Monday 27 August 2012

The Odd Couple.


Baltic Dry Index. 717 +02

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

“Sales of Japanese goods to Western Europe were no less than 25.1pc lower in July compared to July 2011. This is the kind of export nosedive Japan hasn’t experienced since the immediate aftermath of the Lehman crisis.”

The Telegraph, August 25th.

We open today questioning whether Germany really gets anything meaningful back, for bankrolling the increasingly dodgy euro. While the new Italian run ECB and the German Bundesbank fight over ECB monetisation aspirations to bailout Euroland’s Club Med, the reality is that Germany would be better off now in an economic trade zone with Russia. Even more so now that Russia has just joined the World Trade Organisation, likely spurring even more trade between the odd couple. Any such trade pact would quickly be joined by Germany’s closest EU followers. The costly and bureaucratic EU, could be ditched, left to France and Club Bad. I suspect that somewhere deep  in both Germany and Russia, some academics are quietly modelling the possibilities.

"a company for carrying out an undertaking of great advantage, but nobody to know what it is".

ECB.  1720.

Debt crisis: ECB rescue plan could be 'addictive like a drug', says Weidmann

Central bank financing can be “addictive like a drug”, the president of the Bundesbank has warned, in comments that emphasize the dangerous gulf between Germany and the European Central Bank.

Jens Weidmann argued that any radical effort to buy eurozone’s stricken sovereign bonds, as hinted by ECB president Mario Draghi three weeks ago, would be an inappropriate extension of the bank’s mandate.

“In democracies, parliaments rather than central banks should decide on such an encompassing mutualization of risks,” he said at the weekend, adding that it was not the ECB’s job to “guarantee that states remain in the euro area at all costs.”

“We shouldn’t underestimate the danger that central bank financing can become addictive like a drug. Such policy is too close to state financing via the money press for me,” he said.

Angela Merkel, German chancellor, said that unlike Mr Weidmann she believed the ECB was acting within its mandate but she said it was “good” that he warned “politicians again and again” about over-stretching the ECB.

The comments will fuel fears that Germany is ready to scupper the ECB’s efforts to launch an unlimited bond buying programme to bring down the borrowing costs of Spain and Italy. The so-called 'Draghi Plan’ triggered a rally on global markets throughout August as traders bet that the ECB would unveil the proposal after its meeting next week. If Germany manages to stall the plans, hopes for a recovery could also quickly stall.

Russia joins the 'global club’ as economy slows

One of the very few pieces of good news in terms of the global economy last week was that Russia became the 156th member of the World Trade Organisation.

----Look at the growing trade links between Germany and Russia, for instance. Even before its WTO entry, Russia has already established itself as the biggest single-country trading partner of Western Europe’s economic powerhouse. More than 6,000 German companies are currently active in Russia. Spend time in the country’s big cities, not just Moscow and St Petersburg, but in the Russian provinces, too, and you are faced with a barrage of advertising by German companies and German-made goods.

Since 2001, European Union exports to Russia have grown from 3.6pc to 7.1pc of all EU goods sold abroad. German machine-tools, cars and other manufactured products have been the main beneficiary of this rise.

Germany accounted for a massive €34.3bn (£27.2bn) of the EU’s Russia-bound exports last year, up no less than 31pc from the previous year, and dwarfing the €7.4bn of goods from France and a paltry €4.7bn from the UK.

Germany doesn’t only export to Russia, of course, but also imports commodities, not least natural gas. Some 40pc of Germany’s gas consumption now comes from Russia, including via the new Nord Stream pipeline, directly from Russia to Germany, across the floor of the Baltic Sea. While the UK has taken a pretty sniffy attitude towards post-Soviet Russia, the Germans have been more pragmatic and are now reaping the economic rewards.

The World Bank estimates that the Russian economy should enjoy an estimated $162bn annual gain from WTO membership – not bad for an economy where annual GDP is close to $2,000bn. Being in the WTO should enhance competition within the Russian economy, acting as a catalyst for further reforms and diversification.

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise." "The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."

Hans F. Sennholz

'Meddlers’ upset Greek sell-offs

Greece's attempts to balance its books by selling off its bloated state sector are in disarray because of political meddling, the country’s former privatisation chief warned.

Greece's attempts to balance its books by selling off its bloated state sector are in disarray because of political meddling, the country’s former privatisation chief has warned.

Costas Mitropoulos, who resigned last month from the Hellenic Republic Asset Development Fund, told The Sunday Telegraph that a lack of “political visibility” around the privatisation programme meant there was little prospect of investors committing at present.

As chief executive of the fund, Mr Mitropoulos, 57, a former executive chairman of Eurobank EFG Equities and member of the global advisory council of the London Business School, was tasked with raising up to €50bn (£39.6bn) through sell-offs of state assets, from airports to casinos and power companies. So far, however, only around €1.5bn has been raised since 2010, far short even of revised final targets of €19bn.

China announces £800bn stimulus to boost confidence

China has announced a total of 8 trillion yuan (£800bn) of "stimulus projects" to try to boost confidence in an economy that appears to be cooling faster than expected.

One Chinese province after another has stepped forward over the last fortnight to announce their plans, in what appears to be a propaganda effort to reassure the public that the economy is still on track.
Meanwhile, Wen Jiabao, the Chinese premier, promised over the weekend that the Chinese government would intensify its efforts to boost the economy in the second half of the year.

On a visit to Guangdong, the heartland of China's export industry, Mr Wen warned that "there will still be a lot of problems and uncertainties in exports going forward. The third quarter is a crucial period".

Analysts said the government could now steer the value of the yuan lower, after a gain of 4.7pc last year against the dollar. Further export tax rebates could also be used to bail out manufacturers.

China's export sector is suffering from anaemic demand from Europe and the United States. In the first seven months, exports rose 7.8pc, while imports rose 6.4pc, leaving China in danger of missing its 10pc target for trade growth this year. July's exports grew at the lowest pace since 2009 and there are reports of factory workers leaving and returning to their home provinces for the first time since the financial crisis.

----The picture appears mixed. China, geographically almost the same size as the Eurozone, appears to be struggling in some areas and flourishing in others. A new inland corridor, running from Liaoning in the north to Guizhou in the south, through cities such as Wuhan and Changsha, is booming.

In response, Guangdong has unveiled 177 "core projects" worth 1 trillion yuan, joining a long list of local governments to announce "stimulus" plans. The huge cities of Chongqing and Tianjin, meanwhile, both said they would spend 1.5 trillion yuan, while Guizhou, one of China's poorest provinces, has said it will spend 3 trillion yuan on eco-tourism and creating a series of national parks.

The central government, meanwhile, said it would spend to plough 2.4 trillion yuan into reducing carbon emissions and energy conservation programmes over the next three years, and has already set aside 26bn yuan in subsidies to encourage consumers to switch to low-energy appliances.
More
http://www.telegraph.co.uk/finance/china-business/9500548/China-announces-800bn-stimulus-to-boost-confidence.html

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

Harry Browne

At the Comex silver depositories Friday final figures were: Registered 36.16 Moz, Eligible 103.76 Moz, Total 139.92 Moz.  

Crooks and Scoundrels Corner

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

No crooks today, just a timely warning of a coming global oil shock. Rising Asian demand is offsetting weak demand in America and Europe. So what happens when America and Europe return to growth? Worse, declining production in non OPEC countries, leave the world once again over dependent on unstable OPEC countries, and especially over dependent on aging Saudi Arabian elephant oilfields. No problem today, but an oil shock lies ahead barring an unlikely mass switch to alternative energy sources.

Peak cheap oil is an incontrovertible fact

If the looming global oil crunch has been postponed for another decade or two as widely alleged, this is far from obvious in today’s commodity markets.

Brent crude jumped to $115 a barrel last week. Petrol costs in Germany and across much of Europe are now at record levels in local currencies.

Diesel is above the political pain threshold of $4 a gallon in the US, hence reports circulating last week that the International Energy Agency (IEA) is preparing to release strategic reserves.

Barclays Capital expects a “monster” effect this quarter as the crude market tightens by 2.4m barrels a day (bpd), with little extra supply in sight.

Goldman Sachs said the industry is chronically incapable of meeting global needs. “It is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand,” said its oil guru David Greely.

This is a remarkable state of affairs given the world economy is close to a double-dip slump right now, the latest relapse in our contained global depression.

----We learned in the 2006-2008 blow-off that China is now the key driver of global oil prices, with consumption rising each year by 0.5m bpd -- now a total 9.2m bpd in a world market of 90m bpd. Demand is broadly flat in Europe and America.

So what will happen when China latest spending blitz gains traction? The regions have unveiled a colossal new spree on airports, roads, aeronautics, and industrial parks: a purported $240bn each for Tianjin and Chongqing, $160bn for Guangdong, $130bn for Changsha, and so forth. Sleepy Guizhou has trumped them all with $470bn. Your mind goes numb.

What will happen too when car sales in China surpass 20m next year, as expected by the China Association of Automobile Manufacturers?

Kamakshya Trivedi and Stacy Carlson from Goldman Sachs say a disturbing pattern has emerged where each tentative recovery in the world economy sets off an oil price jump that it turn aborts the process. A two point rise in global manufacturing indexes leads to a 30pc rise in oil prices a few months later.

“Oil has become an increasingly scarce commodity. A tight supply picture means that incremental increases in demand lead to an increase in prices, rather than ramping up production. The price of oil is in effect acting as an automatic stabilizer,” they said. If so, it is “stabilizing” the world economy in perma-slump.
More

"We need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."

Leonard Read

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.

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