deutsche Bank. Morgan Stanley was a lead manager in a 2009 offering of more shares.




“It's morally wrong to allow a sucker to keep his money.”

W. C. Fields.

The monthly Coppock Indicators finished April:

DJIA: +182 Up. NASDAQ: +236 Up. SP500: +185 Up.

The Dow and SP 500 and NASDAQ have all reversed from down to up. 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.

Sunday 29 May 2011

Weekend Update May 29, 2011

Baltic Dry Index. 1474

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

"The provision of... liquidity support undermines the efficient pricing of risk by providing ex post insurance for risky behaviour. That encourages excessive risk-taking, and sows the seeds of a future financial crisis. The provision of large liquidity facilities penalises those financial institutions that sat out the dance, encourages herd behaviour and increases the intensity of future crises."

Mervyn King. Governor of the Bank of England 2007.

This weekend, 3 articles that deal with the growing unintended consequences of a fiat money economy. Don’t worry, all 3 articles miss the connection to fiat money as the cause of the problems they seek to address. In a fiat money system, there’s very little downside to speculation. The lender of last resort is always ready to bail out the too big to fail banksters, and under intense political pressure from politicians and banksters alike, flood the system with cheap credit and newly minted cash to try to “stimulate” the failing economy. In a fiat system, all decisions about who gets supported and who gets hammered by austerity measures are entirely political. With floods of new money permanently available to “rescue” the ever more unstable system, fiat money is forever doomed to lose purchasing power. Never more so than at a time like this when essentially most of the banking system is still insolvent.

The market can stay irrational longer than you can stay solvent.

John Maynard Keynes.

Motoring coalition calls on EU to investigate soaring price of petrol

A coalition of motoring groups, whose members include the AA and the RAC, has written to the European Union demanding an investigation into the soaring price of petrol, claiming that market pricing is "far from transparent".

9:43PM BST 28 May 2011

With petrol prices reaching record highs, The Federation Nationale d'Automobile (FIA), which represents 35m drivers, has demanded an inquiry into how benchmark prices are set at Europe's key trading centre, the Rotterdam spot market.

UK petrol hit 137.43p per litre last month, driven by wholesale oil prices climbing above $125 per barrel. However, petrol prices did not drop back as quickly as the crude price fell.

The FIA's letter calls on Joaquin Almunia, the EU competition commissioner, to look into "transparency in crude oil and oil product prices" and "investigate the influence and proper functioning of price-fixing mechanisms as at the Rotterdam spot market for finished products".

The British Petrol Retailers' Association, representing 6,000 UK forecourts, has also written to the UK energy minister, Charles Hendry, and the Chancellor expressing concern about petrol pricing.

The Association is about to refer its concerns to the Office of Fair Trading, asking for it to look at the "grave issue" of transparent pricing and its impact on the retail market.

Rotterdam is the key spot trading hub where Europe's cargoes of petrol and diesel are bought and sold. Prices for each trade are gathered and reported by agencies. Petrol wholesalers base their prices on the benchmark assessments made by the agencies.

In his letter to the competition commissioner, Werner Kraus, chairman of the FIA Eurocouncil, said: "The fact that pump prices essentially depend on guideline prices of the Rotterdam spot market for finished products is a cause of particular astonishment.



"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

City needs to wake up and smell the coffee when it comes to commodities

When things smell wrong it's often because something rotten is festering. Commodity speculation might well turn out to be one of those instances.

By Jonathan Sibun, Assistant City Editor 8:00AM BST 28 May

----There's truth to some of that, but the flip side is that when things smell wrong it's often because something rotten is festering. Commodity speculation might well turn out to be one of those instances. And on this one the City shouldn't just stick its head in the sand and complain of revolting proles.

In recent months speculators have been accused of cornering the market in anything from cotton to cocoa. And it's not just charities and social welfare groups making the noise; business is getting in on the act.

Howard Schultz, barista-in-chief at Starbucks, warned earlier this month that speculators were causing the "inexplicable phenomenon" of coffee prices touching a 34-year high despite a lack of any supply-demand issues.

----Now we've got BMW pointing out that banks have cornered 70pc of the aluminium market. They're buying the metal, selling it forward at higher prices and storing it on the cheap in the interim, or so the car maker claims.



“A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."

John Maynard Keynes 1931

The Bank of England's astonishing escape from the financial crisis

The Bank of England has stood at the centre of the Britain's financial system for 317 years.

By Jeremy Warner, Assistant Editor 9:44PM BST 28 May 2011

It has withstood riots, runaway inflation, boom and bust and financial crises, including the devastating events of recent years. If nothing else, the Old Lady of Threadneedle Street has proved to be a survivor.

Having remained standing on its three-acre site, enclosed by Sir John Soane's windowless curtain wall, the Bank is, however, about to enter a new era. Come 2013, it will be granted unprecedented powers over both our financial system and the activities of individual banks and other financial firms.

The Bank's senior executives will sit in judgment over not only how much credit we can safely handle as a country, but also the individual decisions of bank chief executives. Only Parliament can question this near absolute power.

Over three days we will investigate the Bank's record, how the new system will work, the people involved and a potentially troublesome relationship with Europe. With access to the senior players at both the Bank and the soon-to-disappear Financial Services Authority, we reveal the coming financial power in the land.

----Given the calamities of the past four years, can the Bank be trusted with such all-embracing power? On the face of it, the record does not inspire confidence. Does it really make sense to be placing so much faith in an institution which many accuse of being asleep at the wheel as the biggest financial crisis in 100 years came crashing down on the economy?

----Well, if there was a failure in monetary policy in the lead-up to the crisis, the Bank of England was hardly the worst offender. All central banks can be accused of much the same thing, perhaps more so in the case of the US Federal Reserve and the European Central Bank.

Rather than letting the business cycle run its course, the quest for monetary policy became that of preventing recessions. Every time a crash or downturn loomed, the Fed, with the rest of the world's central bankers in tow, came riding over the hill to save the day by flooding the markets with cheap money – a phenomenon that became known as the "Greenspan put".



In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.

J. K. Galbraith

At a time like this, where America is running trillion and a half dollar deficits forever, where all major countries are on zero interest rate policies, making saving futile, and many are running QE programs to prop up their broken economies, why wouldn’t speculation on leverage, and casino capitalism be the only game in town. Don’t blame the specs, blame the system of fiat money instituted by a panicked President Nixon back in 1971. Hot money careens from one speculation to the next, checked only occasionally by central bank interventions that get progressively weaker as they get gamed. Welcome to the world on fiat money. As fiat fails, the game gets ever more bizarre as volatility make long term planning impossible. Eventually we will end up in fiat money revulsion, but probably that still 5 – 10 years away. Stay long physical gold and silver. We all know how this insolvency ends, we just don’t know the timing of when the world gets forced off fiat money.

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

John Maynard Keynes.


Friday 27 May 2011

Bunker Time.

Baltic Dry Index. 1467 +21

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

"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."

Murray N. Rothbard

This morning we are spoiled for choice as to which impending disaster strikes first. Does Greece take down the euro before Ireland, Portugal or Spain does, or does the looming end of the US QE2 program stop the commodity and stock markets dead in their boom? Can the euro last out till a US budget fight triggers a dollar collapse in the high summer? Will TEPCO do in Japan and the yen? Will hyperinflation in Belarus trigger a popular uprising against the repressive regime? If it does and the regime adopts the Bahrain strategy, does NATO or Russia intervene? Both? Will China’s great drought and food and fuel inflation, explode their gigantic property bubble? And don’t even mention the Middle East. What could possibly go wrong that fiat currency can’t fix?

We open with Greece practically forced to default or drop out of the euro, probably both.

German 10-Year Yield Drops Below 3%; IMF May Withhold Greece’s Bailout Aid

By Garth Theunissen and Keith Jenkins - May 26, 2011 5:10 PM

German government bonds rallied a Luxembourg Prime Minister Jean-Claude Juncker said the International Monetary Fund may not release its portion of aid for Greece next month, boosting demand for the safest assets.

The price gains pushed the yield on the 10-year bund below 3 percent for the first time in four months, while the two-year note yield slipped to a two-month low. Juncker told a conference in Luxembourg he didn’t think the IMF, European Union and European Central Bank were confident Greece could honor its debt commitments over the next 12 months, one of the “rules” governing whether aid funds would be released. Greek, Spanish and Portuguese bonds held gains.

“Definitely this would be a further step towards the worsening of the crisis if the IMF were not to support the Greek program for the time being,” said Kornelius Purps, an interest- rate strategist at UniCredit SpA in Munich

-----“There are specific IMF rules and one of those rules says that IMF can only take action when the refinancing guarantee is given over 12 months,” Juncker said. “I don’t think that the troika will come to the conclusion that this is given,” he said, referring to the IMF, EU and ECB.

Investors have favored the relative safety of German debt this quarter as the euro-region’s sovereign-debt crisis threatens to worsen, sending yields on the debt of Greece, Portugal and Ireland to record highs.



Next Dr. Doom thinks a Greek default no big deal.

Greek restructuring would not bring down Europe, says Nouriel Roubini

Nouriel Roubini, the New York University economist known as Dr Doom, says Greek restructuring would not bring down Europe's financial system.

12:53PM BST 26 May 2011

The economist, who earned his nickname by predicting the global financial crisis, says an orderly debt restructuring could pre-empt more trouble.

He says on his website that the "dogmatic" opposition to restructuring by European Central Bank (ECB) is the wrong stance and that Greece's debt is "unsustainable".

Mr Roubini says bondholders could be given new bonds that don't reduce the face value of their holdings but give Greece more time to repay them.

Mr Roubini says that would prevent banks that hold the bonds from having to take severe losses.


  Below the view for Europe’s paymaster, Germany. Forget about Europe’s insolvent banks, it’s the ECB that’s now really insolvent. From London, the European Monetary Union looks to have one foot in the grave and the other on that other thing. Stay long physical precious metals at maximum prudent exposure, i.e. about 10% of wealth, excluding the main residence, for most.

"The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians."

Henry Hazlitt

The Hidden Cost of Saving the Euro 05/24/2011

ECB's Balance Sheet Contains Massive Risks

While Europe is preoccupied with a possible restructuring of Greece's debt, huge risks lurk elsewhere -- in the balance sheet of the European Central Bank. The guardian of the single currency has taken on billions of euros worth of risky securities as collateral for loans to shore up the banks of struggling nations.

On the green fields near Carriglas, halfway between Dublin and Ireland's west coast, the wind whistles eerily around rows of half-finished houses. Most of these buildings are roofless, leaving their bare walls unprotected against the elements. Even the real estate brokers' for-sale signs and the project offices are gone. Hardly anyone in Carriglas believes that the houses will ever be finished.

There are many of these ghost towns in Ireland, including 77 in small County Longford alone, which includes Carriglas. They could end up costing German taxpayers a lot of money, as part of the bill to be paid to rescue the euro.

That bill contains many unknowns, but almost none of them is as nebulous as the giant risk lurking in the balance sheet of the European Central Bank (ECB), in Frankfurt. Many bad loans have now ended up on that balance sheet, including ones that were used to build houses like those in Carriglas and elsewhere. No one knows how much they are worth today -- and apparently no one really wants to know.

Since the beginning of the financial crisis, banks in countries like Ireland, Portugal, Spain and Greece have unloaded risks amounting to several hundred billion euros with central banks. The central banks have distributed large sums to their countries' financial institutions to prevent them from collapsing. They have accepted securities as collateral, many of which are -- to put it mildly -- not particularly valuable.

Risks Transferred to ECB

These risks are now on the ECB's books because the central banks of the euro countries are not autonomous but, rather, part of the ECB system. When banks in Ireland go bankrupt and their securities aren't worth enough, the euro countries must collectively account for the loss. Germany's central bank, the Bundesbank, provides 27 percent of the ECB's capital, which means that it would have to pay for more than a quarter of all losses.

----But even greater risks lurk in the accounts of commercial banks. The ECB accepted so-called asset-backed securities (ABS) as collateral. At the beginning of the year, these securities amounted to €480 billion. It was precisely such asset-backed securities that once triggered the real estate crisis in the United States. Now they are weighing on the mood and the balance sheet at the ECB.

No expert can say how the ECB can jettison these securities without dealing a fatal blow to the European banking system. The ECB is in a no-win situation now that it has become an enormous bad bank or, in other words, a dumping ground for bad loans, including ones from Ireland.



We end for the long weekend holiday in America and the UK, with “good news” from Japan. Thanks to a massive earthquake, followed by a devastating tsunami, which triggered a nuclear crisis that has cut Japan’s electric power production by up to 30%, Japan has swung out of consumer price deflation into consumer price inflation.

Japan Ends 25 Months of Deflation

By Mayumi Otsuma - May 27, 2011 4:22 AM GMT+0100

Consumer prices rose in Japan for the first time since 2008 last month after global energy and food costs climbed and retailers suffered product shortages in the aftermath of the nation’s earthquake and tsunami.

Prices excluding fresh food rose 0.6 percent from a year before, the statistics bureau said in Tokyo, matching the median of 25 estimates in a Bloomberg survey. Economy Minister Kaoru Yosano indicated that the report doesn’t signal sustained gains.

Japan’s victory over deflation reflects the impact of the March disaster, which caused a recession, rather than the economic renaissance officials have sought to end deflation that became entrenched in the late 1990s. The Bank of Japan is poised to keep its monetary stimulus, contrasting with counterparts from China to India that are tightening policy to stem inflation.

“The BOJ will probably add stimulus if it sees more signs of weakening demand,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “If you strip out energy and food costs, consumer prices are basically flat now.”

Retail sales fell 4.8 percent from a year earlier in April, the Trade Ministry said in a separate report released today, underscoring the impact on consumers from the March disaster. The drop reinforces forecasts for gross domestic product to shrink for a third straight quarter in the three months to June.



Of course, it’s only Keynesians and banksters who automatically think that inflation is a better thing than cheaper prices for consumers. On a sound money system, especially one properly anchored to a metallic clearing mechanism, steady to falling prices, linked to improving productivity, are how ordinary people benefit by a rising living standard and savings become worthwhile. It’s only corrupt banksters, gambling against the public bailout purse, using the fractional reserve ponzi scam, that need perpetual inflation to keep the ponzi scheme running. Having made the global banking sector insolvent, the next Lehman takes down the central banks and fiat money as we know it. Stay long physical precious metals.

The period August 15, 1971 to the present is a passing historical aberration. A period of collective madness imposed on the rest of the world by a cornered and desperate US President who couldn’t tell American’s that the country was broke and needed to massively devalue the dollar against gold. With the evil empire of godless communism still trying to bring down the west, and the memory of China’s murderous Great Proletarian Cultural Revolution, 1966-1969, still vivid in the mind, the rest of the world went along with the Great Nixonian Error out of necessity. That is no longer the case now, and the evils of fiat currency become more apparent with each passing crisis. Our increasingly unstable world is lurching relentlessly towards a fiat currency debacle.

The enemy was repelled. But victory was not won. The war dragged on for a year and there was no decision. Gold grew scarce, and again the Government was in despair.

"I easily relieved them. 'Write,' I said, 'promises on paper to be repaid in gold.' They did as I advised, paying me (at my request) a trifle of half a million for the advice. I handled the affair on a merely nominal profit. I punctually met for another year every note that was paid in. But too many were presented, for the war seemed unending and entered a third year."

"Then did I conceive yet another stupendous thing. 'Bid them,' said I to the Sultan, 'take the notes as money. Cease to repay. Write, not 'I will on delivery of this paper pay a piece of gold,' but, 'this is a piece of gold.'"

"He did as I told him. The next day the Vizier came to me with the story of an insolent fellow to whom fifty such notes had been offered as payment for a camel for the war and who had sent back, not a camel, but another piece of paper on which was written 'This is a camel.'"

Hilaire Belloc.

At the Comex silver depositories Thursday, final figures were: Registered 32.08 Moz, Eligible 69.73 Moz, Total 101.81 Moz.


Crooks and Scoundrels Corner.

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

Today, back to the dissemblers at TEPCO and the nuclear disaster at Fukushima. Far from stabilizing the problem is still growing with 100,000 tons of leaking radioactive water set to double by December. Why hasn’t TEPCO updated the radioactive release figures since April 12?

Fukushima Faces ‘Massive’ Water Problem

By Stuart Biggs and Yuriy Humber - May 27, 2011

As a team from the International Atomic Energy Agency visits Tokyo Electric Power Co.’s crippled nuclear plant today, academics warn the company has failed to disclose the scale of radiation leaks and faces a “massive problem” with contaminated water.

The utility known as Tepco has been pumping cooling water into the three reactors that melted down after the March 11 earthquake and tsunami. By May 18, almost 100,000 tons of radioactive water had leaked into basements and other areas of the Fukushima Dai-Ichi plant, according to Tepco’s estimates. The radiated water may double by the end of December.

“Contaminated water is increasing and this is a massive problem,” Tetsuo Iguchi, a specialist in isotope analysis and radiation detection at Nagoya University, said by phone. “They need to find a place to store the contaminated water and they need to guarantee it won’t go into the soil.”

The 18-member IAEA team, led by the U.K.’s head nuclear safety inspector, Mike Weightman, is visiting the Fukushima reactors to investigate the accident and the response. Tepco and Japan’s nuclear regulators haven’t updated the total radiation leakage from the plant in northern Japan since April 12.

Japan’s nuclear safety agency estimated in April the radiation released from Dai-Ichi to be around 10 percent of that from the accident at Chernobyl in the former Soviet Union in 1986, while a Tepco official said at the time the amount may eventually exceed it.

“Tepco knows more than they’ve said about the amount of radiation leaking from the plant,” Jan van de Putte, a specialist in radiation safety trained at the Technical University of Delft in the Netherlands, said yesterday in Tokyo. “What we need is a full disclosure, a full inventory of radiation released including the exact isotopes.”

The government plans to release details on the radiation released at the “appropriate time,” said Goshi Hosono, an adviser to Prime Minister Naoto Kan who is overseeing the crisis response and appears at daily briefings at Tepco’s headquarters.



Another weekend and a holiday one. The start of the “driving season” in the USA. The unofficial start of summer for many. This time round, will Greece still be in the euro come Tuesday? Will Belarus be in chaos? Will Gaddafi still be running part of Libya. Will sanity return to Washington regarding the budget? These great mysteries we put aside this holiday weekend, as Great Britain’s usual holiday weather returns for the outdoor events. Have a great weekend everyone. Check with the blog for updates. The next LIR is on Tuesday.

"All previous attempts to base money solely on intangibles such as credit or government edict or fiat have ended in inflationary panic and disaster."

Donald Hoppe

The monthly Coppock Indicators finished April:

DJIA: +182 Up. NASDAQ: +236 Up. SP500: +185 Up.

The Dow and SP 500 and NASDAQ have all reversed from down to up. 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.

Thursday 26 May 2011

China To The Rescue?

Baltic Dry Index. 1446 +48

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

The European Monetary Union doesn’t work and without a federal fiscal redistribution mechanism it will never be able to deliver prosperity. Every time an asymmetric demand shock hits the Eurozone, the weaker nations will fail. Trying to impose fiscal rules and austerity onto the EMU monetary system just makes matters worse.

Marshall Auerback.

Move over America’s Batman Bernanke and Robin Giethner, China’s Superman sovereign wealth fund is coming to the rescue of Portugal, says the chief executive of the European Financial Stability Facility. Well he would say that sort of thing I suppose. It might even be true too, China is still piling up excess dollar reserves at such a rate, they could buy up the whole Portuguese bailot bond offering and it wouldn’t make much of a dent in their overexposure to US dollar risk. When the Fed or the markets force US interest rates higher, China is only too well aware of the hammering they will take on this overexposure. Below, MarketWatch covers the story. Stay long precious metals. If China does go for the Portuguese bonds, in any future default they can probably insist that Portugal takes them back in a swap against Portuguese gold.

May 26, 2011, 1:43 a.m. EDT

China seen buying Portugal bailout bonds: report

SYDNEY (MarketWatch) -- China is interested in buying Portuguese bailout bonds when the European Financial Stability Facility starts auctioning the securities next month, the Financial Times newspaper reported late Wednesday. The report, which cited EFSF officials, said that China and other Asian investors are expected to represent a "strong proportion" of Portuguese bond buyers. Klaus Regling, chief executive of the EFSF, said that interest from Asia signaled that investors have confidence in the euro, according to the report. "They look at us and come to the conclusion it's a good way to diversify," Regling also said, according to the report.


While China rides in to rescue Portugal, presumably for old time’s sake after the Macau handover, unloved work and tax shy Greece takes a swing at Brussels and Berlin. Stay long precious metals ahead of the G-8 meeting and long weekend. Will Greece still be an EMU member on Monday?

"Buy gold and sit on it. That is the key to success."

Dr. Franz Pick

EU's Damanaki tells Greece euro membership at risk

ATHENS | Wed May 25, 2011 2:25pm BST

ATHENS May 25 (Reuters) - Greece must take tough measures to deal with its debt crisis or it will have to return to the drachma, the EU's Fisheries Commissioner Maria Damanaki said on Wednesday.

"I am forced to speak openly," Damanaki was quoted as saying in a statement by the semi-official Athens News Agency. "Either we agree with our lenders to a programme of tough sacrifices ... or we return to the drachma."

Damanaki, appointed by the ruling socialists, said Greece's biggest postwar achievement, joining the euro, was at risk and all else was secondary. (Reporting by George Georgiopoulos)


It's ever more obvious, Greece must leave the euro

I've hardly been alone, but that's no excuse. For more than a year now, I've been regularly predicting the euro crisis's final denouement, yet still it hasn't arrived.

By Jeremy Warner, Assistant Editor 7:42PM BST 25 May 2011

So I've been forced to reach a different conclusion; perhaps it never will. Instead, the eurozone has entered a seeming state of permanent crisis. In desperation, European policymakers have adopted a very British characteristic – the hope that they can somehow just muddle through.

But though no one can know the exact timing of the endgame – that's ultimately for the politicians to decide, so no time soon might be a reasonable bet – it's now fairly clear what that endgame must be.

What's presently being played out among the GIPS (Greece, Ireland, Portugal and Spain) is final proof that you cannot have a monetary union of such size among sovereign nations without compensating fiscal union. That simple underlying truth leaves the euro facing a choice between two equally unappetising outcomes.

Either the richer countries carry on bailing out the poorer ones more or less indefinitely, rather in the manner that Germany subsidises its formerly communist East, or membership of the euro has to be reconstituted on a smaller and more sustainable basis. There's really nothing in between. The longer European policymakers remain in denial about this choice, the worse the situation will become.

So it's with a sense of weary familiarity we approach the latest impasse. The European Central Bank is implacably opposed to debt restructuring, but the eurozone's solvent Northern states have reached the limit of their appetite for further bail-outs. This leaves Greece in an impossible position; it can neither reduce its debt burden through restructuring, nor will anyone lend it more money.



Up next, should Germany be forced out of the dodgy Euro instead, for being too successful for the others to compete? Yes, says Marshall Auerback on a guest posting on the excellent and often quoted website Naked Capitalism. The whole article is well worth the read.

With silent lips. "Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, these bankrupt, tempest-tost countries to me

The EMU. With apologies to Emma Lazarus.

Thursday, May 26, 2011

Marshall Auerback: To Save the Euro, Germany Has to Quit the Eurozone

By Marshall Auerback, a portfolio strategist, hedge fund manager, and Roosevelt Institute fellow

When the euro was launched, leading German politicians used to argue, with evident relish (and much to the chagrin of the British in particular), that monetary union would eventually require political union. The Greek crisis was precisely the sort of event that was expected to force the pace. But, faced with a defining crisis, Ms Merkel’s government is avoiding airy talk of political union – preferring instead to force harsh economic medicine down the throats of the reluctant Greeks, Irish, Portuguese and Spanish electorates. This is becoming both economically and politically unsustainable. If the objective is to save the currency union, perhaps policy makers are looking at this the wrong way around. In the end, paradoxically, to save the European Monetary Union, the least disruptive way forward would be for the Germans, not the periphery countries, to leave.



Of course it’s not going to happen, because Europe’s elite Eurocrats are still fully determined to try to make the unloved, highly politicized euro into the replacement of the dollar. Dollar envy still runs deep in the Brussels empire of Herman van Rompuy. If Germany did leave, it would probably pull others out with them into effectively a new German lead D. Mark currency union. The Euro would become a dead zone of France and bankrupt states of Club Med, Ireland, and the odds and sods of East Europe, unfit to get into the new D. Mark zone.

Next, more on what could all too easily turn into the next Lehman, and the first of the European political revolutions. If Belarus blows up in a popular revolution, what will NATO do if its repressed ? Can Russia be invited in Bahrain style, to suppress the local population? Can Poland? Stay long physical precious metals. The age of fiat currency is coming to an end.

"Never have the world's moneys been so long cut off from their metallic roots."

Murray M. Rothbard

VTB Says Belarus Bound for Meltdown, Ruble Plunge, as Locals Hoard Fridges

By Emma O’Brien and Alex Kudrytski - May 25, 2011 4:58 PM GMT+0100

Belarus is headed for an economic “meltdown” and the ruble will need to depreciate another 51 percent, VTB Capital said, as locals lay siege to shops and protest price increases after the central bank devalued the currency

The Belarusian central bank let the managed ruble weaken by 36 percent versus the dollar on May 24 as demand for dollars and euros from importers and households threatened to derail an economy already laboring under a current-account deficit equal to 16 percent of gross domestic product. Russia and other former Soviet partners last week agreed to give Belarus a $3 billion loan and urged President Aleksandr Lukashenko’s government to sell $7.5 billion of assets to replenish the state’s coffers.

“A ‘91-style meltdown is almost inevitable,’’ said Alexei Moiseev, chief economist at VTB Capital, the investment-banking arm of Russia’s second-largest lender, referring to the country’s economic slump after the collapse of the Soviet Union. ‘‘Rapid privatization is the only way that can help avert complete disaster.”

----Finance ministers from former Soviet nations agreed in Minsk on May 19 to give Belarus up to $3.5 billion over three years, with the first $800 million payment expected in the week after a separate meeting on June 4, Russian Finance Minister Alexei Kudrin said in Moscow yesterday.

---- Devaluing the currency will only worsen the situation for Belarus, VTB’s Moiseev said.

“The main problem is that the economy produces goods which consist of little else than a combination of imported spare parts,” he said. “So devaluation only makes things worse.”

Belarus’s economy effectively collapsed in 1991 as the disintegration of the Soviet Union eliminated natural markets for the country’s exports of farm machinery, textiles and agricultural products.

---- At the Minsk Refrigerator Plant Co. shop in the capital today, about 20 people queued in drizzling rain to use their rubles to buy fridges. While the shop didn’t open on the day of the devaluation, most of the models in the store already had ‘Sold Out’ stickers on their doors.

“I came on Saturday and it was a nightmare, the store was stormed by people who wanted to spend their rubles because of rumors about the devaluation,” said Nikolay, a 74-year-old pensioner who declined to provide his last name. His entire savings of 6 million rubles now buy one fridge compared with three before the devaluation, he said.



"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

At the Comex silver depositories Wednesday, final figures were: Registered 32.13 Moz, Eligible 69.10 Moz, Total 101.23 Moz.


Crooks and Scoundrels Corner.

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

Today, while our fiat currency world heads towards anarchy, a little light relief. Have you heard the one about the British judge vs the British coroner? It all ended well in the end after they reconciled, but the pathetic judge still ended up on trial. No this is not April 1.

Facts are meaningless. You could use facts to prove anything that’s even remotely true!

Homer Simpson.

Judge claims wife punched herself

A deputy High Court judge assaulted his wife during a row after he became “irritated” that she was comforting their cleaner while he was left without supper, a court was told yesterday.

:01AM BST 26 May 2011

James Allen QC, 62, told the court that his wife’s bruises were self-inflicted after she punched herself in the face. He claimed that, as the row continued, his wife snatched his glasses and crushed them to stop him leaving, before trying to grab the car keys from the ignition.

Bradford magistrates were told that Melanie Allen was cooking the evening meal when their cleaner, Amanda Clark, arrived and wanted to speak to her. Mr Allen was unaware that Mrs Clark’s mother had just been diagnosed with cancer. He took a file from his study and went upstairs to read until he heard Mrs Clark leave the house in Wakefield 90 minutes later.

“To be honest, I was irritable,” he told the court. “When I entered the kitchen I told the wife I was not very happy with Mrs Clark having visited. I had had nothing to eat all day and could not be bothered now.” He said the argument became more heated and he intended to drive away while his wife, an assistant deputy coroner, “cooled off”.

“I decided the best thing would be to put some distance between us,” said Mr Clark. “I started to move towards the kitchen door. My wife placed her body between myself and the kitchen door and repeated I was not leaving.” His wife then balled her fists and struck herself in the face in front of him.

When he managed to reach the garage doors, he said, his wife grabbed his glasses from his face and screwed them up. As one of the garage doors started to rise, it struck his wife’s leg, causing her to stumble.

Mrs Allen then jumped into the passenger seat, reached over and tried to reach the keys. The judge said he used one hand to fend her off and she tried to bite his hand.

He finally drove off and spent the night at his parents’ home 10 miles away.



"If ever there was an area in which to do the exact opposite of that which government and the media urge you to do, that area is the purchasing of gold."

Robert Ringer

The monthly Coppock Indicators finished April:

DJIA: +182 Up. NASDAQ: +236 Up. SP500: +185 Up.

The Dow and SP 500 and NASDAQ have all reversed from down to up. 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.

Wednesday 25 May 2011

The Next Lehman.

Baltic Dry Index. 1398 +29

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

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

The Bernank. 2002.

The end is nigh for Greece. Yesterday, even H.M.G. ministers were openly stating the obvious. Greece, and Ireland, Portugal, Spain and probably Italy, can’t magically solve their sovereign debt problems simply by austerity programs that destitute their populations. All the more so since the whole exercise is merely to bailout (mostly) Europe’s banks. Their populations are rapidly wising up to the bankster’s con. A debt default (restructuring) is coming, and it makes more sense to begin planning for it in an organized timely fashion. The individual central banks plus the ECB, can deal with the problem of recapitalizing any European banks in danger of failing. It’s only fiat money after all, but we are getting very close to resetting the failing fiat currency regime. Fiat currency was a gigantic error imposed on the free world by a panicked Republican President Nixon government that couldn’t bring itself to devalue the dollar against gold.

In effect they adopted the unconvertible fiat currency regimes of the USSR and China. Now chaos and the end game is in sight. Stay long precious metals. The world will not go on forever, passing over valuable intrinsic value commodities like oil, ores and foodstuffs, for electronic US fiat dollars (or euros, Pounds, Yuan,) that can be produced in unlimited quantity “at essentially no cost”.

"Borrowers will default. Markets will collapse. Gold (the ultimate form of safe money) will skyrocket."

Michael Belkin

Greece crisis worsens amid political stalemate

A damaging political stalemate is threatening to plunge Greece deeper into crisis as hopes of cross-party support for further austerity measures were dashed on Tuesday by the main opposition leader.

7:23PM BST 24 May 2011

Antonis Samaras, head of New Democracy, the conservative party that earlier this month called for a renegotiation of the original €110bn (£95bn) bail-out, said he would not support additional austerity measures, totalling €6bn, to reduce the country's budget deficit.

His refusal to back the government could jeopardise both payment of the rescue package's next instalment, of €12bn due in June, as well as ongoing talks over a second bail-out, of as much as €60bn.

The political wrangling came as Vince Cable, the Business Secretary, became the first UK politician to admit openly that Greece has no option but to restructure its €330bn of public debt.

"What they are going to have to do is to have a rescheduling of their debt and it can be done in a soft way or a hard way, and that's what the current debate is about," he said in a newspaper interview. "I think in practice what will happen, people are already discussing this, is a negotiated rescheduling.

"You can't just deal with this by cutting, cutting, cutting – it does not work."

Greece's debts are expected to hit 150pc of GDP this year, the highest in Europe, on top of a 10.5pc budget deficit. It has already begun retrenchment to reduce the deficit to 7.5pc this year, including €50bn of privatisations.

However, officials from the European Union and the International Monetary Fund (IMF), which put up the original €110bn loan, fear the country will miss its fiscal consolidation targets. The government has proposed a further €6bn of measures to bring the deficit down, but Mr Samaras said on Tuesday: "To this demonstrably mistaken recipe, I will not agree."

He has previously backed privatisations but warned that increasing taxes would only push the country deeper into recession.

Cross-party support is vital if Greece is to receive further loan instalments and a second bail-out. Brussels and the IMF have made it clear that "political groups set their disagreements aside".

Mr Samaras may be angling for a debt restructuring as Greek politicians have acknowledged it may be unavoidable. But some European officials fear a restructuring could trigger panic in the markets for all peripheral euro sovereign debt and spark a second credit crunch.

A second bail-out is expected to comprise of a fresh loan, further austerity, a fresh commitment on earlier agreements and a "soft restructuring" – or lengthening of the terms of the existing debt.

Insurance on Greek debt soared on Tuesday, implying a 71pc chance of default within five years.


We are living in a historical aberration that is fast heading to its end. On a fiat currency, buy now pay tomorrow system, we are rapidly using up the world’s scarce resources but leaving behind the bill for tomorrow’s generation. In a world headed to a 9 billion population just 40 years away, buy now pay tomorrow doesn’t work. Stay long precious metals. Fiat currency was always a stop gap quick fix for a USA that had gone bust in 1971. Forty years on, the fiat currencies’ derivatives gambling chickens are all coming home to roost. Sadly, an unprepared global public, is about to live through the collision of the age of austerity with the age of scarcity. Stay long precious metals for the unpleasant journey ahead.

"There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence."

Charles De Gaulle

Below, what the unstable decade ahead holds before we finally abandon the Great Nixonian Error of fiat money. Typically, right up to the end Belarus denied it was going to devalue at all. Wiser Belarussians have been swapping fiat Belarus rubles for petrol, foodstuffs, and anything of intrinsic tangible value all year. For the record, America continues on its “strong dollar” good as gold policy.

"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

Devaluation of Belarus Beats World Record


According to the World Bank, the official devaluation of the Belarusian ruble, held by the National Bank of Belarus on May 24, was the largest in the world for the past 20 years. The official rate of Belarusian ruble against a basket of currencies has fallen by 54.4%. A similar situation in the currency market was observed in Argentina in 2002 and Ethiopia in 1992, when the national currency of these countries depreciated by 54%.

The devaluation of 1998 in Russia ranks 4th in the World Bank ranking. The Russian ruble devalued by 38% against the basket of currencies then.
Belarusian ruble devaluation in 1999 was also insignificant, compared with the current situation, - 37%.
According to Telegraf, as of May 24 devaluation of Belarusian ruble to the currency basket has amounted to 71.62% since January 1, 2011.


"The desire for gold is the most universal and deeply rooted commercial instinct of the human race."

Gerald M. Loeb

At the Comex silver depositories Tuesday, final figures were: Registered 32.13 Moz, Eligible 69.17 Moz, Total 101.30 Moz.


Crooks and Scoundrels Corner.

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

No crooks or scoundrels today, just a re-emphasis of our Belarussian fate that awaits unless we change current EU and USA policies. There is absolutely no sign of any change in either entity. Nor in China or Japan, where equally fiat currencies are headed for the same fate. Japan will just try to “print” the new Yen for reconstruction. We are at one of the very few points in history, where every person of substance needs 10% of their wealth in physical gold and silver bullion.

"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

"To prefer paper to gold is to prefer high risk to lower risk, instability to stability, inflation to steady long term values, a system of very low grade performance to a system of higher, though not perfect performance."

William Rees-Mogg

The monthly Coppock Indicators finished April:

DJIA: +182 Up. NASDAQ: +236 Up. SP500: +185 Up.

The Dow and SP 500 and NASDAQ have all reversed from down to up. 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.

Tuesday 24 May 2011

Club Med, Club Mad, Club Bad, Club Sad.

Baltic Dry Index. 1369 +20

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

"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money."

Daniel Webster

In our ever more bizarre world on the Great Nixonian Error of fiat currency, the unintended consequences continue to pile up even faster than American profligate politicians can rack up new debt. Now the Middle Kingdom, undergoing a food and fuel inflation bout all of its own, seems about to experience a wobble in its spectacular three decade growth rate. As we know all too well from the Middle East, bad things tend to happen to social stability when food and fuel inflation walk the land, made all the more unstable by repressive regimes. Just what a near bankrupt Club Med doesn’t need on top of its own near insolvency. Paymaster Germany was in the midst of something of an export boom to the Middle Kingdom. As mentioned, the unintended consequences of fiat money are now coming in fast and furious.

Up first, Goldie sees the sky a little lower in the east.

"Let China Sleep, for when the Dragon wakes, she will shake the world."


May 24, 2011, 12:15 a.m. EDT

Goldman Sachs cuts China, Asia growth forecasts

-- Goldman Lowers China GDP Forecast, Raises CPI View

-- Goldman Cites Weak Data, High Oil For Change

-- Goldman Maintains Overweight View On China

SYDNEY (MarketWatch) -- Goldman Sachs Group Inc. on Tuesday cut its growth forecast for China and predicted inflation will accelerate, citing the impact of higher oil prices and supply-side constraints on the world's second-largest economy.

In addition the bank lowered its outlook for the Asia region, excluding Japan.

The U.S. investment bank cut its China 2011 and 2012 growth forecasts to 9.4% and 9.2% respectively, from previously forecast 10.0% and 9.5%. The bank raised its 2011 CPI forecasts to 4.7% from 4.3% and left 2012 unchanged at 3.0%.

"This is both a sharper and more extended slowdown than we had previously," said Goldman Sachs in a note dated Tuesday, with the bank continuing to keep a view of overweight on China within the Asia region.

Goldman's note comes just a day after the HSBC Chinese Purchasing Managers Index came in at a reading of 51.1, compared with 51.8 a month ago.


Next, the Telegraph’s Jeff Randall is spoiled for choice, but finally settles for the new developing Chinese appetite for swapping unconvertible fiat currency Yuan, for tangible asset gold bullion and coins. An asset with an intrinsic value totally lacking in a politically manipulated fiat currency. Stay long precious metals. Like all fiat currencies before it, our age of fiat currency dollar reserve standard is headed over a cliff, though for now the even more unlovable fiat euro currency seems likely to take the plunge first.

"We are in a world of irredeemable paper money - a state of affairs unprecedented in history."

John Exter

The Bank of England is failing this country

Its forecasting record is hopeless and inaction has left us with prices racing ahead of pay

By Jeff Randall 10:06PM BST 22 May 2011

With the Queen in Ireland, Benjamin Netanyahu in Washington and Dominique Strauss-Kahn in jail, news editors were spoilt for choice last week. As a result, a telling event in global markets – China's emergence as the world's biggest buyer of gold bars and coins – was barely reported.

---- By contrast, what's happening in the bullion market, and what it tells us about creditors' confidence in fiat currencies, is likely to have a profound and enduring impact on the course of international trade, the balance of economic power, and, in the end, the pounds in our pockets.

In the first quarter of 2011, Chinese investors bought 93.5 tonnes of gold, more than double the level in the same period of 2010. China has eclipsed India as the world's biggest market for gold, not because its citizens have developed a sudden urge for bling, but because they fear inflation.

They are right to do so. In China, prices are rising at more than five per cent a year, with the cost of food roaring ahead at 11.2 per cent. But at least Beijing is on the case: China's central bank has raised the cost of borrowing four times since October and has instructed its banks to slow lending.

In the United Kingdom, it's a different picture: we are stuck in the never never land of wishful thinking as a proxy for monetary policy. In April, inflation (as measured by the Consumer Price Index) bounced up to 4.5 per cent; the retail prices index, which includes mortgage costs, is running at 5.2 per cent.

Over the past five years, inflation has been above-target for 51 of the 60 months, averaging three per cent. What's more, it's heading in the wrong direction, with the Bank itself warning that CPI rises could soon reach five per cent.

On current form, by the time the Bank's governor Mervyn King retires in 2013, UK inflation will have been above-target for the best part of seven years. The Government's official guideline of two per cent for CPI has, de facto, been abandoned by the Bank of England and the Treasury.

Martin Wolf, who served on the Independent Banking Commission, wrote in the Financial Times last week that if the Bank's Monetary Policy Committee were paid a performance bonus, "its members would deserve nothing".

He was being generous. With the honourable exception of Andrew Sentance, who stepped down recently, having been for much of his time a lone voice against the perils of easy money, the MPC has failed the country.

Its forecasting record is hopeless. Worse still, its inaction has left us with prices racing ahead of pay (especially damaging for those on low incomes with no bargaining chips) and millions of savers sacrificed on the altar of "stimulating growth". How long will it be before the trade unions switch their focus from "protecting public services" to shoring up members' rapidly diminishing real wages? When that happens, the Bank's little game is over.



We return to the world of Club Mad. Despite massive repudiation at the polls at the weekend, Spain’s socialist government is determined to enter a death spiral similar to Greece and Ireland’s. The world’s markets think a Spanish default is more likely, as do I. Club Mad will successively go on to Club Bad, and then Club Sad.

"Borrowers will default. Markets will collapse. Gold (the ultimate form of safe money) will skyrocket."

Michael Belkin

Global stock markets fall as Spain default fears grow

Escalating fears about Europe's debt crisis hit markets around the world, as the Spanish government's battering at the hands of its voters stoked investors' doubts as to whether Madrid will be able to carry out their painful spending cuts as planned

By Emma Rowley 9:30PM BST 23 May 2011

The FTSE 100 closed down almost 2pc at 5,835.89 points, while the CAC 40 in Paris fell 2.1pc to 3,906.98 after the defeat of Spain's ruling Socialist party in local elections raised questions as to whether the economy deemed "too big to bail" can implement the necessary austerity measures.

In the US, the Dow Jones Industrial Average closed down 1.05pc at 12381.26. "What is clearly unnerving markets at the moment is just how unquantifiable the eurozone crisis still is," said David Jones, chief market strategist at IG Index.

The euro touched a record low against the Swiss franc and a two-month low against the dollar. Against the pound, the euro 0.4p to 86.99p. In contrast, the price of gold rallied to its highest in almost a fortnight, as investors took flight and looked to hedge their exposure to the risk that one of the eurozone's stragglers will default on its debt.

Spain's voter protest spooked investors already nervous about the prospect of electorates derailing bail-out plans and austerity packages for stricken European nations, as voters in the eurozone's successful economies resent what they view as hand-outs and those in struggling economies protest harsh fiscal reforms.

Concerns had also been rising after Standard & Poor's, one of the world's three biggest credit rating agencies, this weekend revised its outlook on Italian sovereign debt to "negative" from "stable".

The cut by S&P came after rival agency Fitch on Friday downgraded its view of Greece's debt by three notches, taking its view of the bailed-out nation's government debt further into "junk" territory.

S&P said it had altered its stance on concerns that Italy's tense centre-right coalition government could struggle to reduce the nation's public deficit. Italy has seen the slowest rate of growth in the European Union in the past decade at an average yearly expansion of just 0.2pc, official data showed on Monday.

Poor growth makes it harder for an economy to shrink its debt burden as tax receipts will disappoint.

There were also gloomy figures for the wider region as the index tracking the output of manufacturing and services in the eurozone, compiled by researcher Markit, indicated that May saw the slowest rate of growth in seven months.



Spain's 'Lost Generation' Vows to Fight On


Mass demonstrations and a historic defeat for the ruling Socialists in regional and local elections this Sunday have put unprecedented pressure on Spanish Prime Minister José Luis Rodríguez Zapatero. He has refused to bring forward national elections, but members of the young protest movement vow they won't give up until they're heard.

Spain's youth have often been accused of laziness, but over the last week tens of thousands of disillusioned young people took the initiative to camp out in squares across the nation to protest crippling unemployment, corruption and tough austerity measures by the government after the economic crisis. Activists also defied a ban on protests set last Friday by the country's Central Electoral Board, which feared they could disrupt regional and local elections.

But angry voters still managed to make themselves heard on Sunday amid the ongoing demonstrations, toppling Zapatero's Socialists (PSOE) in favor of the center-right opposition People's Party (PP) in most of the 8,000 municipal and 13 regional elections, even in the PSOE's traditional strongholds. While Zapatero admitted the results were the penalty for Spain's dismal economy and high unemployment, he declined to bring forward the general election, which must be held before March 2012.

---- One demonstrator, 33-year-old Oscar Morales Padro, has been looking for a steady job since finishing his psychology degree. "In Spain you can forget it," he said. Padro is like millions of other young Spaniards who have taken to the streets in the last week. Well-educated, but with no hope of finding a job -- a member of the so-called " Lost Generation."

Their movement symbolizes the mounting frustration over unemployment in Spain -- 45 percent among those under 25, and 21 percent overall, the highest rate in the European Union. Many allege the situation has worsened due to government austerity measures to reduce the national deficit and prevent a Greece-style EU and International Monetary Fund bailout.

Discontent is so widespread that even Spaniards living abroad have set up protest camps outside the country's embassies in Berlin, Paris, London and Amsterdam. Most of the events at home and abroad have been organized online by the Real Democracy Now movement, which became a household name virtually overnight after calling for demonstrations in around 50 cities last Sunday.


We end for the day with rising trouble in US real estate. Can any sustainable Us recovery really be underway while real estate is still in trouble? If not, what happens to the G-1 economy when Fed’s QE2 ends?

"The gold standard, in one form or another, will prevail long after the present rash of national fiats is forgotten or remembered only in currency museums."

Hans F. Sennholz

As Lenders Hold Homes in Foreclosure, Sales Are Hurt

By ERIC DASH Published: May 22, 2011

EL MIRAGE, Ariz. — The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.

---- Although sales have picked up a bit in the last few weeks, banks and other lenders remain overwhelmed by the wave of foreclosures. In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each they sell, and in once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.

Before the housing implosion, the inflow and outflow figures were typically one-to-one.



"The international monetary order is more precarious by far today than it was in 1929. Then, gold was international money, incorruptible, unmanageable, and unchangeable. Today, the U.S. dollar serves as the international medium of exchange, managed by Washington politicians and Federal Reserve officials, manipulated from day to day, and serving political goals and ambitions. This difference alone sounds the alarm to all perceptive observers."

Hans F. Sennholz

At the Comex silver depositories Monday, final figures were: Registered 32.14 Moz, Eligible 68.58 Moz, Total 100.72 Moz.


Crooks and Scoundrels Corner.

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

Today, how Reaganomics first bankrupted the evil empire of the USSR, and then bankrupted the bankster state of America itself.

"Every individual is a potential gold buyer, although he may not need the gold. It may be added to the store of personal wealth, and passed from generation to generation as an object of family wealth. There is no other economic good as marketable as gold."

Hans F. Sennholz

May 24, 2011, 12:01 a.m. EDT

Reagan insider: GOP destroyed U.S. economy, Part 2

Commentary: Tax cuts, wars, rates, dollar, new crash coming

By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — “My G.O.P. destroyed the U.S. economy.” Yes, that is exactly what David Stockman, President Ronald Reagan’s director of the Office of Management and Budget, wrote in a New York Times op-ed piece. Not “is destroying,” the GOP has “destroyed” the U.S. economy, setting up an “American Apocalypse.” And it’s getting worse.

----Last fall, Stockman’s hard-hitting op-ed was loaded with jabs like: “If there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt” screams “for austerity and sacrifice,” instead, the GOP insisted “the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase.” Obama blinked, pulled his punch. Let’s get both in the ring. See Paul B. Farrell’s ‘Reagan insider: GOP destroyed U.S. economy.’

Stockman’s latest attack proves he’s still a powerful fighter. Recently, Reason magazine’s editor-in-chief Nick Gillespie did a long interview with Stockman. The title builds on the book: “The Triumph of Politics Over Economics.” But instead of just looking back at the failure of a self-destructive Reaganomics, an older and wiser Stockman focuses us on the paradigm shift that’s destroying America from within.

In this new “Triumph of Politics Over Economics” we see America at a crossroads, struggling to redefine itself. Politicians have become the new economists. Politicians and their big money backers and lobbyists now rule the American economy like banana-republic dictators. Stockman calls this corrupt system the new “crony capitalism.” The old capitalist economics that made America the world’s greatest superpower no longer exist.

Today, professional economists are no more than hired guns for politicians with myopic ideologies and huge bankrolls that make it easy to justify lying, cheating and stealing from investors, workers, consumers, savers and taxpayers. Capitalism has morphed into a monopoly ruled by politicians who are serving a wealthy elite. Competition is a joke. Democracy is a farce. “We the People” no longer exists.



"The gold standard makes the money's purchasing power independent of the changing, ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence."

Ludwig von Mises

The monthly Coppock Indicators finished April:

DJIA: +182 Up. NASDAQ: +236 Up. SP500: +185 Up.

The Dow and SP 500 and NASDAQ have all reversed from down to up. 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.