Baltic Dry Index. 1434 -22
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
"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
Today the WSJ posits that the great Chinese property bubble is bursting. If it is, this is a fine time for the Fed to be ending their current QE program. Without China’s property bubble largely driving the Chinese domestic economy, the global rebound from the 2007-2009 Great Recession probably wouldn’t have taken place. If the Journal is right on the end of the property bubble, hard times are coming to our world still struggling to adapt to $100 oil and a large bout of food price inflation. Sell in May and go away, may have been tailor made for 2011 if the Journal’s writers are correct. Below that, via Reuters, China warns Uncle Sam’s Tea Partiers, “don’t even think about a technical debt-default”, in the continuing US partisan politics over the budget. Stay long physical gold and silver. With this as the business background to the fiat currencies, monetary chaos lies ahead. Equally of concern, the Baltic Dry shipping index is slipping again, languishing in the mid teens. An implied slowdown in the world economy in H2 2011.
"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
JUNE 9, 2011
The Great Property Bubble of China May Be Popping
BEIJING—After years of housing prices gone wild, China's property bubble is starting to deflate.
Residential prices are heading downward in some major cities, damping some undesired real-estate speculation but raising the prospect that the Chinese economy may slow more rapidly than anticipated with profound consequences for global growth.
Real estate is a foundation of China's phenomenal growth record in the past two decades, and its health is crucial to China's construction, steel and cement sectors. Real estate is also a favored investment of Chinese looking to get better returns than bank deposits pay. Local municipalities and provinces depend on rising prices for land sales as well to fund infrastructure projects.
World Bank economists warned at a Beijing press briefing on Wednesday that a real-estate bubble was among the biggest economic risks China faces.
Already, in nine major cities tracked by Rosealea Yao, an analyst at market-research firm Dragonomics, real-estate prices fell 4.9% in April from a year earlier. Last year, prices in those nine cities rose 21.5%; in 2009, the increase was about 10%, as China started to recover from the global economic crisis, with much steeper increases toward the end of that year.
A downturn in property and apartment prices would harm Chinese industry and investment, and crimp consumer spending. China is a "housing-led economy," says UBS economist Jonathan Anderson, who estimates that property construction alone accounted for 13% of gross domestic product in 2010, twice the share of the 1990s.
While China's anticipated growth is still well above that of other large economies, any reduction could have deep consequences. The global economy is now even more dependent on China for demand for anything from commodities to luxury goods, given the tepid recovery in the U.S. and Europe's continuing sovereign-debt problems.
If the Chinese housing market slows faster than people had expected, the impact would be felt in a number of markets that export heavily to China. Many Latin American and African economies have shifted their focus toward Chinese demand for their raw materials, and many Western firms, including U.S. retailers and fast-food chains, now bank on Chinese consumers feeling wealthier to make up for stagnating sales elsewhere. Also, plans by local Chinese governments to improve infrastructure loom large for heavy-equipment makers like Caterpillar Inc.
More
China warns U.S. debt-default idea is "playing with fire"
SINGAPORE | Wed Jun 8, 2011 8:41pm EDT
(Reuters) - Republican lawmakers are "playing with fire" by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China's central bank said on Wednesday.
The idea of a technical default -- essentially delaying interest payments for a few days -- has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday.
But any form of default could destabilize the global economy and sour already tense relations with big U.S. creditors such as China, government officials and investors warn.
Li Daokui, an adviser to the People's Bank of China, said a default could undermine the U.S. dollar, and Beijing needed to dissuade Washington from pursuing this course of action.
"I think there is a risk that the U.S. debt default may happen," Li told reporters on the sidelines of a forum in Beijing. "The result will be very serious and I really hope that they would stop playing with fire."
China is the largest foreign creditor to the United States, holding more than $1 trillion in Treasury debt as of March, U.S. data shows, so its concerns carry considerable weight in Washington.
"I really worry about the risks of a U.S. debt default, which I think may lead to a decline in the dollar's value," Li said.
Congress has balked at increasing a statutory limit on government spending as lawmakers argue over how to curb a deficit which is projected to reach $1.4 trillion this fiscal year. The U.S. Treasury Department has said it will run out of borrowing room by August 2.
More
In other Asian news, Asia’s second largest economy got the tiniest smidgeon of “good news” yesterday. The Japanese economic contraction is hopefully stabilizing. All the other news out of Japan was dismal. Yet another Tepco nuke plant is about to dump radioactive water into the sea. Whatever were they thinking when they built multiple nuclear plants near an active earthquake zone on a coastline famous for tsunamis? However much all 10 nuclear plants have earned since coming on-stream, it pales compared to what must be spent now and over the next few decades trying to clean up the mess.
June 8, 2011, 7:59 p.m. EDT
Japan GDP shrinks unrevised 0.9% in Jan.-March
LOS ANGELES (MarketWatch) -- Japan's real contraction in gross domestic product remained at an unrevised 0.9% for the January-March quarter, the Cabinet Office said Thursday. However, compared to a year earlier, GDP shrank 3.5%, revised up slightly from an initial reading of a 3.7% drop.
http://www.marketwatch.com/story/japan-gdp-shrinks-unrevised-09-in-jan-march-2011-06-08-1959250
Power Cuts Spread in Japan as Nuclear Restarts Delayed
By Yuriy Humber and Yuji Okada - Jun 9, 2011
Power cuts will hit Kansai, Japan’s second-largest industrial region, as early as this month as restarts of nuclear plants may be delayed, impeding the nation’s recovery from a record earthquake and atomic disaster.
A delay in the restarts could mean Kansai Electric Power Co. will ask clients to cut power use by 10 percent this summer, Fukui Governor Issei Nishikawa said in an interview. The Kansai region, home to Panasonic Corp. (6752) and Nintendo Co., sources about 55 percent of its energy from atomic plants in Fukui, north of Osaka.
Since the March 11 earthquake and tsunami crippled the Fukushima Dai-Ichi nuclear station and caused the biggest radiation fallout in 25 years, approvals to restart reactors have been delayed as prefectures agreed to wait for national guidelines. Mandatory maintenance of the plants every 13 months would also mean that just 14 of the nation’s 54 nuclear reactors may be operating in August, according to Bloomberg calculations.
The approval process “will take some time,” Nishikawa said in an interview at his office inside Fukui castle grounds on June 3. “When you’re along the highway and there’s rain and fog, it’s best to wait it out in a service area.”
That timeframe is likely to be more than one year, said Shinobu Tokioka, mayor of Ohi town in Fukui. The town houses a four-reactor plant owned by Kansai Electric with one unit idled for maintenance. Ohi’s nuclear plant supplies most of the power to Osaka, Japan’s third-biggest city, he said.
More.
http://www.bloomberg.com/news/2011-06-09/power-shortages-loom-in-japan.html
Wednesday, June 8, 2011
Tepco Planning Another Radioactive Water Release
TOKYO (Dow Jones)--Tokyo Electric Power Co. (9501) is planning to release 3,000 tons of lightly radioactive water into the ocean from the Fukushima Daini nuclear complex, the sister plant of the stricken Fukushima Daiichi complex, officials said Wednesday.
While the water is believed to be largely within permissible levels of contamination for discharging into the ocean, plant operator Tepco and the government are looking to avoid the kind of backlash from local fishing associations and neighboring countries that followed a far more toxic discharge from the Daiichi plant in April.
The seawater got into the Daini plant, located 10 kilometers south of the Daiichi complex, when it was flooded by the massive tsunami on March 11. While the tsunami knocked out power at the Daiichi plant, causing a meltdown of some of its reactors, the Daini complex was safely shut down after the disaster.
According to plant operator Tepco, the water is currently sitting in reactor and turbine buildings, and other facilities, raising concerns that it might corrode piping, causing the leakage of radioactive material.
The government's Nuclear and Industrial Safety Agency said the water contains a small amount of radioactive material, including manganese-54 and cobalt-58, but that the amounts are mostly within permissible levels for being discharged into the ocean. The total amount of radioactive materials contained in the 3,000 tons of water is estimated at 3 billion becquerels, NISA said.
As a further precaution, before the water is released into the ocean, it will undergo a decontamination process to further reduce the levels of radioactive material, Tepco said.
Tepco has sounded out government agencies and local governments on the plan, but the Fisheries Agency and some local governments are likely to oppose the idea of releasing water containing radioactive materials, no matter how little it contains.
http://e.nikkei.com/e/fr/tnks/Nni20110608D08JF220.htm
"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
At the Comex silver depositories Thursday, final figures were: Registered 28.69 Moz, Eligible 72.32 Moz, Total 101.01 Moz. Deliverable silver is now only about 29% of Comex stocks. My guess is that inventories are signaling a default lies ahead.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
In the Red corner: Germany. In the Blue corner: the tag team of Greece, the ECB, and the IMF. In the spectators, John Bull, Uncle Sam, and bunga bunga Berlusconi at the head of a gaggle of failing Club Med party goers. What this EMU unraveling looks like in Beijing we can only speculate, but my guess is that it will encourage Beijing to keep quietly adding to its gold reserves. When the Great Fiat Crash happens, and it will, it won’t be a Doblo smashing into a Qubo. Horrible names for horrible cars.
"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
Berlin Warns of Possible Greek Insolvency 06/08/2011
German Finance Minister Calls for Athens Debt Restructuring
In a letter sent to the European Commission, the European Central Bank, the International Monetary Fund and euro-zone countries, Germany's finance minister warns of the possibility of a Greek bankruptcy and concedes the current bailout plan has failed. Instead he is calling for a de facto debt restructuring. Resistance within Merkel's conservatives is stewing.
The German government has conceded for the first time that Greece will soon need billions of euros in fresh aid and a restructuring of its debt in order to prevent bankruptcy.
In a letter dated June 6 and obtained by SPIEGEL ONLINE, sent by Wolfgang Schäuble to his European Union counterparts, the president of the European Central Bank (ECB), Economic Affairs Commissioner Olli Rehn and acting International Monetary Fund (IMF) head John Lipsky, the German finance minister admits that the current EU, ECB and IMF rescue plan for Greece has failed.
In the letter, the finance minister states that private investors and banks should take over part of the cost of stabilizing Greece. The letter states that the private sector should make a "quantifiable and substantial contribution." The finance minister's preferred course would be a bond swap in which old government bonds would be exchanged for news ones with more favorable terms. Investors would be asked to exchange all the Greek bonds currently in their portfolios for new ones with maturities extended by seven years. Investors would get their money later, but they would still get the full amount.
De Facto Rescheduling
In effect, Schäuble is calling for a restructuring of Greece's debt. Until very recently, he had argued that the risks posed by such a move would be too high. Indeed, some critics have warned it could have unforeseen consequences that might even be tantamount to a European version of the collapse of Lehman Brothers.
A German Finance Ministry spokesperson described the letter as a "clear marking of the German government's position." Still, it remains uncertain whether Germany will seek to force the private sector to share the burdens -- a move that Chancellor Angela Merkel of the conservative Christian Democratic Union (CDU)and ECB President Jean-Claude Trichet have both rejected so far.
Greece's situation is increasingly precarious. One of the biggest problems for Athens is a condition placed on lending by the International Monetary Fund, which is also participating in the bailout together with the European Union. The condition stipulates that credit can only be given if it can be proved that a country is capable of meeting its payment obligations over the next 12 months. The current plan also envisions Greece returning to the capital markets to raise fresh money starting next year. But with interest rates at around 15 percent, that notion is illusory.
More.
http://www.spiegel.de/international/europe/0,1518,767371,00.html#ref=nlint
"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 May:
DJIA: +196 Up. NASDAQ: +249 Up. SP500: +200 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. But the Fed’s QE program is supposed to end this month!!!
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