Wednesday, 31 October 2012

Asia Rebounds.

Baltic Dry Index. 1043  -05

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

With mainstream media still leading with the super-storm Sandy that hit the Northeast USA, and its aftermath, we will let them cover the big story. Obviously having one of the world’s leading financial centres greatly impaired, is going to have an impact on the global economy in the short term, though this isn’t the time to be focused on that. Still it would be nice to hear from the Fed that their gold vault on Liberty Street stayed dry.

Today we cover Asia and Europe. Better news from Asia if not yet good news, but we’ll take any positive news we can get. The economy’s of China, South Korea and Taiwan, all appear to have stopped declining, although one swallow doesn’t make for a summer. Japan though is still reeling from the Chinese consumer boycott of Japanese goods, in their Diaoyu/Senkaku Islands dispute with China. But if a sustainable recovery in Asia is getting underway, how long before the giant inflation gets underway?

"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money."

Daniel Webster

Asian Data Signal Slowdown Easing From Korea to Taiwan: Economy

By Shamim Adam, Debra Mao and Eunkyung Seo - Oct 31, 2012 3:52 AM GMT
The worst of the declines in Asia- Pacific economies may be moderating, as Taiwan resumed growth last quarter, South Korean production climbed for the first time in four months and Singapore’s jobless rate fell.
Gross domestic product in Taiwan grew 1.02 percent from a year earlier, after a 0.18 percent decline the previous quarter, a report showed today. South Korea’s industrial output rose 0.8 percent last month from August on stronger car and electronics sales, while Singapore’s unemployment rate eased to 1.9 percent, the lowest since the first quarter of 2011.

China’s economy has shown signs of rebounding this quarter, boosting the outlook for the region’s exports. While Asian stocks rose today, the recovery in growth may be constrained by Japan’s persistent slump and limited expansions in the U.S. and Europe, sustaining pressure for policy stimulus in some Asia- Pacific countries.

“We may be seeing a bottoming in Asia but there won’t be a strong recovery in the short term, given the global environment,” said Edward Lee, a Singapore-based economist at Standard Chartered Plc

But in European news it was more of the same old story of deepening disaster. Stay long physical precious metals against the breakup of the European Monetary Union. It’s now not a question of if, but when and how.

"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.

Spain sinks deeper into recession in third quarter

Spain has slipped deeper into recession as the financial crisis and austerity weighs on the embattled country’s economy.

The Spanish economy shrank by 0.3pc between July and September, marking the fifth consecutive quarter of contraction.

Spain is buckling under the pressure of a large deficit and a property crash that has left its banks struggling under a mountain of bad loans.

Swingeing spending cuts and tax rises have stifled investment and have left consumers without the money or the will to spend.

The third-quarter data from Spain’s national statistics office was a first estimate of GDP with no detailed breakdown. Despite the decline, it reflected a slightly better performance than the 0.4pc fall in GDP economists had predicted.

However, economists said the figure was likely to have been flattered by consumers bringing forward purchases to beat the VAT rise in September, partly veiling a weak consumer backdrop.

“Domestic demand likely contracted sharply again, despite some spending being pulled forward ahead of the VAT hike,” said Greg Fuzesi, economist at JP Morgan.

BBVA’s Quarterly Profit Slumps as Real Estate Purge Continues

By Charles Penty - Oct 31, 2012 7:12 AM GMT
Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-biggest bank, said third-quarter profit fell 82 percent as it continued to purge soured real estate assets.

Net income fell to 146 million euros ($189 million) from 804 million euros in the same period a year earlier, the Bilbao, Spain-based lender said in a filing to regulators today. That missed the average 186.4 million-euro estimate in a Bloomberg survey of 11 analysts.

BBVA said it has completed two-thirds of the provisioning charges needed to comply with government orders to Spanish banks to recognize losses on real estate that piled up on their balance sheets after the property market crashed. Higher profit from Mexico and South America helped to cushion a 532 million- euro nine-month loss from Spain, which still accounts for about 60 percent of BBVA’s lending.

Hungary plans to offer passports to investors buying its debt

Buy our debt and get a European passport, is the latest plan from Hungary's politicians to shore up its balance sheet.

Politicians in Hungary plan to grant a European passport to investors willing to spend at least €250,000 (£202,000) buying up the recession-hit country’s government debt.

Under proposed legislation, foreign investors who buy special “residency bonds” would receive preferential immigration treatment. Politicans have suggested buyers would be granted permanent residency and, ultimately, Hungarian citizenship – entitling them to live and work across the European Union, including the UK.

The plans, backed by the ruling Fidesz party, are targeted at Chinese investors, party member Mihaly Babak told a Hungarian newspaper.

“The condition of a preferential process is the purchase of €250,000 worth of bonds with a five-year maturity,” he said. “We can attract capital from the so-called Third World this way and also finance reducing state debt.”

EU Convenes on Greece as Samaras Coalition Squabbles

By Marcus Bensasson and Stephanie Bodoni - Oct 30, 2012 11:01 PM GMT
Euro-area finance chiefs will try to shunt Greece’s bailout plan back on track today as officials split on whether the country needs another debt writedown and Greek politicians squabble over further austerity measures.

With recession biting, policy makers are again seeking ways to keep Greece in the euro and avert an exit that former Deutsche Bank Chief Executive Officer Josef Ackermann said would cost “several hundred billion” euros. Finance ministers will hold a conference call at 12:30 p.m. Brussels time and may release a statement afterwards.

European officials are grappling over ways to fill Greece’s financing gap two weeks before a decision is due on whether to give the country a further round of emergency funds. While German Chancellor Angela Merkel has signaled her desire to stand behind Greece’s euro membership, Prime Minister Antonis Samaras’s coalition is still at odds over the steps needed to secure more money.

---- Policy makers are trying to work out a plan that will cut Greek debt to 120 percent of gross domestic product by 2020 from about 144 percent now amid the worst recession in a generation. Failure to hit the debt target could see the IMF withdraw aid, sparking another wave of speculation about Greece’s future in the euro.

---- In Greece, politicians are still haggling over the measures needed to clinch a new bailout agreement. Samaras yesterday said that negotiations on a new austerity package had been completed, sparking criticism from his coalition partners who said divisions still remain.

Democratic Left, which has said it will support the budget, yesterday reiterated opposition to proposed labor reforms. Pasok leader Evangelos Venizelos said talks on the deal will continue up to a Nov. 12 meeting of euro-area finance ministers

Britain 'sorely needed' in EU, says German Finance Minister Wolfgang Schaeuble

German Finance Minister Wolfgang Schaeuble has urged Britain to remain strongly engaged in the European Union, responding to a tide of Euroscepticism that Berlin fears could sweep London towards the exit.

6:45AM GMT 30 Oct 2012

Mr Schaeuble's plea, delivered during a visit to Oxford University, came days after British Foreign Secretary William Hague mapped out a very different vision of a much looser EU in which Britain would opt out of many policies.

Chancellor Angela Merkel said she would visit Britain, an "important partner", for talks with Prime Minister David Cameron next week, Reuters reported.

"In my view the British voice is sorely needed in this [European] competition of ideas," Mr Schaeuble, known for his passionately pro-European views, told a mainly academic audience at Saint Anthony's College in Oxford.

"I firmly believe Europe would be the poorer without this input to our debates. Britain should retain and regain a place at the centre of Europe because this will be good for the European Union."

Ms Merkel echoed his comments on Monday evening at a gathering of members of her centre-right Christian Democrats (CDU) in the northern German town of Schwerin.

----"They [the British] are for free trade, for greater competitiveness, so they are a very good partner."
Berlin has long valued London's free-marketeering influence in the EU as a counterweight to France and other states that take a more protectionist line and favour state intervention in industry.

But Germany, the EU's biggest economy, has grown increasingly frustrated with the Eurosceptical instincts of Cameron and the bulk of his Conservative lawmakers.

To Berlin's dismay, Mr Cameron has signalled he wants to use the eurozone crisis and the moves it has fostered towards much closer integration between the area's 17 member states to negotiate a much looser relationship between Britain - which does not have the euro - and the EU.

Most British people are keen to remain in a European free trade zone; and most EU states are keen to keep us there, because we buy from them more than we sell to them to the tune of £40 million per day.

Daniel Hannan Conservative MEP.

At the Comex silver depositories Friday final figures were: Registered 36.97 Moz, Eligible 104.85 Moz, Total 141.82 Moz.  

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

Today, more on Europe’s seriously bent banksters. Click on the UBS link for a letter on 
how not to fire UBS’ professional gamblers.

Banks are an almost irresistible attraction for that element of our society which seeks unearned money.

J. Edgar Hoover

UBS bankers in London head for the pub after being turned away at office door

UBS bankers in London were turned away from their offices on Tuesday and handed a letter putting them on "special leave", just hours after the Swiss bank unveiled a radical restructuring to axe 10,000 jobs.

It was only when the UBS bankers had their passes refused that they realised they could be out of a job. Instead of being allowed into the bank’s City headquarters the traders were whisked to special offices on the fourth floor where they were handed an envelope containing details of the redundancy process.

“It was like a scene out of the Village of the Damned up there,” said one of the bankers.

“They said we would be getting two weeks paid leave and then we will be told what is to happen. I expect we’ll just get a call from human resources or lawyers telling us how much we are worth. We won’t be able to talk to our bosses.”

Turned away from their offices, the bankers congregated in The Railway Tavern, one of the only pubs in the area to open at 8am.

“We were banging on the door,” said one. “Today is for drinking, tomorrow is for thinking about our careers,” added another.

----Although the bank failed to detail who many of its 6,500 London-based employees would be lost, scores were not allowed into the bank today, instead being placed on “special leave.”

“Dear colleague,” the private and confidential letter started. “You will not be required to continue to perform you current duties at this time…”

The impersonal letter and the manner they were treated was seen by some as an insult, by others as a natural result of current economic and political conditions.

“It is about regulation, about politics, Switzerland demands the highest capital ratios, around, 18pc,” explained one of the bankers who asked to remain anonymous.

“They are just shutting down the capital intensive side of the business. Switzerland has lost all appetite for risk.”

UBS Fixed-Income Capitalulation Boon for Deutsche Bank

By Annette Weisbach and Nicholas Comfort - Oct 30, 2012 11:01 PM GMT
Global investment banks such as Barclays Plc (BARC) and Deutsche Bank AG (DBK) will probably increase their market share after UBS AG (UBSN) decided to scale back its investment bank in the face of higher capital requirements.

UBS announced an unexpected pretax loss of 2.87 billion Swiss francs ($2.7 billion) for its investment banking arm yesterday and job cuts totaling 10,000 across its business. Deutsche Bank reported an eight-fold surge in its pretax profit from investment banking, and revenue from the business at Barclays may climb 23 percent when it reports today, Credit Suisse Group AG (CSGN) analysts said

The monthly Coppock Indicators finished September:
DJIA: +66 Up. NASDAQ: +88 DOWN. SP500: +85 Up. All three indicators had reversed from down to up, but now the NASDAQ has reversed again to down. While not unprecedented, it is a warning sign a that the July reversal from up to down is about to fail.

Tuesday, 30 October 2012

Europe v Germany.

Baltic Dry Index. 1048  -01

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

The gambling known as business looks with austere disfavor upon the business known as gambling.

Ambrose Bierce

The big story today is the Great Nor’easter storm hitting the east coast of the USA, but with it well covered in mainstream media, we will leave it to MSM to update us across the rest of the day. In the long run as we saw with Hurricane Katrina, storms have little lasting effect on an economy as large as the USA’s, but that is little comfort to those directly affected by property losses in the short run. Having been well publicised in advance, death and injury should be minimised, and following the debacle that followed Katrina, rescue and recovery efforts should be far more competent and efficient.

The big European story today is the Eyurozone, led by France starting to gang up on paymaster Germany. While our thoughts and sympathies remain with America, today we take stock of a crumbling Europe. Stay long precious metals. The euro doesn’t look to have long left in its present form.

Experience is the name everyone gives to their mistakes.

Oscar Wilde

Debt crisis: Greece must have debt relief, leaders to tell Angela Merkel

A delegation of leaders are to warn Angela Merkel that Germany must agree to Greek debt relief or risk plunging the eurozone into a fresh and more dangerous phase of the crisis.

Francois Hollande will travel to Berlin with leaders for crisis talks on Tuesday after Germany said a Greek sovereign debt restructuring was “out of the question”.

On Monday, the French president met with Jim Yong Kim, head of the World Bank, and IMF chief Christine Lagarde, as well as leaders of the World Trade Organisation and the OECD, to discuss solutions for Greece, including a debt buy-back. The group will talk about the ideas with Ms Merkel on Tuesday.

European markets dropped ahead of the pivotal talks amid worsening bank problems gripped both Greece and Spain. Greek banks plunged almost 16pc after the finance ministry in Athens said that Brussels’ bail-out fund would not recapitalise the banks. The collapsed dragged the Athens exchange down 6.3pc.

In Spain banks were told that a swingeing discount of as much as 63.1pc would be applied to property assets transferred into FROB, the national “bad bank”. The Bank of Spain said toxic property loans would be transferred from the banks at an average discount of 45.6pc with foreclosed loans taking a 63.1pc cut. 
The scheme, which is expected to start at the end of November, said it would have capacity to absorb €90bn of assets and would first take on €45bn assets from the nationalised banks.

Mario Monti, Italy’s prime minister, said he would work with Spain’s Mariano Rajoy to achieve stability.
Eurozone leaders fear that another crisis in Greece could destablise the Madrid’s fragile efforts to clean up its banks and shore up its finances.

Jean Claude Juncker, head of the eurogroup of finance ministers, said that leaders would speak three times over the next two weeks to establish a rescue plan for Greece.

Updated October 29, 2012, 6:00 p.m. ET

Crisis Takes Toll on French Hospital

Lyon Facility Is Unloading a Castle to Ease Funding Crunch Sparked by Banking Industry's Downturn

LYON, France—The public hospital center in this southeastern French city is selling a century-old castle and its expansive grounds to help ease a funding squeeze, in a sign of how the euro zone's sovereign-debt crisis is also afflicting the bloc's healthier members.

Hospices Civils de Lyon hopes to raise €4 million ($5.2 million) from the sale, which would also save on the hefty maintenance and heating bills associated with the aging ch√Ęteau.

While France has been spared the depth of hardship seen in countries requiring bailouts, such as Greece, or those teetering on the edge, such as Spain, the crisis has had a deep impact on the French banking industry, traditionally a key source of financing for institutions such as public hospitals and municipalities.

The hospital's problems intensified in late 2011 when Franco-Belgian lender Dexia SA, DEXB.BT -5.26% which used to supply around 40% of the financing for French hospitals, received a bailout from the French and Belgian governments. The bank stopped lending.

French hospitals also have been hit by attempts to prevent another crisis: European governments have introduced new solvency rules designed to stop banks from overstretching themselves, which banks say make it hard to provide hospitals and municipalities with long-term loans.

Hospices Civils de Lyon, which carries debt of about €900 million, and around 20 other large French hospitals have tapped financial markets by selling bonds. But that route could also become more difficult. In July, Moody's Investors Service downgraded €270 million in bonds issued jointly by Lyon and other hospitals in 2009 to Baa1 from Aaa. A separate €167 million issuance in 2010, not including Lyon, was downgraded to A1 from Aaa. The two bond issues remain on review for further downgrade.

October 29, 2012, 6:05 p.m. ET

Sicilian Vote Shows Political Discontent in Italy

ROME—Sicily elected a governor from Italy's center-left parties for the first time in more than a decade on Monday, in a ballot that underscored rising voter disaffection with the country's political establishment and the growing popularity of a protest party led by a former comedian.

Sicily's political map, which is closely watched as a bellwether of the coming national elections in the spring, was redrawn by Monday's election results. Backing crumbled for center-right parties that once considered Sicily a bastion of support.

The vote came as rating firm Fitch on Monday downgraded Sicily one notch closer to junk territory, citing expectations of a prolonged period of budgetary deficits in the Italian region. Sicily is one of Italy's poorest regions, with an unemployment rate of nearly 20%, twice the national average.

Rosario Crocetta—an openly gay candidate backed by a coalition of leftist and Catholic parties—garnered 31% of the vote, beating Sebastiano Musumeci, the center-right candidate backed by former Prime Minister Silvio Berlusconi.

---- The biggest surprise, analysts said, was the number of Sicilians who decided to either stay away from the polls or cast their vote for the Five-Star Movement, a protest party led by euro-skeptic and former comedian Beppe Grillo. Only 47% of voters turned out this year, compared with the 67% that voted in 2008. The Five-Star Movement grabbed 15% of the vote for Sicily's regional assembly—more than any other party. Its candidate for governor, warehouse worker Giancarlo Cancelleri, received 18% of the vote.

"This is an extraordinary result that makes me think the movement could become the leading party in the national elections," said Alessandro Campi, a professor of politics at the University of Perugia.

We end for the day with two of Europe’s crooked banks.  Barclay’s loses its dubious case in England’s High Court. UBS losses force it out of Investment Gambling. For more on UBS and gambling scroll down to Crooks Corner.

In gambling the many must lose in order that the few may win.

George Bernard Shaw

Libor: Judge forces Barclays to reveal names of staff involved in rate rigging

Barclays will be forced to disclose the names of staff involved in Libor rigging, following a damning court judgment over claims it mis-sold interest rate swaps to a care home operator.

The bank was chastised on Monday at the High Court in London by Lord Justice Flaux, who claimed Barclays was intentionally trying to hide the true scale of the Libor scandal, which has already seen the lender fined £290m.

The criticisms came as Barclays faced a preliminary hearing, ahead of a trial, over allegations it mis-sold to a care home group complex interest rate derivatives that were in turn based on false Libor rates.

Issuing a damning judgment, Lord Justice Flaux said Barclays’ objections to the Libor-rigging claims brought against it by Guardian Care Homes were “wholly without merit” and accused the bank of “misleading” customers.

Allowing the case to continue to trial, the judge described the bank’s attempts to dismiss the Libor aspects of the care home operator’s claim as “shadow boxing” and said they were “doomed to fail”.

Guardian Care Homes’ lawsuit is seen as a test case for Libor-rigging claims and the court decision to allow the case to go to trial potentially opens the door to billions of pounds of legal actions against other banks involved in the rate-setting scandal.

Over a day-long hearing, Lord Justice Flaux repeatedly struck down Barclays’ objections and said the bank would be forced to disclose potentially embarrassing details, such as the identities of staff implicated in Libor manipulation.

October 30, 2012

UBS to Reorganize Investment Bank

In response to a tougher regulatory and economic climate, UBS AG UBSN.VX +7.28% is launching a complete overhaul of its investment-banking arm, exiting almost entirely from fixed income and cutting thousands of jobs in London and the U.S.

Chief Executive Sergio Ermotti said the decision to take this step was made during the summer, when it became increasingly clear that the global economy was worsening, that regulators were getting stricter and tougher demands on capital were here to stay.

However, the foundations for the plan were laid a year ago, when Mr. Ermotti told investors that the Swiss bank wants to focus on servicing its wealth-management, corporate and retail clients and shrink its investment bank.

The Zurich-based bank said Tuesday it plans to cut about 10,000 jobs by 2015, or 15% of its headcount of 64,000. About a quarter of the jobs will be lost in Switzerland.

The rest will be spread around the globe. Since a majority of the layoffs will be made at the investment bank, New York and London will be affected heavily.

----- The changes will take three years to implement and will probably cost about 3.3 billion francs in total in restructuring charges over this period.

The bulk of the savings will come from the reduction in headcount.

"This is a people's business," Mr. Ermotti said. "If you cut costs, the big part is coming from headcount."

The best throw of the dice is to throw them away.

English Proverb

At the Comex silver depositories Friday final figures were: Registered 36.97 Moz, Eligible 104.85 Moz, Total 141.82 Moz.  

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

Today, a little light comedy. UBS, Switzerland’s rogue bank that has trouble in America keeping within American laws, is having one of its former traders prosecuted in London for, of all things, rogue trading. To this old dinosaur commodities trader, UBS deserved what it got for not putting in place proper internal controls to stay on top of its gamblers, aka traders. UBS deserved to fail, but unfortunately was bailed out by the hapless Swiss taxpayer. Is our fiat money system great, or what?

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

Chinese Proverb

Investment banking is a gamble, Kweku Adoboli tells court

Kweku Adoboli, the UBS “rogue trader”, denied gambling away the bank’s money, claiming if his actions amounted to gambling then all investment banking was just a game of chance.

The 32-year-old investment banker claimed that he would get up at 3am to monitor the markets and to guide his trading.

“The purpose of doing all that investigation and analysis is to increase the chance, and reduce the number of things that are going to be surprises when you make decisions about where you think the market is going,” he said.

“If that is just a calculated gamble, then all investment banking is a calculated gamble.”

Instead of losing money by acting recklessly, Mr Adoboli put his $2.3bn (£1.4bn) loss down to a decision taken by his superiors in 2011.

At that time the bank decided to move from being bearish to bullish on the European banking sector.

“At that point I should have held on to my conviction of fear of the market,” Mr Adoboli told a jury in Southwark Crown Court. “At that very point I changed my position, that is why I don’t believe I was a rogue trader.”

Mr Adoboli claims his colleagues knew about his secret trading positions and an “umbrella” account he used to conceal profits made on those trades.

While Mr Adoboli’s initial unauthorised trading made a profit, he built up huge positions in 2011 and 2012 after trying to recoup previous losses. At one point he had built up a $12bn position.

However, Mr Adoboli claimed the use of his umbrella account did not result in any higher pay for him.

By setting aside profit in the account it seemed as if Mr Adoboli was making less cash for the bank than was the case, hence a lower bonus.

Mr Adoboli claimed he started the practice of putting aside money to offset future costs.

When I was young, people called me a gambler.
As the scale of my operations increased I became known as a speculator.
Now I am called a banker.
But I have been doing the same thing all the time. 

Sir Ernest Cassel (1852-1921)

The monthly Coppock Indicators finished September:
DJIA: +66 Up. NASDAQ: +88 DOWN. SP500: +85 Up. All three indicators had reversed from down to up, but now the NASDAQ has reversed again to down. While not unprecedented, it is a warning sign a that the July reversal from up to down is about to fail.