Monday 13 June 2011

The Great Recession Part 2.

Baltic Dry Index. 1418 -10

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

"Increasingly, the wealth of the modern world has come to be represented by financial assets rather than real assets, and this to me is a very unhealthy situation, because financial assets are inherently unstable. Financial assets (currencies, bonds, mortgages, stocks, bank credit, etc.) can be quickly and violently reduced in value, or destroyed completely by either inflation or deflation."

Donald J. Hoppe

We open this week with signs of another wobble in China. With one global economy foot already in the grave, the other foot seems to have found the famous banana skin. From London, this morning, the Great Recession part two appears on the cards for arrival in H2 2011.

China Lending Tumbles, Signals Slowing Economy

By Bloomberg News - Jun 13, 2011 7

China’s lending tumbled in May and money supply grew at the slowest pace since 2008, adding to signs that the world’s second-biggest economy is cooling.

Loans were 551.6 billion yuan ($85 billion), less than the 650 billion yuan median estimate in a Bloomberg News survey of 20 economists and 639 billion yuan a year earlier. M2, the broadest measure of money supply, rose 15.1 percent, the People’s Bank of China said on its website.

The Shanghai Composite Index slid 0.5 percent as of 2:23 p.m. local time as the data fueled concern that interest-rate increases to combat inflation will trigger a slowdown. A report tomorrow may show that consumer prices jumped 5.5 percent in May from a year earlier, the biggest gain in almost three years, the median forecast in a Bloomberg News survey shows.

“This provides another data point highlighting the growth risk,” said Tao Dong, a Hong Kong-based economist for Credit Suisse Group AG. “I think the economy is heading to a soft landing in the second half of 2011, but the risk of a hard landing seems to be on the rise,” Tao said, adding that small companies are short of credit.

New loans in the first five months of the year totaled 3.55 trillion yuan, 12 percent lower than the same period last year and 40 percent smaller than in 2009 when credit surged to cushion the nation from the impact of the global financial crisis.

More

http://www.bloomberg.com/news/2011-06-13/china-s-lending-is-below-estimates-as-fastest-growing-major-economy-cools.html

Below, Professor Gloom issues a warning from Singapore. I suspect that with the Fed’s QE2 program ending, our complacent over valued stock markets are in for a summer of deepening distress. Without a QE3 program to sustain US stock prices, the slump QE programs were created to prevent, all too likely occurs.

“The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”

Adam Smith

‘Perfect Storm’ May Threaten Global Economy

By Shamim Adam - Jun 13, 2011

A “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini said.

There’s a one-in-three chance the factors will combine to stunt growth from 2013, Roubini said in a June 11 interview in Singapore. Other possible outcomes are “anemic but OK” global growth or an “optimistic” scenario in which the expansion improves.

“There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”

Elevated U.S. unemployment, a surge in oil and food prices, rising interest rates in Asia and trade disruption from Japan’s record earthquake threaten to sap the world economy. Stocks worldwide have lost more than $3.3 trillion since the beginning of May, and Roubini said financial markets by the middle of next year could start worrying about a convergence of risks in 2013.

The MSCI AC World Index has tumbled 4.9 percent this month on concern recent data, including an increase in the U.S. unemployment rate to 9.1 percent in May, signal the global economy is losing steam. U.S. Treasuries rose last week, pushing two-year note yields down for a ninth week in the longest stretch of decreases since February 2008, on bets the Federal Reserve will maintain monetary stimulus.

World expansion may slow in the second half of 2011 as “the deleveraging process continues,” fiscal stimulus is withdrawn and confidence ebbs, Roubini also said.

More.

http://www.bloomberg.com/news/2011-06-11/china-economy-at-risk-of-hard-landing-after-2013-nouriel-roubini-says.html

Back in Europe, the great German war against the European Central Bank continues with a new front opening up on the board of the ECB. From London a Greek default looks inevitable. The longer it’s delayed by fudge and new loans, the more costly it’s going to be and the greater the likelihood of the Euro splitting into two. Euros anyone? With the ECB publicly stating it won’t roll over its own 40 billion holding of Greek bonds in any maturity extension, why would anyone else?

Greek Default Would Not Destabilize the Euro, Bundesbank’s Weidmann Says

By Richard Weiss - Jun 12, 2011

Bundesbank President Jens Weidmann raised the pressure on governments to agree to a Greek bailout without the European Central Bank taking part in easing the country’s debt burden, saying the euro can withstand a default.

Weidmann said the ECB was unwilling to turn its emergency bond-buying program into a “lasting institution” and that Greece’s implementation of austerity measures and asset sales was crucial to securing the handout to prevent a default. He spoke in an interview with German newspaper Welt am Sonntag.

“If the commitments are not met, that cancels the basis for further funds from the aid package,” Weidmann told the newspaper. “This would be Greece’s decision, and the country then would have to bear the surely dramatic economic consequences of a default. I don’t think this would be sensible, and it would surely put partner countries in a difficult situation. But the euro would even in this case remain stable.”

Weidmann’s depiction of a default as a liveable outcome contrasts with warnings from fellow ECB officials Lorenzo Bini Smaghi and Christian Noyer, as well as European Union Economic and Monetary Affairs Commissioner Olli Rehn, who described it as a “Lehman Brothers catastrophe” last week.

European officials are racing to find a plan to stem Greece’s debt crisis by June 24 while sharing the cost of a new rescue with bondholders. German Finance Minister Wolfgang Schaeuble is calling for Greek bondholders to extend the maturities of their debt by seven years, a move ECB officials say is akin to a default.

More

http://www.bloomberg.com/news/2011-06-12/bundesbank-chief-says-euro-can-weather-greek-defaul-as-governments-haggle.html

We end for the day with other news. Who’s agenda is served by conditioning the public for a clash with China in the South China Sea? Can the world’s biggest debtor really afford to side with Vietnam against its largest creditor? Stay long physical precious metals. Nothing good results from a new US foreign escapade in the South China Sea.

Vietnam seeks US support in China dispute

By Ben Bland in Hanoi Published: June 12 2011 14:29 | Last updated: June 12 2011 21:36

Vietnam has called on the US and other nations to help resolve the escalating territorial disputes in the resource-rich South China Sea, in a move likely to anger Beijing, which opposes what it sees as outside interference.

Tensions between China and Vietnam continued to rise over the weekend, ahead of live-fire drills planned by Vietnam’s navy on Monday on an islet around 20 miles from the coast of central Vietnam, which Hanoi described as “routine”.

Stirred by a number of maritime confrontations with China over recent weeks, hundreds of Vietnamese took part in rare anti-China protests on Sunday for the second straight weekend, with the usually draconian police allowing the demonstrations to take place.

“China is running an information campaign to blind people,” said Pham Gia Minh, a 55-year-old investment consultant who attended a protest outside the Chinese embassy in Hanoi. “We have to let people understand that we want peace but when the aggressor comes we will stand up to them.”

In addition to China and Vietnam, Brunei, Malaysia, the Philippines and Taiwan claim some or all of the territory in the contested area of the South China Sea, which is believed to contain vast oil and gas reserves and incorporates key trade routes and abundant fish stocks

The Vietnamese government has ratcheted up its rhetoric in recent weeks amid growing public disquiet over perceived maritime bullying by China, which dominated Vietnam for 1000 years and fought a brief but bloody border war against it in 1979. At the weekend Vietnam’s foreign ministry said that it would “welcome” efforts by the US and other nations to help resolve the South China Sea dispute and maintain peace and stability.

Such sentiments are unlikely to go down well in Beijing, which insists that the long-running row over the South China Sea must be resolved on a purely bilateral basis.

China reacted angrily last July when Hillary Clinton, US secretary of state, insisted that the South China Sea was of strategic importance to the US and offered to act as a mediator.

The US said on Friday that is was “troubled” by the latest developments in the South China Sea, with Mark Toner, a state department spokesman, warning that “shows of force” only increase tensions, which have been on the rise in recent weeks.

Hanoi and Beijing have traded accusations of infringement of sovereignty and harassment of their fishing and oil exploration vessels and China has also clashed with the Philippines in a similar fashion.

“China’s behaviour has gone from assertive to aggressive,” said Ian Storey, a fellow at the Institute for Southeast Asian Studies in Singapore and an expert on maritime security in the South China Sea.

http://www.ft.com/cms/s/0/05e83b34-94db-11e0-a648-00144feab49a.html#axzz1P8PquZcX

"The gold standard sooner or later will return with the force and inevitability of natural law, for it is the money of freedom and honesty."

Hans F. Sennholz

At the Comex silver depositories Friday, final figures were: Registered 28.70 Moz, Eligible 72.27 Moz, Total 100.97 Moz.

+++++

Crooks and Scoundrels Corner.

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

Tokyo Electric Power Company again. The new Chernobyl. The more we learn about TEPCO, the more inept their response seems to have been. Now the 20 mile exclusion zone looks increasingly inadequate. Below, the latest dismal news from TEPCO.

Japan Radiation Sleuths Toil With Borrowed Geigers

By Shigeru Sato, Sachiko Sakamaki and Tsuyoshi Inajima - Jun 13, 2011

----Masanori Monma, principal of the Kashima Elementary School in Minami Soma, borrowed a portable Geiger counter from the science ministry. Last month, he got a reading of 2.1 microsieverts an hour at a ditch next to a school flowerbed, about 35 times higher than in downtown Tokyo and at the top end of the annual safety limit for radiation exposure.

More than three months after the biggest earthquake in Japan’s history and a 15-meter (40-foot) tsunami wrecked the Fukushima atomic power station, a picture emerges of ad-hoc responses to the crisis. In the days after the worst atomic disaster since Chernobyl, Tokyo Electric Power Co. was using fire hoses and makeshift pumps to try and cool the crippled reactors.

About 100,000 evacuees still sleep on gymnasium floors, unsure if they can ever go home. Less than half of Minami Soma’s 71,000 residents now live there, with some carrying personal Geiger counters. Tepco forecasts the reactors will be brought under control by October at the earliest.

----“The government’s action was inefficient, extremely slow and outdated,” said Sentaro Takahashi, a professor studying radiation control at Kyoto University. “Right from the start, Japan lacked the crisis management to cope with a disaster that requires quick plans and action.”

Radiation leaks from the Fukushima reactors have spread over 600 square kilometers, Tomio Kawata, a fellow at the Nuclear Waste Management Organization of Japan, said in a research report published May 24 and given to the government.

Radioactive soil in pockets of areas outside the 20- kilometer exclusion zone around the plant have reached the same level as in Chernobyl following a reactor explosion in the former Soviet Union territory 25 years ago, the report said.

Tokyo Electric, the operator of the Fukushima Dai-Ichi nuclear plant, failed to provide sufficient measures to prevent the disaster, International Atomic Energy Agency Director General Yukiya Amano said last month.

----Efforts to bring the reactors under control have been marred by accidents and delays.

Tepco lost power to cooling systems at reactors 1 and 2 last week and has yet to identify the cause. A broken cooling pump at the No. 5 reactor was not discovered and replaced for 15 hours on May 30, allowing temperatures at the unit to more than double to 93.6 degrees Celsius.

‘Ineptitude, Negligence’

The plant had a gas tank explosion on May 31 and reported oil leaks into the ocean. The nearby Dai-Ni nuclear station, also operated by Tepco, reported a fire in a distribution panel on May 27, during a visit by an investigation team from the International Atomic Energy Agency.

“If Tepco was operating this facility in the U.S., all of the reactors would have been shut down indefinitely and there would have been a complete changeover of management,” said nuclear engineer Michael Friedlander.

http://www.bloomberg.com/news/2011-06-12/japan-amateur-radiation-sleuths-using-borrowed-geigers-seek-hidden-dangers.html

"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

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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