A Tale of Two Cities.

Baltic Dry Index. 790 -22

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

“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers.

“They saw the writing on the wall in this market as early as 2005.”

For more on a Tale of Two Cities, scroll down to Crooks Corner, where we compare American justice in action against New York based Goldman Sachs, with American justice in action against London based Standard Chartered.

We open today with more bad news from China. Is China already in an industrial recession? If Lombard Street Research is correct and China’s GDP has slowed to a 1% growth rate, China and the rest of the world, but especially austerity wracked Euroland are about to have a fast motion train wreck replacing the existing slow motion one. Stay long physical precious metals. At the central banks, only the nuke option remains. Club Med has nowhere to go but out of the disastrous Euro.

Hard landing for China as factory prices fall and deflation looms

Factory gate prices in China fell at an accelerating rate of 2.9pc in July as the economy flirted with industrial recession, prompting calls for further stimulus to head off Japanese-style deflation.

By Ambrose Evans-Pritchard 9:36PM BST 09 Aug 2012

“Severe deflation pressures are rippling across the country,” said Alistair Thornton and Xianfeng Ren from IHS Global Insight. “Deflation, not inflation, is the greatest short-term threat to the Chinese economy.”

“The hard landing has happened,” said Charles Dumas from Lombard Street Research. “We don’t believe offical data. We think GDP slowed to a 1pc rate in the second quarter.”

A blizzard of weak data has caught policy-makers off guard, though shares rallied in Shanghai on hopes for monetary loosening from China’s central bank after consumer price inflation (CPI) fell to 1.8pc.

New property starts fell 27pc in July. Industrial output growth fell to 9.2pc for a year ago but has been flat over recent months.

“This was the moment when stimulus was supposed to bite. It didn’t,” said Global Insight. Critics say Beijing let the property boom go too far and then hit the brakes too hard last year. Monetary tightening led to a contraction in real M1 money. The delayed effects kicked in this year just as Europe fell back into recession and the US slowed abruptly.

----Premier Wen Jiabao is loathe to turn the credit spigot on again. He was warned repeatedly that the economy is badly out of kilter and needs to wean itself off exports and investment, a world record 49pc of GDP.

Yet reformers are locked in a struggle with military hawks and Mao revivalists linked to Chonqing chief Bo Xilai. They know that China’s post-Lehman credit spree in 2008 went too far but keeping growth alive has become a political imperative. Chinese exporters are now in serious difficulty. Caixin magazine reports that China’s entire solar industry is “on the verge of bankruptcy” as it struggles with debts built up during its world conquest over the past four years

More

http://www.telegraph.co.uk/finance/economics/9465651/Hard-landing-for-China-as-factory-prices-fall-and-deflation-looms.html

Up next, the Euro simply isn’t working for most Europeans. Sooner or later, even the dumbest Greek politician can see the proper course of action. To bailout Europe’s brain dead banksters who lent money to Europe’s crooked countries under casino capitalism, Europe’s largely defenceless children are now in the frontline. To “save” the Bilderberger imposed, Frankenstein Euro, Europe’s poorest children are to be crucified on a cross of austerity. Where is the European William Bryan?  On fiat money it seems, we can create trillions for banksters without consequences, for the poor that’s quite another thing.

"I want us to do even more to encourage the risk takers"

Gordon Brown. 2004.

More Abandoned Children as Europe Austerity Wears On

Published: Thursday, 9 Aug 2012 | 10:20 AM ET

As the euro zone debt crisis deepens and austerity measures take their toll across Europe, the number of young children and babies abandoned across the region has increased, according to local charities.

The rise in the abandonment of infants across Europe is most visible in the spread of “baby hatches” or “boxes” across Europe, where unwanted infants are left anonymously.

The phenomenon was previously more prevalent among immigrants, but it is becoming more widespread among financially desperate members of the local population.

The hatches are sensor-activated so when a baby is placed, an alarm is activated and a carer comes to collect the child. Despite the practice being widely viewed as contravening the 1953 European Convention on Human Rights, of the 27 EU member countries, 11 countries still have "baby hatches" in operation, including Germany, Italy and Portugal. 

In those countries where hatches are illegal, the number of infants abandoned in hospitals, clinics and churches has also risen, raising concerns among European charities, the UN and the European Commission that austerity measures and increasing social deprivation are the catalyst for the rise in child abandonment.

According to SOS Villages, a European charity that attempts to help families in financial hardship before abandonment occurs, in the last year alone 1,200 children in Greece and 750 in Italy have been abandoned. That is almost double the 400 children abandoned in Italy a year ago, and up from 114 children abandoned in Greece in 2003.

----The charity SOS Villages has reported that adoption rates in Greece and Italy have risen by 20 percent in the last two years, a sharp rise in line with the deterioration of the economy.

More

http://www.cnbc.com/id/48585787

We end for the week with the Monday thoughts of Bill Gross in the Financial Times. The euro as we know it is going down, no matter what. Stay away for Euroland sovereign debt. How many more Club Med orphan’s must be created, before sanity returns to Europe, and Berlin imposed crash austerity ends? What number is one too many in Berlin?

Gross to Investors: Stay Away From Europe

Published: Tuesday, 7 Aug 2012 | 12:35 AM ET

Bill Gross’ latest message to investors - don’t put your money into Europe because they are not going to get out of their debt crisis any time soon.

Gross, Founder and Co-Chief Investment Officer of Pimco, manager of the world’s largest bond fund, wrote in an editorial in the Financial Times on Monday that the ultimate aim of European leaders is to get their hands on private-sector money because they know they will need it to fund the European economy. The current public-spending program is not sustainable and efforts to fix the debt crisis have been, and will be, futile, he said.

Policymakers in Europe now face an unprecedented expansion of risk spreads and credit agency downgrades which “almost guarantee that sickbed countries can never be discharged from intensive care,” he added. He warned investors not to part with their money.

----The crisis in Spain and Italy looks unlikely to be resolved soon and investors focusing on the 7 percent yields in their sovereign bonds may be missing the point, Gross wrote. Europe may not be able to bring yields down to 4 percent, and even if they could, it wouldn’t be enough to get Spain and Italy out of financial trouble, he said.

----If GDP growth remains close to flat, the two nations will still drown in debt even if they have to borrow at 4 percent. And without the private sector’s participation, all efforts such as the European Financial Stability Facility and ultimately the European Stability Mechanism, will be futile, he said.

Gross added that European policymakers have lost trust among investors with half-baked policies, and credit rating agencies’ downgrades are also forcing them to seek safer returns elsewhere.

More

http://www.cnbc.com/id/48541875

"Too bad ninety percent of the politicians give the other ten percent a bad reputation."

Henry Kissinger

At the Comex silver depositories Thursday final figures were: Registered 35.36 Moz, Eligible 102.22 Moz, Total 137.58 Moz.  

Crooks and Scoundrels Corner

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

Today, compare and contrast. A tale of two cities.

“Call it the Goldman Sachs test. If this is something Goldman would do to its clients, don't do it."

Felix Salmon.

August 9, 2012, 10:10 p.m. ET

U.S. Not Seeking Goldman Charges

After a yearlong investigation, the Justice Department said Thursday that it won't bring charges against Goldman Sachs Group Inc. or any of its employees for financial fraud related to the mortgage crisis.

In a statement, the Justice Department said "the burden of proof" couldn't be met to prosecute Goldman criminally based on claims made in an extensive report prepared by a U.S. Senate panel that investigated the financial crisis.

"Based on the law and evidence as they exist at this time, there is not a viable basis to bring a criminal prosecution with respect to Goldman Sachs or its employees .

More

http://online.wsj.com/article/SB10000872396390443537404577579840698144490.html?mod=WSJEurope_hpp_MIDDLETopStories

August 9, 2012, 5:03 p.m. ET

When Regulators Go Rogue

Benjamin Lawsky made one of the most exciting entrances to the regulatory game since a young attorney general by the name of Eliot Spitzer burst onto the scene in 1998. And like Mr. Spitzer before him, Mr. Lawsky's independence has the potential to upend the way Wall Street is policed.

On Monday, Mr. Lawsky, head of the nine-month-old New York State Department of Financial Services, made his big splash. His agency blistered Standard Chartered STAN.LN +3.61% PLC with incendiary accusations. The bank systematically laundered $250 billion for Iran for most of the last decade, he alleged.

The charges went beyond the usual hyperbole. Mr. Lawsky said Standard Chartered may have exposed the West's financial system to terrorists and "indisputably helped sustain a global threat to peace and stability."
The evidence included 60,000 transactions and thousands of documents.

Mr. Lawsky's bombshell rattled investors, who subtracted $17 billion in stock-market value from Standard Chartered after the news broke.
More
http://online.wsj.com/article/writing_on_the_wall.html

So, Goldman is a serial arsonist that has turned betting against its clients' interests into a science. The Times article makes it clear that shorting subprime and luring gullible investors into the trap, was standard operating procedure. Goldman's CEO Lloyd Blankfein dismisses the criticism with a wave of the hand saying, "They were sophisticated investors," which is the same as saying "buyer beware". It's worth noting that shorting subprimes exacerbated the pain in housing by creating incentives for originators to issue more mortgages to people with poor credit. This prolonged the housing boom and deepened the recession when the bubble finally burst. The eventual downturn was largely engineered by Wall Street.
more
http://www.counterpunch.org/whitney04192010.html

Another weekend, and the end of the Corporate London Games. A good time was had by visiting politicians, corporate sponsors, visiting media stars, acres of TV commentators, and the handful of competitors who won medals and cash. Sadly for jealous Der Spiegel and German media, they didn’t turn into the fiasco games after all. North of the English border, the gelatinous Scottish First Minister drew well deserved ridicule and opprobrium on himself, hailing his “Scolympians,” in Team GB. Hopefully killing off his ludicrous plan to turn Scotland and the “Athens of the North,” Edinburgh, into the real thing. With Greece busy monetising Euro, with ECB approval, to meet their August 20^th repayment date, Greece has no incentive to leave the euro until a little later in the year.  A few more Greek children will thus be made orphans to save French and German banksters. Have a great weekend everyone. Blackberry season is almost here.

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein.

The monthly Coppock Indicators finished July:

DJIA: +65 Up. NASDAQ: +75 Up. SP500: +48 Up. All three indicators have reversed from down to up, though only marginally. Last week’s ECB relief rally probably made the difference.

To continue reading subscribe to the LIR at Currency Countdown.
http://www.proedgenet.com/Subscribe/Subscription.php?id=LIR2

Euro – How Many Will Leave?

Baltic Dry Index. 812 -24

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

Alas, August 20 is the out-of-money date. September is irrelevant. Because someone else turned off the spigot. Um, the ECB. Two weeks ago, it stopped accepting Greek government bonds as collateral for its repurchase operations, thus cutting Greek banks off their lifeline. Greece asked for a bridge loan to get through the summer, which the ECB rejected. Greece asked for a delay in repaying the €3.2 billion bond maturing on August 20, which the ECB also rejected though the bond was decomposing on its balance sheet. 

It would kick Greece into default. And the ECB would be blamed.

But the ECB has a public face, President Mario Draghi. He didn’t want history books pointing at him. So the ECB switched gears. It allowed Greece to sell worthless treasury bills with maturities of three and six months to its own bankrupt and bailed out banks. Under the Emergency Liquidity Assistance (ELA), the banks would hand these T-bills to the Bank of Greece (central bank) as collateral in exchange for real euros, which the banks would then pass to the government. Thus, the Bank of Greece would fund the Greek government.

Precisely what is prohibited under the treaties that govern the ECB and the Eurosystem of central banks. But voila. Out-of-money Greece now prints its own euros! The ECB approved it. The ever so vigilant Bundesbank acquiesced. No one wanted to get blamed for Greece’s default.

If Greece defaults in September, these T-bills in the hands of the Bank of Greece will remain in the Eurosystem, and all remaining Eurozone countries will get to eat the loss. €3.5 billion or more may be printed in this manner. The cost of keeping Greece in the Eurozone a few more weeks.

http://www.zerohedge.com/contributed/2012-08-08/greece-prints-euros-stay-afloat-ecb-approves-bundesbank-nods-no-one-wants-get

It is now virtually certain that the euro as we know it is over. The Euroland public are now being “conditioned” for the prospect of a Greek exit. “Don’t worry, it’s workable,” is the new spin.  “Trust me, I’m a central banker, after all.” Stay long physical precious metals, more than just Greece must exit. With Euroland’s economy faltering, and now starting to drag down the top four economies in the monetary union, there’s no way that most of Club Med  won’t be forced to follow Greece out of the ill-advised, politically driven monetary union.

Below, the state of disintegrating Euroland this August 2012. So much European wealth is now being destroyed by the great financial experiment gone Frankenstien wrong, Europe will be lucky not to emerge with a spate of nationalist governments all looking to get even with Germany and to settle scores. As the global economy wobbles, and America sleep walks towards “falling off a cliff” in early 2013, recession in Euroland in 2012 will push most of Club Mad off a cliff this year. France, the only member that needn’t necessarily plunge over, is off pursuing loony left, long discredited populist socialist policies, that guarantee that France will topple over as well. Be prepared for a Euroland Autumn of Discontent and crash. Dither and drift is no substitute for reality. The reality is that Europe’s recession is not solved by pilling on even more austerity. Nor will bankrupting Germany help save the sinking members of Club Med. Euro exit, devaluation, and reform, are the only hope for Club Mad. The sooner implemented the less wealth destruction for all. The faster growth will restart. The faster youth unemployment will come down.

Euro founder admits some nations may be forced to leave

One of the founding fathers of the euro admits that some states may be forced to abandon the single currency, but insists Germany would be better off staying in.

By Matthew Sparkes 5:36PM BST 08 Aug 2012

Otmar Issing, a former European Central Bank chief economist, warned that the eurozone could be heading towards fracture in a book called How we save the euro and strengthen Europe published this week .

"Everything speaks in favour of saving the euro area. How many countries will be able to be part of it in the long term remains to be seen," said Mr Issing in the book, which is written as a conversation between an economist and a journalist.

At no point did he explicitly refer to Greece, but the debt-stricken country has been hovering perilously close to default and an exit from the eurozone as it makes harsh spending cuts and tax hikes to appease the EU and ECB after receiving billions in bail-out payments.

"We are still a long way off saying 'that's it, now we are sure to make progress'. Substantial reforms in almost all countries are still pending," he added.

Mr Issing is one of the founding fathers of the euro, but also predicted potential problems with the plan and argued that political union ought to precede a shared currency to ensure its stability in the long-term. The economist has now said there is a case for some countries to leave the union in order to solve their own debt problems, but that Germany would do best to remain a member.

----The German economist also played down the role that the central bank, his former employer, could have in solving the debt crisis, suggesting that countries needed to fix their own problems.

"There is no quick fix and anything in the direction of euro bonds or something similar would mean for me the end of the stability-oriented currency union.”

More
http://www.telegraph.co.uk/finance/financialcrisis/9462381/Euro-founder-admits-some-nations-may-be-forced-to-leave.html

Greece’s Power Generator Tests Euro Fitness Amid Blackout Threat

By Jonathan Stearns and Natalie Weeks - Aug 8, 2012 10:01 PM GMT

In the mountains of northern Greece lies an $800 million power plant whose future may help determine whether the country can salvage its euro status.

The facility near Florina, a town known as “Where Greece Begins,” is the most modern of four production units that state-controlled Public Power Corp. SA (PPC) is scheduled to sell to competitors to meet four-year-old European Union demands that the country deregulate its energy market. The most powerful Greek union is now threatening nationwide blackouts at the height of the summer tourist season to derail the plan.

“We will make saving PPC a cause for all Greeks,” Nikos Fotopoulos, head of the 18,000-strong GENOP union, said last month in his Athens office adorned with photos of communist revolutionaries including Vladimir Lenin and Leon Trotsky. “We fight our battles with faith and passion, and we fight them hard. A serious state must control businesses of strategic importance.”

While on the surface PPC is another tale of Greek conflict during the worst economic crisis of modern times, it encapsulates how Greece has found itself at the sharp end of Europe’s struggle to keep the euro intact and what the country still faces to defend its place in the currency.

Founded in 1950 to distribute domestically generated electricity to Greek citizens, PPC is a microcosm of political protection, vested interests and reliance on foreign financing that have defined the economy for decades.

More

http://www.bloomberg.com/news/2012-08-08/greece-s-power-generator-tests-euro-fitness-amid-blackout-threat.html

France heading back to recession, says central bank

France is headed back into recession for the second time in three years, its central bank has warned in a fresh blow to the recovery prospects of the stricken eurozone.

9:50AM BST 08 Aug 2012

In a gloomy survey of the outlook for Europe's second biggest economy, the Bank of France predicted a 0.1 percent contraction in gross domestic product (GDP) for the third quarter of this year.

If that outcome is confirmed it would follow a similar fall in output for the three months to June and zero growth in the first quarter of 2012.

The survey was released alongside official figures from Germany imports and exports in the eurozone's biggest economy dropped in June and following figures on Tuesday showing Italy shrank further into recession in the second quarter

----Uncertainty over the fate of the euro and related problems in credit markets have resulted in consumers and investors either cancelling or delaying major spending decisions.

This has hit the construction and automobile industries in France particularly hard. New housing starts in the second quarter were 14pc below 2011 levels, while July car sales were down 7pc on a year earlier.

With these job-intensive sectors struggling, unemployment has spiked.

Latest figures put the jobless total at nearly 10pc of the workforce with a further 5pc working fewer hours than they would like.

----Elected in May on a jobs and growth ticket, Hollande faces an increasingly tough battle to deliver while simultaneously meeting a commitment to reduce France's budget deficit in line with eurozone requirements.

Before embarking on their holidays last week, government ministers were issued with spending ceilings for the next 12 months, which will require major cuts in all but a handful of departments.

More
http://www.telegraph.co.uk/finance/financialcrisis/9461052/France-heading-back-to-recession-says-central-bank.html

August 8, 2012, 7:12 p.m. ET

Declining Output Highlights Europe's Weakness

FRANKFURT—Industrial output in the euro zone showed signs of retreat in June, with Spanish production declining for its 10th straight month and German output weakening more than economists had expected, according to official figures released Wednesday.

Germany's economic ministry said industrial output fell 0.9% on the month in June in adjusted terms, partly unwinding a 1.7% gain in May. Year-to-year, output fell an adjusted 0.3%. Official second-quarter German gross domestic product data are due Aug. 14.

In Spain, the National Statistics Institute said industrial production fell an annual, seasonally adjusted 6.3% in June. That compares with a revised fall of 6.5% in May and 8.4% in April.

The latest from the euro zone's No. 1 and No. 4 economies continued the string of negative news for the currency bloc, which could be in contraction for the second and third quarters, according to many forecasts. 

The general slowdown in the global economy hasn't helped.

----Germany's economy has so far remained relatively resilient to the debt crisis that has enveloped the country's euro-zone peers, posting robust first-quarter growth of 0.5% that helped keep the 17-nation bloc out of recession. Not so Spain, where Wednesday's industrial output figures provided new evidence that the recession there is deepening.

As Spain's economy shrinks, the government brings in less money and is less able to pay its debts. The country's borrowing costs have surged to euro-era highs and the government has already slashed spending to rein in one of Europe's largest budget deficits.

More
http://online.wsj.com/article/SB10000872396390443404004577576790821334080.html?mod=WSJUK_hpp_LEFTTopWhatNews

"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper."

Hans F. Sennholz

Zero Credibility.

Baltic Dry Index. 861 -17

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

"When it becomes serious, you have to lie"

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

They came, the met, they talked, and went home doing nothing. The ECB now has zero credibility. “Whatever it takes” became nothing. “The Euro is irreversible,”  probably means exactly the opposite, the ECB is working with others to prepare for the reintroduction of national currencies for some. Right up to the day that it happens, the ECB and others will deny it, and issue a mass of outright lies. “Turbo Tax Timmy’s” European trip seems to have gone over worse than Mitt Romney’s. “Super Mario Monti,” Club Med’s “Prime Minister,” has crashed back to earth having fallen for Draghi’s “whatever it takes” wheeze.  Last week as the Olympics opened, Mario, Timmy and Mario were riding high on their great white chargers, one week on and MTM have transformed into Curly, Moe and Larry. But that is a little unfair to CML, Curly, Moe and Larry were real comedians after all.

"What is this you're doing?" "The elevator dance." "Elevator dance?" "Yeah, there's no steps to it."

Turbo Timmy and Mario Draghi, with apologies to The Three Stooges. Soup to Nuts.

Markets crumble as Draghi bond plan deemed too vague

The European Central Bank has opened the door to a blitz of bond purchases and fully-fledged quantitative easing in a radical shift of policy, but only once Europe’s leaders have activated their own rescue machinery.

By Ambrose Evans-Pritchard 8:25PM BST 02 Aug 2012

----Market opinion was deeply divided, with critics lining up to berate Mr Draghi for failing to deliver on last week’s pledge to do “whatever it takes” to save the euro.

“This could accelerate the crisis,” Jacques Cailloux from Nomura said. “We have a bond crash in Spain and Italy, and the worst financial crisis in European history and all we get from the ECB is 'guidance’. It is clear that they are not yet ready to do anything,” he said.

The euro plummeted below €1.22 against the dollar on the lack of concrete action. The IBEX stock index in Madrid plunged 5.2pc, while the MIB dropped 4.6pc in Milan.

----Yields on 10-year Spanish bonds punched back above 7pc, though two-year yields fell after Mr Draghi said buying would be concentrated on the “shorter part of the yield curve”.

Mr Draghi said three teams of ECB experts would draw up plans over the coming weeks for potentially “unlimited” and “unsterilised” intervention in the bond markets, implying a net injection of stimulus to shore up the economy as the headwinds of recession gather force.

The latest crisis measures will be “very different” from the ECB’s earlier rounds of bond purchases – €211bn of pin-prick buying failed to cap yields for long in Greece, Portugal, Ireland, Spain and Italy.

Past action frightened private bondholders by reducing them to junior status. Mr Draghi said the issue of ECB “seniority” over other creditors “will be addressed”.

The Draghi plan is on hold until eurozone leaders activate the EU’s twin bail-out funds (the EFSF and ESM), which requires Spain – and perhaps Italy – to request a formal rescue and sign a memorandum ceding control over fiscal policy. “It is a necessary condition. Governments have to go to the EFSF. It is up to the relevant countries,” said Mr Draghi.

----Jefferies Fixed Income said the ECB was “pushing the market into meltdown” by making action contingent on a Spanish bail-out, a fresh Pandora’s Box.

The Bundesbank has left no doubt it is adamantly opposed to bond purchases, warning the ECB not to “overstep its mandate”. It is a view widely shared in the Bundestag.

Frank Schäffler, finance spokesman for the Free Democrats (FDP), said the ECB had become a “state within a state, beyond any legal and political accountability”. Mr Draghi retorted that the new proposals “fall squarely in the list of the classical monetary policy instruments”.

----Italy’s leader, Mario Monti – forging a Rome/Madrid axis as part of his efforts to give the Latin bloc a full voice in the eurozone drama – said the two leaders “will have to study” whether or not to activate the mechanism.

Hours earlier he warned that Italy could not wait forever for Europe to put real muscle behind its rhetoric. “I can assure you that if the bond spreads stay at these levels for some time, you are going to see a eurosceptic government take power in Italy.”

More

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9448033/Markets-crumble-as-Draghi-bond-plan-deemed-too-vague.html

08/02/2012

  Draghi on the Markets ECB Disappoints Investors with No Euro Action

Investors had been hoping for a clear signal from Mario Draghi that the European Central Bank was ready to take action to prop up the euro. But in his press conference following the ECB monthly meeting on Thursday, all he offered was more promises. Markets plunged as a result.

Anticipation ahead of Thursday's European Central Bank (ECB) meeting was high. Last week, ECB head Mario Draghi had pledged that the bank would "do whatever it takes to preserve the euro." The comments set off a mini rally on stock markets the world over, and even the euro began gaining back some lost ground. Investors were eager to find out what exactly he intended to do.

Draghi, it would seem, was unable to live up to their expectations. "The Governing Council … may undertake outright open market operations of a size adequate to reach its objective," the ECB president said. "We will consider further non-standard monetary policy measures according to what is required to repair monetary policy transmission. In the coming weeks, we will design the appropriate modalities for such policy measures."

Markets plunged before he was even finished with his press conference. Germany's blue chip stock index DAX plummeted immediately by 1.88 percent, and the euro cratered in value from $1.24 to below $1.22.

----Furthermore, a final decision on the ESM's participation in bond purchases is not likely to be made before the middle of next month, when European leaders are set to gather once again. And Germany remains opposed to both prongs of Draghi's attack. Germany's central bank, the Bundesbank, has been particularly wary of the bond-buying program, which has already resulted in €211 billion worth of shaky bonds on the ECB's books.

----Hans Michelbach, the senior conservative member of the German parliament's Finance Committee, demanded in an interview with the financial daily Handelsblatt that the ECB be explicitly forbidden from buying sovereign bonds on the secondary market. "The central bank under the leadership of Mario Draghi has pursued increasingly adventuresome contortions to get around the prohibition against state financing," he told the paper.

Alexander Dobrindt, general secretary of the Christian Social Union, the Bavarian sister party to Merkel's CDU, likewise criticized Draghi's idea. "If the ECB buys sovereign bonds, it would be akin to state financing through the back door. The ECB would be leaving the path of monetary stability," he told the mass-circulation daily Bild.

More

http://www.spiegel.de/international/europe/ecb-head-mario-draghi-disappoints-markets-with-euro-plan-a-847895.html

Gloves Off in Draghi-Weidmann Clash Over Bond Purchases

By Jana Randow and Gabi Thesing - Aug 3, 2012 12:00 AM GMT

When Mario Draghi took the helm of the European Central Bank nine months ago, he took care not to alienate Bundesbank President Jens Weidmann. Now the gloves are coming off.

Draghi yesterday announced the ECB is working on a plan to re-enter bond markets and took the unusual step of naming Weidmann as the only policy maker to object to the proposal. While the move would ratchet up the ECB’s response to Europe’s debt crisis, it risks isolating the German central bank, potentially undermining the effectiveness of the new measures.

“That’s why investors are disappointed,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf. “The ECB can’t just take random measures against the Bundesbank’s will. The country with the largest economy needs to be part of any package.”

----While Draghi’s comments suggest Weidmann has lost the support of traditional allies on the council such as the Netherlands, Luxembourg and Finland, the Bundesbank president may have German public opinion behind him.

The country’s mass-selling Bild tabloid yesterday protested the bond-purchase plan, saying “no more German money for bankrupt states, Herr Draghi!” and threatening to take back the Prussian helmet it gave him to remind him of German virtues.
More
http://www.bloomberg.com/news/2012-08-02/gloves-off-in-draghi-weidmann-clash-over-bond-purchases.html

Before a man speaks it is always safe to assume that he is a fool. After he speaks, it is seldom necessary to assume it.

H. L. Mencken.

At the Comex silver depositories Thursday final figures were: Registered 38.56 Moz, Eligible 99.75 Moz, Total 138.31 Moz.  

Crooks and Scoundrels Corner

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

Today, more on the Knightmare of algo-trading gone amok at Knight Capital Group, in New Jersey.  A train wreck all too predictable, as the great vampire squids gamble billions daily, attempting to front run the order stream of pension funds, hedge funds and ordinary Muppets, aka  clients. Many would say if you live by the sword you risk dying by the sword, as Knight has just found out. Algo-trading, far from being God’s work, is a rent seeking parasite feeding off the capitalist system, and needs to be reined in.

Knight fought to preserve its business as concern grew about its solvency. Analysts at CLSA Credit Agricole Securities said bankruptcy was a possibility if it failed to get financing.

Knight Said to Open Books to Suitors as Loss Pressure Grows

By Zachary R. Mider, Jeffrey McCracken and Nandini Sukumar - Aug 3, 2012 4:24 AM GMT

Knight Capital Group Inc. (KCG) opened its books to potential buyers, including private-equity firms and at least one securities-industry rival, as it seeks an investment or takeover to survive after a $440 million trading loss, said two people with knowledge of the matter.

Knight is working with Goldman Sachs Group Inc. (GS) and Sandler O’Neill & Partners LP as advisers in the rescue talks, said one of the people, who spoke on condition of anonymity because the discussions are private. The company is under pressure to strike a deal within days, the people said.

Jersey City, New Jersey-based Knight, one of the biggest American market makers, is exploring strategic and financial alternatives as a software malfunction cost the company almost four times what it earned last year. The firm’s shares lost 75 percent in two days after its computers flooded the market with unintended trades, sending dozens of stocks into spasms.

“You can see how that one black swan event can literally take this company out,” Tim Hartzell, chief investment officer at Houston, Texas-based Sequent Asset Management LLC, which oversees about $350 million, said in a phone interview. “Maybe this is the new chapter for program trading and algorithm trading.

We’ll have to go back and re-evaluate.”

More

http://www.bloomberg.com/news/2012-08-02/knight-said-to-open-books-to-suitors-as-pressure-from-loss-grows.html

Another summer  weekend, and just 17 days away from another Greek default. At the Olympics, it’s week two of the great commercial games in east London. In Berlin, its open war with the Italian at the top of the Frankfurt tower. In Syria, the proxy war goes on, threatening to turn into our new century’s first religious war. Meanwhile global trade, as reflected by the Baltic Dry [shipping] Index, has gone into serious retreat. Stay long physical precious metals, the euro isn’t saveable in its present form, even if the Three Stooges had acted yesterday. Doing nothing is probably the least European wealth destructive policy, as we lurch towards the existing euro breakup. But our elite can’t resist doing something for long. With Spanish unemployment at 24.6% rising to 53.3% of the 16-24 youth workforce, Spain needs to leave the euro fast. Have a great weekend everyone.

“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers.

“They saw the writing on the wall in this market as early as 2005.”

The monthly Coppock Indicators finished July:

DJIA: +65 Up. NASDAQ: +75 Up. SP500: +48 Up. All three indicators have reversed from down to up, though only marginally. Last week’s ECB relief rally probably made the difference.

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USA v Germany.

Baltic Dry Index. 878 -19

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

Yet the picture is changing as Europe’s industrial recession spreads north. Belgian GDP – a leading indicator for Germany – shrank by 0.6pc in the second quarter. The eurozone’s PMI manufacturing index dropped to a 37-month low of 44.0 in July, with Ireland alone above the contraction line of 50.

Ambrose Evans-Pritchard.

Yesterday the Fed met, talked, took no action, but promised jam tomorrow if things get worse. Today the ECB meets but has no similar easy option. Last week the ECB’s fearless leader promised action to save the Euro, and not just the usual wimpy European action either. Mr Draghi hyped the coming action so much that he put himself in a corner with only one way out. Either put the ECB’s money where his mouth is or lose all credibility for the ECB, probably setting off the rout of Spain and Italy. Flatfooted at not being consulted, paymaster Germany’s Bundesbank said over our dead body.

Well aware of  the coming rout, Italy’s Prime Minister, “Super Mario,” has usurped the position of Club Med Prime Minister and gone into league with America against Germany. The Bundesbank’s dead body is expected later today. Killed by a dose “of whatever it takes.” Thus Euroland’s never ending crisis rolls out another act in the tragedy “Death of a Euro.”  One thing is absolutely clear, the existing euro is unfit for purpose, and is going to be replaced. If Greece and Spain are to remain in the “new reformed euro,” an austerity U-turn is coming up for Europe.

Stay long physical precious metals. The ECB either delivers on its words today, killing off the Bundesbank and saving President Obama’s re-election chances, or the Bundesbank stops dead the US-Italian-ECB alliance, with the fat lady due to sing at the weekend. Those of us not on the USS America or the badly listing SS Europa, can only look on in amazement. The Europa is proposing to make the paymaster walk the plank.

"If these countries go through adjustment processes which result in decreases in wages and prices, then this constitutes one-off shifts in the wage and price structure and not deflation"

Bundesbank President Jens  Weidmann.

Pressure on Spain to bow to bail-out

Italy’s leader Mario Monti is to make a last-ditch effort tomorrow to persuade Spain to swallow its pride and accept a formal rescue, hoping to clear the way for double-barrelled action by bail-out funds and the European Central Bank.

By Ambrose Evans-Pritchard, International Business Editor 9:34PM BST 01 Aug 2012

The frantic diplomacy comes as investors wait nervously to see if German-led officials on the ECB’s governing council will stand behind the bank’s chief, Mario Draghi, who triggered a euphoric stockmarket rally last week with hints of intervention in the Spanish and Italian bond markets.

"The situation is dramatic: markets will react very badly if the ECB doesn’t deliver,” said Dmitris Drakopoulos from Nomura, ahead of the ECB’s crucial policy meeting tomorrow. The bond markets are continuing to signal deep alarm, with safe-haven flows into German two-year debt pushing yields to minus 0.08pc.

Former ECB governor Athanasios Orphanides said Mr Draghi had boxed himself into a corner. 

“Expectations are now so high, the ECB will have to announce something,” he said.

Bundesbank chief Jens Weidmann shows no sign of relenting, warning today that the ECB must not “overstep its mandate” or stray into fiscal rescues. He issued a blunt reminder that the German central bank is master of the euro project, and not “just one” bank among others. “We are the biggest and most important central bank in the euro system,” he told the Bundesbank journal.

While the Bundesbank does not command an ECB majority – and has been outvoted in the past – Mr Draghi must move with extreme care. Two German members of the ECB have already resigned in protest over bond purchases, seen as debt pooling by the back door. EU officials fear that Mr Weidmann may leave as well if pushed too far, risking a political storm in Germany.

----Mr Monti has emerged as the Latin bloc’s de facto “prime minister”, working hand in glove with the White House. It is an alliance that boosts his power in talks with Germany. US President Barack Obama telephoned him again on Tuesday to offer “support for decisive action”.

US Treasury Secretary Tim Geithner piled on the pressure, saying budgetary discipline was not enough. “They have to do more to help support growth,” he told Bloomberg TV

More

http://www.telegraph.co.uk/finance/financialcrisis/9445456/Pressure-on-Spain-to-bow-to-bail-out.html

Debt crisis: What could the ECB do to save the euro?

The attention of world markets will be firmly fixed on the European Central Bank on Thursday, as it announces its monthly policy decision.

By Angela Monaghan, Economics Correspondent 5:26PM BST 01 Aug 2012

The attention of world markets will be firmly fixed on the European Central Bank on Thursday, as it announces its monthly policy decision.

The declaration last week by President Mario Draghi that he will do "whatever it takes" to save the euro whipped markets into a frenzy. Investors took it as a signal that the ECB was poised to announce dramatic intervention to stem the eurozone crisis before policymakers take a summer break.

With expectations so high however, anything short of major action is likely to disappoint markets and trigger fresh panic. Here is a look at some of the possible options open to the Bank.

Banking licence

The ECB could grant a banking licence for the region’s permanent bailout fund, the European Stability Mechanism. This would allow the ESM to borrow from the central bank and take on a “lender of last resort” role for those sovereigns in difficulty but essentially solvent, like Spain and Italy. It would be a hugely significant move and likely have the most dramatic impact. Italy’s Prime Minister Mario Monti said yesterday such a move “will in due course occur”, but strong opposition from German policymakers makes it unlikely today.

More

http://www.telegraph.co.uk/finance/financialcrisis/9444699/Debt-crisis-What-could-the-ECB-do-to-save-the-euro.html

August 1, 2012, 7:37 p.m. ET

Bundesbank Stresses Divide on Bond Buying

A contrarian member of the European Central Bank's governing council again signaled his opposition to growing demands for the bank to engage in radical policy moves to save Europe's currency union.

The ECB "should be aware" that its independence "also requires it to respect, and not overstep, its own mandate," Bundesbank President Jens Weidmann said in remarks published Wednesday.

The comments come from an interview conducted more than a month ago in an internal Bundesbank magazine. Since then, ECB President Mario Draghi has encouraged speculation that the ECB will resume intervention in the bond markets to keep the borrowing costs of struggling countries down, a policy the Bundesbank bitterly opposes.

The Bundesbank took the unusual step of translating Mr. Weidmann's comments into English and posting them on the home page of its website, just one day before the ECB is set to thrash out the issue at a governing council meeting.

----Mr. Weidmann has been in an increasingly public row with Mr. Draghi over the course of ECB policy. Mr. Weidmann spoke openly about risks he sees in the ECB's current monetary-policy stance, which he views as too loose.

Most recently, he let it be known that he is against the ECB buying more government bonds on the secondary market, something Mr. Draghi hinted at strongly in a speech in London last week, and something analysts say is an essential measure to save Spain, the euro zone's fourth-largest economy, from losing access to the capital markets.

----The Finnish premier, who has insisted his country receive collateral in exchange for bailouts funded by the EU's temporary rescue fund, said many Finns find the current situation "unfair" as they are forced to shell out cash for troubled euro-zone members that are violating the bloc's fiscal rules and at the same time must watch people at home lose their jobs amid the crisis.

"We Finns were taught to believe that everyone followed the same rules," Mr. Katainen said.

More

http://online.wsj.com/article/SB10000872396390443687504577562644102645650.html?mod=WSJUK_hpp_MIDDLETopNews

August 1, 2012, 10:07 p.m. ET

Wary Fed Is Poised to Act

Central Bank Officials Keep Powder Dry but Cite Dimming Economic Outlook

The Federal Reserve is heading toward launching a new round of stimulus to buck up the weak economy, but stopped short of doing so right away.

The decision to make what amounted to a conditional promise of action came Wednesday at the end of the central bank's two-day policy meeting. In an uncharacteristically strong statement, the Fed said it will "closely monitor" the economy and "will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions." Translation: The Fed will move if growth and employment don't pick up soon on their own.

As central bank messages go, this was a stark declaration and helped soften disappointment among investors that the Fed didn't take such action on Wednesday, as some had expected.

More

http://online.wsj.com/article/SB10000872396390443687504577563200221547674.html?mod=WSJEurope_hpp_LEFTTopStories

There are other stories worth covering today, a new tropical depression formed in the Atlantic and likely to be next week’s story. The Knightmare on Wall Street, where great vampire squid algo-trading continues to make a nonsense of stock price discovery and doing God’s work. But outside of India, nothing has the import of today’s ECB clash among “equals”. One side or the other “wins,” although “winning” isn’t really applicable in this never ending euro crisis. If the ECB “wins” it’s crisis deferred, pushed out for a few weeks more. If the ECB loses, say goodbye to Greece later this month.

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise." "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

At the Comex silver depositories Wednesday final figures were: Registered 38.64 Moz, Eligible 99.96 Moz, Total 138.60 Moz.  

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