Friday, 31 August 2012

The Great Deceiver Speaks.

Baltic Dry Index. 707  -11

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

German unemployment has been creeping up for five months. Carsten Brzeski from ING said August job data has been the worst since 1993. "The resilience of the German labour market is cracking up," he said.

The Telegraph 30/08/12.

Today, as we await the wisdom of the Great Deceiver, Helicopter Ben Bernanke,  winner of the Jackson Hole Bernie Madoff Award, your dinosaur writer, who remembers the great heyday of honest merchant banking of the 1960s and 1970s, must travel to attend a funeral. I have reached that time in life where funerals start to replace marriages and baptisms as a reason for family gatherings. As a result, today’s update is more in the nature of articles of interest that I think reflect our global economy in deepening distress. While  US Presidential hopeful Mr Romney may have a plan for getting American’s back to work again next year, it would be better to hear from the Great Deceiver today how he intends to keep more of them employed through the rest of this year.

What I took most from Moses Romney’s “we’re in the wilderness, but I have a map speech,” was his direct threat to start a trade war with China and an unspecified threat to Mr Putin. I can only hope neither Beijing nor Moscow was paying attention. There is nothing like being forewarned.

Up first China, where events are making moot a Club Med euro rescue, and they already have a beef against their leading debtor.

Aug. 31, 2012, 12:02 a.m. EDT

China’s new leaders won’t go big on stimulus

HONG KONG (MarketWatch) — China’s incoming leaders will likely focus on economic reforms and avoid the bazooka-style fiscal stimulus used to ward off slowdowns in the past, analysts say.

Société Générale economist Yao Wei in Hong Kong said perceptions about big infrastructure-focused stimulus packages, such as the one unveiled in 2008, have shifted recently, with many in Beijing now of the view that “it’s dangerous to do more than they [central government] should.”

China is set for a once-in-a-decade change of its most senior leaders, with new faces expected to take the helm of the Communist Party this year and formally take the top ranks of government early next year.

“The signs I’ve seen so far seem to suggest that the new leaders are pro-reform and more comfortable with slow growth than the current ones,” Yao said.

Concerns over the public backlash against wasteful government projects, including some apparently ill-conceived projects funded by the government’s prior stimulus package, could be another reason officials are adopting a different tone about the need for more stimulus.

These concerns were back in focus last week after a section of an elevated concrete roadway collapsed in the northern Chinese city of Harbin, resulting in several deaths, and fueling doubts about the construction quality and engineering of the newly opened transport link.

China’s fears grow over eurozone crisis

China has expressed deep alarm at the escalating crisis in Europe and warned against austerity overkill as Europe's crumbling demand sends shock waves through Asia.

Premier Wen Jiabao told German Chancellor Angela Merkel that Europe must "strike a balance" between fiscal tightening and measures to promote growth. "Europe's debt crisis has continued to worsen, giving rise to serious concerns in the international community. Frankly, I am also worried," he said.

His comments mark a shift in Chinese policy. Beijing has until now backed austerity across Euroland, but the severity of China's own downturn has begun to rattle policymakers.

Exports of electronic goods to Italy crashed 43pc in July from a year earlier, and sales to Germany fell 11pc. Caixin reported that processing trade to Europe fell 21pc.

The country's two largest shipping groups COSCO and China Shipping both reported a drastic losses today. The Shanghai composite index of stocks threatened to break below 2000 today, the lowest since the Lehman crisis.

Mr Wen asked for clarification over whether Italy and Spain would adopt "comprehensive rescue measures" needed to unlock the EU bail-out machinery - and open the door to bond purchases by the European Central Bank.

Mrs Merkel said eurozone debt remains a "safe investment". Yet it is far from clear whether China can come to the rescue. Simon Derrick from BNY Mellon said China's foreign reserves peaked at $3.31 trillion in February, and have since fallen by over $100bn. "China is no longer in the market to buy bonds," he said.
Morgan Stanley said there are signs of incipient capital flight from China. The yuan has fallen almost 1pc since April, and off-shore markets are pricing in further falls over the next year. The risk for Europe is that China could become a net seller of European bonds if forced to run down reserves to shore up the yuan.

Commentary: U.S. should stop playing double game.

BEIJING, Aug. 30 (Xinhua) -- An awkward moment was seen Tuesday when a U.S. State Department spokeswoman shunned a question from a Xinhua reporter regarding the territorial belonging of the Diaoyu Islands.

At a regular briefing, Victoria Nuland ignited a controversy by saying that the U.S. official name for the Diaoyu Islands is the Senkakus, the Japan's naming for the uninhabited islands in the East China Sea.
She then moved hastily to the next question without explaining the contradiction between Washington's self-proclaimed neutrality and its commitment to Japan of necessary security support for the islands, should they are under attack.

It is the double game the United States plays that puts Nuland into no words.

Though asserting it does not take a position on the question of the ultimate sovereignty of the Diaoyu Islands, Washington has never ceased to employ gamesmanship to roil the waters in the region.

Take the naming of the islands for example. It is a normal practice and a show of neutrality for a third party to simultaneously mention the names used by all the claimants when it comes to a disputed territory, but Washington refuses to follow.

Though the choice of name carries no legal effect, it does have political connotation, which is explained by Washington's series of moves.

As tensions between China and Japan continued to rise and opened a huge rift within the region, Washington staged a 37-day joint drill with Tokyo, stirring up the already volatile waters.

What's more, the U.S. Secretary of State Hillary Clinton, who would discuss tensions in the South China Sea during a coming trip to China, suggested the Diaoyu Islands fall within the scope of the Japan-U.S. security pact, lending a veiled support to Tokyo's claim over the islands.

August 30, 2012, 14:50

Residential property prices fall 13.6% in year to July

Residential property prices nationally fell by 13.6 per cent in the year to July but rose by 0.2 per cent in the month, new figures show.

This compares with an annual rate of decline of 14.4 per cent in June and a decline of 12. 5 per cent in the 12 months to July of last year.

The slight rise in prices in the month of July compares with a drop of 1.1 per cent in June and a decline of 0.8 per cent in July 2011, according to the Residential Property Price Index published by the Central Statistics Office.

In Dublin, residential prices fell by 0.3 per cent in July and were 16.6 per cent lower than a year ago.
House prices in the capital were down 0.2 per cent in the month and were 16.7 per lower than a year earlier.

Apartment prices were 19.6 per cent lower compared with July 2011.

Residential property prices in the rest of Ireland (excluding Dublin) were up 0.3 per cent in July compared with a drop of 1.3 per cent in July of last year. Prices were 12.1 per cent lower than in that month.

House prices in the capital are now 56 per cent lower than at their highest level in early 2007, while apartment prices are some 63 per cent lower.

Residential property prices in Dublin are 57 per cent lower than at their highest level in February 2007.

In the rest of Ireland, the decline in the price of residential property since that time is 47 per cent, and overall the national index is 50 per cent lower than at its height in 2007.

France says ECB debt buying would be justified

High borrowing costs for some European countries compared with Germany's may justify market intervention by the European Central Bank, Francois Hollande said on Thursday.

5:42PM BST 30 Aug 2012
High borrowing costs for some European countries compared with Germany's may justify market intervention by the European Central Bank, French President Francois Hollande said on Thursday.

"The ECB's mandate include price stability and monetary policy. When you see such wide gaps in yields, that could be a justification for an intervention in the name of monetary policy," Hollande told a news conference after meeting with Spanish Prime Minister Mariano Rajoy in Madrid.

European Central Bank President Mario Draghi is expected to flesh out his plans next week for a bond-buying programme he announced in August, conditioned on countries first applying for aid to the eurozone's rescue fund.

On Wednesday he wrote in an opinion piece in a German magazine that the ECB must employ "exceptional measures" at times.

Rajoy, of the centre-right People's Party, reiterated after his meeting with Hollande, a Socialist, that he is waiting to hear more about the programme before deciding whether his country will apply for European aid.

---- Both leaders expressed their backing for Greece as it struggles to implement tough measures that were conditions for its sovereign bailout, the first one in theeuro zone.

European leaders should show support for Greece at an EU summit on October 19 if the crisis-hit country's conservative government shows commitment to move ahead with economic reforms, Hollande said.

German Retail Sales Unexpectedly Fell in July as Economy Weakens

By Stefan Riecher - Aug 31, 2012 7:00 AM GMT
German retail sales unexpectedly declined in July as the sovereign debt crisis curbed growth in Europe’s largest economy.

Sales, adjusted for inflation and seasonal swings, slipped 0.9 percent from June, when they rose a revised 0.5 percent, the Federal Statistics Office in Wiesbaden said today. That’s the strongest increase since March. Economists forecast a gain of 0.2 percent, according to the median of 15 estimates in a Bloomberg News survey. Sales fell 1 percent from a year earlier.

While the jobless rate in Germany remained at 6.8 percent in August, unemployment edged higher for a fifth month as Europe’s debt crisis weighs on growth and corporate earnings. Still, Europe’s largest economy is outperforming most of its euro-region peers as rising wages bolster purchasing power and consumption.

Euro collapse 'would slash 10pc off German economy'

A complete collapse of the euro would shave up to 10pc off the German economy and even just the departure of Greece from the currency club bears substantial risks to business, according to German government economic adviser Lars Feld.

1:40PM BST 30 Aug 2012
Feld, one of five "wise men" economists whose views help shape the public debate in Germany but often have little direct impact on policy, said recent estimates by the group suggested Germany's gross claims from the eurozone are about €3.5 trillion (£2.7 trillion).

"When a good part of the claims would go in default, there would be insolvencies in small and medium-sizes firms and the economy would be hit," Feld told a Frankfurt journalist club.

"This drop could amount to 7pc to 10pc of the [German] gross domestic product."

A Greek exit could also not be achieved without substantial costs, Feld said and added that the risk of contagion via the banking system had been reduced, but there was still a strong risk that Greece's exit could prompt investors to expect other countries to follow suit.

A number of German officials have been talking up the options of pushing Greece - which is largely being kept afloat by funds from the German government - to drop out of the euro.

August 30, 2012, 10:41 p.m. ET

Poland's Economic Growth Slows

WARSAW—Poland's output growth slowed sharply in the second quarter as troubles in the neighboring euro zone and declining domestic demand weighed on an economy that has been one of Europe's most resilient.

Gross domestic product expanded 2.4% for the quarter compared with a year earlier, the national statistics office said Thursday. That is substantially slower than the 3.5% growth recorded in the first quarter, and well below the 2.9% the government had expected.

---- Economic growth for the full year is still expected to end up at around 2.5%, Mr. Rostowski said.

Still, the deceleration in output—to the lowest level recorded since mid-2009—will put pressure on Poland's central bank to cut interest rates, just months after it raised them in an effort to curb persistent inflation.

---- Poland was the only country in the European Union that managed to avoid a recession after the global financial crisis and had remained relatively resistant to the woes in the euro zone, even though it is the country's largest export market.

That is changing. Exports to the euro zone fell 2.7% in the first half of the year, compared with the same period in 2011. On top of that, domestic demand contracted 0.2% year-on-year in the second quarter as consumers retrenched and the state moved ahead with budget cuts.

Any sudden event which creates a great demand for actual cash may cause, and will tend to cause, a panic in a country where cash is much economised, and where debts payable on demand are large. In such a country an immense credit rests on a small cash reserve, and an unexpected and large diminution of that reserve may easily break up and shatter very much, if not the whole, of that credit.

Walter Bagehot. Lombard Street, 1873.

At the Comex silver depositories Thursday final figures were: Registered 36.64 Moz, Eligible 103.75 Moz, Total 140.39 Moz.  

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

No crooks today they’re nearly all in Jackson Hole Wyoming.

Another weekend, and the last of the summer holidays in the USA. In Europe, the never ending crisis is closer to its end. In Asia, Japan v China and Japan v South Korea, looks like it’s about to be replaced by America v China. In America, in a nasty no holds barred fight for the spoils of the next presidency, is about to take off the gloves and get serious.  As entertainment to a watching rest of the world, nothing else anywhere comes close. Two massive tribes, set out to outspend each other, for the right to drive America into national bankruptcy.

Time to walk the dog in the last of the summer sunshine, and enjoy the blackberries now reaching their southern England peak. Have a great weekend everyone.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Ludwig von Mises.

The monthly Coppock Indicators finished July:
DJIA: +65 Up. NASDAQ: +75 Up. SP500: +48 Up. All three indicators have reversed from down to up, though only marginally.

Thursday, 30 August 2012

Germany Heads East.

Baltic Dry Index. 718  -06

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

Today Germany’s Austerity Chancellor, “the Hammer of the Greeks,” heads to China, “as the head of the largest German business delegation ever to visit the country,” writes the Wall Street Journal. Increasingly, Germany’s economic interests lie to the east. But has Mrs Merkel, “the Torquemada of Club Med,” left it too late? Is China already in a hard landing? For more on that, scroll down to Crooks Corner, where today we focus on a very wobbly Chinese economy.

Before Chancellor Merkel, “the Attila of Italy” left for the east, she put the German jackboot into Italy’s unelected, ex-Goldmanite “three card Monti.” If the never ending Eurozone crisis wasn’t so serious,  this would all be hilarious in a film. Europe is descending into an all against all tragedy. Stay long physical precious metals and plenty of cash against the coming weekend. The ECB’s top Italian has ducked out of the Fed’s Jackson Hole junket.

Debt crisis: Merkel and Monti clash over ESM role

Europe's politicial and economic leaders clashed today over debt crisis resolutions, underscoring the sense of chaos and disunity between Brussels and the key eurozone economies.

At a summit in Berlin, Angela Merkel and Mario Monti publicly stated they disagreed over the role of Europe’s new big bazooka bail-out fund. The Italian prime minister said the European Stability Mechanism (ESM) should have a bank license to be able to properly bring down Club Med borrowing costs. The German Chancellor said the plan was “incompatible” with EU treaties - and that she was backed by Mario Draghi, president of the European Central Bank,

Meanwhile Mr Draghi launched an attack on Germany: in an article for Die Welt, he argued that the ECB would need "exceptional measures" to curb the crisis and that Berlin’s interpretation of the bank’s mandate was too narrow.

Baffled traders turned their hopes for solutions on the Federal Reserve’s meeting gathering in Jackson Hole, as the crisis in Spain and Greece advanced.

The small Spanish region of Murcia said it would need to claim €700m from Madrid’s emergency bail-out fund while officials in Valencia said the region would need more than €3.5bn. The forecasts backed fears that Madrid would be swamped by requests for aid from its €18bn fund, after Catalonia said it needed €5bn of support.

In Athens leaders met for more talks on how to achieve €11.5bn savings needed to unlock the next tranche of its bail-out. Prime minister Antonis Samaras faces an up-hill battle to convince his coalition partners to agree to cuts to pensions, pay and benefits for army and police staff.

August 29, 2012, 7:27 p.m. ET

Merkel Nods to China's Clout

German Leader's Visit as Trade Ties Grow Expected to Play Down Thorny Issues

BERLIN—German Chancellor Angela Merkel arrives in China on Thursday as the head of the largest German business delegation ever to visit the country, underscoring Germany's growing economic dependence on the world's most populous nation amid Europe's economic stagnation.

Ms. Merkel's second trip to China this year, and the sixth since she became chancellor, will revolve mostly around economic ties, German officials said, a sign of Ms. Merkel's willingness to play down thorny issues such as human rights and patent protection.

"The theme is business as usual," said Eberhard Sandschneider, director of the German Council on Foreign Relations. "Don't expect much progress in terms of intellectual-property rights from this visit."

While Germany still exports more to the U.S., and far more to the European Union, than to China, the Chinese market has been one of the fastest sources of growth for German companies in recent years, helping to offset weak growth in advanced economies since the global financial crisis.

German exports to China were 206% higher in 2011 than in 2005, compared with only a 24% increase in exports to the rest of the European Union and 6.3% to the U.S., according to German government data.

"It is the greenback which is unstable, and not the bullion."

It took the United States government over 200 years to accumulate its first trillion dollars of debt. It took only 286 days to accumulate the most recent trillion dollars of debt. 200 years vs. 286 days.

November 16, 2011 was a historic date: that's when the US officially surpassed $15 trillion in debt for the first time since World War 2. We celebrated it by cheering $15,OOO,OOO,OOO,OOOBAMA. Today, August 28, 2012, is when we can unofficially celebrate again, because 286 days after the last major milestone was surpassed with disturbing ease, total US debt following today's $35 billion auction of 2 Year bonds is, well, in a word: $16,OOO,OOO,OOO,OOOBAMA!

---- But wait. You aint's seen nothing yet. At this rate of growth, total US debt will surpass:
  • $17 trillion on June 10, 2013;
  • $18 trillion on March 23, 2014;
  • $19 trillion on January 3, 2015; and
  • $20 trillion on October 16, 2015

"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."

Antony C. Sutton

At the Comex silver depositories Tuesday final figures were: Registered 36.44 Moz, 
Eligible 103.76 Moz, Total 140.20 Moz.  

Crooks and Scoundrels Corner

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

As the Great German Hun peddles Mercs and Beamers to the inscrutable Han, more and more seems to be going awry in the Han economy. Stay long physical gold and silver. If China sneezes, America and Europe are about to get flu.

Dark clouds gather over China's once-booming solar industry

China's push into solar energy was supposed to be a proud example of how the country was advancing into hi-tech manufacturing. But now the whole sector is on the brink of bankruptcy.

Two years ago, LDK Solar, one of China's largest solar panel makers, built a new, state-of-the-art factory in the central city of Hefei.

It sits in one of the city's industrial parks, a big LDK Solar logo on its wall, with the New York-listed company's slogan underneath: "Lighting the Future".

"It cost 2.5 billion yuan (£250m) to build, the majority of the equipment was imported from Germany, and it hired 5,000 staff," said Jie Xiaoming, a 30-year-old who works at the plant's quality control and packaging department.

Last month, however, 4,500 of the staff were put on gardening leave. They receive 700 yuan a month to stay at home. The factory has shut down 24 of its 32 production lines.

"There do not seem to be any orders. People are still turning up for work, but mostly just sleeping. The management has not said much, just that the United States has a new policy that is stopping our exports," said Mr Jie.

Since it was set up in 2005, LDK Solar, along with several other Chinese solar panel makers, has enjoyed heady growth. Solar power, along with biotechnology and aerospace, was declared a "strategic emerging industry" and was given grants and low-cost loans.

It funnelled the cheap credit into an aggressive expansion, hoping to provide an entire industry chain of products and services.

Meanwhile, in Europe and the US, governments provided subsidies to buy Chinese-made panels as part of commitments to boost renewable energy.

But the incentives created a glut of suppliers, and since 2010, the price of polysilicon wafers has fallen by nearly three-quarters. The price is now below the production cost - in the latest quarter, LDK Solar's gross margin was -65.5pc.

Meanwhile, the debt crisis in Europe has cut government subsidies to the sector and the US imposed a 31pc tariff in May on Chinese wafers, complaining that manufacturers were being underwritten by the government.
In July a group of 25 European solar companies followed suit, filing an anti-dumping complaint with the European Union.

At the same time, the quality of the solar equipment being made by Chinese companies, even by the biggest companies, is often not export-grade.

Port in a financial storm: China's export hub hit

In the capital of Chinese exports, falling orders are starting to bite, but some hope that imports will soon make up the gap.

It is peak season at Yantian, as containers of Christmas presents begin their journey from this South China port to the other side of the world.

The port's five miles of waterfront are in operation 24 hours a day, its gargantuan cranes able to load or unload a ship carrying 10,000 containers within half an hour.

When we visit, there are roughly 350,000 containers stacked up, full of the electronics, clothes, toys and furniture that China manufactures so briskly. One of the world's biggest ships is also in port, the 1,302ft-long, 183ft-wide Maersk Elba standing in a bay.

But for its busiest time of year, Yantian is unusually quiet. And indeed Maersk, the Danish shipping giant that operates the Elba, has scrapped plans to build an even bigger class of ships: in 2011, it lost $75 (£47.50) on each 40ft container it shipped as demand for goods dropped in the US and Europe. It says its losses will continue this year.

One agent who arranges the permits for lorries to collect containers said the year-to-date had been poor. 

“Today, I have about 100 permits to hand out. Last year, we did between 200 to 300 a day,” he said.
“Business is ******* bad, maybe 50pc down,” said one lorry driver. “I usually haul 15 to 16 containers a month, now it is more like seven to eight,” said another, adding that factories in Shantou, one of his usual destinations, have had problems staffing their production lines.

Other drivers gave more modest estimates of between a 15pc and 20pc fall. “Now we are at peak season there is some work,” said one. “But in May, the port was very quiet. You could simply drive straight in”.

Nissan Cars Head Home as Yen Erodes Century of Made-in-Japan

By Andy Sharp - Aug 30, 2012 7:47 AM GMT
Japan Inc. has a new export market: Japan.
For the first time, companies including Nissan Motor Co. (7201) are building products abroad to ship home as a stronger yen, aging workforce and improved skills overseas erode a century-old mantra that what’s sold in Japan should be made there.

Nissan’s decision to import foreign-made vehicles in 2010 paved the way for some of Japan’s biggest companies, including cosmetics company Shiseido Co. (4911) and electronics maker Toshiba Corp. (6502) Shipments home from Japanese producers’ overseas plants have more than doubled in a decade to a record, including a 31 percent jump in the past two years, compared with a 61 percent gain in total imports over the 10 years, government data show.

Aug. 30, 2012, 2:59 a.m. EDT

Moody's cuts growth view for emerging economies

MADRID (MarketWatch) -- Moody's Investors Service on Thursday downwardly revised growth forecasts for Group of 20 emerging economies, citing a troubled external environment and weaker domestic demand. In an update to forecasts released in April, Moody's cut its forecasts for growth in emerging economies to 5.2% in 2012, versus a prior projection of 5.8% growth. For 2013, growth is seen at 5.7%, versus 6% expected in April. "We continue to expect that the slowdown in advanced economies and volatile capital flows will suppress growth in emerging markets," said Elena Duggar, Moody's group credit officer for sovereign risk. Moody's said G-20 developed countries will see growth of 1.4% in 2012 and 2% in 2013, no change to April forecasts. Moody's said risks have risen for global economies largely due to a deeper-than-expected euro-zone recession, potential for a hard landing in emerging economies, an oil-price supply-side shock resulting from the re-emergence of geopolitical risks and sudden and sharp fiscal tightening in the U.S. in 2013.

"The history of paper money is an account of abuse, mismanagement, and financial disaster."

Richard M. Ebeling

The monthly Coppock Indicators finished July:
DJIA: +65 Up. NASDAQ: +75 Up. SP500: +48 Up. All three indicators have reversed from down to up, though only marginally. Last week’s ECB relief rally probably made the difference.