Monday, 16 September 2013

Summer’s Over.

Baltic Dry Index. 1636 +15

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

“The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market...”

Ludwig Von Mises

It is time for old “loose lips” Bernanke, to taper or not to taper the Fed’s QE Forever, free money policy, at this week’s Federal Reserve meeting. Any mis-step by the outgoing “oldie,” risks setting off 2013’s crash season, in bonds, stocks and commodities. Yet keeping “QE forever,” forever, risks setting off a run out of the dollar and into tangible assets with intrinsic value.  The trick is to come up with the “Goldilocks taper,” but no one knows if such a thing exists outside of fairy tales. Today is already not like the pre-2008 yesterdays, and our tomorrow’s, once the Fed really does start tapering, will not be like our today’s. Sooner or later the Great Disconnect will come to an unpleasant end, all the more unpleasant the longer QE forever fuels the Great Disconnect. With Bernanke headed out the Fed door marked “Exit and odium” next January, punting the problem off to his successor looks highly likely.

In yet more sign of rising disarray in Washington, it became Summer’s over, in the race to take over from Bernanke in deep mid-winter. It would all be quite comical, if it wasn’t in danger of destroying Brazil, India, France and Club Med, as collateral damage.

Former Obama aide Summers withdraws from Fed chair consideration

WASHINGTON | Sun Sep 15, 2013 7:24pm EDT
(Reuters) - Lawrence Summers, a former top aide to President Barack Obama and Treasury secretary under President Bill Clinton, withdrew on Sunday from consideration to succeed Federal Reserve Chairman Ben Bernanke, after liberal pressure soured his confirmation prospects.

"Earlier today, I spoke with Larry Summers and accepted his decision to withdraw his name from consideration for chairman of the Federal Reserve," Obama said in a statement.

Summers, widely regarded as a brilliant economist and a shrewd and decisive policy-maker, was considered to be the front-runner for the position to replace Bernanke, whose second term expires in January. However, Summers was dogged by controversies including his support for deregulation in the 1990s and comments he made about women's aptitude while president of Harvard.

Word that the president was leaning toward nominating Summers over Fed Vice Chair Janet Yellen elicited an unprecedented amount of controversy for a potential nominee to run the U.S. central bank.

Summers said that the storm pointed to a difficult confirmation process that could hurt the president's economic agenda and the institution, and decided to pull back.

Anticipating that QE forever really can’t be forever, no matter what the latest spin is in Washington, nor no matter which Lord of the Universe gets the job of bursting the Fed’s final bubble too far, China seems to be acting in anticipation by adopting an AIG defence. In a largely command economy, enforced by old fashioned communist repression, China’s shadow banking bubble might not respond quite the way, Beijing’s apparatchik’s expect. If the “Bernank” this week puts the taper on the table starting in 2014, China’s apparatchik’s may have anyway left it too late.

Analysis: China eyes private funds to tackle bad-debt buildup, avoid bailout

SHANGHAI/BEIJING | Sun Sep 15, 2013 5:23pm EDT
(Reuters) - Faced with a chorus of warnings that China risks choking on bad debts, Beijing is pushing banks to raise private capital in an effort to head off the need for a second government bailout in as many decades.
The hangover from a credit binge that powered China's swift recovery from the global financial crisis, combined with the economy's slowdown, has prompted expectations of a repeat of the early 2000s, when Beijing shored up its major banks with hundreds of billions of dollars.

Right now, however, authorities appear focused on pushing banks to bolster their balance sheets by aggressively enforcing new international bank capital requirements, known as Basel III.

Some analysts say warnings of an impending crisis are overdone.

----On Friday, the securities regulator said banks - and other listed firms - could also issue non-tradeable preferred shares. That offers another avenue for banks to bolster their balance sheets with funding from commercial investors, and possibly a way for the government to inject capital directly if private funds aren't enough.

In an article published last week, China's central bank governor, Zhou Xiaochuan, cited the U.S. government's rescue in the global financial crisis of American International Group Inc as a positive example of how preferred shares could be used.

Whether that will be necessary depends on how big China's bad debt pile really is. This is a matter of guesswork, given that analysts think the official non-performing loan ratio of less than 1 percent is a considerable understatement.

Most analysts put it in the 3 to 6 percent range, but Reuters estimates based on official data shows that their current capital and loan-loss provisions would suffice even if more than a fifth of their loans went bad.

But much of the potential risk lies outside of the official banking system.

Goldman Sachs has said that under its worst-case scenario credit losses for the entire system could reach $3 trillion, or a fifth of forecast GDP in 2016, though actual losses would probably be considerably lower.

In Europe, next Sunday it’s time for Germany’s voters to finally vote. A near paralysed continental Europe hopes that the vote will free Europe’s policy makers from their policy of delaying controversial decisions till after the election. Reuters thinks that expectation may be in for a let-down. It may all be moot anyway if “the Bernank” takes the QE punch bowl away this week. Even if he doesn’t the respite looks no better than a few more months. From London it looks more likely to be crash delayed, rather than crash averted.

Every election is a sort of advance auction sale of stolen goods.

H. L. Mencken.

Analysis: Europe, waiting for Germany, could be disappointed

PARIS | Mon Sep 16, 2013 2:03am EDT
(Reuters) - European policymakers have higher hopes than expectations of change in German policies after a general election next Sunday that has kept much European business on hold for months.

From Athens to Lisbon and Paris to Rome, governments want Berlin to move forward fast with a European Union banking union and adopt a more expansion economic policy that would help drive growth and fight unemployment in a stagnant euro zone.

EU partners expect conservative Chancellor Angela Merkel to win a third term, and many hope she will have to form a grand coalition with the center-left Social Democrats (SPD), seen as more pro-European and pro-stimulus than her current center-right Free Democratic allies in government.

The potential for disappointment is large.

"Whoever is elected, the constraints that Merkel has faced will remain the same for any German government," said Sylvie Goulard, a French liberal member of the European Parliament.

The triple lock of parliamentary sovereignty, hostile public opinion and a vigilant constitutional court will continue to limit Germany's willingness to share more European liabilities.

Merkel and her SPD challenger Peer Steinbrueck barely mentioned European and foreign policy in their only television debate, except to agree that Germany should have no part in any military response to the use of chemical weapons in Syria.

Steinbrueck accused Merkel of bungling the euro zone crisis by going slow and inflicting a poisonous dose of austerity on Greece and other bailed out countries. He kept silent about SPD support for pooling some euro zone debts, sensing a vote-loser.

The chancellor noted the SPD had voted for all her euro zone bailout but she offered no personal vision of Europe's future.

With the survival of the single currency no longer under threat and financial markets calm for now, experts expect Merkel to stick to her "small steps" approach to euro zone integration unless acute crisis flares again.

The need for further financial support for Greece, Portugal and perhaps Ireland will cause much grumpy debate in Berlin. Frustration at chronic Italian political instability and French aversion to liberal economic reforms will smolder.

Euro-Area Bank Plan Stumbles Under German-Led Challenge

By Rebecca Christie & Jim Brunsden - Sep 16, 2013 12:00 AM GMT
European Union attempts to centralize control of failing banks stumbled under a German-led attack that may imperil efforts to restore confidence in the euro zone’s financial system.

If the plan doesn’t move forward quickly, the European Central Bank won’t be able to count on cross-border backstops if it encounters problems at euro-area banks. The ECB is scheduled to begin supervising lenders in the currency zone as soon as October 2014, forcing the EU to grapple with who should decide when to close a bank and who will pay for it.

“There’s quite a lot to do,” German Finance Minister Wolfgang Schaeuble told reporters on Sept. 14 after two days of talks with his EU colleagues in Vilnius, Lithuania. “The path that the commission has proposed toward a resolution mechanism is a rocky one. There can be no doubt about it: we need to be on a legally certain foundation.”

Schaeuble said the European Commission’s proposal for a Single Resolution Mechanism must be overhauled because it’s on shaky legal ground and could endanger national control of budgets. In Vilnius, the German was joined by critics from Sweden to Slovakia.

At the same time, finance ministers renewed pledges to strive for an agreement quickly so financial markets won’t lose confidence that the currency zone is overcoming its crisis. Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of euro-area finance chiefs, said a deal on the resolution mechanism is needed by year-end.

"When it becomes serious, you have to lie"

Jean-Claude Juncker. Ex-Luxembourg Prime Minister and ex-president of the Euro Group of Finance Ministers. Confessed liar.

At the Comex silver depositories Friday final figures were: Registered 42.27 Moz, Eligible 118.86 Moz, Total 161.13 Moz.  

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

No crooks today, they’re all headed for the great pow-wow at the Fed to determine the fate of QE forever. You can be sure that America’s NSA and Britain’s GCHQ will be listening in.

My policies are based not on some economics theory, but on things I and millions like me were brought up with: an honest day’s work for an honest day’s pay; live within your means; put by a nest egg for a rainy day; pay your bills on time; support the police.
Margaret Thatcher.

Probably why she got dumped out of office by the Tory party.

The monthly Coppock Indicators finished August:
DJIA: +162 Down. NASDAQ: +189 Up. SP500: +194 Down. Two red flags. Only the “stock market for the next hundred years,” remains optimistic. But will Benny and the boys really cut the stock market’s throat?

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