Mr 'K' read the text of the agreement and he says there is much less in it than touted by the Media.
This is a Summary of his comments in Seeking Alpha:
1. There are no credible details of HOW the Agreement will be implemented;
2. The European Stability Mechanism (ESM) is designed to dole out E500B for recapitalizing banks and buy bonds.
3. The banks will need E200B and the leftover is peanuts, considering that Italy alone needs to roll over some E2.5T.
4. There appears to be no way as yet to fund the ESM, since printing by the ECB is explicity excluded in the agreement;
5. Neither Italy, nor Spain can meet the financial conditions specified in the Agreement.
Mr 'K' predicts that as a consequence, the bear markets will resume.
Saturday, June 30, 2012
Deflationary fears lessened.
I do not think that the European Summit solved the problems of Europe, but it did one thing: it showed the world that European leaders will not let the banks of Spain fail. This has reduced the fear of deflation considerably. On that news, gold rose to 1,604(up 3.47%) and silver finished the week at 27.58(up 5.08%). The Dollar index sank by 1.13. Even gold and silver miners rose.
Almost unreported in the Media has been the expert meeting in Korea,where reps of European governments agreed on a 40T plan to renovate, replace infrastrucre and spend money on new things like ports, airports and power plants. All these events beg one question: where is the money coming from? European nations do not generate enough revenue (in fact they are running deficits) so an ambitious plan can only be financed by the ECB printing money. The Germans will be unhappy with the money printing, but they have to agree, just as they agreed to the bank bailouts without burdening the countries of Europe with more debt.
These events open the possibility to a number of things. Will Friday's rally in precious metals continue next week? And the drop in the value of the Dollar continue? Will interest rates on Treasuries rise now that the fear of deflation is lessened in Europe? And will the FED have to print if Treasury options turn sour along with the economy?
I continue to marvel at how Larry Edelson's forecasts keep missing. But, the biggest question is whether the correction in gold prices is over and gold will now resume its march upwards.
Almost unreported in the Media has been the expert meeting in Korea,where reps of European governments agreed on a 40T plan to renovate, replace infrastrucre and spend money on new things like ports, airports and power plants. All these events beg one question: where is the money coming from? European nations do not generate enough revenue (in fact they are running deficits) so an ambitious plan can only be financed by the ECB printing money. The Germans will be unhappy with the money printing, but they have to agree, just as they agreed to the bank bailouts without burdening the countries of Europe with more debt.
These events open the possibility to a number of things. Will Friday's rally in precious metals continue next week? And the drop in the value of the Dollar continue? Will interest rates on Treasuries rise now that the fear of deflation is lessened in Europe? And will the FED have to print if Treasury options turn sour along with the economy?
I continue to marvel at how Larry Edelson's forecasts keep missing. But, the biggest question is whether the correction in gold prices is over and gold will now resume its march upwards.
Friday, June 29, 2012
European Summit: Have they done it?
The European Summit has produced three agreaments:
1. Bailout funds will go directly to Spanish banks and will not increase Spain's indebtedness;
2. Tighter financial union.
3. Spend $120B on stimulating the economy.
No Eurobonds as yet.
Will this solve the problem? Well, stock markets are up along with some banking stocks, oil and gold. The markets do not view these steps as deflationary. Yes, but do they solve the debt crisis and the contracting economy?
In my humble opinion - NO. While, the direct aid to Spanish banks will be helpful, the debts remain. The tighter financial union seems meaningless to me. In order to achieve it, much must be done in terms of changing treaties and basic law. That will take time and is pushed by Germany only. Nor is it certain that the German Bundestag will approve of the bailouts as they stand. Finally, the stimulating of the economy. One hundres twenty billion dollars! Really? In the US, $800B did not do it. It is doubtful that $120B will do it in Europe.
What is slowing the European economy is the Socialism Europe practices. That and the gutting of the US economy by the Obama policies. Unfortunately, these continue. The debts remain and will continue to pile up.
1. Bailout funds will go directly to Spanish banks and will not increase Spain's indebtedness;
2. Tighter financial union.
3. Spend $120B on stimulating the economy.
No Eurobonds as yet.
Will this solve the problem? Well, stock markets are up along with some banking stocks, oil and gold. The markets do not view these steps as deflationary. Yes, but do they solve the debt crisis and the contracting economy?
In my humble opinion - NO. While, the direct aid to Spanish banks will be helpful, the debts remain. The tighter financial union seems meaningless to me. In order to achieve it, much must be done in terms of changing treaties and basic law. That will take time and is pushed by Germany only. Nor is it certain that the German Bundestag will approve of the bailouts as they stand. Finally, the stimulating of the economy. One hundres twenty billion dollars! Really? In the US, $800B did not do it. It is doubtful that $120B will do it in Europe.
What is slowing the European economy is the Socialism Europe practices. That and the gutting of the US economy by the Obama policies. Unfortunately, these continue. The debts remain and will continue to pile up.
Tuesday, June 26, 2012
Steps in a financial panic.
Step 1. Increasing withdrawals from banks (called bank runs).
Step 2. Capital controls imposed by the govt.
Step 3. Institutions and people piling into gold.
Spain has now imposed capital controls.
Step 2. Capital controls imposed by the govt.
Step 3. Institutions and people piling into gold.
Spain has now imposed capital controls.
Spain: slouching toward panic.
Spain's brush with Socialist rule has exacerbated its economic plight. The Socialists ran up huge deficits, the banks bought up the bonds to finance the deficit and both the Spanish govt and Spain's banks are insolvent.
We can see the developing panic in bond rates the country has to pay and the state of its banks. Yesterday (Monday), Moody has downgraded 28 Spanish banks, some of them all the way to junk status. How come the banks are failing? Because they hold a lot of govt bonds and as the interest the govt has to pay rises, the value of the bonds with lower interest lose value. And the bond rates are skyrocketing. The latest auction ($3.9B) saw the interest rate on 3 month bonds rise to 2.39% from 0.85% and six month rates rise to 3.24% from 1.7% in May.
The increasing cost of borrowing raises the deficit, which calls for more bonds, which fuels the rise in rates which adds to the deficit. The process has become self-sustaining and is gathering speed.
We can see the developing panic in bond rates the country has to pay and the state of its banks. Yesterday (Monday), Moody has downgraded 28 Spanish banks, some of them all the way to junk status. How come the banks are failing? Because they hold a lot of govt bonds and as the interest the govt has to pay rises, the value of the bonds with lower interest lose value. And the bond rates are skyrocketing. The latest auction ($3.9B) saw the interest rate on 3 month bonds rise to 2.39% from 0.85% and six month rates rise to 3.24% from 1.7% in May.
The increasing cost of borrowing raises the deficit, which calls for more bonds, which fuels the rise in rates which adds to the deficit. The process has become self-sustaining and is gathering speed.
Sunday, June 24, 2012
Larry's latest.
Larry's latest this morning predicts a large drop in the price of equities to ramain liquid. This includes gold and silver. He reasons that the FED has refused to print, while European heads talk and do little else.
We get a different take from KWN. Michael Pento predicts that the ESM will come up with a rescue of European bonds to the tune of E400-500B, while Jeffery Saut puts the size of the rescue fund at E2T. Pento believes that gold mining shares will fare better than gold itself.
In sum, the US exported its credit and housing crisis in 2008 to Europe and now Europe is exporting its sovereign debt crisis to us.
Meanwhile, economic slowdown has now spread to the emerging countries and their growth has been halved.
July should be an interesting month.
We get a different take from KWN. Michael Pento predicts that the ESM will come up with a rescue of European bonds to the tune of E400-500B, while Jeffery Saut puts the size of the rescue fund at E2T. Pento believes that gold mining shares will fare better than gold itself.
In sum, the US exported its credit and housing crisis in 2008 to Europe and now Europe is exporting its sovereign debt crisis to us.
Meanwhile, economic slowdown has now spread to the emerging countries and their growth has been halved.
July should be an interesting month.
Saturday, June 23, 2012
Why we must preserve Capitalism.
Simply put, Capitalism is a form of economics, where the flow of capital is determined by the open market. Because capital is allowed to flow where it produces the greatest profit, it is the most efficient economic system. Is it a perfect system? NO, but it is the best.
Look around in the world. Where Capitalism flourishes, people prosper. While, the extent of prosperity depends on the availability of natural resources as well, it is the degree of economic freedom (the ability of individuals or groups to invest their capital unfettered) that is the biggest determinant of their success. The most glaring example was the state of agriculture in the Soviet Union. In spite of having the best agricultural land in the world, the Soviet Union could not produce enough wheat to feed its population.
Socialists (and different versions of them) profess other priorities, such as equality or public welfare and put all manners of restrictions in the way of the free flow of capital. Hence, Socialism is less efficient. Socialists can stay in power only through the lies dished out by the Media and pushed by the education establishment.
Look around in the world. Where Capitalism flourishes, people prosper. While, the extent of prosperity depends on the availability of natural resources as well, it is the degree of economic freedom (the ability of individuals or groups to invest their capital unfettered) that is the biggest determinant of their success. The most glaring example was the state of agriculture in the Soviet Union. In spite of having the best agricultural land in the world, the Soviet Union could not produce enough wheat to feed its population.
Socialists (and different versions of them) profess other priorities, such as equality or public welfare and put all manners of restrictions in the way of the free flow of capital. Hence, Socialism is less efficient. Socialists can stay in power only through the lies dished out by the Media and pushed by the education establishment.
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