Baltic Dry Index. 717
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
More than two thirds of the volume on the world’s stock
exchanges results from computers flicking buy and sell orders at each other,
trying to make a tiny profit through insider knowledge, for a millisecond or
so, or these days even less, of the other guy’s trades. Every week or so one of
these systems malfunctions, losing its owner several hundred million dollars,
causing the year’s largest IPO to go up in flames, or maybe one day causing a
planet-wide catastrophe – who knows? – certainly not the owners of these
computer systems and their laughably misnamed “risk managers.”
Into the Monetary Vortex. Martin Hutchinson August 27, 2012
Today we take a break from Europe’s never ending
crisis, which we think is about to come to its obvious, if delayed end, and
focus instead on events in Asia. Both China and Japan are being impacted by
falling exports to Europe, where austerity programs and a general economic
slowdown, have taken much of Europe into recession. The world’s number two
national economy and the world’s number three national economy, have become
locked in a growing nationalistic spat. Yesterday Japan’s ambassador to China was
affronted in his embassy car and the car’s national flag stolen. It’s hard to
think that this was anything other than a deniable staged incident.
Rising trouble in Asia and a slowing Asia, likely
sinks any ECB rescue plan for recession/depression wracked Club Med.
China Offers Oil-Exploration Blocks Near Disputed Waters
By
Bloomberg News - Aug 28, 2012 7:00 AM GMT
China National Offshore Oil Corp. offered foreign companies oil and gas
blocks that lie near waters also claimed by Vietnam and Japan as tensions flare
among the countries over rights to resources in the area. The state-owned oil and gas explorer put up 26 blocks in this year’s second round of auctions, according to a statement dated yesterday on the Beijing-based company’s website. A site known as 65/12 is within 50 kilometers (31 miles) of the Paracel Islands in the South China Sea near a block put up for bid last year that prompted a protest from Vietnam.
The offer by China’s biggest offshore energy company comes as tensions rise among Asia’s biggest economies following moves to assert sovereignty over disputed islands that are potentially rich in energy resources. Assailants in Beijing yesterday blocked an official car carrying the Japanese ambassador to China and snatched the Japanese flag from the vehicle, according to Chief Cabinet Secretary Osamu Fujimura.
----In June, China invited foreign companies to explore nine blocks to the east of Vietnam in areas that Hanoi’s leaders have already awarded to companies including Exxon Mobil Corp. (XOM) and Russia’s OAO Gazprom. Vietnam’s state-run oil explorer called on China to cancel the tenders.
Claimants have moved to assert administrative control over islands in the South China Sea, with Vietnam passing a maritime law in June and China planning to set up a military garrison on one of the Paracels. Vietnam, China, Malaysia, the Philippines, Taiwan and Brunei also claim rights to some or all of the Spratly Islands further to the south.
More
http://www.bloomberg.com/news/2012-08-28/china-offers-oil-exploration-blocks-near-disputed-waters-1-.html
Japan Demands Investigation After Attack on China Envoy’s Car
By Bloomberg News - Aug 28, 2012 7:57 AM GMT
Japan demanded an investigation after assailants in
Beijing blocked an official car carrying its envoy to China and
snatched a Japanese flag, amid escalating tension over islands claimed by both
nations.Two vehicles stopped Ambassador Uichiro Niwa’s car around 4 p.m. yesterday and a man jumped out and took the flag, Chief Cabinet Secretary Osamu Fujimura told reporters today in Tokyo. The government lodged a protest, and Prime Minister Yoshihiko Noda is sending a letter to Chinese authorities, he said.
“China has told us this was an extremely regrettable incident,” Fujimura said. “The authorities said they will make every effort to prevent a re-occurrence of such an incident, and guarantee the safety of Japanese citizens and businesses.”
The attack came days after protests erupted in China during tit-for-tat visits to the islands, known as Diaoyu in Chinese and Senkaku in Japanese, by activists from both sides. The dispute soured ties at a time when Japan is embroiled in a similar row with South Korea, while China is mired in spats with Vietnam and the Philippines involving offshore oil rights.
More
Japan Cuts Economic Assessment as BNP Says Contraction Looms
By Andy Sharp and Keiko
Ujikane - Aug 28, 2012 2:29 AM GMT
Japan’s government downgraded its assessment of the world’s third-biggest
economy for the first time in 10 months as some analysts forecast that gross
domestic product will shrink this quarter. Risks include a “further slowing down of overseas economies and sharp fluctuations in the financial and capital markets,” the Cabinet Office said in a monthly report released in Tokyo today. It cut an evaluation of the global economy.
The government lowered its view on personal consumption, home-building, exports, imports and industrial output, while raising its assessment of the labor market. The Bank of Japan (8301) next meets on Sept. 18 and 19 to review monetary policy, while global investors are awaiting an Aug. 31 speech by Federal Reserve Chairman Ben S. Bernanke to gauge the outlook for stimulus in the world’s biggest economy.
“Europe’s debt crisis is having the effect of a body blow to Japan’s economy,” said Yoshimasa Maruyama, chief economist at Itochu Corp. (8001) in Tokyo.
More
http://www.bloomberg.com/news/2012-08-28/japan-cuts-economic-assessment-as-bnp-sees-contraction-correct-.html
In European news, more of the same old bad news.
August 27, 2012, 7:23 p.m. ET
Spanish Data Weigh On Recovery Prospects
MADRID—Spain's economy was weaker than thought last year, the country's national statistics bureau said Monday, putting the government further behind in its task of engendering a jobs recovery, even as it seeks to cut its 2012 budget deficit sharply.
The euro
zone's fourth-largest economy grew 0.4% last year, compared with an earlier
estimate of 0.7%, Spain's National Statistics Institute said, following a
periodic review that incorporated some information from surveys and other data
that were previously unavailable.
A
spokesman for Spain's Budget Ministry said the revision is too small to affect
the country's estimate of its 2011 budget deficit, which the latest measure
puts at 8.9% of gross domestic product.
It is a bad sign for Spain, however, as the
government of Prime Minister Mariano Rajoy seeks to enact more than €100
billion ($125 billion) of spending cuts and tax increases over the next two
years to narrow its budget gap, which many economists fear may deepen the
country's economic contraction. Spain's government had been counting on
increasing exports to help drive growth and cut its budget deficit to 6.3% of
GDP this year.
Morehttp://online.wsj.com/article/SB10000872396390444506004577615093960946210.html?mod=googlenews_wsj
"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."
William F. Rickenbacker
At the Comex silver depositories Friday final figures were: Registered 36.16
Moz, Eligible 102.81 Moz, Total 138.97 Moz.
Crooks and
Scoundrels Corner
The bent,
the seriously bent, and the totally doubled over.
Today, the ever excellent
thoughts of Martin Hutchinson on the collapse of the velocity of money in our
new never ending QE system. Once on Quantitative Easing, is it ever possible to
end it without triggering the event it was started to prevent? Assuming that it
is, once sustainable growth in the western economy’s returns, can a central
bank shrink its balance sheet fast enough to head off a giant inflation?
"When paper money systems begin to crack at the seams, the run to gold could be explosive."
Harry Browne
Into the Monetary Vortex
by Martin Hutchinson . August 27, 2012
Last week’s revelation in the Fed minutes for its August 1 meeting that
another “QEIII” government bond purchase is almost inevitable has intensified
the recent upward trend in markets. With fiscal and monetary policies more
extreme than any in history, now entering their fifth year, and equally
unprecedented advances in communication and computing enabling ever-faster
trading, it’s not surprising that market behavior is anomalous. Only the almost
total absence of inflation is strange. Soon however that anomaly will be
explained, as the immense supply of negative-cost money causes the global
economy to spiral into a vortex of hyperinflationary collapse. The Mayan
calendar, in which the fourth world ends on December 21, leading us to a Fifth
World of greater enlightenment, may be only too accurate, economically speaking
– but that enlightenment will have been purchased at a fearful cost.Probably the central puzzle of monetary policy in the last two decades is that of velocity. Money supply, however measured, has increased consistently more rapidly than nominal GDP, so we are told that monetary velocity has declined. The non-appearance of the expected inflation in the last several years of negative real interest rates is explained by monetary velocity having declined even further. This variable, which had increased consistently in every decade since the Industrial Revolution or even before, has now mysteriously turned tail and is heading steadily downwards. Yet nobody can explain why.
-----Yet
for two decades reported monetary velocity has declined. The concept is
self-contradictory.
The
explanation lies in the rise in the last two decades of immense stagnant
balances, earning near zero interest rates, which are never spent but simply
build up idly. The largest of these is international central bank reserves,
increasing at 17% annually since 1998 and now at a level of some $10 trillion.
The chairman of the Bank of Thailand said this week that Thailand’s $176
billion of official reserves “should be spent on boosting the economy rather
than on doing nothing useful” and was vilified by orthodox economists, but
really he has a point. (Unlike the Argentine government, which has persistently
found endless unproductive ways to waste their currency reserves, the current
Thai government might spend the money on useful infrastructure.)
A second
vast pool of useless liquidity is that of the U.S. banking system’s free
reserves at the Fed, currently some $1.6 trillion. The Fed pays interest on
these, so since there are no other uses for the money that don’t involve risk,
it’s not surprising that the banking system keeps them high. It is however
surprising that, four years after the crisis, the system has not found a way of
deploying this pool of money more efficiently.
A third
pool of useless money is the “Target 2” balances of the European payments
system. This pool is somewhat different, even chimerical. Even though the head
of the Bundesbank may go to sleep each night happy that he has $850 billion of
short-term central bank obligations sitting in his vaults, in reality these
obligations are derived from such as the Bank of Greece, and not worth the
paper that, being virtualized, they are not written on.
Then
there is the $2 trillion of cash sitting on the balance sheet of U.S.
non-financial corporations. This can best be explained by thinking of all the
prudent corporate Treasurers, seeing interest rates at record low levels, who
have borrowed next year’s capital spending plan in the long-term markets in
order to avoid tapping them at next year’s higher rates. Of course, since this
has gone on for several years, there are many corporate Treasurers who are now
working on the capital spending plan for 2043. Still at least this avoids actually
returning some of that cash to shareholders – perish the thought! After all, at
some time in the next couple of decades there may come an opportunity for a
truly value-destroying acquisition on which the cash can be spent.
The
result currently is a situation in which a small part of the world’s money
supply is rushing around like a blue-arsed fly, carrying out transactions at a
rate of several terabits a second, while most of it sits idly polishing its
fingernails and earning its owners a measly 0.0005%. Needless to say, this is
not a stable situation.
It’s
difficult to specify precisely what will be the outcome of all this, since
neither theory nor past experience offer much guidance – indeed we are in the
area of wild, unsubstantiated guesses. Mine, for what it’s worth, is that the
small portion of the money supply that is doing all the work is now redoubling
its efforts, given additional verve by “quantitative” easing by the Fed next
month and a further massive bond purchase program by the European Central Bank.
Asset prices are once again headed to the skies and the glorious, celestial
gold bull market for which gold bugs have yearned for the last decade is at
last in progress. From July 1978 to January 1980, the gold price soared from
$175 per ounce to $850; we may well see such a rise again, from a base almost
ten times as high.
More
"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
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.
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