Monday, 30 September 2013

As Goes Washington

Baltic Dry Index. 2046 -67

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

“Under the spreading chestnut tree
I sold you and you sold me--”

George Orwell. 1984

The big story today and tomorrow, is what happens next in Washington D.C. If a large part of the US federal government shuts down, for how long and how deep determines what happens next. How the shutdown gets “fixed,” then becomes the next problem. A shutdown of a few hours in a giant economy like America’s, is a mere unimportant blip. A shutdown of a few weeks would risk starting up the Great Recession again. Complacently, our marketeers have all bet on a mere unimportant blip. If they’ve all bet wrong, crash season 2013 will come to rival 2008, 1987, 1929 and 1907, as the daisy chain of leveraged derivatives bets flies apart, and our world of unrepayable debt crashes down in a host of new London (your city here) whales.

 “Then the shit hit the fan.”

John Kenneth Galbraith.

First U.S. Shutdown in 17 Years at Midnight Seen Probable

By Roxana Tiron, Kathleen Hunter & Michael C. Bender - Sep 30, 2013 5:00 AM GMT
The U.S. government stands poised for its first partial shutdown in 17 years at midnight tonight, after a weekend with no signs of negotiations or compromise from either the House or Senate to avert it.

Republicans and Democrats in Congress say they don’t want a shutdown, though neither side is budging from their positions to avoid one. House Republicans want to delay President Barack Obama’s Affordable Care Act for a year and make other changes to the health law. The president and Democrats vow not to let that happen.

Hanging in the balance are 800,000 federal workers who would be sent home tomorrow if Congress fails to pass a stopgap spending bill before funding expires tonight. Standard & Poor’s 500 Index futures slid and Asian stocks retreated on concerns of a shutdown.

Asked yesterday if he thought the government would shut down, Illinois Senator Richard Durbin, the chamber’s No. 2 Democrat, said, “I’m afraid I do.”

----The fallout would be far-reaching: national parks and Internal Revenue Service call centers probably would close. Those wanting to renew passports would have to wait and the backlog of veterans’ disability claims could increase.

----Representative Kevin McCarthy of California, the No. 3 House Republican, didn’t rule out the possibility of passing a spending measure that lasts a few days to give the parties time to negotiate -- if Democrats are prepared to go along with some Republican efforts to trim back Obamacare.

 “We will not shut the government down,” McCarthy said on the “Fox News Sunday” program. “If we have to negotiate a little longer, we will continue to negotiate.”

Even that option seemed unlikely, as Democrats have said they aren’t interested in changes to Obamacare, first passed by Congress in 2010.

----In a government shutdown, essential operations and programs with dedicated funding would continue. That includes mail delivery, air-traffic control and Social Security payments.

A shutdown could reduce fourth-quarter economic growth by as much as 1.4 percentage points, depending on its duration, according to economists. The biggest effect would come from the output lost from furloughed workers.

Elsewhere, the rising storm. The last thing the global economy needed was a self-inflicted shock at worst, drag at best,  from the US locomotive that usually heads the global economy. The next Lehman is out there and getting closer by the day. The Great Recession was never fixed, merely put on the life support of public belief in voodoo economics.  America seems to want to puncture that belief.

Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable.

John Kenneth Galbraith.

Europe’s Record Jobless Rate Seen Resisting Recovery

By Stefan Riecher - Sep 30, 2013 12:01 AM GMT
Europe’s nascent economic recovery is too green to make any impact on the region’s jobs market yet, according to economists.

Unemployment in the 17-nation euro area remained at a record high of 12.1 percent in August, according to the median estimate of 30 economists in a Bloomberg News survey. The European Union’s statistics office is due to publish the jobless numbers at 11 a.m. tomorrow in Luxembourg.

“Europe is faced with a high level of structural unemployment and this is not going to change any time soon,” said Annamaria Grimaldi, an economist at Intesa Sanpaolo SpA in Milan. “The recovery is happening painfully slowly and that’s another reason why we’ll see jobless rates far above 11 percent well into 2015.”

Even after the currency bloc emerged from its longest-ever recession, economists predict unemployment to keep rising and peak at 12.3 percent in the final quarter of this year.

----The situation for the unemployed is particularly bleak in Spain and Greece, where the Organisation for Economic Cooperation and Development expects jobless rates to remain above 25 percent in 2014.

----In Italy, where the OECD sees unemployment at 12.5 percent next year, data released at 10 a.m. in Rome tomorrow will show whether joblessness still is near a May all-time high of 12.2 percent. It stood at 12 percent in July.

Siemens CEO Kaeser Cuts 15,000 Jobs to Catch Up With GE

By Alex Webb & Dorothee Tschampa - Sep 29, 2013 11:00 PM GMT
Siemens AG (SIE)’s new Chief Executive Officer Joe Kaeser will cut more jobs than initially planned to boost earnings after the failure to catch up with rivals General Electric Co. (GE) and ABB Ltd. (ABB) cost his predecessor the job.

The company will eliminate 15,000 jobs, representing 4 percent of its 370,000 workers worldwide, and a third of the cuts will come in the German home market, Siemens spokesman Oliver Santen said by phone yesterday. He declined to give more regional details. Siemens, Europe’s largest engineering company, had initially planned some 8,000 job cuts globally, a person familiar with the program told Bloomberg in October.

Former CEO Peter Loescher lost his job following a July 25 announcement that the Munich-based company wouldn’t meet a goal of profit representing 12 percent of sales next year. The target involved 6.3 billion euros ($8.5 billion) in savings at Siemens, which has faced mounting charges for failed power and train projects.

Letta Defies Berlusconi as Italian Government Nears Collapse

By Andrew Frye & Alessandra Migliaccio - Sep 29, 2013 11:24 PM GMT
Italian Prime Minister Enrico Letta defied Silvio Berlusconi’s attempt to force snap elections and said he plans to seek a new parliamentary majority to salvage his stricken government.

Letta said he’ll request a confidence vote for Oct. 2 to try to save his five-month-old administration after Berlusconi, a partner in the ruling coalition, withdrew his support and pulled his ministers from the Cabinet. The turmoil puts leadership of the euro-area’s third-biggest economy in question as Germany, the bloc’s largest member, awaits clarification from Chancellor Angela Merkel about its own ruling coalition.

Political instability threatens to hurt the four-year fight to tame speculation in Europe’s sovereign debt market. The rift between Letta and Berlusconi, a three-time prime minister, pushed up Italian bond yields last week and impaired the country’s ability to deliver on its budget commitments. The standoff may also undermine Italy’s efforts to promote European Union initiatives to counter the debt crisis.

Greece is starting to look like Weimar Germany

By Daniel Hannan World Last updated: September 29th, 2013
Economic woes have led to the rise of Golden Dawn and provoked a crisis of democracy

Economic collapse, mass joblessness, uniformed paramilitaries, street violence, political assassinations and, now, a round-up of opposition MPs. Euro-wracked Greece is beginning to feel eerily like Weimar Germany.

The beleaguered Athens government has arrested five deputies and 15 other activists from the fascist party Golden Dawn, including the leader, Nikolaos Michaloliakos. The Greek constitution prohibits the outright banning of political parties, but the authorities have got around that by classing Golden Dawn as a criminal organisation and linking it to the murder 11 days ago of a Leftist musician.

We use the word “fascist” so loosely these days that it has almost lost its meaning. If you oppose immigration, you’re called a fascist. If you criticise the EU, you’re called a fascist. If you’re winning an argument with a Leftie online then, sooner or later, you’re called a fascist.

The tendency is not a new one, though it has perhaps been accelerated by the internet. George Orwell, writing at a time when there were actual fascist regimes in power, observed that “the word Fascism now has no meaning except in so far as it signifies 'something not desirable’ ”.

In consequence, we struggle to find adequate vocabulary to describe an unapologetic, bona fide neo-Nazi party such as Golden Dawn, the Greek political movement that took seven per cent of the vote in the two general elections last year.

----For more than 30 years, Golden Dawn crawled along as one of Europe’s negligible Nazi movements, supported by a few hundred shaven-headed losers in their mothers’ basements. It barely registered in elections, typically winning around 0.1 per cent of the popular vote. Then, in 2012, under the uncompromising slogan “We can rid this land of filth!”, it secured nearly half a million ballots and became the third‑largest party.

What happened? In short, the euro. For once, the metaphor of a Greek tragedy is precisely apt. Hellenes went through the hubris of easy credit years, when the markets treated Greek and German debt as interchangeable. Now they are suffering the nemesis: GDP down by an almost unbelievable 23 per cent from its peak; 28 per cent unemployment; middle-class Athenians rummaging in bins for food; farmers bringing supplies to urban cousins.

----Yesterday, Greeks were discussing the rumour that the arrests were an attempt to prevent the Golden Dawn MPs from resigning their seats and triggering a series of by-elections. The economic crisis has become a crisis of democracy.

Do you remember why the euro was launched? Its supporters made two claims. First, that it would make its users wealthier; and second, that it would make participating countries get on better. In the event, it has inflicted unnecessary poverty and emigration across southern Europe, and is now degrading democracy. How much more has to happen before the Brussels elites accept that they have got it wrong?

Record Defaults Seen on $40 Billion Recast Loans: India Credit

By Anto Antony & Bhuma Shrivastava - Sep 29, 2013 7:31 PM GMT
Restructured loans are defaulting at a record rate at Indian banks amid forecasts the worst economic slowdown in a decade will deepen, according to the investment banking unit of the nation’s biggest lender.

As much as 20 percent of renegotiated credit in India’s banking system is now classified as in default, according to SBI Capital Markets Ltd. Such loans, which give borrowers a moratorium on payments, longer maturities or lower interest rates, more than doubled since 2009 to 2.5 trillion rupees ($40 billion) at the end of June, data from the Corporate Debt Restructuring Mechanism show.

Bad loans are rising as Goldman Sachs Group Inc. predicts India’s economy will grow 4 percent this fiscal year, after a 5 percent gain in the prior period that was the smallest since 2003. The yield on State Bank of India’s 9.95 percent rupee debt due 2026 rose 74 basis points this quarter to 9.54 percent, the most since the notes were issued in 2011.

Rupiah Leads Emerging-Market Losses in Worst Quarter Since 2008

By Yudith Ho - Sep 30, 2013 4:14 AM GMT
Indonesia’s rupiah is leading declines in emerging markets this quarter as the currency headed for its worst three-month performance since 2008 due to a record current-account deficit. Government bonds fell.

The currency weakened 14.9 percent since the end of June to 11,658 per dollar as of 10 a.m. in Jakarta, the biggest loss among 24 developing-nation exchange rates tracked by Bloomberg. It fell 6.3 percent in September, the most since April 2009.

The current-account gap will probably rise to 3.6 percent of gross domestic product this year, from 2.8 percent in 2012, according to Barclays Plc. While overseas investors sold a net $730 million of Indonesia stocks this quarter, they added 1.1 trillion rupiah ($96 million) to their sovereign debt holdings, the least since the second quarter of 2012, official data show.

You will find that the State is the kind of organization which, though it does big things badly, does small things badly, too.

John Kenneth Galbraith.

At the Comex silver depositories Friday final figures were: Registered 43.71 Moz, Eligible 121.70 Moz, Total 165.41 Moz.  

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

No crooks today. More from Washington tomorrow.

Nothing is so admirable in politics as a short memory.

John Kenneth Galbraith.

The monthly Coppock Indicators finished August:
DJIA: +162 Down. NASDAQ: +189 Up. SP500: +194 Down.

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