An AP story describes the strains that are beginning to show in the handling of Europe's debt crisis:
http://www.barchart.com/headlines/story.php?id=5867256
Europe consists of social democracies. In practical terms this means that Socialism has become the accepted norm even for political parties that are nominally non-Socialist and Socialism brings with it a great deal of inefficiency. Political parties then curry favor with the voters by borrowing money. They were warned about the Day of Reckoning and that day is now here. Now it is a struggle between the more profligate and the less profligate as to who will pay. The fact is that the debt can not be managed without either a default or printing more money. It is very difficult, if not impossible, to reform the countries overnight in order to make them and their banking system solvent.
The EU is straining because the rules call for wide consultation and lenghty processes to deal with the problem. But, the countries in trouble are running out of time.
Monday, August 6, 2012
Today's humor.
Guy goes into a bar in Louisiana where there's a robot
bartender! The robot says, "What will you have?" The guy says,
"Whiskey." The robot brings back his drink and says to the man,
"What's your IQ?" The guy says," 168." The robot then proceeds to talk
about physics, space exploration and medical technology.
The guy leaves, . . . but he is curious . . . So he goes back into the
bar. The robot bartender says, "What will you have?" The guy says,
"Whiskey." Again, the robot brings the man his drink and says, "What's
your IQ?" The guy says, "100." The robot then starts to talk about
Nascar, Budweiser, the Saints and LSU Tigers.
The guy leaves, but finds it very interesting, so he thinks he will
try it one more time. He goes back into the bar. The robot says, "What
will you have?" The guy says, "Whiskey," and the robot brings him his
whiskey. The robot then says, "What's your IQ?" The guy says, "Uh,
about 50."
...
The robot leans in real close and says,
"SO, . . . you people . . . still happy . . . with Obama?"
Sunday, August 5, 2012
Is the ECB bluffing?
Mario Draghi told us last week that the ECB will do whatever it takes (within its mandate) to save the Euro. Not so fast said the folks at the Bundesbank. Draghi wanted the ECB to buy Italian and Spanish bonds to bring down bond rates, so these two countries can finance their deficits. NOT SO FAST, said the Germans, but they were outvoted.
Mario Monti (Italian PM) had warned that the Euro can not survive with Italy and Spain paying bond rates currently in effect.
Egon Von Greyerz of Switzerland thinks the Central Banks (including the FED) are bluffing: making statements to bring down bond rates, but not following through. What we see is a chaotic situation. On the one hand, the ECB's charter forbids it to interfere in the financial matters of each member, but on the other hand, if the ESM is given bank status, then it can buy bonds, create money, just like the ECB. Will such a move require German consent? Spanish banks are insolvent and if they fail they will bring down the whole house of cards.
The US is heading down the same path. The FED manipulates the interest rate, but if the interest rate would move to 6%, the total interest we owe would rise to $1T/year. The FED faces an insoluble problem. If it continues to promote deflation by keeping down gold prices, nothing it does via QE has much of an effect except on the Stock Market. If the FED let's inflation rise, interest rates will rise and the cost of managing the debt will put us in the position of Italy and Spain.
Mario Monti (Italian PM) had warned that the Euro can not survive with Italy and Spain paying bond rates currently in effect.
Egon Von Greyerz of Switzerland thinks the Central Banks (including the FED) are bluffing: making statements to bring down bond rates, but not following through. What we see is a chaotic situation. On the one hand, the ECB's charter forbids it to interfere in the financial matters of each member, but on the other hand, if the ESM is given bank status, then it can buy bonds, create money, just like the ECB. Will such a move require German consent? Spanish banks are insolvent and if they fail they will bring down the whole house of cards.
The US is heading down the same path. The FED manipulates the interest rate, but if the interest rate would move to 6%, the total interest we owe would rise to $1T/year. The FED faces an insoluble problem. If it continues to promote deflation by keeping down gold prices, nothing it does via QE has much of an effect except on the Stock Market. If the FED let's inflation rise, interest rates will rise and the cost of managing the debt will put us in the position of Italy and Spain.
Saturday, August 4, 2012
Sean Broderick (Weiss) throws in the towl.
Sean changed his REC: SELL FSM and go short on gold. So, what happened to gold? It went up $18.
Manipulation, manipulation.
Manipulating the Markets has become so ubiquitous that there is hardly a mention of it any more. However, there is a cost to these manipulations. First, the direct cost, which is significant. Banks can hold the price of gold down by selling delivery contracts, but they have to fork over the money in fiat currency for the price of those contracts. So what, you say? They can print the currency. Yes, they can, but it reduces their ability to use printing to stimulate the economy. Not even speaking of the harm manipulation does by reducing the efficiency of capital allocation by a free market.
Manipulation is done for economic and political reasons. For example, Mr Mario Draghi, President of the ECB, let it be known that the ECB will do whatever it takes to save the Euro and did not rule out buying Italian and Spanish sovereign bonds. Just this declaration has dropped the interest demanded on Italian 10 year bonds to 6.04%, down .279 and Spanish bond rate to 6.848%, down .317. These are large changes. Will the ECB do it? YES, shout the pundits. Maybe (and within the mandate of the ECB, whatever those are), says Mr Draghi and NO, say members of the Bundesbank. This kind of song and dance does not really solve the problem, it just manipulates.
Then there is the matter of interest rates, the value of the US Dollar and gold price. I hardly need to point out that the FED manipulates interest rates, because they actually admit it doing it. What is harder to see is why the US Dollar goes up, while interest rates are kept artificially low. Low interest rates should reduce the value of the US Dollar, but it went up. The explanation we are offered is that Europe is buying the Dollar. That is possible, but what is much more likely is that the FED is buying currency other than the Dollar.
Interest rates controlled by the FED are artificially low, which raises the interest rate on gold, since that is not kept low by the FED. The result? Low gold prices and continuous deflation that weighs on the economy.
The reporting of unemployment is nothing short of a mockery. Pundits are breathlessly reporting a job creation of 163,000 for July, much better than anticipated. Obama's policies working? Hardly. According to the figures, unemployment actually went up. If we examine the reported figures, we get a very uncertain picture. Due to "seasonal adjustment and the births/deaths ratio, the statisticians added 429,000 to the jobs column. This would make the actual change in job numbers 163,000-429,000 or a job loss of 266,000. No wonder the economy is reported as weak. How can we trust the figures is they are manipulated like this? In other countries, where jobless figures are not manipulated, unemployment is 25%, 50% among the youth. Our unemployment figures are close to 23%.
Manipulation is done for economic and political reasons. For example, Mr Mario Draghi, President of the ECB, let it be known that the ECB will do whatever it takes to save the Euro and did not rule out buying Italian and Spanish sovereign bonds. Just this declaration has dropped the interest demanded on Italian 10 year bonds to 6.04%, down .279 and Spanish bond rate to 6.848%, down .317. These are large changes. Will the ECB do it? YES, shout the pundits. Maybe (and within the mandate of the ECB, whatever those are), says Mr Draghi and NO, say members of the Bundesbank. This kind of song and dance does not really solve the problem, it just manipulates.
Then there is the matter of interest rates, the value of the US Dollar and gold price. I hardly need to point out that the FED manipulates interest rates, because they actually admit it doing it. What is harder to see is why the US Dollar goes up, while interest rates are kept artificially low. Low interest rates should reduce the value of the US Dollar, but it went up. The explanation we are offered is that Europe is buying the Dollar. That is possible, but what is much more likely is that the FED is buying currency other than the Dollar.
Interest rates controlled by the FED are artificially low, which raises the interest rate on gold, since that is not kept low by the FED. The result? Low gold prices and continuous deflation that weighs on the economy.
The reporting of unemployment is nothing short of a mockery. Pundits are breathlessly reporting a job creation of 163,000 for July, much better than anticipated. Obama's policies working? Hardly. According to the figures, unemployment actually went up. If we examine the reported figures, we get a very uncertain picture. Due to "seasonal adjustment and the births/deaths ratio, the statisticians added 429,000 to the jobs column. This would make the actual change in job numbers 163,000-429,000 or a job loss of 266,000. No wonder the economy is reported as weak. How can we trust the figures is they are manipulated like this? In other countries, where jobless figures are not manipulated, unemployment is 25%, 50% among the youth. Our unemployment figures are close to 23%.
Thursday, August 2, 2012
ECB: a paper tiger
Mario Draghi, President of the ECB, had to eat humble pie today and admit publicly that indeed he does not have the authority to do what he wants to do. And the Bundesbank let it be known that Monti will not be allowed to do whatever he wants to, that the ECB needs authorization from European politicians.
Markets reacted sharply and immediately. Yields on Spanish 10-year bonds jumped to 7.165% (up .433) and Italian 10 year bond yield had jumped to 6.327% (up .396). Stock Markets took a hit as Italian PM Mario Monti announced that Italy will ask for a bailout. The Spanish PM dodged the question.
Larry's predictions are looking better as both the FED and the ECB refused to print and gold has dropped $18/oz so far.
Markets reacted sharply and immediately. Yields on Spanish 10-year bonds jumped to 7.165% (up .433) and Italian 10 year bond yield had jumped to 6.327% (up .396). Stock Markets took a hit as Italian PM Mario Monti announced that Italy will ask for a bailout. The Spanish PM dodged the question.
Larry's predictions are looking better as both the FED and the ECB refused to print and gold has dropped $18/oz so far.
Divergence in opinions rises.
If you read Vince Martin's column in Seeking Alpha, you come away with the idea that those who believe that gold price is controlled are hopelessly deluded conspiracy nuts. If you read the comments from Weiss Research, you see that this organization comes down firmly on both sides of the issue: Larry Edelson forecasting a sharp drop in gold and silver, while Sean Broderick is giving a buy signal on gold and the PM miners. King World News is uniformly bullish, writing about the coming big rally in PMs. And if you look at gold prices, you see precious little change:
There is also diversion of opinions re the Stock Markets. People follow the action in the Industrials and also what is considered the World Stock Index, the WDOW. Here is the DOW:
We see a slow and steady advance, neither a fast breakout, nor a crash. If we look at the World Industrials, we see a similar trend:
Some people may wonder about my statements that the Obama regime intends to destroy the US economy and replicate the Roosevelt years of a severe Depression and Democrats winning re-election. Here is the proof of that:
Figuring on the Taxmageddon coming next year (the Bush tax cuts expiring and ObamaCare taxes) the economic course is clear if Obama gets re-elected: the worsening of the current recession. The goal of the regime is to make people more dependent on govt handouts.
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