Wednesday 9 January 2013

Eurozone: The Good And Bad.



Baltic Dry Index. 734 - +22

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

“I have always found the word ‘Europe’ on the lips of those who wanted something from others which they dared not demand in their own names!”

German Chancellor Otto von Bismarck, 1880

There was good and bad news for snake bit Euroland yesterday, though I think the bad news outweighed the good. As such we’ll open with the bad reality surfacing again, after last week’s optimistic spin that the European never ending crisis had ended. 

Unemployment in the Eurozone just keeps moving relentlessly higher. The death spiral for the young is now claiming slightly more than one in every two in the youth category in Club Med. The euro simply isn’t working for over half of Europe, with more and more hapless Europeans getting crushed with each passing month. Now even the Bilderberger, elitist Davos set can read the writing on the wall. Their giant fiat euro, top down imposed, hare brained experiment, went off half cocked. Now the damage is on view in plain sight, yet Euroland’s bureaucrats and politicians struggle on in deep denial.

“This will provide an engine, an example that will allow Europe to go faster, further and better.”

French President Jacques Chirac. 2003.

Brussels fears 'poverty trap' for half of Europe as North-South gap widens

Unemployment in the eurozone jumped to a record high of 11.8pc in November as the region slid deeper into recession, with alarming rises across the Mediterranean that threaten extreme social distress.

The jobless rate has reached an all-time high of 26.6pc in Spain, rising to 56.5pc for youth. It is much the same picture in Greece, where unemployment has spiked from 19pc to 26pc over the past year as austerity bites in earnest, with Portugal not far behind as it follows suit with draconian cuts. There are now 18.8m people looking for work across the eurozone.

“A widening gap is emerging,” said Laszlo Andor, the European Social Affairs Commissioner. “Peripheral states appear to be caught in a downward spiral of falling economic output, rapidly rising unemployment and eroding individual incomes.”

Mr Andor’s unemployment report said the welfare systems of southern Europe are unravelling as governments slash benefits, leaving families exposed to the full brunt of the crisis. The “automatic stabilisers” are no longer functioning properly.

He said there is a rising risk that the long-term jobless will fall into an “enormous poverty trap” if the crisis is allowed to drag on. “Severe material deprivation” has surged to 31pc in Latvia and 44pc in Bulgaria, casting doubts on claims that these two euro-pegged countries have shaken off the crisis .

Spain’s long-term jobless now number 2m, while the country’s GINI coefficient measuring inequality has risen from 31.2 to 34 since the crisis began.

The report said the biggest single cause of the jobs crisis is a “demand shock” to the Euroland economy, deeming other factors to be “less relevant”. The findings reflect deep dissent within the EU policy apparatus over the contractionary policy settings, and undercut claims by hard-liners that labour reforms in the Club Med bloc are enough to pull the region out of slump.

Mr Andor’s grim warnings came a day after Commission chief Manuel Barroso claimed the eurozone crisis had “essentially been overcome”.

Graeme Leach, from the Institute of Directors, said the European Central Bank has bought time with its bond-buying pledge but the deeper economic crisis grinds on with a “terrifying” human cost. “The figures are shockingly bad. This saga is far from over,” he said.

The North-South gap makes it very hard for the ECB to run monetary policy for the whole bloc.
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Eurozone meltdown 'cannot be discarded' in dangerous mix of global risks, warns World Economic Forum

A dangerous mix of fragile economies and extreme weather has increased global risks, with a meltdown in the eurozone still a threat, the World Economic Forum said.

11:17AM GMT 08 Jan 2013
In its Global Risks 2013 report, the WEF said eurozone instability will weigh on world prospects in coming year and the threat of "systemic financial failure cannot be completely discarded".

The report warned that anti-austerity protests across the eurozone and the election of “rejectionist” governments this year could bring the crisis to a head, "potentially destabilising the global financial system".
As the report came out, European Union data showed the unemployment rate across the troubled eurozone rose to a record 11.8pc in November, with those out of work now nudging 19m and youth unemployment at 24.4pc.

The survey of more than 1,000 experts and industry leaders fears that persistent global economic fragility is diverting attention of governments from longer-term solutions by limiting resources and investment.

Its more pessimistic outlook "reflects a loss of confidence in leadership from governments", said Lee Howell, the WEF managing director responsible for the report.

The 80-page analysis of 50 risks for the next 10 years comes ahead of the WEF's annual meeting in the Swiss ski resort of Davos from January 23 to 27, which brings political, business and financial leaders together to consider the planet's future.

Respondents said the world was more at risk as persistent economic weakness sapped our ability to tackle environmental challenges.

It also highlighted a widening gap between rich and poor and unsustainable government debt as the top two most prevalent risks – as they were last January.
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Irish house prices to fall another 20pc, warns Fitch

Irish house prices could fall a further 20pc and inflict stiff losses on holders of mortgage bonds, with a growing risk of property defaults across the eurozone periphery, according to Fitch Ratings.

The agency said the foreclosure process was now at the mercy of politics in Ireland, as well as Greece and Spain, as each takes steps to prevent repossession of homes by lenders.

This has already led to a surge in 90-day arrears to 11.3pc in Ireland, where distressed borrowers no longer feel constrained to pay their mortgages, knowing that they are safe and can expect big debt write-offs under new insolvency laws. “There is a moral hazard concern,” said Fitch.

A decree suspending home evictions has also raised the same risk for lenders in Spain, while Greece has suspended foreclosure sales on main homes.

Fitch raised “substantial concerns” about the prospects for housing debt across the EMU periphery, including Italy, as prices tumble and banks ration lending.
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In better European news, Germany is going to boost wages this year, say the German unions, and politicians on all sides. This is supposed to happen just as German growth has started slowing significantly. German employers might not see it quite so clearly, but if it happens it will ease some of the scale of the Club Med internal devaluation. My guess is it will all be too little too late. Jam tomorrow doesn’t feed a starving man today. In any case with France, the number two Eurozone economy, doing its best to blow up the Eurozone in 2013, any German wage inflation relief is likely to become irrelevant, even were it to happen.

“Our future begins on January 1 1999. The euro is Europe’s key to the 21st century. The era of solo national fiscal and economic policy is over.”

German Chancellor Gerhard Schröder, December 31, 1998

Possible Boost for EU Economy

Germany Gears Up for Big Pay Hikes

By Sven Böll and Janko Tietz 01/08/2013
German trade unions plan to demand big pay increases this year and look set to get their way. Economists say that after years of wage moderation, it is high time that German firms agreed to bigger hikes -- not least because this would help the entire European economy.

---After metalworkers' union IG Metall fought for improvements in the treatment of temporary workers and more assistance for trainees in the last bargaining round, the union's main focus in the new round beginning in May will be on money. "Our demand will focus on a decent pay increase," says IG Metall regional director Meinhard Geiken. Michael Sommer, head of the German Federation of Trade Unions (DGB), is convinced that "the people who keep the country running and generate its wealth deserve to get their fair share."
Although it sounds like union ritual, the labor organizations are getting more support than they have in a long time. For more than a decade, it was considered reasonable in Germany to keep wage increases moderate at best, in light of high unemployment. But now the country is getting used to a new logic, namely that Germany, more than any other European economy, can afford pay increases.

The German economy got through the euro crisis in much better shape than almost all of its neighbors. Employment, at more than 41 million, is at the highest level ever recorded, and many companies have recently reported record profits.

Nevertheless, most employees have less disposable income, when adjusted for inflation, than they did 10 years ago. "The working world has to be reorganized in 2013," says Stefan Körzell, the DGB chairman for the two states of Hesse and Thuringia. "We cannot allow more and more people to be poor despite being employed."

----Politicians from the ruling center-right coalition are also tapping into the general sentiment. Labor Minister Ursula von der Leyen already called for a "noticeable increase" last year, and even Finance Minister Wolfgang Schäuble agreed in principle. Rising wages, he argued, "also contribute to eliminating imbalances within Europe."

Essentially, this means that in times of the euro crisis, Germany's collective bargaining negotiations have a different meaning than during the deutschmark era. Many economists agree. When employers and union officials in Germany sit down to hammer out their wage deals, they have to look beyond the economic situation in Germany and think of growth and employment in the entire euro zone.
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 In better news for the Eurozone, if not exactly good news for Japan, the European Stability Mechanism is getting a lifeline tossed in from Japan.

“The euro is a sickly premature infant, the result of an over-hasty monetary union.”

German Opposition leader Gerhard Schröder, March 1998

Japan to buy EU bailout bonds to ease eurozone crisis

Japan's new finance minister said Tokyo would buy bonds issued by Europe's permanent bailout fund to help soothe the eurozone's debt problems and stabilise the under-pressure yen.

1:47PM GMT 08 Jan 2013
Taro Aso said the new government would tap foreign exchange reserves to pay for the bonds, but declined to say how much it planned to buy.

A finance ministry official told AFP the bond buying could start as early as Tuesday, when the European Stability Mechanism (ESM) begins selling the paper, adding that Japan "will make a purchasing decision after seeing the terms of the issuance".

Japan, which counts Europe as a major export market, previously bought billions of dollars in bonds issued by the ESM's predecessor, the European Financial Stability Facility.

"Stabilising Europe's financial crisis will eventually contribute to the stability of currency (prices) including the yen, and so we plan to keep purchasing ESM bonds using foreign reserves," Mr Aso said.

More

We end for today with more on Japan. Today with news that Japan plans to boost military spending by $2.1 billion over the next few months, Bloomberg covers in depth the looming East China Sea “island war.”  Stay long physical precious metals. For now we are only in the Japan v China cold war. But Japan seems to be gearing up for a hot war. Like Britain in 1941, Japan seems to be ready to fight to the last American.

China-Japan Dispute Takes Rising Toll of Top Asian Economies

By Bloomberg News - Jan 9, 2013 1:37 AM GMT
The last time a dispute between Japan and China blew up in 2010 over eight uninhabited islands, the economic fallout lasted less than a month. This time, the spat is prolonging a recession in the world’s third-largest economy.

Four months after Chinese consumers staged a boycott of Japanese products over the islands in the East China Sea, sales of Japanese autos in China have yet to recover, Chinese factories began to favor South Korean component suppliers, and the U.S. has displaced China as Japan’s largest export market.

---- As China’s confidence in asserting its territorial claims has grown, and trade between the two nations has tripled since 2000 to more than $300 billion, the commercial cost of failing to resolve the dispute keeps rising. The latest flare-up came after property developer Kunioki Kurihara sold three of the islands to the Japanese government for 2.05 billion yen ($23 million) in September, a transaction Xi Jinping, the new head of the Chinese Communist Party, called “a farce.”

The fallout from the sale may have cut Japan’s growth in the latest quarter by about one percentage point, JPMorgan Chase & Co. estimated. That would be enough to keep the economy in recession after two quarters of contraction up to Sept. 30. Gross domestic product may have shrunk an annualized 0.5 percent in the final three months of 2012, according to the median forecast in a Bloomberg News survey.

---- The islands offer the prospect of rich fishing grounds, potential oil reserves and a strategic military outpost in the sea between China, Japan and Taiwan. That’s overshadowed economic ties that Jesper Koll, head of equity research at JPMorgan in Tokyo, called “a match made in heaven.”

---- China’s official Xinhua news agency on Dec. 2 criticized the U.S. Senate’s approval of an amendment to show the islands fall under a U.S.-Japan defense treaty, calling it a “disturbing message” to the world that the Senate is seeking an escalation of tensions between China and Japan.

“The row has changed the landscape of China-Japan relations,” said Taylor Fravel, a professor at Massachusetts Institute of Technology who specializes in Chinese politics. “As a territory dispute, it’s prone to spirals of escalation.”

---- “As Japan’s politics turn decisively to the right, more and frequent spats between Japan and China are expected,” said Liu Li-Gang, chief economist for Greater China at Australia and New Zealand Banking Group Ltd. who used to work for the World Bank. “Both economies will lose in the end. Japan will lose a big market, and China will not be able to leverage on Japan’s technology and investment for growth.”
More.

The global economy has seen debt growing faster than income for the past decade. It is obviously not sustainable. After the 2008 global financial crisis the pattern has continued with debt formation shifting to the government. Now the fiscal crisis is engulfing Europe, Japan and the United States. Government debt can’t grow fast in the future.

Andy Xie. Caixin Online January 8, 2013.

At the Comex silver depositories Tuesday final figures were: Registered 39.52 Moz, Eligible 110.063 Moz, Total 149.58 Moz.  


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

Today, more on the fraud of global warming, man-made or not. Carbon taxes anyone? Carbon trading schemes perhaps?

Global warming at a standstill, new Met Office figures show

The Met Office has downgraded its forecast for global warming to suggest that by 2017 temperatures will have remained about the same for two decades.

A new scientific model has revised previous figures for the next five years downwards by around a fifth.
The forecast compares how much higher average world temperatures are likely to be than the “long-term average” from 1971-2000.

It had been thought that this would be 0.54C during the period 2012 -2016 but new data puts the figure for the 2013-2017 period at 0.43C.

This figure is little higher than the 0.40C recorded in 1998, the warmest year in the Met Office Hadley Centre’s 160-year record – suggesting global warming will have stalled in the intervening two-decade period.
However, it is thought that factors such as ocean current patterns may be behind the slowdown and scientists say the “variability” in climate change does not alter the long-term trend of rising temperatures.

The new annual forecast, published on December 24, is the first to make use of the Met Office’s latest climate model, HadGEM3, which it said “includes a comprehensive set of improvements based on the latest scientific understanding”.

It suggests that global average temperature will remain between 0.28C and 0.59C above the long-term average “with values most likely to be about 0.43C higher than average”.

----Figures from last November, showing that 2012 would be cooler than average for the past decade, had already indicated that global warming was slowing down.
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The monthly Coppock Indicators finished December:
DJIA: +100 Down. NASDAQ: +123 Unch. SP500: +129 Up.  All three indexes are giving different signals. A time for caution.

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