Baltic Dry Index. 841 -09
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
If economists could manage to get themselves thought of as
humble, competent people on a level with dentists, that would be splendid.
John Maynard Keynes.
Last week both the Bank for International
Settlements and the International Monetary Fund came out swinging against the Quantitative
Easing central bank policies of the Anglo-American economies, calling for the
end of their emergency stimulation money printing. The other side, the
monetarists, were very quick to hit back, raising the spectre of the Fed’s “error
of 1937.” In reality we are deep in unknown waters, since the fiat money financial
system blew up in 2007-2009. No one really has any idea how the Fed’s final
bubble ends.
If QE continues after the US economy gets back to
self-sustaining economic recovery, the USA will likely enter an age of a giant unstoppable
inflation. But if QE is withdrawn on a false recovery that isn’t really
self-sustaining, the Fed’s final bubble ends in a new crash like 1987 but much
bigger, making 2007-2008 seem like a child’s picnic. Neither side in the Big
Split is right nor wrong, it all probably comes down to timing and luck. What
altered the game for both camps was the arrival late last year of Japan into
the QE camp. Japan has put the QE programs on steroids, unleashing a full scale
trade war on the world’s leading global exporters. The BIS and IMF fear the
return of the 1930s “beggar thy neighbour” policy will end in a 1930 outcome. Stay long physical precious metals, the
antidote to the sake bit economics of the “Great Nixonian Error” of fiat money.
The only function of economic forecasting is to make astrology
look respectable.
John Kenneth Galbraith.
BIS and IMF attacks on quantitative easing deeply misguided warn monetarists
Monetarists across the world have warned that the International Monetary Fund and the Bank for International Settlements are making an historic error by calling for a withdrawal of emergency stimulus before the global economy has fully recovered.
The two
watchdogs launched broadsides against central bank largess last week. The BIS
-- the forum of central banks -- was particularly blunt, seeming to imply that
quantitative easing "does not work".
Critics
say this risks undermining the credibility of radical measures when more may
yet be needed. They fear central banks could repeat the mistake made in 1937
when the Federal Reserve lost its nerve and tightened too soon, tipping America
back into depression.
"The
BIS and the IMF are deeply misguided and risk doing the world a grave
disservice. The biggest threat right now is irrational fear of bubbles among
central banks," said Lars Christensen, a monetary theorist at Danske Bank.
"How
can they criticize the Bank of Japan for pulling the country out of 15 years of
deflation and the longest asset price collapse in modern history?"
Mr
Christensen said deflationary forces are stalking the global economy, making it
essential to offset budget cuts with monetary stimulus. The US is tightening
fiscal policy by 2pc of GDP this year, the most in half a century.
Columbia
Professor Michael Woodford, America's leading monetarist, told a London forum
recently that the global authorities must not repeat the mistake made by the
Bank of Japan when it drained money too fast, thinking the economy was safely
out of the woods. "All this talk of exit strategies is deeply
negative," he said.
A
Japanese official said his government will have firm words with the BIS and the
IMF, since the criticisms implicitly question the wisdom of premier Shinzo
Abe's reflation strategy -- deemed a success so far in Japan.
While
stock markets are booming, global recovery has not yet reached "escape
velocity", and remains at risk of stalling. The Dutch CPB index of world
trade contracted by 0.7pc in February. Commodity prices have been sliding since
September, a sign of potential deflation.
More
While the world debates America’s “Davos Spring”
economic recovery, with hints from the Fed that it’s real and the QE forever ends
this year, on the other side of the Atlantic it’s more like a German imposed “Davos
Winter.” Now “too big to fail or bail” France seems to be leading Euroland into
the final act in the death of the euro as we know it. Old socialist France is
on a collision course with Germany at next month’s EU “Great Leaders” summit,
with Italy and Spain heavily supporting France. A summer of EU confusion and contradiction
seems to lie ahead, with Europe’s never ending crisis bungling its way into the
final act. Remember German issued euro
notes are marked with an “X”. Don’t be fooled by lesser editions. Better still,
take advantage of the Fed’s fire sale price of gold to swap some of the dangerous
pieces of fiat money paper for something of great tangible value over the ages.
"If you don't trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"
Kenneth J. Gerbino
France has been ignoring its problems, now the chickens are coming home to roost
It is too early to be sure that the UK economy is finally emerging from the doldrums but the early signs look promising.
By
contrast, last week’s news from the eurozone was dire. Q1’s drop of 0.2pc in
GDP was the sixth successive quarterly contraction. It included the second
successive drop for France, thereby formally putting it in recession.
Throughout
my career, I have been fascinated by France and especially by the question of
how, given its anti-business culture, it has managed to do so well. I have
never solved the riddle to my full satisfaction but I have concluded that, when
a country is on the wrong path, it may take a long time for this to show up
unambiguously in its economic performance.
Moreover,
France has successfully bottled up its problems, thanks to a large and powerful
state and the practice of closet protectionism.
In
France, government spending accounts for 56pc of GDP, the highest in the
eurozone. To an extent that would be unthinkable in most other countries.
Consumers, businesses and government operate a buy-French policy on just about
everything from wines to cars. The result is that the effects of a loss of
competitiveness can be disguised. But now the chickens are coming home to
roost.
Since the
euro was formed in 1999, German unit labour costs have risen by only 10pc. At
the peak, Greek, Irish and Spanish costs were up by 62pc, 53pc and 43pc
respectively. But these countries have since managed to reduce their unit costs
so that the equivalent figures are now 41pc, 30pc and 28pc. Meanwhile, French
costs have continued to rise. They are now up by about 30pc since 1999, putting
France in the same position as Spain and Ireland.
What’s
more, France’s share of world exports stands at about a half of what it was
when the euro was formed. And export prospects don’t look good, not least
because France is heavily dependent upon the weak peripheral economies, which
take about 20pc of her exports, compared with only 13pc of Germany’s.
Admittedly, the employment picture is not as bad as in Spain or Greece. But it
is still pretty terrible. The unemployment rate is 11pc, compared with 5.4pc in
Germany. Over the past two years, the UK has created more than 400,000 jobs,
while France has created fewer than 90,000.
None of
this is surprising when you consider what French employers have to put up with:
the 35-hour week, “social charges” of about 50pc on top of wages, employment
protection legislation, which makes it almost impossible to sack anybody, high
levels of industrial action and punitive personal taxation. Every non-French
business person I know with operations in France says what a nightmare it is to
do business there.
More
We end this morning’s slightly shortened update, I
must later take my sister over to see her newest grandchild “Skye,” with yet another
warning sounding on China. If China is one “massive asset bubble” soon to be
coming to its end, it probably doesn’t much matter which side is right on the
Great Divide. The outcome will be the ending of the Great Nixonian Error of
fiat money, and an almighty scramble to bring in a saner, fairer, new financial order. That
unfortunately, will likey take the better part of a decade.
The process by which banks create money is so simple that the
mind is repelled.
John Kenneth Galbraith.
Meet the man who is betting against China
Carson Block, the founder of Muddy Waters Research, believes that China’s banks hold more toxic assets than Western peers did ahead of the 2008 financial crash .
He is
listened to by institutional investors, regulators and politicians but he
rarely speaks publicly. Last week, his analysis of Standard Chartered’s
exposure to China caused a tremble in its share price and its backers to leap
to the bank’s defence.
Carson
Block has broken his silence this weekend to reveal his fears for the global
economy. The secretive fund manager said the risks within China’s banking
system are more severe than those in Western financial institutions before the
crisis.
Mr Block,
founder of Muddy Waters Research, which has gained a reputation over the past
three years for its in-depth reports on financial irregularities in scores of
Chinese companies, said the country’s banks hold more toxic assets than their
peers in the West did ahead of the 2008 financial crash.
“We
believe that the domestic Chinese banking system is a mess, with an enormous
amount of bad loans, or loans waiting to go bad,” he told the Sunday
Telegraph.
“The
problems of China’s lenders are greater than those of the Western banks on the
eve of the financial crisis, but because they are state-owned, the government
will most likely print money and prop them up. This will of course have dire
consequences for China’s economy though.”
He added:
“Our view is that China is a massive asset bubble. This puts resource-based
emerging market economies and Australia, Canada and New Zealand at direct risk.
A China unwind will have significant knock-on effects in other developed
markets too, likely implicating liquidity and asset prices. The severity of the
effects in the rest of the developed world of course partly depend on the
timing of the unwind.”
Earlier
this month, Mr Block caused shares in Standard Chartered to fall and the cost
of insuring its debt to spike after he warned the emerging market-focused
lender had more risk on its balance sheet than the market commonly believed and
suggested that betting against the bank was a good way to profit from any
Chinese downturn.
More
Wealth, in even the most improbable cases, manages to convey the
aspect of intelligence.
John Kenneth Galbraith.
At the Comex silver depositories Friday final figures were: Registered 43.72
Moz, Eligible 120.30 Moz, Total 164.02 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
The world’s biggest commodities scandal continues to
grow. Now it’s reached the USA. The accusation is that the global oil mafia conspired to raise oil prices and did so since
2002. If true, a hidden tax on every person on the planet, rich and poor. If
true, even the one-percent have lesser fleas upon their back to bite them,
though there’s nothing “lesser” about the global oil mafia. True or not, the
Saudis have been saying for years that there’s plenty of oil around and that
there’s something wrong with the pricing mechanism. The question is, was what’s
wrong intentional or accidental? Where is the Sun King when he’s needed to
answer a few question?
My formula for success: rise early, work hard, strike oil.
J.
Paul Getty
Oil price probe widens, senator wants Justice Department help
LONDON/WASHINGTON |(Reuters) - A European probe into possible oil price manipulation expanded with the investigation of a small niche trading house in the Netherlands, while a key U.S. senator on Friday called for the Justice Department to join the investigation.
Dutch trading house Argos Energies, a mid-sized trading company that deals in physical oil products and owns storage facilities, was visited by inspectors from the European Commission on Tuesday, a source familiar with the investigation said on Friday.
The visit occurred on the same day that authorities raided the London bureau of pricing agency Platts, and the offices of Statoil, Royal Dutch Shell and BP in the biggest cross-border action since the probe into rigging of Libor benchmark interest rates.
In Washington, the chairman of the Senate's energy committee asked the Justice Department to investigate whether alleged price manipulation has boosted fuel prices for U.S. consumers.
"Efforts to manipulate the European oil indices, if proven, may have already impacted U.S. consumers and businesses, because of the interrelationships among world oil markets and hedging practices," Senator Ron Wyden, the chairman of the Senate Energy and Natural Resources Committee, wrote in a letter to Attorney General Eric Holder.
The U.S. Commodity Futures Trading Commission and Federal Trade Commission have both declined to comment on any role or coordination with EU authorities in the probe. U.S. politicians including Wyden often call for enquiries into issues that affect gasoline prices, although regulators are not obligated to take action.
A spokesman for the Justice Department would not comment on whether the agency would undertake a probe, but said it was reviewing Wyden's letter.
Authorities have sharpened scrutiny of financial benchmarks around the world since slapping large fines on some of the world's biggest banks for rigging interest rate benchmarks.
Over the past year many observers have noted the resemblance between the Libor self-reported benchmark and the journalist assessment-based methodology used to set most of the world's oil prices, but this week's investigation is the first indication that EU authorities are taking a harder look at the system.
The source said that inspectors were still on the premises of Argos Energies on Friday and that it was also the last day of the inspection at the company.
Argos Energies declined to comment.
More
Let me tell you
something that we Israelis have against Moses. He took us 40 years through the
desert in order to bring us to the one spot in the Middle East that has no oil!
Golda Meir
The monthly Coppock Indicators finished April:
DJIA: +133 Up. NASDAQ: +139 Up. SP500: +170 Up. Another Fed bubble underway. But when to jump
off before it ends?
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