Monday 16 May 2011

Can Anyone Save Greece?

Baltic Dry Index. 1306 -14

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

"Whenever an overall breakdown of a monetary or financial system occurs, return to gold always restores order, revives confidence and brings back prosperity."

Donald Hoppe

Our bizarre world gets more bizarre with each passing week. The head of the IMF seems to have had another “lapse of judgment” on his way to a meeting with Chancellor Merkel in Berlin, before heading over to Brussels for today and tomorrow’s EU meeting on what to do about Greece. Instead he is holed up in Harlem New York, the unwilling guest of the NYPD, pending a court appearance later today. Since the French plane he was taken from was headed to Paris and not Germany, that looks all to suspiciously like an attempt at flight, and might complicate his coming bail hearing. The Journal thinks it puts the second Greek rescue attempt under a cloud. The sooner the Greeks wise up to default being the best option, if not leaving the Euro in favour of a competitive devaluation of a reintroduced Drachma, the better it will be for all. Sooner or later, all of Europe’s PIIGS are likely to default as they all start entering a death spiral of endless austerity forever reducing their GDP and tax revenue.

We open with the Journal on the weekend’s soap opera style developments. Will this turn into Mr. Strauss-Kahn’s Tiger Woods moment?

"Gold will be around, gold will be money when the dollar and the euro and the yuan and the ringgit are mere memories."

Richard Russell

MAY 16, 2011

European Debt Talks Turn Murkier

IMF Chief's Expected Departure Complicates Efforts to Seal Commitments for Assistance to Greece and Portugal

BRUSSELS—When police plucked Dominique Strauss-Kahn from an airplane Saturday afternoon in New York, the International Monetary Fund chief was en route to Europe, the continent that has surprisingly become his highest-profile client.

Mr. Strauss-Kahn's arrest on sex-crime charges, which he denies, will almost certainly end his tenure at the Washington-based fund. But it will also complicate fraught negotiations among European governments as the sovereign-debt crisis moves into yet another critical phase.

The new chapter of the crisis is threatened by Greece, whose debt troubles provoked the first phase of the crisis before it was bailed out by the European Union and the IMF a year ago.

Greece's rescue package last year assumed it would raise money by issuing bonds starting next year, but financial markets remain so hostile that the prospect has been all but ruled out, leaving a hole of as much as €60 billion ($84.6 billion) in its finances for 2012 and 2013. European officials say the IMF has indicated it isn't comfortable continuing to fund Greece this year without a plan to address that shortfall.

Before his arrest, Mr. Strauss-Kahn was expected in Berlin on Sunday to meet German Chancellor Angela Merkel, and then on Monday in Brussels at a gathering of euro-zone finance ministers to discuss Greece.

The IMF committed just over a quarter of the €110 billion in aid granted to Greece, and it has said it will put up one-third of a proposed €78 billion rescue package for Portugal

European officials said they were ready for Mr. Strauss-Kahn to arrive in Brussels Monday and urge EU governments to commit to a further slab of bailout money to tide Greece over for 2012 and 2013, and for him to suggest that further IMF help would depend on such a commitment.

That would be highly controversial in Germany, where providing bailout funds for debt-ridden economies is politically unpopular. Officials there are instead pushing for ordering Greece to postpone repayments of bonds held by private investors that mature in 2012 and 2013.

That position, in turn, is opposed by the European Central Bank, which is wary of the impact of such a debt restructuring on the European banking system, and France.

----Without Mr. Strauss-Kahn present, it isn't clear how the talks would proceed. EU officials said they had received no indication of who, if anyone, will replace Mr. Strauss-Kahn at the meeting—though some expected his deputy and his acting successor, John Lipsky, would attend.

Mr. Strauss-Kahn, as a European politician of the first rank, commanded unusual influence in the Continent's power corridors. He "carries a very unique mix that makes him very relevant to the European crisis," said Uri Dadush, an economist at the Carnegie Endowment for International Peace in Washington.

More.

http://online.wsj.com/article/SB10001424052748704281504576325433634203262.html?mod=WSJEurope_hpp_LEFTTopStories

With the fiat monetary system getting ever more unstable with each passing month, and the voodoo economics genie of Quantitative Easing loose in the land, the world’s biggest bond fund has switched out of US Treasuries and into gold. Good for them I think, although I also think they should back it up with a sizable position in physical silver.

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

Dr. Franz Pick

Gold is our largest position: PIMCO’s equities manager

May 12, 2011 7:48 PM GMT

Anne Gudefin, PIMCO’s global equities portfolio manager, likes gold.

“The largest position in [our] fund is gold, which we think is a very good form of protection against what can go wrong,” said Gudefin in an interview with Fortune published on May 12

“We were encouraged by the fact that a lot of the central banks, especially in Asia, are big buyers. We think that's an underlying trend that's very favorable for gold,” she said.

The latest IMF data show that the central banks that have added to their gold positions include Thailand, Mexico, and Russia.

These central banks, like PIMCO, are likely attracted by gold’s historic reputation as a store of value, especially at a time of heightened uncertainties.

On the economics side, uncertainties include the European debt crisis, the US housing market, the US budget deficit, the possible negative effects of QE2, the Chinese properties market, and Chinese inflation

Globally, lingering concerns remain about potential oil disruptions from unrest in the Middle East and North Africa.

Against this backdrop, gold, an immutable precious metal that stored value for thousands of years and immune to all these uncertainties, looks particularly attractive to many investors.

http://uk.ibtimes.com/articles/144859/20110512/gold-pimco-gudefin.htm

There is no way of ending QE programs, I think, without triggering the collapse they were started to prevent. But QE forever will bring down the global fiat monetary system, voodoo economics is just that, voodoo economics. We are headed for the end this decade, of the Great Nixonian Error of fiat money. The benefits were all front loaded and largely dissipated, the negatives are now upon us, with QE forever eventually leading up to fiat currency revulsion and a rush into tangible assets.

"By common consent of the nations, gold and silver are the only true measure of value. They are the necessary regulators of trade. I have myself no more doubt that these metals were prepared by the Almighty for this very purpose, than I have that iron and coal were prepared for the purposes in which they are being used."

Hugh McCulloch

At the Comex silver depositories Friday, final figures were: Registered 32.75 Moz, Eligible 68.35 Moz, Total 101.10 Moz.

+++++

Crooks and Scoundrels Corner.

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

No crooks or cads today, just a warning on the imminent return of 1970s stagflation, but this time round likely making the 1970s version seem mild. The 1970s version, (inflation at its peak 13.5%,) was only defeated by then Chairman of the Federal Reserve Paul Volker raising Fed Funds up to 20%. (The Prime Rate, still important back then, hit a high of 21.5%.) A severe recession then ensued, although thankfully back then, most of the world and most Americans, held relatively little personal debt. Inflation quickly fell back to 3.5%. There is likely to be no such happy ending this time round. Raising interest rates will trigger the next Lehman and collapse the US real estate markets again. Europe’s tottering economies will collapse. The end of fiat currency as we know it approaches. Stay long physical precious metals. It may not be a perfect hedge, but it is far better than no wealth hedge at all.

"From a strictly economic point of view, buying gold in a major inflation and holding it probably presents the least risk of capital loss of any investment or speculation."

Henry Hazlitt

Spectre of stagflation reappears as the excesses of QE hit home

Between January and March, we now know, the UK economy grew only 0.5pc.

By Liam Halligan, Economic Agenda 5:24PM BST 14 May 2011

This followed the previous quarter's 0.5pc contraction. While presenting its quarterly Inflation Report last week, the Bank of England also downgraded its 2011 growth forecast from 2pc to 1.75pc, while suggesting that the squeeze on household incomes, currently the worst in around 80 years, is set to continue.

Just as UK output is looking shaky again, prices are cranking up – another reason, of course, why real incomes are falling. Consumer price inflation grew 4pc during the year to April – more than double the Bank's "target". The much more accurate RPI measure rose 5.3pc.

It's not just the UK experiencing this sickening combination of sluggish growth and rising prices. New figures suggest US first-quarter growth was also feeble, with America expanding just 0.4pc.

The Federal Reserve, meanwhile, while scaling back official growth forecasts, has just raised its 2011 inflation prediction range to 2.1pc-2.8pc. In April, consumer inflation in the States reached 3.2pc, the highest figure since October 2008.

Rising inflation and stagnating growth raises the spectre of 1970s-style "stagflation". Banished for decades from the lexicon of economists, this ugly word is now re-entering the mainstream. As well as bringing misery on Western households, looming stagflation also has the capacity to seriously spook Western, and ultimately global, financial markets.

Oil prices have tumbled from recent highs, but crude remains well above $100 a barrel. Sharp rises in the price of food are also causing pain, and even civil unrest, in many emerging economies.

The Western world, by a very long way, has yet to recover from the economic fall-out sparked by the sub-prime debacle. With recovery still fragile in the US and across much of Europe, there are real fears that, unless commodity markets ease very significantly, higher fuel prices will feed into almost all other goods – not only food, but also non-perishable manufactured products and services too. Such a scenario, combined with weak growth, could tip us into a confidence-sapping stagflationary spiral.

More.

http://www.telegraph.co.uk/finance/comment/liamhalligan/8514023/Spectre-of-stagflation-reappears-as-the-excesses-of-QE-hit-home.html

"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."

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.

No comments:

Post a Comment