Baltic Dry Index. 760 -07
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."
F.A. von Hayek
Today, more on when money dies. This time
from Bill Gross, of the world’s largest bond fund. Pimco. Stay long physical
precious metals. Back in 2001 after 9/11 when I first turned bullish on
precious metals and against fiat currency, questioning “what is money,” I was
almost alone in a wilderness populated by only a handful of “nuts” and
eccentrics. It was a casino bankster world of Greenspan bubbles, and Bernoccio promises
to do whatever it takes, including helicopter money drops, to keep banksterism
running. Now 4 years on from the crash of Bear Stearns and Lehman Bros., and
trillions and untold trillions of newly created global fiat money, the US mainstream
can now see that this all ends badly. The Great Nixonian Error of fiat money is
now just one Lehman away from disaster.
The Great Awakening hasn’t yet happened in
Europe, where the politicians and bureaucrats are still in deep denial that the
end of the euro is neigh. The Davos Spring barely lasted as long as it took to
say. France, Italy and Spain are all mired in scandal and on suicide watch. Greece,
Cyprus and Ireland on death watch. Russia has started the Euro retreat from
Moscow by refusing to buy more euro debt, and will almost certainly soon start
to sell off its existing holdings. Getting out early before the panic sets in
later in 2013. I think that it will be the Eurozone itself that turns into the
next Leman, and probably later this year as France becomes Spain. Germany,
Holland and Finland, can’t possibly bailout all the rest. Stay long physical
precious metals.
“It’s clearly a budget. It’s got lots of numbers in it.”
George w. Bush.
Credit Supernova!
----While there has been cyclical delevering, it has always
been mild – even during the Volcker era of 1979-81. When Minsky formulated his
theory in the early 70s, credit outstanding in the U.S. totaled $3 trillion.† Today,
at $56 trillion and counting, it is a monster that requires perpetually
increasing amounts of fuel, a supernova star that expands and expands, yet, in
the process begins to consume itself. Each additional dollar of
credit seems to create less and less heat. In the 1980s, it took four dollars
of new credit to generate $1 of real GDP. Over the last decade, it has taken
$10, and since 2006, $20 to produce the same result. Minsky’s
Ponzi finance at the 2013 stage goes more and more to creditors and market
speculators and less and less to the real economy. This “Credit New Normal” is
entropic much like the physical universe and the “heat” or real growth that new
credit now generates becomes less and less each year: 2% real growth now
instead of an historical 3.5% over the past 50 years; likely even less as the
future unfolds.
----If so then the legitimate
question is: how much time does money/credit have left and what are the
investment consequences between now and then? Well, first I will admit that
my supernova metaphor is more instructive than literal. The end of the global
monetary system is not nigh. But the entropic characterization is most
illustrative. Credit is now funneled increasingly into market speculation
as opposed to productive innovation. Asset price appreciation as opposed to
simple yield or “carry” is now critical to maintain the system’s momentum and
longevity. Investment banking, which only a decade ago promoted small
business development and transition to public markets, now is dominated by
leveraged speculation and the Ponzi finance Minsky once warned against.
So our credit-based financial
markets and the economy it supports are levered, fragile and increasingly
entropic – it is running out of energy and time. When does money run out of time?
The countdown begins when investable assets pose too much risk for too
little return; when lenders desert credit markets for other alternatives
such as cash or real assets.
REPEAT:
THE COUNTDOWN BEGINS WHEN INVESTABLE ASSETS POSE TOO MUCH RISK FOR TOO LITTLE
RETURN.
More
We end for the week with the reality of dying
Europe. Nations check in and then slowly fade away. The euro isn’t working
anymore as wealth generating medium. Instead for most it’s become a wealth
destroying mechanism, for transferring what little wealth is left, into the
German core.
German 'Wise Man' says Italy, Spain could face downturn as severe as Greece
Italy, Portugal and Spain could face economic downturns as
severe as that of Greece within a year as the combination of austerity and
recession exacerbate Europe’s sovereign debt crisis, Peter Bofinger, economist
and member of the German Council of Economic Experts, told RBS.
02/01/2013
Bofinger
said struggling European economies had been smothered by "wrong
policies" forcing them to narrow fiscal deficits to qualify for European
Union bailout funds. In the past three years, Greece, Ireland, Portugal, Spain
and Cyprus have all slashed spending and increased taxes to meet targets for
external aid. Such restrictive fiscal rules mean the situation will "get
worse before it gets better", Bofinger said.
"In
my view, these pro-cyclical policies are putting Europe on a downward spiral
that is not only affecting peripheral countries, but more and more affecting
core countries," Bofinger said at a meeting with RBS clients in the German
industrial city of Dusseldorf. "We should stop austerity measures until
the countries reach the bottom of the economic cycle; until we can see they are
back on a growth path. Only then should we talk about consolidation but not
under the current conditions."
The euro
area contracted 0.1 per cent in the third quarter of 2012 from the previous
three months, succumbing to recession for the second time in four years.
Italy’s gross domestic product fell 0.2 per cent in the same period and the
Spanish economy shrank 0.3 per cent, while Portugal completed its second year
in recession.
Greece
contracted for a 17th straight quarter in the three months to September, with
unemployment at 25.1 per cent. By the end of this year, Greek output will have
dropped by a fifth since it entered its recession in 2008.
Bofinger
said the region is likely to experience a prolonged period of contraction and
that this would spill over to countries such as France that had so far proved
resilient to the region’s sovereign debt crisis.
French
unemployment rose to a 13-year high of 10.2 per cent in the second quarter as
the economy shrank for the first quarter since 2009, before rebounding.
Germany, which sells about 60 per cent of its goods and services to European
Union countries, could fall into negative territory in the fourth quarter and
into 2013, Bofinger said.
Bofinger
said the decision by European Union budget enforcer Olli Rehn in November that
Spain will not need further spending cuts and tax increases even though it will
miss its deficit targets is an encouraging sign that fiscal policy may take a
new direction. However, he believes that any changes will come too slowly to
help struggling eurozone countries return to economic growth.
More
Europe’ master plan won’t work, says Bloomberg, and
I can only agree. When the ECB tries to pull rank on the Bundesbank, the Bank
of France, or the Bank of Italy don’t expect any of them to salute. Euros
anyone?
Germany Will Never Let ECB Shut Deutsche Bank
By Jonathan Weil Jan 31, 2013 11:30 PM GMT
The first people to tell the public that the world’s oldest bank was cooking
its books weren’t the bank’s executives, its outside auditors at KPMG, its
regulators at the Bank of Italy, or anyone else who had a duty to keep the
place honest. They were journalists with a good source: a stack of documents
from another bank that helped craft the scheme. About two weeks ago, Bloomberg News reporters Elisa Martinuzzi and Nicholas Dunbar broke the story that Deutsche Bank AG designed a derivative in December 2008 for Banca Monte dei Paschi di Siena SpA that hid the Italian lender’s losses before it sought a 1.9 billion euro ($2.6 billion) taxpayer bailout in 2009.
The ensuing scandal threatens to be a major issue in Italy’s elections in a few weeks. It’s also a reminder that bank regulators, no matter what country they’re from, have proven time and again to be unreliable protectors of the public interest. Remember this for next year, when oversight of Monte Paschi and Europe’s other large banks is scheduled to move to the European Central Bank.
Within hours of Bloomberg’s initial Jan. 17 story, Monte Paschi promised a review of the deal, dubbed Project Santorini, and other transactions. This week, the Bank of Italy acknowledged it checked Santorini as early as 2009 and spotted accounting problems with it the following year. Back then, the Bank of Italy was led by Mario Draghi, now the ECB’s president. Unfortunately for him, the Bank of Italy didn’t make Monte Paschi disclose the information while he was its governor
Italian prosecutors have opened a criminal investigation
that includes the Bank of Italy. And now Monte Paschi, founded in 1472, is
seeking a new 3.9 billion euro taxpayer bailout. Monte Paschi officials say it
won’t need more assistance after that. But who believes them?
----The single supervisory mechanism “would provide a timely and unbiased assessment of the need for resolution, while the single resolution authority would ensure actual timely and efficient resolution,” EU President Herman Van Rompuy wrote in a December paper titled “Towards a Genuine Economic and Monetary Union.”
This looks like a pipe dream when viewed through the prism of the Monte Paschi debacle. It’s hard to imagine that Monte Paschi would have been supervised better by the ECB, under Draghi’s leadership or someone else’s, than it was by the Bank of Italy when Draghi was its governor. (At least with the Bank of Italy, you can’t accuse it of being hopelessly uninformed.)
Yet skip ahead and envision a world in which the ECB was already responsible for supervision and had been legally anointed the euro area’s single resolution authority. Let’s also assume for argument’s sake that the ECB wanted to close Monte Paschi, and that Italy’s political leaders disagreed, as they very well might. It’s simply inconceivable that ECB officials would walk into Monte Paschi’s Siena headquarters, seize the bank with all its branches and shut it over Italy’s objections. And Monte Paschi isn’t even all that big a bank by European standards.
There isn’t a country in Europe that has shown itself willing to lose one of its national champion banks. Can you picture French politicians allowing the ECB to have the final say on closing a huge French bank such as Credit Agricole SA, which has 1.9 trillion euros of assets? Would Germany’s government really defer to the ECB on euthanizing Deutsche Bank, with 2 trillion euros of assets? No way.
More
"When paper money systems begin to crack at the seams, the run to gold could be explosive."
Harry Browne
At the Comex silver depositories Thursday final figures were: Registered 37.18
Moz, Eligible 117.39 Moz, Total 154.57 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today, the EU plays
dirty in an escalating effort to blackmail the UK to stay in the dying European
Union. Expect much more scare hype from Europe about job losses, dire
consequences, etc., as we get closer to a vote on a UK EU exit. In the end I
expect all the EU bankster scare tactics will work, the UK would likely vote to
remain in the EU when it comes to a vote.
But the UK is the
second largest contributor to the EU budget behind Germany. If the UK leaves
our contribution gets split among the wretched rest following the existing
formula, and reduces the UK budget deficit. But most of Club Med would need to
borrow the extra from the ECB. Effectively printing money to meet the EU budget.
The UK also runs a large trade deficit with Europe. Any retaliation by the EU
risks the UK stopping the trade deficit, simply by opening up the door to more lower
priced American, Chinese, and rest of the world goods. Canadian and South
America beef rather than Irish. NZ butter rather than French. US pasta rather
than Italy's. North African olive oil rather than Europe's. USA, RSA,
Australian, and South American wine, rather than French, German and
Italian. US grains rather than high priced Europe's. Japanese and Chinese cars rather
than European. Ireland, Italy, Greece probably France would fail. Inflation in
the UK would drop below the BOE's target, probably saving/re-establishing the UK’s
triple-A rating. The UK could also drop the business tax rate to be lower
than that of Ireland. London could become the offshore tax centre of
Europe. If they want the bankrupt banks let them have them. The UK is better
off without the rent seeking banksters.
“No
matter how big the lie; repeat it often enough and the masses will regard it as
the truth.”
John
F. Kennedy.
'Catastrophic' EU exit would leave City defenceless against regulatory attack
European regulators have the means to shut down key parts of London’s financial centre at a stroke if Britain left the European Union and would not hesitate to do so, leading central bank experts have warned.
Membership
of the EU single market is the UK’s only legal defence against an onslaught of
regulations aimed at forcing banks and fund managers to decamp to the eurozone,
they say.
“It would
be catastrophic and suicidal for Britain to leave. The UK would lose the
protection it currently enjoys as the eurozone’s major financial centre,” said
Athanasios Orphanides, a former member of the European Central Bank’s governing
council.
Mr
Orphanides said the ECB is already clamping down on payments, clearing and
settlement systems conducted in euros outside its jurisdiction, a move deemed
necessary to head off future crises. “The only thing stopping regulation that
would shift all such activities from London to the eurozone is the legal
protection the City enjoys in the EU,” he told The Daily Telegraph.
While
Britain is in a “very strong” position now as an EU member outside the
eurozone, this would evaporate the moment the UK tears up its membership card.
“The UK would be the big loser. I don’t believe it will happen because Britain
has the best technocrats in the world, and the British people are rational,” he
said.
Legal guerrilla
warfare is already under way and EU officials say privately that the struggle
for control over the financial industry is reaching a critical point, with
Britain rapidly key losing allies. The UK Treasury filed a case at the European
Court in late 2011 to block ECB plans that would limit euro transactions by
clearing houses if they take place outside EMU territory. It said large-scale
euro contracts should come under the sway of the ECB, since no other central
bank can issue the currency as a lender of last resort in an emergency.
Britain
said the plans breach single market laws allowing firms to set up a business
anywhere in the EU. The ECB has held fire for now but the case is still
pending. “This is a very real threat,” said Mats Persson from Open Europe.
Dino Kos,
a former head of markets at the New York Fed, said the City is more vulnerable
to a regulatory squeeze than people realise. “Governments have the power to
control where clearing happens, and therefore where trading happens. Central
banks can say businesses must have an onshore presence,” he told a Bloomberg
forum.
The prize
is big. Some 75pc of Europe’s over-the-counter derivatives trades take place in
London, and 40pc of global trades. The worldwide market is around $640 trillion
in notional contracts, churned constantly.
More
“The most effective way to destroy people is to deny and
obliterate their own understanding of their history.”
George Orwell.
Have a
great weekend everyone.
The monthly Coppock Indicators finished January:
DJIA: +106 Up. NASDAQ: +126 Up. SP500: +140 Up. All three indexes are giving the same signal,
up.
No comments:
Post a Comment