Baltic Dry Index. 698 -05
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected. If he is lucky enough to begin at a time of expansion in trade, he is nearly sure not to be found out till the time of contraction has arrived, and then very large figures will be required to reckon the evil he has done.
Walter Bagehot. Lombard Street. 1873. China 2012.
Today I am travelling to an early morning meeting
so today’s update must be brief. Today the other shoe seems to have arrived.
China seems to be heading into a hard landing. In a hard landing, a whole lot
of mischief gets exposed, which is probably why so many Chinese millionaires
seem to be fleeing China. But it isn’t just China turning down. South Korea,
Taiwan and India all seem to have been hit with an export collapse. The Baltic
Dry Index suggests a major global downshift is underway. Europe’s serial
ditherers and bunglers have left it too long to save Club Med. And now France
id on the bank bailout bandwagon as well.
We open with Asia and the other shoe falling.
Global crisis moves East as China suffers rapid downturn
China’s industrial output is contracting at the fastest pace since the depths of the global financial crisis, with knock-on effects spreading across the Far East.
“It just
keeps getting worse,” said Alistair Thornton and Xianfang Ren from IHS Global
Insight. “The government has underestimated the pace of the slowdown and is
behind the curve.”
The
HSBC/Markit manufacturing index for China fell to 47.6 in August, the lowest
since the onset of Great Recession in late 2008. Inventories are rising. The
index for new export orders fell to the lowest since March 2009. “Beijing must
step up policy easing to stabilise growth,” said Hongbin Qu from HSBC.
China’s
official PMI manufacturing index – weighted to big companies – also fell
through the contraction line of 50, though services are holding up better.
Evidence
of a hard landing over the summer is becoming clearer. Rail volumes fell 8.2pc
in July from a year before. The Japanese group Komatsu said its exports of
hydraulic excavators to China – a proxy gauge for Chinese construction – fell
48pc in August from a year before.
The twin
effect of China’s downturn and Europe’s double-dip recession has turned into a
full-blown shock for much of Asia. Hong Kong and Singapore both contracted in
the second quarter and are probably in technical recession.
South
Korea’s exports fell 6.2pc in August, with car sales down 18.2pc. India’s
exports fell 14.8pc in July, an extra blow as it grapples with its own
post-boom hangover. “The coming days ahead are tough,” said Indian commerce
secretary S R Rao.
Stephen
Jen from SLJ Macro Patrners said we are starting to see Phase III of the global
crisis as “the eye of the storm moves East”, with China and emerging markets
succumbing at last to the effects of debt leverage.
Japan Fiscal Impasse Threatens Stimulus to Spur Growth: Economy
By Andy Sharp, Keiko Ujikane
and Toru Fujioka - Sep 4, 2012 5:39 AM GMT
Japan’s political gridlock threatens to curtail the government’s ability to
apply fiscal stimulus as a rebound falters in the world’s third-largest
economy. Opposition parties in the upper house of parliament stymied legislation approved in the lower house Aug. 28 that enables the issuance of 38.3 trillion yen ($490 billion) of deficit- financing bonds, seeking to force Prime Minister Yoshihiko Noda into an early election. The government could hit a spending ceiling as soon as October, according to the Finance Ministry.
The freeze may suspend outlays from this year’s budget for
the first time, according to Goldman Sachs Group Inc., and limits Noda from
proceeding with the supplementary spending package he mooted in July. With
economists increasingly seeing an economic contraction this quarter, the
deadlock adds to risks facing global expansion that include a so-called fiscal
cliff of spending cuts and tax increases in the U.S. at year-end.
More
Sept. 3, 2012, 7:00 p.m. EDT
Germans rally around Weidmann’s hard line
Commentary: Public pressure mounts against ECB action on Spain
LONDON
(MarketWatch) — The German press in the last few days has been full of reports
that Bundesbank President Jens Weidmann has threatened to resign and had to be
talked out of it by Wolfgang Schaeuble, the finance minister. A bit of clever
spin-doctory by the Bundesbank’s media magicians.
It is
highly unlikely that Weidmann will actually leave (what would he do next?) but
the reports have fostered, as was no doubt planned, an outpouring of
pro-Weidmann support and sympathy from people in Germany who matter.
All this
adds further to the constraints on the European Central Bank as it prepares to
announce plans for government bond purchases and other “non-standard measures”
on Sept. 6 that are expected to be anything but earth-shattering.
The ECB
is inching toward a rather modest bond purchase program that will depend
crucially on troubled governments — above all Spain — to make a formal
application for aid from the European rescue funds EFSF and ESM. The ECB is
quite happy to sit this one out until and unless Madrid moves.
Another
reason why we can’t expect much on Sept. 6 is because the ECB and everyone else
are waiting for the German Constitutional Court on Sept. 12 to rule on the
legality of the ESM — the permanent European Stability Mechanism, which critics
in Germany say suspends the state financing rights of Parliament. Don’t be surprised
if the court calls for safeguards to satisfy democratic legitimacy including a
possible referendum in Germany, a point Weidmann has repeatedly made in
previous months.
Such an
outcome would badly upset financial markets’ calculations for a speedy end to
the imbroglio over economic and monetary union. Yet it would mean that whatever
happens in the future would be on a somewhat more stable basis that what we
have now.
More
Back in “whatever it takes” ECB Euroland,
the economy is going from bad to worse, although worse hardly does justice to
what is happening in the real world of Club Med.
"The paper standard is self-destructive."
Hans F. Sennholz
September 3, 2012, 9:45 a.m. ET
Euro-Zone Manufacturers Struggling
Activity
in euro-zone factories fell further in August as new orders dwindled,
suggesting the outlook for the 17-nation economy remains poor, a survey of
purchasing executives showed Monday.
The
decrease in manufacturing activity was less steep in August than in July, but
still marks a 13th month of contraction that will drag on the economy overall
in the third quarter.
Data
company Markit said the manufacturing Purchasing Managers' Index for the 17
nations that use the euro rose to 45.1 in August from 44 in July. The latest
reading remains below the 50 break-even level, indicating a drop in activity
compared with July.
While the
pace of decline slowed in Europe's largest economy, Germany, as well as in
France, new orders for German exports suffered their steepest retreat in over
three years, underscoring the vulnerability of its economy to global
stagnation.
"The
final reading of the August PMI confirms that the euro-zone manufacturing
sector remains firmly in contraction territory," said Rob Dobson, senior
economist at Markit. "The sector is on course to act as a drag on gross
domestic product in the third quarter."
The
euro-zone economy shrank 0.2% in the second quarter of the year, while the
number of unemployed people has climbed to a record of more than 18 million,
helping push consumer and business confidence down to a three-year low. Many
economists say the bloc's economy will continue to weaken during the rest of
2012, as European leaders struggle with the sovereign debt crisis.
Sept. 3, 2012, 6:43 p.m. EDT
Moody's warns on European Union debt rating
September 3, 2012, 9:47 p.m. ET
Dutch Socialists Push Back at Austerity
Roemer's Presence in a Coalition Could Tip Balance of the Netherlands' Approach to the Euro-Zone Crisis
BOXMEER,
the Netherlands—Emile Roemer is the smiling face of an electoral force that is
upending Dutch politics and threatening to challenge Europe's German-led
austerity strategy for solving the euro-zone crisis.
Mr. Roemer, a former elementary-school teacher, is
head of the Dutch Socialist Party, a once-fringe leftist faction that has
soared in popularity ahead of the Sept. 12 elections based on a pledge to
change the austerity policies of the current center-right governing coalition.
Opinion polls at the beginning of last week had
shown Mr. Roemer's Socialists in the lead. But his performances in two
televised debates last week appear to have hurt his chances: A new Ipsos poll
released Monday evening shows the Socialists trailing both the Liberal Party of
Prime Minister Mark Rutte and the Labor Party, the Netherlands' traditional
Leftist party, led by former Greenpeace activist Ï.
Still, if Mr. Roemer's support holds up on election
day, the Socialists would significantly boost their presence in the 150-seat
lower house, where the party currently has 15 seats.
The
elections are likely to be followed by horse-trading among political parties to
form a government. That could be a lengthy process, given that the country's
left-leaning parties will struggle to win enough votes to form their own
government, and also would be loath to join a grand coalition with the
Liberals—a step Mr. Roemer has already ruled out. But Mr. Roemer's presence in
the governing coalition could prompt a sea change in the country's approach to
the crisis and help shift Europe's strategy for saving the euro away from the
austerity-first policy of Mr. Rutte.
Mr. Roemer wants the European Central Bank to play
a more active role in taming the crisis, favors giving Greece more time to cut
its deficit, but opposes German-led plans to surrender more national power over
economic policy to Brussels, the European Union's bureaucratic capital.
"Political union isn't possible in this Europe
where the differences are so great, between north and south," he told
reporters over the weekend while campaigning at a shopping mall in Boxmeer, a
small town in the southern Netherlands where he was a local politician before
becoming a member of Parliament.
The Socialists are riding a wave of discontent over
tax increases and government spending cuts that have caused growth to stagnate.
The unemployment rate is now 5.3%—still among the lowest in Europe but up sharply
from 4.3% a year ago. Falling real-estate prices are pinching spending by Dutch
households, which are saddled with some of the largest mortgage debts in
Europe.
"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 39.26
Moz, Eligible 101.69 Moz, Total 140.95 Moz.
Crooks and
Scoundrels Corner
The bent,
the seriously bent, and the totally doubled over.
Normal
service resumes tomorrow.
A permanent Governor of the Bank of England would be one of the
greatest men in England. He would be a little 'monarch' in the City; he would
be far greater than the 'Lord Mayor.' He would be the personal embodiment of
the Bank of England; he would be constantly clothed with an almost indefinite prestige.
Everybody in business would bow down before him and try to stand well with him,
for he might in a panic be able to save almost anyone he liked, and to ruin
almost anyone he liked. A day might come when his favour might mean prosperity,
and his distrust might mean ruin. A position with so much real power and so
much apparent dignity would be intensely coveted.
Walter Bagehot. Lombard Street. 1873. The Fed 2008.
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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