Baltic Dry Index. 1485 +05
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
Correspondingly weak manufacturing data from the US, China and the euro area also published yesterday raised fresh fears that global growth is stalling.
With the weak data from the US economy well covered in mainstream media today, and quite likely to force the Fed into yet another QE program, once on QE can a central bank ever stop it without triggering the collapse it was started to prevent, we focus this morning on Europe. A Europe stumbling its way to a rash of sovereign debt defaults. With no consensus over how much German taxpayer cash to tip down the bottomless pit of Club Med, a Greek default is now looming for the end of this month. With global growth stalling, what hope is left for Club Mad?
Of course some usual European fudge will be cobbled together at the last minute, the Acropolis might open in July under new German management, but nothing is going to fix Club Bad’s insolvency problem, except a restructuring and better yet, exiting the ridiculous one German size fits all, D. Mark Euro. Up first Greece (again) followed by a suddenly weak worrisome UK. Stay long physical precious metals. Fiat currency got the world into our current mess, and creating endless more fiat currency and debt is not going to get us out of it. Sooner or later a fiat currency revulsion is coming.
"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 deeper into junk territory as Moody's cuts again
Greece suffered another humiliating blow on Wednesday night when credit rating agency Moody's downgraded its rating on Greek bonds even further into junk status.
By Rupert Neate, and Louise Armitstead 6:17AM BST 02 Jun 2011
The downgrade places Greece at the very bottom of Moody's league table of credit-worthy European countries.
The news came as officials were desperately trying to secure an second emergency cash injection from the European Union and the International Monetary Fund.
Moody's said it was very concerned about Greece's "highly uncertain growth prospects" and warned that the embattled country is "increasingly likely to fail to stabilise its debt ratios" by the deadline set by its previous €110bn (£96.7bn) bailout.
The three-notch-downgrade takes Greece from B1 to Caa1, giving the country a worse credit rating than Montenegro.
The humbling downgrade came as German ministers were forced to reassure the market that the EU and the IMF were committed to the bailout. Martin Kotthaus, a German finance minister, said: "It was designed jointly. It will be evaluated jointly, and I also assume that it can only be continued jointly, including when it comes to the question of payouts of future tranches."
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.
JUNE 2, 2011
Europe Races to Widen Aid for Greece
Finance Officials Work on New Package To Ease Nation's Looming Cash Crunch
European finance officials met late Wednesday in Vienna to prepare a fresh aid package for Greece, people close to the matter said, but the talks must first bridge a crucial gap between Germany and the European Central Bank over whether private investors should share the pain of propping up the indebted nation.
Plucked from the brink of default in May 2010 by other euro-zone countries and the International Monetary Fund, Greece is again verging on a critical cash shortage.
Officials have conceded that Greece—already the beneficiary of €110 billion ($158 billion) in promised rescue aid—will need roughly another €30 billion in each of 2012 and 2013.
They are racing to figure out a plan before a key meeting of finance ministers later this month.
At least some of the money will have to come by way of a further bailout from taxpayers in Europe's stronger countries—chief among them Germany. But at the Vienna meeting on Wednesday, officials from the German finance ministry pressed for Greece's bondholders to bear some of the burden by accepting late repayment of their investments, said a person familiar with the matter. That "reprofiling" of Greek bonds is anathema to the ECB.
----But many private analysts say the euro zone's squabble over what to do now misses a broader point: Greece, they say, is highly unlikely to ever pay all its debts back—no matter if they are delayed for a few years or not.
"A debt reprofiling is not enough," said Rodrigo Olivares-Caminal, a senior lecturer in financial law at the University of London and a visiting professor at a Greek business school. "That was an option in 2009, early 2010, but not in 2011."
More.
"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper."
Hans F. Sennholz
Weak factory and mortgage figures stoke recovery fears
Hopes for an economic revival suffered a sharp setback yesterday as activity in the vital manufacturing industry slumped to levels last seen during the recession, mortgage approvals crashed to a record low for April, global growth indicators stumbled, and Britain was officially declared one the gloomiest nations in the world.
By Philip Aldrick and Emma Rowley 6:00AM BST 02 Jun 2011
The raft of poor news sent the pound tumbling against the dollar, closing almost two-thirds of a cent lower at $1.6401, as markets and economists decided the country is too weak to stomach a rate rise until early next year.
Analysts at Morgan Stanley added to the gloom negative sentiment by predicting that house prices will fall a further 10pc by the end of 2012. According to the Halifax, house prices have already crashed 20pc from their 2007 peak.
Angela Eagle, shadow chief secretary to the Treasury, said the "disappointing set of figures is further evidence that last year's economic recovery is stalling. Even the manufacturing sector now seems to have joined consumers in entering a more difficult phase."
The Government has pinned its hopes for recovery on a resurgent manufacturing industry, driven by rising exports. However, the closely-watched purchasing managers' index (PMI), compiled by the Chartered Institute of Purchasing & Supply and Markit, showed that activity has fallen to a 20-month low.
----More worrying was evidence output and new orders contracted last month for the first time in two years. Samuel Tombs, UK economist at Capital Economics, said output and new orders, at 49.9 and 48.3 respectively, suggested that "a sharp underlying slowdown in demand is taking place".
Correspondingly weak manufacturing data from the US, China and the euro area also published yesterday raised fresh fears that global growth is stalling.
More.
Next, is RBS turning into “the next Lehman? At least two knowledgeable M.P.s fear it might be.
A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected. If he is lucky enough to begin at a time of expansion in trade, he is nearly sure not to be found out till the time of contraction has arrived, and then very large figures will be required to reckon the evil he has done.
Walter Bagehot. Lombard Street. 1873.
Royal Bank of Scotland told by MPs to explain £25bn accounting 'distortion'
Two Members of Parliament have written to the Royal Bank of Scotland to demand an explanation of the bank's accounting methods which they claim may be distorting its capital position by as much as £25bn.
By Louise Armitstead 5:45AM BST 02 Jun 2011
David Davis, the former Tory front bencher, and Steve Baker, the MP for Wycombe, have called for RBS to prove that its accounts are not being distorted by the controversial International Financial Reporting Standards (IFRS).
The letter, seen by The Daily Telegraph, details a disagreement between the MPs and RBS at a private meeting on May 24. The MPs argued that IFRS, which has been described as a "fatally flawed" system, is inflating the profits and capital position of RBS and other banks.
The MPs pointed to the fact that while RBS's accounts stated that the bank had £32bn in losses, the Government's Asset Protection scheme accounts show an expected loss of £57bn from its toxic assets alone.
Written by Gordon Kerr, a banking expert, the letter claims that the distortion in the accounts could be equivalent to as much as 50pc of RBS's core tier one capital. It says: "That means on a prudent basis RBS has a basic capital ratio (leverage on total assets) of 2.75pc rather than 5.5pc as stated."
The MPs claim that the rules are at fault but also that RBS has applied them more extensively than other European banks. Mr Baker is behind a Private Members Bill intended to make banks file accounts using the old UK GAAP standards, as well as IFRS, to force them to account for poor loans as well as failed ones.
At the meeting, RBS's representatives disagreed with the MPs' assessment. Last night the bank said: "RBS is fully compliant with IFRS accounting standards."
The dispute comes ahead of the Government's response to a report by the House of Lord's Economic Affair's Committee which was highly critical of the IFRS system.
In other significant news yesterday, the great Eur-Asian drought continues. On both the western and eastern edge of the giant land mass, the great 2011 drought grinds on. Without a break in the drought soon, a foodstuff disaster will ensue.
JUNE 2, 2011
Record Heat Costs France
PARIS—France's record drought is threatening electricity supplies, as low water levels reduce hydroelectric power and make it hard to cool nuclear plants, widening the potential impact of the hottest, driest spring in memory.
The warning came as neighboring Germany, from which France often buys electricity, shutters some of its nuclear capacity, effectively eliminating its reserve capacity.
----Europe is facing growing economic threats from this year's extreme weather. France has had the hottest spring in memory, according to its weather agency, with average temperatures in March-May 2.6 Celsius above the average between 1971 and 2000; and rainfall just 45% of the average over that period.
Water restrictions—on use for car washing and plant watering —have been imposed in about half the country. The parched soil is already certain to hit France's wheat harvest, Western Europe's largest, something the government says will push up world prices.
Nuclear plants, which provide some 80% of France's electricity, need plenty of water to cool the reactors. If river flows are decreasing and levels get too low, "it will make it harder to pump water out of the rivers and cool the systems." said a spokeswoman for Electricite de France SA, the world's largest producer of nuclear energy.
Another potential problem is a higher-than-normal water temperatures. A combination of warm water in insufficient quantities could mean taking the plants offline or lowering their production, she said.
But this year, there are problems with the usual ways of compensating for such reductions in nuclear-power production. Hydroelectric power was down in the first quarter, which is extremely rare, due to the lack of snow and precipitations, the EDF spokeswoman noted.
France normally imports power from Germany during summer, as it conducts maintenance work on some of its nuclear plants. But Germany reduced its electricity output by 5% in March following the crisis at Fukushima Daiichi nuclear power plant in Japan. Germany's Federal Network Agency—the electricity grid regulator—has warned that permanently shutting down nuclear plants will eliminate the country's reserve capacity, endangering summer power exports to France.
----In the first stage of Germany's nuclear phase-out, it has closed eight of its 17 reactors, something that could cost its government about €1 billion in tax revenues a year, finance ministry spokesman Martin Kotthaus said Wednesday. The government introduced a tax on nuclear-fuel rods earlier this year.
China's largest inland lake dries up as country battles drought
China's largest inland lake has disappeared in worst drought to hit the centre and east of the country for more than half a century.
By Malcolm Moore, Shanghai 9:36PM BST 30 May 2011
The volume of water in Poyang lake in Jiangxi province, normally 100 miles-long and 10 miles-wide, is now a tenth of its normal level, according to Xinhua, the Chinese state news agency.
Fishing boats and house boats have been left stranded on a vast stretch of the lake bed, now a lush grassland.
The drought, which has seen no rainfall for two months, has struck the central Chinese provinces that are known as the country's "home of rice and fish".
Almost half of all the country's rice fields have been affected and four million people do not have access to drinking water.
At Honghu Lake, in Hubei province, fish farmers have seen 80 per cent of their stocks die. "More than 20,000 acres of fish farms have been severely damaged," said Zou Haibin, the local Communist party secretary in Dianhe, to Xinhua.
----The drought has pushed up vegetable prices in major cities by as much as 30 per cent, and the government has warned that if it continues it may have an effect on this year's rice harvest.
However, the Chinese weather bureau has warned there is no rain in sight and that it expects the drought to continue until early June.
http://www.telegraph.co.uk/news/worldnews/asia/china/8546673/Chinas-largest-inland-lake-dries-up-as-country-battles-drought.html
"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
At the Comex silver depositories Wednesday, final figures were: Registered 29.63 Moz, Eligible 71.82 Moz, Total 101.45 Moz. Deliverable silver has now fallen below 30% of the available Comex silver. Happenstance or something more in play?
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
No crooks today, just a German example of what happens when vote seeking governments make sudden U-turns pandering to media pressure. How not to make decisions in public office. One day Germany’s power producers had a settled plan to generate nuclear power out to 2035, the next day all closed nuclear plants were permanently closed, with all the others forced to close by 2022. Arbitrary and capricious spring to mind. Disastrous in a nation noted for sticking rigidly to the master plan, whatever it might be, and not noted for flexible improvising in the field. With the new Dalton Minimum in sunspots well into play, and with it a probable period of global cooling lasting out to 2025-2030, see the full sunspot section on the blog, will Germany be able to fill the gap in its much needed electric power?
"The most puzzling development in politics during the last decade is the apparent determination of Western European leaders to re-create the Soviet Union in Western Europe."
Mikhail Gorbachev
Nuclear Phaseout Could Spell Disaster for German Energy Giants
06/01/2011
----The Japanese nuclear disaster at Fukushima and the subsequent debate about nuclear safety have plunged Germany's energy industry -- in particular the country's four biggest utilities, RWE, E.on, EnBW and Vattenfall -- into a hitherto unimaginable crisis.
Profits now look set to plummet. According to internal company estimates, after-tax earnings could fall by up to 30 percent this year alone. That's partly because customers are fleeing in droves to the big four's environmentally friendly rivals, such as Lichtblick and Naturstrom, companies that offer electricity free of nuclear or coal sources. The share prices of electricity companies have been on the decline for months. As a result, the stock exchange darlings of yesterday may now be the takeover candidates of tomorrow.
As if to add insult to injury, the German government this week announced it would permanently reverse its plans to extend the lifespans of nuclear power plants in the country. A post-Fukushima "moratorium" had already taken the seven oldest of Germany's 17 nuclear power plants off the grid. They will now stay permanently offline, as will another plant that was already out of operation following an accident in 2009. Under the plan agreed by Merkel's Christian Democrats (CDU) and the business-friendly Free Democrats (FDP) on Sunday, Germany's remaining nuclear plants will also be shut down between 2021 and 2022.
The government has handed a small olive branch to nuclear energy producers by allowing them to transfer their allotted energy production from the plants that are currently offline to newer ones that will continue to operate until 2022. But the utilities had also hoped that the government would scrap the nuclear fuel tax it had introduced as part of an austerity package passed last year. The tax is intended to generate around €2.3 billion a year through 2016 for the government to help pay off its public debt. With the current closure of the eight plants, that sum is already expected to drop to around €1.3 billion annually, but it is a sum the Finance Ministry has refused to do without.
-----Berlin's nuclear exit strategy spells doom for the utilities. Atomic energy expert Wolfgang Pfaffenberger from Jacobs University in Bremen estimates that the eight plants that are being shut down this year generate annual profits of over €1.5 billion and revenues of at least €3 billion. All of Germany's 17 nuclear plants together generate around €4 billion in profits and €7.5 billion in turnover -- all revenues that will disappear by 2022 at the latest.
In addition, nuclear energy produces few carbon emissions. With an increasing reliance on fossil fuel sources until renewable energy sources can be expanded, the number of certificates the companies are required to purchase for the right to emit CO2 could rise dramatically. Today the companies obtain approximately 70 percent of those certificates for free. Energy researcher Uwe Leprich at the University of Applied Sciences in Saarbrücken, Germany, has calculated that the German coal industry will have to pay around €4.2 billion a year starting in 2013 for emissions certificates. A large part of that will be borne by the four main energy companies.
----As the uncertainty over their future persists, RWE and E.on are becoming increasingly nervous. After all, much more is at stake than possibly losing billions in revenues from nuclear power. Their main worry is whether their very business model, which is based on generating electricity centrally at huge power plants, is viable in the long term -- or if it will ultimately lead to their demise.
Pushed into a corner, they are taking action against the government, too. On Tuesday, the board of E.on announced it would sue Berlin over the government's decision to keep the nuclear fuel tax. "Adhering to the tax while at the same time significantly shortening the operating lives of nuclear power stations raises additional legal issues," the company said in a statement. E.on said it "expects to receive due compensation for the financial damages associated with these decisions, which is expected to amount to billions of euros."
More
http://www.spiegel.de/international/business/0,1518,766095,00.html#ref=nlint
"Gold is as steady as a rock, a standard bearer by which all currencies can be accurately measured."
Mark Skousen
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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