Friday 27 April 2012

Black Friday.

Baltic Dry Index. 1148 +11

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

"Too bad ninety percent of the politicians give the other ten percent a bad reputation."

Henry Kissinger

Earlier in the week we asked “Europe, what else could go wrong?” Yesterday we found out. S&P cut Spain’s sovereign debt rating to BBB+ from A, prompting the question why was it still at A? Then last night on French TV, the man very likely to become the next French President declared that Germany can’t make decisions for all of Europe. As paymaster of Europe, Germans are probably choking on their breakfast schnapps this morning, has France never heard that he who pays the piper calls the tune? 

Generally, France does poorly in wars with Germany, and this new financial war is likely to be no different. This Friday, as seen from April showery London, Euroland is a house divided and about to declare war on the Holy Roman Emperor in Berlin. Can Europe’s triple Presidents in the new EU Vatican in Brussels save Europe from a new 30 years war?  I wouldn’t bet much on that outcome. Stay long physical precious metals and euros bearing a German “X”.  Euroland’s number one and number two economies look set to clash, blowing up Club Med on the process.

The Great Bilderberger project to enslave Europe is now entering its death throes. Its passing is a good thing, if it also destroys the dead hand of Brussels bureaucracy and corruption, and liberates Euroland the way Britain was economically liberated after getting forced out of the earlier Exchange Rate Mechanism. Sadly much European wealth will get destroyed first, and those feeding at Europe’s public trough fight to preserve their elite privilege.

"The secret of life is honesty and fair dealing. If you can fake that, you've got it made."

Groucho Marx

S&P cuts Spain's credit rating by two notches to BBB+

Standard & Poor's cut Spain's sovereign debt rating Thursday by two notches, warning that the government's budget situation is worsening and that is likely to have to prop up its banks.

AFP 11:15PM BST 26 Apr 2012
S&P cut the country's rating to BBB-plus and added a negative outlook, saying it expected the Spanish economy to shrink both this year and next, raising more challenges for the government.
Esther Barranco, a spokeswoman for the Economy Ministry, told Reuters: "They haven't taken into consideration the reforms put forward by the Spanish government, which will have a strong impact on Spain's economic situation."

S&P also said that eurozone-wide polices were failing to boost confidence and stabilize capital flows, and that the region needed to find ways to directly support banks so that governments were not forced to take on those burdens themselves.

"We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections," it said in a statement.

"At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector."

"As a consequence, we believe there are heightened risks that Spain's net general government debt could rise further."

S&P forecast that the economy would contract by 1.5pc this year, instead of its previous forecast of slight growth, and predicted that the contraction will continue in 2013 by about 0.5pc.

Hollande Says Germany Can’t Make Decisions for All of Europe

By Mark Deen and Helene Fouquet - Apr 26, 2012 11:07 PM GMT
Francois Hollande, the frontrunner in the French presidential race, said Germany can’t decide for all of Europe, stepping up his opposition to Chancellor Angela Merkel’s belt-tightening solution to the region’s crisis.

“It’s not for Germany to decide for the rest of Europe,” Hollande said late yesterday on France 2 television.
“I’m getting a lot of signals, direct and indirect, from other governments, even if they’re conservative.

The comment from Hollande, who wants to renegotiate the fiscal pact agreed to by leaders of 25 European nations, comes after Merkel reiterated her budget-cutting message in the face of rising criticism of Germany’s focus on austerity. The remarks put the two politicians at Europe’s two largest economies on a collision course over how to counter the region’s sovereign debt crisis.

Since beating President Nicolas Sarkozy in the first round of France’s presidential election on April 22, Hollande has stepped up his push against austerity in favor of growth. Hollande said this week that France won’t ratify the fiscal pact in its current form if he is elected.

Hollande is leading a chorus of politicians and economists to take issue with Germany’s debt focus. European Central Bank President Mario Draghi this week called for a “growth compact” to follow the fiscal pact.

Europeans will never accept a federal banking system

Hope springs eternal when it comes to efforts to save the euro.

The latest crackpot idea for shoring up Europe's monetary union, much discussed at last week's spring meeting of the International Monetary Fund and now widely promoted by eurocrats, is the establishment of a federal banking system, with a single framework for regulation, bailouts, deposit insurance, supervision and resolution.

There is, of course, nothing particularly new in the proposal; for many economists, it's long been seen as an 
essential precondition for successful monetary union, at least as important as the federalisation of fiscal and political systems. The one cannot work without the others.

The dollar, for instance, couldn't function effectively without a federal banking system, if only for this rather obvious reason; many US banks are of a size that would overwhelm the ability of the individual states in which they are based to underwrite them. Take the example of Citigroup, with assets at the last count of nearly $2 trillion. If it had been solely Citi's home state of New York that had been responsible, Citi would have taken New York down with it when it went bust in the sub-prime banking crisis three years ago as surely as the Irish banks have sunk Ireland, and Spanish banks are now bankrupting Spain.

The fact that Citi was regarded as a federal responsibility, not a state one, saved New York from a ruin as otherwise certain as that of Iceland. Citi was the collective responsibility of the US as a whole. Yet in the eurozone, banks are deemed to be a sovereign liability, not a federal one.

----So why do I say that the formation of a federal banking system in euroland is another crackpot idea? It's because as things stand, there is virtually no chance of it happening. To the contrary, all the pressures right now seem to be the other way around, towards disintegration of the eurozone banking system rather than further integration. It is as if in progressively retreating behind national borders, finance is subconsciously preparing for the eventual break-up of the euro back into its constituent sovereign currencies.

“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers.

“They saw the writing on the wall in this market as early as 2005.”

April 26, 2012, 8:39 p.m. ET

Gulf States Keep Oil Dollars Home

Booming oil prices are flooding Arab countries with money, but where the lion's share of that wealth would once have been pumped into the world's financial markets, much of it is now being spent at home.
Gulf states are embarking on their biggest spending spree on record as they lavish funds on domestic projects—from new housing and hospitals to mosque restoration and job creation—largely as a defensive response to the Arab Spring uprisings that toppled other Middle East governments last year. Government outlays in the region are set to reach $488.6 billion this year, according to recent Institute of International Finance estimates, up 35% from 2009's figure.

The domestic focus hasn't yet eaten away at the region's external investments—net foreign assets in the Gulf region are expected to rise by around $300 billion this year alone—but the domestic focus has meant less oil money is being funneled into global capital markets than otherwise might have been. New patterns of spending are also pushing government budgets through the roof and sending money once set aside for things like increases to oil production capacity and military upgrades to social projects instead.

"When the Arab Spring happened, many governments discovered that the enemy was within and not without," said Mustafa Alani, a senior adviser at the Geneva-based Gulf Research Center and an expert on regional security issues.

In all, governments in the Gulf—including Saudi Arabia, the United Arab Emirates and Kuwait—have pledged $157 billion in additional spending directly following the Arab Spring uprisings, according to a Bank of America Merrill Lynch report from last year. That amounts to about 13.4% of the region's 2011 GDP. To stave off any potential unrest, Gulf monarchies splurged on population-pleasing projects such as spending on higher salaries, bonuses for government employees and new houses.

We end today’s shortened update with Japan. Twenty something years in to fighting a losing battle against deflation, and the Bank of Japan tries one more dose of the medicine that hasn’t worked so far. Now as Japan’s demographics turn against it, Japan must shortly enter the global market for sovereign finance. Yen holders now also need the safety og precious metals, though most in Japan don’t realize it yet.

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein
April 27, 2012, 1:20 a.m. EDT

Bank of Japan adds ¥5 trillion to monetary easing

Keeps rates on hold; but moves seen as not enough to end deflation

HONG KONG (MarketWatch) — The Bank of Japan on Friday increased the size of its asset purchase program by about 5 trillion yen ($61.7 billion), meeting some analysts’ expectations but falling short of the aggressive action that economists say is required to end the nation’s deflation.

The central bank, which also left its policy interest rates unchanged in the range of 0% to 0.1%, said it will increase the size of its asset purchases to ¥70 trillion from about ¥65 trillion at present.

In its policy statement, the central bank said its latest decision was in keeping with the “powerful monetary easing” that it has been pursuing of late.

But some analysts remained unimpressed with such claims.

“[Our] overall assessment is that while it is positive that BOJ acted today, what they did today isn’t sufficient for the BOJ to recover its long-lost credibility as a deflation fighter,” Takuji Okubo, chief Japan economist at Societe Generale, wrote in a note to clients.

"When paper money systems begin to crack at the seams, the run to gold could be explosive."

Harry Browne

At the Comex silver depositories Thursday final figures were: Registered 29.05 Moz, Eligible 111.60 Moz, Total 140.65 Moz.  

Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.

Yes, Goldie again, you didn’t really think they could stay out of this section for long. This time, God’s work involves stiffing the Muppets at Her Majesty’s Revenue and Customs. 
“We’re all in it together” except Goldie.  Time for a tax audit, except Goldie’s vampire squids even win at that. 

“Call it the Goldman Sachs test. If this is something Goldman would do to its clients, don't do it."

Felix Salmon.

Goldman Sachs pays £4.1m tax on £1.9bn profit

Wall Street giant attacked for deferring 99 per cent of its tax bill

Friday 27 April 2012
The London arm of Goldman Sachs paid only £4.1m in corporation tax to the Treasury last year despite making pre-tax profits of £1.92bn, annual accounts have revealed.

Goldman Sachs International (GSI) had a corporation tax bill of £422.3m but it deferred £418.2m – or more than 99 per cent of the amount – that it had to pay immediately in "current tax". The Wall Street giant, presided over by Lloyd Blankfein, was able to postpone payment because of "timing differences", according to the accounts.

Goldman's decision will be a blow to the Treasury's coffers as the Chancellor George Osborne battles to reduce the Government's deficit. There is no suggestion that GSI is seeking to avoid corporation tax by deferring payment. However GSI's tax activities have come under scrutiny after it emerged last year that the Inland Revenue boss Dave Hartnett had "let off" the bank to the tune of £10m.

Mr Hartnett insisted to MPs that "a mistake had been made" and he is retiring early this summer.
The bank's UK corporation tax bill fluctuates yearly as it can be skewed by the value of its bankers' share options, which oscillate in tandem with the stock market.

The £4.1 m GSI has paid in "current" corporation tax in 2011 is in stark contrast to the £336m it paid in the previous financial year.

The accounts showed revenues slumped 31 per cent to £3.19 bn last year because of eurzone jitters and "lower global equity prices". But profits jumped, partly because the "paper" value of share options paid to staff fell by more than £1.1 bn, thus cutting the bank's wage bill.

Labour MP John Mann, a member of the Commons Treasury select committee, said Goldman Sachs should not defer tax payments when it could hand over the cash now.

"It's morally and ethically wrong. These are people who are at the heart of the problem in the financial world who've paid extraordinary bonuses to their partners and aren't prepared to pay a fair amount of tax. It's pure unadulterated greed."

"Finance is the art of passing customer currency from hypothecation to hypothecation until it finally disappears."

With apologies to Robert W. Sarnoff

Another weekend, and nothing fixed in Euroland. If anything the crisis keeps escalating. Now we have rising tension in East Asia. In America, the “recovery” if it is a recovery, looks to need more QE life support, according to a big hint from Helicopter Ben. We are living through the end times of fiat currency. We are one “next Lehman” away from the end of the Great Nixonian Error. Will Greece bolt this month or next? Time to put all that aside for the weekend. Time to enjoy God’s spring filled woods and fields. Have a great weekend everyone.

The monthly Coppock Indicators finished March:
DJIA: +97 Down. NASDAQ: +103 Down. SP500: +70 Down. All three indicators remain down but downward momentum is stalling.

To continue reading subscribe to the LIR at Currency Countdown.

Monday 23 April 2012

St George’s Day 2012

Baltic Dry Index. 1067 +39

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

So EMU grinds on, a contraction machine for half a dozen countries, with France sliding slowly into this assembly of Miserables. To impose net fiscal tightening of 3pc a year or more on the South at this stage – without offsetting monetary stimulus or demand growth in the North – can lead only to a downward spiral that engulfs everybody in the end.

It is St George’s Day, the patron Saint of England, and in a delicious irony, a day for the French president to reflect on his humiliation in yesterday’s first stage of the presidential election. Everything how hinges on whether the 20% who voted for Ms Marine Le Pen can bring themselves to vote for President Sarkozy and relative sanity, or will stand aside and return France back to the policies of the loony left socialists. Big trouble lies ahead for France and Euroland, if “the Dutchman” Hollande gets to become president of France. I suspect that  the National Front voters will hold their noses and vote for Sarkozy, but it’s time to add to gold and silver hedges in case they don’t. In any event “Merkozy” is dead. A resurrected President Sarkozy dependent for a second term on the far right, can’t be seen continuously kowtowing to Merkel anymore. Europe’s economic crisis just got a whole lot more complicated. Euros anyone, even if they carry Germany’s “X” rather than a French “U”, Spanish “V”, Italian “S”, or soon to be retired Greek “Y”.

“Given these results, Sarkozy is finished,” said Gerard Grunberg, a political analyst. “His fate is in the hands of Marine Le Pen and she will do nothing to help him, on the contrary.”

Despite finishing second, Mr Sarkozy last night said the race was closer than previously suggested and invited those who “love their country to join me”.

In other European news, the Bilderberger “United States of Europe” project is comatose on ECB and IMF life support, with the Dutch trying to turn off the switch. Sadly much more of Europe’s wealth has yet to be destroyed, before the Eurocrat’s vanity project the euro, is put out of its misery in its present form.

Dutch crisis puts eurozone debt rescue plans at risk

The Dutch prime minister will on Monday launch a bid to salvage his austerity budget amid political chaos that could cost the country its AAA credit rating and plunge Europe’s debt rescue plans into disarray.

Mark Rutte, who is a key ally of Germany and the eurozone’s “hardliners” on financial discipline, has called an emergency cabinet meeting after budget talks collapsed at the weekend.

He is expected to resign today and announce snap elections, pushing yet another “core” eurozone country into political and economic uncertainty.

In France, early polls pointed to a victory of Francois Hollande in the first round of the presidential elections setting the stage for a run-off between the socialist challenger and incumbent Nicolas Sarkozy on May 6th. Mr Hollande has pledged to renegotiate the European fiscal pact that binds countries to a 3pc deficit limit by next year.

The “non-negotiable” fiscal pact, which was vetoed by David Cameron, triggered the collapse of the coalition government in the Netherlands.

Geert Wilders, the far-right leader, said he could not support the €16bn (£13bn) of cuts needed to meet the 3pc target. He wouldn’t allow Dutch citizens to “pay out of their pockets for the senseless demands of Brussels” he said.

“We don’t want to follow Brussels’ orders. We don’t want to make our retirees bleed for Brussels’ diktats,” he said.

Last week Fitch warned that the Netherlands faces a credit downgrade if it failed to deliver its austerity cuts or let political conflict disrupt economic management.

Traders are braced for another volatile week as uncertainty over debt reduction plans spreads to the eurozone’s northern core.

Hopes that the European Central Bank (ECB) will intervene and re-start its bond buying programme were doused by officials’ comments at the International Monetary Fund (IMF) meeting in Washington.


So all hope of saving the dying euro folly now lies with the French run, Washington based, IMF. The IMF will soon be rebranded the EMF on current policies, and it will lose most of its reserves when the Euro disintegrates. “Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.” John Kenneth Galbraith.

“Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff”

Professor Paul Krugman.

IMF encourages Europe's economic suicide

China, Japan, America, the oil powers, and the rising economies of Latin America had a chance to pull Europe back from suicide through IMF pressure, but the world dropped the ball.

Another vast pledge to save the euro, another chance lost to break the hold of Europe’s austerity mystics and force a shift in strategic direction.

“We’re north of a trillion dollars,” said Christine Lagarde, the International Monetary Fund’s queen bee. Kudos to her for netting such sums in her Louis Vuitton handbag but what exactly does this achieve, given that Europe remains bent on committing “economic suicide” -- in the words of Nobel laureate Paul Krugman?

Big language from world officialdom had traction in the early phases of this saga, when episodic spasms of angst caused “sudden stops” in capital to the South – each quickly reversed by bazookas, firewalls, and solemn incantations.

Europe has by now progressed to the tertiary phase of its currency disease. A large chunk of global funding for EMU deficit states has been cut off indefinitely. There has been an almost irreversible collapse of investor confidence in the policy mix and governing machinery of monetary union. It is a “permanent stop”. Firewall can do nothing for this condition.

The IMF’s trillion talk merely encourages EMU and German elites to persist in their belief/dogma that the essence of this crisis is a speculative attack on the euro, and that defensive firepower on a crushing scale is therefore the solution.

Such thinking allows Berlin in particular to continue evading the uncomfortable truth that this mess is home-grown, stemming from massive trade and capital imbalances between North and South, compounded by the world’s most leveraged banking system with loan-to-deposit ratios of 1.3 – the same as Japan at top of the Nikkei bubble. (America is a sober 0.7).

There is little point rehearsing the stale debate over whether Club Med states are to blame for living beyond their means, or whether Germany is as much to blame for beggar-thy-neighbour mercantilism, and for flooding the South with excess capital. Both played a role, and much else besides.

What is clear is that these imbalances have built up to such a degree that the Greco-Latin bloc is now trapped in debt-deflation – like victims of the 1930s Gold Standard – with wage costs out of kilter by 20pc or more.

Equally clear is that Germany cannot cling to a structural trade surplus with all southern Europe in perpetuity, at least on this scale. The system has to balance over time. Germany must either give up its intra-EMU surplus, or furnish offsetting funds through capital flows or fiscal transfers, if it wishes to preserve the euro. It is the complete refusal of Germany’s governing class to face up to this dilemma that is now destroying monetary union. Firewalls are a decoy.

April 22, 2012, 2:53 p.m. ET

Spain Steps Up Argentina Pressure

MADRID—Spain's foreign minister on Sunday called on European and other global leaders to enact concrete sanctions against Argentina in a bid to prod the country to fully compensate Spanish oil firm Repsol YPF SAfor the expropriation of its Argentine unit.

Speaking ahead of a meeting in Luxembourg on Monday with other European Union foreign ministers, José Manuel García-Margallo said in an interview at his private apartment in central Madrid that Spain would push the region to impose sanctions on the Latin American country that include removing its preferential trade treatment. The EU is Argentina's second-largest export market after the South American trading block Mercosur.

Mr. García-Margallo also said Spain would seek help from multilateral organizations such as the World Bank, the International Monetary Fund and the World Trade Organization to pressure Argentina to rejoin negotiations with Repsol, Spain's largest oil company, over proper compensation for forcefully taking control of YPF, Argentina's leading oil-and-gas company.

The intervention in YPF "isn't just a problem for Spain," Mr. García-Margallo said. "It affects everyone." Europe accounts for more than 50% of foreign investment in Argentina, and he said "foreign investment in a country can't be subject to the emotional whims of a country's political leaders."

Mr. García-Margallo's comments come as Spain strives to marshal international pressure against Argentina after the former colony, under President Cristina Kirchner, issued plans last week to expropriate 51% of YPF, leaving Repsol with a 6.4% stake.

----While declining to provide specific details, Mr. García-Margallo said additional unilateral reprisals would follow Spain's decision on Friday to effectively restrict imports of Argentine biodiesel, valued at about €750 million ($990 million) in 2011, according to Spain's Renewable Energy Producers Association.

April 22, 2012, 2:40 p.m. ET

Hungary Plans to Press EU on Aid

BRUSSELS—Hungarian Prime Minister Viktor Orban starts a two-day visit here Monday, hoping to unblock talks over an aid package from the European Union and International Monetary Fund held up by a series of fierce disputes between Budapest and Brussels.

Mr. Orban hopes to nudge the European Commission, the EU's executive body, into resuming talks over a new assistance program expected to be worth between €15 billion and €20 billion ($26.45 billion).

But the visit could be hard going. Tensions, never far from the surface since Mr. Orban took power in April 2010, have soared in the last few months. The EU has frozen nearly half a billion euro worth of funds earmarked for Hungary and started several legal actions that could see Hungary taken to court over some key government policies.

Investors are skeptical that Mr. Orban's trip will succeed in unblocking the aid talks. "We're as far away as ever from discussing a backstop," said Nomura analyst Peter Attard Montalto.

Mr. Orban is ostensibly here to attend a meeting of the center-right European People's Party and make a speech at the European Policy Centre, a Brussels think tank. But on Tuesday, he will meet with commission President José Manuel Barroso and sit down with European Council President Herman Van Rompuy.

With its currency plummeting to a record low against the euro and Hungarian government bond yields rising above 11% at the turn of the year, Budapest sought talks on a precautionary loan to help shore up investor confidence.

But discussions haven't started because of EU and IMF concerns about Hungary's policies, including a central-bank law passed in December that limits the bank governor's salary and changes the makeup of the interest-rate- setting board, among other things. The EU and IMF have said the law could undermine the bank's independence.

Talks have also been complicated by two other probes of Hungary's policies from the commission, which is concerned about laws that could infringe judicial independence and privacy rights.

“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” aka George Goodman. The Money Game.

At the Comex silver depositories Friday final figures were: Registered 29.01 Moz, Eligible 109.72 Moz, Total 138.74 Moz.  

The monthly Coppock Indicators finished March:
DJIA: +97 Down. NASDAQ: +103 Down. SP500: +70 Down. All three indicators remain down but downward momentum is stalling. 

To continue reading subscribe to the LIR at Currency Countdown.