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.
More.
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.
More
http://www.spiegel.de/international/business/0,1518,764299,00.html
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.
More
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.
More
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.
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