The New Reality.

Baltic Dry Index. 1162 +05

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

A group of 170 economists from the "German-speaking" zone published a joint letter last week warning that an EU banking union would pool bank debts worth three times total sovereign debt -- €23 trillion by some estimates - and expose northern creditor states to ruinous liabilities.

They said such a move would lead to bitter discord between countries and ultimately poison the European Project. The group called for the losses to be imposed on banks and creditors, claiming the EU's current bail-out policies amount to a rescue for "Wall Street and the City of London".

Forget about trying to save Club Med and the Euro, it’s now every man for himself. Or more correctly, every man, woman, and child, and country for themselves.  Germany has reached the limit of its ability to bailout the rest of Europe. The rest of Europe has reached the limit of their ability to swallow more German dictated austerity. Now comes news that both China and America have joined Europe in economic distress. Economic reality is finally replacing hopium, smoke and mirrors, denial, and market rigging. The slow motion train wreck is now speeding up. Stay long physical precious metals. The euro as we knew it is over. The next Lehman is getting ready to appear.

Below, the new reality that can no longer be denied.

July 10, 2012, 12:45 a.m. EDT

China imports disappoint, exports slow

HONG KONG (MarketWatch) — China’s imports grew at a weaker-than-expected rate in June while exports also slowed, according to data out Tuesday, adding to growing evidence of a deepening slowdown and raising pressure on policy makers for more direct stimulus.

Imports grew 6.3% in June from a year earlier, versus expectations for an 11.3% rise tipped in a Dow Jones Newswires poll, and below a 12.7% gain in May, according to official data.

Export shipments grew 11.3% for the month, ahead of the 9% rise expected in the Dow Jones Newswires survey, but down from May’s 15.3% rise.

Piper Jaffray principal sales trader Andrew Sullivan said the data offered up a weaker picture of conditions within China and likely meant that economic data due out Friday would be weaker than forecast.

----China’s customs authorities, which released the data, said conditions for a trade rebound weren’t solid, as Europe faces an ongoing debt crisis.

It said the government’s 10% trade-growth target for the year was still achievable, however, so long as Europe’s situation doesn’t deteriorate further

More

http://www.marketwatch.com/story/china-trade-surplus-widens-as-imports-weaken-2012-07-09

China heads for a deflationary shock

By Ambrose Evans-Pritchard Economics Last updated: July 9th, 2012

China is on the cusp of a deflationary vortex.

This was signalled late last year by the sharpest contraction in the (real) M1 money supply since modern records began. The hard data is now confirming the warnings.

Consumer prices have been falling for the last three months, producer prices have been falling for four months. This is not a food cost story. It is systemic.

"While an economy-wide generalized deflation is yet to be seen, the deflationary spiral looks to have started in some industrial sectors, attesting to considerable stress with the economy. Persistent deflation can be poisonous," said Xianfang Ren from IHS Global Insight in Beijing.

Indeed it can be poisonous, and China already has the twin-afflictions of the deflation malaise: a fast aging nation, and a surfeit of factories and industrial plant.

Meanwhile, Japanese machine tool orders fell 14.8pc in May, the biggest drop since 2001 – when Japan’s deflation began in earnest. The post-Fukushima reconstruction boom has run its course. Asia is turning stone cold.

All engines of the global economy are sputtering at the same time.

----Is this the long-feared hard landing? Of course it is.

Macao’s casino revenue – that closely watched proxy for the Chinese economy – dropped 11pc in June. Commodity stockpiles are grinding ever higher, with coal depots bursting at Tianjin and other key ports.

More
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100018475/china-heads-for-a-deflationary-shock/

July 9, 2012, 4:02 p.m. EDT

Fed trio move closer to QE3

Sound alarm on outlook

WASHINGTON (MarketWatch) — A trio of influential Federal Reserve officials on Monday sounded the alarm on the economy, and suggested that the central bank is close to starting another round of asset purchases.

In a speech to a bankers’ convention in Idaho, John Williams, the president of the San Francisco Federal Reserve Bank, said progress on bringing down the unemployment rate is now running at a “snail’s pace,” and perhaps even stalled.

He said the Fed is on the “edge” of being forced from the sideline to once again prop up growth.

----Earlier on Monday, two of the most dovish Fed officials speaking at a conference in Bangkok, also expressed concern that the economy was struggling and said they would support more quantitative easing.

Boston Fed President Eric Rosengren said more quantitative easing is appropriate as labor market growth has slowed fairly noticeably and the global economy is vulnerable to financial shocks.

More

http://www.marketwatch.com/story/feds-williams-sounds-alarm-on-outlook-2012-07-09

July 9, 2012, 10:41 p.m. ET

Further BOJ Easing May Be Needed

TOKYO—Former Bank of Japan Deputy Governor Kazumasa Iwata said the central bank may need to take more easing steps as the nation's weak job market will likely fail to stimulate wage growth and bring about the moderate inflation the bank is targeting. 

"The bottom line is that the BOJ should maintain an accommodative monetary stance or strengthen it in some cases if needed," Mr. Iwata, who is seen as a potential successor to current BOJ Gov. Masaaki Shirakawa when the latter's term expires next April, told Dow Jones Newswires in a recent interview.

Mr. Iwata, the chairman of the Japan Center for Economic Research, stopped short of referring to a specific timing for additional action, but he said that purchases of longer-term Japanese government bonds as well as risk assets like stock and real-state investment funds may be among the options for further easing.

More

http://online.wsj.com/article/SB10001424052702303343404577517570184832862.html?mod=WSJ_World_LEFTSecondNews

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