Tuesday 14 August 2012

Euro Collapse.


Baltic Dry Index. 764 -10

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

"In heaven the British are the police, the French are the cooks and the Germans are the engineers. In Europe the Germans are the police, the British are the cooks and the French are the engineers."

Anon.

We open today with Der Spiegel covering a European Union increasingly preparing for the inevitable, the breakup of the European Monetary Union as it presently exists. “Currency’s Days Numbered,” they screech. Warning, this is the same jealous Der Spiegel that loudly proclaimed the London Olympics to be the Fiasco Olympics before they opened. Der Spiegel’s crystal ball is frequently not just cloudy, but tuned into a parallel universe. This time though, I suspect that they are tuned into the right program. Europe’s dither, dissemble, doublespeak, and gross incompetence in Euroland’s never ending crisis, is rapidly approaching the end of the road. Assuming a favourable, if contrived, bailout ruling on September 12th by Germany’s constitutional court, Germany and the rest of the northern austerity gang must then put up enough cash to bailout all of Club Mad. Like Shylock they will demand their pound of flesh. Like Shylock they will fail to get it. Either Club Mad will rebel ahead of their voters, or the Austerity Club will rebel at providing bailout funds on a nod and a wink basis. For more on this, scroll down to Crooks Corner for why a Bilderberger, bankster run “United States of Europe” will never succeed.

Of course if Germany’s constitutional court declares the rescue plan illegal, all of Europe’s PIIGS with the possible exception of Ireland, go boom. Probably causing Belgium and France to go boom, shortly thereafter. Stay long physical precious metals, and in the run up to September 12th any sensible fiat currency other than the euro. The euro as we know it is dying and unsaveable. World trade is now contracting, with the Baltic Dry Index approaching post Lehman lows again. In this global environment the euro is over.

"May you get a British cook, a French mechanic and an American wife."

Canadian Curse.

 Investors Prepare for Euro Collapse

Currency's Days Seen Numbered Investors Prepare for Euro Collapse

By Martin Hesse 08/13/2012
Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar's structure isn't in doubt.

----He begins with an anecdote. "Dear Otmar, congratulations on an impossible job." That's what the late Nobel Prize-winning American economist Milton Friedman wrote to him when Issing became a member of the ECB Executive Board. Right from the start, Friedman didn't believe that the new currency would survive. Issing at the time saw the euro as an "experiment" that was nevertheless worth fighting for.

Fourteen years later, Issing is still fighting long after he's gone into retirement. But just next door on the stock exchange floor, and in other financial centers around the world, apparently a great many people believe that Friedman's prophecy will soon be fulfilled.

Banks, investors and companies are bracing themselves for the possibility that the euro will break up -- and are thus increasing the likelihood that precisely this will happen.

There is increasing anxiety, particularly because politicians have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany's Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.

There's a growing sense of resentment in both lending and borrowing countries -- and in the nations that could soon join their ranks. German politicians such as Bavarian Finance Minister Markus Söder of the conservative Christian Social Union (CSU) are openly calling for Greece to be thrown out of the euro zone. 
Meanwhile the the leader of Germany's opposition center-left Social Democrats (SPD), Sigmar Gabriel, is urging the euro countries to share liability for the debts.

----Banks are particularly worried. "Banks and companies are starting to finance their operations locally," says Thomas Mayer who until recently was the chief economist at Deutsche Bank, which, along with other financial institutions, has been reducing its risks in crisis-ridden countries for months now. The flow of money across borders has dried up because the banks are afraid of suffering losses.

According to the ECB, cross-border lending among euro-zone banks is steadily declining, especially since the summer of 2011. In June, these interbank transactions reached their lowest level since the outbreak of the financial crisis in 2007.

In addition to scaling back their loans to companies and financial institutions in other European countries, banks are even severing connections to their own subsidiaries abroad. Germany's Commerzbank and Deutsche Bank apparently prefer to see their branches in Spain and Italy tap into ECB funds, rather than finance them themselves. At the same time, these banks are parking excess capital reserves at the central bank. They are preparing themselves for the eventuality that southern European countries will reintroduce their national currencies and drastically devalue them.
More

August 13, 2012, 8:43 a.m. ET

Greek GDP Contracts Again

ATHENS—Greece's economy remained deep in recession in the second quarter of the year, contracting by 6.2% on an annual basis, making it more difficult for the coalition government to introduce the next batch of austerity measures and to meet fiscal targets demanded by international creditors.

With the economy stumbling through its fifth year of recession, Greece is struggling to meet deficit-reduction targets demanded by the European Union and the International Monetary Fund in exchange for its €173 billion ($212.6 billion) bailout, forcing the government to seek a two-year extension to the loan agreement.

The Greek national statistics agency Elstat said Monday that the contraction rate in the first three months of the period was 6.5% year-on-year after a drop of 7.5% in the last quarter of 2011, according to non-seasonally adjusted figures.

----Greek government revenues have suffered from a drop in personal-income-tax payments because of wage cuts and record-high unemployment, while soaring business bankruptcies have weighed on collections of value-added and other taxes. At the same time, contributions to Greece's deficit-ridden, pay-as-you-go pension system have tanked as the army of jobless workers grows.

The data comes as the Greek government—a coalition of three parties—has been debating a €11.5 billion austerity mix, amounting to 5.5% of gross domestic product, for several weeks.
More

World shipping crisis threatens German dominance as Greeks win long game

Germany’s shipping industry faces a wave of bankruptcies over coming months as funding dries up and deepening economic woes across the world cause a sharp contraction in container trade.

Over 100 German ship funds have already shut down as the long-simmering crisis in global container shipping finally comes to a head. A further 800 funds are threatened with insolvency, according to consultants TPW in Hamburg.

They are not alone. Britain’s oldest shipowner, Stephenson Clark, dating back to 1730, went into liquidation last week, closing the final chapter of Britain’s coal trade and the industrial revolution.

It cited “incredibly depressed” vessel rates. The firm over-invested in the boom four years ago, betting too much on the China syndrome.

Germany is the superpower of container shipping, controlling almost 40pc of the world market. The Germans also misread the cycle and have been struggling to cope ever since with a legacy of debt and a glut of ships. Now everything is going wrong at once.

Container volumes arriving at European ports plunged in June, dashing expectations of a summer rebound. Imports fell 7.5pc from North America and 9pc from Asia. Flows into the Mediterranean region crashed by 16pc, reflecting the violence of the recession in Greece, Italy, Spain, and Portugal.

----Buckling trade is the coup de grace for countless shippers still clinging on by their finger tips. “The market is barely paying above operating cost. If you are loaded with debt, you are in trouble,” said Martin Smith from ship operators Norddeutsche Vermögen in Hamburg.

It is much same story in the Pacific region where Danish shipper Maersk said that it is losing over $200 for every container on the Qingdao-Melbourne route. But what the Germans face is the double-whammy of a funding squeeze.

“If you don’t have a line of credit already, nobody is going to give you one. We’re suffering a liquidity crisis, and its almost impossible for single vessel owners,” said Mr Smith.

Commerzbank – the world’s second-biggest provider of ship finance, and reluctant owner of a flotilla of foreclosed ships – said it is shutting down its €20bn (£15.7bn) ship funding operations entirely to “minimise risk and capital lock-up” under tougher EU banking rules.

Italians Say Goodbye to Ferraris as La Dolce Vita Expires

By Tommaso Ebhardt - Aug 13, 2012 11:00 PM GMT
The 204,000-euro Ferrari 458 Italia has never been a particularly common sight, even on the autostrade of its native Italy. Today it’s becoming even rarer as austerity measures spur Ferrari owners to export supercars by the truckload.

A crackdown on luxury goods combined with budget cuts that have pushed Italy deeper into its fourth recession since 2001 are souring demand for sporty cars and other symbols of the country’s carefree lifestyle. The number of secondhand high- performance cars exported from Italy nearly tripled to 13,633 vehicles in the first five months of 2012, from 4,923 a year earlier, according to auto industry group Unrae.

“Italy is one of the strongholds of supercars, and those vehicles are now disappearing from the streets,” said Giuliano Noci, associate dean of Milan Polytechnic’s business school. “This has a huge symbolic value and shows how deep the crisis is.”

The exodus reflects weaker overall demand for supercars in the home of Ferrari and Maserati, Fiat SpA (F)’s most profitable brands. Sales of super-luxury cars in Italy are forecast to plunge 47 percent to 593 vehicles this year from 1,116 in 2008, according to IHS Automotive, which predicts that sales won’t return to pre-crisis levels before 2016.

---- The downturn prompted Fiat, Italy’s biggest manufacturer, to temporarily halt investments in the country. Chief Executive Officer Sergio Marchionne may close another factory after shuttering a plant in Sicily last year. Weaker supercar demand could further sour Fiat on Italy and accelerate a shift to stronger markets like the U.S. and China.

---- On top of the extra levies, supercar-owners are being scrutinized in efforts to flush out tax evaders. Since December 2011, Italian authorities have conducted dozens of raids in wealthy areas, including the ski resort Cortina d’Ampezzo and Portofino on the Riviera. The officials stop supercars to check whether their owners declared sufficient income -- and paid enough taxes -- to support their lifestyles.

Near Venice last month, financial police arrested a 44- year-old man driving a Ferrari F40 for not paying 8 million euros in taxes since 2006. In a July sweep in the northern town of Bergamo, police found that the driver of a 200,000-euro Ferrari F131 had evaded 3 million euros in taxes since 2007.

“Many Ferrari owners want to get rid of their supercars after the financial police came to one of our events near Rome and checked every driver,” said Fabio Barone, who heads the Ferrari owners’ club Passione Rossa.
More
http://www.bloomberg.com/news/2012-08-13/italians-say-goodbye-to-ferraris-as-la-dolce-vita-expires.html


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