Monday 3 September 2012

The Power Grab.



Baltic Dry Index. 703  -04

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

"The most puzzling development in politics during the last decade is the apparent determination of Western European leaders to re-create the Soviet Union in Western Europe."

Mikhail Gorbachev

Up first, unelected EC President Barroso makes his power grab.  Using the all too familiar scare tactic so loved by bureaucrats on the prowl for yet more power, POTEC Barroso says the EU is at a “make-or-break moment.” With the failed euro experiment not working for all of Club Med any more, millions of hapless Euro serfs must be hoping it breaks. It will be interesting to see if this tactless scare tactic affects the coming Dutch general election.

Below from the WSJ article. How many Euro Presidents is one too many? How many Euro presidents does it take to change a Euro light bulb?

Mr. Barroso, European Council President Herman Van Rompuy, European Central Bank President Mario Draghi and Jean-Claude Juncker, president of the euro-zone finance ministers group, have been charged with developing a blueprint by the end of the year for deeper regional integration.”

Germany is getting hustled and rolled into paying for a United States of Europe. The UK should take this last opportunity to opt out. Stay long physical precious metals, if it really is “make-or-break” point, break is less European wealth destroying than make.

If at first you don't succeed, try again. Then quit. There's no use being a damn fool about it.

W. C. Fields


September 2, 2012, 6:52 p.m. ET

Barroso: Europe Reaches 'Make-or-Break' Point, Calls for New EU Treaties

BRUSSELS—European Commission President José Manuel Barroso made his clearest call yet for fundamental change to the European Union treaties, saying Saturday the region needs "a leap in quality" in terms of integration.

In a speech at a Yale Law School conference in The Hague, Mr. Barroso said the EU was facing a "make-or-break moment" because of the economic crisis, which has "shown the limits of individual action by nation states."

"Europe and the principles of the Treaty need to be renewed. We need more integration, and the corollary of more integration has to be more democracy. This European renewal must represent a leap in quality and enable Europe to rise to the challenges of the world today," he said

Mr. Barroso, European Council President Herman Van Rompuy, European Central Bank President Mario Draghi and Jean-Claude Juncker, president of the euro-zone finance ministers group, have been charged with developing a blueprint by the end of the year for deeper regional integration.

However, until now many in Brussels, including at the EU's executive, were reluctant to dive into a contentious debate about changing the EU's basic treaties. Previous attempts at treaty changes, which need approval by each of the EU's 27 member states, have taken years and have distracted from efforts to improve the region's economy.

However, in his first major speech since returning from the summer break, Mr. Barroso said it was clear that the monetary union can only be protected if member states agree to a much greater pooling of sovereignty.

"The crisis has made it clear that we must not only complete the economic and monetary union, but also pursue greater economic integration and deeper political and democratic union with appropriate mechanisms of accountability," he said.
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Elsewhere in the snake bit European Monetary Union, contagion has struck in the heart of the union. Add France to the growing list of European countries heading for a EU bailout.

"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.

September 2, 2012, 4:24 p.m. ET

France Bails Out Housing Lender

PARIS—The French government rushed to bail out a small, liquidity-starved lender, putting the country's capacity to support its financial sector to the test as Paris attempts to pare its budget deficit in an increasingly stagnant economy.

Over the weekend, France's Finance Ministry said it would guarantee the debt of Caisse Centrale du Crédit Immobilier de France, or CCCIF, after the bank, which specializes in loans to housing programs, sought emergency assistance.

The government will underwrite nearly €5 billion ($6.3 billion) in immediate financing for the bank, a government official said. The bank needs the cash to pay down bonds falling due on Monday, but was effectively unable to raise the funds on its own after Moody's Investors Service downgraded its debt rating last week.

The Finance Ministry said it would seek approvals from both the European Union and the French Parliament to extend state guarantees to the bank. The government stopped short of saying whether it would aim to wind down CCCIF operations or try to find a buyer. The bank has about €30 billion in outstanding loans.
CCCIF's woes illustrate the difficulties of banks that relied on markets to raise funds and have struggled to adapt to the tougher environment born out of the global financial crisis.

Recent efforts by the bank to link up with a bigger partner have failed. It has 300 branches in France and about 2,500 employees.
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However many Presidents Europe can come up with, events elsewhere are rapidly making Europe’s never ending crisis unsolvable. Break now looks far more likely than make.

Chinese manufacturing shows shock slump

Surprise figures from Beijing show that activity at Chinese factories contracted for the first time in nine months.

China offered fresh evidence of its slowing growth as official figures showed manufacturing activity unexpectedly shrunk for the first time in nine months.

The state-backed China Federation of Logistics and Purchasing said its purchasing managers index (PMI) survey fell to 49.2 in August from July's 50.1, where any reading under 50 marks a drop in the sector's activity. Economists polled by Bloomberg had expected the survey to show a reading of 50, meaning that activity was flat.

New orders fell as exports kept weakening, while output from the sector increased at a slower pace, the survey showed. The figures confirm the economic slowdown in China, where growth fell to a three-year low of 7.6pc in the quarter ending in June.

----However authorities have resisted calls for more aggressive stimulus measures, after huge spending in response to the 2008 crisis stoked spiralling inflation and a risky building boom.

Wen Jiabao, the Chinese premier, said on Saturday it was too early to loosen curbs on speculative property investment. "The controls over the real estate market are still in a critical period," he said.

Forecasters expect growth to rebound late this year or in early 2013, but say a recovery will be too weak to drive global growth without improvement in the US and Europe.

China Deterioration Raises Risk of Wen Missing Target: Economy

By Bloomberg News - Sep 3, 2012 3:59 AM GMT
China’s economy is showing mounting signs of deterioration from manufacturers to banks, raising the risk that outgoing Premier Wen Jiabao will miss his growth target for the first time since taking office in 2003.

Manufacturing slowed further in August, surveys of purchasing managers showed Sept. 1 and today, with one gauge at the lowest level since March 2009. The readings added to evidence of weakness after a surfeit of unsold goods left near- record rubber stocks at China’s main hub for the commodity and financial strains saw a 27 percent jump in overdue loans at the five biggest banks in the first half.
More
http://www.bloomberg.com/news/2012-09-02/china-economy-s-deterioration-raises-risk-of-wen-missing-target.html

Will Mario Draghi deliver on his promise to buy bonds?

With Ben Bernanke's deeply inconclusive Jackson Hole missive now behind us, all eyes are firmly fixed on European Central Bank president, Mario Draghi.

---- The eurozone economy continues to deteriorate. Unemployment hit a record-high of 18m in July, we learnt on Friday, as another 88,000 people lost their jobs. Surveys of business confidence are flashing red, indicating that even Germany itself could be on the brink of recession. Eurozone inflation, meanwhile, is refusing to abate, jumping to 2.6pc year-on-year in August, from 2.4pc the previous month. That could dash any remaining hope of Draghi conjuring up an interest rate cut next week, to go alongside his "exceptional measures".

Even the Chinese are now putting the thumb screws on Merkel. Premier Wen Jiabao last week told the German chancellor that China and the broader international community are "worried" about the prospect of contagion from the single-currency area, in the aftermath of a systemic collapse. Wen has asked Berlin for clarification over whether Italy and Spain would adopt the "comprehensive rescue measures" needed to unlock the EU bail-out machinery, so opening the door to bond purchases by the ECB.

While Merkel replied by insisting that euro-denominated sovereign debt remains a "safe investment", it is clear that unless Beijing sees some ECB money-printing, and fast, it could soon become a net seller of eurozone government bonds. This is truly alarming. Until now, China has been propping up bond prices with net debt purchases within the eurozone. All the eurocrats' assumptions about funding for future bail-out packages also include a big chunk of money from Beijing. By breaking its silence, China seems to be putting a gun to the Iron Frau's head.
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Technicals flash amber as ECB and Fed struggle to validate rhetoric

Louise Yamada clinched her reputation as America’s oracle of technical analysis with an emphatic sell warning at the top of the Wall Street boom in 2007.

She is watching the torrid rise on US and European bourses with mounting unease. Retail investors have not taken part. America’s mutual funds haemorrhaged a further $12.7bn in July, the fifth consecutive monthly outflow.

“A lot of this rally is just short-covering by hedge funds. There is underlying weakness creeping into the markets. Volume is low, and going down. You could call it a vacuum rally. New highs against new lows have been deteriorating.”

The US index of transport stocks have lagged the Dow Jones industrials, a time-honoured warning sign. “There is no question that we have a Dow Theory sell signal in place. This is rare and needs to be watched carefully. It tends to accurate, eventually,” she said.

Morgan Stanley’s equity team says stocks are still cheap in historic terms but many of their “sentiment” indicators are nevertheless flashing amber to red. It is as if the great debt hangover has sapped our strength. Europe’s stocks cannot seem to claw their way above a 12-month forward price to earnings (P/E) ratio of 11.

Both the VIX volatility index and the "put/call" ratio on the options market are signalling the sort of 
complacency levels seen at past peaks.

---- “From a valuation standpoint, we are now close to peak levels seen over the past couple of years,” said Graham Secker, the bank’s chief European equity strategist.

It has been a heady summer rally. America’s S&P 500 index is up 10pc since early June. France’s CAC has risen 16pc, and Germany’s DAX 15pc, though both countries are flirting with double-dip recessions.
Italy is up 20pc and Spain up 24pc since mid-July in the face of full-blown depression. The 10-year sovereign bond yield remains more than 400 basis points higher than the growth rate of nominal GDP in both countries, a formula for suffocation.

For this equity melt-up we can thank the "Draghi Put" and the "Bernanke Put", the promise of largesse from the world’s two superpower central banks. Neither "Put" is actually in the bag.

As for China’s "Politburo Put" - the semi-fictional fiscal blitz by the regions - it is for now more believed abroad than at home. The Shanghai composite has continued its relentless slide. It is down 16pc since May.

“The EU government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many Euros as it wishes at essentially no cost…We conclude that under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

“Super Mario,” with apologies to Dr. Ben Bernanke

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. 

Today, Japan v China once again. Someone in Japan clearly wants to force a dispute with China ahead of the coming leadership change in the Chinese Communist Party in October or November. We will shortly see China’s response.

"Anytime you don't want anything, you get it."

Calvin Coolidge, 30th President of the United States of America.

September 3, 2012, 10:48 AM HKT

Journey to Disputed Waters: Tokyo Surveys the Senkakus

NOTE: This is the most recent dispatch from WSJ’s Eleanor Warnock, who is embedded with a survey team sent by the Tokyo Metropolitan Government to survey the Senkaku Islands,a disputed island at the heart of a recent diplomatic flare up between Japan and China. Her earlier dispatches, filed for CRT’s sister blog Japan Real Time, are available here.

When the earliest risers on the Koyo Maru, the boat carrying the survey group from the Tokyo metropolitan government to a disputed island chain in the East China Sea, stepped out on deck at 5 o’clock in the morning, one of the islands already loomed ahead like a black pyramid. As the boat swayed gently in the calm water, others appeared in the dark, some from the Japanese Coast Guard, others fishing boats.

The island ahead of the Koyo Maru was Uotsuri Island, the first island in the survey of three islands in a chain claimed by Japan, China and Taiwan. The islands, currently under Japanese control, are known as Senkaku in Japanese and Diaoyu in Chinese.

Uotsuri Island was so close that as dawn broke it was possible to pick out a Japanese flag painted on a rock, but no one on the trip would be able to touch any of the islands. Tokyo is in negotiations to buy three of them from their private owners, but did not get permission to land from the central government, which currently leases them.

As the sky lightened, the crew readied the two smaller boats that would be carrying surveyors closer to the island.
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"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."

William F. Rickenbacker

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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