Tuesday, 8 October 2013


Baltic Dry Index. 2115 +31

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

"The history of paper money is an account of abuse, mismanagement, and financial disaster."

Richard M. Ebeling

Repeat after me, no one expects the USA to default. Uncle Scam’s good for his truly monstrous debt. But just over a week away from America’s self-declared red line of October 17th, the day America supposedly runs out of borrowing power, Uncle Scam’s creditors are getting jittery. Could the land between the shinning seas, unintendedly transform itself into Argentina in the next few days? The answer is of course, no. But to America’s creditors the answer sounds less convincing with each passing day. Stay long fully paid up precious metals outside of the UK and USA. Assuming “Brand America” doesn’t self destruct in the next week, we get to do it all again next year, when America votes in the mid-term elections. The never ending civil war will go on, it seems.

"Were we to be directed from Washington when to sow and when to reap, we should soon want bread."

Thomas Jefferson

Biggest U.S. Foreign Creditors Show Concern on Default Risk

By Keiko Ujikane - Oct 8, 2013 6:23 AM GMT
China and Japan, who together hold more than $2.4 trillion in U.S. Treasuries, raised pressure on the U.S. to resolve a political impasse on its debt ceiling that threatens to destabilize global financial markets.

Japan must consider the impact of any default on its bond holdings, even as the U.S. will probably avoid a fiscal crisis, Japanese Finance Minister Taro Aso said today at a press conference in Tokyo. Chinese Deputy Finance Minister Zhu Guangyao said yesterday that the U.S. should prevent a default, the People’s Daily reported.

Any failure by the U.S. to honor its debt obligations would damage the dollar’s status as the world’s reserve currency, with implications for investors globally. A shift in asset allocation by China, Japan or other major holders of Treasuries could push up U.S. interest rates and cause swings in global currency markets.

China, the largest foreign owner of U.S. treasuries, had $1.28 trillion worth at the end of July, followed by Japan, which held $1.14 trillion, according to the U.S. Treasury Department. China overtook Japan as the largest foreign owner of Treasuries in September 2008, with the value of its holdings surging 107 percent since then. Japan’s rose 84 percent over the same period.

“Japan must be aware that the absolute value of those debt holdings would decline,” Aso said at a press conference should the U.S. default. Nations such Japan and China that have a large proportion of dollar-denominated reserves need to think about this, he said.

“If the debt ceiling problem worsens, it would would affect the world economy,” Aso said, adding “we hope this problem will be resolved without delay.”

Sir Martin Sorrell: 'Brand America' tarnished by budget dispute

Political stalemate in Washington is damaging “Brand America”, industry chiefs warned on Monday, as the stand-off between the White House and Republicans pushed the US closer to the brink of a default.

Sir Martin Sorrell, chief executive of the world's biggest advertising agency WPP, told The Daily Telegraph that the ongoing game of brinkmanship is taking its toll on America’s international reputation, regardless of whether Congress comes to a last minute deal to extend the country’s $16.7trn borrowing limit.

“If you were running a company like this, and stopped paying your workers, you’d get fired. [Shutdown] is almost like going into Chapter 11 or bankruptcy. The Americans I talk to are frustrated and embarrsased,” he said. “[The] impact on Brand America is not good at all.”

A US default would be “catastrophic” for the global economy, Sir Martin warned, although he said he thought that Congress would not allow this to happen.

His warnings were echoed by Governor John Engler, president of the Business Roundtable, an organisation whose member companies have a combined turnover of more than $7trn.

“Our allies, and those who are not our allies, are looking at this with a raised eyebrow, saying ‘What is going on here?’,” he said. “If you want to be one of the economic leaders of the world, and you want your opinions to be respected, then you’d better act better.”

----Many investors had predicted that the impasse would be resolved over the weekend, but instead the stalemate became more deeply entrenched as each side issued the first categorical warnings that they are prepared to play the same game of chicken over America’s borrowing limit.

Both parties said that the United States would default on its debt unless the other one capitulated, raising expectations that the negotiations will go all the way to the wire, or even beyond it.

----Analysts at Goldman Sachs have warned that failure to reach an agreement before the October 17 deadline would stop the economic recovery in its tracks, and immediately reduce America’s economic output by 9pc.

IMF fears 'asset spirals' in emerging markets on Fed tapering

The International Monetary Fund has called on Western central banks to move with extreme care as they wind down emergency stimulus, warning that a botched exits risk setting off an asset crash in emerging markets and worldwide contagion.

“A repricing of risk could induce a run by investors holding speculative positions, especially if these are highly leveraged using short-term funding,” said the Fund in a study of global fall-out from the radical policies of the US Federal Reserve, the Bank of England, and the European central bank.

The report said a witches’ brew of sliding currencies and excess credit could spin out of control. “Thin markets could amplify price movements and kick off sale spirals. Contagion effects could both amplify and broaden asset price movements and capital outflows as investors flock out of emerging market economies,” it said.

Exit must be “very carefully managed”, said Karl Habermeier, the IMF’s head of capital markets, advising countries at most risk of capital flight to beef up their defences before it is too late.

The report is the latest warning from the IMF that the return to calm in Brazil, Turkey, India, and South Africa among others may not last once the Fed begins to taper bond purchases, a move likely to push US bond yields yet higher and force up the global cost of borrowing.

The Fed delayed tapering in September but the imminent withdrawal of dollar liquidity from global markets still hangs like a Sword of Damocles over the `BRICS’ bloc, especially those that have exhausted their own credit cycles and are grappling with structural problems.

The IMF said Indonesia had suffered the greatest credit shock after the Fed turned hawkish in May, with a 430 basis point spike in yields. Yields jumped 220 points in Turkey, and 120 in Brazil. Even the richer countries were hit by the shock. Australia recorded the biggest capital outflows in relative terms, a potential warning since the country has a very high net external liabilities of 60pc of GDP.

The IMF advised countries to let their currencies slide rather than squandering foreign reserves trying to fight the tide, a veiled rebuke to India, Turkey and others. Some intervention “may be appropriate” to smooth the process.

Elsewhere recent developments are equally troubling. Our world seems to be  drifting along from one potential crisis to another, with no one seeming to care. Optimistically, the problems will all somehow sort themselves out. Dr. Bernocchio and his Federalista’s will sort it all out.

For myself I am an optimist - it does not seem to be much use being anything else.

Sir Winston Churchill. 1954.

Biggest Pension Fund at Risk Holding 60% in Japanese Debt

By Shigeki Nozawa - Oct 8, 2013 5:41 AM GMT
Japan’s Government Pension Investment Fund, the world’s largest manager of retirement savings, isn’t ready for Abenomics, according to the head of an expert panel advising on public investments.

The set of policies from Prime Minister Shinzo Abe aims to defeat 15 years of deflation and spur growth by using the “three arrows” of fiscal stimulus, monetary easing and business deregulation. GPIF needs to reduce the risk of losses on its bond holdings should interest rates start to rise as the economy improves, said Takatoshi Ito.

“The majority of the panel thinks the GPIF is exposed to too much interest-rate risk,” Ito said in an Oct. 4 interview. “If they’re really aware of interest-rate risk, why are 60 percent of the assets in domestic bonds?”

An interim report from the panel on Sept. 26 showed some members wanted the 121 trillion yen ($1.25 trillion) GPIF to add new assets such as real-estate trusts, infrastructure and private-equity investments and commodities. The group will meet two to four more times before issuing its final report next month, Ito said.

The Bank of Japan unveiled an unprecedented monetary stimulus program in April, saying it would double monthly bond purchases to more than 7 trillion yen in pursuit of a 2 percent inflation target in two years. The easing has kept a lid on bond yields as it helped Japan’s exporters by sending the yen to a 4 1/2-year low of 103.74 per dollar in May

World Bank Cuts Developing East Asia GDP Forecasts

By Sharon Chen - Oct 7, 2013 5:45 AM GMT
The World Bank lowered its forecasts for East Asia’s developing nations this year and next, and said the region must boost efforts to ensure financial stability ahead of interest-rate increases in advanced economies.

Developing East Asia will probably expand 7.1 percent in 2013 and 7.2 percent in 2014, the Washington-based lender said in a report today, down from April predictions of 7.8 percent and 7.6 percent respectively. China may grow 7.5 percent in 2013, lower than an April forecast of 8.3 percent, it said.

“The risks to the global recovery from the uncertainty surrounding the fiscal deadlock in the United States, the impact of the withdrawal of monetary stimulus from the advanced economies, an abrupt slowdown of investment in China (CNGDPYOY), and unrests in the Middle-East remain prominent,” the World Bank said in its East Asia and Pacific Economic Update today.

Interview With George Soros: 'Greece Can Never Pay Back Its Debt'

By Gregor Peter Schmitz in Brussels
Should Greece have a large part of its debt waived? Absolutely, says George Soros, otherwise the country will never recover. The billionaire investor also warns about the rise of extremist parties if Germany does not change its policies towards Europe.

Legendary US investor George Soros has called for comprehensive debt relief for Greece. "Everyone knows that it can never pay back its debt," he said in an interview with SPIEGEL ONLINE. Greece is close to a primary budget surplus after a lot of pain and suffering, says Soros, whose speculation against the pound forced the UK to withdraw from the Exchange Rate Mechanism in 1992.

"If the official sector could forgo repayment as long as Greece meets the conditions imposed by the troika [of the International Monetary Fund (IMF), European Central Bank (ECB) and European Commission]," Soros added, "private capital would return and Greece could rapidly recover. I can testify from personal experience that investors would flock to Greece once the debt overhang is removed."

Greek Prime Minister Antonis Samaras has also recently called for a new round of debt relief for his country. "What is important to me is not to procrastinate too much for a solution," he said. But the German government in particular rejects a writedown of Greek government debt. At most, it wants to discuss lower interest rates and longer loan maturities -- measures that many economists do not regard as being sufficient to solve the problems.

In addition, the German head of the European Stability Mechanism (ESM) permanent bailout fund, Klaus Regling, pointed out that debt write-downs are prohibited under ESM rules. The majority of Greece's debt is now held by public institutions, i.e. the IMF, the ECB and other EU member states. If these debts have to be written off, the cost wil be met by taxypayers.

Soros recognizes this problem: "The official sector cannot write down its debt because that would violate a number of taboos, particularly for the ECB." These issues, however, could be surmounted under German leadership.

And if any country were to recognize how such an approach could work, he argued, it was Germany, which "ought to remember that it has benefited from debt writedowns three times, with the Dawes Plan, the Young Plan and in connection with the Marshall Plan."

"The gold standard makes the money's purchasing power independent of the changing, ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence."

Ludwig von Mises

At the Comex silver depositories Monday final figures were: Registered 43.32 Moz, Eligible 123.15 Moz, Total 166.47 Moz.  

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

Below, the same old story of not quite rags to riches, back to not quite rags.

Brazil, where the nuts come from.

Brandon Thomas. Charley’s Aunt.

How Brazil's Richest Man Lost $34.5 Billion

----The audience of 400 includes foreign corporate luminaries such as Kim Jung Rae, co-chief executive officer of Hyundai Corp. Batista has gathered them to show off Açu, which he predicts will be the largest port in the Americas. He also wants to share some good news. His oil company, OGX Petróleo e Gás, has begun production on what he describes as a “new frontier” of petroleum 37 miles off the Brazilian coast. 
“This is an historical moment,” says Batista. “It’s the first time an independent Brazilian company has produced offshore oil.”

That Batista, new to the oil business, had brought in wells gushing with crude was the sort of announcement investors had come to expect of him. At that moment, Batista embodied Brazil’s decade-long economic expansion, and for international investors wanting a piece of the new Brazil, he could do no wrong.

----To say Batista overreached would be to seriously undersell what has happened in the 18 months since that self-regarding presstravaganza of hubris and magical thinking. In what is shaping up to be one of the largest personal and financial collapses in history—if not the largest—Batista may be nearing bankruptcy. On Oct. 1, OGX missed a $45 million interest payment on bond debt it had racked up during its rise. Batista has sold his planes and his helicopter, and creditors are arguing over the remains of his companies. He’s no longer on the Bloomberg Billionaires Index and has become the butt of jokes in Brazil. One suggests that Pope Francis plans to return to Brazil soon and will again be visiting the poor, including Batista.

Batista declined to be interviewed for this story, but journalists are not the only ones asking questions. Brazil’s securities regulator has started an investigation into Batista and OGX after an investor alleged that Batista dumped 126.7 million OGX shares just before the company scrapped projects and warned that it may stop pumping crude next year. In a July op-ed for Brazil’s Valor Econômico newspaper, Batista said he would honor all of his obligations. In that same article, he put some of the blame on his auditing firm and executives for unreasonably building shareholder expectations. The company has denied it gave faulty advice. Once a staple on the airwaves and in print, Batista has mostly gone silent.

----Batista was born in Governador Valadares, these days a town of about 260,000 in Brazil’s mining state of Minas Gerais, but spent his teens in Europe with his family, hopping from Geneva to Düsseldorf and Brussels as the career of his father, Eliezer Batista da Silva, took off. The elder Batista is a polymath who speaks seven languages, and a giant figure in the industrialization of Brazil. In the early 1960s he ran Vale do Rio Doce, at the time the government-owned mining company, transforming it through his two stints as CEO into the world’s largest iron-ore producer. Known as Vale today, it’s valued at more than $80.6 billion.

----In July 2007, Batista announced the creation of OGX, which would explore for and produce oil offshore, with early backing from the Ontario Teachers’ Pension Plan and the billionaire Ziff brothers from New York. He did not appear worried about his inexperience in oil and gas exploration and development. He would hire the knowledge he needed, starting with executives from Petrobras (PBR), the state-controlled oil company. Among those he lured from the company was Paulo Mendonça, its exploration chief, whom Batista came to call Dr. Oil.

----A few days after Batista took OGX public in June 2008, oil hit a record $145.30 a barrel. The initial public offering raised 6.7 billion reais ($3 billion), making it the biggest in Brazilian history. “You can see why everybody wanted to jump on the train,” says Ruaraidh Montgomery, a senior analyst at oil and gas researcher Wood Mackenzie. OGX announced it was aiming for more than 1 million barrels a day by 2019—which would have amounted to almost half of Brazil’s total output. They announced potential resources of 4.8 billion barrels, more than a third of Petrobras’s proven reserves. OGX had yet to drill a single well.

"Buy gold and sit on it. That is the key to success."

Dr. Franz Pick

The monthly Coppock Indicators finished September:
DJIA: +167 Up. NASDAQ: +213 Up. SP500: +203 Up. All three are back positive again, thanks to continued Fed QE.  High risk speculators will now use any stocks sell-off to go long. After the last Fed meeting and QE U-turn, the Bernocchio put is back on.

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