Baltic Dry Index. 2737 -103
LIR Gold Target by 2019: $3,000.
“Fiat money has no place to go but gold”
Alan Greenspan. September 15, 2010
In Washington, it’s open season on China. Yesterday it was the turn of tax challenged Treasury Secretary Geithner. How much is mere pandering rhetoric and how much is real? China would dearly like to know, as I suspect would America’s Tea Party voters. One way or another, China is heading for import tariffs in America. The only question seems to be, will they come before November’s US election or will they come after, when a very different Congress is likely to be returned, comprised in very large measure of hard headed followers of a much more conservative agenda. Last time something like this happened, Iran was watching the arrival of a no nonsense Ronald Reagan, and wisely decided to release the US hostages rather than risk a war. This time around, it’s China in the role of Iran, and there aren’t any hostages thankfully, just China manipulating its currency via a dirty float. But I doubt that will make very much difference. From London, it looks to me, like only a serious change of policy in Beijing can change the outcome. From London, it seems to me, China is digging in rather than looking to change its policy.
"We need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."
Leonard Read
US-China clash over yuan escalates, risking superpower stand-off
US Treasury Secretary Tim Geithner has issued his harshest attack to date on China’s currency policy, the latest move in an escalating superpower clash across the gamut of commercial and strategic relations.
By Ambrose Evans-Pritchard Published: 7:09PM BST 16 Sep 2010
“We are very concerned about the negative impact of (China’s) policies on our economic interests,” he told a Congressional hearing on Beijing’s use of exchange intervention for trade advantage.
“The pace of appreciation has been to slow. The undervalued renminbi helps China’s export sector. It encourages out-sourcing of production and jobs from the United States. By continuing a rigid exchange rate, China is impeding the adjustments needed to secure sustainable global growth,” he said.
The tough talk comes amid concerns that the global currency order is unravelling, with countries breaking ranks in a `beggar-thy-neigbour’ use of 1930s-style devaluation to help exporters and shore up their economies.
Japan became the latest country to intervene this week, carrying out massive dollar and euro purchases to weaken the yen. Sander Levin, chair of the US House Ways and Means Committee, called the move “deeply disturbing”, chiefly because it muddies the political water and lets China off the hook.
Mr Geithner’s ire follows a move by US trade chief Ron Kirk to file two cases against China at the World Trade Organization, alleging bias against US steel producers and credit card companies. Mr Kirk said he was “fighting for the American jobs threatened by China’s actions.”
Trade expert Gary Hufbauer from Washington’s Peterson Institute said the tensions risk triggering a dangerous clash.” The US and China are now adversaries, not enemies, but if the Obama administration pushes this trade agenda the way it is now doing, we will end up antagonists,” he said.
Professor Hufbauer said the White House has lost faith in “quiet diplomacy”, irked that the yuan has hardly moved since Beijing ended the dollar peg in June. This is spiced by populist fever before the mid-term elections in November.
“The US trade deficit with China is widening, yet the Chinese are still accumulating reserves at remarkable rate, beyond their needs. They know that growth in China’s coastal provinces is their passport to political stability, but this is incompatible with US political stability,” he said.
“We have grievances piling up in tyres, aluminium, paper, and steel, and it has all come to a head. Of course, China is getting an unfair share of the blame from this anti-globalisation mood on Capitol Hill. The truth is that when the US curbed imports of Chinese tyres, sales went to Brazil and Mexico instead, not to US producers,” he said.
Jiang Yu from China’s foreign ministry echoed the point. “Appreciation of the renminbi will not resolve the deficit between the US and China and will not resolve US domestic unemployment. Pressure will not only fail to solve the problems; it could have the opposite effect,” she said..
Views are clearly hardening on both sides. Over 140 members of Congress have so far backed the Ryan-Murphy bill enforcing sanctions against China for currency abuse, siding with US domestic industry and trade unions against US multinationals with plant in China.
-----Japan’s leaders say privately that China’s actions have begun to threaten their country’s industrial base, forcing Tokyo to respond with its own solo intervention or stand by as its exporters are asphyxiated and its economy tips into a deflationary spiral.
The twist is that Japan itself has a large trade surplus -- though for different reasons -- so it is in effect passing the unwanted parcel to the US and Europe rather than allowing the global system to come back into equilibrium.
Unsurprisingly, edgy holders of dollars are increasingly hedging their dollar exposure with gold. One way or another a weaker dollar lies ahead. Central banksters or not, gold is resuming its monetary role as a store of value. All fiat money eventually returns to intrinsic value, to misquote Voltaire. When the US Treasury bubble eventually meets up with its pin, the run on gold and silver is likely to be immense. Gold moving hundreds of dollars in a day. Think 1979-80. If the Fed and the BOE have a plan to bail out the gold and silver shorts, it isn’t immediately apparent to me. When the US treasury bubble eventually bursts, it seems to me very likely to blow up the Great Nixonian Error of fiat currency. With a Sarah Palin presidency now no longer out of the question, and a adversarial relationship with China developing, who wouldn’t want to hedge off some fiat currency risk while the opportunity is still there.
"The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."
Hans F. Sennholz
Gold hits an all-time high
Gold mining shares peppered the blue-chip leaderboard as the price of the precious metal hit an all-time high.
Ben Harrington Published: 6:27PM BST 14 Sep 2010
Gold rose to $1269 an ounce, with dealers noting a growing number of investors have been buying the precious metal in recent weeks. Some traders reckon investors have almost replaced industry users as the main buyers of gold.
As central banks have cut interest rates to the bone to battle recession and high unemployment, investors are using gold as a hedge against the threat of inflation or even hyper-inflation.
Philip Klapwijk, chairman of metals consultancy GFMS, also pointed out that: "The United States has so far managed to side-step the sovereign debt crisis. But that could change in the future and that would undermine the dollar and boost gold."
The dollar fell to a 15-year low against the yen and a nine-month low against the Swiss franc, which boosted the price of gold further.
http://www.telegraph.co.uk/finance/markets/marketreport/8002758/Gold-hits-an-all-time-high.html
Greenspan’s Warning on Gold
Editorial of The New York Sun September 15, 2010
----Mr. Greenspan replied that he’d thought a lot about gold prices over the years and decided the supply and demand explanations treating gold like other commodities “simply don’t pan out,” as Mr. Malpass characterized Mr. Greenspan. “He’d concluded that gold is simply different,” Mr. Malpass wrote. At one point Mr. Greenspan spoke of how, during World War II, the Allies going into North Africa found gold was insisted on in the payment of bribes.* Said the former Fed chairman: “If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”
To which, forgive us, one can only say, “Now he tells us.” The fact is that if Mr. Greenspan governed the Fed with an eye on gold, it wasn’t a particularly steady eye. He might argue that when he left the chairmanship of the Fed, in January 2006, he left a dollar worth a 400th of an ounce of gold, slightly more valuable than the 461st of an ounce of gold that it was worth when he came in nearly 20 years before. But in the first five years of the 21st century, when he was in the last quarter of his years as chairman, the value of the dollar started its long collapse, plunging from the 282nd of an ounce of gold that it was worth on January 4, 2000. In the years since, it has cratered to record lows once imagined only by such sages as Ron Paul.
http://www.nysun.com/editorials/greenspans-warning-on-gold/87080
In UK news, the Humpty Dumpty governing coalition just got some very bad news. Consumers are already cutting back in anticipation of the coming austerity hard times. Sterling is now a very risky currency to hold. I suspect that Humpty won’t last out the coming winter.
September 17th – 99 days to Christmas.
Recovery hopes falter as retail sales disappoint
Britain's recovery hopes have suffered a sharp setback after surprisingly weak retail sales figures provided damning evidence that consumers are tightening their belts ahead of the Government's austerity measures.
By Philip Aldrick and James Hall Published: 10:41PM BST 16 Sep 2010
A collapse in high street sales for August and stark warnings from some of the nation's leading retailers sparked fresh talk of a double-dip recession.
"The unexpected fall is a nasty shock and deals a significant blow to growth hopes," said Howard Archer, chief UK economist at IHS Global Insight.
"It will likely fuel fears of a double-dip, given the importance of consumer spending to the economy."
Retail sales volumes shrank 0.5pc last month – against forecasts of 0.2pc growth – on the back of fewer purchases of food, fuel, clothes and household goods, according to the Office for National Statistics (ONS). It was the first fall in sales since January.
July's figures were also revised down from growth of 1.2pc to 0.8pc.
Retail chiefs added to rising concerns as they warned the weak figures could worsen following January's VAT increase from 17.5pc to 20pc and the Government's austerity package.
----The average UK consumer is now expected to be a total of £2,240 out of pocket over the next five years because of the effects of Government policies, according to a report on household budgets from Verdict Research and retail consultancy PRGX.
-----The poor ONS data was mirrored by figures from Barclaycard, which found that spending on debit and credit cards slid 1.9pc in August against the previous month.
http://www.telegraph.co.uk/news/uknews/8007686/Recovery-hopes-falter-as-retail-sales-disappoint.html
"It is the greenback which is unstable, and not the bullion."
Dr. Franz Pick
At the Comex silver depositories Thursday, final figures were: Registered 53.44 Moz, Eligible 58.30 Moz, Total 111.74 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
No crooks today, just more on China and the unlevel playing field in international trade. Below, the future is solar and the future is China. Or is it?
In contrast to wind turbines, there remains considerable room for advances in the efficiency of solar power and while this presents an opportunity to reduce costs further, it poses dilemmas for existing solar module manufacturers, particularly given the large investments which have already been made and the potential costs incurred in retooling existing factories to produce radically different products. A clear example is the recent breakthrough at the University of Stanford, where researchers have discovered that cesium-coated gallium nitride is capable of converting the energy from the light and heat of the Sun into electricity, paving the way for solar panels with efficiencies in the 55-60% range
Solarfun Proves Why Energy Investors Like Cheap, Chinese Panels
Sept. 17 (Bloomberg) -- Solarfun Power Holdings Co. is proving that cheaper, Chinese goods branded with English- sounding names can make renewable-energy investors rich.
The Chinese company makes solar panels that cost 35 percent less than Germany’s Schott AG and is headed to double sales in 2010. Its shares jumped 73 percent this quarter and lead Chinese stocks that are set to take the top five slots on the Bloomberg Global Leaders Solar Index for the first time in five quarters.
Solarfun, beating 499 of the 500 members in the Standard & Poor’s 500 Index, and Chinese makers of raw materials for panels like LDK Solar Co. gained an edge over German and U.S. rivals in mid-year. That’s when new energy and fiscal policies in Europe drove solar park developers to seek lower-cost panels to protect profit. Even after the gains, the Chinese stocks remain less expensive than Western counterparts in price-earnings terms.
“The Chinese are the ones to beat,” said Olaf Koester, head of renewable energy at VCH Investment Group, which oversees about 130 million euros ($165 million) including Chinese panel maker Trina Solar Ltd., up 61 percent this quarter. Their panels, or modules, are about 20 percent cheaper on average than those from German makers such as Conergy AG or Schott, he said in a telephone interview from his office in Frankfurt.
China’s manufacturers of panels and the polysilicon main ingredient have benefited from more than $20 billion in government loans this year while Western companies mainly seek private financing.
“In the long-term, the Chinese will probably be the winners,” said James Britland, an analyst at Allianz RCM which oversees about $2 billion in assets, including Asian polysilicon producers. “The real driver is their lower pricing.”
Price-Earnings Discount
The five best performers on the 38-member Bloomberg solar index include China’s JA Solar Holdings Co. and Renesola Ltd. The group trades at an average 8.3 times expected 2010 earnings. That’s below the index average of 29 times earnings and the 27 times earnings ratio of online travel agency Priceline.com Inc., the best-performing S&P 500 stock in the quarter, up 88 percent.
The Chinese manufacturers are riding the crest of a doubling of worldwide panel orders this year, having curbed production costs while improving quality to gain market share, said Martin Simonek, an analyst in London at Bloomberg New Energy Finance.
A Solarfun polycrystalline panel with a 195-watt capacity costs 396.27 euros compared with 610.47 euros for a similar module made by Schott, including taxes, according to the Solar Fachhandel website that sells solar-power generating products.
http://noir.bloomberg.com/apps/news?pid=20601085&sid=ahlJwzZr8Ano
“There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.”
Wm. Shakespeare
Another weekend, and tiny Bermuda is preparing for hurricane Igor, while Mexico is preparing for hurricane Karl. Igor is forecast to brush by Bermuda as hurricane two, Karl is expected to hit Mexico as a stronger hurricane level 3 storm. Unfortunately Karl is likely to cause major flooding and this is all too likely to become a major story over the weekend. Here, our weather is turning autumnal. The leaves are turning colour and dropping, the elderberries, sloes and the last of the blackberries are in season. The chestnut trees have about another month to go. Check with the blog for the weekend update. Have a great and enjoyable weekend everyone.
"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money."
Daniel Webster
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.
