Baltic Dry Index. 863 -05
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
"There is the plain fool who does the wrong thing at all
times anywhere, but there is the Wall Street fool who thinks he must trade all
the time."
Jesse Livermore.
It is time to run to the bunkers. In
Euroland, a very nasty behind the curtains war of words has broken out between
Germany and France. Each country already distrusted the other, Merkozy was
never much more than a façade of amity and trust. Now distrust has moved on
into loathing. France sees most of Club Med’s problems coming from Germany,
while German politicians have woken up to the very real probability of old
socialist, unreformed France, being the country most likely to nuke the whole one
size fits all, Bilderberger euro project. With a new Eurosceptic party about to
compete in Germany’s general election in September, events in Club Med now
threaten the Merkel re-election campaign.
Elsewhere, the great Asian wobble seems to be
picking up speed. The Great Disconnect, fuelled by mountains of new QE cash in
the west plus Japan, continues to grow. Another 1987 brush with reality now
lies ahead. My guess is it happens at some point this summer. Others think it
more likely to come in the usual crash season of autumn. The optimists think it
unlikely to happen at all, until after the Fed scales back its QE programs and Japan
is deep into its two year program of vast monetisation. Unlike Winston
Churchill, I am not an optimist. Optimism under Churchill brought us Gallipoli
and Norway, and under Hitler brought Germany Stalingrad, and war against all
comers on many fronts. Like it or not, history teaches that eventually optimism
gets replaced with realism. With stock indexes making or near all-time highs, a
scaling into few deep out of the money purchased puts looks an attractive idea.
For the more timid optimists, scaling into some synthetic double options from
here covers the possibility of the Fed and Japan’s QE programs triggering massive
asset inflation.
"My greatest discovery was that a man must study general
conditions, to size them so as to be able to anticipate probabilities. In
short, I had learned that I had to work for my money."
Jesse Livermore.
Germany accuses France of being 'Europe's biggest problem child'
A scathing German assessment of France's economic weakness – in which the country is labelled "Europe's biggest problem child" – has reopened divisions between Europe's two biggest powers.
A leaked
internal briefing from Angela Merkel's coalition partners refers to President
Francois Hollande as "meandering" and draws attention to France's
"highly regulated labour market and highly developed social security
system".
Details
of the briefing note were published alongside an internal assessment from the
German economics ministry, which listed the French economy's failings.
The
ministry's paper said: "French industry is increasingly losing its
competitiveness. The relocation of companies abroad continues. Profitability is
meagre."
Relations
between France and Germany are chilly after Mr Hollande's Socialist party
accused Mrs Merkel of "egotistical intransigence" and called for
"democratic confrontation" with Berlin.
The
French Socialists' attack on the German chancellor, which was toned down after
a draft was leaked to the press, brought accusations from the French
centre-right that Mr Hollande's party had been gripped by Germanophobia.
----However, the memos – which were leaked to the financial newspaper Handelsblatt – reveal Berlin's harshly critical private view of France's economic woes.
The
German economics ministry's briefing draws attention to France's high wage
costs.
It points
out that France has the "second lowest annual working time" in the
European Union, while its "tax and social security burden" is the
highest in the eurozone. It also warns that France has made too little
investment in research and development.
The
briefing by Mrs Merkel's partners, the Free Democrats, which has been
circulated within the German government, is likely to cause fresh tension
between the European partners by describing Mr Hollande's reform programme as
"meandering". The French president's approval ratings have fallen to
record lows since he was elected last May.
More
Eurozone risks Japan-style trap as deflation grinds closer
The eurozone is one shock away from a Japan-style deflation crisis after a key measure of prices fell to the lowest since the launch of the single currency.
The region’s
core inflation rate – which strips out food and energy – fell to 1pc in March.
This is far below expectations and leaves monetary union with a diminishing
safety buffer.
“The
eurozone is tracking the experience in Japan in mid-1990s. there is a very high
risk of a slide into deflation,” said Lars Christensen, a monetary theorist at
Danske Bank.
While
eurozone core inflation was slightly lower in the aftermath of the Lehman
crisis, the current figure is distorted by the one-off effects of VAT increases
and levies linked to austerity. Adjusting for these taxes, the rate is now
running at 0.4pc.
“The
European Central Bank [ECB] should be concerned. If there is another severe
shock, the eurozone faces a much bigger risk of falling into a deflationary trap,”
said Julian Callow, global strategist at Barclays.
“The danger is when
deflation combines with high debt and deleveraging and becomes toxic. That
raises the risk of a debt-deflation spiral. There are already signs of this in
southern Europe.”
Mr Callow
said nominal GDP – tracked by monetarists as the key indicator in sovereign
debt crises – fell 1.8pc in Spain and 1.2pc in Italy last year. This means that
the debt burden is rising fast on a contracting base.
David
Owen, from Jefferies Fixed Income, said the mix of falling inflation and an
ageing population risks pulling the eurozone into a “liquidity trap” where the
self-correcting mechanisms of the economy break down.
“This looks strikingly
similar to Japan 15 or so years ago,” he said.
Mr Owen
said the ECB cannot just “sit back and do nothing this week” at its meeting on
Thursday, and may ultimately have to launch full-blown quantitative easing.
Most
analysts expect the ECB to cut rates a quarter point to 0.5pc but there is
broad consent that this will do little to alleviate the credit crunch for
smaller firms in Spain, Italy and Portugal, where borrowing costs are two to
three times higher than costs for North European rivals.
Data from
the ECB show that the eurozone’s “broad” M3 money supply contracted in March,
while private loans fell by 0.8pc
More
Eurozone unemployment climbs to record high of 12.1pc
Pressure is mounting on the European Central Bank to cut interest rates on Thursday after data showed that unemployment hit another record high in March while inflation fell to a three-year low.
More than
19m people were unemployed in the eurozone in March, according to Eurostat,
which said jobless rates had “risen markedly” since last year. The unemployment
rate crept up to 12.1pc in March, from 12pc in February, while the wider
European Union jobless rate held steady at 10.9pc.
The
biggest rise in unemployment was in Greece, where the jobless rate jumped by
almost a percentage point in one month to 27.2pc. Youth unemployment in the
bailed-out nation crept closer to 60pc, with 59.1pc of 16 to 24-year-olds out
of work in January, compared with 58.4pc in December.
Many
economists now expect the ECB to cut its benchmark interest rate from an all-time-low
of 0.75pc to 0.5pc to help ease funding conditions.
President
Mario Draghi raised the spectre of a rate cut when he revealed that there had
been an “extensive” discussion at last month’s policy meeting.
Marie
Diron, senior economic adviser at Ernst & Young, said: “It now seems pretty
certain that [the ECB] will lower interest rates and we hope that some
additional non-conventional measures will be announced to address credit
constraints for SMEs and in peripheral countries.”
----Meanwhile, Spain
sank deeper into recession, official data confirmed yesterday, as economic
output contracted in the first three months of 2013 for the seventh successive
quarter. The National Statistics Institute said the eurozone’s fourth largest
economy shrank by a further 0.5pc between January and March deepening a
double-dip recession suffered since mid-2011.
More
Dollar pressured, awaits Fed policy statement
TOKYO |(Reuters) - The dollar eased on Wednesday as investors warily awaited the outcome of the U.S. Federal Reserve's policy meeting later in the day, while expectations for the European Central Bank to cut interest rates on Thursday capped the euro.
Financial bookmakers were predicting London's FTSE 100 .FTSE would open nearly flat, with most other European markets shut for the Labor Day holiday.
U.S. stock futures were also little changed --
hinting at a subdued Wall Street open after the Standard & Poor's 500 Index
.SPX
settled at an all-time high on Tuesday.
More
China Manufacturing Gauge Signals Slowdown Persisting: Economy
By Bloomberg News - May 1, 2013 4:26 AM GMT
China’s manufacturing
expanded at a weaker pace in April in a sign that the slowdown in the world’s
second-largest economy is extending into the second quarter. The Purchasing Managers’ Index was at 50.6, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compared with the 50.7 median forecast of 31 analysts in a Bloomberg News survey and a March reading of 50.9. Readings above 50 signal expansion.
Australian
stocks fell and copper declined as the report increased concern that demand
from China for commodities will slow. The figures add to data showing growth in
industrial companies’ profits decelerated in March and Aluminum
Corp. of China Ltd., the nation’s biggest producer of the lightweight metal,
having a sixth straight quarterly loss.
----A private survey of China manufacturing by HSBC Holdings Plc and Markit Economics had a preliminary reading of 50.5 for April, down from the final level of 51.6 for March, a report showed last month. The final figure will be released tomorrow.
Signs of slowing expansion are spreading across Asia. Japanese and South Korean industrial output was less than estimates in March and Taiwan’s first-quarter growth was half the forecast pace as weakness in global demand limits recoveries in Asian economies, reports showed yesterday.
----A gauge of new orders in China manufacturing fell to 51.7 from 52.3 in March, while an index of new export orders dropped to 48.6 from 50.9 and the reading on inventories of finished goods declined to 47.7 from 50.2, according to today’s data, based on a survey of businesses.
More
Watchmakers fret over China sales slump
BASEL |(Reuters) - Luxury watchmakers expect sales growth to slow this year as a recovery in the United States and buoyant Middle East demand fail to offset a China slump more deep-rooted than a temporary blip caused by anti-corruption moves.
The heads of Swatch Group's (UHR.VX) biggest brand Omega and LVMH (LVMH.PA) flagship brand TAG Heuer as well as high-end independents Patek Philippe and Ulysse Nardin all said demand in Greater China had tumbled, particularly for high-end models.
A weaker gold price, which hit a two-year low this month after gaining 52 percent over the last three years, was no help as most manufacturers had hedged their purchases.
"I bought my gold a year in advance," Walter von Kaenel, head of Swatch's midrange brand Longines told Reuters at the Baselworld watch fair this week.
Omega chief Stephen Urquhart said a lower gold price also made gold watches less appealing, particularly for those consumers who were buying them as an investment.
Luxury watch makers have expanded at breakneck speed in recent years in Greater China, which includes Hong Kong, Macao and Taiwan as well as the mainland - and enjoyed double-digit sales growth rates there until last summer.
But their latest comments reinforce the view that the region, to which luxury group Richemont (CFR.VX) is the most exposed, is being hit by more than the government's crackdown on gifts for favours, which often involve watches, and is feeling the draught from a wider slowdown in the world's second-largest economy.
"All watches costing more than 1,800 francs are having difficulties in China at the moment," said TAG Heuer Chief Executive Jean-Christophe Babin, soon to be head of LVMH's jewelery brand Bulgari.
TAG Heuer's watches sell for an average price of 4,500 Swiss francs and Omega's and Patek's price tags are well above that.
More
There
came the awful day of reckoning for the bulls and the optimists and the wishful
thinkers and those vast hordes that, dreading the pain of a small loss at the
beginning, were now about to suffer total amputation – without anaesthetics.
Jesse
Livermore.
At the Comex silver depositories Tuesday final figures were: Registered 45.94
Moz, Eligible 120.104 Moz, Total 166.05 Moz.
There was a massive 8.6 Moz transfer from Eligible to the deliverable
Registered category at JPMC. What do they know that we don’t.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Is Slovenia the next Cyprus? Why leave any money in a Slovenian bank to
find out. Getting out first is the only game in town, following the EU’s
disastrous bungling of Cyprus. Optimists should gladly leave their money in
Slovenia and buy more of their bonds for the high yield. The rest of us will
watch from the side-lines to see how they fare.
There is nothing like losing all you have in the world for
teaching you what not to do.
Jesse Livermore.
April 30, 2013, 5:39 p.m. ET
Slovenia Junks Its Bond Sale After Downgrade
Slovenia stunned investors when it halted a bond sale just before Moody's Investors Service MCO +1.94% downgraded the country's debt to "junk."Slovenia was wrapping up a successful sale of five- and 10-year dollar-denominated bonds when it announced it was calling off the deal. A little over an hour later, Moody's said it was cutting Slovenia's sovereign rating to Ba1 from Baa2, downgrading the country to below-investment-grade status.
The
government said it would proceed with the bond issue. However, Slovenia will
likely see higher borrowing costs, some investors said. Now that its bonds are
rated junk, they will be off limits to investors that buy only investment-grade
debt. Slovenia's 10-year bond yielded 5.847% on Tuesday, compared with 5.69% a
day earlier. Yields move inversely to prices.
Before it
was halted, the bond sale was proceeding well, with orders amounting to $6
billion, according to people familiar with the deal. Slovenia was looking to
issue up to $3 billion between the two bonds. The country had marketed a
five-year bond with a yield likely to be about 5% and a 10-year bond at about
6.125%.
Moody's said it
was concerned about Slovenia's undercapitalized banking sector and
deteriorating government balance sheet. There was no immediate trigger for the
downgrade, said Yves Lemay, managing director for Europe-Middle East-Africa
sovereigns at the ratings firm. Moody's followed its usual procedure of
informing Slovenia's government before publicly announcing the downgrade.
More
After a man makes money in the stock market he very quickly
loses the habit of not spending. But after he loses money it takes him a long
time to lose the habit of spending.
Jesse Livermore.
The monthly Coppock Indicators finished April:
DJIA: +133 Up. NASDAQ: +139 Up. SP500: +170 Up. Another Fed bubble underway. How high is high?
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