Wednesday 26 September 2012

Euro Crash?

 Baltic Dry Index. 763  -09

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

The race is not always to the swift nor the battle to the strong, but that's the way to bet. 

Damon Runyon.

Due to travel, the next update will be on Monday.

It is now very late in the day for the dying euro. In an attempt to keep the snake bit euro alive, Portugal, Ireland, Greece and Spain, have all been forced to commit economic suicide by a crash austerity driven German paymaster. Italy is next followed by Belgium then France, although on nutty old socialist policies, France might need a bailout before Belgium. But now Club Med’s population are revolting.

There is a limit to how much foreign imposed austerity a population is willing to take, just to bailout French and German banks. In Greece, Spain and Portugal, we seem to have reached that limit. Italy seems to have reached it even without trying austerity. There is a growing realisation that leaving the one size fits all Germanic monetary union, is less wealth destructive than staying in it. Since World War Two, Club Med always functioned on weak, fiat, devaluing currencies, with a large black economy acting as a safety valve preventing high unemployment. Even then there were severe social strains in France, Italy and Greece in the 1960s and 1970s. On present Germanic austerity programs, Club Med is heading back to those dark times. Present austerity regimes seem to just about have reached the end of the road.

According to media stories, that road runs out after the US election in early November. The Fed on behalf of the Obama government has been leaning heavily of the ECB and other European central banks to do whatever it takes to get Europe’s PIIGS past that election. After that, the deluge I presume. Stay long physical precious metals, though don’t take any Swiss made 10 oz gold bars.  Club Med’s wealthier citizens still have roughly another 30 days to take protection. But better early than late, in case of bank holidays, currency controls, or unexpected outside crises such as Argentina or China.

If you must play, decide upon three things at the start: the rules of the game, the stakes, and the quitting time. 

Chinese Proverb

It's time to break up the Euro

September 25, 2012

Don't believe the politicians. The common currency can't survive as is. Here's the right way to handle a split.

FORTUNE – Roger Bootle prides himself on being something of a modern-day Nostradamus -- with good reason. In 1999 the British economist predicted a bursting of the dotcom bubble, and in his 2003 book, Money for Nothing, he forecast a worldwide crash in housing that would prove dire for the financial system. A rigorous student of markets, Bootle, 60, is a onetime Oxford don and chief economist for HSBC (HBC) who now runs Capital Economics, a London consulting firm. Operating out of a 19th-century Victorian townhouse near Buckingham Palace, the bald, bespectacled son of a civil servant confidently advises major banks and hedge funds from New York to Beijing. But away from the office he isn't much of a risk-taker. Bootle likes to unwind at England's famous Ascot Racecourse, where he wagers no more than "five or 10 quid just so I have a horse to cheer home."

Today Bootle is betting his professional reputation on another bold contrarian call, one with long-term ramifications for the world economy and global stock markets: He strongly believes that at least a partial breakup of the eurozone is inevitable and that massive changes are coming for the euro, the currency now shared by 17 nations accounting for one-eighth of world GDP.

In July, Bootle and his team won the prestigious Wolfson Economics Prize for providing the best answer to the following question: "If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed?" In a 114-page report, "Leaving the Euro: A Practical Guide," Bootle delivered a blueprint for the steps a nation should take in exiting the common currency. He also went further, summoning a powerful argument for why an exodus of weak countries is the only solution for Europe's deep malaise.

Protesters rage against austerity cutbacks and tax hikes in Spain

Spain's government was hit by the country's financial crisis on two fronts on Tuesday as protestors enraged with austerity cutbacks and tax hikes clashed with police near Parliament while the nation's borrowing costs increased in an auction of its debt.

9:49PM BST 25 Sep 2012
More than 1,000 riot police blocked off access to the Parliament building in the heart of Madrid, forcing most protesters to crowd nearby avenues and shutting down traffic at the height of the evening rush hour.
Police used batons to push back some protesters at the front of the march attended by an estimated 6,000 people as tempers flared, and some demonstrators broke down barricades and threw rocks and bottles toward authorities.

Television images showed officers beating protesters in response, and an Associated Press television producer saw several people dragged away by police and one protester with his head bloodied. Spain's state TV said at least nine people were injured, including one officer, and that 15 were detained.

----Angry Madrid marchers who got as close as they could to Parliament, 250 meters (yards) away, yelled "Get out!, Get out! They don't represent us! Fire them!"

"The only solution is that we should put everyone in Parliament out on the street so they know what it's like," said Maria Pilar Lopez, a 60-year-old government secretary.

Lopez and others called for fresh elections, claiming the government's hard-hitting austerity measures are proof that the ruling Popular Party misled voters when it won power last November in a landslide.

Be Very Careful, Beloved Spain

By Ambrose Evans-Pritchard  Last updated: September 25th, 2012
----Two weeks ago I was interviewed by the Catalan newspaper El Punt Avui. I said it would be unthinkable for the Spanish state to stop Catalan secession by military force.

Such action would violate EU Treaties and lead to Spain’s suspension from the European Union. You do not do such things in the early 21st Century.

"No pots ser membre de la UE si utilitzes la força" was the headline.

I may have underestimated the vigour of the Spanish officer corps.

First we have the robust comments of Colonel Francisco Alaman comparing the crisis to 1936 and vowing to crush Catalan nationalists, described as "vultures".

"Independence for Catalonia? Over my dead body. Spain is not Yugoslavia or Belgium. Even if the lion is sleeping, don’t provoke the lion, because he will show the ferocity proven over centuries," he said.

----Yet Col Alaman is in a sense correct. The mood is becoming dangerous.
Is case you think he is an isolated case, former army chief Lt-Gen Pedro Pitarch said his views reflect "deeply-rooted thinking in large parts of the armed forces".

Gen Pitarch said Catalan independence is out of the question, though he also said Madrid had bungled the crisis of the regions disastrously. "Are we looking at a failed state?" he asked.

Now we have an explicit threat from the Asociación de Militares Españoles (AME), an organisation of retired army officers, warning that anybody promoting the break-up of Spain ("fractura de España") will face treason trials in military courts.

This from El Mundo:
The attitude of the Catalan government and members of its parliament is inadmissible.

The Armed Forces are guardians of the Spanish state and its territorial integrity under Article 8 of the

They will carry out this role "scrupulously and strictly" to defend the sovereignty and Carta Magna of the Spanish nation.

AME said any flicker of secession "must be suppressed". Violators must bear in mind that they "will have to respond with all rigour to the grave accusation of high treason under the jurisdiction of military tribunals".

----Events in Europe are now moving fast. Portugal has been in havoc for the last week. Spain is in ever greater havoc. Much of southern Europe has become unpredictable.

Is it the fault of the monetary union and the euro? Yes, of course it is. While large parts of the world are in deep economic crisis – including Britain – the damage is concentrated with lethal intensity in the EMU victim states. Spain’s unemployment rates is already 25pc, and the full austerity has yet to bite.

It is made much worse by the unpleasant discovery that elected governments can do nothing to escape the trap. They have lost control over their own destinies.

----The Draghi bond plan can certainly put off the day of reckoning. It can lower borrowing costs across the board and cushion the slump. But it cannot in itself stop the slow asphyxiation of these societies.

We are moving from the financial phase of this crisis to the full-blown political phase. It really is playing out like the 1930s.

Swiss central bank fuels Europe's North-South debt crisis

Switzerland’s central bank has become a conduit for vast flows of capital into German Bunds and other safe-haven bonds, exacerbating the eurozone’s North-South divide.

A report by Standard & Poor’s claimed the Swiss National Bank (SNB) had bought €80bn (£64bn) of German, Dutch, French, Finnish and Austrian bonds this year to counter a flood of money entering the country and hold the franc at 1.20 to the euro.

The scale is vast. The SNB has effectively financed almost 90pc of the combined budget deficits of five core countries over the same period. The bank’s total reserves have soared to 79pc of GDP.

Some inflows into Switzerland are funds repatriated by Swiss citizens seeking shelter from the global storm. But a large part is either capital flight from Italy, Spain and Greece, or money withdrawn by Swiss banks from the Club Med bloc as they cut exposure.

The effect has caused the North-South yield spread to widen further, fuelling the eurozone’s vicious cycle. “We think this 'euro-recycling’ is exacerbating the trend of diverging market conditions for sovereign bonds in the eurozone,” said the agency.

Simon Derrick from BNY Mellon said the Swiss central bank was more or less forced to only buy top-notch bonds as it struggles to defend its euro peg. “The golden rule for reserve managers across the world is that you don’t lose taxpayers’ money. But the truth is that this has become a conduit for capital flight from South to North,” he said.

Ford to Cut ‘a Few Hundred’ as European Sales Fall

By Christian Wuestner - Sep 25, 2012 9:02 PM GMT
Ford Motor Co. (F) plans to cut “a few hundred” jobs in Europe because of falling sales in the region.
“Our goal is to adapt the production to the shrinking demand,” Ute Mundolf, a spokeswoman at Ford in Germany, said in a telephone interview.

Ford, the second-biggest U.S. automaker, expects to lose more than $1 billion in Europe this year while wanting to invest to increase its market share. Ford earlier this month announced new models that will be introduced over the next five years, including more sport-utility vehicles.

---- ACEA forecasts that European deliveries will hit a 17-year low in 2012. German car registrations fell 4.7 percent in August, pushing the eight-month sales figure to a 0.6 percent decline.

PSA Peugeot Citroen (UG) agreed last week to sell 75 percent of the Gefco trucking unit to OAO Russian Railways to reduce debt. Fiat SpA (F)’s volume brands are eliminating 20 percent of management jobs in Europe, according to a person familiar with the matter.

Toyota to Nissan Say Deeper China Output Cuts Loom on Protests

By Ma Jie and Yuki Hagiwara - Sep 26, 2012 7:03 AM GMT
Toyota Motor Corp. (7203), Nissan Motor Co. (7201) and Honda Motor Co. (7267) signaled Chinese production cuts may deepen this month as anti-Japanese protests flare in the world’s largest vehicle market.
Nissan reduced August output in China, its largest market by volume, 8.9 percent from a year earlier to 86,488 units, the Japanese carmaker said today. Chinese production at Toyota, Asia’s biggest automaker, fell 18 percent to 67,625 vehicles and declined 10 percent at Honda.

---- Toyota’s sales dropped mainly because demand being unusually high last year as production recovered from the March 2011 earthquake-triggered tsunami, Yurika Motoyoshi, a spokeswoman for the automaker, told reporters in Tokyo today. The anti-Japan protests in China aren’t likely to have affected August sales and the impact will become apparent in September’s numbers, she said.

---- A similar dispute over sovereignty of islands known as Dokdo in South Korea and Takeshima in Japan has drawn more attention since South Korean President Lee Myung Bak visited the islands on Aug. 10. Japanese auto sales also fell in South Korea last month.

Total sales of Japanese carmakers in South Korea dropped 12 percent and importers attributed the decline to the dispute, according to a statement e-mailed from the Korea Chamber of Commerce and Industry.
Japanese car makers had been increasingly reliant on China as the end of a government subsidy for fuel-efficient cars in Japan stymied domestic demand growth.

Nissan generates about 30 percent of its profit in China, compared with 17 percent at Toyota and 15 percent at Honda, Goldman Sachs Group Inc. estimates.

Time for the safety of cash gold and silver. Time to leave the pro’s trying to steal each other’s dollar.

"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

At the Comex silver depositories Tuesday final figures were: Registered 40.64 Moz, Eligible 100.26 Moz, Total 140.90 Moz.  

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

The more things change, the more they stay the same, at least in the world of a bankster. Below the wisdom of America’s top bankster, from about 110 years ago.

"Anybody has the right to evade taxes if he can get away with it. No citizen has a moral obligation to assist in maintaining the government.”

J. P. Morgan.

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

Richard M. Ebeling

The monthly Coppock Indicators finished August:
DJIA: +76 Up. NASDAQ: +97 Up. SP500: +69 Up. All three indicators have reversed from down to up.

Tuesday 25 September 2012

Things Are Seldom What They Seem.

Baltic Dry Index. 772  -02 Possible double bottom.

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

“Merkel nodded. A sombre nod. The nod Napoleon might have given if somebody had met him in 1812 and said, "So, you're back from Moscow, eh?”

With apologies to Mike and P.G.Wodehouse.

For more on the dodgy gold now turning up in New York’s diamond district, scroll down to Crooks Corner. Since it first appeared in a 400 ounce bar a few years back in Hong Kong, the dodgy tungsten imitating gold story has largely fallen by the wayside in mainstream media. I wonder why? Now it has resurfaced in NYC and in supposed 10 oz. gold bars from Switzerland. I suspect that this scandal is just in its infancy. Who really knows how much real gold is still in Fort Knox, the BOE, ECB and Europe’s vaults?

Now back to the never ending Eurozone crisis. German patience seems to be running out. After taking on French socialist President Hollande at the weekend, Germany now seems to be willing to pick a fight with all comers.  In short order, Germany blasted the  French run IMF, Spanish run Spain, and German run Der Spiegel magazine. History suggests that nothing good comes Europe’s way when the Germans get seriously annoyed.

Below, yesterday’s fun in Euroland. All set against the background of the 5th straight month that German business confidence fell, and under reported in mainstream media, Portugal fell off the German austerity wagon while Greece fell under it. Stay long physical precious metals for the coming EMU break up, though it might be best to stay clear of Swiss made 10 oz. gold bars for now.

"It is never difficult to distinguish between a German with a grievance and a ray of 

With apologies to Scotsmen everywhere and P.G.Wodehouse.

Bundesbank castigates IMF for saving Europe

Germany's central bank has launched a blistering attack on the International Monetary Fund, accusing officials of spraying around money like confetti and overstepping their legal mandate.

“The IMF is evolving from a liquidity mechanism into a bank. This is neither in keeping with the legal and institutional role of the IMF or with its ability to handle risks,” said the Bundesbank in its monthly report.
The bank said the Fund was right to help rescue Greece, Ireland and Portugal but said monitoring levels were slipping and there had been a “watering down” of standards. The scale of loans risks “overwhelming the IMF’s institutional structure”.

The unprecedented attack came as the IMF’s chief, Christine Lagarde, called for urgent measures across the world to head off a fresh global slump. While praising the latest emergency measures of central banks in the US, Europe and Japan, she said this was not enough to secure recovery.

The Europeans must activate their new machinery, while the US must prevent a “dramatic tightening” of fiscal policy later this year. Failure to act “would effectively plunge the country off a 'fiscal cliff'", cutting US growth by up to 2pc. She said this would pose a “serious threat for the global economy”.

Ms Lagarde also said emerging economies need to bolster their defences against “potential spill-overs”, if necessary by injecting “additional stimulus”.

The Bundesbank’s broadside against the Fund caused consternation in Washington, where Asian and Latin American members of the Board think the IMF has been doing Germany’s work for it, shouldering too much of the risk trying to hold the eurozone together. There is irritation in IMF circles over the way the Fund has been dragged into badly-constructed rescue packages. The Fund has refused to lend any more money to Greece, saying the country cannot regain economic viability unless EU bodies take losses.

Ms Lagarde’s Keynesian team is deeply at odds with Germany’s hard-money hawks. A leaked memo from Germany’s finance ministry previously called the IMF the “Inflation Maximizing Fund” after it suggested that a burst of inflation might lift the world off the reefs

Germany Losing Patience With Spain as EU Warns on Crisis

By Tony Czuczka and Brian Parkin - Sep 24, 2012 4:15 PM GMT

“He must spell out what the situation is,” Michael Meister, finance spokesman for Merkel’s Christian Democratic Union, said in an interview in Berlin today. The fact he’s not doing so shows “Rajoy evidently has a communications problem. If he needs help he must say so.”

Meister’s comments underscore Europe’s crisis-fighting stalemate amid discord over a banking union, Greece’s ongoing debate on how to meet bailout commitments and foot-dragging by Spain on a possible aid bid. European Union President Herman Van Rompuy warned today against “a tendency of losing the sense of urgency” in fighting the debt crisis three years after it erupted in Greece.

German patience is running out with Spain as it plays for time after European Central Bank President Mario Draghi offered help to lower borrowing costs in return for strict conditions.

September 24, 2012, 8:07 a.m. ET

Germany Dismisses Talk of Boosting Bailout Fund

BERLIN—Europe is discussing ways to leverage the assets of its €500 billion ($649.05 billion) bailout fund through the involvement of private-sector investors, but reports that this could boost the firepower of the European Stability Mechanism to more than €2 trillion are "completely illusory," a spokesman for the German Finance Ministry said on Monday.

The discussions under way among members of the euro zone, the 17 European Union member states that use the euro currency, are largely about the routine transfer of crisis-fighting tools contained in the temporary bailout fund, the European Financial Stability Facility, which will eventually be replaced by the ESM. The ESM is expected to begin operating next month, and will initially run alongside the EFSF, which will likely expire next year.

Commenting on a report in German weekly magazine Der Spiegel, a spokesman for the Finance Ministry said the ESM would "receive and use the same tools as its predecessor, the EFSF, nothing more and nothing less." He denied that the discussion included any instruments that hadn't already been set out in the ESM's rules, or practices that weren't already being carried out by the EFSF. He added that boosting the ESM to €2 trillion was unrealistic.

"It is not possible to discuss numbers at this point,'' said spokesman Martin Kotthaus during a routine government news conference, when asked about the Spiegel report. "It is purely abstract."

Discussion of the ESM's potential firepower is heating up ahead of the planned Oct. 8 launch, as the euro zone begins transferring powers and instruments from the EFSF to the ESM and as speculation runs rife about funding requirements for Greece and Spain.

September 24, 2012, 8:28 a.m. ET

German Business Confidence Falls

German business confidence fell for the fifth straight month in September, raising concerns that the European Central Bank's recent pledge to support euro-zone bonds has had little impact on the real economy across Europe despite initially dazzling stock investors.

The worse-than-expected figure also raised expectations that the euro zone's largest economy could now slip into recession. The closely watched Ifo survey of about 7,000 mainly industrial German companies showed their assessment of current conditions and the business outlook had deteriorated in September.

The Ifo index fell to 101.4 points in September from 102.3 points in August, deepening a decline seen in the last four months and confounding expectations that it had stabilized.

The German figures came alongside worsening Dutch producer sentiment where business confidence in manufacturing dropped to minus 6.7 in September from minus 4.6 in August. The country unexpectedly crawled out of recession in the first two quarters but many economists expect gross domestic product to have contracted again in the third quarter.

Patience snaps in Portugal

By Ambrose Evans-Pritchard  Last updated: September 24th, 2012
----Premier Pedro Passos Coelho has gone beyond the demands of the EU-IMF Troika under the terms of Portugal’s €78bn loan package, winning plaudits from Europe’s austerity police and a pat on the head from Wolfgang Schauble.

The Portuguese people have put up with one draconian package after another – with longer working hours, 7pc pay cuts, tax rises, an erosion of pensions, etc – all amounting to a net fiscal squeeze of 10.4 of GDP so far in cyclically-adjusted terms. (It will ultimately be 15pc).

They have protested peacefully, in marked contrast to the Greeks, even though the latest poll by the Catholic University shows that 87pc are losing faith in Portugal’s democracy.

Yet Mr Passos Coelho’s rash decision to raise the Social Security tax on workers’ pay from 11pc to 18pc has at last brought the heavens down upon his head.

He was hauled in front of the Council of State – a sort of Privy Council of elders and wise men – for a showdown over the weekend. Eight hours later he emerged battered and bruised to admit defeat. The measure will not go ahead.

Francisco Louca from left-wing Bloco suggested that the prime minister cannot survive such a defeat. "The government is dead", he said.

Sept. 24, 2012, 7:13 p.m. EDT

Greece needs more time to fix finances: report

Greece will need more time to get its fiscal house in order, German daily Sueddeutsche Zeitung reported Tuesday, citing senior European Union diplomats in Brussels.

Greece will be unable to finance its budget from 2015 as planned without more aid, the newspaper said. And the goal of completely financing its debt in the financial markets from 2020 seems unlikely, the newspaper 

The country will need "at least two more years" of added time to get back on its feet, the newspaper said, citing unanimous opinions from its sources in Brussels and in European central banks. The country's latest financial gap amounts to around EUR30 billion, the newspaper said, citing its sources.

“I could see that, if not actually disgruntled, Hans was far from being gruntled.”

With apologies to P.G.Wodehouse.

At the Comex silver depositories Monday final figures were: Registered 39.45 Moz, Eligible 100.53 Moz, Total 139.88 Moz.  

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

Today, some dodgy “Swiss” gold turns up in New York City. Now who would have the incentive and resources to do a thing like that? Is there a Bernie Madoff lurking in one of the central banks? An Arthur Andersen hiding in one of the many alphabet soup secret agencies of the nation states?

Things are seldom what they seem,
Skim milk masquerades as cream;
Highlows pass as patent leathers;
Jackdaws strut in peacock's feathers.

H.M.S. Pinafore.

Fake gold hits NYC

Diamond District finds 10 tungsten-filled bars

  • By MICHAEL GRAY Last Updated: 11:49 PM, September 23, 2012
Federal agents are investigating the peddling of bogus gold bars in Midtown.
The Post has learned as many as 10 fake gold bars — made up mostly of relatively worthless tungsten — were sold recently to unsuspecting dealers in Manhattan’s Midtown Diamond District.
The price of gold has risen more than 600 percent since January 2000, while the S&P 500 index is down 0.6 percent over the same period.

The 10-oz. gold bars are hugely popular with Main Street investors, and it is not known how many of the fake gold bars were sold to dealers — or if any fake bars were purchased by the public.

One gold dealer discovered that four of the 3-inch-by-1-inch gold bars he bought — worth about $72,000 retail — were counterfeit.

“It has the entire street on edge,” said Ibrahim Fadl, 62, who has been the owner of Express Metal Refining, a Midtown gold-refinery business, for the last 11 years. “I and the others on the street work off of trust; now that trust is strained.”

Fadl, a Columbia University graduate with a master’s degree in chemical engineering, and who has more than 40 years in the industry, purchased the four fake bars from a well-known Russian salesman with whom he has done business.

A second 47th Street refiner, who wished to remain anonymous, said he was burned recently when he bought six gold bars that turned out to be mostly tungsten, with just a gold veneer. He would not comment, though, on who sold him the bogus bars.

Fadl became suspicious when he offered the salesman a deep discount for the investment-grade gold bars and he quickly accepted it, a source tells The Post.

Fadl said he did his due diligence “by X-raying the bars to ascertain the purity of the gold and weighing the bars, and the Swiss markings were perfect.”

Tungsten is an industrial metal that weighs nearly the same as gold but costs a little over $1 an ounce. Gold closed Friday at $1,774.80 an ounce.

To quell his suspicion, Fadl then drilled into the bar and discovered the tungsten — whose silver color is distinctive from gold’s bright yellow hue.

Raymond Nassim, CEO of Manfra, Tordell & Brookes, the American arm of the Swiss firm that created the original gold bars — with their serial number and purity rating stamped clearly into them — said he reported the situation to the US Secret Service, whose jurisdiction covers the counterfeiting of gold bars.

He said his company “is supporting and cooperating with authorities any way we can.”

Black sheep dwell in every fold;
All that glitters is not gold;
Storks turn out to be but logs;
Bulls are but inflated frogs.

H.M.S. Pinafore.

The monthly Coppock Indicators finished August:
DJIA: +76 Up. NASDAQ: +97 Up. SP500: +69 Up. All three indicators have reversed from down to up.

Monday 24 September 2012


Baltic Dry Index. 774  +19 Possible double bottom.

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

"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."

Henry Hazlitt

Agflation – a new problem arrives. “Rabobank, a specialist in agricultural commodities,” sees higher food prices ahead, especially in meat products. Higher prices for animal feed, will lead to higher prices for beef, pork, chicken and eggs, and a smaller global meat herd as well.  The great British breakfast may soon be a disappearing memory for many. While we can all downshift to eating more bread, rice and pasta, suggests Rabobank, that tends to make voters highly cranky in the western democracies. Since animal feedstuff corn, is also a major ingredient of much of the world’s beers, higher priced beer probably also lies ahead. Now that really will make Europe’s northern voters cranky. An interesting 2013 seems to lie ahead.

World on track for record food prices 'within a year' due to US drought

Brace yourself for some painful "agflation". That is the shorthand for agricultural commodity inflation, otherwise known as rising food prices.

They are being driven upwards by the climb in grain and oilseed prices as US crops weather the country's worst drought since 1936, while the farming belts of Russia and South America suffer through similar water shortages.

What we are seeing represents the third major rally in global grain and oilseed prices in just half a decade.
Worse is to come, new research warns. World food prices look set to hit an all-time high in the first quarter of next year – and then keep rising, according to the analysis from Rabobank, a specialist in agricultural commodities.

By June 2013, the basket of food prices tracked by the United Nations could climb 15pc from current levels, according to the bank's analysts.

"The coming year will see the world economy re-enter a period of agflation as grain and oilseed stocks decline to critically low levels, pushing the FAO [Food and Agricultural Organisation] Food Price Index above record nominal highs set in February 2011," they say.

----Rabobank thinks the consumer impact could be less painful this time around compared to 2008, when there were severe shortages of wheat and rice.

That is because today's shortages are being seen more in crops used as animal feed, such as corn and soybeans.

In contrast, back in 2008 falling wheat stocks and various bans on rice exports capped the amount of grains available for direct consumption by people.

Today, prices for staple grains such as rice and wheat are currently 30pc below their 2008 peaks.

So while the pressure on feedstock supplies pushes up meat prices, consumers feeling the squeeze should be able to switch from animal protein towards staple grains.

Food prices are also rising in a very different global economic environment, with Chinese demand slowing and the debt problems of the West weighing on world growth. That lessens wider price pressures in the system.

"Sooner or later both the Greek population and international creditors will tire of fighting a losing battle, leading to a break-up of the currency union as Greece pulls out, probably followed by other countries"

Douglas McWilliams, chief executive of the Centre of Economics and Business Research.

European Leaders Struggle to Overcome Fresh Crisis Stalemate

By Patrick Donahue - Sep 23, 2012 11:01 PM GMT
European leaders are struggling to overcome a crisis-fighting stalemate as they face discord over a banking union, Greece’s ongoing debate on how to meet bailout commitments and foot-dragging by Spain and Italy on financial aid requests.

Chancellor Angela Merkel and President Francois Hollande underlined Franco-German disagreement over the weekend as they clashed on a timetable to introduce joint oversight of the region’s banking sector, with Merkel rebuffing Hollande’s appeal to activate it “the earlier, the better.”

----Markets that surged this month on the back of a European Central Bank rescue plan and clarity over bailout funding may not offer European leaders the time they need as an easing in market pressure raises the risk of policy complacency. Deadlock over the banking union could delay until next year a key building block in resolving the crisis, compounding turmoil that’s so far engulfed five of the euro area’s 17 nations.

“Complacency seems to have affected European policy- makers,” Joachim Fels, chief economist at Morgan Stanley in London, wrote yesterday. “One case in point is the disagreement between governments about the nuts and bolts of a banking union, which remains crucial to break the negative feedback loop between banks and weak sovereigns.”

----Their meeting in the 18th-century Ludwigsburg castle was also the latest in which Merkel and Hollande struggled to find common ground since the French president won office in May on a platform of opposition to Merkel’s austerity agenda.

Merkel, asked about her relationship with Hollande, said they are “friendly.” Hollande shrugged off a question about the closeness between the German chancellor and his predecessor, Nicolas Sarkozy, that led to them being dubbed “Merkozy.” He refused to bless an equivalent “Merkhollande.”

“We don’t need to put our surnames together to put a name on European policies,” Hollande said.

ECB in 'panic', say former chief economist Juergen Stark

The European Central Bank is in "panic" over the eurozone crisis and acting outside its mandate with its new bond-buying plans, the bank's former chief economist said in comments published Saturday.

5:20PM BST 22 Sep 2012
"The break came in 2010. Until then everything went well," Juergen Stark, the German who resigned from the ECB in late 2011 after criticising its earlier round of buying up of sovereign debt, told Austrian daily Die Presse in an interview.

"Then the ECB began to take on a new role, to fall into panic. It gave in to outside pressure ... pressure from outside Europe."

Mr Stark said the ECB's new plan to buy up unlimited amounts of eurozone states' bonds, announced on September 6, on the secondary market to bring down their borrowing rates was misguided.

"Together with other central banks, the ECB is flooding the market, posing the question not only about how the ECB will get its money back, but also how the excess liquidity created can be absorbed globally," Mr Stark said.

"It can't be solved by pressing a button. If the global economy stabilises, the potential for inflation has grown enormously."

----Mr Stark quit in late 2011, following in the footsteps of former Bundesbank head Axel Weber, who stepped down earlier in the year from Germany's central bank because of unease about the ECB's policies.
Mr Weber's successor Jens Weidmann was the only member of the ECB's policy-setting governing council to vote against the bank's new programme earlier this month.

Václav Klaus warns that the destruction of Europe's democracy may be in its final phase

'Two-faced' politicians have opened the door to an EU superstate by giving up on democracy, Václav Klaus, the veteran Czech statesman, tells Bruno Waterfield.

The new push for a European Union federation, complete with its own head of state and army, is the "final phase" of the destruction of democracy and the nation state, the president of the Czech Republic has warned.

In an interview with The Sunday Telegraph, Václav Klaus warns that "two-faced" politicians, including the Conservatives, have opened the door to an EU superstate by giving up on democracy, in a flight from accountability and responsibility to their voters.

"We need to think about how to restore our statehood and our sovereignty. That is impossible in a federation. The EU should move in an opposite direction," he said.

Last week, Germany, France and nine other of Europe's largest countries called for an end to national vetoes over defence policy as Guido Westerwelle, the German foreign minister, urged the creation of a directly elected EU president "who personally appoints the members of his European government".

Mr Westerwelle, in a reference to British opposition, called for nation states to be stripped of vetoes on defence to "prevent one single member state from being able to obstruct initiatives" which "could eventually involve a European army".

The new offensive followed the unprecedented declaration by the Commission's president, José Manuel Barroso, during his "state of union" address to the European Parliament on 12 September, that he would make proposals for a fully-fledged EU "federation" in 2014. "Let's not be afraid of the word," he said.
Speaking in Hradcany Castle, a complex of majestic buildings that soars above Prague, and is a symbol of Czech national identity, Mr Klaus described Mr Barroso's call for a federation, quickly followed by the German-led intervention, as an important turning point.

"This is the first time he has acknowledged the real ambitions of today's protagonists of a further deepening of European integration. Until today, people, like Mr Barroso, held these ambitions in secret from the European public," he said. "I'm afraid that Barroso has the feeling that the time is right to announce such an absolutely wrong development.

"They think they are finalising the concept of Europe, but in my understanding they are destroying it."

September 21, 2012, 8:01 a.m. ET

Finns Veto ESM Boost

Europe's permanent bailout mechanism is almost certain to start its life next month without the two leverage vehicles that were agreed for its predecessor because of Finland's concerns about its exposure to the funds, several people familiar with the situation said.

The leverage options were designed to allow the euro zone to mobilize far more than the €500 billion ($648.4 billion) lending capacity ceiling on the new bailout fund, the European Stability Mechanism, by offering extra protection to investors. Officials had not given exact figures but Klaus Regling, chief executive officer of the bailout fund, has said they would allow the euro zone to mobilize more than €1 trillion in resources to stem the debt crisis.

Finance ministers from the euro zone discussed transferring the leverage vehicles to the ESM at a meeting in Cyprus last Friday. According to officials, there was broad support for the idea but objections from Finland blocked agreement.

One European Union official said he believes Finland's objections could be worked out. However, with the ESM due to be launched Oct. 8, the leverage vehicles now won't be included in the ESM guidelines that will detail the tools available to the new rescue fund and the conditions for using them, two officials said.

That means the leverage vehicles aren't likely to be available for use if a broader Spanish request for a bailout from the ESM were to come soon.

While Europe bickers and drifts, across the Atlantic America has entered crazy season, the final run up to the winner take all presidential election. A sitting president has all the advantages of incumbency, so a challenger needs to have a strong momentum in the final phase. In this particular election, the challenger seems to be losing momentum at present, he will need to score big in the coming series of presidential debates. Adding to the power of the incumbency this election, the Fed seems to have swung behind the status quo with its latest round of QE forever MBS purchases. American’s now have every bit as much need of physical precious metals, as their hapless European serfs.

It’s morally wrong to let a sucker keep his money.

W. C. Fields. Wall Street Ethicist.

At the Comex silver depositories Friday final figures were: Registered 39.45 Moz, Eligible 100.53 Moz, Total 139.88 Moz.  

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

Today, China. It’s not just Chinese capital and entrepreneurs leaving China. Ex-pats are leaving too, plus China seems to have stopped granting visas to Japanese companies seeking to replace personnel in China. Presumably a ratcheting up of the consequences of the China v Japan fight over the Diaoyu/Senkaku Islands dispute. It’s hard to see how Japan wins this fight in the long run.

You’ll never be Chinese

by Mark Kitto /

Why I’m leaving the country I loved.

-----Modern day mainland Chinese society is focused on one object: money and the acquisition thereof. The politically correct term in China is “economic benefit.” The country and its people, on average, are far wealthier than they were 25 years ago. Traditional family culture, thanks to 60 years of self-serving socialism followed by another 30 of the “one child policy,” has become a “me” culture. Except where there is economic benefit to be had, communities do not act together, and when they do it is only to ensure equal financial compensation for the pollution, or the government-sponsored illegal land grab, or the poisoned children. Social status, so important in Chinese culture and more so thanks to those 60 years of communism, is defined by the display of wealth. Cars, apartments, personal jewellery, clothing, pets: all must be new and shiny, and carry a famous foreign brand name. In the small rural village where we live I am not asked about my health or that of my family, I am asked how much money our small business is making, how much our car cost, our dog.

The trouble with money of course, and showing off how much you have, is that you upset the people who have very little. Hence the Party’s campaign to promote a “harmonious society,” its vast spending on urban and rural beautification projects, and reliance on the sale of “land rights” more than personal taxes.

Once you’ve purchased the necessary baubles, you’ll want to invest the rest somewhere safe, preferably with a decent return—all the more important because one day you will have to pay your own medical bills and pension, besides overseas school and college fees. But there is nowhere to put it except into property or under the mattress. The stock markets are rigged, the banks operate in a way that is non-commercial, and the yuan is still strictly non-convertible. While the privileged, powerful and well-connected transfer their wealth overseas via legally questionable channels, the remainder can only buy yet more apartments or thicker mattresses. The result is the biggest property bubble in history, which when it pops will sound like a thousand firework accidents.

In brief, Chinese property prices have rocketed; owning a home has become unaffordable for the young urban workers; and vast residential developments continue to be built across the country whose units are primarily sold as investments, not homes. If you own a property you are more than likely to own at least three. Many of our friends do. If you don’t own a property, you are stuck.

When the bubble pops, or in the remote chance that it deflates gradually, the wealth the Party gave the people will deflate too. The promise will have been broken. And there’ll still be the medical bills, pensions and school fees. The people will want their money back, or a say in their future, which amounts to a political voice. If they are denied, they will cease to be harmonious.

Criticising China

The response to my farewell

by Mark Kitto /
For the August issue of Prospect I wrote an article entitled, “You’ll never be Chinese”. I expressed thoughts and ideas I have held for some time, backed up by observations and personal experiences from 16 years in China. It was not easy to write. Much of it was negative. I was keenly aware that I might upset my friends and family in China. I had also naively expected the words to come flooding out, rather like a sigh of relief. I found myself choking on them. It’s hard to say goodbye.

The article is proving a challenge to live with as well. Thanks to it being freely available online, the readership has been far greater than expected. It was published as I left the UK, where I had been doing a recce for our move, and flew back to China. The first person to comment was at the baggage carousel in Pudong Airport. For approximately one week, I heard from foreign friends and acquaintances in China. The consensus was: “Good points, we all agree, but we can’t say so because we have interests to protect.” Those who had already left China were less inhibited. I watched as the comments piled up on the Prospect website. It was good to see old friends, and enemies, put in their five cents. It was more of a challenge to spot the notorious “fifty cent” gang, the commentators encouraged by the authorities to help with “soft power projection.” They can be subtle.

At the end of that week the article was translated into Chinese and appeared on various discussion boards and the Chinese version of Twitter and Facebook, Weibo. It went from a readership of tens of thousands to hundreds of them, potentially millions. The effect was immediate. I happened to be away from home travelling again. That was fortuitous.

My wife was called into the police station, not as we both feared, for a dressing down, but so the police chief could pass on, from the local, county, and provincial governments, all of which had called him in person, their concern that I might have felt hard done by. “Was everything all right?” he asked.

My wife also had to face her business partner, who has become a close friend. He is of the older generation, and did not like what I had written. He took it personally. If I had been present I fear we would have argued, but while I was away the People’s Daily published an op-ed piece on how not to get upset when foreigners comment on China in negative ways. On my return my friend greeted me warmly and looks forward to a long chat.
“Those who don't know history are destined to repeat it.”

Edmund Burke

The monthly Coppock Indicators finished August:
DJIA: +76 Up. NASDAQ: +97 Up. SP500: +69 Up. All three indicators have reversed from down to up.