Weekend Update – September 18, 2010

Baltic Dry Index. 2676 - 319 on the week

LIR Gold Target by 2019: $3,000.

“Overheard at Goldman Sachs”:
“We assume that you know what you’re doing,
In this ill-advised trade you’re pursuing,
But the opposite bet
That we place on your debt
May eventually hasten your ruin.”

http://blogs.wsj.com/economics/2010/03/17/celebrate-st-patricks-day-with-some-economic-limericks/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Feconomics%2Ffeed+%28WSJ.com%3A+Real+Time+Economics+Blog%29

Europe’s sovereign debt problems returned last week, as Europe’s PIIGS returned to the forefront like a bad penny. Nothing new really seemed to spark this unwanted return, and I’m tempted to think that it is somewhat contrived by Wall Street’s vampire squids, desperate to force an outcome favourable to their next bonuses, however, all is far from well in the PIIGS, and its only a matter of time until Greece defaults, probably taking out one to two more as they go. Oh what a tangled web we weave when first we practise to deceive, and few do deception like Brussels and the Club Med midgets. Below, some thoughts for our “Battle of Britain Sunday” weekend. [Only an idiot like Gordon Brown, cravenly seeking Catholic votes in his vainglorious attempt to cling on to power, would have invited a German Pope on a state visit to Britain that clashed with Battle of Britain Sunday. A subtle Scot’s joke on the Bishop of Rome?]

Ireland IMF bail-out rumours spook markets

The International Monetary Fund (IMF) has been forced to scotch rumours of a bail-out for Ireland that spooked investors and sent the cost of insuring the national debt to a record high

Philip Aldrick Published: 9:16PM BST 17 Sep 2010

Traders latched on to a strongly-worded article in the Irish Independent newspaper that cited a piece of research from Barclays Capital warning of a potential rescue package.

The report saw credit default swaps on Ireland's debt hit a record high of 4.25pc, up almost 0.38 of a percentage point, and the 10-year bond yield climbed 31 basis points to around 6.5pc – a record 4.10 percentage points above the benchmark German bund. The markets now think there is a 25pc chance of Ireland defaulting in the next five years.

------A combination of costly bank bail-outs, anaemic growth and one of the worst budget deficits in the European Union have stoked fears of a full-blown debt crisis in Ireland.

Analysts say this year's budget deficit could reach around 25pc of GDP including the one-off costs associated with bank bail-outs. Even without the one-off bank bill, the shortfall is still expected to be around 10pc next year on an underlying basis, over three times an EU limit of 3pc.

Ireland is struggling to raise the funds it needs from the markets as investors shun the country on fears over the sustainability of its finances. The European Central Bank has been buying small amounts of Irish bonds, traders said, with the latest installment yesterday.

Domenico Crapanzano, head of euro rates trading at Jefferies, said: "There are just no buyers out there for Ireland because of worries over its economy."

The latest fears have been prompted by the cost of bailing out Anglo Irish Bank, the nationalised lender that is being broken up. The bill is expected to be €25bn (£20bn). Standard & Poor's last month cut Ireland's sovereign credit rating to AA-, its lowest since 1995, due to the estimated €50bn cost of the bank rescues and the size of the Budget deficit.

Ireland has been widely praised for the austerity measures it is undertaking to cut the deficit and get on top of its public debt. However, economists are now questioning whether – given the austerity measures and the size of the banking crisis – Ireland will be able to pay its debts.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8010097/Ireland-IMF-bail-out-rumours-spook-markets.html

Darling attacks Germans over help for Greece

The euro has been permanently damaged by Germany's failure to intervene swiftly during the sovereign debt crisis earlier this year, Alistair Darling has said in an unusually frank attack.

Philip Aldrick, Economics Editor Published: 10:23PM BST 17 Sep 2010

The former Chancellor, who was in 11 Downing Street when Greece, Spain and Portugal came close to economic meltdown in the spring, made his unguarded comments at a conference of senior German and British officials on Thursday.

Privately, he is known to have been infuriated by Germany's failure to act swiftly as the markets scented blood, but has never before made his opinions public.

Speaking from the audience of the Königswinter Conference, he told Germany's Economics Minister Rainer Bruederle that the country had completely failed to come to terms with its responsibilities as a leader of the eurozone. He added that its reluctance intervene quickly "will have consequences" for the political future of the bloc.

At the height of the crisis, the euro's survival was in question as market confidence evaporated from the region and Germany, paralysed by public anger about domestic taxpayers rescuing Greek workers, pushed the Mediterranean nation to the brink. Germany also bitterly resisted external help from the International Monetary Fund.

-----The former UK Chancellor also laid into Europe's overly-bureaucratic engine and failure to deliver change. He said he would not be surprised if, when his grandchildren had grown up, European leaders were still promising progress on the Lisbon agenda and a breakthrough on Doha.

"Unless Europe makes changes internally, its growth will be sclerotic," he said.

The UK was represented by Vince Cable, the Business Secretary, who described the Coalition's plans as "growth-friendly deficit reduction", but was forced to concede to Mr Darling that it hopes rest on little more than a gamble.

Mr Cable acknowledged that the Government's goal of stimulating private sector job creation to offset the planned 600,000 public sector job cuts was a hope, not a certainty.

http://www.telegraph.co.uk/finance/currency/8010033/Darling-attacks-Germans-over-help-for-Greece.html

Bank of England may shift to 'heavy-duty credit easing', says rate setter Adam Posen

The Bank of England might aim to cut borrowing costs in specific areas of the economy should its buying of government bonds prove ineffective in stimulating economic growth, Monetary Policy Committee member Adam Posen said

Reuters Published: 9:16AM BST 17 Sep 2010

He told a confence in Washingon the Bank of England's next step, if necessary, would be to shift into "heavy-duty credit easing".

Mr Posen defined credit easing as the targeting specific sectors, such as the United States did with housing markets.

The Bank of England, like the US Federal Reserve, has embarked on a £200bn progamme of purchases of gilts to boost growth after having lowered benchmark interest rates to an historic low of 0.5pc.

However, further quantitative easing may see diminishing returns in stimulating growth.

Mr Posen played down the usefulness of having the Fed target the yield on the ten-year Treasury note as a possible next page in its playbook.

US officials are contemplating further quantitative easing if the economic outlook darkens, but policymakers may eventually need to find other tools

http://www.telegraph.co.uk/finance/economics/8008291/Bank-of-England-may-shift-to-heavy-duty-credit-easing-says-rate-setter-Adam-Posen.html

Consumer Sentiment in U.S. Hurt by Delay in Extending Tax Cuts

Sept. 18 (Bloomberg) -- Concern that U.S. personal income taxes will increase next year caused an unexpected decline in consumer confidence in September, indicating the biggest part of the economy will struggle to pick up.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to a one-year low of 66.6, figures showed yesterday. The decrease was due entirely to a rise in pessimism was among households with incomes above $75,000, the group said. A separate report from the Federal Reserve showed household wealth declined 2.8 percent in the second quarter as stock prices fell.

While lawmakers have said they plan to extend the George W. Bush-era tax cuts for the middle class, they’re at odds about whether to continue them for wealthier Americans. The delay in achieving passage prompted declines in the higher income group’s views this month about personal finance, buying plans and prospects for the economy.

“Just not knowing whether you’ll get hit with a big tax hike is a huge negative,” said Nariman Behravesh, chief economist at IHS Inc., a consulting firm in Lexington, Massachusetts. “The delay and the uncertainty are dangerous.” Congress and the president “are playing with fire.”

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aJVGCwQolSsY&pos=1

"If the tax cuts for the wealthy goes down, our income is going down and, trust me, yours and everyone else's lifestyle is going down, too."

Ebenezer Squid, during a break from “God’s work” shorting Greek debt.

Stay long physical precious metals but far from the larcenous reach of ever more desperate Uncle Sam and John Bull. With past form on the theft of their citizens’ wealth, as fiat money fails I fully expect to see them try it again. In London’s case that might not be quite so easy, the bullion banksters have already stolen the gold marked “unallocated” on their books, as the soon to be distressed and angry holders of unallocated metal are about to find out if they try to take delivery and ship their wealth overseas, and out of the Bank of England’s reach. As we now know, the BOE deliberately lied about its gold holdings back in the 1930s, but that’s alright, it was done in the interests of “national security”. In America FDR just blatantly stole the citizens’ gold, and then devalued the dollar against it cheating them a second time round. Nice guys banksters and gangster politicians, and today’s crop don’t even have yester year’s moral code, ethics or restraint.

In today’s morally bankrupt world, water-boarding’s not torture, never ending discretionary war is in, with nary a thought for an exit plan, paid for by robbing future generations of their chance at wealth. Eavesdropping doesn’t require a warrant, habeas corpus is an option that varies at the discretion of the government, double jeopardy is back as a weapon of government, and banks are allowed to deliberately misstate the value of securities on their books. It’s anyone’s guess what’s stored in Fort Knox anymore, if anything at all. When state’s fail, rule of law is one of the first casualties, and increasingly it’s looking like the west is starting to fail. In the UK, in the midst of undeclared war, the weak coalition government is even talking about downsizing Britain’s already dangerously shrunken armed forces. The UK is starting to resemble society after the last Roman Legion left. Remind me again of what happened next.

Have a great weekend everyone.

GI.

Technorati Tags: EU sovereign debt worries,Greece spreads,European trouble returns,US consumer confidence shot,Battle of Britain Sunday.

Norway Rolls the Dice.

Baltic Dry Index. 2975 +57

LIR Gold Target by 2019: $3,000.

Fresh food only began appearing on dinner tables in the 1700s, with the advent of the cooking stove - and stoves were not for everyone until the beginning of this century.

Norway’s Foods.

We open this morning with Norway’s sovereign wealth fund rolling the dice with purchases of the EU’s increasingly dodgy Club Med debt. Below, Bloomberg covers Norway’s audacious purchase of Greek government debt. Depending on how much of the iffy paper they bought, Norway might now have more to lose in Greece than the tax and work shy Greeks themselves. In this iteration of Euro madness, Greeks dodge taxes and bury their money in Switzerland and Cyprus and just about any other place but Greece. Norwegian’s work hard and pile up dollars in the country’s sovereign wealth fund, where the gamblers, sorry managers, set off to chase yield in what looks to me like a game of Russian roulette with the European Central Bank. Dare the ECB now allow Greece to default and restructure its debt, after brave Norway has just stepped in to help the ECB prop up the Greeks? To me in far away London, it looks like the Greeks were just dealt a get out of austerity jail card by Norway. Does Norway’s SWF have any back door guarantee from the ECB?

"Economics is an entire scientific discipline of not knowing what you're talking about."

P. J. O Rourke.

Norway Buys Greek Debt as Sovereign Wealth Fund Sees No Default

Sept. 9 (Bloomberg) -- Norway, which has amassed the world’s second-biggest sovereign wealth fund, says Greece won’t default on its debts.

The Nordic nation’s $450 billion Government Pension Fund Global has stocked up on Greek debt, as well as bonds of Spain, Italy and Portugal. Finance Minister Sigbjoern Johnsen says he backs the strategy, which contributed to a 3.4 percent loss on European fixed income in the second quarter, compared with gains on bonds in Asia and the Americas.

“The point is, do you expect these guys to default?” said Harvinder Sian, senior fixed-income strategist at Royal Bank of Scotland Group Plc, in an interview. “Norway has taken the view that they will not. The Greek holdings are particularly interesting because the consensus in the market is that they will at some point restructure or default.”

Norway says its long-term perspective will protect it from losses. “One could say we are investing for infinity,” Johnsen said in an Aug. 27 interview.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aKkAnJYH0Ey4&pos=1

Cod tongues are a popular dish in the northern Norwegian kitchen. They are prepared in many ways - poached, sautéed and fried.

Staying with Europe, if Great Britain can be described as being in Europe, The BOE’s King is getting ready to embark on QE2. Another sneaky stealth devaluation is coming up, as the Pound heads to eventual parity with the dodgy dollar. Look for the UK’s exports and tourism to boom next year. Below, for now the Old bag Lady of Threadneedle Street, seems to be attempting to talk the fiat Pound lower.

Industrialization came to England but has since left.

P. J. O Rourke.

BOE Mulls ‘Second Wave’ of Bond Buying as Rebound Momentum Ebbs

Sept. 9 (Bloomberg) -- Bank of England Governor Mervyn King may have to embark on a new round of bond purchases as Britain’s rebound from the worst recession since World War II fades.

Manufacturing, services and construction all faltered in August and the housing market weakened, surveys showed last week. That suggests 200 billion pounds ($309 billion) in bond purchases by the central bank since March 2009 and record-low interest rates may not be enough to keep up the economy’s momentum in the deepest budget squeeze in more than six decades.

“They are more likely to loosen policy further before they tighten it,” Alan Clarke, an economist at BNP Paribas in London, said in a telephone interview. “The danger is acting too late and not soon enough.”

Bank of England policy makers have discussed expanding the bond-purchase policy over the past two months. While officials say it has aided growth by shaving 1 percentage point off government bond yields, it has so far failed to ramp up the flow of credit in the economy.

Clarke predicts the bank’s nine-member Monetary Policy Committee will agree to a “second wave” of stimulus in February. Ross Walker at Royal Bank of Scotland Group Plc says the chances of it happening in early 2011 are as high as 40 percent. None of the 31 economists surveyed by Bloomberg News forecast an expansion of stimulus after the bank’s policy decision at noon today in London.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aPKmcBFClPTQ

Below, what the fraud of bailing out banksters by zero interest rates really mean. In the Great Nixonian Error of fiat currencies, sanity gets turned upside down, gamblers and banksters thrive, and if you’re close enough to the central bank your gambling losses get picked up by the state. Is deficits don’t matter great, or what?

Falling Rates Aid Debtors, but Hamper Savers

By GRAHAM BOWLEY Published: September 8, 2010

Households and corporations alike are refinancing their loans in droves to take advantage of interest rates that seem impossibly cheap. But those same low rates come with a flip side, driving down the income of retirees and others who live off their savings.

It is a side effect of a government policy meant to push down interest rates to a point that businesses and consumers are compelled to borrow and spend again, and yet it is hurting anyone with a savings account.

With the regulated rate that financial institutions can borrow from one another at almost zero, banks are paying savers next to nothing. The average returns on interest-bearing deposit accounts slipped to 0.99 percent in July, according to Market Rates Insight, which tracks bank rates. It is the first time its measure has dipped below 1 percent since the 1950s, when its data begins.

As a result, the amount of money on deposit at United States bank branches fell during the first half of 2010, Market Rates Insight reported this week. It was the first time that had happened in nearly two decades, indicating that people are dissatisfied with how little interest they are earning from their bank accounts.

Perversely, coming after a devastating financial crisis caused by companies and households that feasted on borrowing, ultralow interest rates are penalizing people who have paid down their debt and are now trying to save. It is also punishing those who rely on the proceeds of their nest eggs to pay the bills.

“It’s the whole point of low rates, to entice borrowing and discourage saving, but it means a massive wealth transfer from savers to borrowers,” said Greg McBride, a senior financial analyst at Bankrate.com. “It is a trend on steroids now because interest rates have been cut to the bone.”

http://www.nytimes.com/2010/09/09/business/economy/09rates.html

Norwegian Sheephead (smalahove)

Singe the head. Do not flay. Split lengthwise and soak in cold water at least 24 hours, changing the water several times. Make the brine by combining the ingredients and bringing to a boil. Dry the head well, then soak in brine up to 72 hours.

Smoke, the dry head. Simmer the head in water until tender, about 50 minutes. Serve ½ head per person.

At the Comex silver depositories Wednesday, final figures were: Registered 54.12 Moz, Eligible 57.12 Moz, Total 111.24 Moz.

+++++

Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Today, BP says yes we did it, we blew up the Deepwater Horizon, but we had some of the finest most incompetent help money could buy in the oil industry. Below, The Telegraph covers the report and the likely long term results. As soon as the G-6 recover and join Germany and Asia booming, get ready for $200 oil.

I like to do my principal research in bars, where people are more likely to tell the truth or, at least, lie less convincingly than they do in briefings and books.

P. J. O Rourke.

BP oil spill: after the human cost will come the cost of safer oil production

First the nine minutes of terror. The dry technical language and presentation of BP's accident report cannot be allowed to obscure the horror and tragedy of what happened on the Deepwater Horizon drilling rig on the evening of April 20.

By Damian Reece, Head of Business Published: 6:00AM BST 09 Sep 2010

-------But exactly how did a relatively routine procedure for mothballing a well turn into a fatal disaster?

It's clear from BP's version of events, published yesterday, that what could have gone wrong did go wrong. It includes a faulty cement plug, a failed mechanical barrier, misinterpreted pressure tests by workers and unnoticed flows of oil and gas into the pipe. But once a problem had been spotted the response on the rig failed to regain control. Crucial mistakes were made when diverting the lethal fluids into an entirely inadequate mud and gas separating unit on board the rig, instead of overboard, escalating the dangers and allowing gas to envelop the platform. Once escaped onboard, the rig's fire prevention system failed to stop the gas reaching the engines making ignition inevitable.

Finally the blow out preventer, the piece of kit designed to seal the well on the sea floor, failed leading to those weeks of underwater spillage and environmental damage.

But who's to blame?

BP seems to put a tentative hand up in the 200 pages or more of its report but at the same time points a sharp finger very much in the direction of Halliburton and Transocean which operated elements of the rig alongside BP.

If we take the blow out preventer, arguably the most controversial failure allowing such dramatic amounts of oil to gush unfetterred into the Gulf, then it's Transocean which is to blame, according to BP. This report, while significant in improving our understanding of what happened that day, is really BP saying one thing to Haliburton and Transocean, its partners. "If we're going down, you're going down with us."

It is just the first salvo in what will be a long and tortuous legal process as the companies involved argue about how the bill for this disaster will be split.

---- It makes a series of recommendations which BP says it will be adopting. However, it's hard to see how any exploration and production company operating not just in US territory, but across the world, will avoid following suit. The recommendations may be about improving procedures, safety and competence but will be burdensome all the same.

----- While the price of oil will remain determined by many factors, the implementation of new drilling procedures, post Deepwater Horizon, will play a much greater part in applying upward pressure to oil prices.

But it's also entirely plausible that as a result of Deepwater Horizon companies, such as BP, will take a long hard look at the rationale for exploiting such technologically challenging deep water finds as the Gulf of Mexico.

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7990476/BP-oil-spill-after-the-human-cost-will-come-the-cost-of-safer-oil-production.html

"If you imagine the 4,500-bilion-odd years of Earth's history compressed into a normal earthly day, then life begins very early, about 4 A.M., with the rise of the first simple, single-celled organisms, but then advances no further for the next sixteen hours.

----- Humans emerge one minute and seventeen seconds before midnight. The whole of our recorded history, on this scale, would be no more than a few seconds, a single human lifetime barely an instant. Throughout this greatly speeded-up day continents slide about and bang together at a clip that seems positively reckless. Mountains rise and melt away, ocean basins come and go, ice sheets advance and withdraw. And throughout the whole, about three times every minute, somewhere on the planet there is a flash-bulb pop of light marking the impact of a Mansion-sized meteor or one even larger. It's a wonder that anything at all can survive in such a pummeled and unsettled environment. In fact, not many things do for long."

Bill Bryson. A Short History of Nearly Everything

The monthly Coppock Indicators finished August:

DJIA: +243 Down. NASDAQ: +366 Down. SP500: +243 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. August is the third down month in a row and “crash season” approaches.

Technorati Tags: Norway,Greek debt,BOE QE2,ZIRP,BP,gold and silver.,global cooling,sunspots,REEs,HREs