Baltic Dry Index. 675 -09
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
"The euro is irreversible."
ECB President Mario Draghi, September 6th
2012.
Having painted himself into an impossible corner,
the ECB’s “Super-Mario” did the only thing an Italian could do, he ordered the
ECB’s printing presses to be run at full throttle, promising to use the new
cash to buy up unlimited amounts of Italy and Spain’s sovereign debt of up to
three years maturity, in the secondary market. To placate Germany, Spain and
Italy have to ask him to do it, requiring them to sign a Memorandum of
Understanding, in which they promise to reform, mend their ways and become good
model Germans within two years.
Having leaked it all last Monday to stop Germany
blocking it, there was nothing else to do but stick to the leaked plan, adding
in for good measure, “the euro is irreversible,” something I agree with albeit
not in the way Super-Mario meant. In one fell swoop the ECB saved stock markets
everywhere, as it’s anticipated that everyone and their dog will now dump Italy
and Spain’s debt on the ECB and use the ECB cash to chase stocks and oil. As a
plan for saving stocks it just might work, as a plan for saving Spain and Italy
and the euro it’s highly unlikely to work. Global trade is cooling and events
elsewhere will dominate the rest of the year. China is rapidly slowing with a
power transfer coming up in October. America votes for four more years of the
same in November, or else votes in a member of a cult whose main plan seems to
be to start a trade war with China, a real war with Iran, and to set about
slapping President Putin of Russia. For more on that scroll down to Crooks Corner
and president Obama’s endorsement from hell. In Euroland itself, a near
depression is looming for all, just as food and fuel price inflation is about
to walk the land. Europe’s serfs are highly likely to do a Spartacus.
“To infinity and beyond.”
Mario Draghi, with apologies to you
know who.
September
6, 2012, 11:41 p.m. ET
Stocks Surge on ECB's Plan for Europe
FRANKFURT—The
European Central Bank, acknowledging that Europe's debt crisis has reached a
critical stage, said it was prepared to use its most powerful tool—its printing
press—to save the euro.
Markets
on both sides of the Atlantic rallied Thursday after the ECB approved a plan
paving the way for the bank to make unlimited purchases in struggling euro
members' bond markets. Stocks jumped throughout Asia in early Friday trading.
It was
the bank's boldest step yet to combat Europe's fiscal crisis, one that would
have been unthinkable when the problems emerged nearly three years ago. Its aim
is to restore stability to the government debt markets of Spain and Italy and
entice foreign investors, who have fled those markets en masse, to return.
"We
want this to be perceived as a fully effective backstop" that removes
extreme risks for the bloc, ECB President Mario Draghi told reporters after the
ECB's monthly meeting, at which it also left its main policy rate unchanged at
0.75%, a record low.
---- Spain and Italy, the continent's two most closely watched economies, saw their borrowing costs effectively fall, and their major stock indexes rise more than 4% each. In the U.S., the Nasdaq Composite gained 2.17% to close at 3135.81, a level it hasn't reached since the pre-2000 technology boom. The Dow climbed 244.52 points to 13292, its highest point since December 2007. In Japan early Friday, the Nikkei rose 1.7%.
Regardless, it is far from clear that the plan will
work. Europe's economy remains in the doldrums and its economic picture is
dimming. Without any tangible prospect for short-term growth, vulnerable
countries' fiscal positions will likely worsen, further undermining investor
confidence in their prospects.
Underscoring
the historic dimension of the move, the ECB's 22-member governing council took
the decision over loud objections of the Bundesbank, the German central bank on
which the ECB was modelled.
More
“Financial markets cheer the death of the Bundesbank”
FT Alphaville
Surely the header of the day — that’s the English translation of the story
flashing across the top of Die Welt at pixel time:More
http://ftalphaville.ft.com/blog/2012/09/06/1149431/financial-markets-cheer-the-death-of-the-bundesbank/#comments
September 6, 2012, 8:01 a.m. ET
Euro Economy Contracts
Consumers
and businesses in the 17 countries that share the euro cut spending in the
three months to June, sending the currency area's economy into contraction
despite a pickup in exports.
The
European Union's official statistics agency Eurostat Thursday confirmed that
the combined gross domestic product of euro-zone members fell by 0.2% in the
second quarter, an annualized drop of 0.7%. The agency said GDP was down 0.5%
from the second quarter of 2011, having previously estimated that output fell
by 0.4%.
Exports
grew by 1.3% from the first quarter, outstripping the 0.7% gain in the first,
but imports rose by 0.9%, having fallen by 0.2% in the three months to March.
The
contribution to growth from trade wasn't large enough to offset a continued
decline in household and business spending. Consumers cut their purchases by
0.2%, the same pace as in the first quarter, while businesses cut their
investment by 0.8%, a slower pace than in the first quarter, when their
spending fell by 1.3%.
The
decline in output, which follows zero growth in the first three months of the
year, will make it harder for euro-zone leaders to end the fiscal crisis, which
has forced several countries to request financial aid and raised questions
about the currency bloc's ability to survive. Rising unemployment and falling
consumer and business confidence could further erode public finances in many
countries, pushing back debt-reduction targets and heightening concern among
investors.
Growth
in Germany and stagnation in France prevented a steeper decline in euro-zone
output. But with signs growing that these two core economies will struggle for
the rest of the year, the prospects for the entire euro zone look set to
deteriorate.
---- The Organization for Economic Cooperation and
Development Thursday said the economies of Germany and France have been
shrinking since the end of second quarter, and will continue to contract until
the end of the year.
More
For a picture of Euroland’s destination we look no
further than present day Japan. Sadly the ECB is fast tracking to this end
destination compared to Japan’s 20 year stroll. Japan had the advantage of
starting out while the whole world was booming in one of failed guru Greenspan’s
serial bubbles and in the middle of the Great Nixonian Error of fiat money.
Japan was also mostly homogeneous and not facing imminent baby boom generation
retirement. Euroland is setting out in contraction, near
the end of the Great Nixonian Error, is anything but homogeneous, and is
already two years in to an accelerating baby boom retirement process.
Super-Mario’s doubling down just means that even more European wealth gets
destroyed when everyone get chucked out of the casino.
"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
At last, Japan may be about to abandon its disastrous Keynesian consensus
Last updated: September 5th, 2012
The world’s third largest economy is in crisis. That, in itself is not news.
The world’s largest economy is also in crisis, as is its second, as is…What is newsworthy is that, having tried and failed with every other option, the Japanese government may be taking a remarkably novel approach. It appears as though they are going to try to spend close to what they receive in taxation. The Keynesian consensus is coming to an end in Japan, although not before it has wrought enormous damage to one of the world’s great economies.
“The government running out of money is not a story made up. It's a real threat," said Japan’s finance minister Jun Azumi on Friday. Opposition parties in Japan are blocking a deficit financing bill which would allow the government to continue to drive its debt levels above 200pc of GDP. If the opposition holds firm, the government has threatened the unthinkable – it will spend less. Tax rises are also on the table, although the doubling of sales tax to 10pc will not come fully into force until 2015.
This is a turnaround for Japan. The nation’s government has already contorted itself in all the ways now common in the West while attempting to postpone this day. This, after all, is a country whose own central bank rebuked itself last month for breaking its own rule and buying more bonds than there is currency in issue.
As in the West, the Japanese have stuck to the dogma of easy monetary policy to fight decline, and as in the West it has not worked. The Japanese instituted Quantitative Easing a decade ago and found that it has done little to fight deflation and nothing to avert stagnation.
Interest rates close to zero did work for a while, but not in the manner imagined. Now that Japan is not unique in having a low interest rate, the correction has been harsh.
The end of the yen carry-trade, where investors would borrow in yen at very low rates and shift their money into high risk investments in foreign currencies, has been devastating. When Japan was alone in having an artificially low interest rate, it attracted speculators. These speculators forced down the price of the yen by effectively taking a short position in it against an asset. This helped Japanese exporters because the currency was far weaker than fair value.
Now that the whole world has artificially low interest rates, the trade has unwound. The yen has appreciated 45pc in the last five years and is now within 5pc of its post-1945 high.
The manufacturing industry has been hit hard as US and German manufacturers have picked up market share. Factory jobs are at their lowest ebb since records began in 1953, while Japanese manufacturers will make 39pc of their products abroad this year, another record.
More
"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."
Murray N. Rothbard
At the Comex silver depositories Thursday final figures were: Registered 38.37
Moz, Eligible 102.44 Moz, Total 140.86 Moz.
Crooks and
Scoundrels Corner
The bent,
the seriously bent, and the totally doubled over.
Today,
President Obama gets an endorsement from hell. Ten times worse than when
President Bling got endorsed by Merkel and the order of the boot by France. If this doesn’t get Mr. Romney elected then he
must be the most unelectable man on the planet.
September 6, 2012, 2:59 p.m. ET
Putin on U.S. Vote: Obama 'Genuine,' Romney 'Mistaken'
MOSCOW—Russian
President Vladimir Putin said the re-election of President Barack Obama could
improve relations with the U.S., but that he was also prepared to work with
Mitt Romney, calling the Republican candidate's tough stance on Russia
"pre-election rhetoric."
In contrast to what had been viewed as a chilly
attitude toward Mr. Obama, Mr. Putin called his U.S. counterpart "a
genuine person" who "really wants to change much for the
better." Speaking to Russia's state-run RT television channel, he said a
second Obama term could help solve disputes over missile defense.
The comments will likely be seized on by the Romney
campaign, which in recent months has sharply criticized Mr. Obama's so-called
reset of relations with the Kremlin and pushed a harder line.
Relations with Russia first heated up the campaign
in March, when Mr. Obama was inadvertently caught on an open microphone telling
Mr. Putin's predecessor, Dmitry Medvedev, that he would have "more
flexibility" after the election to address Russia's concerns over the
proposed U.S. antimissile shield in Europe.
The U.S. says the defense system is designed to
protect against a possible missile attack from Iran, but Moscow says the
interceptors could neuter Russia's nuclear arsenal.
Republicans denounced Mr. Obama's comments as a
sign of weakness; Mr. Romney said Russia was America's "No. 1 geopolitical
foe." Mr. Putin said such talk was "mistaken" electioneering,
adding he was prepared to work with whomever Americans elect. He warned,
however, that a Romney victory could complicate attempts to resolve Russia's opposition
to the shield.
"Our American partners tell us, 'It's not
[aimed] against you.' But what if the president of the United States will be
Mr. Romney, who considers us enemy No. 1?" he told RT in the interview,
recorded Monday and broadcast Thursday.
In his broadest public comments since returning to
office in May, Mr. Putin also stuck firmly to his position against outside
intervention to end violence in Syria and brushed off Western criticism that he
is cracking down on the nascent antigovernment protest movement in Russia. He
said Russia, which has vetoed three U.N. Security Council resolutions aimed at
pressuring the Syrian authorities to end violence, wouldn't shift its stance.
"Why should only Russia re-evaluate its
position?" he said. "Maybe our partners in the negotiation process
should re-evaluate their position."
He suggested that efforts to aid militants in
bringing down the regime of President Bashar al-Assad would backfire and create
a situation like that seen in Afghanistan after the defeat of the Soviet Union
by mujahedeen fighters.
He said that would undermine efforts to tackle
global terrorism and that the U.S. may as well "open the gates to
Guantanamo and let all the Guantanamo inmates into Syria, let them fight. It's
the same thing."
Mr. Putin did, however, change tack on the Arab
Spring protests, which he had earlier described as a Western attempt to advance
its interests in the region. In the interview, he said the uprisings in North
Africa and the Middle East happened as leaders hadn't responded quickly enough
to people's demands for change.
More
"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."
F.A. von Hayek
Another
weekend, and a warm one expected here in my part of southeast England. Another
chance to walk the dog “in England’s green and pleasant land,” though in my
part of the hills above the Thames and Pang valleys, “Middleton country” I
believe it’s now called, the fields and woods are now noticeably turning
autumnal. I wonder how this weekend plays out in Greece and Ireland, too little
and unimportant to get the ECB special for Spain and Italy? I wonder how this
weekend feels in Germany too, now that the paymaster’s been played like an old
fiddle by the ECB’s Super-Mario? With nothing fixed but an expensive stock
market, stay long physical precious metals for the next instalment of the never
ending crisis. Have a great weekend everyone.
"We are in a world of irredeemable paper money - a state of affairs unprecedented in history."
John Exter
The monthly
Coppock Indicators finished August:
DJIA: +76 Up. NASDAQ: +97 Up. SP500: +69 Up. All
three indicators have reversed from down to up.
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