Baltic Dry Index. 1320 -14
LIR Gold Target by 2019: $30,000. Revised due to QE.
Each success only buys an admission ticket to a more difficult problem.
Henry Kissinger.
The official EU-ECB plan is to bailout the PIIGS through 2013, and then let them default by restructuring their sovereign debt, most likely by lengthening maturities and possibly dropping the interest rate. I’m not sure that Greece and Ireland can get that far. Today, the European Monetary Union sleepwalking its way to the edge of a cliff. Stay long precious metals. Sooner or later a bankruptcy, called restructuring in polite society, is coming. Sooner or later Club Med Spain will need a German handout too. From the right side of the English channel, it increasingly looks to me like Italy and Belgium are headed for the German Chancellery next year. But Germany can’t bailout everyone and should even try. Greece, Ireland and Portugal need to be working on their individual restructuring plans and implementing them ASAP.
"We are not discussing the exit of Greece from the euro area. This is a stupid idea and an avenue we would never take."
Jean-Claude Juncker. Luxembourg Prime Minister and president of the Euro Group of Finance Ministers.
Greece Default Anticipated by 85% in Investor Poll
By Simon Kennedy - May 13, 2011
International investors view a sovereign default by a euro-area nation as more likely than not with more than four-fifths betting Greece will eventually fail to pay off its debt.
Eighty-five percent of those surveyed this week said Greece probably will default, with majorities predicting the same fate for Portugal and Ireland, which followed Greece in seeking European Union-led bailouts, a new Bloomberg Global Poll shows. The outlook for all three countries deteriorated since January.
“All these countries will go bust at some stage,” said Wilhelm Schroeder, a poll participant who helps manage the equivalent of about $172 million for Schroeder Equities GmbH in Munich. “I just can’t see a scenario in which these countries get out of their debt problems.”
The pessimism underscores how investors remain unconvinced that European policy makers can prevent the euro-area’s first default even as they look to beef up Greece’s 110 billion-euro rescue package ($156 billion). The cost of insuring against a Greek default reached a record this week as investors increased bets the country won’t be able to make good on its borrowing.
Credit default swaps on Greek debt reached an all-time high 1,371 basis points on May 9, the same day the country’s two-year bond yield closed at a record 25.6 percent.
More
MAY 13, 2011
Greek Woes Spur Tough Options
A senior International Monetary Fund official said Thursday that debt restructuring would provide no miracle cure for Greece's debt crisis, as a delegation of European and IMF officials continued to pore over the Greek government's finances in Athens.
The delegation is in the Greek capital to examine whether the country's tough economic program is still on track and whether its financing plan is sustainable. Their agreement is needed before they release another slice of funds next month from a €110 billion ($157.8 billion) rescue package agreed upon a year ago.
But public- and private-sector analysts agree that the €110 billion won't be enough, saying Greece will need to find a way to fill a finance shortfall of as much as €60 billion to tide it through 2013.
"Obviously, there is going to be new official money," said Alessandro Leipold, a former senior IMF official who is now chief economist at the Lisbon Council, a Brussels think tank.
One way to ease Greece's troubles would be to change the terms of Greece's existing private debt—a so-called restructuring. However, Antonio Borges, director of the IMF's European department, speaking said in Frankfurt that he doesn't see a "miraculous restructuring solution" to Greece's debt travails.
But that raises the question: What are Greece's options? The government has slashed spending. It has been told to increase taxes. A garage sale of government assets—a horse-racing concession, disused Olympic facilities, parcels of land—is opening soon. Mr. Borges said Greece's €50 billion privatization program potentially represents less than 20% of "an extraordinary portfolio of assets" that could be sold off to raise cash.
But raising anywhere this amount through asset sales would encounter huge domestic political opposition and there is a growing consensus among EU officials that more bailout money will be needed. German Finance Minister Wolfgang Schäuble said on Thursday that Germany could provide more aid to Greece—under strict conditions.
More
"When it becomes serious, you have to lie"
Jean-Claude Juncker. Luxembourg Prime Minister and president of the Euro Group of Finance Ministers. Confessed liar.
The Irish Times - Saturday, May 7, 2011
Ireland's future depends on breaking free from bailout
OPINION: Ireland is heading for bankruptcy, which would be catastrophic for a country that trades on its reputation as a safe place to do business, writes MORGAN KELLY
WITH THE Irish Government on track to owe a quarter of a trillion euro by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable. By the time the dust settles, Ireland’s last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed.
Ireland is facing economic ruin.
While most people would trace our ruin to to the bank guarantee of September 2008, the real error was in sticking with the guarantee long after it had become clear that the bank losses were insupportable. Brian Lenihan’s original decision to guarantee most of the bonds of Irish banks was a mistake, but a mistake so obvious and so ridiculous that it could easily have been reversed. The ideal time to have reversed the bank guarantee was a few months later when Patrick Honohan was appointed governor of the Central Bank and assumed de facto control of Irish economic policy.
As a respected academic expert on banking crises, Honohan commanded the international authority to have announced that the guarantee had been made in haste and with poor information, and would be replaced by a restructuring where bonds in the banks would be swapped for shares.
Instead, Honohan seemed unperturbed by the possible scale of bank losses, repeatedly insisting that they were “manageable”. Like most Irish economists of his generation, he appeared to believe that Ireland was still the export-driven powerhouse of the 1990s, rather than the credit-fuelled Ponzi scheme it had become since 2000; and the banking crisis no worse than the, largely manufactured, government budget crisis of the late 1980s.
----Honohan’s miscalculation of the bank losses has turned out to be the costliest mistake ever made by an Irish person. Armed with Honohan’s assurances that the bank losses were manageable, the Irish government confidently rode into the Little Bighorn and repaid the bank bondholders, even those who had not been guaranteed under the original scheme. This suicidal policy culminated in the repayment of most of the outstanding bonds last September.
Disaster followed within weeks. Nobody would lend to Irish banks, so that the maturing bonds were repaid largely by emergency borrowing from the European Central Bank: by November the Irish banks already owed more than €60 billion. Despite aggressive cuts in government spending, the certainty that bank losses would far exceed Honohan’s estimates led financial markets to stop lending to Ireland.
----Ireland’s Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: “You are Ireland’s salvation.”
The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.
The negotiations went downhill from there. On one side was the European Central Bank, unabashedly representing Ireland’s creditors and insisting on full repayment of bank bonds. On the other was the IMF, arguing that Irish taxpayers would be doing well to balance their government’s books, let alone repay the losses of private banks. And the Irish? On the side of the ECB, naturally.
In the circumstances, the ECB walked away with everything it wanted. The IMF were scathing of the Irish performance, with one staffer describing the eagerness of some Irish negotiators to side with the ECB as displaying strong elements of Stockholm Syndrome.
The bailout represents almost as much of a scandal for the IMF as it does for Ireland. The IMF found itself outmanoeuvred by ECB negotiators, their low opinion of whom they are not at pains to conceal. More importantly, the IMF was forced by the obduracy of Geithner and the spinelessness, or worse, of the Irish to lend their imprimatur, and €30 billion of their capital, to a deal that its negotiators privately admit will end in Irish bankruptcy.
More.
http://www.irishtimes.com/newspaper/opinion/2011/0507/1224296372123.html?via=mr
Over in America, the Fed’s non existent inflation, is now showing up in stalling retail sales, as food and fuel inflation siphon off dollars from the rest of the retail sector. Latest wholesale figures suggest that there is still more inflation working its way through the system, although the recent sharp sell-off in crude oil prices, should eventually bring real relief to fuel inflation.
US retail sales hit by food and petrol rises
US retail sales saw their smallest increase in April since last summer's slowdown, suggesting that the sharp rises in food and petrol prices are denting Americans' spending power
By Richard Blackden, in New York 8:03PM BST 12 May 2011
Sales climbed 0.5pc in the month, the weakest gain since July, although that came on the back of a 0.9pc increase in March, the Commerce Department said on Thursday. US consumer spending accounts for about 70pc of the world's largest economy, and, after it slowed sharply in the first quarter of the year, analysts are watching anxiously to see if spending will regain momentum in the second half of the year.
"We believe more stable prices will be needed to keep unit demand, production and employment on track," said Steven Weiting, an economist at Citigroup. "As such, the more recent oil prices correction is quite timely."
Despite the 14pc drop in oil prices over the past two weeks, gasoline prices still remain at relatively lofty levels. The average price per gallon reached $3.99 (£2.44) on May 4, according to the AAA, a US motoring organisation, and averaged $3.81 in April compared with $3.54 in March. The hope is that gasoline prices start easing before the peak summer driving season begins next month.
"With higher gas prices eating into the available income for discretionary spending, the consumer faces stiff headwinds," said Joshua Shapiro, an economist at MFR. "This underscores how absolutely key it is that the labour market continues to improve."
Wholesale Prices in U.S. Rise More-Than-Forecast 0.8%, Led by Food, Energy
By Timothy R. Homan - May 12, 2011 1:54 PM GMT+0100
Wholesale costs in the U.S. rose more than forecast in April, led by higher prices for food and fuel.
The 0.8 percent increase in the producer-price index compares with the 0.6 percent median estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The core measure, which excludes volatile food and energy costs, climbed 0.3 percent, more than projected.
Rising costs may lead businesses such as Whole Foods Market Inc. (WFMI) to increase prices, boosting the cost of living for American consumers. At the same time, Federal Reserve Chairman Ben S. Bernanke said he expects commodity prices to moderate.
We end for the week with Germany. From nuclear to a green energy switchover in 10 years? That seems to be the latest plan in Germany. Are German reactors really that dangerous? Are German nuclear engineers really more incompetent than Japan’s? I have my doubts that green energy can replace nuclear in such a short timeframe, but if Germany tries it will set of a European boom in the renewable energy sector.
05/12/2011
'A Reliable Energy Supply' Without Nuclear Power
A draft report on the future of nuclear energy in Germany has come to the conclusion that all the country's reactors should be shut down by 2021. But while setting a deadline might be a political necessity, German commentators argue that Chancellor Angela Merkel's government should focus on the changeover to renewables.
Shortly after the Fukushima nuclear disaster started in March, German Chancellor Angela Merkel surprised voters by calling for a swift German phase-out of nuclear power. At the time even allies accused her of playing politics, but she hasn't wavered, and now a draft of a report she ordered from a special Ethics Commission on a Safe Energy Supply has been leaked. The 28-page draft -- which may change before it's officially released at the end of May -- recommends "a complete withdrawal" from nuclear energy by 2021.
The implications would be huge. Germany is the world's fourth-largest industrial nation. A nuclear phase-out would require an unprecedented national push to make renewable energies potent enough to keep German factories, computer networks, espresso machines, laptops and electric cars humming through the 21st century.
The ethics report sees obstacles, like potential damage to the environment if green technologies are developed too quickly, or a reliance on imported nuclear power to pick up any slack, as well as a new reliance on domestic coal. But it implies that an "Energiewende" -- or national energy transformation -- would be possible by 2021, the rough deadline for a total shutdown of German reactors envisioned by a groundbreaking law enacted under former Chancellor Schröder in 2002.
Prior to Fukushima, Merkel had spent months carefully reversing the Schröder policy, in what her critics described as a gift to the nuclear lobby. But she changed her mind with dizzying speed after the tsunami in Japan. The ethics commission argues in its draft that the Fukushima disaster "demonstrates the limitations of human disaster-preparedness and emergency measures," even "in a highly organized, high-tech country like Japan" -- echoing Merkel's own concerns.
German papers welcomed the leaked report on Thursday but pounced on some of its details.
More.
http://www.spiegel.de/international/germany/0,1518,762150,00.html#ref=nlint
"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
At the Comex silver depositories Thursday, final figures were: Registered 32.75 Moz, Eligible 68.41 Moz, Total 101.16 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today, a little closer to the truth about what went wrong at Fukushima. Now all we need is the real radioactivity readings and where it mostly went. I wonder if they can see Fukushima from the Space Station at night? Yen anyone?
MAY 13, 2011
At Reactor, Damage Worse Than Feared
Unit at Japan's Fukushima Nuclear Plant Came Closer to Meltdown Than Previously Revealed; Questions Over Quake's Role
One of the reactors at Japan's Fukushima Daiichi nuclear plant likely suffered a substantial meltdown of its core, operator Tokyo Electric Power Co. said Thursday, offering a fresh assessment of the reactor that suggests it came closer than the operator had previously revealed to a catastrophic meltdown.
It is likely that the fuel rods that form the core of Reactor No. 1 had more than half melted in March, Tepco spokesman Junichi Matsumoto said Thursday. That assessment came after Tepco this week determined that both of the vessels that surround the reactor core may be damaged, leaking water that is supposed to be keeping the core cool.
The reactor core is still contained inside those vessels, Mr. Matsumoto said, and the temperature is stable. That indicates the accident didn't reach the most severe level, where fuel rods melt through those vessels and release massive amounts of radioactive .
The findings raise a host of questions about the chain of events that led to the damage and have implications for future plant regulation in Japan and beyond. It also suggests that radioactive water has leaked into the reactor's basement in greater-than-believed quantities, likely dealing additional delays to the stricken plant's cleanup.
Tepco's assessment came after workers entered the reactor building this week and fixed a faulty water-level gauge. They determined that the reactor's pressure vessel—the cylindrical steel container that houses the fuel rods—had only about half the level of cooling water as previously thought.
That suggested Reactor No. 1 is likely more severely damaged than Tepco believed and could be leaking large amounts of highly radioactive water. It also shows that the area enclosing the fuel rods wasn't mostly submerged in cooling water, as Tepco had thought, but was instead high and dry.
The finding spurred experts to ask whether leaks or holes could have been caused by the 9-magnitude earthquake that struck Japan's northeastern coast on March 11. Tepco has said the damage at Fukushima Daiichi resulted from the subsequent tsunami, which cut power to the plant's cooling systems, causing reactor temperatures and pressure to rise to damaging levels.
If it turns out that Reactor No. 1's vessels were in fact damaged by the quake, that would lead to a wholesale review of earthquake standards for nuclear plants, warned Ken Nakajima, a professor of nuclear engineering at the Research Reactor Institute, Kyoto University.
----Some U.S. experts said Tepco simply has acknowledged what U.S. nuclear experts already believed was the case—that severe core damage has occurred which allowed radioactive material to migrate outside the thick steel walls of the pressure vessel. One indication of this breakdown in normal protective barriers has been the high radiation readings in the containment area and reactor building.
Previously, Tepco officials had said they believed there had been "damage" to the fuel rods but didn't specify what that meant. On Thursday, for the first time, officials conceded that the fuel rods likely had "melted," crumbled or changed shape, and that the fuel had probably fallen from its casings.
-----Soon after the March 11 quake and tsunami knocked out the plant's cooling systems, temperatures in the No. 1 reactor likely rose to more than 2,000 degrees Celsius, experts have said, well above the point at which the metal casings of the fuel rods would begin to melt. The fuel pellets inside would start melting at 2,800 degrees, potentially fusing into a dangerous large mass. Tepco estimates the fuel rods in the No. 1 reactor have been 55% destroyed, making it the worst-damaged of the plant's six reactors.
More
Another weekend, and the finale of the Royal Windsor Horse Show in the Royal County of Berkshire. For those able to visit the events, set below the world famous castle and next to the River Thames opposite Eaton, it is well worth the effort to attend. For everyone else in summery, drought heading, Merrie Olde England, it’s time to hit the countryside to see the finale of the May blossom, aka Hawthorn. Have a great weekend everyone.
“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 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.
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