Friday 30 November 2012

China’s New Asian Threat.

Baltic Dry Index. 1097  -07

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

"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper."

Hans F. Sennholz

We open this morning with a new threat by China in the South China Sea. Under new rules that come into effect January 1, 2013, China intends to use the Hainan police to stop and board vessels that “illegally enter”  Chinese waters.  The disputed waters lie far to the south of the island of Hainan, and are claimed by Vietnam and the Philippines, among others. The waters just happen to be the main oil tanker shipping route to Japan. Stay long physical precious metals against what is shaping up to be dreadful 2013.

Chinese police plan to board vessels in disputed seas

BEIJING/MANILA | Fri Nov 30, 2012 12:34am EST
(Reuters) - Police in the southern Chinese island province of Hainan will board and search ships which illegally enter what China considers its territory in the disputed South China Sea, state media said on Thursday, a move likely to add to tensions.

The South China Sea is Asia's biggest potential military trouble spot with several Asian countries claiming sovereignty over waters believed to be rich in oil and gas.

The shortest route between the Pacific and Indian Oceans, it has some of the world's busiest shipping lanes. More than half the globe's oil tanker traffic passes through it.

New rules, which come into effect on January 1, will allow Hainan police to board and seize control of foreign ships which "illegally enter" Chinese waters and order them to change course or stop sailing, the official China Daily reported.

"Activities such as entering the island province's waters without permission, damaging coastal defense facilities and engaging in publicity that threatens national security are illegal," the English-language newspaper said.

"If foreign ships or crew members violate regulations, Hainan police have the right to take over the ships or their communication systems, under the revised regulations," it added.

----The Philippines, which also has claims to parts of the South China Sea, said the move could violate international maritime laws allowing the right of passage and accused Beijing of trying to escalate tension in the area.

----In Washington, U.S. military officials said the report mentions only police in Hainan province, not military forces, so the intended scope of the policy is not clear.

Hainan's policy was unlikely to affect the behavior of U.S. vessels operating in international waters, said the officials.

----Rex Robles, a retired senior Philippine naval officer and security analyst, said China was just testing the reaction.

"Those warnings are not directed at us. They might be trying to find out how far the United States would react because this could affect freedom of navigation in one of the busiest sea lanes in the world. If this is an official policy announced by Beijing, this is very serious and a cause of concern."

In other China news, China is moving towards gold. Rather optimistically, Jeremy East, global head of metals trading at Standard Chartered PLC, suggests the move will have minimal impact on gold prices. Day one perhaps, but longer term I will take the opposite bet.

"The desire for gold is the most universal and deeply rooted commercial instinct of the human race."

Gerald M. Loeb

November 30, 2012, 3:15 AM

China Moves Forward in Opening Gold Market

China will allow over-the-counter gold trading between banks for the first time Monday, a significant financial reform for the world’s second-largest buyer of the precious metal.

The move reflects the Chinese government’s latest effort to develop Shanghai into a major gold trading center, and mirrors similar developments in the country’s currency and oil markets.

The introduction of interbank trading is intended to develop China into a liquid and market such as London, and demonstrates the government’s readiness to open the market to greater participation by international banks, said Jeremy East, global head of metals trading at Standard Chartered PLC STAN.LN -0.07%(STAN.LN).

“From a government perspective, gold is seen as currency, and the government is slowly releasing the controls on currency. We expect the [gold] market will be opened up to more foreign banks,” he said.

Given their trading volumes, Chinese banks already play a significant role in determining international gold prices, so the move will have a limited impact on prices, Mr. East said.

In less bullying news, Monday’s Greek rescue deal looks to be sinking by Friday. No one it seems, now likes what on Monday was hailed as the real deal. Welcome to the insane asylum called the European Monetary Union, where paymaster Germany gets to wreak havoc on the inmates. A Greek exit from the dodgy euro still seems likely to me, December 25th through December 31.

"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

Greek deal frays as IMF threatens walk-out on debt buy-back impasse

The eurozone's debt relief plan for Greece has hit serious trouble within days as banks and pension funds balk at fresh losses, raising fears that the package could unravel before a deadline in mid-December.

The International Monetary Fund said on Thursday that it would not disburse funds under its part of the EU-IMF package unless the eurozone delivers on a bond "buy-back" scheme, which is supposed to cut Greece’s burden by 10pc of GDP and is deemed crucial for restoring long-term viability.

If the IMF withdraws, Finland and Holland will also pull out of the programme. "This has become a really big problem," said Raoul Ruparel from Open Europe.

The dispute comes as Moody’s said the EU-IMF deal to unlock €44bn in bail-out payments to Athens merely papers over cracks and does little to alleviate Greece’s "extreme economic and social fragility".

"We believe that the country’s debt burden remains unsustainable," it said. Moody’s warned that there can be so lasting solution until EU states and official creditors agree to write down their holdings, now the lion’s share.

Private investors are furious at demands that they take a second "haircut" of 70pc on residual holdings, after already taking a 53.5pc loss earlier this year, while official creditors still refuse all loses.

----Mr Ruparel said the burden will have to fall on foreign pension funds, insurers and banks with some €30bn of bonds, but it is unclear how they can be made to comply. The scheme is supposed to be voluntary. "Most want to hold the debt to maturity and have no interest in crystalising losses," he said.

Under the buy-back plan, investors sell their bonds back to Greece at a 70pc discount - last week’s market price. Greece in turn borrows the money from the eurozone bail-out funds.

The Institute of International Finance (IIF) said it would be an outraged if its members are forced to take further losses.


In other EMU news “the prospect of an immediate recovery” from Spain’s “prolonged recession,” remains remote, according to the OECD. So remote, in fact, the OECD sees more chance of Spain plunging into an even deeper recession than recovering. Spain will need its own bailout in 2013. Welcome to the Great Euro Experiment gone wrong.

Debt crisis: quick Spanish recovery 'remote' says OECD

Spain is engulfed in a long recession with little hope of a quick recovery, a respected international think-tank has said.

2:47PM GMT 29 Nov 2012

Spain must quickly fix its banks to avert the "substantial risk" of being cut off from external financing and plunging into an even deeper recession, the Organisation for Economic Cooperation and Development said in a report on Thursday.

"The economy is undergoing a prolonged recession," it added, citing the 2008 global financial crisis and the bust of a Spanish housing boom. "The prospect of an immediate recovery remains remote."

Addressing Spain's 25-percent unemployment rate, the highest since the return to democracy after the death of General Francisco Franco in 1975, the OECD urged drastic labour market changes.

It called for cutting compensation for unfair dismissal, considering abolishing an extension of industry-wide collective bargaining, and more training and job-search help for the young.

Spain's economy has been shrinking for 15 months, with output slumping 0.3pc in the third quarter, official data show, and the recession is expected to last right through 2013.


"All of the government's monetary, economic and political power, as well as its extensive propaganda machinery, will be enlisted in a constant battle to drive down the price of gold - but in the absence of any fundamental change in the nation's monetary, fiscal, and economic direction, simply regard any major retreat in the price of gold as an unexpected buying opportunity."

Irwin A. Schiff

At the Comex silver depositories Thursday final figures were: Registered 34.22 Moz, Eligible 107.16 Moz, Total 141.38 Moz.  

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

Today, Citigroup on the failure of the great elitist European Bilderberger project, The Disunited States of Europe. Stay long physical gold and silver. According to Citigroup’s analysis, Europe’s future is anything but rosy.

"We are in a world of irredeemable paper money - a state of affairs unprecedented in history."

John Exter

Citigroup sentences to Europe to faster economic death

Last updated: November 29th,
The closer you read Willem Buiter's imperial uber-blick of the world economy, the more astonishing it becomes.

Citigroup's end of year forecast – Prospects for Economies and Financial Markets in 2013 and Beyond – is in essence a celebration of American revival and ascendancy. It sentences Europe to slow economic death.
The growth gap in 2012 between the US (+2.2) and the eurozone (-0.4) is the 2.6pc, the biggest since 1993.

Professor Buiter – Citi's chief economist – said this is not a one-off. The differential will widen to 3.4pc in 2014 and continue at extreme levels into the latter part of the decade.

The compound effects of this for year after year are dramatic. Europe will be left behind as an outpost of stagnation in a G2 world dominated by the US and China, with a string of emerging powers gaining ground but still far behind.

Euroland's nominal GDP will slip from 78pc of US levels this year to 66pc by 2025. India will overtake Germany by 2020. (German growth will be: 2013 (0.5), 2014 (0.3), 2015 (0.9). 2016 (1.1) — in other words, slow asphyxiation along with the rest of EMU).

On US decoupling:

"We expect very different recovery paths, reflecting differing policy choices in managing the deleveraging process, plus underlying differences in terms of the supply-side and energy availability. US real GDP per head probably will rise about 9-10% above the 2007 level by 2017 – clearly outperforming Japan’s "lost decade" (real GDP per head rose by 5% from 1992-02).

"By contrast, in the euro area, we expect continued recession in 2013 and 2014 and prolonged weakness thereafter — with ongoing financial strains and, over the next few years, Grexit (Greek exit) plus a series of sovereign debt restructurings. In the euro area and UK, real GDP per head will probably remain 3-4% below the 2007 level even in 2017 — markedly underperforming versus Japan’s "lost decade".

----Italy will slide slowly into the abyss, with further contraction in 2013 (-1.2) and again in 2014 (-1.5), and near zero growth from then on. Spain is not much better. Portugal will contract 4.6pc next year. They will all need debt restructuring. France is dead until 2016.

So there you have it, the "flawed EMU structures" have doomed Europe to a generation of depression. The euro itself has become a force of economic destruction.

"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."

Antony C. Sutton

Another weekend, another week closer to Christmas, and another week closer to America’s “fiscal cliff.”  Here in Europe, Greece, Ireland and Portugal have already gone over their fiscal cliffs, with Spain and Italy about to, to be followed by France mid-2013, on present suicidal policies. Of course, none of this might matter if China goes overboard in January and starts harassing/policing international shipping in the South China Sea. Will China or America blink first? Have a great weekend everyone.

The monthly Coppock Indicators finished October:
DJIA: +92 Up. NASDAQ: +99 Up. SP500: +102 Up.  Still time for the Santa Clause rally?

Thursday 29 November 2012

Blame It All On Germany.

Baltic Dry Index. 1104  +07

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

“The sans-culottes appear to have captured the government in Paris. I have no hesitation in saying here, Venez à Londres, mes amis. Don’t wait to be persecuted … and put in the tumbrils by the regime. Come to London.”

Boris Johnson. Mayor of London.

Yes, it’s all Germany’s fault, according to the faceless suits at the US Treasury. If it wasn’t for Germany stealing Club Mad’s lunch, by trading with Club Med like Dutchmen in Manhattan in 1626, all would be well in the world, and America wouldn’t be falling off an acrimonious “fiscal cliff.”   America’s two warring tribes would be reconciled once again, and peace and harmony restored in the land between the shining seas.  As Christmas pantomime’s go, this tall story is no worse than all the others. Left out is the Great Nixonian Error of putting the world onto fiat currency,  enabling casino capitalism, the rise of China and the bankruptcy of the west.

You can always reason with a German. You can always reason with a barnyard animal, too, for all the good it does... The larger the German body, the smaller the German bathing suit and the louder the German voice issuing German demands and German orders to everybody who doesn't speak German. For this, and several other reasons, Germany is known as 'the land where Israelis learned their manners'.

P. J. O’Rourke

Germany displaces China as US Treasury's currency villain

The US Treasury has issued a damning criticism of Germany’s chronic trade surplus in its annual report on worldwide exchange rate abuse, although it stopped short of labelling the country a currency manipulator.

Treasury officials told Congress that internal balances within the eurozone are disrupting the global trade structure, with almost nothing being done by north Europeans states to curb their huge surpluses.

The report said Germany’s current account surplus is running at 6.3pc of GDP, and Holland is even worse at 9.5pc. Yet the countries still cleave to fiscal austerity policies that constrict internal demand.

The EU’s new tool for cracking down on intra-EMU imbalances is "asymmetric" and does not give "sufficient attention to countries with large and sustained external surpluses like Germany".

While the eurozone as a whole is roughly in trade balance, the EMU regime of austerity in the South without offsetting stimulus in the North is creating a contractinary bias, holding back global recovery.

The US Treasury said eurozone surplus states have "available room" for fiscal stimulus but refuse to act, despite repeated pledges by EU leaders that more must be done to foster growth. "They have not yet made any concrete proposals capable of yielding meaningful near-term results."

Germany's permanent surplus is in stark contrast to the shift under way in Asia. China has "partially succeeded in shifting away from a reliance on exports for growth", and has slashed its surplus to 2.6pc from 10.1pc in 2007

---- A chart published in the report shows that Germany has overtaken China to become the biggest single source of global trade imbalance, alone accounting for a large chunk of the US deficit.

Switzerland is top sinner with a surplus of 13pc GDP, though the report says the country faces unique circumstances as a safe-haven battling deflation.

The Swiss National Bank has bought $230bn in foreign bonds since mid 2011 to hold the franc, more than China, Russia, Saudi Arabia, Brazil and India combined.

Now back to the sans-culottes of today’s France. Under “the Dutchman,” France rushes on towards national suicide.

“There’s danger in just shoveling out money to people who say, ‘My life is a little harder than it used to be, at a certain place you’ve got to say to the people, ‘Suck it in and cope, buddy. Suck it in and cope.’”

Proper Charlie Munger.

French Jobless Total Hits 14-Year High

Published: Wednesday, 28 Nov 2012.
The number of people out of work in France soared again in October to hit its highest level in 14-and-a-half years, piling pressure on Socialist President Francois Hollande who has promised to halt the relentless rise by the end of 2013.

Labor Ministry data showed the number of jobseekers in mainland France rose by 45,400, or 1.5 percent, to hit 3.103 million, marking the 18th consecutive monthly increase and taking the total to its highest level since April 1998.

The increase was only slightly smaller than in October which saw the biggest jump in jobless rolls since April 2009, showing the deterioration in the job market is accelerating as recession in the broader euro zone hits demand.

France's 1.9 trillion euro ($2.46 trillion) economy has been virtually stagnant since grinding to a halt at the end of last year, and many economists expect it to contract in the months ahead despite a surprise 0.2 percent rise in the third quarter.

With the economy still struggling, the Labor Ministry said there was a risk the figures could get even worse.

----Hollande won power in May on a pledge to cut unemployment, but has since had to grapple with a wave of layoff announcements that have damaged his popularity and sapped public morale.

The government unveiled a set of measures at the start of November, including sweeping tax rebates for companies, aimed at boosting industrial competitiveness and safeguarding jobs.

French business newspaper Les Echos said Hollande was now planning a faster rollout of the rebates so that they reach full speed within two years instead of the three year build-up initially envisaged.

Francois Hollande threatens to nationalise ArcelorMittal steel plant

Francois Hollande has threatened to nationalise a plant owned by steelmaker ArcelorMittal in an increasingly heated dispute in which a minister has said the multinational is no longer welcome in the country.

7:50AM GMT 28 Nov 2012
Moments before the meeting between the French president and steel tycoon Lakshmi Mittal, Mr Hollande said that nationalising ArcelorMittal's plant in northeastern France remained on the table.

"The nationalisation is part [...] of the discussion," he said.

The talks lasted an hour, and brought little progress. A presidential statement said that "discussions between the state and the company [would] continue" until Saturday, to try and find a new investor for the site.

Mr Hollande's nationalisation warning came as forty MPs from his Socialist party said they favoured a temporary takeover by the French state of ArcelorMittal's plant in Florange.

"Mittal does not respect our country," a joint statement by the parliamentarians said, adding that his interests "were clearly not that of France, of its industrial fabric and its workers."

----ArcelorMittal has said that two blast furnaces at Florange, which were damped down for 14 months prior to their full closure, were uncompetitive in a tough trading climate, partly because they are too far from ports for transportation.

The company gave the government two months, which expires on Saturday, to find a buyer for them. The government says it has two offers, but only for the entire Florange site including other facilities which ArcelorMittal wants to retain and keep operating.

It has warned that nationalisation of the Florange facilities would threaten the viability of all of its activities across France, where it employs 20,000 people.


Below, more on Monday’s Greek “rescue” package. Take pity on the hapless, unloved Greek serfs. After spending most of 2012 unrescued, trapped by the American presidential election cycle, now the wretched serfs find themselves trapped in the German general election cycle. Forget saving Athens, saving Chancellor Merkel’s re-election comes first. More of the insanity of the United States of Europe.

"I would not join any club that would have someone like me for a member."

Groucho Marx.

Euro Zone States Face Losses on Greek Debt

Published: Wednesday, 28 Nov 2012
Eurozone governments could be forced to accept losses on their rescue loans to Greece after Monday’s late-night deal to overhaul its bailout failed to agree how to reach new debt targets for the struggling country, according to documents seen by the Financial Times.

After three gatherings in two weeks, euro zone finance ministers agreed to release a long-delayed 34.4 billion euro ($44.4 billion) aid payment to Athens. But the series of measures agreed, which could relieve Greece of billions of euros in debt by the end of the decade, do not go far enough.

The measures to be implemented immediately as part of the deal will only lower Greece’s debt levels to 126.6 per cent of economic output by 2020, not the 124 per cent announced by euro zone leaders, according to the documents and senior officials.

Instead, euro zone governments postponed further debt relief — amounting to 2.7 percentage points of gross domestic product — to a later date, when Greece begins taking in more money than it spends, not counting interest payments.

Officials said Greece could reach such a “primary budget surplus” by the end of 2014, pushing the additional debt relief to after next year’s German elections. Because the deal already cuts interest on loans to just 50 basis points above interbank lending rates, any further cuts would almost certainly force losses on to euro zone creditors.

“That is sort of gaining hold, but it’s not fully acknowledged because of the political cycle in Germany,” one senior official involved in the discussions said of losses on bailout loans. “It is there, but it’s there in a way [Angela] Merkel cannot be pinned down that you’ve committed to it.”

Wolfgang Schaeuble, Germany’s finance minister, on Tuesday acknowledged that he and his euro zone counterparts had agreed to further debt relief when Greece reaches a primary budget surplus.

The Fed is out of bullets says, Warren Buffet, the sage of Omaha, and America is likely going over the “fiscal cliff.” Stay long physical gold and silver. Mr. Buffet can buy in the best financial advice on the planet, and is one of the few investors on earth with little reason to talk up his book. If he thinks that the Fed is out of ammo, it probably is, with all the bad things that will flow as a consequence in 2013.

"Let's make sure that there is certainty during uncertain times in our economy."

President George W. Bush

Warren Buffet: Fed has no more bullets left to stimulate US economy

The Federal Reserve has "used up its bullets" to stimulate the US economy, Warren Buffet has said, as he warned that "D-Day" was here for politicians to strike a deal to solve the country's "fiscal cliff" problem.

10:52AM GMT 28 Nov 2012
The billionaire investor said that it was now up to Congress to help boost America's flagging recovery.

Speaking in an interview broadcast on Radio 4's Today Programme, he said: "I think [the Fed] has used up its bullets pretty much. When you drive interest rates to zero and when you buy almost a trillion dollars worth of securities and how you start buying longer-term securities -- you've done your part. I mean, Ben has given up the office."

Mr Buffett also warned that the deadlock between Republicans and Democrats over a package of tax rises and spending cuts that will take effect in January if politicians fail to reach a deal could go on until the eleventh hour.

"We've kicked it down the road for a long time," said Mr Buffett, "but D-Day is here and that doesn't mean we'll get the fiscal cliff problem solved by December 31.

"I hope we do, but it may go over into January. But we are going to have to address important policy questions. I think Congress knows it, I think the president knows it, and certainly the American public knows it.

Germans are flummoxed by humor, the Swiss have no concept of fun, the Spanish think there is nothing at all ridiculous about eating dinner at midnight, and the Italians should never, ever have been let in on the invention of the motor car.

Bill Bryson

At the Comex silver depositories Wednesday final figures were: Registered 33.90 Moz, Eligible 106.45 Moz, Total 140.35 Moz.  

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

Today, the scoundrels of Argentina getting set to default yet again, and the dangerous crooks of modern Russia.

“It's strange that men should take up crime when there are so many legal ways to be dishonest.”

Al Capone

Fitch downgrades Argentina and predicts default

Credit rating agency Fitch has downgraded Argentina, which is locked in a court battle in New York over its debt, and said the country would probably default.

11:55PM GMT 27 Nov 2012
Fitch cut its long-term rating for Argentina to "CC" from "B," a downgrade of five notches, and cut its short-term rating to "C" from "B". A rating of "C" is one step above default, AP reported.

US judge Thomas Griesa of Manhattan federal court last week ordered Argentina to set aside $1.3bn for certain investors in its bonds by December 15, even as Argentina pursues appeals.

Those investors don't want to go along with a debt restructuring that followed an Argentine default in 2002. If Argentina is forced to pay in full, other holders of debt totaling more than $11bn are expected to demand immediate payment as well.

Argentine politicians, even those opposed to President Cristina Fernandez, have nearly unanimously criticized the judge's ruling as threatening the success of the debt relief that enabled Argentina to grow again.

----Argentina is in a deepening recession and is grappling with social unrest. Besides the court case, Fitch cited a "tense and polarized political climate" and public dissatisfaction with high inflation, weak infrastructure and currency.

Fitch also said that Argentina's economy has slowed sharply this year.

Swiss prosecutors say death of Russian whistle blower will not derail huge fraud investigation

Alexander Perepilichnyy, a 44-year-old businessman who left Russia three years ago, was found dead outside his luxury mansion on an exclusive private estate in Surrey two weeks ago

Wednesday 28 November 2012
Prosecutors in Switzerland say the sudden death of a Russian whistle blower who was helping them uncover a money laundering network will not derail their investigation.

Alexander Perepilichnyy, a 44-year-old businessman who left Russia three years ago, was found dead outside his luxury mansion on an exclusive private estate in Surrey two weeks ago. 

The Independent revealed today that he was helping investigators uncover a network of Swiss bank accounts that were used by Moscow tax officials who became incredibly wealthy in the immediate aftermath of an enormous fraud that cost Russian tax payers £230m.

In a statement the Swiss Attorney General’s office told The Independent that the investigation remained on-going and that prosecutors were “still hearing [from] different witnesses”.

----Mr Perepilichnyy brought Swiss prosecutors a treasure trove of information earlier this year which is showed how a number of tax officials in Moscow used shell corporations and Swiss bank accounts to move millions of dollars and pay for luxury properties in Dubai and Montenegro.

Months earlier the same officials approved of a £230m tax rebate for a company that was once owned by Hermitage Capital Management, a British investment fund. Ownership of the subsidiaries of Hermitage had been illegally transferred using stolen corporate seals months before the tax rebate was applied for. The money disappeared into a little known Moscow bank which was liquidated soon afterwards.

Sergei Magnitsky, a Russian lawyer, was hired by Hermitage to investigate the scam. After months of forensic examinations he publicly pointed the finger of blame at a network of Russian Interior Ministry officials and underworld figures. Rather than investigate the fraud, police arrested Magnitsky and handed him over to the very men he had accused. He died nine months later in November 2009 after months of brutal treatment and deliberately withdrawn medication.


O’ Reilly went to trial for armed robbery. The jury foreman came out and announced, "Not guilty." "That's grand!" shouted O’ Reilly. "Does that mean I can keep the money?"

The monthly Coppock Indicators finished October: 

DJIA: +92 Up. NASDAQ: +99 Up. SP500: +102 Up.  Still time for the Santa Clause rally?